Economical Mutual Insurance Co. is one step closer to a proposed $1.9-billion initial public offering after a first group of policyholders voted 99 per cent in favour of the insurer’s demutualization plans.
Rowan Saunders, Economical’s chief executive officer, said the confidence shown by insurer’s legal owners – clients known as mutual policyholders – at a special meeting on Wednesday supports the company’s long-time vision to convert from a mutual into a publicly traded company.
Waterloo, Ont.-based Economical is Canada’s ninth-largest property and casualty (P&C) insurer, with a 4-per-cent market share, according to data compiled by the Insurance Bureau of Canada. The P&C industry has been consolidating around its largest players over the past decade, with several foreign-owned insurers selling their Canadian operations to domestic companies, owing in large part to unpredictable profitability in auto insurance.
“We are pleased to see the overwhelming support from the mutual policyholders for a positive vote,” said Mr. Saunders in a telephone interview after the vote, which included ballots from 75 per cent of the 878 eligible mutual policyholders.
Next steps for the 148-year old insurer is to get authorization from the Office of the Superintendent of Financial Institutions to hold a final vote for all eligible policyholders, which would include all of Economical’s clients, not just the owners.
There has been no date set for when that vote will take place, but Mr. Saunders says he “fully expects it to be a positive outcome," at which point the insurer will apply to the federal Minister of Finance for the final regulatory approval to demutualize.
The process hasn’t been a smooth one, taking much longer than expected. The company, founded in 1871, has spent the past nine years on an occasionally dramatic journey toward an initial public offering. Since the process began, policyholders have been in the middle of a heated debate over how Economical’s capital should be divided.
The federal Finance Department subsequently ruled that all policyholders who contributed to building an insurer’s capital base should receive a share of the company’s surplus money. This meant mutual policyholders who previously were entitled to 100 per cent of the company would have to share the proceeds of the IPO with the rest of Economical’s customers, also known as non-mutual policyholders.
After months of negotiations, Economical announced in late January it would split the pot, with mutual policyholders each receiving between $300,000 and $430,000 in shares or cash for their stakes in the company. A second group of approximately 630,000 non-mutual policyholders, who are not legal owners of the firm but did contribute to building its value, will each get $1,500 to $2,300.
Those valuations could change depending when the company decides to plan its IPO, which Mr. Saunders says will not happen in 2019. “This has taken longer than anybody initially thought ... but we are now measuring the process in quarters, not in years,” he adds.
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Clare O’Hara
Andrew Willis