Thank you, Mr. Chairman.
On behalf of Economical Insurance, I welcome the opportunity to speak with you today about demutualization of property and casualty insurance companies. We've provided the committee with a submission that we hope provides some useful background, so I'm not going to repeat that information. Instead, I'll focus on the need for regulations that allow mutual P and C companies the option to demutualize, why demutualization is right for Economical Insurance, what we believe should be central to the regulations, and how demutualization benefits the insurance industry, Canada's financial system, and in fact, all Canadians.
Economical Insurance is one of only 10 mutual P and C companies that fall under federal jurisdiction and will be impacted by these regulations. Economical Insurance has a long history and a proud tradition. We now offer a range of P and C insurance products to consumers and businesses in all provinces in Canada. We are successful, large, and have grown significantly in the past two decades.
In 2011 Economical Insurance was the 10th largest P and C company in Canada. However, despite our growth over the last decade, we slid from being the fifth largest in the year 2000. We are competing in a market that has changed profoundly over the last decade. We compete against large and growing Canadian stock companies, and Canadian operations of even larger multinationals. These companies have access to the capital markets to raise funds for growth. Mutual companies by their very nature lack that access.
We cannot issue shares to raise capital to help expand our existing business or acquire others as many of our competitors can. In addition, mutual companies are expected to maintain higher levels of reserve funds than our stock competitors. That means we're not competing on a level playing field. To level the playing field, we need regulations that give mutuals the choice to demutualize.
After careful deliberation, and although regulations did not yet exist, our board of directors decided in 2010 that it was in the company's best interest to demutualize. It was the next logical step in our evolution and the right thing to do. Demutualization will allow us to gain access to equity capital, which will let us grow our core business. It will allow us to be a leader in the consolidation of the P and C industry in Canada. It will allow us the resources to develop our systems and risk management structures to remain competitive in a rapidly changing industry. It will help to protect our financial stability on the same terms as our non-mutual competitors.
Regulations do exist for Canadian mutual life insurance companies and they were used by a number of companies in the late 1990s. The result was larger, stronger, and more internationally competitive life companies that served more customers, employed more people, and added significant wealth to the Canadian economy.
We believe demutualization regulations used for life companies are a very good model and easily adapted for P and C mutuals. Mutual policyholders are the owners of the company. They are the only people with the right to vote and the right to receive distributions. Their ownership interests are at least as strong or stronger than those who receive benefits from the demutualization of the life companies.
We also believe the law is clear that the federal government cannot, without compensation, expropriate or transfer the property rights of mutual policyholders to others.
Finally, we believe the regulations for demutualization should create and maintain real choice for mutual P and C companies. Those who choose to demutualize should have a clear path to act on their decision. Those who choose not to demutualize should be protected, so that they can continue to serve their communities as they have done for decades. Just because there are regulations does not mean that all companies will choose to demutualize.
We are convinced that our position is right and fair, and that our approach is in the best interests of all concerned.
Let me leave you with this. The change we propose is good for Economical. It allows us to innovate and compete more successfully. It's good for customers. It gives them more choice and a financially stronger insurance provider. It's good for our communities. It allows us to grow and employ more Canadians. It means strength and stability for our industry and our financial sector, and that's good for all of us.
Thank you very much for the opportunity to speak to you today. I welcome any questions.