Canadian Mutuals fight demutualisation danger

Tuesday, 17 May 2011

Canadian property and casualty mutuals are gearing up for a possible battle against a new wave of demutualisation, following attempts by consultants to encourage policyholders in one firm to contemplate such a move.

CAMIC, the Canadian Association of Mutual Insurance Companies, is urging the Canadian Minister of Finance Jim Flaherty not to draft the necessary demutualisation regulations. CAMIC links 91 of the 106 property and casualty mutuals across Canada, many established by farmers over a century ago. “The mutual companies they created are almost exclusively governed under the ‘one person, one vote’ principle. Further, most mutual insurers are still headquartered in rural and semi-rural Canada, creating jobs locally and participating in the development of their communities,” says CAMIC’s President Normand Lafrenière.

CAMIC points to the fall-out caused by the wave of demutualisation in life insurance in Canada in the late 1990s, which saw the life mutual market share fall from over 50% to less than 5%. Demutualisation then was driven by policyholders’ enthusiasm to benefit from accumulated capital surpluses (a process CAMIC calls ‘legalised robbery of past generations’) and by senior managers’ desire to receive stock options and pay-outs. Several demutualised companies have since struggled to remain competitive.

A similar movement towards demutualisation appears to be underway in the property and casualty company Economical Mutual, following the intervention in late 2010 of consultants VC and Co who targeted policyholders through newspaper advertisements. The insurer’s Board has itself now come out in favour of initiating a process of demutualisation.

“CAMIC is strongly opposed to advisors, boards of directors, management and policyholders withdrawing substantial financial benefits from the demutualisation of mutual companies,” Normand Lafrenière says. CAMIC, which has ICMIF’s full support in its current fight, points to the successful legislative models for mutual and cooperative insurers in France and Quebec as alternative ways forward.

This story will be featured in more detail in the forthcoming edition of ICMIF’s Voice magazine, May 2011.