# Economical Insurance Windfall



## sags (May 15, 2010)

Anyone else waiting to find out how many shares/money they will be receiving ?

The paperwork is supposed to be submitted to the Finance Minister by February.


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## Rebecca (Aug 10, 2014)

sags said:


> Anyone else waiting to find out how many shares/money they will be receiving ?
> 
> The paperwork is supposed to be submitted to the Finance Minister by February.


Have kept my fingers and toes crossed since we received the first notification letter a couple of years ago. I wish that there was some hint of what might be to come!


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## ian (Jun 18, 2016)

What does this pertain to?


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## sags (May 15, 2010)

Pretty much sums it up here, but it doesn't tell the whole story of venture capital activism and palace intrigue.......second link for that.

https://www.joininourfuture.com/eng/demutualization/faq/#

http://www.rickardsread.com/search?q=economical


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## Just a Guy (Mar 27, 2012)

Hoping the insurance company will pay you more than your policy costs? Reality doesn't work that way, but don't let logic get in the way. Profits mean you collect more than your costs. You can't have costs and profits that add up to more than you collect initially. Since you don't like companies with an ROI of 3% (to pick a number for argument sake), you'd get maybe $3 for every $100 you paid them...hardly a windfall, it still cost you $97.


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## sags (May 15, 2010)

What.........you mean I'm not getting a big payout ? Bummer........I already got a new Cadillac picked out.


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## ian (Jun 18, 2016)

Perhaps a Cobalt.


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## sags (May 15, 2010)

Mutual companies were kind of a neat idea though. The policyholders are the owners of the company.


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## humble_pie (Jun 7, 2009)

sags said:


> Mutual companies were kind of a neat idea though. The policyholders are the owners of the company.



didn't this model turn out to be a disaster for the original Lloyds of London though 

there were big stories of Lloyds partners having to surrender their own personal fortunes to the firm's debts & obligations when original Lloyd's collapsed

it was one of the worst days ever witnessed in the house of lords, said the british media reports


.


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## kcowan (Jul 1, 2010)

Yes I would never subscribe to any such investment. The returns are good but the liability is unlimited!


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## humble_pie (Jun 7, 2009)

kcowan said:


> Yes I would never subscribe to any such investment. The returns are good but the liability is unlimited!



but a fitting fate for the venerable lords, don't u think


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## ian (Jun 18, 2016)

The Lloyds debacle forced a number of Canadians into personal bankrupcy.

One of the big issues was the feeling that those in the 'know' at Lloyds joined the better syndicates and left the poorer syndicates to outsiders.

I agree.....no to unlimited personal liability. I have to wonder if all of the negatively implacted syndicate members understood that liability going into the investment.

http://www.truthaboutlloyds.com/fraud/10minutes.html


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## Rebecca (Aug 10, 2014)

sags, do you have any idea what the possible payout on this might be? I don't have my yacht ordered yet, but am hoping for at least a few dinners out with the family.


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## sags (May 15, 2010)

They are splitting up approximately $3 billion dollars among 630,000 eligible policyholders. 

If they just split the money evenly among everyone it would be around $4700 each, but it will be split according to some criteria requirements of the government.

The fixed component for every policyholder (to give up the right to vote) will likely be in the range of $500 - $1000 dollars (usually around 25% of the total)

There is also variable component that is based on how long the policy was held, premiums paid and contribution to the surplus.

People who had a policy for 3 years will receive less than people who held a policy for 40 years.

In the Manulife demutualization some people got hundreds of dollars and some got hundreds of thousands and some who received millions.

It just depended on how long they held a policy and their premiums.


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## sags (May 15, 2010)

Although the discussion is in dollars, the actual distribution will be in shares in the new company which may be sold for cash in the IPO.

People will also have the choice to keep the shares. In past demutualizations the shares tended to be discounted at the IPO and rose quickly after.


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## kcowan (Jul 1, 2010)

humble_pie said:


> but a fitting fate for the venerable lords, don't u think


Yup. They might deserve it because they invested from a position of privilege.


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## Rebecca (Aug 10, 2014)

sags said:


> They are splitting up approximately $3 billion dollars among 630,000 eligible policyholders.
> 
> If they just split the money evenly among everyone it would be around $4700 each, but it will be split according to some criteria requirements of the government.
> 
> ...


