NU Online News Service, Nov. 26, 2003, 1:21 p.m. EST – Sierra Health Services Inc., Las Vegas, says it has agreed to sell its workers’ compensation subsidiary, California Indemnity Insurance Company Inc., to Folksamerica Holdings Company Inc. for $15.5 million in cash up front and up to $64 million in performance-based payments.[@@]

Sierra hopes to collect the performance-based payments, which will depend on California Indemnity’s claims and other expenses, in January 2010.

The deal is subject to approval by insurance regulators.

Folksamerica is a subsidiary of White Mountains Insurance Group Ltd., Hamilton, Bermuda.

California Indemnity is the parent company of Commercial Casualty Insurance Company, Sierra Insurance Company of Texas and CII Insurance Company.

After Folksamerica completes the deal, it and Sierra will hire an outside claims administrator to administer claims for 15 years, Sierra says.

Sierra will pay the administrator and cover transition costs. Folksamerica will reimburse Sierra for the administration costs “from an account consisting of the unallocated loss-adjustment expense reserves as of the closing, a percentage of premiums earned after the closing, plus accrued liabilities as of the closing,” Sierra says.

Although Folksamerica could end up paying as much as $79.5 million for California Indemnity, Sierra will take a charge of at least $15 million in the fourth quarter to account for the difference between the sale price and the value that Sierra has been assigning California Indemnity in its financial statements, Sierra says.

Sierra is making the deal so that it can focus on its core managed care operations, according to Sierra Chairman Anthony Marlon.

Sierra’s Nevada-based workers’ compensation administration company, Nevada Administrators, is not part of the deal with Folksamerica and will continue to operate as a Sierra subsidiary, Sierra says.