Canadian Underwriter

Estimated value of Economical’s demutualization for mutual policyholders

February 1, 2019   by Greg Meckbach

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Mutual policyholders of Economical Insurance could get more than $300,000 each if the Waterloo-based insurer demutualizes.

A conversion proposal that Economical submitted to the regulator last year calls for 20% of benefits going first to eligible mutual policyholders, of which there are 878, Economical said in a policyholder information circular. Another $100 million would go to a charitable foundation and the remainder would be distributed among eligible non-mutual policyholders.

“The average eligible mutual policyholder could receive demutualization benefits with an approximate value of $300,000 to $430,000” based on the estimated value of the company, Economical said in the circular. The actual value of demutualization benefits will not be known until Economical completes an initial public offering of stock. Had Economical gone public this past May, the value would have been between $1.3 billion and $1.9 billion, Economical said in the circular. Those figures are based on estimates.

Such estimates “are solely for illustrative purposes to assist you in your vote,” Economical said in the policyholder circular. “The estimated ranges may differ materially from the value you will receive at the time of the demutualization.”

Economical announced Thursday that eligible mutual policyholders will meet in Kitchener, Ont. on March 20 to vote on the proposal to demutualize, which was recently made public. Unless two-thirds of eligible mutual policyholders vote in favour of the proposal, the demutualization process will terminate, Economical said in a policyholder information circular.

A policyholder is “eligible” to receive demutualization benefits if he or she had the policy on Nov. 3, 2015, with stipulations that Economical describes in a 600-word section on its demutualization web page.

No federally-regulated property and casualty insurer has ever demutualized: regulations allowing demutualization have only been in place since 2015. Gore Mutual, Wawanesa and Heartland are among the federally-regulated mutual P&C insurers who do not plan to demutualize.

For Economical, demutualization is still subject to approval from policyholder and the federal government. If Economical does demutualize, it will be traded on the stock exchange and it would have to be “widely held” for two years.

If eligible mutual policyholders vote March 20 in favour of the demutualization proposal, the carrier will schedule a vote for both the mutual and non-mutual policyholders. If policyholders approve the conversion plan in the third vote, then the company will formally apply to the federal finance minister for approval to demutualize.

One reason Economical officials want to demutualize is to raise money from capital markets, which in turn could be used to buy other companies.

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11 Comments » for Estimated value of Economical’s demutualization for mutual policyholders
  1. Doug says:

    This is a complete scam on the part of a few insiders. We were Economical Brokers since 1950. We were always told that all policies were “mutal” and we told our customers that. No one ever informed us about “special” mutual policies. Every “special” mutual policyholder that I have heard of by name since the announcement seems to be an employee, ex-employee, or their friends or families.

  2. Bill STOYLES says:

    Wherever there is room for corruption, there is eventually corruption!!

    So sad

  3. ann says:

    I have a home and mortgage Economical policy initiated in 1959.
    the heading on the policy specifically states “ECONOMICAL MUTUAL
    INSURANCE” I have been told this means nothing re: it being Mutual.
    if the original documents don’t mean anything then they are making
    up stories on who is eligible!!! I am also having problems getting
    them to change the date from 1995—to 1959 being told it will
    make little difference. Seriously!!! perhaps the non-mutual holders
    should go to the next meeting and vote NO DEMUTUALIZATION
    before it is too late.

  4. Michael says:

    I was a broker with Economical for 37 years. I bought my first policy, a tenants package in 1976, a home policy in 1977 and a farm policy with Western in 1986, which I have to this day. Our office was always told that mutual policies were not available. Further, even though Western is owned by Economical, I still could not have one. This was a company decision to only sell them under certain circumstances but they took my premiums every year. So what makes my policy any less valuable than the person that “lucked out” and had “mutual” on their declaration page.

  5. Tony says:

    Did any of you complaining about not having a mutual policy ever really applied for a mutual policy? One of the requirements to apply for a mutual policy was to sign a promissory note to financially back the insurance company if financial trouble occurred. This detoured most from taking out a Mutual policy. It’s easy to complain after the facts but had you taken the risk the rewards were there.

    • Mike says:

      We non mutual policyholders have to vote with our feet. These insiders who, with a straight face, argued that the ENTIRE surplus belonged to them, before the Feds stepped in, are what we are up against. I say either the “riff raff” (us) gets an equitable share of the surplus, or we vote no, AND CANCEL OUR POLICIES EN MASS.

    • Mike says:

      When has that ever happened? We are not talking about the liability that a Lloyds syndicate participant is exposed to, not even close! Knowing the risks involved, I would have gladly signed. What a BS argument, Tony.

  6. Michael says:

    As for the assumption of risk by purchasing a mutual policy, that risk is infinitesimal compared to the potential profit. I wonder how many people actually said no to a mutual policy because of financial liability…..not one I bet. Either the surplus is divided equally or CANCEL YOUR POLICY. I also believe it is a potential E &O exposure for brokers who did not offer mutual policies when they knew those policies were available.

  7. S. Kenny says:

    It is remarkable that my home insurance doubled last year and then doubled AGAIN this year. I guess the new company intends to get my paltry $2000. payout out of me in advance.

  8. Rusty says:

    So 900 people, insiders, got to buy a lottery ticket in a rigged game. The argument that they assumed risk is laughable. I urge the non-mutual policyholders to vote against demutualization.

  9. Jane says:

    When is the third meeting to be held (approximately)? I want to be there so I can VOTE NO!

    My certificate of Automobile Insurance for over 30 years is with Economical Mutual Insurance Company but that means nothing in being an eligible policy holder.

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