Mar. 23, 2020 — THERE IS finally light at the end of the seemingly interminable demutualization process at Economical Insurance. 

“That journey has been longer and more complex than anyone could have predicted, but we have made great progress, have broken new ground and are building momentum with the end in sight,” John Bowey, chairman of Economical’s board, wrote in an update ahead of the company’s annual report earlier this month. 

The third and final special meeting of policyholders is expected to be held in the second half of this year. In March 2019 the mutual policyholders overwhelmingly supported a change to the company by-laws to allow non-mutual policyholders to vote at a third special meeting of all eligible policyholders to continue the demutualization bid. 

“Before we call the third special meeting, we need the approval of the Office of the Superintendent of Financial Institutions. This review process is already underway,” Mr. Bowey wrote this month. 

“After a successful third special meeting, we will submit our application to demutualize to the minister of finance within three months, as required by regulations.” 

Those are in addition to the approvals needed from securities regulators and stock exchanges for a crucial IPO. “Our confidence is building, but we continue to work on producing results that will support an IPO reflecting Economical’s value and position the company for long-term success,” Mr. Bowey said. 

“Our board is also actively monitoring capital market conditions, a key factor in determining the exact time of the IPO.”

But ‘capital market conditions’ are in the toilet at present, due to worries over the COVID-19 pandemic, which has raised fears of a worldwide recession.

Meanwhile economical has upgraded its services to policyholders. By registering online at joininourfuture.com they can have instant access to important meeting notices, circulars and voting information leading up to the third special meeting. 

Policyholders can view policy information used for demutualization, and access a personal estimate range of demutualization benefits (based on certain assumptions). 

It’s anybody’s guess when or if sanity will return to the financial markets. If it does, however, Economical is in good shape. It returned to profitability in 2019 following three years of losses as it carried out a transformation plan to reposition for the capital markets amid ongoing efforts to demutualize. 

It posted consolidated net income of $17.4m for the past year, following losses of $73m in 2018, $93m in 2017 and $20m in 2016. 

Economical’s combined ratio for 2019 improved almost seven points over the year before to 105% and its underwriting loss fell to $118m from $266m. 

“Our digital direct business, Sonnet, also continued to make progress in 2019, with significant growth in its top line and meaningful improvement in its underwriting performance,” president and CEO Rowan Saunders said. 

Sonnet’s premiums surpassed $206m in 2019. Economical’s net dividend and interest income was relatively flat in 2019 as market yields dropped. Mr. Saunders said that poses an investment income headwind going into 2020. 

“That said, I expect the presence of low interest rates and challenged industry auto results will also prolong the hard market pricing environment in which we currently operate.” 

The company said 99% of eligible mutual policyholders voted to continue its groundbreaking pursuit to become a publicly traded company. 

If the insurer’s 630,000 eligible non-mutual policyholders vote to accept the company’s plan to convert from a mutual insurance company, Economical can then apply to the federal minister of finance for the final regulatory approval to demutualize. 

It would be the first p&c company to do so. Under the terms of the conversion proposal, 20% of the proceeds of an initial public offering would be allocated to Economical’s 878 shareholding ‘mutual’ policyholders, $100m would go toward establishing a charitable organization and the rest of the shares would be distributed among hundreds of thousands of regular policyholders who had policies in force on Nov. 3, 2015. 

Depending on an IPO pricing for an estimated 100 million common shares valued at between $13 and $19 each, proceeds could yield more than $300,000 for mutual policyholders and $1,500 or more for eligible non-mutual policyholders. 

The conversion proposal was developed by two separate committees representing the mutual and non-mutual policyholders. Mr. Bowey said earlier this year that Economical was encouraged by the agreement of those committees to take the process that far. 

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