Finance Committee on May 1st, 2012

[Peggy Nash, NDP, 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?

[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.

[Peggy Nash, NDP, Parkdale—High Park, ON]

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

[Karen Gavan]

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

[The Chair, Conservative, James Rajotte]

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

[Karen Gavan]

Approximately 3% of our 2,500 employees have mutual policies.

[The Chair, Conservative, James Rajotte]

Okay, thank you. Thank you, Ms. Nash.

Ms. Glover, please.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you, Chair.

Thank you to all of the witnesses for appearing today.

I would like to start with Monsieur Lafrenière. You said something that caught my ear, about retaining the surplus within the mutual community. I want you to explain exactly what you mean by that.

[Normand Lafrenière]

We mean that we would like the mutual system to get the surplus of any demutualizing company.

[Shelly Glover, Conservative, Saint Boniface, MB]

What is the mutual system?

[Normand Lafrenière]

The surplus is owned by the mutual system. It has been built by many generations of mutual policyholders who wished to build a mutual insurance company.

[Shelly Glover, Conservative, Saint Boniface, MB]

I want you to explain a little more grassroots. What is the mutual system? For those who don't understand the system, because people are watching from home, when you say you want to retain that in the mutual community, what do you mean by that when you say the mutual system?

[Normand Lafrenière]

What I mean is that if the company that demutualized merged with another company or many other companies, the surplus would remain within the mutual community. We're saying that a company that wishes to demutualize and leave the mutual system should leave behind the mutual surplus, the surplus built by mutualists over many generations for the benefit of other mutual insurance companies.

[Shelly Glover, Conservative, Saint Boniface, MB]

Mr. Lister is likely going to agree with you. Am I correct, Mr. Lister?

[Dan Lister]

Yes.

[Shelly Glover, Conservative, Saint Boniface, MB]

I really appreciated the way your dissertation was written, because it made sense to people who generally are not involved in the financial industry or mutual companies.

I want to know what you think of what Ms. Gavan has said about the impacts. Do you agree with Ms. Gavan? If not, what is going to happen to the folks in your community if this happens?

[Dan Lister]

Our concern is that the process doesn't take into account that there are about 106 mutuals in the country. One is looking to demutualize. We want to make sure there is protection so that the rest of us who choose not to are not sort of forced into that position by a third party that looks and says there's an opportunity to take over some market share to get some surplus. As I said in my remarks, we're interested in strengthening the issue around the quorum, and also being able to protect ourselves from that third party becoming involved in a process that we don't feel is the best interest to the company.

[Shelly Glover, Conservative, Saint Boniface, MB]

I do get that, but what I don't think I'm understanding is the fact that, first of all, there isn't only one company, like you just said. The Department of Finance officials have said there were 80 submissions, and it was split. We don't know yet if it was just one company. We don't know who all these folks were who were on either side of it. I can hear very strongly from Ms. Gavan there is some support for what she's suggesting. I wanted to give you an opportunity to be critical of what Ms. Gavan said.

Now, I want to give you, Ms. Gavan, an opportunity to argue why you believe the position you have taken will not cause the effects that Mr. Lister and Mr. Lafrenière have claimed it will?

[Karen Gavan]

If you refer back to my submission, we did list out the size and scope of the 10 federally regulated mutual insurance companies. You will note that other than ourselves and one other company, the rest are very small.

In reality, to seek to do a sponsored demutualization of a smaller mutual, the costs of doing so would far outweigh the benefits of trying to make that acquisition. So, the threat that they're going to be taken over by the large companies is wrong. There is a real niche market for the small mutuals.

That being said, I also want to clarify that none of the surplus ever comes out of the company. When Economical Insurance demutualizes, all of the surplus stays intact. That seems to be a big misunderstanding.

[Shelly Glover, Conservative, Saint Boniface, MB]

So, you're saying the $1.3 million that was addressed by Ms. Nash is inaccurate.

[Karen Gavan]

That's correct.

They will benefit where the owners sell their ownership interest to outside investors, and outside investors will pay them for that ownership interest.

The $1.3 billion surplus in our company remains in our company; it just has different owners.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Glover.

Mr. Brison, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Chair, and thank you, to each of you, for appearing before us today.

Mr. Lister, Kings Mutual is a very important part of the rural Nova Scotian community, a very important part of the Annapolis Valley community, and the agricultural community.

You request that any regulation ensures that it would require at a very minimum a majority of those present, but you're saying a significant majority of policyholders to establish quorum. What do you consider to be a significant majority of policyholders?

[Dan Lister]

I would look at a strong majority of two-thirds to 75%.