After nearly 150-years in operation, Economical Insurance, one of Canada’s leading property and casualty insurance companies, is one step closer to transforming from a mutual company to a publicly traded corporation.
The proposed demutualization conversion plan has now been made public and is open to eligible stakeholders for comment and eventually for vote. With more than $2.3 billion in annualized premium volume and approximately $5.7 billion in assets (as of September 30, 2018), Economical’s demutualization looks set to be one of the biggest stories in the Canadian financial markets over the coming months.
“Economical decided to pursue demutualization in order to better compete in our marketplace. We need a greater access to capital that will allow us to make strategic acquisitions, to make investments in innovation, and to strengthen our financial position and flexibility,” explained John Bowey, board chair of Economical Insurance, and chair of the special committee on demutualization.
“We’re the first P&C company in Canada to do this, under new regulations that the Government had to create for us. No-one has ever done what we’re now doing. In 2015, the Government enacted those regulations and the board decided to move forward with our demutualization process. It has been complex. It required the court to order the formation of committees to represent both eligible mutual policyholders and eligible cash policyholders, and then for those committees to negotiate the allocation of benefits from our demutualization.”
In 2018, the two committees reached an agreement that Bowey described as “a huge milestone”. Following that agreement, Economical submitted a conversion proposal to the Office of the Superintendent of Financial Institutions (OSFI), which outlines how they will transform from a mutual company with no shareholders to a public company with shareholders.
On February 01, Economical made that plan public, and now they’re building up to a special meeting on March 20, in which eligible mutual policyholders will be able to vote on whether to proceed with the process outlined in the conversion plan. If they vote affirmatively, Economical will then hold a final special meeting of more than 600,000 eligible policyholders to vote on the conversion plan and authorize the final legal steps in the demutualization process.
The conversion plan outlines a formula which explains how benefits of the demutualization process will be allocated to eligible mutual and cash policyholders. Bowey confirmed that 20% of the value of the company will be allocated to eligible mutual policyholders. Meanwhile, $100 million will be used to set up a new charitable foundation called the Economical Insurance Heritage Foundation. The remainder of the value of the company will be allocated to eligible cash policyholders.
“We’re truly pleased that the two policyholder committees negotiated a very meaningful contribution from our demutualization to create this brand-new charitable foundation,” Bowey added. “The foundation will be created with $100 million of de-mutualization proceeds, helping us form an important legacy from our demutualization for all of our policyholders and employees both past and present who have contributed to our success over our nearly 150-year history. In our view, this is truly a momentous outcome of the negotiations and will reflect the values of our company for years and years to come.”
Economical Insurance president and CEO Rowan Saunders echoed Bowey’s comments about the charitable foundation, saying he’s “pleased to continue [Economical’s] commitment in giving back to the communities in which we live and work.” He added that not only does Economical want a successful IPO transaction in the near future, but it also strives for continued success as a public company.
Alongside Economical’s path to demutualization, the insurer has been concurrently building and strengthening its business so that it’s ready for its IPO. The business has transformed both operationally and strategically in order to gain competitive advantage. For example, the insurer launched Sonnet Insurance in 2016, which was Canada’s first fully-digital home and auto insurance shopping experience. This is underpinned by innovative technology and advanced analytics aimed at simplifying the shopping process for consumers.
“We took our learnings from the launch of Sonnet to create Vyne, a revolutionary new way for our broker force to interact with Economical,” Saunders added. “Vyne launched last year to more than 22,000 brokerages across Canada and has been embraced by the broker community as an industry game-changer. It streamlines broker workflows and makes doing business at Economical easy, which means it’s a significant growth engine for our business. Indeed, after just a few months of being launched, we’ve seen the volume of policies through the Vyne platform oust all expectations.
“While we’ve been building these industry firsts, we’ve also focused on the core of the business. We’ve implemented market-leading capabilities in products and pricing, underwriting and claims. It’s these foundational capabilities that will sustain us as a high-performing organization and give us the capability to compete as a public company.”
