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Demutualization

Economical announces enactment of federal P&C demutualization regulations

Waterloo — Economical Insurance announced yesterday that the Department of Finance has published final regulations for the demutualization of federally-regulated mutual property and casualty (P&C) insurance companies.

With final regulations in place, P&C mutual companies that wish to demutualize can use this framework to convert into companies with share capital. Entitled “Mutual Property and Casualty Insurance Company with Non-mutual Policyholders Conversion Regulations,” the final regulations are available on the Canada Gazette website at http://www.gazette.gc.ca/gazette/home-accueil-eng.php.

“We are pleased to have arrived at the end of a lengthy and complex regulation development process. Economical’s special committee and board of directors are carefully reviewing the final regulations in order to determine whether demutualization within the final regulatory framework is in the best interests of the company and how to proceed,” said John Bowey, vice-chair of the board of directors and head of Economical’s special committee on demutualization. “If the board decides to proceed, we would expect to call a special meeting for early fall to hold the first vote of eligible mutual policyholders.”

Conversion proposal responsibilities

The most significant change in the final regulations assigns the demutualizing company responsibility for preparing the conversion proposal. The conversion proposal contains all of the detailed terms for the company’s demutualization. The mutual and non-mutual policyholder committees still have the important responsibility of negotiating the allocation of financial benefits, and the demutualizing company is required to include the negotiated allocation in the conversion proposal. Economical believes this is a change that will help to promote the demutualizing company’s best interests.

Eligibility

The key factors in determining eligibility remain unchanged in the final regulations. That is, subject to specific exceptions, an eligible policyholder is: a person who holds a mutual policy of the demutualizing company on the date the board decides to proceed with demutualization (“eligible mutual policyholder”), or a person who holds a non-mutual policy of the demutualizing company and has done so for the 12-month period ending on the date the board decides to proceed with demutualization (“eligible non-mutual policyholder”).

What’s next

If the board decides to proceed with demutualization, it will call a special meeting to hold a vote of eligible mutual policyholders to determine whether to open negotiations with eligible non-mutual policyholders. This special meeting is expected to take place in early fall 2015. If eligible mutual policyholders approve, Economical will then prepare and send a notice to all eligible policyholders to inform them of the demutualization.

The demutualization framework in the final regulations is complex and involves many steps. Assuming each step is successful, we estimate at this point that the process will take at least two years from the date the board decides to proceed with demutualization to the date the Minister of Finance approves the final conversion proposal.

Economical will continue to provide regular updates and stakeholders are encouraged to visit the company’s demutualization website, http://getthefacts.economicalinsurance.com for information.

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