In 2015, Co-operatives and Mutuals Canada commissioned Murray Fulton of the University of Saskatchewan and Jean-Pierre Girard of Productions LPS to study the reasons that co-operative and mutual enterprises choose to demutualize. The study, Demutualization of Co-operatives and Mutuals, offers a comprehensive view of the dynamics and implications of demutualization.

Demutualization is the conversion of a co‑operative, credit union or mutual into another business structure, usually one owned by investors. This can occur through the conversion of equity into investment shares, or it can occur via a merger, takeover or buyout involving companies that usually are not co‑operatives or mutuals. However it happens, demutualization typically involves the transfer to private investors of the capital that has been built up over the years by members of a co‑operative or mutual enterprise.

The study cites many reasons for demutualizing, including financial duress or a need to raise market capital to achieve strategic goals. However, it also raise a valid concern that the decision to demutualize may be made with less than full information and may sometimes be made by individuals or groups with a very narrow set of interests. As a result, the study raises a number of concerns about the fairness of the demutualization and the appropriate distribution wealth that has been built up over generations.

The federal and provincial governments share jurisdiction over life and health, and property and casualty insurers. In its 2014 Budget, the Federal Government announced that it would develop and consult on a proposed demutualization framework for federally regulated property and casualty mutual insurance companies (P&C Mutuals). After a number of public consultations, the new regulations came into force on July 1, 2015.

Waterloo Ontario-based Economical Insurance, a P&C Mutual, is looking to become the first property and casualty insurer in Canada to demutualize. The majority of eligible mutual policyholders at Economical recently voted “in favour of commencing negotiations with non-mutual policyholders on the allocation of demutualization benefits through court-appointed policyholder committees, surpassing the required two-thirds majority required for a successful vote,” Economical stated in a recent press release.

Economical is one of seven federally-regulated P&C mutual insurers. In a list of Canadian P&C insurers, Economical ranked ninth by net premiums written in 2014. The other six federally regulated mutual P&C insurers are Wawanesa, Gore Mutual, Portage La Prairie Mutual, Saskatchewan Mutual, The Kings Mutual and North Waterloo Farmers, which agreed to merge with Oxford Mutual to create Heartland Farm Mutual.

On January 16, Gore Mutual Insurance Co. decided it would not follow Economical Insurance to pursue becoming a publicly traded company. In a press release, President Farouk Ahamed stated:  “Our decision to remain a mutual company and continue with our current strategic plan means we will be best positioned to serve our policyholders, employees and community for years to come.”

Gore Mutual also outlined the potential pitfalls of pursuing a demutualization. “The final regulations only allow for an initial public offering as the one and only demutualization option, and the process of demutualization and subsequent public offering would be long, complex, costly and risky, particularly for a company of our size,” they concluded.

Demutualization is a complex issue that requires close scrutiny on a case by case basis. The report is a first step in building an understanding about the causes of demutualization and potential strategies that can help member owned businesses avoid it.