Applied Underwriters’ long said to be for sale by its parent Berkshire Hathaway (BRK: A NYSE) has been sold – to a Cayman Islands company.
The news came in its recent quarterly statement filed with the California Department of insurance. We quote from the filing:
“In 2019, Berkshire Hathaway, Inc. entered into a Stock Purchase Agreement (“Berkshire SPA”) with United Insurance Company (“United”) to sell its 81% interest in AUH. At the same time, United entered into a Stock Purchase Agreement with Sidney Ferenc (“Ferenc SPA”) to acquire Mr. Ferenc’s 7.5% interest in AUH. The Berkshire SPA and Ferenc SPA were assigned to Steven Menzies, who owns 11.5% of AUH. Steven Menzies will continue to own 11.5% of AUH and will be the sole owner of NAC [North American Casualty] and indirectly the Company via Form A filed with the CDI.”
In addition, the filing discloses that “In 2019, $97,000,000 will be paid by the company to its direct parent, NAC [North American Casualty] as an ordinary dividend to stockholders declared on December 27, 2018.”
The Buyer
The buyer, United Insurance Company, is based in the Cayman Islands. It’s website reports that it provides “risk financing and management solutions for Excess lL and other lines. It also offers collateral solutions and segregated single cell captives for clients around the world.
United Insurance Company is a Cayman’s Island-based carrier.
The chairman of United is Jamie Sahara. According to the Wall St Journal, Sahara was at one time a Southport reinsurance executive.
Southport bought Dallas Insurance Co, and Companion Insurance fronted for Dallas. Dallas, Companion, and Southport were seized in part because of fraudulent under-reserving and in part because of fraudulent surplus.
The Sale
There are many unanswered questions at this time. Among them: How big an inside deal is this? What will change? Where did the money come from? And perhaps most importantly will the California Department of Insurance properly investigate the buyers, the deal, and make sure sufficient statutory capital is on hand – in its hands to cover the realistic bases.
The question of why Berkshire is selling Applied is pondered upon by many. Many people posit it is because of reputational issues [see our 30 stories here], and others think it is to get the unit off its books because of potential liabilities form so many lawsuits around the nation. Still others think they will suck the cash out and tank what liabilities remain.
One source suggested to Workers’ Comp Executive that the RPAs are in fact putting the clients into the position of reinsurers suggesting the RPA is a derivative play and that – from the Caymans – they will attempt to “suck another billion dollars out of the market.”
Whatever the case, it is sure this story does not end with the sale.
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Applied Underwriters was once but is no longer an affiliate of Berkshire Hathaway. Applied’s management bought it. Berkshire Hathaway bears no responsibility for any of the events which have transpired involving Applied Underwriters’ or its subsidiaries including California Insurance Company.