Canada: New P&C Insurance Demutualization Regulations: Unknown Unknowns

On February 28, 2015, the Department of Finance released draft regulations under the Insurance Companies Act (Act) providing for a framework for the demutualization process applicable to mutual property and casualty insurance companies (P&C insurers). Demutualization is the process through which a mutual company is converted into a corporation with common shares. The Act requires that rules for demutualizing be set out in regulations. Demutualization regulations for life insurance companies were released in 1999, which resulted in four major demutualizations, including Sun Life and Manulife.

The Department of Finance has released two sets of demutualization framework regulations for P&C insurers, based on the insurer's type of governance structure: Mutual Property and Casualty Insurance Company Having Only Mutual Policyholders Conversion Regulations and Mutual Property and Casualty Insurance Company with Non-Mutual Policyholders Conversion Regulations.


While the two sets of regulations share common elements, the framework for demutualization of an insurer with both mutual and non-mutual policyholders is complex and would likely create greater uncertainty as to outcome. This framework requires negotiations between defined groups of policyholders with different interests. The courts will appoint counsel for eligible mutual and eligible non-mutual policyholders, who will then, on application to the court, select committee members for each group of policyholders. The two policyholder committees will negotiate the terms of the conversion together with their counsel.

The scheme of federal legislation governing financial institutions generally provides for a substantial role for the insurer and its board. The regulations setting out the demutualization framework for life insurance companies provide for the active involvement of the company and its board throughout the conversion process. In contrast, under the proposed regulations for P&C insurers with both mutual and non-mutual policyholders, after initiating the process, the role of the P&C insurer and its board is limited after initiating the process to providing information or terminating the process. This is somewhat unusual in the context of the legislation governing financial institutions as the company and its board are not substantively involved in a process involving a fundamental change.

The proposed demutualization process is somewhat analogous to the process in class proceedings. The court approves of class representatives in all class proceedings and where there are competing proceedings the court will hear a carriage motion to determine which proposed representative will be authorized to proceed on behalf of the class. The proposal regarding choice of committee members and their counsel in the proposed demutualization process is somewhat analogous. It is unusual that the court appoints counsel first and committee members second. There may be logistical reasons for this; however, it does not seem to give the counsel a status independent of the committee and begs the question of whether a majority of the committee, once appointed, can replace counsel. The P&C insurer (and its board) is not given any role in the selection of, or the ability to object to, the choice of counsel or committee members.  

The P&C insurer's appointed actuary and an independent actuary must also provide opinions that the benefits of demutualization are fair to eligible policyholders. It is not clear how such opinions will be provided when the division of benefits between eligible mutual policyholders and eligible non-eligible mutual policyholders is the subject of negotiation between the two groups of policyholders. Given the valuations required in the negotiation process, the actuaries will practically need to be involved throughout the process.

A conversion proposal may contemplate that the P&C insurer is held by a holding corporation, but only an insurance holding corporation under the Act. This would put converted mutual P&C insurers at a disadvantage to P&C insurers currently organized under a non-mutual structure, which are not subject to this requirement. Demutualized insurers must remain widely held for a two-year period after conversion (subject to exemptions as a result of financial difficulties) and are subject to restrictions on executive compensation.

Further details of the proposed regulations are summarized below.


The two sets of proposed regulations share several common elements. Under both frameworks, the P&C insurer's board of directors initiates the conversion process. Both types of companies are subject to similar disclosure requirements when communicating with policyholders and when submitting the conversion proposal to the Office of the Superintendent of Financial Institutions (Superintendent). P&C insurers must provide opinions by an appointed actuary and an independent actuary on the proposal's fairness to policyholders and its impact on the company's financial strength, as well as an opinion of an independent valuation expert approving of the company's valuation estimate.


Companies with Mutual Policyholders Only

The process for demutualizing P&C insurers with mutual policyholders only is straightforward. All mutual policyholders, on the date of the directors' resolution approving demutualization, as well as certain other prescribed policyholders, are considered "eligible policyholders" that are entitled to vote on the conversion proposal and receive the benefits of demutualization. The Superintendent must approve the conversion proposal and related documentation. Next, the proposal is submitted to a vote of all eligible policyholders for approval by special resolution. The P&C insurer may then seek approval from the Minister of Finance (Minister) to complete the demutualization. The directors of a P&C insurer may pass a resolution terminating the conversion process at any time before letters patent are issued.

Companies with Mutual and Non-Mutual Policyholders

Step 1: Board Recommends Demutualization

In its resolution recommending conversion, the P&C insurer's board must also identify any groups of policyholders, in addition to those who already qualify, who will be considered "eligible policyholders" for the purposes of voting on, and receiving the benefits from, a conversion proposal.

Step 2: Eligible Mutual Policyholders Vote to Negotiate with Eligible Non-Mutual Policyholders

Within 30 days of the board's recommendation, eligible mutual policyholders must approve the intent to negotiate a conversion proposal with the eligible non-mutual policyholders. If approved, the P&C insurer must send notice of the intent to negotiate to the Superintendent for authorization.

Step 3: Eligible Mutual and Non-Mutual Policyholder Committees Negotiate

The insurer must file an application for a court order setting out, among other things, the procedures for policyholder participation and counsel representation throughout the negotiation process. Interested counsel can apply to be appointed by the court to act for either the eligible mutual or non-mutual policyholders. Policyholders may apply to the court through selected counsel to be appointed as committee members for each class of policyholder. With the assistance of counsel, the committee members negotiate a conversion proposal that is deemed approved when two-thirds of each committee agrees to its terms. The proposal, along with opinions prepared by the company's actuary and an independent actuary, must be submitted to the Superintendent for authorization within one year of the committees' appointment.

Step 4: Amendment of Bylaws, Approval of Conversion Proposal and Ministerial Application

When the Superintendent is satisfied with the conversion proposal, eligible mutual policyholders must then approve amending the insurer's bylaws to allow all eligible non-mutual policyholders to vote on the conversion proposal. After further authorization from the Superintendent, all eligible policyholders vote to approve the conversion proposal and related matters by special resolution. The conversion is effected when, upon the Superintendent's recommendation, the Minister approves the demutualization and issues letters patent of conversion. The process terminates if the policyholder committees fail to submit the conversion proposal and opinions of actuaries within the prescribed time period or if the notice of special meeting to approve the proposal is not sent to eligible policyholders within one year of the Superintendent authorizing its sending.

The deadline to make representations on the proposed regulations is March 30, 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.