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Streetwise Economical IPO to value insurance company at up to $1.9-billion

Following in the footsteps of Canada’s largest insurers, 148-year-old Economical Mutual Insurance Co. is moving forward with an initial public offering that is expected to value the Waterloo, Ont.-based company at up to $1.9-billion.

Economical announced plans late Thursday to hold a meeting on March 20 that would see its current owners – the company’s policyholders – vote on going public as part of a process known as demutualization. Economical disclosed that it hired BMO Nesbitt Burns Inc. and RBC Dominion Securities Inc. to value the company and that the two investment banks estimated last May that it will have a market capitalization of $1.3-billion to $1.9-billion.

Economical is Canada’s ninth-largest property and casualty (P&C) insurer, with a 4-per-cent market share, according to data compiled by the Insurance Bureau of Canada. Publicly traded Intact Financial Corp. is the country’s largest P&C insurer, with 14 per cent of the market.

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The P&C industry has been consolidating around its largest players over the past decade, with several foreign-owned insurers selling their Canadian operations to domestic companies, due in large part to unpredictable profitability in auto insurance. In a letter sent Thursday to the company’s policyholders, Economical chairman John Bowey said: “Becoming a public company will allow us to unlock our full potential and compete with the multinational companies operating in our market.”

Life insurers such as Manulife Financial Corp. and Sun Life Financial Inc. went through a similar demutualization process almost 20 years ago, as did smaller rivals Canada Life Assurance Co. and Waterloo-based Mutual Life Assurance Co., both of which were subsequently acquired. In Economical’s letter to policyholders, Mr. Bowey pointed out that federal regulations prevent any takeover for two years after the IPO; after that date, any bid for the company would still need to be approved by the federal Minister of Finance.

“After demutualization, Economical will have access to additional capital to invest in its business,” Mr. Bowey said. “In a rapidly changing industry and a market that is increasingly subject to disruption, this flexibility becomes increasingly important.”

Going public is expected to translate into a windfall for Economical’s current owners, worth between $300,000 and $430,000 for eligible mutual policyholders and anywhere from $1,500 to $2,300 for non-mutual policyholders, who have a different ownership stake. The two investment banks predict Economical’s policyholders will receive 100 million shares, valued at between $13 and $19 each. The actual price of the stock will be set when the company determines the date for an IPO and will reflect the company’s results and financial markets at that time.

If two-thirds of Economical’s mutual policyholders approve the IPO plan in March, there will be one final vote by all policyholders before the company lists its shares on the Toronto Stock Exchange. Economical started down the road to demutalization in 2015, and the company’s board of directors unanimously endorsed demutualization in a package sent to policyholders on Thursday. Over the past three years, the company has spent $20-million on the plan.

Economical does business under a number of brand names, including online division Sonnet Insurance, a Quebec unit known as Missisquoi Insurance Co., British Columba-based Family Insurance Co. and Petline Insurance, the country’s oldest and largest insurer for dogs and cats.

The company has $5.6-billion in assets and posted a loss of $93-million in 2017; it has yet to report 2018 results. It has done a number of acquisitions in recent years, including a 2016 purchase of Western Financial Insurance Co. and its flagship Petsecure brand from Desjardins Group.

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