Gore Mutual passes on final demutalization regs, opts to remain a mutual company

Despite the regulatory means now available for federally regulated mutual property and casualty insurers to demutualize, 176-year-old Gore Mutual Insurance Company is opting to remain as is and continue with its existing strategic plan.

“The Board of Directors (BoD) of Gore Mutual has completed its review and has determined that it is in the best interests of the company, having regard to the interests of all of its stakeholders, to remain a mutual company and to continue with its current strategic plan,” notes a statement Friday from the Cambridge, Ont.-based company.

Conducted by the BoD and a special committee, the review of alternatives available that kicked off in early 2011 took into account the interests of its mutual and nonmutual policyholders and other stakeholders. Remaining a mutual company was determined to be the best alternative for Gore Mutual for several reasons, including the following:

• the company does not require access to capital given its current financial strength and strategic plan;
• the final regulations allow for an initial public offering as the one and only demutualization option;
• the prolonged distraction and exposure to a period of tremendous uncertainty would result in a significant reduction in operating results and would cause concern for the company’s broker partners; and
• because of the company’s size, the high costs of demutualization would erode its capital base, with no assurance that the process would be completed successfully.

Last July, the Department of Finance issued its long-awaited final rules governing federally regulated mutual p&c insurance companies. The Mutual Property and Casualty Insurance Company with Non-mutual Policyholders Conversion Regulations were published in Part II of the Canada Gazette on Canada Day.

Related: Federal demutualization regulations now in effect, Economical Insurance to consider options

The regulations leave it up to company directors to determine whether or not to pursue the mutual’s conversion, requiring that they pass a resolution recommending to do so. Those companies that do demutualize can use the federal framework to convert into companies with share capital.

The first to pursue demutualization – in fact, it has been working on the process for more than four years in anticipation of the release of final regulations – is Waterloo, Ont.-based Economical Insurance. In December, the insurer reported it moved one step closer to demutualization when mutual policyholders voted in favour of continuing to the next stage of the process. It is estimated that it will take at least two years to demutualize.

Related: Economical Insurance mutual policyholders vote to proceed to next step of demutualization

An Economical Insurance backgrounder notes the mutual insurance company structure restricts the ability to access capital and, in the longer term, could become a competitive disadvantage. Demutualization allows for improved financial stability and flexibility, and positioning for industry consolidation, the company adds.

“Canada’s p&c insurance industry is consolidating and Economical wants to play a meaningful role in that consolidation,” the backgrounder states. “The big are getting bigger. The largest companies are acquiring smaller competitors and gaining market share and economies of scale.”

During the company’s annual general meeting last year, Karen Gavan (pictured left), president and CEO of Economical Insurance, said “to grow from being the eighth largest p&c insurance company to the fifth largest means that we have to grow our top line by 50% or $1 billion.” Organic growth alone will not be sufficient, Gavan noted.

Gore Mutual, however, reports that it undertook a review following the release of the federal regulations to ensure it was positioned to remain strong and stable for the long term. Findings of that review support the decision to remain a mutual company.

Noting that the mutual is financially strong, strategically focused and well-positioned for the future, Farouk Ahamed (pictured right), chairman of Gore Mutual’s BoD, says “our decision to remain a mutual company and continue with our current strategic plan means we will be best positioned to serve our policyholders, employees and community for years to come.”

“Gore Mutual remains unequivocally committed to the broker channel and dedicated to delivering the highest standard of excellence, reliability and accountability to our policyholders, employees and community,” say Ahamed and Heidi Sevcik (pictured below), president and CEO of Gore Mutual. “Our strong heritage has grounded us and set us apart, but it will be our imagination and innovation that will distinguish our future,” Ahamed and Sevcik add.

The special committee and BoD are reviewing the company’s “mutual membership system with a view to ensuring it is sustainable and appropriate for the longterm. Gore Mutual will provide further information about this review in due course,” the company statement adds.

Beyond Gore Mutual and Economical Insurance, the other federally regulated mutual p&c insurers in the country are Wawanesa Insurance, Portage La Prairie Mutual Insurance Company, Saskatchewan Mutual Insurance Company and The Kings Mutual and North Waterloo Farmers, which recently agreed to merge with Oxford Mutual to become Heartland Farm Mutual.