Doctors Co.’s $362 Million Buy of FPIC Could Create Largest US MPL Insurer

Doctors Co., the third-largest medical professional liability insurer, is acquiring FPIC Insurance Group Inc., the 13th-largest MPL writer, for $362 million, the companies said.

The merger could boost the combined entity to become the largest writer of MPL insurance in the United States.

Both companies were founded by physicians in 1976. Doctors Co. is privately held, while FPIC (NASDAQ: FPIC) is publicly traded.

Doctors Co. will acquire FPIC for $42 a share in cash, or a 31% premium over the $32.10 a share closing price of FPIC on May 23, 2011, the last trading day before the merger was announced.

FPIC stock jumped 28.82% to $41.35 a share on the morning of May 24, hours after the merger was announced.

Napa, Calif.-based the Doctors Co., which insures about 55,000 physicians and surgeons, had $694.6 million in direct premiums written at year-end 2010, ranking it as the third-largest MPL writer in the United States. New York-based MLMIC Group is the largest, with $760.2 million in direct premiums written, followed by Berkshire Hathaway Insurance Group, with $714.9 million in direct premiums written, according to a May 2, 2011 A.M. Best Special Report.

Jacksonville, Fla.-based FPIC insures about 18,000 policyholders including physicians, dentists and other health care providers. With $190.5 million in direct written premiums at year-end 2010, the company ranked as the 13th-largest MPL writer.

The merger of Doctors Co. and FPIC would result in the combined entity having a total of $885.1 million in direct premiums last year, poising it to slide into first place as the country's largest MPL insurer.

"Following the close of the proposed acquisition, there will remain only one writer of medical professional liability insurance that is publicly traded: ProAssurance. That does not include Medical Protective, a subsidiary of publicly traded Berkshire Hathaway. There will remain, however, numerous non-publicly traded MPL insurers that are mutuals, risk retention groups, exchanges and the like, plus commercial insurers such as CNA and AIG, that write multiple lines of business," said Robert Raber, A.M. Best Co. financial analyst.

The FPIC board has unanimously approved the transaction and has resolved to recommend that its shareholders approve the merger agreement. The transaction is expected to close by the fourth quarter of 2011 subject to customary closing conditions, including the receipt of regulatory approvals and approval by the holders of a majority of the outstanding shares of FPIC common stock.

Both companies currently have a Best's Financial Strength Rating of A- (Excellent).

(By Meg Green, senior associate editor, BestWeek: Meg.Green@ambest.com)