Economical Mutual Insurance Company announces plans to demutualize

The Economical Mutual Insurance Company is planning to become the first property and casualty insurance company in Canada to demutualize.
The company is aiming for the conversion to be completed in 2011, subject to approval by mutual policyholders and the Minister of Finance, the company announced in a press release on Dec. 14.
“The board of directors has determined that demutualization is in the best interests of the company and all its stakeholders, including our mutual policyholders,” said Gerald Hooper, chairman of the board of Economical Mutual.
“The decision to pursue demutualization follows a review by a special committee of independent directors. It was formed to examine strategic alternatives about a potential transaction several months ago.  
“The board has agreed with the recommendation of the special committee that demutualization holds the greatest potential benefits for the company.”
The Economical has had a mutual insurance company structure since the company was founded in 1871. The mutual model has distinct advantages, including stability and the ability to maintain a long-term perspective, The Economical says in a release.
However, “it also restricts the company’s access to additional capital to continue to fund growth in a highly competitive and consolidating industry,” the company says. “Demutualization will help remove this restriction.”
The company says it is continuing consultations with OSFI and will enter into consultation with the Department of Finance to identify the most effective route to demutualization.
Thus far, the company is focusing on two specific alternatives:

• Conversion, through an initial public offering, from a mutual company to a public corporation with shares traded on a stock exchange.
• Sponsored demutualization, which would involve a transaction with another strategically-aligned company. This company would invest in Economical to acquire a significant ownership position, perhaps as much as 100%.

“This dual-track approach allows us to focus on maximizing long-term value for mutual policyholders, while considering the interests of our other policyholders, brokers, employees and community,” said Karen Gavan, chair of the special committee. “We intend to expedite this process but to some extent the timing will be dependent on the regulatory approval process. New regulation and new legislation may be required and that can be expected to take several months.”
A final recommendation on demutualization and a schedule for completion is to be presented to mutual policyholders at the next annual meeting, scheduled for May 26, 2011.
Meanwhile, the board says it will provide updates on progress to its stakeholders.
“In the interest of fairness to existing mutual policyholders, the board has previously instituted a moratorium on the issuing of new mutual insurance policies,” the company says.
Blair Franklin Capital Partners Inc. is the financial advisor and Miller Thomson LLP is legal counsel to the Special Committee of the Board of Economical Mutual.