Insurer Demutualization Update

Recent announcements at the political and insurer level have sparked a number of questions about demutualization and its potential impact. It’s important to highlight that the demutualization process has only just begun. Only proposed regulations have been released which means it’s premature to consider the outcome for customers as of today. IBAO is watching the mutual insurers and draft regulation process closely; once the regulations are finalized, they can review in detail.

What is Demutualization? 

The process that federally regulated mutual property and casualty (P&C) companies go through to convert into share companies. Until recently, there were no federal regulations that allowed the process of demutualization for P&C insurers to occur. 

What’s Happened So Far?

 The Department of Finance has released two draft regulations into the Insurance Companies Act: 1. A set of rules addressing P&C companies comprised of only mutual policyholders (“Single Structure Conversions”). 2. A set of rules addressing P&C companies with both mutual and non-mutual policyholder structures (“Dual Structure Conversion”). At this time, only Economical Mutual Insurance Company (“Economical”) has announced plans to pursue demutualization.

Why Would An Insurer Demutualize?

Mutual insurers may have their own reasons for changing their corporate structure. For example, one mutual has stated that an advantage of demutualization is that it provides the company new access to capital by issuing shares in the public and private markets.

Impact to Policyholders: 

As part of the process, policyholders of mutual insurers may benefit from the demutualization process. It’s important to stress that at this time, it’s speculative to comment on what (if any) these benefits would be.

If you have questions regarding this matter please contact our office.