What P&C Demutualization Might Mean…
A March 24, 2015 media statement by the Canadian Association of Mutual Insurance Companies (CAMIC) poses the question: What might the Federal Government’s proposed demutualization rules for P&C insurers mean for policyholders?1
How Demutualization Works
The International Risk Management Institute defines demutualization as a “process in which a mutual insurer changes its legal form to that of a stock insurer.
As a stock company, the insurer can more easily raise capital, offer better compensation to its management through stock options, achieve superior operating and financial flexibility, and enjoy positive tax benefits. A major drawback is the high expenses associated with the process due to various legal, accounting, regulatory, and tax hurdles.”2
Why Propose New Demutualization Rules For Property & Casualty Insurers?
In December 2010, Economical Insurance (Economical Mutual) announced plans to demutualize. According to the statement, CAMIC and its member companies “are opposed to the use of corporate equity in this fashion.”3
Furthermore, CAMIC shares that “Economical has grown significantly over the years, and it now has a surplus exceeding $1.5 billion. As a mutual insurer, that value belongs to policyholders. Economical has hundreds of thousands of policies outstanding but only a small fraction — less than 1000 — are mutual policies, entitling holders to voting rights. Economical proposed that only this group be entitled to share in financial benefits from demutualization. If one does the math that would mean each mutual policyholder could get, on average, in excess of $1 million. The regular policyholder would get nothing.”4
No Current Regulations Exist
According to Canadian Underwriter, “Canada has had regulations on the demutualization of life insurance firms since 1991, but there are currently no regulations in place for the demutualization of P&C insurers.”5
The Canadian Underwriter article notes that “in the proposed regulations, the federal government is proposing a four-step negotiated process, with the company board first deciding who the “eligible policyholders” would be. The mutual policyholders would then vote to negotiate a conversion process with non-mutual policyholders. Then committees of each category of policyholder would negotiate a conversion proposal.
You can read the complete article here: Non-mutual policyholders warned to ‘pay close attention’ to proposed p&c demutualization rules: mutual insurers’ association
Eligible mutual policyholders would then vote to amend the company’s by-laws “to allow eligible non-mutual policyholders to vote on the conversion proposal.” If a vote by all eligible policyholders passes, then the insurer’s board of directors would apply to the federal finance department to demutualize.”6
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Sources: 5,6Canadian Underwriter 1,3,4CNW Group 2IRMI.com
