Another step closer for demutualization

Another step closer for demutualization | Insurance Business Canada

Another step closer for demutualization
It has been a long, hard road, but the release of draft regulations intended to allow federally regulated mutual property and casualty insurance companies to demutualize has finally arrived.

“Reaching this stage of the long and complex process of developing a framework for demutualization is a welcome development,” said John Bowey, vice-chair of the board of directors and head of Economical’s special committee on demutualization. “Our special committee and our board intend to carefully review the draft regulations with our advisors and if Economical submits comments to the Department of Finance, we will circulate these to our stakeholders.  We encourage all interested stakeholders to carefully review the draft regulations as well.”

The draft regulations are available online on the Canada Gazette website at http://www.gazette.gc.ca/gazette/home-accueil-eng.php.

There are two sets of draft regulations: one for insurers with only mutual policyholders and one for insurers with both mutual and non-mutual policyholders.

As Economical has both mutual and non-mutual policyholders, the draft regulations entitled ‘Mutual Property and Casualty Insurance Company with Non-mutual Policyholders Conversion Regulations’ are relevant to Economical.

“We are now approaching the critical phase of determining what the framework reflected in the demutualization regulations implies for Economical,” said Bowey. “Working with our financial and legal advisors, we will complete our analysis as soon as possible and, once the regulations are finalized and in force, Economical’s board will determine whether the Company will proceed with demutualization under this regulatory framework and, if so, how best to move forward with demutualization.”

Demutualization regulations are needed to allow P&C mutual companies that wish to change their corporate structure to become companies with share capital. Regulations have now been released in draft form and are subject to a comment period that ends on March 30. According to the Department of Finance, once final regulations have been declared in force, companies may formally begin the demutualization process.

“We have been pursuing demutualization for more than four years to unlock the tremendous strategic potential we see in Economical,” said Gerald Hooper, chair of the board of directors. “With the greater access to capital that demutualization can bring, Economical could make the significant investments it needs to compete on an equal footing with other P&C companies that do not face the same constraints on financial flexibility imposed by the mutual structure. Our industry is changing rapidly and those who do not keep pace will be left behind.”