The Canadian government is taking steps to ensure that property and casualty mutual insurance companies can demutualize.
In yesterday’s federal budget, Finance Minister Jim Flaherty said that a framework is being developed so that P&C mutual insurance companies that choose to demutualize can do so through an “orderly and transparent process and ensure that policyholders are treated fairly and equitably.”
Flaherty’s budget also indicated that the government will be in a position to review applications to demutualize once regulations are in place.
Amendments to the Insurance Companies Act, including amendments that would prevent any mutual company from demutualizing indirectly, will also be introduced.
Demutualization – when a customer-owned mutual organization changes legal form, usually through a conversion (IPO) or through a sponsored demutualization transaction – has been a presence in the Canadian life insurance industry for over a decade.
In March 1999, the Department of Finance enacted legislation (Bill C-59) that enabled large mutual life insurance companies to issue shares to the public – or demutualize.
It was a striking difference from one of the trends first seen in mutualization in the 1950s and 1960s, when companies mutualized in order to protect against foreign ownership.
Many of Canada’s largest mutual life insurance companies demutualized shortly after, creating about $27 billion in new market capitalization. Clarica Life Insurance Co. (formerly Mutual Life) was the first Canadian mutual company to begin trading on the Toronto Stock Exchange.
In December 2010, The Economical Mutual Insurance Company announced its intentions to demutualize, which would make it the first Canadian P&C company to do so.