California regulators seized an insurer formerly owned by Warren Buffett’s Berkshire Hathaway Inc., the latest twist in a continuing dispute about whether its sale of the company violated that state’s insurance regulations.
The California Department of Insurance said Tuesday that California Insurance Co., one of the insurance companies owned by workers’ compensation insurer Applied Underwriters, has been placed under state conservatorship. The regulator said the move came “in response to the company’s willful violation of state law and established pattern of continually flouting California’s regulatory processes.”
While under conservatorship, California Insurance Co. can’t cancel any existing insurance policies and can only issue new policies with the conservator’s consent. California Insurance Co. has $185 million in written premiums in California, according to the state regulator.
The company said it is considering options in response to the seizure.
“The CDI has acted with an unprecedented, unnecessary regulatory overreach,” said Jeffrey Silver, Applied Underwriters’ lawyer, in a statement. “It is bad news for insurers in the state and for the citizens who will pay, ultimately, for the legal defense of this illogical, vindictive action.”
Berkshire sold its majority stake in Applied Underwriters to its co-founder Steve Menzies and Quadrant Management in October for $920 million.
But the California Department of Insurance said last month that it never approved the sale of California Insurance Co., which was included in the transaction.
Insurance companies are regulated on a state level, and the sale of an insurer can often require approval from multiple states.
Applied Underwriters said that because California didn’t approve the sale quickly enough, the company chose to merge its California subsidiary with a newly formed insurer in New Mexico and get approval for the sale there instead.
New Mexico’s insurance department approved the merger and the sale in October. California regulators didn’t object during the New Mexico hearing, according to the New Mexico regulators. But California’s regulator says its separate approval was still required by California law.
Applied Underwriters has run into state regulatory issues in the past regarding its profit-sharing workers’ compensation policies. It agreed to stop selling those policies in some states without filing for approval.
Insurance-focused ratings firm A.M. Best last week downgraded the long-term issuer credit ratings of Applied Underwriters’ insurance companies, including California Insurance Co., citing the change in ownership. A.M. Best said it would continue to monitor the company’s dispute with California regulators.