CEO: Economical Mutual Gets Suitors From Within and Outside Canada

Economical Mutual Insurance Co., the large Canadian property/casualty insurer looking to demutualize, has received inquiries from potential suitors both inside and outside of Canada, the company's chief executive officer said.

"We've had expressions of interest from domestic and non-Canadian parties. We've had expressions of interest from those with a presence in our market and those who are not active here and from industry participants as well as financial, i.e. private-equity investors. It's a good cross section," said Karen L. Gavan, who was promoted to president and CEO last month (BestWire, June 27, 2011).

Economical Mutual is pursuing two alternative demutualization tracks. One, called conversion, would transform Economical into a publicly traded corporation through an initial public offering. The other, sponsored demutualization, would involve another company acquiring control of Economical. Back in 2008, the Independent Order of Foresters acquired Unity Life of Canada in a sponsored demutualization (BestWire, April 3, 2008).

Gavan said the board will make its recommendation based on what's most beneficial to the company.

Either track requires approval from policyholders and regulators, who are seeking input on a framework for the demutualization of p/c insurers. Gavan said regulators are looking at rules in place for life insurers as a model for the p/c industry. The Department of Finance could have the regulations ready "as early as the latter half of 2011," Gavan said.

"We intend to develop a framework that will allow an orderly and transparent conversion from a mutual company to a share company, while ensuring that policyholders are treated fairly and equitably," Minister of Finance Jim Flaherty said in a written statement seeking public input for the framework. His office has released a paper entitled "Consultation on a Demutualization Framework for Federal Property & Casualty Insurance Companies," which highlights issues regulators are seeking to address. Stakeholders may comment on the paper through July 31.

From the time the regulations are in place, it will take Economical Mutual approximately five to six months to complete the transaction, Gavan said.

Economical announced its demutualization plans in December, one month after Toronto advisory firm VC & Co. began recruiting policyholders, seeking support for its own demutualization proposal. The Waterloo company scored a major victory in its dispute with VC and dissident shareholders at the mutual company's annual policyholder meeting in May, when an overwhelming majority of policyholders rejected a petition to replace the board of directors, and Gavan and two others were elected to the board (BestWire, May 27, 2011).

Gavan has served as an Economical board member since 2008. Previously, she served as chief operating officer and chief financial officer of Transamerica Life and Aegon Fund Management Inc. Prior to that, she held senior management positions with Imperial Life Assurance Co. and with Canada Life Assurance.

The Economical Insurance Group's member companies include Economical Mutual Insurance Co. and its Western General Farm Division, Waterloo Insurance Co., Perth Insurance Co., the Missisquoi Insurance Co., Federation Insurance Co. of Canada, Family Insurance Solutions and the Mattei Cos.

To hear the entire interview with Gavan, visit http://www.ambest.com/media/media.asp?RC=189666.

(By Diana Rosenberg, senior associate editor, BestWeek)