Below is a summary of the steps that must be undertaken to complete a demutualization of Economical Mutual Insurance Company ("Economical") under the Insurance Companies Act and the Mutual Property and Casualty Insurance Company with Non-Mutual Policyholders Conversion Regulations (the "Demutualization Regulations") developed by the federal government. This summary is provided for general information purposes only and does not constitute legal, business, or other general advice. Persons seeking advice with regard to legal, business, or other matters should contact a licensed professional. Please review the terms and conditions for use of this site.

Phase 1: Initiation of the conversion process

In order to initiate the conversion process, on November 3, 2015, the Board of Directors (the "Board") of Economical passed a resolution recommending demutualization (the "Initiating Board Resolution"). The date of the Initiating Board Resolution – November 3, 2015 – is the eligibility date for the currently proposed demutualization process. The Demutualization Regulations define who will be the eligible mutual policyholders and eligible non-mutual policyholders by reference to the eligibility date. As well, the Demutualization Regulations specify that only policyholders of the demutualizing company - in this case, Economical Mutual Insurance Company - will be eligible to participate in demutualization. These policies include Economical policies sold under the Family Insurance Solutions and Western General brands, but exclude policies issued by our subsidiaries. Eligible mutual and non-mutual policyholders are entitled to participate in the demutualization process.

Eligible Mutual and Non-Mutual Policyholders

According to the Demutualization Regulations, in the case of the currently proposed demutualization of Economical:

  • an eligible mutual policyholder is a person who holds an Economical mutual policy if they held it on November 3, 2015
  • an eligible non-mutual policyholder is
    • a person who holds an Economical non-mutual policy and has done so for the 12 months ending on November 3, 2015; or
    • a person who the Board has stated in the Initiating Board Resolution is to qualify as eligible non-mutual policyholders, as described below.

The Demutualization Regulations permit the Board to set out in the Initial Board Resolution other Economical non-mutual policyholders who are to qualify as eligible non-mutual policyholders. Exercising this authority, the Board specified that any person who is not otherwise an eligible policyholder shall qualify as an eligible non-mutual policyholder if

  1. such person held a policy on November 3, 2015 (the "Eligibility Date Policy"), and
    1. the Eligibility Date Policy had been in force throughout the entire 12-month period ending on November 3, 2015, with no gap in coverage during that 12-month period of more than 30 days; or
    2. held one or more policies that were Similar to the Eligibility Date Policy, which when taken together with the Eligibility Date Policy, had been in force throughout the entire 12-month period ending on November 3, 2015, with no gap in coverage during that 12-month period of more than 30 days; and
  2. in the event paragraph (a) of the definition of eligible non-mutual policyholder under the Regulations requires a policyholder to hold a policy after November 3, 2015 to remain an eligible policyholder, such person will have held the Eligibility Date Policy, or a combination of the Eligibility Date Policy and one or more policies issued by the company that are Similar to the Eligibility Date Policy, in force throughout the entire period from and including November 3, 2015, until and including such later date that is required for eligibility in paragraph (a) of the definition of eligible non-mutual policyholder under the Demutualization Regulations with no gap in coverage during that period of more than 30 days.

For greater clarity, for the purposes of the Initiating Board Resolution:

  1. a policy issued by the company is "Similar" to another policy issued by the company if both policies are personal property policies, both policies are auto policies or both policies are commercial property policies, regardless of whether one of the policies is a mutual policy;
  2. a gap in coverage occurs when none of the applicable policies are in force;
  3. a person held an Eligibility Date Policy if that person was a named insured on that policy on the date of this resolution, regardless of whether the person was listed as a named insured on that policy for the entire duration the policy was in force or any event after the date of this resolution;
  4. except for an Eligibility Date Policy, a person held a policy that is no longer in force if that person was a named insured on that policy on the last date that policy was in force, regardless of whether the person was listed as a named insured on that policy for the entire duration the policy was in force; and
  5. except for an Eligibility Date Policy, a person holds an in-force policy on a date if that person is a named insured on that policy on such date, regardless of whether the person was listed as a named insured on that policy for the entire duration the policy was in force.

The Board used the discretion provided under the Demutualization Regulations to include these as eligible non-mutual policyholders for reasons of fairness and equity.

Maintaining eligibility throughout the demutualization process

Based on guidance received from our primary regulator, the Office of the Superintendent of Financial Institutions (OSFI), Economical is required to treat a person as eligible in this demutualization process if he or she:

  1. held one or more policies on November 3, 2015, that met the criteria for eligibility, as described above; and
  2. held one or more of those same policies or similar policies on December 14, 2015.

