There’s time to answer question over what happens to surplus when an insurer demutualizes

Published: January 10, 2018

Updated: July 24, 2018

Author: Luke Jones



Property and casualty insurance companies are able to demutualize following a federal government ruling in 2015. So far, Economical Insurance is Canada’s only mutual provider that has started the process, but others could one day follow. However, there is a debate over what would happen to an insurer’s surplus if a mutual company decides to demutualize.

“The Insurance Companies Act and associated regulations do not specify what becomes of the surplus of a converting company upon its conversion from a P&C mutual company to a P&C stock company, nor do they specify any particular entitlement to the surplus of a P&C mutual company or converted P&C company by any person or group of persons,” says a spokesperson from the Office of the Superintendent of Financial Institutions (OSFI).

OSFI oversees demutualizations in accordance with the Guide for the Demutualization of Mutual Property and Casualty Insurance Companies with Non-mutual Policyholders, “OSFI cannot provide information on who may be legally entitled to the surplus of a mutual P&C company,” the spokesperson continued.

Normand Lafrenière, president of the Canadian Association of Mutual Insurance Companies (CAMIC), said the CAMIC has been unable to find a “real solution” adding that usually a surplus held by a mutual provider has been built over decades.

“The current slate of policyholders should not own the surplus, because that surplus has been built over many generations. So, it is a debate.”

While Economical Insurance is beginning its demutualization process this year, all other mutual providers in the country has stated intentions not to demutualize. Lafrenière reports association members have not shown interest in demutualization. Economical seems to be an exception as the Mutual industry has largely decided to continue as normal.