Mutual Property and Casualty Insurance Company Having Only Mutual Policyholders Conversion Regulations

SOR/2015-167

INSURANCE COMPANIES ACT

Registration 2015-06-19

Mutual Property and Casualty Insurance Company Having Only Mutual Policyholders Conversion Regulations

P.C. 2015-859 2015-06-18

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsections 237(2)Footnote a and (3)Footnote b and section 1021Footnote c of the Insurance Companies ActFootnote d, makes the annexed Mutual Property and Casualty Insurance Company Having Only Mutual Policyholders Conversion Regulations.

Interpretation

Marginal note:Definitions

 The following definitions apply in these Regulations.

Act

Loi

Act means the Insurance Companies Act. (Loi)

conversion

transformation

conversion means the conversion of a mutual property and casualty insurance company into a company with common shares. (transformation)

converted company

société transformée

converted company means a property and casualty insurance company that was a mutual company and has been converted into a company with common shares and, except for the purpose of paragraphs 4(1)(g) and 5(2)(m), includes a holding corporation of that company. (société transformée)

converting company

société en transformation

converting company means a mutual property and casualty insurance company whose directors have passed a resolution under section 3 recommending conversion of the company. (société en transformation)

eligibility date

date d’admissibilité

eligibility date means the date on which the directors of a mutual property and casualty insurance company pass a resolution under section 3 recommending conversion of the company. (date d’admissibilité)

eligible policyholder

souscripteur admissible

eligible policyholder means a person who holds a mutual policy if

  • (a) they held it on the eligibility date;

  • (b) they applied for it on or before the eligibility date and it was issued within the period specified by a converting company in its conversion proposal; or

  • (c) they held it before the eligibility date but it lapsed before that date and was reinstated during the period beginning on the eligibility date and ending 90 days before the date of the special meeting. (souscripteur admissible)

holding corporation

société mère

holding corporation means a body corporate that is incorporated as a company under the Act and that holds all of the voting shares of a converted company. (société mère)

independent

indépendant

independent means, in respect of an actuary, financial market expert or valuation expert, that the actuary, financial market expert or valuation expert

  • (a) does not have a conflict of interest with a converting company, any of its eligible policyholders or any persons or classes of persons who are to be provided with benefits as a result of a conversion; and

  • (b) is not a related party — within the meaning of section 518 of the Act — of the converting company. (indépendant)

mutual policy

police mutuelle

mutual policy means a policy the holding of which entitles its holder to vote at all policyholder meetings of a converting company, but does not include a policy issued or assumed by a company with common shares that amalgamated with a mutual company after the eligibility date. (police mutuelle)

mutual property and casualty insurance company

société mutuelle d’assurances multirisques

mutual property and casualty insurance company means a mutual company that is also a property and casualty company. (société mutuelle d’assurances multirisques)

special meeting

assemblée extraordinaire

special meeting means the meeting of eligible policyholders referred to in subsection 237(1.1) of the Act. (assemblée extraordinaire)

value of the converting company

valeur de la société en transformation

value of the converting company means the estimated market value or range of market values of a converting company, excluding

  • (a) the value of capital contributions made at the time of incorporation as a mutual property and casualty insurance company;

  • (b) amounts recorded in any account maintained under section 70 or 83.04 of the Act; and

  • (c) any expenses expected to be incurred to effect the conversion. (valeur de la société en transformation)

Application

Marginal note:Company having only mutual policyholders

 These Regulations apply to mutual property and casualty insurance companies in which all of the policyholders hold mutual policies.

Initiation of Conversion Process

Marginal note:Resolution of directors

 If the directors of a mutual property and casualty insurance company wish to pursue its conversion, they must pass a resolution recommending conversion.

Conversion Proposal

Marginal note:Contents of conversion proposal
  •  (1) A converting company must develop a conversion proposal that includes

    • (a) a report setting out the value of the converting company as estimated by that company and a description of the method used and any assumptions made in estimating that value;

    • (b) the eligibility date;

    • (c) the period after the eligibility date within which a mutual policy must be issued for the purposes of paragraph (b) of the definition eligible policyholder;

    • (d) a statement identifying any persons or classes of persons — other than eligible policyholders — who are to be provided with benefits as a result of the conversion;

    • (e) a detailed description of the benefits to be provided to eligible policyholders and the persons or classes of persons referred to in paragraph (d), and of the method of allocating the value of the converting company among them, indicating

      • (i) the basis on which any variable amount of benefits will be calculated,

      • (ii) any fixed, minimum or maximum amount of benefits to be provided to each of them,

      • (iii) the rationale for choosing the method of determining and allocating the benefits, and

      • (iv) the aggregate value of the benefits;