Thanks for the info. I have two policies (one home and one auto). One has been in place for about 35 years and the other for about 15. Would each policy be a separate payout, or would it be one per person (not one per policy). This is beginning to look a lot better than a few dinners!


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## sags (May 15, 2010)

Likely there would be 1 payout per policyholder for the fixed portion of the allocation.

For the much larger variable portion, each policy would receive a payout based on the age and other criteria.

If you had low expectations, I think you may be pleasantly surprised.

We have had a policy for 32 years.


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## Rebecca (Aug 10, 2014)

sags said:


> Likely there would be 1 payout per policyholder for the fixed portion of the allocation.
> 
> For the much larger variable portion, each policy would receive a payout based on the age and other criteria.
> 
> ...


I'm beginning to feel impatient, and since I'm named on both, and my husband is a joint holder on another, this is certainly going to be interesting to watch unfold. Thanks again, for both the information and the reminder that we may soon find out all!


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## OhGreatGuru (May 24, 2009)

You wil have to be patient and keep in touch with the insurance company. My father made a windfall from an insurance company demutualization. ( I think it was Canada Life). But don't spend it right away - there will be a large capital gains tax owing on the proceeds. It's not unusual. I think several Canadian Insurance companies have gone through this is recent years. The amount each policy holder gets is related to the value of the policy and how long it has been held. (Or perhaps on the accumulated value of premiums paid.)


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## sags (May 15, 2010)

On December 19, the court extended the original agreement for payments to the committee members from 10 months to 12 months.

That would pay them until the Feb 22 date the proposal must be submitted to OFSI.

It appears the committees are still in the process of negotiating. We will know soon enough.


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## Rebecca (Aug 10, 2014)

sags said:


> On December 19, the court extended the original agreement for payments to the committee members from 10 months to 12 months.
> 
> That would pay them until the Feb 22 date the proposal must be submitted to OFSI.
> 
> It appears the committees are still in the process of negotiating. We will know soon enough.


Thanks for the update.


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## sags (May 15, 2010)

This from the Economical website sounds like a positive development.

_Monteith to its Board of Directors, effective January 1, 2018.

“Susan’s impressive experience in investment banking and capital markets bolsters the expertise of our Board as we continue on the path to become a *strong, independent public company*,” said John Bowey, Board Chair. “We look forward to leveraging Susan’s strengths in strategic growth initiatives, which will be particularly important as *Economical prepares for a successful IPO*.”_


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## Rebecca (Aug 10, 2014)

It does! Thanks.


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## sags (May 15, 2010)

Economical announced the negotiations on the financial allotments to policyholders is complete and they are preparing a conversion proposal to present to OFSI.

The court has approved moving the conversion submission to OFSI back to June 30, 2018 to allow enough time. It can be submitted sooner when completed by Economical.

The financial allotment to policyholders will be posted on their website some time in the future, prior to the necessary votes to proceed to an IPO.

An IPO is still some months away but it looks like it should all be completed by late summer or early fall.


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## Rebecca (Aug 10, 2014)

I received an email with more news on this front. You can now link to the document that the mutual shareholders will be voting on soon. It provides estimates of how much each policyholder will receive, and how those amounts were arrived at. It will still be some time before everything is settled, but it's nice to know that this will result in a nice windfall for me!


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## sags (May 15, 2010)

Yes, I received notification as well and have spent way too many hours pouring over the document. I have to let my eyes rest for awhile......lol.

From what I read, the "mutual" policyholders did very well and will receive a fixed allocation of $350,000 to $500,000 per policy. There are only 828 people and mutual policies were specific to home property, so unless people insured several real estate properties under different policies, it is likely that few have more than 1 policy.

The 630,000 "non mutual" policyholders won't fare nearly as well individually, even though they receive 80% of the total money allocation due to the sheer numbers of policyholders sharing the money.

In any event, it looks like they will get an "average" of about $2000 per policy.........which could be higher or lower depending on how long people had policies.

I was a little disappointed they capped the longevity at 23 years, back to 1993, due to a lack of credible records. That means less money for people who had policies for 30 or 40 years.

