Why our demutualization is unique

Department of Finance develops regulations (Lifeco)

• Regulations allowing large life insurance companies to demutualize were enacted in 1999
• The regulations were drafted following a 1996 announcement by the government that it would develop a regime for all mutual life insurance companies to demutualize

Lifeco decides allocation and drafts conversion plan

• The life insurance company determines the allocation formula, and works with appointed actuary and independent actuary to ensure fairness
• The regulations specify one class of eligible policyholders only, and do not require committee negotiations or a court process
• The company drafts the conversion plan, incorporating the allocation it determined
• No mailings (such as the Notice of Intent to Demutualize) are required before this step

OSFI reviews special meeting materials

• OSFI conducts its review of special meeting materials, including the conversion plan, the information circular and the expert opinions
• The life insurance company engages with OSFI to provide additional materials and information required to support OSFI’s review

Lifeco calls special meeting

• The life insurance company calls a special meeting of policyholders to approve conversion plan and authorize its application to demutualize
• Only one special meeting is required for the entire demutualization process, which is similar to Economical’s future third and final special meeting

Regulatory voting period

• The meeting is required to be held a certain amount of time after notice of the meeting is given. This allows policyholders time to make an informed decision

Special Meeting

• Only one special meeting is required for the entire demutualization process, which is similar to Economical’s future third and final special meeting

Lifeco sends Application to Minister of Finance

• After eligible policyholders approve the conversion plan, the life insurance company applies to the Minister of Finance for final approval of the conversion plan and letters patent of conversion

OSFI reviews & recommends application to Minister

• OSFI conducts its review of the demutualization application and makes a recommendation to the Minister of Finance
• The life insurance company engages with OSFI to provide additional materials and information required to support OSFI’s review

Letters Patent

• The final step in the demutualization process is for the Minister of Finance to issue letters patent of conversion that convert the mutual company into a share company
• The life insurance company can then have an IPO and distribute shares

Department of Finance develops regulations

• As regulations did not exist for a P&C insurance company to demutualize, the federal Department of Finance first had to create the regulations
• Economical actively contributed to the development of the regulations, which were enacted shortly prior to a federal election that resulted in a new governing party
• The regulations development process include two formal consultation periods over a period of four years

OSFI drafts Instruction Guide

• OSFI drafts an Instruction Guide detailing the regulatory requirements for a demutualization, OSFI makes a Ruling on who is eligible
• OSFI advises that they need to be kept informed during all stages of the process, even during steps that do not require regulatory approval

Economical engages OSFI

As described in the OSFI Guide, before the Board can approve starting demutualization:

• Economical is required to meet with OSFI to present its plans for demutualization and provide OSFI the board resolution for its review

Economical prepares Notice

• Economical prepares a notice to inform all eligible policyholders of demutualization in accordance with the regulations
• This included determining the list of 630,000 eligible policyholders using the regulations, the Board resolution and the OSFI Ruling

OSFI reviews Notice of Intent

• OSFI reviews the Notice of Intent to Demutualize and provides authorization to Economical to send to all eligible policyholders

Economical mails 630,000 Notices

• Economical prints and mails Notices to 630,000 eligible policyholders across Canada – that’s over three 48-foot trailers full of mail!

Economical applies to court

• Economical is required to wait 30-45 days after mailing the Notice before applying to the court for an initial order to start the policyholder committee process

Court selects counsel and committee members

• Court makes an initial order that lays out a reasonable timeline for legal counsel to apply and be appointed, an open process for committee member applications and interviews, and court selection of the policyholder committees
• Throughout this period Economical posted the application process and all court documents on Join In Our Future to keep stakeholders informed

Policyholder committees negotiate allocation

• After agreeing to the appointment of independent experts, the two policyholder committees (representing eligible mutual and non-mutual policyholders) negotiate the allocation of benefits, with help from their counsel and advisors
• Additional time was given by OSFI to allow the committees to finalize the details of the allocation and meet the regulatory deadline
• To protect the negotiations, the Court issues a confidentiality order

OSFI reviews negotiated allocation

• Per the OSFI Instruction Guide, OSFI reviews the allocation before the committees could vote to approve it

Economical drafts conversion plan

• Economical incorporates the allocation into a conversion plan – the legal document that outlines all steps of our demutualization
• Five different actuarial and financial experts review the conversion plan and engage with Economical and each other to provide each of their professional opinions
• After the committees approved the allocation, Economical finalizes and submits the conversion plan along with the expert opinions

OSFI reviews Special Meeting #2 materials

• OSFI conducts its review of special meeting materials, including the conversion plan, the information circular and the expert opinions, against the regulations and the criteria described in the Instruction Guide
• Economical continues to engage with OSFI and to provide the materials and information as required by, and to support, OSFI’s review.

Economical calls Special Meeting #2

• As soon as regulatory approval is received, Economical announces the second special meeting – to be held on March 20, 2019
• Economical sends the approved information circular and proxy forms to all eligible mutual policyholders

Regulatory voting period

• The meeting is required to be held a certain amount of time after notice of the meeting is given. This allows all eligible mutual policyholders time to make an informed decision

Future Steps

Future steps remaining in our demutualization process include:

• Preparation of special meeting #3 materials, and OSFI review and approval of those materials
• Special meeting #3, along with regulatory voting period
• Mailing of notice of demutualization to all policyholders
• Ministerial review and approval of demutualization application