July 6, 2020 — ECONOMICAL Insurance has launched a campaign to alert eligible policyholders to possible financial benefits from its bid become the first Canadian p&c insurer to demutualize.

It is urging past and present policyholders to visit joininourfuture.com to determine if they are eligible, and if so, to activate an online account and register for demutualization updates.

For customers who held a policy for the 12-month period ending on Nov. 3, 2015, eligibility may apply for one-time financial benefits in the form of cash or shares once the mutual insurer becomes a publicly traded company owned by shareholders.

Economical said policyholders who are eligible to participate but have not registered online are likely unaware of their potential financial benefits.

“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,” the Waterloo, Ont.-based company said last week.

The campaign will use targeted social media advertisements, stories and other content throughout the summer.

“At a time when many Canadians are under financial pressure, this campaign is timed to ensure as many eligible policyholders as possible are aware of their potential financial benefits,” said David Bradfield, Economical’s marketing and communication VP.

“Encouraging more policyholders to register will also facilitate the process associated with our future special meeting, where more than 630,000 Canadians will have an opportunity to vote to approve our demutualization.”

Economical board chairman John Bowey said in an update at the end of June that a third and final special meeting will not be held in 2020, as had been expected before the pandemic.

“For now, there are too many unknown factors affecting our business,” Mr. Bowey said.

“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.

“And, for the most part, they are not within our control and so a final decision on the timing of our IPO must wait for now.”

The future special meeting stems from an earlier one in March 2019 where the mutual policyholders overwhelmingly supported a change to the company bylaws to allow non-mutual policyholders to vote at a third special meeting of all eligible policyholders to continue the demutualization bid.

Mr. Bowey said there are three key areas that need to come together before Economical can finalize the timing of an IPO.

“First we need to improve our performance, second we need to complete the necessary regulatory and governmental approval steps, and lastly we need to ensure capital market conditions are favourable.”

“It was momentum in all these key areas that prompted a prediction from me earlier this year about moving forward with our third special meeting in 2020.

“Unfortunately, since then, 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,” Mr. Bowey said.

“In this environment, it is impossible to deliver a responsible prediction about the timing of our future IPO, and therefore our third vote.”

An IPO will be the culmination of a very long — and, at times, litigious — process that began in December 2010, when a group of so-called mutual policyholders raised the prospect of demutualization.

Generally speaking, ‘customers’ of a mutual insurance company are considered members, and thus co-owners. But Economical’s mutual policyholders constitute a special class of members, who in decades past agreed to chip in financial support if the insurer ever ran short of funds.

At one time this was a fairly common feature of mutuals, but Economical is the last mutual of any size in Canada to retain separate classes of members.
It is a large and stable company and no mutual policyholder has ever been called upon to bail it out.

But some of the mutual policyholders saw in demutualization an opportunity to convert their particular memberships into ‘shares’ of a cash surplus of up to $1bn in surplus assets.

Initially the board and management of Economical opposed the idea, and in late 2010 and early 2011 the disagreement erupted as the dissident policyholders engaged a venture capital firm called VC & Co. that led the charge to replace the board.

The dissident policyholders won a couple of skirmishes but ultimately lost the battle of the boardroom.

Then the victorious board members launched their own campaign for demutualization in 2011.

No Canadian p&c mutual has ever converted to a share-based company.

Several major life insurance companies did so in 1999, but the federal Finance Department determined that the rules governing those transitions did not apply to p&c mutuals.

The federal regulator also made it clear early in the process that there would be no exclusive windfall for mutual policyholders.

Eventually an Ontario Superior Court judge worked out the convoluted process for drawing up two committees, one for each class of policyholder.

Federal regulations provide that a converted company must be widely held, with no one having more than 10% of any class of shares for at least two years after the conversion.

The rule was designed to prevent a hostile takeover of a company shortly after conversion and to prevent ‘sponsored demutualization,’ in which an investor agrees to buy a controlling interest in the company as part of the process.

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