May 8, 2018 by Greg Meckbach
It’s been more than two years since Economical Insurance’s mutual policyholders voted in favour of demutualization and it’s not clear how much longer the process will take – assuming it happens at all.
“This process was much more complex and time consuming than any of us could have predicted,” Gerald Hooper, a retiring member of the board of directors said Monday during Economical’s annual meeting in Kitchener, Ont. “I had hoped that I could leave saying that demutualization was complete,” added Hooper, now chairman emeritus of Economical. Hooper was chairman of the board from 2005 through 2016.
Economical announced earlier that the Feb. 22 deadline for the company to submit a conversion proposal was extended to June 30. A conversion proposal basically outlines how the company will change from a mutual insurer to a stock company. A federal law that took effect in 2015 stipulates that mutual property and casualty insurers wanting to demutualize must submit a conversion proposal to the federal Office of the Superintendent of Financial Institutions (OSFI).
“By June 30 we will have the conversion proposal and information with OSFI,” Economical chairman John Bowey told mutual policyholders Monday at the annual meeting, held at the Bingemans Centre. After that, several more steps are needed before Economical can demutualize. So far Economical is the only federally-regulated P&C insurer in Canada whose board of directors and mutual policyholders have voted in favour of demutualization.
Both the board and the mutual policyholders voted to start the demutualization process in 2015.
Two court-appointed committees came to an “agreement in principle” in February on the allocation of benefits of demutualization. That agreement is still confidential. Right now, that draft agreement is under review by legal, actuarial and financial experts, Bowey said Monday. Once OSFI reviews that agreement, a special meeting of mutual policyholders needs to be scheduled, at which point those mutual policyholders will have an opportunity to vote on the conversion proposal. Bowey could not predict when that would happen.
OSFI “will be diligent and they will be thorough” in reviewing Economical’s conversion proposal, he said. “We expect this to be a lengthy review.” One mutual policyholder in the audience asked Bowey what would happen if the mutual policyholders vote against the conversion proposal.
“If the mutual policyholders decide to vote no, which is certainly their right, I would say that Economical Mutual Insurance Company remains a mutual insurance company,” Bowey said. He added the federal regulations “would say that this process is over and you can’t pick it up where you left off and go back and renegotiate.”
Once OSFI reviews the conversion proposal, “our anticipation is they will come back and say ‘You are good to go,'” Bowey said. Other outcomes could be that OSFI is fine with the proposal with some exceptions, “or OSFI could tell Economical ‘we are not fine with it at all,'” he added.