Estimated value of Economical’s demutualization for mutual policyholders

Mutual policyholders of Economical Insurance could get more than $300,000 each if the Waterloo-based insurer demutualizes.

A conversion proposal that Economical submitted to the regulator last year calls for 20% of benefits going first to eligible mutual policyholders, of which there are 878, Economical said in a policyholder information circular. Another $100 million would go to a charitable foundation and the remainder would be distributed among eligible non-mutual policyholders.

“The average eligible mutual policyholder could receive demutualization benefits with an approximate value of $300,000 to $430,000” based on the estimated value of the company, Economical said in the circular. The actual value of demutualization benefits will not be known until Economical completes an initial public offering of stock. Had Economical gone public this past May, the value would have been between $1.3 billion and $1.9 billion, Economical said in the circular. Those figures are based on estimates.

Such estimates “are solely for illustrative purposes to assist you in your vote,” Economical said in the policyholder circular. “The estimated ranges may differ materially from the value you will receive at the time of the demutualization.”

Economical announced Thursday that eligible mutual policyholders will meet in Kitchener, Ont. on March 20 to vote on the proposal to demutualize, which was recently made public. Unless two-thirds of eligible mutual policyholders vote in favour of the proposal, the demutualization process will terminate, Economical said in a policyholder information circular.

A policyholder is “eligible” to receive demutualization benefits if he or she had the policy on Nov. 3, 2015, with stipulations that Economical describes in a 600-word section on its demutualization web page.

No federally-regulated property and casualty insurer has ever demutualized: regulations allowing demutualization have only been in place since 2015. Gore Mutual, Wawanesa and Heartland are among the federally-regulated mutual P&C insurers who do not plan to demutualize.

For Economical, demutualization is still subject to approval from policyholder and the federal government. If Economical does demutualize, it will be traded on the stock exchange and it would have to be “widely held” for two years.

If eligible mutual policyholders vote March 20 in favour of the demutualization proposal, the carrier will schedule a vote for both the mutual and non-mutual policyholders. If policyholders approve the conversion plan in the third vote, then the company will formally apply to the federal finance minister for approval to demutualize.

One reason Economical officials want to demutualize is to raise money from capital markets, which in turn could be used to buy other companies.