Government’s budget includes plans for regulatory framework on P&C demutualizations

The federal government’s proposed budget, introduced on Mar. 22, 2011, confirmed the government was working on a regulatory framework that would allow property and casualty insurance companies to demutualize.
As of press time, the budget was widely anticipated to be defeated, thereby triggering a Spring election.
“The government is developing a framework for the demutualization of federally regulated property and casualty mutual insurance companies, which will provide, for companies that choose to demutualize, an orderly and transparent process and ensure that policyholders are treated fairly and equitably,” the government notes in its 2011 budget. “The government will be in a position to review applications to demutualize once regulations are in place.
“Amendments to the Insurance Companies Act, including amendments that would prevent any mutual company from demutualizing indirectly, will be introduced.”
The budget document does not provide a definition of “demutualizing indirectly.”
Reference to the framework in the budget followed The Economical Mutual Insurance Company’s announcement in late 2010 that it planned 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.
In making known its intentions, the company said it was consulting with OSFI and the Department of Finance to identify the most effective route to demutualization.
The company said its timing for demutualization would depend on the regulatory approval process. “New regulation and new legislation may be required and that can be expected to take several months,” the company told Canadian Underwriter in a statement made in December 2010.