May 27: Economical’s decisive win over dissidents

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    Economical Mutual Insurance is forging ahead with its plan to blaze a path for the country’s first p&c demutualization after a decisive victory over a dissident group of voting policyholders that was looking to replace the company’s board of directors.
    Nearly 1,000 people showed up for the insurer’s annual meeting May 26, where the dissident mutual policyholders’ bid for change was rejected by a count of 649 to 192.
    The unprecedented event, held at Bingemans conference centre in Kitchener, was delayed for a half hour as stakeholders lined up outside the building to register as a TV news crew and police stood on hand.
    "We are now just waiting for Parliament to return to work and for the department of finance to start work on drafting demutualization regulations and to table the 2011 budget," said Karen Gavan, chair of the insurer’s demutualization committee and one of three directors approved for election at the meeting.
    It is expected that the 2011 budget will be tabled in June.
    Prior to the recent federal election, the still-ruling Conservatives’ budget had already contained provisions for the department of finance to begin work on p&c demutualization regulations.
    Mr. Gavan said Canadian lifeco and international insurance precedents are directing Economical to a model of value allocation consisting of two financial components: a uniform fixed amount payable in equal shares to all mutual policyholders and another component which would vary from policyholder to policyholder based on a formula which would consider various factors such as length of time as a mutual policyholder with Economical.
    In the case of Canadian lifeco demutualizations, the uniform fixed component represented a smaller proportion of the total amount distributed (between 15% and 25%).
    In a circular outlining the company’s demutualization plan, the board stressed that the final value allocation will be based on criteria set out in regulations to be determined by the Minister of Finance and not by Economical.
    Ms. Gavan said at the meeting that she expected it would take about six months to enact their demutualization plan once regulations are approved by government and regulators.
    "The regulatory process is the great unknown," she said at the meeting.
    The dissident group, led by shareholder rights firm VC & Co., also lost its bid to have three board vacancies filled with their nominees. Incumbents Ms. Gavan and David Macintosh along with newcomer John Bowey were approved for a three-year term.
    Ms. Gavan noted the dissident mutual policyholders will remain policyholders — "but they also remain dissident.
    "The (12.5%) fee commitment they signed with VC & Co. is irrevocable and in place for six years. It remains in place even though the motion was defeated."
    Economical board chairman Gerald Hooper emphasized at the meeting that the insurer would not cover the fee for dissident policyholders.
    "We were confident that, as the owners of the company, our mutual policyholders would recognize that they are best served by an experienced and unified board with a clear commitment to complete the demutualization of Economical and unlock the value of the company for them," he said after the meeting.
    Company president and ceo Katherine Mabe said the results demonstrated the confidence the majority of policyholders have in the current board and board structure.
    "It shows the confidence they have in the board and in the demutualization process initiated by the company."
    (Please see Thompsons June 6 weekly print issue for reaction and more coverage of the AGM.)