Fitch: Berkshire MLMIC Deal to Spur Further MPLI Consolidation

NEW YORK & CHICAGO--(BUSINESS WIRE)-- Berkshire Hathaway's announcement of a plan to purchase Medical Liability Mutual Insurance Co. (MLMIC) for an undisclosed amount will likely have repercussions regarding further acquisition activity among medical professional liability insurer (MPLI) specialty writers, according to Fitch Ratings. MLMIC is a New York-based MPLI.

The acquisition represents a continuation of a broader strategy for growth in the US primary commercial lines insurance sector. Berkshire is the largest MPLI writer in the US by some margin with 2015 net written premiums of over $1.0 billion and 13% market share. Adding the underwriting portfolio of MLMIC, the fourth-largest MPLI writer, moves Berkshire's pro forma MPLI market share to 18%. For comparison, the second-largest writer, The Doctors Company Group, has approximately 8% MPLI market share.

MLMIC had statutory book value of $1.8 billion at year-end 2015. The company will convert from a mutual to a stock ownership structure as part of the transaction, which remains subject to policyholder and regulatory approvals and is anticipated to close in third-quarter 2017. All of MLMIC's premium volume is written in New York, which traditionally is a more challenging environment for MPLI writers. The company's average underwriting combined ratio over the past five years is 110%, which is significantly higher than the MPLI industry norm.

Fitch believes the MPLI sector, which includes a large number of undiversified specialty underwriters is likely to see further acquisition-related consolidation in the next few years. Following a decade of highly favorable profitability and strong capital formation, many MPLI specialists with strong capital positions have limited opportunities for future capital deployment as the broader MPLI market is faced with declining premium volume, increasing price competition and deteriorating underwriting performance.

Although there are significant risks to any insurance acquisition tied to integration challenges, estimating loss reserve adequacy and properly valuing target companies, future merger and acquisition activity in the MPLI space could foster more effective capital allocation in the market going forward.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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