Posted on November 12, 2020

Taking Stock and Planning Ahead – A Quarterly Update from John Bowey, Chairman of the Board

As the global COVID-19 pandemic intensifies in many parts of Canada, I want to take this opportunity to express on behalf of Economical our shared concern for the well-being and health of our policyholders and broker partners across the country. These are difficult times and Economical remains committed to doing what we can to safely advance the journey to becoming a public company. Despite the challenging news that we see daily concerning COVID-19, I am pleased to be able to share with you good news about the progress we are making at Economical and how this is drawing us closer to our ultimate destination on that journey.

Quarterly Earnings and Business Performance That Measure Up

The good news starts with our latest quarterly earnings which highlight a second consecutive profitable quarter and the third profitable quarter over the past year. Some of the highlights underpinning that positive performance are:

  • An adjusted combined ratio of 91.7% that was 10.6 points better than a year ago
  • Underwriting results in the third quarter were strong and marked the ninth consecutive quarter of year over year improvement, an indication that the investments we have made in transforming our business fundamentals are taking hold on a sustainable basis
  • A new relationship with Uber that added to the growth momentum we've built recently as indicated by the 11.7% increase in premiums overall compared to the third quarter of 2019. The initiative with Uber continues our focus on digital transformation and is yet another example of how we're blending our insurance industry expertise with technology to support a better customer experience.
  • An increase in total equity which exceeded at quarter-end $1.7 billion, evidencing our financial strength and resilience in the face of ongoing uncertainty

These latest quarterly earnings demonstrate growing strength in business performance and show why I continue to be proud of the achievements we have been delivering over the past few years. This sustained improvement is fundamental to building a solid track record of profitable performance that investors will expect from us as we move towards a planned IPO.

Even so, the momentum reflected in our results must be viewed in context. We must respect the fact that the COVID-19 virus is unpredictable, there is currently no vaccine, and the resurgence that appears to have begun in earnest could become a significant setback for the economy. As Rowan Saunders noted in our third quarter earnings release, "Our results in the first nine months of 2020 were strong, but we are still managing through a major global pandemic and therefore remain cautious in our outlook".

How Far We Have Already Come This Year

With the end of our journey coming into view, the scope and scale of what we have completed to get to this stage of our demutualization journey is substantial. The evidence of that can be seen in just a small sampling of the actions and results we have achieved thus far:

  • Detailed planning for the upcoming third special meeting, accounting for the realities of the pandemic (including the court application process described below)
  • Ongoing engagement with the Office of the Superintendent of Financial Institutions (OSFI), the federal Department of Finance, Canada Revenue Agency and other federal agencies, to finalize the regulatory demutualization process, taxation and other post-demutualization matters
  • Design and construction of the IT system that will be required to distribute demutualization benefits to 630,000 eligible policyholders
  • Creation of an online portal to provide access to personalized financial benefit calculations for all eligible policyholders
  • A social media campaign to raise awareness of Economical's demutualization and to encourage online registration
  • Progress toward a professional, arm's-length operating infrastructure with the Economical Insurance Heritage Foundation that will be ready to receive the inaugural funding grant
  • Communications and outreach activities to provide regular, transparent updates and analysis regarding our demutualization process

Planning Ahead for Special Meeting Three

Our Board and executive team remain optimistic regarding our IPO timeline. While we continue to work on strengthening our business performance, we are also taking steps to finalize the necessary elements remaining in our regulatory process with a view to being ready to capitalize on favourable capital market conditions for an IPO.

A key component of that readiness is the third and final special meeting on demutualization, when all 630,000 eligible policyholders can vote to initiate the final phase of our demutualization process. Planning and preparations for this meeting are underway.

Earlier this year, we held our very first virtual AGM with great success, executing against our annual governance agenda while protecting the safety of our mutual policyholders, personnel and meeting guests. In light of a deteriorating pandemic outlook, we are taking concrete steps to ensure we provide eligible policyholders with safe access to the third special meeting while complying with expected public health restrictions on large gatherings.

As we did with our AGM, we have recently applied to the court for the permission we will need to use the virtual meeting format for our upcoming third special meeting. We will continue to work toward confirming this format change with the court, and then take the necessary actions with partners to facilitate a fully virtual meeting once approved.

In terms of our overall timeline, the Board will meet in early December to consider the Company's detailed business plan and our most recent projections regarding the impact of the COVID pandemic. This information will allow the Board to better understand the Company's outlook heading into an IPO. We intend to provide guidance on our IPO timeline publicly to all stakeholders following that meeting.

Finally, I want to thank you, our eligible policyholders for your continued patience. These are truly uniquely challenging times, as we become the first Canadian P&C company to demutualize while contending with an unprecedented global public health and economic crisis. With your continued support, I am confident that Economical will emerge from our demutualization stronger than ever.

Please continue to stay connected with us through the joininourfuture.com website where you can receive the most timely updates and news concerning the important next steps that lie ahead. If you have not already done so, I would strongly encourage you to register your account to receive this information online.

As always, please accept my best wishes for your continued safety and health in these difficult times.


Sincerely,
John Bowey
Chair of the Board of Directors
Economical Mutual Insurance Company
November 12, 2020

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