Summary of Consultations on P&C Demutualization Framework

Budget 2011 announced the Government's plan to introduce a framework to allow federal mutual property and casualty (P&C) companies to demutualize, following the expressions of interest of some P&C companies to convert to share companies. On June 30, 2011, the Government launched a 30-day public consultation process to give all interested parties an opportunity to provide input on this important issue. More than 80 submissions 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).

Summary of Responses to Consultation Questions

1) Policy objectives

The consultation paper sought views on the appropriate policy objectives for the demutualization of P&C companies, referencing the four objectives that support the life insurance company demutualization framework: a) providing fair and equitable treatment to policyholders; b) maintaining safety and soundness; c) fostering a competitive and efficient sector; and, d) establishing an orderly and transparent process. Stakeholders generally recommended the same objectives for a P&C framework, although differences arose in how the objectives should be reflected in the process for P&C demutualization.

2) Process for Demutualization

Views were sought on the appropriate process for demutualizing in the P&C context. Regulations are required under the Insurance Companies Act to set the terms and conditions of demutualization, including to establish which policyholders are eligible to vote on demutualization and to receive benefits, and the apportionment of benefits.

On the right to vote, each of the four dual policyholder companies—in which some policyholders are mutual policyholders (i.e., have insurance policies with voting rights attached) and others are not—recommended that only mutual policyholders be given a right to vote on demutualization. This view was generally shared by responding mutual policyholders from these companies. Other respondents recommended that the right to vote on demutualization be extended to all policyholders.

On the right to receive benefits, views were also divided, with two of the four dual policyholder companies and responding mutual policyholders in general recommending that benefits be distributed only to mutual policyholders. The other mutual companies and other stakeholders generally held the opposite view and recommended that all policyholders share in the benefits. Some stakeholders went further, recommending that benefits be distributed to the mutual sector or to charity.

On the apportionment of benefits, some stakeholders recommended that the framework give discretion in apportioning benefits to reflect the unique circumstances of each case, allowing companies to take into account factors such as premiums paid, contributions to surplus and the type of insurance policy. Others were concerned that stakeholders could challenge a company's method of allocation and recommended that the framework provide less flexibility and prescribe the manner of apportionment.

3) Impacts of Demutualization

The consultation paper sought views on the impacts that demutualization could have on the P&C sector, and whether these needed to be addressed and how. Some stakeholders felt that demutualization would increase competitiveness, such as by providing companies with access to equity to grow their businesses. Others regarded demutualization as being driven by the prospect of windfall gains rather than being in the company's or mutual sector's long-term interests. Concerns were expressed that demutualization could lead to consolidation, reduce competition, access to services, and weaken ties to the rural communities in which most mutual companies are based.

4) Number of Mutual Policyholders in Some Mutual Companies

Independent from the demutualization issue, views were sought on how companies with a dual policyholder structure can ensure that they continue to have an effective governance structure, and whether measures need to be taken to increase the number of mutual policyholders. This question solicited a range of views, principally from the mutual companies.

Some companies were of the view that a small mutual policyholder base did not impact the effective governance of their company. Other companies indicated that relatively few policyholders participate at annual meetings, and recommended that steps be taken to increase awareness of governance rights. Others recommended that dual policyholder companies be required to extend voting rights to policyholders who have been with the company for a five year period or to have a minimum percentage of mutual policyholders.