Wednesday, August 21, 2013
(No.245) About the Economical Insurance Co.: is Rickard a "crackpot & blatant liar"?
"About the Economical Insurance Company:
is Rickard of RickardsRead.com "a crackpot and a blatant liar"?
Yes, according to one correspondent
(plus an update on Manulife )"
by Alastair Rickard
During the past few years I have posted a number of columns on RickardsRead.com about the proposed demutualization of Economical Insurance, a mutual property and casualty insurance company based
in Waterloo Ontario since 1873. All the columns have been critical of and opposed to the demutualization plan for the company advanced by its management and board which would award the equity in the company (perhaps, they hope, as much as ca. $1 million each) to fewer than 1,000 of the 1+million policyholders of the company.
The most recent column, "Economical Insurance Co. -- Insiders with more nerve than a canal horse"
(No. 241) was posted on July 18, 2013. It prompted a number of responses from readers, none more interestingly hostile than one I reprint (below) in its entirety.
Consistent with the longstanding practice of RickardsRead.com I will withhold the name of the writer but for the benefit of readers briefly identify him by his interest and/or connection to the subject.
The writer was a senior salaried employee of Economical Insurance. He is also an 'equity' policyholder in the company who seems to be anxious about the delay by Ottawa in providing a regime for P & C company demutualization.
"I see you have crawled from under your rock again, after about a year to take another swipe at the Economical demutualization process. The process which, as you know, is perfectly legal and written into the Economical bylaws.
"I am a retired employee of Economical and take exception to the way you have portrayed the Economical Mutual policyholders to your '40' or so subscribers [sic], in your 'rants'. Far and away, most mutual policyholders (including myself) of the Economical are ordinary folk. But that is not what you are portraying in your 'rants'. You characterize them as Directors and Senior managers, but that group comprises less than 3% of the total. So you are an outright liar & definitely a crackpot.
"But more seriously, I have concerns you are receiving inside information on the demtualization process. Last year you indicated the demutualization process will be spread out. None of us knew this. Now, you seem to have inside knowledge as to how these regulations will play out. Even a blatant liar and a crackpot such as yourself could not have come to this conclusion. And this is my concern."
The foregoing email, obviously written in a fit of exasperation, sets up and then knocks down several straw men.
I do not intend to reply here to each of the comments made by this Economical Insurance insider, neither the silly nor the ad hominem. Nor will I present in this column excerpts from emails I received agreeing with my comments or from emails referring to possible class actions.
However there are three points I do wish to make:
1. It would be unfair to federal Minister of Finance Jim Flaherty and his staff in Finance for me to allow to pass unremarked the assertion that I have been receiving "inside information" about the development of a regime to govern the demutualization of p & c insurance companies. I have not.
2. My comments about the small group of Economical Insurance "voting policyholders" (i.e., those seeking to have the company demutualize and then divide a $billion+ in corporate equity among them) embraced company "insiders".
The "insider" group includes but is not limited to the company's directors and senior managers (current and former). It was a group whose members over time had both the knowledge and the opportunity not available to most of the company's policyholders to acquire a "voting" policy from Economical.
3. RickardsRead.com does not have "subscribers". The columns posted on it are available to be read by anyone with access to the Internet.
The demutualization of a federal p & c insurance company like Economical, whatever else it involves, is at root about an action that would if it followed the Economical proposal mean a relative handful of Economical policyholders getting rich off a socially useless scheme involving almost entirely other people's money.
That reality is not altered by an inability or refusal to recognize fact.
I have written several columns in recent years about the near disaster which threatened to take down Manulife, the Toronto-headquartered Canadian life insurance company whose senior management for years chased hundreds of millions of dollars of new variable insurance contracts the return from which it guaranteed.
In order to increase company profits (and therefore also profit-related executive compensation) to even higher levels Manulife in 2004 stopped hedging the unwise risk it was assuming in great dollar volumes.
What happened to Manulife, when the Wall Street-generated meltdown began to occur in 2007-8, was inevitable. As Manulife's net exposure to guaranteed variable policies hit $72 billion by Sept. 2008 the company headed toward the financial ditch.
In a recent column (No. 238: "Manulife and Turkey: some interesting numbers", posted June 17, 2013) I referred to an Ontario Superior Court hearing scheduled for June involving a class action against Manulife. The required court certification of a class action was to be sought.
Shareholders of Manulife had launched a class action in 2009 claiming $500 million from the company, former CEO Dominic D'Alessandro and former CFO Peter Rubenovitch over the company's risk management policies and practices.
On July 25, 2012 the 20 page ruling of Mr. Justice Edward Belobaba was released. The judge certified the investors' class action lawsuit. As the Financial Post reported (July 26, 2012) the plaintiffs, whose claim was filed by the Siskinds law firm of London, Ontario, have permission to seek relief under provisions of the Ontario Securities Act that allow investors to sue for "secondary market misrepresentation". The claim also seeks common law damages for negligence, negligent misrepresentation and unjust enrichment.
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