Draft regulations for demutualization of p&c companies released

Canada’s Department of Finance has issued long-awaited draft regulations for the demutualization of Canadian property and casualty insurance companies.

Available online on the Canada Gazette website on Feb. 27, 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.

Economical Insurance in Waterloo, Ont. welcomed the announcement as a “significant milestone,” noting that these regulations are needed to allow p&c 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.

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,” said Gerald Hooper, chair of Economical’s board of directors, in a statement. “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.”

John Bowey, vice-chair of the board of directors and head of Economical’s special committee on demutualization, added in the statement that “we are now approaching the critical phase of determining what the framework reflected in the demutualization regulations implies for Economical. 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 is a regulated process in which a mutual insurance company converts to a stock company with share capital and voting shareholders, Economical said in a backgrounder. In the demutualization process, eligible mutual policyholders’ ownership and voting rights of the mutual company are exchanged for common shares in the newly converted stock company.

The new demutualization regulations for Canada’s p&c industry requires eligible non-mutual policyholders to participate in a demutualization by having their policies converted as well. In the process of converting, the demutualizing company distributes to eligible policyholders the proceeds of the conversion in the form of cash, transferable shares or a combination of cash and shares.

Economical will provide regular updates on the process and stakeholders are encouraged to visit company’s demutualization website.