Monday, July 9, 2012
(No.206) "UPDATES: Economical Mutual & the Great-West class action"
"Updates: Economical Mutual and federal demutualization regulations; the Great-West/
London Life class action"
by Alastair Rickard
Three previous columns on RickardsRead.com (Nos. 159, 166 and 179) have addressed the issue of the proposed demutualization of the substantial Canadian federally registered property and casualty insurance company Economical Mutual of Waterloo, Ontario.
A majority of Economical Mutual's fewer than 1000 par policyholders would like to demutualize and split among themselves hundreds of milllions of dollars in surplus. This development and apparent intention precipitated the intervention of the federal Finance Minister Jim Flaherty who has stopped Economical's demutualization while the feds consider how to regulate P & C demutualizations and receive submissions they invited on the subject in June 2011.
I made a submission to Ottawa on the subject as did some other interested parties. These have now been posted on the Department of Finance website (go to www.fin.gc.ca/consultresp/dffpcic-cdsamf- eng.asp). Of the submissions posted thus far eighteen 'authors' who didn't wish to be identified have been published as "anonymous", presumably including some from persons with a direct and personal interest in receiving a share of the value of Economical Mutual ($1.5 billion?).
Among various other views expressed to Finance there are apparently those who think the value of Economical Mutual should be allocated to the mutual movement rather than to the company's voting policyholders as well as those who recommend that voting rights be awarded to those with policies in place for five years plus another view that there must be a clear formula laid down by regulation covering who gets what by way of benefits on a demutualization based on objective criteria. Stay tuned.
When asked by Finance I gave my permission to post my submission (which was essentially the column I wrote on the subject and posted to RickardsRead.com on July 10, 2011). I was somewhat surprised to discover that Finance had censored its contents (the polite word is "redacted") before it was posted. I will likely publish in a future RickardsRead the parts of my submission redacted by Finance and readers can judge for themselves what the mandarins in the Dept. of Finance considered too sensitive or offensive to post on the Department's website.
There was an even more interesting submission to Finance prompted by its Economical Mutual-inspired public invitation for submissions on the subject. This particular submission is conspicuous by its absence from the Finance website. It came from Claude Gingras, a former general counsel of the Mutual Life of Canada who later served as a special advisor to the Dept. of Finance. Among other things he assisted the federal government in establishing a demutualization regime for life insurance companies, a framework that was used by the four major Canadian life insurance companies (Manulife, Sun Life, Canada Life and Mutual Life of Canada) which converted more than a decade ago to stock companies.
I published excerpts from the July 2011 Gingras submission about an appropriate federal regulatory regime for property and casualty insurance companies on RickardsRead.com (No. 179, posted Nov. 28, 2011). On the face of it one would think that Finance would have welcomed the chance to post a submission on public policy from a lawyer of such experience and expertise not only with the subject but also the Dept. of Finance. In fact they were apparently prepared to publish his submission only if he agreed to certain deletions.
Why? I think it was because Mr. Gingras had included some criticisms of the Dept. of Finance itself in relation to the subject of insurance company demutualizations. I intend to publish the entire Gingras submission to Finance clearly indicating those portions the Department wanted to remove as a condition of its publication. Readers can judge for themselves the cogency of what did not appear.
Meanwhile there is no reliable indication I have seen or heard about when Ottawa will be ready to publish its draft regulations for property and casualty company demutualizations. The draft will likely provide for at least a 30 day comment period.
I have written several columns (Nos. 118, 124 and 185) about the class action lawsuit led by the former London Life senior executive D'Alton "Bill" Rudd opposing the use of London Life participating policyholders' funds by Great-West Lifeco. to assist financially in its takeover in Oct 1997 of London Life.
An Ontario Superior Court decision in Oct. 2010 awarded $455 million to the par policyholders. Great-West appealed the decision to the Ontario Court of Appeal. Its Nov. 2011 decision had the effect of upholding certain aspects of the appealed decision and cancelled the raiding of the par policy accounts but without upholding the entire payout to the policyholders.
Because the decision of the Ontario Appeal Court was rather a dog's breakfast the leaders of the class action utltimately decided to seek leave to appeal the decision to the Supreme Court of Canada. In June 2012 the Supreme Court declined to hear the appeal.
My understanding of where things now stand is this: negotiations are taking place concerning par funds actions between the class action leaders and London Life/ Great-West ( as a practical matter, negotiations are with the leading Canadian international business law firm Torys LLP on behalf of G-W and London).
More to come.
Finally: following my column (No.203) about "Life insurance companies: are they investment companies with small insurance departments just for the sake of appearances?", I received this interesting comment from a Canadian journalist:
"I can tell you that [RickardsRead.com] is getting huge circulation. Individuals who don't know [I read it regularly] already keep sending it to me! I'm not kidding. It's the single most re-sent blog I've ever seen."
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