Court appoints committees to represent Economical mutual and non-mutual policyholders

An Ontario court has appointed two committees to negotiate the allocation of benefits from a demutualization of Economical Insurance, the Waterloo, Ont.-based insurance carrier announced Friday.

No federally regulated P&C insurers have demutualized yet. Canada did not have regulations allowing for federally regulated P&C insurers to demutualize until the summer of 2015.

In December, 2015, a majority of Economical’s mutual policyholders voted in favour of demutualization. That vote took place about a month after the company’s board of directors voted in favour of proceeding with demutualization.

Demutualization requires approval from the federal government.

In an order released Wednesday, the Ontario Superior Court of Justice appointed two policyholder committees, Economical reported. One represents eligible mutual policyholders and the other represents eligible non-mutual policyholders.

“The court appointed nine committee members to represent the eligible mutual policyholder class and six committee members to represent the eligible non-mutual policyholder class,” Economical stated. “These committees will negotiate the allocation of benefits from the demutualization of Economical.”

The issues to negotiate, on a resolution to demutualize, would include the method of allocating the value of converting the firm, and whether any benefits will be provided to persons other than eligible policyholders.

“In the coming months, Economical will prepare the conversion proposal that outlines how Economical will demutualize into a share company, including the allocation of financial benefits to be negotiated by the policyholder committees,” the firm stated in a release Friday. “Economical expects to submit the conversion proposal to the Office of the Superintendent of Financial Institutions (OSFI) before February 22, 2018, the one-year anniversary of the appointment of policyholder committees, as required by the demutualization regulations.”

Law firm McCarthy Tetrault LLP represents mutual policyholders while non-mutual policyholders are represented by Thornton Grout Finnigan LLP.

“With OSFI approval, eligible mutual policyholders will then be able to vote to amend the company’s bylaws in a manner which would allow eligible non-mutual policyholders to vote on the conversion proposal itself,” Economical stated. “If that vote is successful, both eligible mutual and eligible non-mutual policyholders will vote together as a single class to approve the conversion proposal and to proceed with the demutualization. If the vote succeeds, Economical will send the conversion proposal to the Minister of Finance and, once the Minister approves it, Economical will be able to initiate an initial public offering.”

If Economical’s demutualization is completed, the federal regulations “basically preclude anything” other than an initial public offering (IPO) of stock, Karen Gavan, then Economical’s chief executive officer, told Canadian Underwriter in 2015.

“Our industry is consolidating and we need access to capital to participate in that consolidation, so additional capital would likely be tied around acquisition activity,” Gavan told Canadian Underwriter at the time.

Four Canadian life insurance companies (Manufacturers Life, Mutual Life, Canada Life and Sun Life) converted from mutual to stock companies between 1999 and 2000. Manulife Financial Corp., Sun Life Financial Inc. and Great-West Lifeco Inc. (which owns Canada Life) are now publicly traded. Mutual Life was renamed Clarica and acquired by Sun Life in 2002.

In a regulatory impact analysis statement published Feb. 28, 2015, the federal government said there were seven federally-regulated P&C mutual insurers: Wawanesa Mutual, Economical Insurance, Gore Mutual, Portage La Prairie Mutual, North Waterloo Farmers Mutual, Saskatchewan Mutual, and The Kings Mutual.

North Waterloo Farmers later agreed to merge with Oxford Mutual and the combined firm is now known as Heartland Farm Mutual.