Sunday, September 2, 2012

(No.213) Updates: Economical Insurance, Sun Life & Manulife

Updates on Economical Insurance, Sun Life and Manulife

by  Alastair Rickard

I have written in several columns about the demutualization (sought by the board, senior management and relative handful of policyholders eligible to vote) of Economical Mutual Insurance. the large Waterloo, Ontario property and casualty insurance company.

For the most recent columns about Economical and the Canadian government's 'consultation' process on a new regulatory regime for P & C company demutualizations, see column nos. 206, 208 and 209 on

On Aug, 23, 2012 Economical Insurance released its financial results for the second quarter. Its "total mutual policyholders' equity" increased by $81.6 million in the first 6 months of 2012 to $1.382 billion.

This equity is the value that the Economical Insurance insiders set out awhile back to allocate on a demutualization among fewer than 1000 policyholders of the company, themselves included of course, out of the company's several hundred thousand policyholders.

Economical Insurance is also the company whose current statement of "Missions and Values" declares, under the heading "Integrity", that "we have the courage to do the right thing". Sure, and Her Majesty The Queen will appoint me as the next Archbishop of Canterbury.

Meanwhile, in terms of the public consultation process announced in June 2011 by Canada's Finance Minister Jim Flaherty on a regulatory framework to govern the demutualization of P & C insurance companies, there is still nothing from Ottawa in the form of draft regulations for comment. Perhaps, as I have indicated previously, there are political considerations slowing the process, including the absence of any consensus among Canada's P & C mutuals on what the approach ought to be.

The fact that the corporate financial media have been largely silent on this attempted financial grab by the voting policyholders of Economical Mutual Insurance, i.e., about something that ought to be a stench in the nostrils of any fair-minded person, may also have had more than a little to do with Ottawa's glacial speed in dealing with both the Economical Insurance demutualization and its sine qua non: a regulatory regime applicable to any federally regulated P & C company wishing to demutualize.
In response to the columns about Economical I received an impassioned email from a P and C insurance broker who argued that "another interesting twist to this is that insurance brokers representing Economical contractually own the clients or client list; Economical transacts their insurance business.

" Should Economical insurance brokers at any time choose to move the entire business en masse or piecemeal there would be no need for economical to demutualize nor to sell the business to a prospective purchaser as all that would be left of Economical would be a shell containing equity/cash with no remaining insurance clients.

"Can the argument then not be made that the Economical insurance brokers are really the true owners of the business side of Economical Insurance and should they not also be lined up with the undeserving characters?"

An American reader wrote to say that he "read the well-informed submission of Mr. Gingras with great dismay [ column No. 209 posted July 31, 2012], knowing from your prefatory comments that it had not been posted by the Department of Finance [on its website]. As an American I have long admired the role that open, fact-based discussions play in Canadian public affairs.

"It is disheartening to learn that the bureaucrats in the Department of Finance don't have an understanding of or appreciation for the value that sunlight brings to a democracy."


I devoted a column [No. 211 on, " Sun Life, Manulife and the Kabuki Theatre of gerrymandered expectations"posted Aug.15, 2012] to the largely inadequate commentary in the financial media about major life insurance company financial results (specifically Sun Life's and Manulife's).

I said, in part, that "we hear endlessly about the negative impact of low interest rates, equity markets etc on a company's earnings. What does not get rehearsed or even mentioned most of the time is why this magnitude of negative financial impact came to be felt by the company, about its connection to how the core business was operated: i.e., how effectively does it operate the actual business of a life insurance company in Canada and elsewhere?"

As an update for readers of that column: there was a fine example of the facile analysis and predictability about which I wrote in my Aug. 15 column provided recently by The Globe and Mail's Report On Business on Aug. 28, 2012 in the 'VOX' column.

My Sun/Manu column prompted a number of responses. For example:

One correspondent of, a Canadian who held an agency role with The Mutual Life of Canada and is now an independent industry consultant, wrote to say that "Once again you put into erudite words what I've been saying for years. [Life insurance] companies and now their shareholders are paying the price for their stupidity earlier.

"I consider myself blessed to have worked with men like Ken MacGregor and John Panabaker [both former CEOs and chairmen of Mutual Life -- ed.] who would never have have allowed such nonsense and understood the sacred trust they had.

"Demutualization just didn't help anyone but greedy executives who are now mostly retired. I wonder when the re-mutualization process will begin?"

A longtime American life insurance industry participant weighed in with "a bit of history that I believe relates to the situations at Manu and Sun. Both of these companies used to have a reputation for educating their home office employees through LOMA, CLU and presumably other programs that gave their employees an understanding of the business they were in (in other words, before you play football you'd better know how to block and tackle and you'd better understand the plays when the quarterback calls them).

"At one point both Sun Life and Manulife even paid for employees to attend industry annual conferences in the year they earned [their industry-related] designation, presumably because the companies recognized that the cost of the incentive was far less that the value of the knowledge gained when applied over the employee's entire career.

"Sometime in the late 1980s -- early 1990s the old guard in Human Resources management changed hands and their replacements did not come from within the ranks. Rather, the people appointed to create employee development policies were interested in touchy feely programs and (not knowing anything about the life insurance business themselves) expressed the view that 'employees can learn that technical stuff on the job'. As a result, industry-focused education plummeted in both companies and the drain of knowledgeable midddle management and tech professionals began.

"In some ways the home office experience is similar to the treatment of the agency force, as you have described [in RickardsRead]. There was an assumption by top management that the magnificent store of human capital available to them would always be there. Executives are clueless as to how that human capital was developed and maintained, and some no doubt relished the impact that cutting expenses would have on their reputation and bonuses. After all, cutting education and training was an immediate, short-term impact on profits and future generations can deal with the eventual consequences in lost productivity.

"Apparently Manulife and Sun Life are paying the price -- and if you look around the life insurance industry you'll see they are not the only ones. As someone once said, 'If you think education is expensive, try ignorance!'  "


Finally an update involving a couple of recent columns on

The Wealth Channel, a U.S. magazine published by The American College (est.1927) asked permission to reprint my June 21, 2012 column (No.202) "What's been wrong with the Canadian life insurance business?" I agreed and it will appear in the fall 2012 issue.

My Aug. 6, 2012 column (No.210) on "Charles Willeford & Hoke Moseley" appeared as an article in the book review pages of the Aug. 18 editions of two southwestern Ontario daily newspapers: the Waterloo Region Record and the Guelph Mercury.




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