Canada: Canada Finalizes Regulations For Demutualization Of P&C Insurance Companies, Responds To Stakeholder Comments

Highlights of developments since February 2015 draft regulations:

  • Scope of conversion proposal terms to be negotiated by policyholder committees narrowed - now to include only terms related to the allocation of demutualization benefits and the selection of beneficiaries - all other conversion proposal terms to be drafted by the company itself.
  • Conversion proposal to now include two-year plan of the converting company to promote share liquidity.
  • Eligibility of non-mutual policyholders to participate in demutualization proceeds confirmed by government. 
  • Government to weigh benefits of sponsored demutualizations against benefits of takeover protection - may in the future propose sponsored demutualization regulations.

Introduction

On July 1, 2015, the Government of Canada finalized the long-awaited regulations providing a framework for the demutualization of Canadian mutual property and casualty (P&C) insurance companies. The Mutual Property and Casualty Insurance Company Having Only Mutual Policyholders Conversion Regulations and the Mutual Property and Casualty Insurance Company with Non-mutual Policyholders Conversion Regulations (the finalized regulations), now in force, are intended to establish a transparent process for demutualization of P&C insurance companies, while ensuring that policyholders are treated fairly and equitably.

Released in draft in late February of this year, the regulations were open for public comment for 30 days and were discussed in detail in our March 2015 Insurance Law Update available here. Over 40 submissions were made to the Department of Finance (the Department) by federal mutual P&C companies, policyholders, employees, industry associations, actuaries and the cooperative sector. While the finalized regulations remain broadly unchanged, certain minor adjustments and clarifications were made in response to the comments received, as summarized below.

Comments accepted: adjustments and clarifications to the finalized regulations

Certain stakeholders of companies with a dual policyholder structure, such as Economical Insurance, were concerned that the mandate of the proposed committee of policyholders was to include conversion proposal provisions relating to the post-conversion structure and strategy of the converted company. These stakeholders noted that such provisions are better left to drafting by the company itself, which is better placed to develop concepts such as valuation, IPO terms and share structure. The finalized regulations now specify that only terms related to the allocation of benefits and the selection of demutualization beneficiaries will be negotiated between the mutual and non-mutual policyholder committees. All other terms will be drafted by the company.

Certain industry stakeholders pointed out the difficulty demutualization beneficiaries may have selling their new shares on public markets. As a result, the finalized regulations now require that, as part of a company's conversion proposal, it must describe the steps it will take to promote share liquidity within the first two years following conversion.

In response to requests for clarification, the Department has clarified within the regulations that the court may specify the purposes for which policyholder committees can use confidential information, and that such committees must be comprised of not less than three and not more than nine members. Further, the provisions respecting contracts related to demutualization were reworded to clarify that contracts between the demutualizing company and any associated entity, however associated, must be on market terms.

Certain stakeholders were emphatically concerned with respect to the obligations of actuaries in the demutualization process, including the rendering of the actuary's opinion on the allocation of benefits to eligible policyholders based on the factors set out in the regulations. The Office of the Superintendent of Financial Institutions (Canada) consequently intends to release a transaction instruction designed to provide greater guidance to actuaries taking part in the demutualization process.

Comments declined

Stakeholders were, by the numbers, most focused on the criteria for eligibility to receive the benefits of demutualization and, for companies with a dual policyholder structure, the distribution of those benefits as between mutual and non-mutual policyholders. Over half of the submissions received during the comment period related to these concerns.

Many responding mutual policyholders of companies with a dual policyholder structure expressed a desire to keep the right to vote on demutualization, as well as the benefits of demutualization, exclusive to mutual policyholders. Others wanted the regulations to prescribe the portion of demutualization benefits eligible for distribution to non-mutual policyholders. The Department heard from individuals concerned that their specific type of policy (such as a policy of a subsidiary of a mutual P&C company) would not meet the eligibility criteria, thus disqualifying them from receiving the benefits of demutualization.

The Department sought to ameliorate the concerns relating to the distribution of demutualization benefits by reiterating its position that the proposed four-step negotiated process strikes the appropriate balance between the corporate governance rights of the mutual policyholders and the ability for policyholders with a reasonable interest in the company to participate in, and benefit from, demutualization. It further stated that eligibility concerns are adequately addressed by the proposed framework's inherent flexibility, which allows policyholder committees to propose distribution of demutualization benefits to persons or classes of persons other than typical eligible policyholders.

Comments taken under consideration

The proposed regulations' two-year restriction on converting companies having a major shareholder, meant to preclude both sponsored demutualizations and takeovers, also drew significant commentary. While the Department rejected outright a request that the restriction be increased to five years (on the basis that it would unduly restrict the future options of the converted company), it has taken under consideration comments arguing that the ban on sponsored demutualizations could impose, on smaller mutual companies, a significant cost barrier to demutualization (due to the high cost of complying with the regulations). The Department conceded that it remains unclear whether the benefits of sponsored demutualizations outweigh the benefits of the takeover protections, and has decided to examine this question in greater detail at a later date to determine whether it should bring forward a proposal on sponsored demutualizations.

Finally, the government refused to adopt requests to allow a converting company to incorporate holding companies under the Canada Business Corporations Act rather than the Insurance Companies Act (to avoid the company suffering a competitive disadvantage against its new peer group (which would include companies with business corporation holding companies)). It also refused requests to include in the regulations a mechanism for resolving disputes related to benefits eligibility. The Department stated it would revisit these issues in the future as needed.

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 Mondaq.com.

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

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions