What’s next for Economical’s demutualization

Editor’s note: This story was updated to reflect a June 30 announcement by Economical Insurance

Economical Insurance is still in the process of demutualizing but the next policyholders’ vote is not going to happen this year, the Waterloo, Ont. based insurer announced June 30.

As part of the demutualization process, Economical is trying to reach out to anyone who held a policy for the 12-month period ending Nov. 3, 2015, though the insurer is not doing a mass mailout.

If Economical completes its demutualization, the firm will be traded on the stock exchange. No other federally-regulated mutual property and casualty insurer has done the same thing, though four Canadian life insurers demutualized 20 years ago.

“By using a geographically targeted social media campaign, Economical aims to reach tens of thousands of their policyholders in an efficient way that allows for broad visibility with a minimal environmental impact,” Economical said June 29 in a release.

The next step in the demutualization process is a meeting of all policyholders, originally planned for the second half of this year.

Economical has yet to announce the exact date but did confirm June 30 it will not be in 2020.

“For now, there are too many unknown factors affecting our business. Almost all of those unknown factors are related to the impact that COVID-19 will have not just on us, but on the Canadian economy as a whole and on capital markets,” Economical chairman John Bowey said in the June 30 statement. “In this environment, it is impossible to deliver a responsible prediction about the timing of our future IPO, and therefore our third vote.”

If the eligible policyholders do vote in favour of demutualization, several more steps are needed — including permission from the federal finance minister — before Economical can convert to a stock company.

Economical’s board of directors voted in 2015 to start the demutualization process.

With some stipulations, if a client was either a mutual or non-mutual policyholder on Nov. 3, 2015, they are eligible to receive demutualization benefits.

Those benefits have yet to be quantified.

Past and current Economical policyholders are encouraged to visit Economical’s “join our future” web page, the company said June 29.

Economical has more than 600,000 policyholders, of which about 1,000 are mutual policyholders. About 99% of mutual policyholders voted on March 20, 2019, in favour of a proposal released two months earlier. That proposal resulted from earlier negotiations between two court-appointed committees — one representing mutual policyholders and the other representing non-mutual policyholders.

The conversion proposal that Economical submitted to OSFI in 2018 calls for 20% of benefits going first to eligible mutual policyholders, Economical said in an information circular released in 2019. 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 at the time. The actual value of demutualization benefits will not be known until Economical completes an initial public offering of stock. Had Economical done an IPO in May of 2018, 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.”

On March 31, 2020, Economical chairman John Bowey noted the outbreak of COVID-19 has adversely affected economic and capital market conditions in Canada and around the world.

“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.

In order to demutualize and complete an IPO, Economical needs to improve its performance, Bowey stated June 30. It also needs to complete the necessary regulatory and governmental approval steps and to ensure capital market conditions are favourable.

But since this past March, “it has become clear that the onset of COVID-19 could slow our performance improvement, particularly in relation to the returns we can earn on our investment portfolio and the impact the pandemic is having on capital markets and public offerings,” added Bowey.

Feature image via iStock.com/holwichaikawee