Canadian Underwriter

Will COVID-19 affect the timing of Economical’s IPO?

April 2, 2020   by Greg Meckbach

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Economical Insurance continues to work on converting from a mutual to a publicly traded firm, but officials with the Waterloo, Ont. carrier are keeping a close eye on the stock markets.

“The outbreak of COVID-19 has adversely affected economic and capital market conditions in Canada and around the world,” Economical Insurance chairman John Bowey said in a release Tuesday.

The TSX/S&P Composite Index lost as much as 38% of its value in a little over a month as markets were rattled by the economic impact of the novel coronavirus, the Canadian Press reported Thursday.

“Our Board and management are actively monitoring capital market dynamics before determining whether any re-assessment on timing is necessary for a successful initial public offering,” Bowey said in Economical’s Mar. 31 release. An IPO is the intended end result of the demutualization process, which started in 2015 and still requires several more steps.

Canadian Underwriter asked an Economical spokesperson whether the precautions over the COVID-19 pandemic are affecting demutualization.

Company leaders are not available for an interview to elaborate on Bowey’s statement because their “heads are down on business continuity,” the spokesperson told Canadian Underwriter Wednesday.

Related: Economical clears major hurdle to demutualization

As it stands, Economical continues to prepare for the next steps in its demutualization, Bowey wrote Mar. 31. A policyholders’ meeting is planned for the second half of 2020, and the pandemic has not changed that.

Economical has more than 600,000 policyholders, of which about 1,000 are mutual policyholders.

Economical needs permission from the Office of the Superintendent of Financial Institutions to hold the next meeting, which would be the third special policyholders’ meeting on demutualization. Assuming a majority of eligible mutual and non-mutual policyholders vote for demutualization at the third meeting, the necessary next steps include getting permission from the federal finance minister to convert from a mutual to a stock company.

More than 99% of Economical’s eligible mutual policyholders voted in March of 2019 in favour of the conversion proposal approved by OSFI that lays out the path to demutualization.

The board of directors voted unanimously in 2015 in favour of demutualization. That was the year the federal government released regulations allowing federally-reulated P&C companies to demutualize.

It has been 20 years since four major Canadian life insurers demutualized.

Economical is so far the only federally-regulated mutual P&C insurer whose board and mutual policyholders have voted in favour of demutualization.

The largest mutual – Wawanesa – has pretty much ruled out demutualization, as has Gore.

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