March 17, 2021 by Greg Meckbach
A key step in Economical Insurance’s demutualization process, the third and final policyholder vote, is scheduled May 20, the Waterloo, Ont.-based insurer announced this week.
If a client had a policy – either mutual or non-mutual – with Economical in late 2015, they would likely be eligible to vote at that May 20 webcast, which is scheduled to start at 9:00 a.m.
To vote, clients need to register using their policy number and postal code at Economical’s website. Economical has a 600-word explanation on its website as to whom exactly is eligible to vote.
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 nevertheless eligible non-mutual policyholders are still getting benefits from demutualization and are eligible to vote.
Assuming at least two thirds of voters approve Economical’s demutualization plan on May 20, the next step is for the insurer to apply for final approval from the federal finance department.
If the federal government approves the demutualization, Economical Insurance will start the initial public offering (IPO) process to become publicly traded. Once it is publicly traded it would have to be widely held for at least two years, which would preclude any one corporation or person from buying a majority of Economical shares.
Four Canadian life insurers – Manulife, Clarica, Canada Life and Sun Life – demutualized in 1999-2000. Economical would be the first property and casualty insurer to demutualize in Canada. Federal regulations allowing for P&C demutualization have been in place only since 2015, when Economical’s board of directors first voted to start the process.
Other than Economical, no other federally-regulated P&C insurer has announced plans to demutualize. Some federally regulated mutuals – including Wawanesa, Gore and Heartland – have specifically said they do not plan to demutualize.
“Our demutualization journey has been long, but has been guided by our board’s consistent focus on building the capabilities, performance, and value that will give investors the confidence that we can compete as a strong, Canadian public company over the long term,” Economical chair John Bowey stated in a Mar. 15 release.
Early on in the process, in 2016, Economical launched direct writer Sonnet.
With Economical, both mutual and non-mutual policyholders will get some financial benefit from demutualization but the exact amount will not be known until the IPO.
An Economical proposal released in 2018 calls for 20% of demutualization benefits going first to eligible mutual policyholders, of which there are 878. Another $100 million would go to a charitable foundation, and the remainder would be distributed among eligible non-mutual policyholders.
This May’s meeting is online-only format in an effort to avoid public gatherings during the COVID-19 pandemic.
Economical Insurance plans to send an information circular containing details of the meeting and voting information to eligible policyholders.
“Eligible policyholders should wait until such materials are received over the next few weeks before taking any action,” the company said March 15.
Feature image via iStock.com/MARHARYTA MARKO