Ottawa proposes broader powers to regulate conversion of mutual insurance companies

Economical Insurance announced Monday it “welcomed” the federal government’s recent proposal to broaden the cabinet’s power to make regulations on the conversion of mutual insurance companies into companies with common shares.

On Friday, federal Conservative MP Peter Van Loan tabled Bill C-31, on behalf of Finance Minister Joe Oliver, in the House of Commons. In addition to implementing part of the 2014-15 budget, the omnibus bill – dubbed the Economic Action Plan 2014 Act No. 1 – also proposes several changes to the federal Insurance Act.

Section 237 of the existing Insurance Act gives Cabinet the power to make regulations on applications of mutual insurance companies to convert into firms with common shares.

Waterloo, Ontario-based Economical Insurance announced in 2010 its intent to demutualize, “subject to approval” by both Economical policyholders and regulators. In its 2012 annual report, Economical noted that a demutualization would involve conversion to a stock company, but that regulations would be needed to allow the conversion of a property & casualty insurance company.

If passed into law, Bill C-31 would give federal Cabinet the power to make regulations “respecting the process that precedes the calling of a special meeting” of a carrier’s eligible policyholders, “including the development of a conversion proposal, and respecting the calling of” the eligible policyholders’ meeting.

Currently, the government has the power to make regulations “governing the ownership of shares issued by a mutual company that has been converted into a company with common shares.” Bill C-31 proposes to amend that clause to give the government power to limit “the circumstances in which” the finance minister “may give approval” under subsection 407(1) of the Insurance Act.

Subsection 407(1) gives the finance minister the power to block the purchase of shares of an insurance company (or a holding company) “if the acquisition would cause the person to have a significant interest in any class of shares of the company,” or if the person already has a significant interest in a class of shares, and the proposed acquisition “would increase the significant interest of the person in that class of shares.”

In a press release Monday, Waterloo-based Economical Insurance noted that the powers proposed under Bill C-31 would “support the eventual implementation of the regulations that are needed to allow federally regulated mutual property and casualty (P&C) insurance companies to demutualize.”

Once Bill C-31 is enacted, “the next step will be for the Department of Finance to release draft demutualization regulations, which are expected to be subject to a public consultation period before coming into force,” Economical Insurance added. “At that point, Economical’s board of directors will be in a position to determine whether demutualization within the final regulatory framework would be in the best interests of the company.”

If passed into law, Bill C-31 would stipulate that regulations regarding an insurance company’s application — to convert from a mutual firm to a company with common shares — “may provide for court intervention in the process … including the circumstances in which the court is to be seized of any matter in relation to that process, and may govern the court’s powers and procedures in that regard.”

Economical noted Monday that “the ultimate nature and scope” of the role of the courts “will not be known until draft regulations are released.”