Evidence of meeting #55 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was company.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

  • Jeremy Rudin  Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
  • Normand Lafrenière  President, Canadian Association of Mutual Insurance Companies
  • Karen Gavan  President and Chief Executive Officer, Economical Insurance Group
  • Dan Lister  President and Chief Executive Officer, Kings Mutual Insurance Company
  • James Wu  Chief, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance

3:55 p.m.

NDP

Peggy Nash Parkdale—High Park, ON

Ms. Gavan, Economical is a very old insurance company, and I've read that there are something like 700,000 cash policies with the company, but only about 943 are mutual policyholders. Prior to discussion about demutualization, how would I go about becoming a mutual policyholder with Economical?

3:55 p.m.

President and Chief Executive Officer, Economical Insurance Group

Karen Gavan

Brokers were allowed to do applications if the applicant met the criteria. However, brokers felt that the mutual policies were very hard to sell for a number of reasons, primarily that mutual policyholders had to sign a legal promissory note called a “premium note.” That was a valid legal demand note that the board of directors could call on for an additional three times their annual premium in the event that the company needed cash to pay off claims.

3:55 p.m.

NDP

Peggy Nash Parkdale—High Park, ON

Has this ever happened in the history of the company?

3:55 p.m.

President and Chief Executive Officer, Economical Insurance Group

Karen Gavan

Yes, it has.

3:55 p.m.

NDP

Peggy Nash Parkdale—High Park, ON

When did that happen?

3:55 p.m.

President and Chief Executive Officer, Economical Insurance Group

Karen Gavan

In the 1930s.

3:55 p.m.

NDP

Peggy Nash Parkdale—High Park, ON

So it hasn't happened since the Great Depression.

Was OSFI overseeing the mutualized insurance industry at that point?

First, though, is the number of 943 mutual policyholders correct?

3:55 p.m.

President and Chief Executive Officer, Economical Insurance Group

Karen Gavan

That's correct.

3:55 p.m.

NDP

Peggy Nash Parkdale—High Park, ON

If there should be a demutualization and there is a distribution, would it be to all of the cash policyholders, to the mutual policyholders, or would you reach back to recognize the investment of previous policyholders? How would that work?

3:55 p.m.

President and Chief Executive Officer, Economical Insurance Group

Karen Gavan

We believe in a number of things. We believe that the mutual policyholders have sole ownership rights to the distribution of demutualization benefits.

3:55 p.m.

NDP

Peggy Nash Parkdale—High Park, ON

So if I understand correctly, they would be entitled, if you take the value of the company and average it out, to $1.3 million for each mutual policy. Is it correct that Economical has agreed to cover any legal costs from brokers who might face lawsuits from people who are not given the opportunity to purchase these mutual policies?

3:55 p.m.

President and Chief Executive Officer, Economical Insurance Group

Karen Gavan

Yes, we have given assurance to our independent broker partners who were concerned that cash policyholders might claim, why didn't you suggest I apply for one of these policies? Our legal advice has been that they do not have a valid claim. We have given our brokers the assurance that we would stand behind them.

3:55 p.m.

NDP

Peggy Nash Parkdale—High Park, ON

Is it true that about 20% to 30% of these holders are employees of the company?

3:55 p.m.

President and Chief Executive Officer, Economical Insurance Group

Karen Gavan

No. The actual figures are smaller than that. Brokers represent about 3%.

3:55 p.m.

Conservative

The Chair James Rajotte

Just a quick response, and then we will come back to it.