May 9, 2018 by Greg Meckbach
If Economical Insurance becomes publicly-traded on the stock exchange, it could eventually be acquired, but company officials have no intention of making Economical an easy acquisition target.
“We certainly made a determination a long time ago that we were not going down this (demutualization) road … to expose ourselves to be taken out by another player in the industry,” Economical chair John Bowey told mutual policyholders Monday at the insurer’s annual meeting in Kitchener.
Waterloo, Ont.-based Economical is the first federally-regulated insurer to start the demutualization process. If successful, it would be traded on a stock exchange and federal regulations would not allow a single company or person to own more than 10% of its shares for the first two years. After that, it would be impossible for any publicly-traded company to avoid the exposure of being taken over by another company, Economical Insurance’s president and CEO Rowan Saunders told Canadian Underwriter in a phone interview in March.
That said, Economical officials still want the firm “to remain independent well into the future and beyond the two-year year protection period,” Bowey said Monday. He was explaining to mutual policyholders why Economical made significant investments in its online direct writer (Sonnet) and a policy administration system (Vyne), which is about to be rolled out to brokers.
In its annual report for 2017, Economical said its combined ratio in personal lines in 2017 was 114.6%. Of that, Economical said 11.1 points was attributable to spending on strategic investments such as Sonnet and Vyne. “We believe this is something we have to do if we want this IPO to be successful,” Bowey said Monday of Sonnet and Vyne.
Several steps are still required before Economical can demutualize. It overcame a major hurdle in February when two court-appointed committees came to an agreement in principle how the benefits of demutualization will be allocated. That agreement is still confidential. One of those committees represents eligible mutual policyholders and the other represents non-mutual policyholders.
Once the agreement is finalized, Economical plans to submit a conversion proposal to the federal Office of the Superintendent of Financial Institutions.
After OSFI’s review of the conversion proposal, Economical will need to convene a mutual policyholders’ meeting. At that meeting, the eligible mutual policyholders will be able to vote on whether to allow eligible non-mutual policyholders to vote on the conversion proposal. If they do vote in favour of letting non-mutual policyholders vote on the conversion proposal, “there will be a third special meeting where all eligible policyholders vote to approve the conversion proposal and to authorize Economical to seek final approval from the federal Minister of Finance,” Economical said earlier.
Assuming it does demutualize, it would be publicly-traded. After two years, RSA and Aviva might possibly view Economical as a potential takeover target, Paul Holden, an equity analyst with CIBC Capital Markets, told Canadian Underwriter earlier.