    • (f) a description of the mechanisms proposed to effect an initial issuance of common shares or any other class of shares, including a copy of the proposed by-law authorizing the issuance of those shares;

    • (g) if shares in the converted company are to be issued to a holding corporation, a description of the proposed activities of the holding corporation;

    • (h) if shares have been issued and remain outstanding immediately prior to the effective date of the conversion, a statement describing how those shares will be converted into common shares following conversion;

    • (i) if the benefits referred to in paragraph (e) include shares, a description of the measures to be taken by the converted company, in the two years following the effective date of the conversion, to assist the eligible policyholders and the persons or classes of persons referred to in paragraph (d) who receive the shares to sell those shares on a public market and to address any potential imbalances that may arise between the volume of shares offered for sale by them and the volume of shares sought for purchase by public market participants;

    • (j) a description of how the measures referred to in paragraph (i) would be affected if the converted company were to issue additional shares in the two years following the effective date of the conversion; and

    • (k) a statement that the directors of the converting company may terminate the conversion process at any time before letters patent of conversion are issued.

  • Marginal note:Valuation day

    (2) The Superintendent is authorized to specify the day at which the value of the converting company must be estimated by the converting company.

  • Marginal note:Calculation of variable amount

    (3) The variable amount of benefits referred to in subparagraph (1)(e)(i) must, in respect of each eligible policyholder, be calculated having regard to at least the following factors:

    • (a) their obligations, rights and benefits;

    • (b) the premiums paid by them;

    • (c) the length of time they have held a policy with the company; and

    • (d) the historical growth of the company’s surplus account.

Special Meeting

Marginal note:Superintendent’s authorization
  •  (1) A converting company must obtain the Superintendent’s authorization to send the notice referred to in paragraph 237(1.2)(a) of the Act.

  • Marginal note:Information and documents to Superintendent

    (2) To obtain the Superintendent’s authorization, the converting company must submit to the Superintendent

    • (a) the conversion proposal, as well as the description of the conversion proposal that is to be included in the notice sent to eligible policyholders under paragraph 237(1.2)(a) of the Act;

    • (b) an opinion prepared by the actuary of the converting company and an opinion prepared by an independent actuary stating

      • (i) that the benefits and method referred to in paragraph 4(1)(e) are fair and equitable to the eligible policyholders, and

      • (ii) that the financial strength and vitality of the converting company and the security of its policyholders with respect to the continuation of their policies will not be materially adversely affected by the conversion;

    • (c) an opinion prepared by an independent valuation expert stating that the method and assumptions referred to in paragraph 4(1)(a) that were employed to estimate the value of the converting company are appropriate and that the estimated value reasonably reflects prevailing market conditions as of the day the value was estimated;

    • (d) if other benefits are to be provided in lieu of shares, an opinion prepared by an independent actuary or an independent valuation expert stating that the alternative benefits are appropriate substitutes for the shares as of the day the value of the converting company was estimated;

    • (e) an opinion prepared by an independent financial market expert stating that the measures referred to in paragraph 4(1)(i) are likely to assist the eligible policyholders and the persons or classes of persons referred to in paragraph 4(1)(d) who receive the shares to sell those shares on a public market and to address any potential imbalances that may arise between the volume of shares offered for sale by them and the volume of shares sought for purchase by public market participants;

    • (f) the annual statement for the most recently completed financial year of the converting company, in addition to the reports required by the Act for that year, prepared by the converting company’s auditor and actuary;

    • (g) if the notice is to be sent to eligible policyholders more than 120 days after the end of the most recently completed financial year of the converting company, financial statements for the portion of the current financial year ending prior to a day that is not more than 120 days before the day on which the notice is sent, and the converting company’s auditor’s comfort letter in respect of those statements;

    • (h) pro forma financial statements of the future converted company showing the effect of the conversion and any other significant transactions contemplated in relation to the conversion, including any proposed initial public offering of common shares, based on

      • (i) the annual statement for the most recently completed financial year, or

      • (ii) in the circumstances referred to in paragraph (g), the financial statements for the portion of the current financial year referred to in that paragraph;

    • (i) the compilation report of the converting company’s auditor, and a statement of reconciliation, in respect of the financial statements referred to in paragraph (h);

    • (j) a detailed description of any significant transaction contemplated in relation to the conversion;

    • (k) if the converted company is required under the laws of any jurisdiction in which it carries on business to file a prospectus in respect of its issuance of shares to the eligible policyholders or the persons or classes of persons referred to in paragraph 4(1)(d), a copy of that prospectus;

    • (l) the proposed special resolutions referred to in subsection 237(1.5) of the Act;

    • (m) if shares in the converted company are to be issued to a holding corporation, a copy of the holding corporation’s existing or proposed incorporating instrument and by-laws;

    • (n) the summaries referred to in paragraph 6(h); and

    • (o) the notice of the special meeting, as well as the information and documents referred to in section 6 and the form of proxy and any management proxy circular to be sent with the notice.