This means that if a person was eligible on December 14, 2015, he or she will be treated as eligible for the remainder of the process. Eligible policyholders should be aware, however, that it is possible the demutualization process may become subject to legal challenges, which may include challenges to how eligibility is determined. Accordingly, if a policyholder is eligible, he or she should consider holding his or her policy or policies throughout the process as it will ensure eligibility under demutualization for any benefits distribution.

Phase 2: First special meeting of eligible mutual policyholders — approval to negotiate

The Demutualization Regulations specify that, in order for the demutualization process to proceed, eligible mutual policyholders must vote by special resolution (the "Negotiation Resolution") to authorize the commencement of negotiations of the allocation of demutualization benefits with the eligible non-mutual policyholders. The Negotiation Resolution was passed by eligible mutual policyholders at the first special meeting, held on December 14, 2015.

Notice of Intent to Negotiate

After the passage of Negotiation Resolution, Economical prepared a "Notice of Intent to Negotiate" which: (i) indicated that the eligible mutual policyholders have passed the Negotiation Resolution authorizing the negotiation of the allocation of demutualization benefits with the eligible non-mutual policyholders; (ii) set out the criteria for determining who qualifies as an eligible mutual policyholder or eligible non-mutual policyholder; (iii) indicated when and how all necessary information relevant to the conversion process will be published on the Economical website and how policyholders may request to receive that information by mail; and (iv) contained a summary of the conversion process.

Economical received OSFI's authorization to send the Notice of Intent to Negotiate to eligible policyholders. To obtain OSFI's authorization, Economical sent the Notice of Intent to Negotiate to OSFI within 30 days of the Negotiation Resolution being passed. After receiving OSFI's authorization, Economical sent the Notice of Intent to Negotiate to eligible policyholders and published it on its demutualization website.

Phase 3: Court process and development of conversion plan

Appointment of counsel and policyholder committees

Following the Notice of Intent to Negotiate, Economical filed an application for an initial order with the Ontario Superior Court of Justice (the "Court"). The initial order was issued on July 15, 2016. Amongst other things, it set out the procedures for the appointment of counsel and for the selection of policyholder committee members to represent mutual and non-mutual policyholders respectively.

On September 22, 2016, the Court appointed legal counsel for the eligible mutual policyholder class and for the eligible non-mutual policyholder class.

Eligible mutual policyholder counsel

McCarthy Tétrault LLP
Suite 5300, 66 Wellington Street West
P.O. Box 48, TD Bank Tower
Toronto, ON M5K 1E6

Email: economical@mccarthy.ca

Eligible non-mutual policyholder counsel

Thornton Grout Finnigan LLP
Suite 3200, 100 Wellington Street West
TD West Tower
Toronto, ON M5K 1K7

Email: applications@tgf.ca


On February 22, 2017, the Court appointed the committee members for the eligible mutual policyholder class and for the eligible non-mutual policyholder class.

Eligible mutual policyholder committee members

Rick Charnuski
Patrick Collins
Gordon Dowsley
Craig Glynn
Brendon Hunt
Ralph Hunter
Rose Mailloux
William Wayne McKinnon
William McCrea

Eligible non-mutual policyholder committee members

Adriana Davies
Paul Duncan
George Fowlie
Guy Legault
William Paul McCrossan (Resigned January 23, 2018)
Wilberdien Robinson
 
 
 


Negotiation of allocation terms

With the assistance of appointed counsel, the two committees have negotiated whether any recipients, other than eligible policyholders, are eligible to receive demutualization benefits, and the method of allocating demutualization benefits to all eligible recipients.

These allocation terms form a part of the conversion plan prepared by Economical, and submitted to OSFI for review. The Demutualization Regulations set out the minimum content requirements for the conversion plan.

Phase 4

A. Second special meeting of eligible mutual policyholders — amending bylaws

After the conversion plan has been reviewed by OFSI, Economical must hold a second special meeting at which the eligible mutual policyholders may vote by special resolution on whether to amend the Economical bylaws to permit all eligible non-mutual policyholders to vote on the conversion plan. We will refer to this resolution as the "Bylaw Amendment Resolution". If the eligible mutual policyholders do not approve the Bylaw Amendment Resolution, the demutualization will not proceed.