I was also a little disappointed that they gifted $100,000,000 to an Economical charity foundation to be started. I have no problem with the concept, but found it unfair to take the money solely from the "non mutual" policyholders. The mutual policyholders received 20% of the total allocation ($400 million dollars for 828 people) and could have shared in the cost of the charity. They should have contributed 20% ($20 million) and the non mutual policyholders 80% ($80 million). I would also expect that the charity foundation will issue tax receipts to the 630,000 non mutual policyholders of about $150 each per policy, although I saw no mention of it in the prospectus.

In any event, it is "pennies from heaven" and is always welcome regardless of what it is.


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## sags (May 15, 2010)

If you have 3 "mutual" policies........congratulations. You will be a millionaire if it all passes the votes. 

If you have 3 "non mutual" policies........congratulations still. You will receive a few thousand dollars.

Either way you can pay for the "dinners" you were hoping for at a vacation resort. :very_drunk:

We have 1 non mutual property policy with the maximum duration, so we will go to Costco and load up the freezer..........LOL.


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## OptsyEagle (Nov 29, 2009)

These are good deals but too rare for the general large population.

Peter Lynch use to talk about mutual banks in the US. When he was a fund manager, he travelled a lot. He would open up savings accounts in every bank in every city he visited. He had 100s of these savings accounts and would deposit $10 in each. He knew that a lot of them would de-mutualize and give the first right of buying at the IPO to deposit holders. He always loaded up.

He explained it this way:

Could you imagine buying the house of your dreams. It has all the bedrooms and bathrooms and a pool in the back yard, that you ever wanted, and you buy it at a fair price. When you move in you look into a kitchen cupboard and there is all the money you paid for the house with a nice note. Hope you enjoy the house you bought. We decided to put the money you paid back into your cupboard. Hope you enjoy it.

The analogy is that most companies that issue shares spend the money to buy equipment etc. If it is a great business, no problem. With banks, they just take the money you paid to buy shares and they just put it into the vault, that you now own. What a great deal. Like having your cake and eating it too.

These demutualizations will be more then a dinner out for the family. They are a great deal. In Canada they tend to be given out in comparison to the business you conducted as a customer. So you really cannot use the Peter Lynch strategy by buying very small policies of every mutual insurance company that might be left in Canada. You would just end up with a small piece and only when they go public.

Anyway, good luck to all. Yes. The shares you may sell will be fully taxable as a 100% capital gain. In the Canada Life demutualizaton, I knew a lady who made about $50,000 and she took it in cash. She forgot about it at tax time and the government came after her in about 3 years. So they know exactly who you are and the benefit you are getting. This lady had no other capital gains. There was very little else that would have flagged her and the CRA enquiry was directly related to the Canada Life demutualization. 

Just a word of caution. You will get a big score but you have to pay Pauly (CRA). You know what happens if you don't pay Pauly. lol


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## Rebecca (Aug 10, 2014)

I would love to have been a mutual shareholder, but am still very, very happy to (hopefully) receive about $4,000.


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## sags (May 15, 2010)

Some of the mutual policyholders are probably angry about one aspect of their settlements of $350,000 to $500,000.

About 100 or more of them are obligated to pay a 12.5% of their money to a venture capital company. 

They wanted Economical or all of the policyholders to share the cost, but that was politely declined since the venture capital company tried to take over the company.

https://business.financialpost.com/...demutualization-is-in-companys-best-interests


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## sags (May 15, 2010)

The policyholders will receive shares in the new publicly traded company. They have one of 3 choices to make.

1) They can decide to sell all the shares on the IPO price and take the cash. There would be no fees for selling the shares. They would pay the Canadian dividend tax on the cash.

2) They can keep all the shares and hold them. They would pay broker fees and capital gains on the full value of the sold shares, as the ACB is $0.

3) They can do a mixture of both.


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## OptsyEagle (Nov 29, 2009)

sags said:


> The policyholders will receive shares in the new publicly traded company. They have one of 3 choices to make.
> 
> 1) They can decide to sell all the shares on the IPO price and take the cash. There would be no fees for selling the shares. They would pay the Canadian dividend tax on the cash.
> 
> ...


