Economical demutualization complete, IPO raises $1.6 billion

Economical Insurance announced Tuesday it has completed its demutualization, the first property and casualty insurer in Canada to do so.

Economical’s corporate parent, Definity Financial Corp., said Tuesday it has raised “aggregate gross proceeds” of about $1.6 billion in an initial public offering of stock.

Swiss Re Investments Holding company is expected to own nearly 10% of Definity stock while Healthcare of Ontario Pension Plan is expected to own another 19.9% of shares.

Demutualization is when a mutual insurer (collectively owned by mutual policyholders) converts into a corporation owned by shareholders. Under the mutual model, the insurance company is owned by its customers (policyholders), who share in the profits.

The vast majority of Economical clients are not mutual policyholders, but eligible non-mutual policyholders are still getting benefits from demutualization.

“With the IPO complete, we can now calculate and distribute financial benefits to eligible policyholders in the form of cash or Definity shares. The process to distribute benefits to eligible policyholders will take several weeks and complete before the end of the year. This process will take time due to the complexity of accurately calculating and sending benefits to all 630,000 eligible policyholders,” says Waterloo, Ont.-based Economical.

The Healthcare of Ontario Pension Plan and Swiss Re investments were arranged through a private placement.

In addition to Economical, Definity is also the parent company of Family Insurance Solutions Inc., Petline Insurance Company, and Sonnet Insurance Company.

Four major life insurers demutualized in 1999-2000 but regulations allowing P&C demutualization did not get passed until 2015.

“One of the primary reasons for becoming a public company is to be able to access capital markets and be able to fulfill our strategic ambitions sooner than we could otherwise,” Economical CEO Rowan Saunders told Canadian Underwriter in an interview in May of 2021.  He made his comment after policyholders voted in favour of demutualization.

Economical’s board of directors first recommended demutualization in 2015.

“When you have access to the capital markets, there is a number of financial instruments that you can issue, such as common equity, preferred shares, and you can introduce debt into your balance sheets. All of those can help a public company gain an influx of cash that they can use for expansion, for acquisitions, et cetera,” Saunders said in 2021 after the policyholder vote.

Feature image via iStock.com/Zolak