Economical must receive OSFI's authorization before sending a notice of the second special meeting to eligible mutual policyholders. To obtain OSFI's authorization, Economical must send certain information and documents to OSFI as required by the Demutualization Regulations, including the notice of the second special meeting, conversion plan and various actuarial, financial, and valuation information and opinions.

In deciding whether to authorize the sending of the notice, OSFI may assess the fairness of the conversion plan based on the information and documents submitted, and may also consider any additional information or documents relating to Economical or any aspect of the conversion plan. Once OSFI is satisfied, OSFI will authorize Economical to send the notice of the second special meeting and related materials to eligible mutual policyholders. If OSFI does not authorize Economical to send the notice, the demutualization will not proceed.

B. Third special meeting of eligible policyholders — approval of conversion plan and application

If the eligible mutual policyholders pass the Bylaw Amendment Resolution, Economical must hold a third special meeting at which all eligible mutual and non-mutual policyholders will have the opportunity to vote by special resolution on whether to approve the conversion plan and whether to authorize Economical to apply to the Minister of Finance to demutualize. We will refer to these resolutions as the "Conversion Approval Resolutions". If the eligible policyholders do not approve the Conversion Approval Resolutions, the demutualization will not proceed.

Economical must receive OSFI's authorization before sending a notice of the third special meeting to all eligible policyholders. To obtain OSFI's authorization, Economical must send certain information and documents to OSFI as required by the Demutualization Regulations, including the notice of the third special meeting and updates to any actuarial, financial, valuation, or other information that was previously sent to OSFI but has changed.

In deciding whether to authorize the sending of the notice, OSFI may assess the fairness of the conversion plan based on the information and documents submitted, and may also consider any additional information or documents relating to Economical or any aspect of the conversion plan. Once OSFI is satisfied, it will authorize Economical to send the notice of the third special meeting and related materials to all eligible policyholders. Economical must send this notice to eligible policyholders within one year after the day on which OSFI authorizes it to do so. If Economical does not meet this deadline, or if OSFI does not authorize Economical to send the notice, the demutualization will not proceed.

If the eligible policyholders pass the Conversion Approval Resolutions, then within 30 days of the third special meeting Economical will send a notice to all policyholders informing them of the eligible policyholders' approval of conversion plan and of the intention of Economical to apply to demutualize.

C. Application to demutualize

Within three months after the approval of the Conversion Approval Resolutions by the eligible policyholders, the Board may apply to the Minister of Finance to demutualize. The application is submitted through OSFI. This application must include the conversion plan, the information and documents that were required to be sent to OSFI in connection with the special meetings that were held to vote on the Bylaw Amendment Resolution and the Conversion Approval Resolutions, and confirmation of the results of the vote held in respect of Conversion Approval Resolutions.

Completion of demutualization

If the Minister of Finance approves the application, he or she will issue letters patent of conversion, which convert Economical from a mutual company to a company with common shares, after which we expect to apply to list the shares on a public stock exchange.

A number of events could cause the demutualization process to terminate prior to its completion. The process will not proceed if

  • the Board passes a resolution terminating the demutualization process (which it may do at any time prior to the Minister issuing letters patent of conversion if the Board considers termination to be in the best interests of Economical);
  • any one of the Negotiation Resolution, Bylaw Amendment Resolution, or Conversion Approval Resolutions is not passed;
  • OSFI does not authorize Economical to send the notice of the second special meeting to eligible mutual policyholders, or the notice of the third special meeting to all eligible policyholders;
  • the notice of the third special meeting is not sent to all eligible policyholders within one year of OSFI authorizing Economical to do so; or
  • the Minister of Finance does not approve the conversion of Economical.

The Demutualization Regulations provide that OSFI may extend certain deadlines (however, the likelihood of any extension is uncertain).

If the demutualization process is terminated there can be no assurance that the Board will recommend commencing a new demutualization process in the future. If a new demutualization process does begin, a person who is eligible in the current demutualization process may not be eligible to participate if they are not holding the necessary policies to meet the eligibility criteria that would apply for the new demutualization process.

Last updated: June 26, 2018

Please note that this above summary may be revised as more information becomes available.

Should you have additional questions about demutualization, you may call 1-866-302-6046 (toll-free) or 1-514-982-8708 (local/international); or you can submit questions online by clicking on Contact us.

To read the regulations in full, visit the Government of Canada's website for federal laws. The regulations are called Mutual Property and Casualty Insurance Company with Non-mutual Policyholders Conversion Regulations.

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