Frequently Asked Questions: Demutualization Framework for Federally Regulated Property and Casualty (P&C) Mutual Insurers

Q. What is demutualization, and why would a federally regulated property and casualty mutual insurer (P&C Mutual) chose to demutualize?

A. Demutualization is the process by which a company governed by its mutual policyholders converts into a share-based company, providing access to capital to grow its business and increase its competitiveness.

Demutualization is entirely optional: the decision on whether or not to demutualize would be a choice of each respective company and its policyholders.

Q. Why is the Federal Government proposing these regulations?

A. The Insurance Companies Act contemplates the demutualization of P&C Mutuals. The legislation requires that the details of a demutualization framework be set out in regulations. While demutualization regulations for life insurance companies have been in place since 1999, until now, there were no regulations in place for P&C Mutuals.

In its Economic Action Plan 2014, the Federal Government announced that it would develop and consult on proposed regulations setting out the demutualization framework for federally-regulated P&C Mutuals.

Regulations to establish a property and casualty demutualization framework will provide, for companies that choose to demutualize, an orderly and transparent process, and promote the fair and equitable treatment of all policyholders. 

Q. Why are there two sets of regulations?

In terms of governance structure, P&C Mutuals fall into two categories: some have only mutual policyholders (who are entitled to vote on decisions of the P&C Mutual under the terms of the its by-laws), whereas others have both mutual policyholders and non-mutual policyholders (who are generally not entitled to vote on decisions of the P&C Mutual).

Two separate sets of regulations were developed for P&C Mutuals in order to provide demutualizing processes tailored for companies with each type of governance structure. These are the Mutual Property and Casualty Insurance Company Having Only Mutual Policyholders Conversion Regulations and the Mutual Property and Casualty Insurance Company with Non-mutual Policyholders Conversion Regulations.

The full text of the Regulations, along with the Regulatory Impact Analysis Statement, were published in Part II of the Canada Gazette on July 1, 2015, the day on which the Regulations came into force.

Q. Did the Federal Government consult with Canadians prior to introducing these regulations?

A. In 2011, the Federal Government sought views from stakeholders on the appropriate policy objectives for the demutualization framework for federally regulated property and casualty mutual insurance companies.  More than 80 submissions expressing diverse views were received from a wide range of stakeholders (federal mutual P&C companies, policyholders and employees, industry associations, insurance brokers, accountants, actuaries, the cooperative sector and many other interested individuals).

On February 28, 2015, draft regulations were published in the Canada Gazette, Part I, for a 30-day public comment period.  Almost 40 submissions were received from a range of stakeholders and these views were taken into consideration in the development of the regulations now in force.

Q. What are the objectives of the new regulatory framework?

A. The objectives of this regulatory framework are to provide P&C Mutuals that choose to demutualize with the ability to do so through a process that is orderly and transparent, while promoting the fair and equitable treatment of policyholders.  While the decision to pursue demutualization is made by the P&C Mutual's board of directors, the regulatory framework empowers eligible policyholders with the ultimate decision on whether to approve the proposed demutualization.

The framework promotes the fair and equitable treatment of all policyholders by respecting existing governance rights of mutual policyholders while allowing all policyholders with a reasonable interest in the P&C Mutual to participate in a demutualization process.

The framework also provides an orderly and transparent process. It includes a court-facilitated negotiation process regarding the apportionment of benefits for P&C Mutuals with both mutual and non-mutual policyholders. 

The Regulations are flexible and leave key aspects regarding demutualization and the apportionment of benefits to the P&C Mutual company and its policyholders.  The framework requires that policyholders be kept well informed through various disclosure requirements and are given access to external experts.

To provide sufficient time for recently demutualized P&C Mutuals to adjust to their new corporate structure, they must remain widely held for two years following their demutualization.

Q. Will my insurance policy or premiums be affected if my insurance company decides to demutualize?

A.  Policyholders who would like more information on the impacts of a demutualization proposal on their policy are encouraged to contact their insurer or broker if their mutual insurance company decided to pursue demutualization.

Q. What is the role of the Office of the Superintendent of Financial Institutions (OSFI) in demutualization?

OSFI regulates and supervises all federally regulated insurance companies in accordance with the Insurance Companies Act and associated regulations.

P&C Mutuals that wish to pursue demutualization must adhere to sound corporate governance practices, satisfy all legislative and regulatory requirements and provide appropriate disclosure materials in accordance with the requirements set out in the Insurance Companies Act and associated regulations, and through a process that will be supervised and regulated by OSFI.