Four months after the federal government established a framework for P&C insurers to demutualize,
Economical Insurance finally announced that it would initiate the process of becoming a public company.
The insurer says that the move was necessary for it to compete with other large players in the market and reach its stated goal of becoming a top five P&C carrier in Canada.
“Although we are a well-capitalized company and can certainly undertake key investments and even potential acquisitions that are of the right size, there’s consolidation going on across the P&C industry in Canada,” said John Bowey, vice chair of the board and chair of the special committee on demutualization, Economical Insurance.
Although the process will take at least two years, and the board may still suspend the conversion if it no longer serves the best interest of the company,
“For us to participate in a meaning way in that consolidation, we need more capital,” Bowey said.
While it’s too early for Economical to estimate how much capital it can raise or where it would like to direct those assets, Bowey hopes it will “provide us with a greater opportunity to make a major acquisition.”
If successful, Bowey believes Economical’s control of a greater market share will prove advantageous for brokers.
“Economical should be a stronger player in the market than ever before, which should be good news to the broker community,” he said.
Still, critics of demutualization remain opposed to the insurer’s choice to proceed, and vow to lobby Liberal and NDP officials to reverse the regulations.
Normand Lafrenière, president of the Canadian Association of Mutual Insurance Companies (CAMIC), applauds the government for requiring mutual policyholders to share benefits with non-mutual ones, but feels that the value of the company will “only be directed to a tiny portion of current policyholders, which is unacceptable.”
“I’d like to reiterate that they currently have mutual and non-mutual policyholders. If I was not a mutual policyholder, I’d ask the company why I was not offered a mutual policy,” he said.
He worries that the provinces will copy the newly established federal rules, and smaller mutual insurers with equity deeply rooted in the community will suffer.
Bowey, however, hopes to lay those fears to rest.
“The controversy has been: when you demutualize, who’s entitled to the value of the company,” he said. “The regulations are quite clear that mutual policyholders who are voting policyholders of Economical will clearly be entitled to become shareholders in the company, but so will eligible non-mutual policyholders. They’re also entitled to participate, and the regulations require committees representing both of these groups to negotiate just how those benefits are shared.”
