Some 15,000 unity life of Canada policyholders may receive a windfall this year as the Mississauga, Ont.-based insurance company took another step toward its demutualization. In December, it mailed out information to policyholders on voting rights and share of value in the insurance provider.

“Proxies have already started to come in,” says Unity Life’s president and CEO Tony Poole, in anticipation of the Feb. 28 special policyholders meeting, detailed in the mailing.

Foresters, the trademark of the Independent Order of the Foresters, is sponsoring Unity Life’s demutualization, a process that will end with Foresters’ acquisition of Unity. The acquisition was announced in August.

Foresters is a Toronto-based fraternal benefits society and insurance provider with a history dating back to 1874; it has a presence in both the U.S. and Britain.

In the information package, Unity Life explains the process of a sponsored demutualization, which is unfamiliar for most Canadians.

Although this is the first of its kind in Canada, it is not uncommon in the U.S. and Australia. In a sponsored demutualization, the sponsoring company — in this case, Foresters — pays the policyholders in cash for their voting rights and share of value, instead of the policyholder receiving stock in the company that ultimately emerges, as is the case in a traditional demutualization, which the Canadian market has witnessed several times in the last decade.

Many parties look forward to the alliance as Unity Life’s strengths complement Foresters’. Foresters is Canada’s biggest fraternal benefits insurer, but growth abroad has outpaced growth in Canada. Despite having its home base in Toronto, Foresters generates 65% of its premiums in the U.S. and 15% in Britain.

In Canada, Foresters had previously relied on a captive sales force, but it has gone through a costly transition to an independent sales network after success with independent insurance advisors in the U.S. It remains well capitalized, however, with a $1.2 billion surplus and it received an “A” (excellent) rating from A.M. Best Co.

As for Unity Life, it has more than $13 billion of insurance in force in Canada, as well as an established network of managing general agents and independent advisors through which it disseminates its insurance offering.

“Unity Life’s board of directors supports the proposal,” Poole says, as do its distribution partners and regulators. Presuming the demutualization proceeds, Unity Life’s distribution partners would gain access to Foresters’ investment product portfolio, which complements Unity Life’s insurance offering.

Key dates are approaching for Unity Life policyholders. The information in the mailing outlines the voting process and the valuation of the policyholders’ share in the company. Eligible policyholders will vote on the sponsored demutualization in person or by proxy at a special policyholders meeting being held on Feb. 28 in Mississauga. Proxies must be received by Feb. 25 at 5 p.m. An independent firm, Toronto-based Equity Transfer & Trust Co., will handle the voting forms.

For the proposed sponsored demutualization to pass, it requires that two-thirds of the votes cast be in approval. Both Poole and George Mohacsi, Foresters president and CEO, encourage advisors who have clients with Unity Life policies to familiarize themselves with the process in order to provide sound advice. (The Policyholder Guide to Sponsored Demutualization is available on Unity Life’s Web site, at www.unitylife.ca. )

If the proposal passes, the average eligible policyholder would receive $3,300 for his or her voting rights and share of value in Unity Life. Although there is a component of the payout that is fixed, ultimately, the duration and value of the policy determines the payout for each policyholder. The calculations are outlined in the policyholder guide.

As the policyholder would receive cash instead of stock — as he or she would with a traditional demutualization — the funds would be taxed as income. In the event that a policyholder does not want to receive the payment because of consequences on social security benefits or taxation, they can decline the payment; but, as with the proxies, those need to be submitted prior to the Feb. 25 deadline.

Presuming policyholders vote in favour of the proposed action, Foresters will also pay for the demutualization; Unity Life, in its entirety, would then move under the Foresters umbrella. In the course of the process, Foresters will emerge as the sole owner of Unity Life, but Unity Life will maintain its established brand.

@page_break@Poole says that most importantly, policyholders’ coverage will remain unchanged. In fact, Mohasci adds, the policyholder, as “a fraternal benefits society member, is eligible for benefits over and above insurance,” such as small critical illness benefits and scholarship programs.

And because its surplus belongs to its members, Foresters is in a position to return those funds to its members’ communities.

That might mean providing members who lost their homes in catastrophic events — for example, hurricane Katrina in 2005 or the wildfires that ravaged Southern California this past year — with a few hundred dollars to draw upon in the immediate aftermath. IE