Is California Indemnity Headed For the TPA Pasture?
By Robert Warne - November 28, 2003 The long anticipated announcement of who would be Sierra Insurance Group Companies’ suitor was published Nov. 25, but like with many transactions there was twist in the original proposed plot.
Folksamerica Holding Co., a subsidiary of White Mountains Insurance Group snagged California Indemnity Insurance Co. (CIIC) and it’s subsidiaries for nearly $80 million. The deal is structured so that up front, Sierra will receive approximately $15.5 million in cash. Then based on claims expense development, Sierra will also receive a payment that could be as much as $64 million in January 2010.
Pending regulatory approval, the deal is on the fast track to close in the first quarter of 2004.
The curveball in the deal though is that following the closing; Folksamerica will place the companies into runoff. And that Folksamerica is not acquiring any infrastructure or employees in the transaction and all of the companies' runoff administration will be transferred to third party administrators working under Folksamerica's direction.
Whether the TPA will pick up the people already handling the claims has yet to be determined.
Originally Sierra had maintained that it was positioning the sale of its insurance operation as a turnkey deal with employees included. But as it looks like right now, Folksamerica is buying CIIC to strip it down for its parts.
Steve Fass, Folksamerica's Chief Executive Officer further drove that point home when he said, "We are taking on a well-reserved portfolio with substantial down-side protection and we expect to extract significant economic value from this transaction over time."
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