  • Marginal note:Financial statement requirements

    (3) The financial statements referred to in paragraphs (2)(g) and (h) must be

    • (a) prepared in accordance with the accounting principles referred to in subsection 331(4) of the Act; and

    • (b) accompanied by a report of the chief financial officer of the converting company stating that the financial statements have not been audited but have been prepared in accordance with the accounting principles referred to in subsection 331(4) of the Act.

  • Marginal note:Decision to authorize

    (4) In deciding whether to authorize the sending of the notice, the Superintendent must consider the information and documents submitted under subsection (2) and may consider any additional information or documents relating to the converting company or any aspect of the conversion proposal.

  • Marginal note:Deadline

    (5) The conversion proposal and the opinions referred to in paragraph (2)(b) must be submitted no later than one year after the eligibility date.

  • Marginal note:Conditions of authorization

    (6) As a condition of authorizing the sending of the notice, the Superintendent may require

    • (a) that any information that the Superintendent considers appropriate, in addition to that required under section 6, be sent with the notice; and

    • (b) that the converting company

      • (i) hold one or more information sessions for eligible policyholders prior to the holding of the special meeting, for which the rules may be set by the Superintendent, and

      • (ii) take any other measures that the Superintendent considers appropriate to assist eligible policyholders in forming a reasoned judgment on the conversion proposal.

Marginal note:Information and documents to eligible policyholders

 The notice of the special meeting must be sent with

  • (a) a description of the steps that have been taken in the conversion process and the steps that are to be taken;

  • (b) the conversion proposal;

  • (c) a description of the advantages and disadvantages of the proposed conversion to the converting company and its policyholders;

  • (d) a description of the alternatives to conversion that the directors of the converting company have considered and the reasons why, in their opinion, the conversion is in the best interests of the company and its policyholders;

  • (e) a description of the form, amount and estimated market value or range of market values of the benefits to be provided as a result of the conversion to the eligible policyholder to whom the notice is sent;

  • (f) a description of any right of policyholders to vote after the conversion, as policyholders or shareholders of the converted company;

  • (g) for each jurisdiction in which at least one per cent of all eligible policyholders reside, a description of the income tax treatment accorded the benefits referred to in paragraph (e) in that jurisdiction;

  • (h) summaries of

    • (i) the opinions referred to in paragraphs 5(2)(b) to (e), other than those that are subject to an exemption under section 12, and

    • (ii) the documents referred to in paragraph 5(2)(m);

  • (i) the financial statements referred to in paragraphs 5(2)(f) to (h), other than those that are subject to an exemption under section 12;

  • (j) the documents referred to in paragraphs 5(2)(i) and (j), other than those that are subject to an exemption under section 12;

  • (k) a brief description of the business carried on by the converting company and its subsidiaries, and the general development of that business, during the three years preceding a day that is not more than 120 days before the day on which the notice is sent to the eligible policyholders, and any future business foreseen as of that day;

  • (l) a brief description of any substantial variations in the operating results of the converting company during the three most recently completed financial years preceding the notice and, if the notice is sent to the eligible policyholders more than 120 days after the end of the most recently completed financial year of the converting company, during the portion of the current financial year ending on a day that is not more than 120 days before the day on which the notice is sent;

  • (m) the names of all persons who, on the day on which the notice is sent to the eligible policyholders, have a significant interest in the converting company or who, as a result of the conversion, will have a significant interest in the converted company, and a description of the type and number of shares held or to be held by those persons;

  • (n) the name and address of the converted company’s auditor;

  • (o) the names and addresses of the proposed transfer agents and registrars;

  • (p) the proposed location for the securities registers for the initial issuance of common shares;

  • (q) a description of any sales by the converting company, within the 12 months preceding a day that is not more than 120 days before the day on which the notice is sent to the eligible policyholders, of securities of the same type as those to be provided as benefits to the eligible policyholders under the conversion proposal;

  • (r) a copy of any prospectus referred to in paragraph 5(2)(k);

  • (s) a description of the restrictions set out in sections 13 and 14 and of any plans that the converting company has for the establishment of stock option or stock incentive plans for the persons referred to in those sections after the period referred to in section 14;

  • (t) a description of any measures, including the establishment of toll-free lines and websites, the holding of information sessions, and the placement of advertisements in widely circulated publications, that the converting company has taken or will take before holding the special meeting to provide eligible policyholders with information about the proposed conversion and an opportunity to raise questions or concerns about the proposed conversion;

  • (u) a description of the measures that the converting company has taken or will take to encourage eligible policyholders to vote on the conversion proposal, in person or by proxy, at the special meeting;

  • (v) an indication of the eligible policyholders’ right under section 164.01 of the Act to appoint a proxyholder to attend and act at the special meeting on their behalf; and

  • (w) any other information that the Superintendent has required under paragraph 5(6)(a).

