Demutualization Of Insurers Is Green Lighted
Demutualization is now a possibility for Canadian insurers. According to Insurance Business Canada, “it has been a long time coming, but the final regulations for the demutualization of federally-regulated mutual property and casualty insurers has arrived – and one company looks poised to pull the trigger.”1
Demutualization 101: The International Risk Management Institute defines demutualization as a “process in which a mutual insurer changes its legal form to that of a stock insurer. As a stock company, the insurer can more easily raise capital, offer better compensation to its management through stock options, achieve superior operating and financial flexibility, and enjoy positive tax benefits. A major drawback is the high expenses associated with the process due to various legal, accounting, regulatory, and tax hurdles.”2
Leading The Way For Demutualization Of Insurers
For more than four years, Economical Insurance has advocated for the demutualization of Canadian property and casualty insurance companies. In a June 30, 2015 news release, Economical notes that if its board and a special committee decide to proceed, eligible policyholders could be asked to vote as early as this fall.
Furthermore, Economical notes, “The key factors in determining eligibility remain unchanged in the final regulations. That is, subject to specific exceptions, an eligible policyholder is: a person who holds a mutual policy of the demutualizing company on the date the board decides to proceed with demutualization (“eligible mutual policyholder”), or a person who holds a non-mutual policy of the demutualizing company and has done so for the 12-month period ending on the date the board decides to proceed with demutualization (“eligible non-mutual policyholder”).” 3
Demutualization And The Industry
Across the country, property and casualty insurers are undergoing a period of transition as well as consolidation. Canadian Underwriter references the “Intact acquisition of AXA Canada, Traveler’s purchase of The Dominion of Canada General Insurance Company and the acquisition of State Farm Canada by Desjardins Group” 4 as key recent examples of this industry trend.
Economical sees demutualization as a potential game changer for the company. According to Canadian Underwriter, “Gerry Hooper, chairman of Economical Insurance’s BoD, recently told attendees of the company’s annual general meeting that it is time for the company to unlock its “potential to compete on a level playing field with larger competitors and become a leading force in the Canadian property and casualty industry.”
“To compete on an equal footing with the leading Canadian and foreign-owned companies in our market, we are investing heavily in our long-term competitiveness (including completion of a major transformation of underwriting operations) and establishing a platform that will not only position us to deliver exceptional operating results, but to integrate future acquisitions, as well,” Hooper said at the time.” 5
ALIGNED understands how the Canadian property and casualty insurance industry is evolving. Talk to one of our advocates today about how we can help you secure the best products, services and solutions for your business.
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Sources: 1 Insurance Business Canada 2 IMRI.com 3 Economical Insurance 4, 5 Canadian Underwriter