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INTRODUCTION AND BACKGROUND On April 10, 1998, Allied Zurich p.l.c., Allied Zurich Holdings Limited, Zurich Financial Services, Zurich Insurance Company and Zurich Allied AG (collectively referred to as "the Applicants") filed a Form A Application ("the Application") with the Superintendent of the Maine Bureau of Insurance ("the Superintendent") pursuant to 24-A M.R.S.A. §§ 222 and 3476 for approval of the acquisition of control of Maine Bonding and Casualty Company ("Maine Bonding"), a Maine domiciled property and casualty insurer. The Superintendent appointed an Advocacy Panel to review the Application. Representatives of the Applicants met with the Advocacy Panel and supplied information requested by it, including a submission of supplemental information on June 5, 1998. On June 11, 1998, the Advocacy Panel transmitted the additional documentation to the Superintendent and certified that it considered the Application to be complete. On June 16, 1998 the Superintendent issued an order that the Application was deemed to be complete. Pursuant to a Notice of Hearing dated May 28, 1998, duly published in the Lewiston-Sun Journal, the Kennebec Journal, the Bangor Daily News, the Waterville Sentinel, and the Portland Press Herald, a hearing was convened at the Maine Bureau of Insurance on June 18, 1998 to receive testimony and evidence. At the commencement of the hearing, the Superintendent signed a Protective Order as requested by the Applicants to protect the confidentiality of Maine Bonding's business plan and other confidential information submitted in connection with the Application. At the hearing the pre-filed testimony of representatives of the Applicants and Maine Bonding was accepted and the following individuals made statements and answered questions posed by the Superintendent, the Adjudicatory Panel and the Advocacy Panel: David Bowers Esq., Chief Legal Counsel to the Zurich-American Insurance Group, Ted Brockman, Vice President of Maine Bonding and for the Maryland Casualty Group, and Howard Falk, Jr., Vice President and Treasurer of the Farmers Insurance Group of Companies. The Applicants were represented at the hearing by Joseph Hissong, Esq. and William Primps, Esq. of the New York law firm of LeBoeuf, Lamb, Greene & MacRae, L.L.P. and Rufus Brown, Esq. of the Portland, Maine law firm of Brown & Burke. Portions of the hearing concerning Maine Bonding's business plan and related subjects covered by the Protective Order were conducted in executive session. The Advocacy Panel questioned the representatives of the Applicants and Maine Bonding and submitted exhibits, but did not offer any witnesses. The record of the hearing was left open for receipt of additional information, which was submitted to Counsel for the Advocacy Panel by the Applicants by letter dated July 2, 1998. The additional information was filed by the Advocacy Panel with the Superintendent on July 15, 1998. FINDINGS OF FACT Based on the Application, as supplemented, the testimony and exhibits accepted into the record, the Superintendent hereby makes the following findings of fact: 1. Maine Bonding is a Maine domestic property and casualty insurance corporation and an indirect subsidiary of Zurich Insurance Company, Zurich, Switzerland. 2. The Applicants propose to acquire control of Maine Bonding pursuant to a merger agreement dated December 22, 1997 ("the Merger Agreement") by and between Zurich Insurance Company, a Swiss corporation ("Zurich") and B.A.T Industries p.l.c., a United Kingdom corporation ("B.A.T"), whereby the financial services businesses of B.A.T will be combined with Zurich ("the Merger"). Pursuant to the Merger, B.A.T will reorganize its existing corporate structure ("the B.A.T Reorganization") by separating all of its financial services subsidiaries (with the exceptions set forth in the Merger Agreement, the "B.A.T Financial Services Businesses"), including all of its ownership interest in Farmers Group, Inc., from its tobacco related subsidiaries. B.A.T will in effect distribute to its then existing shareholders shares of a new publicly traded holding company, Allied Zurich p.l.c. ("Allied Zurich"), which will immediately prior to the Merger own only the shares of the B.A.T Financial Services Businesses. Zurich will reorganize its existing corporate structure ("the Zurich Reorganization") by exchanging existing shares held by its existing shareholders for shares in a new publicly traded holding company, Zurich Allied AG, which will immediately prior to the Merger own all or substantially all of the shares of Zurich tendered in the exchange. In the event the exchange offer is unsuccessful, the Zurich Reorganization will be accomplished by transferring the assets and liabilities of Zurich to Zurich Allied AG and causing Zurich and Zurich Allied AG to trade names. Under either