Economical Insurance shareholders must wait 180 days to sell following demutualization
Published: February 11, 2019
Updated: February 28, 2019
Author: Luke Jones
CATEGORY: Industry News
Economical Insurance is in the final stages of its demutualization. However, the company’s policyholders hoping to cash in on the switch to public may have to wait six months before selling their shares.
Economical’s demutualization proposal features a limitation on common shares, which cannot be sold for 180 days after the company becomes public or stops being mutual, depending which happens first. In its proposal, Economical says common shares are issued to shareholders as a benefit of the demutualization but are subject to “market stabilization restrictions”.
It is worth noting that this is just a proposal and has not been finalized. Mutual and non-mutual policyholders must approve the proposal before the next stage. Without approval, Economical will remain a mutual insurer and will have to create another proposal.
Economical says trading restrictions are common when a company moves public “to prevent the sale of substantial amounts of shares in an uncontrolled manner in the period following the offering, which could negatively impact outside investor confidence and reduce the IPO price and the price that the shares might otherwise trade at after the offering.”
The company says it plans to open a service for share-selling once permission is granted for holders to sell.
“There will be a fee involved with the share-selling service, but eligible policyholders will not be required to create their own brokerage account. We therefore anticipate that the share-selling service will offer a more convenient way for many eligible policyholders to sell common shares than if they sold them on their own.”
It has been nearly four years since the federal government introduced a new law that allows P&C insurance companies to demutualize. So far, out of Canada’s major mutuals, only Economical Insurance has decided to move towards being a private company.
Economical jumped aboard the new federal law almost immediately after it was introduced in 2015, starting its demutualization plans soon after.