Interesting that the cash option is a dividend and not a capital gain. In the case I sited it was definitely a capital gain. Maybe she took the shares and then sold, but I don't think she even had a brokerage account. The reason I know it was a capital gain was she asked me to help her out with it. It was a big tax hit. She was so bad with her taxes, she actually had some capital losses from some mutual funds she had lost money on and I used that to reduce the hit a little bit. Those would not have helped with a dividend payment.

As I said, however, CRA seem to know a heck of a lot about it when they came knocking, looking for money, about 3 years later. Since it was a capital gain, no T-slips were issued. Today, they would probably issue a T5008, but that slip was not used much when the Cda Life IPO happened.


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## sags (May 15, 2010)

You right about the CRA wanting their money, and it makes the decision difficult for those who are receiving a lot of shares (a lot of money) with all the different scenarios to consider.

1) IPO price will likely be set below market value to attract initial investors. Waiting to sell may fetch a higher price. Then again, the markets could tank the next day.....who knows.

2) There are consequences to consider, especially for older people who may be collecting OAS/GIS, which will probably describe a lot of the mutual policyholders since they haven't offered many of those policies for 30 years or more. A windfall of $500,000 in one year would clawback government benefits and raise the tax rate on the entire income for the tax year.

For small amounts it doesn't matter a whole lot, but for a lot of money people should consider taking a bit of money at the IPO and leaving the rest to sell slowly over time. 

They could collect dividends on the shares until they are sold.

I don't know if there are mutual policyholders on CMF in any event.

I think the government probably benefits the most. At a tax rate of 30%, they grab a cool $600 million sooner or later.


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## OptsyEagle (Nov 29, 2009)

sags said:


> I think the government probably benefits the most. At a tax rate of 30%, they grab a cool $600 million sooner or later.


Hence why I think CRA set up a small department of Auditors to capture that windfall from Canada Life. From the many Canadians that either did not know what to do about the taxes or the ones who conveniently forgot about taxes. It can be a very meaningful amount of tax money and CRA would have to be nuts not to watch it closely.


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## motl (Mar 3, 2014)

Based on the performance of the company over the past ~18-24 months, I can't imagine the IPO fetching tons of interest if it's not priced at a discount.


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## sags (May 15, 2010)

Economical have announced they will hold a third and final meeting for all 630,000 policyholders in the second quarter of 2021.

The vote and request for an IPO will then be sent to the Finance Minister for final approval.

The IPO is expected before the end of 2021. 

This would culminate a process begun in 2010 to change the company from a mutual insurance company to a publicly traded company.


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## Rebecca (Aug 10, 2014)

Being offered the chance to choose cash or stock now. What are the pros/cons of each choice?


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## fireseeker (Jul 24, 2017)

Rebecca said:


> Being offered the chance to choose cash or stock now. What are the pros/cons of each choice?


Cash
Pro: Cash in hand.
Con: The money will be considered a dividend, so there will be some tax owing.

Stock
Pro: No immediate tax owing; ACB is considered $0; Potential for further upside (though this is true of any investment you may make with this money).
Con: Normal equity risk; perhaps some paperwork to get the shares moved to a brokerage account (though I believe they are setting up an intermediary to handle stock transactions for those who don't have brokerage accounts).

IMHO, the primary factor in this decision is how many shares you may get. 

If you are one of the relatively few mutual policy holders, you probably should get outside advice, because the payout could be significant.

If you are/were a standard policyholder, the payout is likely to be modest -- perhaps a couple thousand dollars. 
I would take that in cash, just to avoid the paperwork. 
If you like the stock, and it fits with your investment plan, you could still buy a bigger slice when it goes public.


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## sags (May 15, 2010)

I agree and would add that I think people have to retain their stocks for 6 months before selling.

It is likely the IPO price will be lower to attract buyers and the stock may rise, but who knows after 6 months if it will be up or down.


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## Rebecca (Aug 10, 2014)

Thank you both for the advice. I think that my payout is about $4,000. I will sit down and have a think now.


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## sags (May 15, 2010)

Economical Insurance is changing their name in preparation for the upcoming IPO.

They will be called Definity Financial Corporation.

It will be an umbrella corporation that includes all the different insurance companies Economical operates.....Sonnet etc.

The IPO should be held this year, as soon as the Department of Finance approves it.


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