scenario Zurich Allied AG will become the ultimate controlling person of Zurich and all of its subsidiaries. Immediately following the completion of the B.A.T Reorganization and the Zurich Reorganization, Allied Zurich will transfer the B.A.T Financial Services Businesses and Zurich Allied AG will transfer Zurich and all of its current businesses to Zurich Financial Services ("ZFS"), a newly formed Swiss holding company. In exchange therefor, Allied Zurich and Zurich Allied AG will receive voting securities representing 43% and 57%, respectively, of the voting capital stock of ZFS. It is anticipated that as of the closing of the Merger, neither Zurich Allied AG nor Allied Zurich will have any shareholder that will own of record or beneficially 5% or more of the voting securities of such company. 3. Following the consummation of the Merger, Zurich Allied AG and Allied Zurich will be the ultimate controlling parent holding companies of ZFS, which will own all of the B.A.T Financial Services Businesses and the Zurich businesses, including Maine Bonding. 4. Zurich Allied AG and Allied Zurich will enter into a governing agreement as referenced in the Application that will provide, among other things, that Zurich Allied AG and Allied Zurich will have joint control of ZFS by requiring a super majority vote of not less than 58% on all matters to be considered by the shareholders of ZFS. 5. The nature, source, and amount of consideration involved in the Merger is described in detail in the Form A Application and, in particular, Exhibit E. No cash consideration is involved in the Merger, and except for the refinancing or elimination of certain intercompany debt as described in Exhibit E to the Application, no debt is being incurred by any person to finance the Merger. No part of the consideration paid by the Applicants in the Merger derives, in whole or in part, from the sale or liquidation of any assets of the insurance business of Maine Bonding. Further, the nature and the amount of the consideration to be paid in connection with the Merger was determined by arm's length negotiation between the parties to the Merger Agreement. 6. It is anticipated that the current insurance operations of Maine Bonding will not be immediately affected as a result of the proposed acquisition and the Merger. Nonetheless, there is testimony in the record that personal lines business will be transferred from Maine Bonding to a Farmers Insurance Group company. 7. After the Merger, there are no plans to change the personnel comprising the board of directors or the executive officers of Maine Bonding. 8. After the Merger, there are no immediate plans to change the home offices and/or administrative offices of Maine Bonding, nor to change those individuals who are responsible for major areas of operations of Maine Bonding, including the supervision of agents, underwriting, advertising, production of business, policyholders services, premium accounting, claims processing, litigation, reinsurance, investments, and financial accounting and reporting. 9. The current financial positions, legal positions, equities, rights and relationships of Maine Bonding will not immediately change as the result of the consummation of the Merger. 10. No evidence was presented that immediately upon the change of control Maine Bonding would not be able to satisfy the requirements for the issuance of a new certificate of authority or a license to write the line or lines of insurance for which it is presently licensed. 11. No evidence was presented that the effect of such acquisition of control would be to substantially lessen competition in any line or subclassification of lines of insurance in this State or tend to create a monopoly therein. 12. On the basis of the evidence presented, the Superintendent finds that the financial condition of the Applicants is not such as might jeopardize the financial stability of Maine Bonding or prejudice the interest of its policyholders. 13. No evidence was presented that the Applicants have any present plans or intentions to cause Maine Bonding to declare an extraordinary dividend or distribution, liquidate Maine Bonding, sell any of its assets, or merge it with any person, or make any material change in its business operations, corporate structure or management, or cause it to enter into material agreements, arrangements, or transactions of any kind with any party that are unfair, prejudicial, hazardous or unreasonable to the policyholders of Maine Bonding and not in the public interest. 14. No evidence was presented that the competence, trustworthiness, experience and integrity of those persons who would control the operations of Maine Bonding are such that it would not be in the best interests of the policyholders of Maine Bonding and of the public to permit the acquisition of control. 15. No evidence was presented that the acquisition of control would violate any laws of this State or the United States relating to monopolies or restraints of trade. CONCLUSIONS OF LAW Based on the foregoing findings of fact, the Superintendent of Insurance makes the following conclusions of law: 1. The Superintendent of Insurance has jurisdiction over and authority to approve the Application for acquisition of control of Maine Bonding pursuant to 24-A M.R.S.A. §§ 222 and 3476. 2. Applicants have filed all documents and information required by law and requested by the Superintendent. 3. On the basis of the materials filed by the Applicants, correspondence, and information furnished to the Department, the Superintendent concludes that: a. After the change of control, Maine Bonding will be able to satisfy the requirements for the issuance of the license to write the lines of insurance for which it is presently licensed; b. The effect of the acquisition of control will not substantially lessen competition and insurance in this state or tend to create a monopoly therein or violate federal or state antitrust laws; c. The present financial condition of the Applicants does not jeopardize the financial stability of Maine Bonding or prejudice the interests of policyholders of Maine Bonding; d. The Applicants' post-acquisition plans for Maine Bonding are not unfair or prejudicial to policyholders; e. The Applicants have no plans to liquidate Maine Bonding to sell its assets or consolidate or merge it with any person, or to make any other material change in its business corporate structure of management which would be unfair or unreasonable to policyholders and the public; f. The Applicants possess the competence, experience and integrity to operate Maine Bonding in the best interests of its policyholders and the public; g. The acquisition will not adversely affect the contractual obligations of Maine Bonding or its ability and tendency to render services in the future to its policyholders and the public; and h. The interests of Maine Bonding, its stockholders and policyholders will not be impaired by the proposed change of control. ORDER IT IS HEREBY ORDERED THAT the Applicants are authorized to acquire Maine Bonding and Casualty Company through the transaction as represented in the Form A Application subject to the following conditions: 1. The Applicants shall notify the Superintendent when the High Court of Justice in England renders its decision on the Scheme of Arrangement and shall file a copy of the decision with the Superintendent. The Applicants shall file a copy of all substantive decisions made by the Court, preliminary or final. 2. The Applicants shall make no significant business changes affecting Maine Bonding until such time as the Superintendent has received and approved an updated business plan for Maine Bonding. The Applicants shall file the updated business plan no later than year end 1999. 3. Approval of the Merger proposed by the Applicants is required from the Departments of Insurance in 21 states besides Maine. Any material changes to the proposed merger, whether required by the regulator in another state or made voluntarily by the Applicants, must be filed as amendments to the Form A with the Superintendent. 4. Until year end 1999, Maine Bonding shall notify the Superintendent in writing prior to making any material change to claims handling and settlement, particularly with regard to workers' compensation residual market claims. Material change includes but is not limited to changes to the office where claims are handled, substantial changes in personnel, and changes in third party administrators. 5. Maine Bonding currently maintains records of its operations in three locations - Portland, Maine; Baltimore, Maryland; and Rocky Hill, Connecticut. No records of Maine Bonding may be moved to another location without the prior approval of the Superintendent. 6. Maine Bonding shall be responsible for all additional costs of examination of the Bureau of Insurance resulting from its maintenance of records in Maine, Maryland and Connecticut. 7. The Applicants shall notify the Superintendent immediately if any of the material conditions of the transaction agreed to by and between the parties are not met and shall advise the Superintendent of the resulting impact on the transaction. NOTICE OF APPEAL RIGHTS Pursuant to 5 M.R.S.A. §_11002 and 24-A M.R.S.A. §_236, any party to this proceeding may seek judicial review of this Decision and Order by filing a petition for review in the Maine Superior Court within thirty days of such party's receipt of this Decision and Order. Any person not a party to this proceeding who is aggrieved by this Decision and Order may seek judicial review thereof by filing a petition for review in the Maine Superior Court within forty days of the date appearing below.
Last Updated: August 22, 2012 |
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