Skip to main content

Economical Insurance CEO Katherine Mabe

A number of prospective suitors are circling the Economical Insurance Group, which is moving closer to being the first Canadian customer-owned property and casualty insurer to adopt wider ownership.

The insurer is still weighing whether to accept a takeover offer or significant investment from another firm, or whether to go the alternative route of an initial public offering, which analysts estimate would raise in the neighbourhood of $1.5-billion.

Either way - and amid a nasty proxy battle - Economical's new chief executive officer Katherine Mabe intends to carry out the demutualization later this year. And the drama swirling around the Waterloo-based insurer promises to alter the face of the property and casualty (P&C) insurance sector.

Story continues below advertisement

Officials with the company say that players in Canada, as well as foreign insurers looking for a beachhead here, have expressed interest.

Meanwhile, the Department of Finance is coming up with regulations to govern just how a mutual property and casualty firm can demutualize. Once that's done, it's likely that more customer-owned P&C insurers will consider doing the same.

Some Canadian mutual life insurance companies have already demutualized, including Manulife Financial and Sun Life Financial.

The P&C sector, with more than 200 competitors, is highly fragmented and many of its players have been badly bruised by unprofitable auto insurance policies in Ontario, storm and weather damage to homes and properties, and low interest rates. Participants such as Rowan Saunders, the CEO of Royal & Sun Alliance Insurance Co. of Canada, are predicting a high level of merger-and-acquisition activity in the near future.

While a number of analysts expect Intact Financial Corp. to make a bid for Economical, Toronto-based Westaim Corp. is rumoured to have made an informal offer late last year. Westaim is a publicly traded holding company that owns JEVCO Insurance Co., which specializes in insuring recreational vehicles such as motorcycles and snowmobiles but has been working to widen its suite of products. Economical, which has about 2,500 employees, offers a wide range of home, auto and commercial insurance products.

Westaim officials could not be reached for comment.



Economical's leadership team says that after a period in which it underperformed its peers, the insurer did well in 2010, and that made it a good time to consider demutualizing.

Story continues below advertisement

"And to continue to grow access to capital, for a whole range of reasons, is important," said Karen Gavan, who is chairing a special committee of Economical's board that is exploring its strategic options. Those reasons include acquiring competitors or new broker distribution, as well as the need to secure good ratings from rating agencies, which would be key to expanding Economical's commercial business, she said.

Ms. Gavan suggested that Economical will have no trouble attracting bids. "There is a lot of interest, and it's from three sources," she said. "There are out-of-market buyers who are looking to enter Canada … there are a number of financial buyers, as well as the in-market buyers."

If the company chooses to have an initial public offering, it will ask regulators and the government to place a moratorium on takeovers for a period of time.

Once a route has been decided upon, mutual policy holders will vote on it.

The backdrop to this process is a fight that's taking place between Economical and Toronto-based VC & Co. Advisory Ltd., which often advises activist investors.

Last month VC & Co., which has attacked Economical's board for not doing enough to realize the company's value and says it should have considered demutualization long ago, submitted proposals to the company calling for the board of directors to be replaced. Economical, whose annual meeting is scheduled for late May, has asked the Ontario Court of Justice to determine the legality of those proposals.

Story continues below advertisement

"By commencing these legal proceedings, the incumbent board is attempting to prevent mutual policy holders from having the opportunity to vote on the proposals at the next policy holder meeting," Mr. Woollcombe said in an e-mailed statement.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter