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For a handful of its clients, the planned public-market debut of Economical Mutual Insurance Co. is a long-promised lottery win that keeps shrinking in size.

Economical is the country’s eighth-largest auto and home insurers, with an estimated value of up to $1.9-billion. The Waterloo, Ont.-based company, founded in 1871, has spent the past nine years on an occasionally dramatic journey toward an initial public offering; at one stage, the company parted ways with its chief financial officer over allegations he leaked confidential information on the IPO.

When Economical started down this road, the insurer’s 878 owners – clients who are known as mutual policy-holders – had well-founded reasons to believe they were each in line for a $1-million-plus windfall. But over time, a series of setbacks, which included new federal regulations and the planned launch of a $100-million charitable foundation funded by Economical’s policy-holders, trimmed the expected individual payouts to between $300,000 and $430,000.

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In a vote scheduled for March 20, Economical’s owners will decide whether to accept this diminished pot or turn down the planned IPO and get no cash at all, in hopes of negotiating a better deal. In an e-mail, Economical chairman John Bowey said: “Our eligible mutual policyholders will either vote to move forward, or the entire process will come to a halt.”

Smaller slices of Economical’s IPO pie are particularly galling to a well-organized group of approximately 150 policy-holders who lobbied aggressively for the IPO since 2010, working with Toronto-based shareholder-rights firm VC & Co. and lawyers at Voorheis & Co. These individuals are largely industry insiders, including insurance brokers and retired insurance-company executives, who bought Economical policies knowing that they were potentially worth $1-million or more if the company went public.

While none of these customers were willing to speak on the record ahead of the vote, over concerns about showing their hand while still trying to negotiate with Economical, an informal survey shows most owners plan to swallow their concerns and vote in favour of the IPO. For the plan to go forward, two-thirds of the mutual policy-holders must approve it. In part, this grudging support reflects the fact that almost all of Economical’s mutual policy-holders are in their 60s and 70s, and want to cash in on a prize while they can still enjoy it.

Economical is a property and casualty (P&C) insurer, and it’s the first Canadian P&C company owned by policy-holders to stage in IPO, a process known as demutualization. Four domestic life-insurance companies demutualized 20 years ago.

Economical was founded in 1871 when farmers near Berlin, Ont., (now Kitchener) needed fire insurance on their barns. From the moment the company began discussing demutualization in 2010, there has been a raging debate over how Economical’s capital, built up over 148 years, should be divided.

The debate was fuelled by the fact that when Economical began the IPO process, there were no federal regulations around demutualization at P&C insurers. The federal Finance Department subsequently ruled that all policy-holders who contributed to building an insurer’s capital base should receive a share of the company’s surplus money. This meant mutual policy-holders who previously were entitled to 100 per cent of the company would have to share the proceeds of the IPO with the rest of Economical’s customers.

After months of negotiations between its two policy-holder groups, Economical announced in late January it would split the pot, with mutual policy-holders receiving between $300,000 and $430,000 in shares or cash for their stakes in the company. A second group of approximately 630,000 non-mutual policy-holders, who are not legal owners of the firm but did contribute to building its value, will each get $1,500 to $2,300. The vast majority of Economical’s customers are farmers, homeowners and drivers who are likely unaware their policies have any value.

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In what the company described as a critical step in the negotiations, committees representing the two policy-holder groups also agreed to set aside $100-million to fund philanthropic work through the newly established Economical Insurance Heritage Foundation. “It’s our understanding that the concept of social good was a common ground for both policyholder committees,” Mr. Bowey said. He said: “Although Economical was not a part of that decision, we were pleased to see the committees make it, as it aligns with Economical’s values to give back to the communities in which we live and work.”

A small number of Economical policy-holders, whom The Globe and Mail is not naming because they are still working on their strategy, said they plan to oppose demutualization at the March 20 vote because it undervalues their stake in the company. Some members of the group said they want the $100-million set aside for the foundation to instead be given to policy-holders.

“We do not believe this perspective is representative of the views of mutual policy-holders generally," Mr. Bowey said. Under the regulations that govern demutualization, Mr. Bowey said Economical cannot rework the terms of the planned IPO, including the creation of the foundation.

If two-thirds of Economical’s mutual policy-holders approve the IPO plan in March, there will be one final vote by all policy-holders before the company lists its shares and launches a foundation. If each policy-holder vote is in favour of an IPO, Economical expects to list its shares on the Toronto Stock Exchange in 2020. To date, Economical has spent more than $20-million on preparing to go public. The company started down the road to demutualization as a way to raise the capital needed to keep pace in an insurance industry that is consolidating around its largest players. Mr. Bowey said: “Becoming a public company will allow us to unlock our full potential and compete with the multinational companies operating in our market.”

Economical has a 4-per-cent market share, according to a survey conducted by the company. Publicly traded Intact Financial Corp. is the country’s largest P&C insurer, with 14 per cent of the market.

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

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The company has $5.6-billion in assets and posted a loss of $93-million in 2017; it has yet to report 2018 results.

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