Marginal note:Notice to policyholders

 Within 30 days after the approval of a conversion proposal by the eligible policyholders, the directors of a converting company must send a notice to all of its policyholders informing them of the approval and indicating the company’s intention to make an application under section 8.

Ministerial Approval

Marginal note:Application to Minister

 Within three months after the approval of a conversion proposal by the eligible policyholders, the directors of a converting company must make an application referred to in subsection 237(1) of the Act.

Marginal note:Contents of application
  •  (1) An application referred to in subsection 237(1) of the Act must be submitted to the Superintendent and must include

    • (a) the conversion proposal;

    • (b) the documents referred to in paragraphs 5(2)(b) to (j), (m) and (n), other than those that are subject to an exemption under section 12;

    • (c) the notice referred to in paragraph 237(1.2)(a) of the Act and the documents sent with that notice;

    • (d) the proposed letters patent of conversion and any by-laws, amendments to by-laws or repeals of by-laws that are necessary to implement the conversion proposal; and

    • (e) the special resolutions of the eligible policyholders referred to in subsection 237(1.5) of the Act, accompanied by a certificate issued by the converting company indicating the results of the votes held in respect of those resolutions.

  • Marginal note:Information and documents already submitted

    (2) The converting company is not required to resubmit to the Superintendent any information or document referred to in subsection (1) that is unchanged from that submitted to the Superintendent under subsection 5(2).

  • Marginal note:Additional information

    (3) The Superintendent may request any additional information that he or she considers necessary to make a recommendation to the Minister for the purpose of subsection 237(1) of the Act.

Amendment of Conversion Proposal or Termination of Conversion Process

Marginal note:Amendment

 The directors of a converting company may amend a conversion proposal at any time before the vote of eligible policyholders is held at the special meeting, if measures approved by the Superintendent are taken by the converting company in respect of the amendment.

Marginal note:Termination by resolution
  •  (1) The directors of a converting company may pass a resolution terminating the conversion process at any time before the letters patent of conversion are issued.

  • Marginal note:Termination for failure to meet deadlines

    (2) The conversion process is terminated if the required documents are not submitted to the Superintendent within the time limit set out in subsection 5(5) or if no notice referred to in paragraph 237(1.2)(a) of the Act is sent within one year after the day on which the Superintendent authorizes its sending.

Exemption by Superintendent

Marginal note:Exemption

 The Superintendent may exempt a converting company from any of the requirements of paragraphs 5(2)(c) to (h), subsection 5(5) and paragraphs 6(g), (l) and (r), on such terms and conditions as he or she considers appropriate.

Restrictions

Marginal note:Compensation to directors, officers or employees
  •  (1) A converting company or converted company must not pay any fee, compensation or other consideration in relation to the conversion of the company to any director, officer or employee of the company, other than

    • (a) the regular compensation provided to the person in that person’s capacity as a director, officer or employee of the company; and

    • (b) any benefits provided to eligible policyholders or the persons or classes of persons referred to in paragraph 4(1)(d) as a result of a conversion.

  • Marginal note:Contracts for services

    (2) A converting company or converted company must not pay any fee, compensation or other consideration under a contract for services in relation to the conversion of the company to an entity with which a director, officer or employee of the company is associated in any way unless the terms and conditions of that contract are at least as favourable to the company as market terms and conditions, as defined in subsection 534(2) of the Act.

Marginal note:Issuance of shares

 A converted company must not, prior to the listing of its shares on a recognized stock exchange in Canada and for a period of one year after that listing, issue or provide shares, share options or rights to acquire shares to the following persons, other than shares issued to eligible policyholders or the persons or classes of persons referred to in paragraph 4(1)(d) as a result of a conversion:

  • (a) any director, officer or employee of the company; or

  • (b) any person who was a director, officer or employee of the converted company during the year preceding the day on which the conversion takes effect.

Marginal note:Acquisition

 During a company’s first two years as a converted company, the Minister may only give an approval under subsection 407(1) of the Act in respect of the company if

  • (a) the proposed acquisition would not result in the converted company having a major shareholder; or

  • (b) the Minister is of the opinion that the converted company is, or is about to be, in financial difficulty and that the proposed acquisition would facilitate an improvement in its financial condition.

Coming into Force

Marginal note:Publication

 These Regulations come into force on the day on which they are published in the Canada Gazette, Part II.

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