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

4:30 p.m.

Conservative

Mark Adler Conservative York Centre, ON

Walk me through the process.

4:30 p.m.

President and Chief Executive Officer, Economical Insurance Group

Karen Gavan

First, you have to have a lot of capital. You have to be able to put up the capital. You have to bring forward—this is probably better answered by the Department of Finance—a complete business plan and proposal on how you are going to capitalize the company, how you're going to manage your risk, and how you're going to run the business. You would have to be granted a charter, licensed to do insurance business federally and within each province.

4:30 p.m.

Conservative

Mark Adler Conservative York Centre, ON

For the department, then, how many new entrants are there to the market, on average, per year?

4:30 p.m.

Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance

Jeremy Rudin

There's a fair bit of turnover in the federally regulated P and C business. I would have to look to see how many new entrants we've had recently. We can provide the committee with that information. I'm not aware of any recent entry as a mutual into the federally regulated sphere. Indeed, I'd be surprised if there have been any.

4:30 p.m.

Conservative

Mark Adler Conservative York Centre, ON

Let's consider range. From the small to the large, how small do they get?

4:30 p.m.

Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance

Jeremy Rudin

In the property and casualty sector, I can provide more detailed information if we go back and look. But there's quite a wide range in P and C. It's much wider than what has now happened in the life insurance business. We have large companies and the subsidiaries of large, foreign companies that are active in the Canadian business. There are also some relatively small Canadian-only companies that are federally regulated property and casualty companies.

4:35 p.m.

Conservative

Mark Adler Conservative York Centre, ON

For those companies you see from time to time on television advertising for 3¢ a day, or whatever it is, will pay out upon death, and $25,000 accidental death will be doubled, that sort of thing, where would those be considered to be in the range or spectrum of activities?

4:35 p.m.

Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance

Jeremy Rudin

If I understand the example you're giving, those are life insurance companies, and we were discussing the property and casualties.

4:35 p.m.

Conservative

Mark Adler Conservative York Centre, ON

Yes, I'm only curious.

4:35 p.m.

Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance

Jeremy Rudin

On the life insurance it's done.... Again, I could get you this information. In the federally regulated sphere it's dominated by the large companies. There are a number of smaller ones, but I couldn't give you the number off the top of my head.

4:35 p.m.

Conservative

Mark Adler Conservative York Centre, ON

Over a period of time, take the last 25 years or so, say 25 years ago, would you say the field was dominated by smaller companies and a more competitive environment with a few larger ones? How has that changed over the last quarter century?

4:35 p.m.

Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance

Jeremy Rudin

An excellent question for which I can only give you a partial answer, but I will give you more over time.

There was a strong trend towards consolidation in life that followed the demutualization of some of the larger companies. In property and casualty there has been some consolidation over time, but there's a wider distribution and I believe there is more entry and exit.

The other thing I would say, speaking now as an economist, is that one measure of the amount of competitive pressure is how many competitors there are, but it's not a perfect measure. So there are other indicators of how much competitive pressure there is, and a fair bit of controversy over how best to measure it.

4:35 p.m.

Conservative

Mark Adler Conservative York Centre, ON

What would be some of those?

4:35 p.m.

Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance

Jeremy Rudin

One is entry and exit. Is it easy to get into the business? How difficult is it to get it to—

4:35 p.m.

Conservative

Mark Adler Conservative York Centre, ON

Has it become more difficult over the last number of years?

4:35 p.m.

Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance

Jeremy Rudin

In property and casualty, I think it's really the competitive circumstances that have mattered the most. As we've been told, to start a federally regulated company you need to have enough capital and expertise in order to establish it. These aren't onerous. We do try to have a framework that balances the need for openness and competition with the ability to provide sufficient security to the policyholders that their insurance company will survive the length of the policy.

4:35 p.m.

Conservative

Mark Adler Conservative York Centre, ON

Would demutualization affect that regulatory regime at all?

4:35 p.m.

Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance

Jeremy Rudin

Well, we have a regulatory regime that applies broadly to P and C companies. There are some specific requirements for mutual companies. A demutualized company would simply move into the existing regime for a stock company, so there wouldn't be a need to adapt the regime. It already anticipates that there would be both mutual and non-mutual companies.

4:35 p.m.

Conservative

The Chair Conservative James Rajotte

Thank you.

Thank you, Mr. Adler.

Mr. Mai, you have five minutes.

May 1st, 2012 / 4:35 p.m.

NDP

Hoang Mai NDP Brossard—La Prairie, QC

Thank you, Mr. Chair.

Mr. Lafrenière, could you tell us what the difference is between mutual life insurance and mutual P&C insurance?

4:35 p.m.

President, Canadian Association of Mutual Insurance Companies

Normand Lafrenière

Yes. Mutual life insurance companies had only been mutual insurance companies for about 30 years before they became demutualized 12 years ago. They became mutualized in the 1960s to protect themselves against takeovers by foreign companies. A company called Mutual Life at the time was an exception to the rule because it has always been a mutual company.

Those companies, which had been stock companies until the 1960s and then became mutual companies to protect themselves against takeovers, felt in the 1990s that they were sufficiently large and sufficiently strong financially to face those foreign companies. They even started to buy companies abroad. Since they no longer needed to be mutualized for protection, they became stock companies again.

4:35 p.m.

NDP

Hoang Mai NDP Brossard—La Prairie, QC

Could you tell us how mutual companies contribute to the socio-economic development of communities?

4:35 p.m.

President, Canadian Association of Mutual Insurance Companies

Normand Lafrenière

Our mutual companies contribute greatly to the development of communities. They are located in rural areas and, as a general rule, although it is not always the case, they represent approximately three employees for every $1 million in gross premiums written. In rural areas, it is quite common to see companies worth $30 million hire some 90 people from the region.

Those can be jobs in underwriting, claims settlement, marketing and inspection. We are talking about very good and stable jobs in rural areas that sometimes experience some rather drastic economic changes. We play a significant role in the stability of the market, not only in terms of job creation, but also in terms of the products that we offer. Unlike stock companies that can withdraw from the market when times get rough, we stay and continue to offer our products.

4:40 p.m.

NDP

Hoang Mai NDP Brossard—La Prairie, QC

Thank you.

Mr. Lister, you said in your brief that companies will be demutualized and assimilated into stock companies, resulting in job losses and losses to the rural communities in which they serve. Could you expand more on that, please?

4:40 p.m.

President and Chief Executive Officer, Kings Mutual Insurance Company

Dan Lister

As the ownership of the company transfers from policyholders, who really don't have the ability to sell the company, to a stock company, it becomes available on the market. Certainly, in the case of the smaller mutual companies that are spread across the country, we're all based in rural areas throughout the country. If the mutual system is set up in such a way that the regulations allow for a simple and easy demutualization, that base can be pulled out of the rural areas.