Economical CEO: ‘We’re pursuing a scale play’

Economical CEO: ‘We’re pursuing a scale play’ | Insurance Business

Economical CEO: ‘We’re pursuing a scale play’

Economical Insurance came close to a home run in its second special meeting on demutualization, with 99% of eligible mutual policyholders giving the green light to the firm going public. The favourable vote on March 20 enables Economical to plough on with its preparations to complete an initial public offering (IPO).

The next step for Economical, as required by the federal regulations that govern the demutualization process, includes getting authorization from the OSFI (the Office of the Superintendent of Financial Institutions) to hold a third special meeting, inviting all 630,000 eligible policyholders to vote on accepting the conversion plan. If two-thirds of the eligible policyholders vote in favour, Economical can then apply to the federal Minister of Finance for the final regulatory approval to demutualize.

“As far as next steps, there are two main themes we need to manage,” said Rowan Saunders, president and CEO of Economical Insurance. “As we go through the regulatory process of moving down the path to demutualization, we have to work on an information circular that we need to update, submit to OSFI and get it approved, which would then give us permission to proceed with the third-vote for all eligible policyholders.

“The second theme is around our company performance. We’re in the middle of a multi-year business transformation and turnaround agenda. We have a lot of work in flight, we’re making lots of great progress, and we’re working very hard to get the financial performance of the company in a state that we feel is more appropriate to launch an IPO.”

At the second special meeting on demutualization in March, Saunders told eligible mutual policyholders that Economical will not be in a position to launch an IPO in 2019. However, he said the firm is making “tremendous progress” in its transformation and is now measuring that progress in terms of quarters rather than years. At this time, the firm is not giving a specific date for its third special meeting or planned IPO, but Saunders said they’re working “as quickly and as diligently as possible” to get ready.

“There’s a lot happening in the insurance industry. The market is continuing to evolve, and I believe companies are tackling that change with two general strategies” Saunders told Insurance Business. “Some insurance companies are deciding to be small, nimble and niche players, and others are pursuing more of the scale play. Because of the make-up of our portfolio, and given our current size of about $2.5 billion in premium, we’re certainly pursuing the scale play. That’s why its important to gain access to the capital markets.

“We’ve launched a couple of innovative, market-leading strategies. One is our digital, direct unit called Sonnet, and the other is our broker platform called Vyne. The broker platform went fully national in the fourth quarter of 2018, and we saw a 50% increase in personal lines in the same quarter. We’ve seen tremendous adoption by our brokers, as well as lots of opportunity for organic growth. In order to fully-capitalize on that, we’re going to need access to further capital in order to assume the liabilities going forward. Moving forward, we also think there are going to be more opportunities for inorganic growth through mergers and acquisitions. That really drives the importance of becoming public and fulfilling our strategic objective of becoming a leading Canadian insurance company.” 

For brokers working with Economical, it’s going to be business as usual throughout the demutualization process, Saunders assured. If the IPO is successful, the firm hopes to expand its product and geographic reach both organically and inorganically, to broaden its suite of solutions for its broker partners. As part of its strategic business turn-around, Economical also plans to expand its Vyne platform to include more commercial insurance capabilities.

“There are lots of exciting things going on at Economical. Right now, we’re focusing on moving through the regulatory process, while also scaling the business and improving our financial performance so that we’re in a great position to IPO,” Saunders added. “We’re thrilled to get through the significant milestone, gaining the support of our eligible mutual policyholders. Our broker partners are incredibly supportive of Economical and they’re really keen for us to become a Canadian-owned, Canadian-focused public company.”