The Economical Mutual Insurance Company, a Waterloo, Ont.-based property and casualty insurance provider, Tuesday announced plans to convert the company from its existing mutual ownership structure.

This would make Economical the first property and casualty insurance company in Canada to demutualize. The conversion is targeted to be completed in 2011, subject to approval by mutual policyholders and the federal government.

Founded in 1871, Economical is one of Canada’s leading P&C insurers, with $4.6 billion in assets and a surplus exceeding $1.1 billion.

“The board of directors has determined that demutualization is in the best interests of the company and all its stakeholders, including our mutual policyholders,” said Gerald Hooper, chairman of the board of Economical, in a release.

Although the mutual insurance company structure has distinct advantages, including stability and the ability to maintain a long-term perspective, Economical says it also restricts the company’s access to additional capital to continue to fund growth in a highly competitive and consolidating industry. Demutualization will help remove this restriction.

A special committee of independent directors has identified several alternatives and is currently focusing on two routes to demutualization:

> conversion, through an initial public offering, from a mutual company to a public corporation with shares traded on a stock exchange; and

> a sponsored demutualization which would involve a transaction with another strategically-aligned company that would invest in Economical to acquire a significant ownership position, perhaps as much as 100%.

“This dual-track approach allows us to focus on maximizing long-term value for mutual policyholders, while considering the interests of our other policyholders, brokers, employees and community,” said Karen Gavan, chair of the special committee. “We intend to expedite this process but to some extent the timing will be dependent on the regulatory approval process. New regulation and new legislation may be required and that can be expected to take several months. “

She added: “In the end, we expect there will be significant direct financial benefits for mutual policyholders but, at this point, no one can predict the timing or the size of the benefit they may get.”

In the meantime, the company “will remain focused on ensuring we provide the highest quality service to our valued clients and brokers,” said Katherine Mabe, president and CEO.

A final recommendation on demutualization and a schedule for completion is expected to be presented to mutual policyholders at the next annual meeting, which is set for May 26, 2011.

The board of directors believes its decision to demutualize means recent efforts by VC & Co. to persuade mutual policyholders to sign irrevocable six-year agreements to pay substantial fees are redundant, serve no constructive purpose, and are not in the best interests of mutual policyholders.

IE