One of the big questions I have had since the Affordable Care Act became law was how the workers' compensation underwriting market would react since it seemed that there would be a broadening in the class of health care workers coming into the scene.
That question was given some evidence yesterday when ProAssurance, a writer of medical professional liability insurance based in Birmingham, Ala., announced a proposed acquisition of Pennsylvania-based workers' compensation writer Eastern Insurance Group for $205 million.
Eastern offers workers’ compensation to employers with generally 1,000 employees or less that traditionally pay an average premium per policy of $21,956, according to filings with Securities & Exchange Commission. Also, Eastern concentrates on low- to middle-hazard classes of businesses, primarily in the Mid-Atlantic, Southeast, and Midwest regions. In 2012, it reported workers comp premiums written of $182.9 million.
Among those employers Eastern counts as policy holders are small hospital systems, long-term care facilities, physician and dental practices and home health care providers.
Approximately 20% of Eastern’s workers’ comp book is health-care-related risks according to company officials.
ProAssurance is the fourth-largest medical malpractice liability writer in the United States. Last year it wrote about $536 million in gross premiums.
When you think about the market that ProAssurance goes after it makes sense to have a workers' compensation component to its offerings.
The companies expect more independent physicians and small physician groups to align themselves with much larger hospitals and health care entities and consequently are going to need more than just malpractice insurance as more and more health care workers are required to deliver the mandates of the ACA.
In a conference call to investors yesterday, ProAssurance’s chairman and Chief Executive Officer W. Stancil Starnes noted that the largest insurance expense for these physicians is workers' compensation.
"The notion that we can build out into the future an insurance platform that has the unique attributes needed by health care providers and these bigger health care facilities will provide us with much greater opportunities to take advantage of the changes that are coming in health care. ... it’s important that workers’ comp be part of that platform."
Eastern CEO Michael Boguski explained that four health care class codes are in the top ten that the company writes.
"We have a broad underwriting appetite within the health care segment,” Boguski said in the call.
The $205 million acquisition cost represents about 1.38-times the stated book value of Eastern and represents $24.50 per share. The transaction, which is expected to close by Jan.1, is subject to regulatory approvals in Pennsylvania, the Cayman Islands and a vote of Eastern’s shareholders.
The deal had been in the works for about a year.