OSFI publishes guide for demutualization of certain mutual p&c insurance companies

The Office of the Superintendent of Financial Institutions (OSFI) has published on its website a guide for the demutualization of certain mutual property and casualty insurance companies.

The Guide for the Demutualization of Mutual Property and Casualty Insurance Companies with Non-mutual Policyholders sets out the information that must be provided to OSFI at each phase of the demutualization process and provides administrative guidance, OSFI said in an email on Tuesday.

Related: Economical Insurance mutual policyholders vote to proceed to next step of demutualization

OSFI notes that the Insurance Companies Act (ICA) contemplates the conversion of a mutual federal insurance company into a company with share capital, a process referred to in the guide as demutualization or conversion. The Mutual Property and Casualty Insurance Company with Non-mutual Policyholders Conversion Regulations (the Regulations), which came into force on July 1, set out the framework governing the demutualization of federally regulated mutual p&c insurance companies that have both mutual and non-mutual policyholders (MPCC). The demutualization process involves three approvals by the Superintendent of Financial Institutions, and culminates with the issuance of letters patent of conversion by the Minister of Finance.

Related: Economical Insurance calls special meeting of eligible mutual policyholders as the next step on the road to demutualization

The guide is divided into four parts:

• Part I provides a general overview of the demutualization process set out in the ICA and Regulations;

• Part II sets out the information that the MPCC is expected to submit to OSFI in connection with each of the four approvals that are required as part of the demutualization process;

• Part III provides administrative guidance relative to the demutualization process and the related approvals; and

• Part IV provides administrative guidance relative to the role of the independent actuary retained for the purpose of the demutualization, as well as the appointed actuary of the MPCC.

OSFI’s primary responsibility throughout the demutualization process is to review and assess applications for regulatory approval and ultimately make recommendations to the Finance Minister with respect to the approval of the conversion proposal and the issuance of letters patent of conversion.

“OSFI will generally evaluate the applications for approval against the criteria in this Guide; however, as the particular circumstances and facts of each demutualization are different, this Guide should not be viewed as an exhaustive set of criteria and information requirements,” the guide said. “OSFI officers from the Legislation and Approvals Division, Insurance Supervision Sector and the Actuarial Division jointly review and assess each application for the demutualization of an MPCC.”

Related: Federal demutualization regulations now in effect, Economical Insurance to consider options

One insurer that is pursuing demutualization is Waterloo, Ont.-based Economical Insurance. In early November, the company’s board of directors formally decided to proceed with demutualization. On Dec. 14, Economical announced that its mutual policyholders voted in favour of continuing to the next stage of demutualization.

Now that mutual policyholders have voted, the “next step in the regulatory process will see Economical prepare and mail a formal notice to all eligible policyholders,” Economical said at the time. That notice was approved by OSFI. “After approval by OSFI and mailing of the notice, Economical will file an application with the court for an initial order setting out the procedure for the negotiations,” Economical added.

To view the information that must be provided to OSFI at each phase of the demutualization process, visit http://www.osfi-bsif.gc.ca/Eng/fi-if/app/aag-gad/Pages/demu-MPCIC.aspx.