How Economical could demutualize in 2021

Economical Insurance is aiming to have an initial public offering (IPO) of stock in 2021, making it the first ever property and casualty mutual in Canada to demutualize.

“If we receive required approvals from the [federal] Minister of Finance on a timely basis and capital market conditions are favourable, we would look to complete our demutualization and planned IPO in the fall of 2021,” wrote John Bowey, chair of the board of Economical Insurance, in a recent letter to policyholders.

As it stands, Waterloo, Ont.-based Economical is still a mutual but is aiming to do what four of Canada’s major life insurers did in 1999 and 2000, which is to convert to a publicly-traded corporation. The rules allowing federally-regulated P&C carriers to demutualize were passed in 2015.

Originally Economical was planning to hold a vote, by all eligible policyholders (both mutual and non-mutual), in 2020. That vote got postponed because of the economic disruption from the COVID-19 pandemic. The eligible policyholders include those who had a policy on Nov. 3, 2015. Economical has more information on its website on how a client would qualify to be eligible to vote on demutualization and get benefits from the demutualization.

Eligible policyholders could get cash or shares as a result of demutualization. The benefits for eligible non-mutual policyholders are not the same as the benefits for eligible mutual policyholders. The vast majority of Economical’s clients are not mutual policyholders.

Bowey announced Dec. 10 that Economical is aiming to hold that all-policyholder vote in the second quarter of 2021.

“As we did with our [annual general meeting] earlier this year, we recently secured permission from the court to use a virtual meeting format for our upcoming third special meeting,” wrote Bowey.

In March of 2019, the mutual policyholders voted in favour of a conversion proposal released two years ago.

One reason Economical started the demutualization process in 2015 was to raise money from capital markets to participate in acquisitions, CEO Rowan Saunders told Canadian Underwriter earlier.

If a mutual insurer wants to raise equity funding, it has to first go through a demutualization process, said Anurag Chandra, CEO of Constellation Insurance Holdings, said in an earlier interview with Canadian Underwriter. In that 2019 interview, Chandra was not commenting specifically on Economical but on a $500 million funding announcement from La Caisse de dépôt et placement du Québec and the Ontario Teachers’ Pension Plan. Constellation was looking for insurers in both the United States and Canada who are seeking additional money in the form of equity investment.

Some Canadian mutuals – among them Gore and Wawanesa – have said they have no plans to demutualize.

For its part, Economical’s board voted in 2015 in favour of demutualization, a few months after the federal government enacted regulations allowing federally-regulated P&C insurers to demutualize.

Economical has yet to pick an exact date for its all-policyholder vote in 2021, Bowey wrote Dec. 10, 2020.

“This determination is based on the momentum demonstrated in our recent financial performance and in our most current business planning and projections for the year ahead. Assuming the vote at that meeting passes and our demutualization is thereby approved by eligible policyholders, we will work to complete the remaining steps of the process in a timely manner.”