The Economical calls for P&C demutualization regulations to be similar to rules for life insurers – with some exceptions

The Economical Mutual Insurance Company has proposed to the federal government that Canadian property and casualty insurers should follow essentially the same demutualization process as reflected in the rules for life insurance mutuals.
However, in a submission to the federal government, the company also outlines areas in which the federal government’s current rules allowing life insurer demutualizations may not be suitable for P&C insurers. These include restrictions on ownership by companies, holding companies and foreign ownership.
The Economical’s board recommended last year that the company demutualize. As of yet, however, the federal government does not have any regulations in place governing the demutualization of a federally licensed property and casualty insurer.
The department of finance launched a one-month-long consultation process in late June, calling for submissions from the public and the insurance industry regarding what such regulations might look like. The Economical’s full, 43-page submission can be read at:
http://www.economicalinsurance.com/en/resourcesGeneral/TEIGResponsetoConsultationPaper.pdf
In a summary statement to the federal government, The Economical makes the following points:
•”Mutual policyholders of federal P&C mutuals enjoy at least as strong ownership rights as participating policyholders of federal life mutuals and accordingly have exclusive rights to demutualization benefits, as did the participating policyholders of the demutualized federal life mutuals.”
•”Holders of mutual (i.e. voting) policies are the only policyholders of a federal P&C mutual who should be entitled to vote on a demutualization and to receive demutualization benefits.”
•”Permitting federal P&C mutuals to demutualize would affect so few companies and such a small percentage of the overall Canadian P&C industry that we do not believe there would be any material adverse impacts.”
•The “Economical needs to demutualize in order to compete more effectively over the long term with the large stock P&C companies that operate in Canada.”
The Economical’s full submission delves into some of the possible factors in calculating the actual value of the demutualized P&C policies. It also recommends, to maintain the financial stability of a company during a demutualization, that “none of the surplus of a demutualizing P&C mutual be distributed to its policyholders,” as is reflected in the life insurance regulations.
The Economical also recommends amending some rules guiding life insurance demutulizations to better reflect the P&C context. For example:
• “Except in the case of an approved sponsored demutualization, or the acquisition of a significant interest as part of an approved IPO structure, the two-year restriction on any person having a significant interest in a demutualized property and casualty insurer should commence on the date such insurer demutualizes.”
•”Except in the case of a sponsored demutualization, or the acquisition of a significant interest as part of an approved IPO structure, the two-year restriction on any person having a significant interest in a demutualized property and casualty insurer should apply to all demutualizing insurers, not just those with between $1 billion and $5 billion in surplus.”
•”The restrictions on a sponsor being a ‘company’ or a ‘holding company,’ or an entity controlled by a ‘company’ or a ‘holding company,’ and having no significant shareholder should be eliminated.”
•”Entities incorporated or controlled outside Canada should be permitted to be sponsors.”