It has been a long time coming, but the final regulations for the demutualization of federally-regulated mutual property and casualty insurers has arrived – and one company looks poised to pull the trigger.
“We are pleased to have arrived at the end of a lengthy and complex regulation development process,” said John Bowey, vice-chair of the board of directors and head of Economical’s special committee on demutualization. “Economical’s special committee and board of directors are carefully reviewing the final regulations in order to determine whether demutualization within the final regulatory framework is in the best interests of the company and how to proceed.”
And that process could begin before the leaves change colour.
“If the board decides to proceed” he said, “we would expect to call a special meeting for early fall to hold the first vote of eligible mutual policyholders.”
With final regulations in place, P&C mutual companies that wish to demutualize can use this framework to convert into companies with share capital. Entitled “Mutual Property and Casualty Insurance Company with Non-mutual Policyholders Conversion Regulations,” the final regulations are available on the
Canada Gazette website
The changes allow government-regulated P&C insurers to “convert to stock companies owned by their shareholders,” according to a Canadian Association of Mutual Insurance Companies (CAMIC) media statement – something that doesn’t sit well with Normand Lafrenière, president of CAMIC.
The CAMIC has warned that Canadians should “pay close attention” to proposed demutualization, asserting that only a small group of mutual policyholders would gain financial benefit from it, whereas “the regular policyholder” would not.
“Like other mutual insurance companies, Economical has grown significantly over the last 140+ years with the contribution of all its policyholders,” said Lafrenière. “You don't take that value and just give it to a small group that represents less than one per cent of all current policyholders. That would be very unfair to say the least.”
Economical, on the other hand, feels that demutualization is necessary for the firm to remain competitive in the P&C market, and that the change will help promote the best interests of the company.
Factors determining eligibility
The key factors in determining eligibility remain unchanged in the final regulations. That is, subject to specific exceptions, an eligible policyholder is:
- a person who holds a mutual policy of the demutualizing company on the date the board decides to proceed with demutualization (“eligible mutual policyholder”); or
- a person who holds a non-mutual policy of the demutualizing company and has done so for the 12-month period ending on the date the board decides to proceed with demutualization (“eligible non-mutual policyholder”).
If the Economical’s board decides to proceed with demutualization, and every indication points to that being the case, it will call a special meeting to hold a vote of eligible mutual policyholders to determine whether to open negotiations with eligible non-mutual policyholders. This special meeting is expected to take place in early fall 2015.
If eligible mutual policyholders approve, Economical will then prepare and send a notice to all eligible policyholders to inform them of the demutualization.
Assuming each step is successful, said Bowey, “we estimate at this point that the process will take at least two years from the date the board decides to proceed with demutualization to the date the Minister of Finance approves the final conversion proposal.”
