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![Page 1: Welcome YOUR BOARD OF DIRECTORS John H. Bowey A. Scott Carson Richard M. Freeborough David A. MacIntosh Charles M.W. Ormston Michael P. Stramaglia W.](https://reader036.fdocuments.in/reader036/viewer/2022081515/551685b0550346a2698b5fc7/html5/thumbnails/1.jpg)
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Welcome
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YOUR BOARD OF DIRECTORS
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• John H. Bowey
• A. Scott Carson
• Richard M. Freeborough
• David A. MacIntosh
• Charles M.W. Ormston
• Michael P. Stramaglia
• W. David Wilson
• Karen L. Gavan
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14 YEARS OF SERVICE
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YOUR SENIOR MANAGEMENT TEAM
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• Jorge Arruda, SVP, Strategic Business Unit
• Dean Bulloch, SVP and Chief Human Resources
Officer
• David Crozier, SVP Operations
• Innes Dey, General Counsel and Corporate
Secretary
• Louis Doiron, SVP Chief Risk Officer
• Michael Gagnier, SVP and Chief Information Officer
• Linda Goss, SVP and Chief Actuary
• Philip Mather, SVP and Chief Financial Officer
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BUSINESS OF THE MEETING
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FINANCIAL STATEMENTS
APPOINTMENT OF AUDITORS
ELECTION OF DIRECTORS
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PRESENTATIONS
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Gerald HooperCha i rman o f the Board o f D i rec to r s
Economica l I n su rance
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Mutual policyholder’s equity1
99
0
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
0
200
400
600
800
1,000
1,200
1,400
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
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2008 – 2011 combined ratio
2008 2009 2010 20110%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
78.5% 75.4% 69.1% 63.6%
30.0% 30.7% 33.8%34.5%
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
* Presented on an undiscounted basis
*
* Represents loss ratio and expense ratio
108.5% 106.1% 102.9%98.1%
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Karen GavanPres iden t and ch ie f execu t i ve offi cer
Economica l I n su rance
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Transformation
Ownershiptransformation
Business transformation
Creating value
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Vision
To be the leading property and casualty insurance provider through the delivery of high quality insurance products and superior service, built on a foundation of innovation and financial strength.
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
WHAT WE WANT TO ACCOMPLISH
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Mission
To provide security and support for our customers and distribution partners; to be there when our customers need us most.
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
WHY WE EXIST
Damage from the Goderich tornadoDamage from the Slave Lake fires
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Values:
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
Customer focus
Integrity
Achievement
Learning
Collaboration
WHAT WE STAND FOR
Guide our
Behaviour
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Achieving our vision:
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
Superior customer experience
Preferred business partner
Industry leading skills: pricing, U/W, claims,risk management
Being a great place to work
Maintain stakeholder trust and confidence
KEY STRATEGIC INITIATIVES
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Strategic importance of demutualization
• Level the playing field; reduce barriers to capital
access
• Consolidation of the Canadian P&C insurance
industry
• Size and scale matter
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
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2011 key accomplishments
• Executive leadership• Refreshed brand• Predictive analytics• Energie™ auto• Corporate responsibility
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
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2011 key accomplishments
• Executive leadership• Refreshed brand• Predictive analytics• Energie™ auto• Corporate responsibility
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
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2 0 1 2 A N N U A L G E N E RA L M E E T I N G
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2011 results
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
2011 2010
Net income ($ million) $91.0 $81.3
Gross Written Premiums ($ million) $1,723.2 $1,722.0
Underwriting income ($ million) $32.4 ($48.5)
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2011 results
2011 2010
Claims ratio 63.6% 69.1%
Expense ratio 34.5% 33.8%
Combined ratio 98.1% 102.9%
Minimum capital test 269.4% 234.2%
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
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2011 combined ratio: Top competitors
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
Best Worst
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2011 Claims ratios: Top competitors
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
Best Worst
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Top competitors: relative sizeRank Group Market share1 Intact + AXA + Jevco 16.9%
2 Aviva 8.2%
3 RSA + L’Union Canadienne 6.9%
4 TD Meloche 6.1%
5 Wawanesa 5.7%
6 Co-operators 5.1%
7 State Farm 4.7%
8 Desjardins 4.4%
9 Economical 4.1%
10 Northbridge 3.1%
65.2%
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
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Q1 2012 results1st Quarter 2012 1st Quarter 2011
Gross Written Premiums ($ millions)
$381.0 $360.6
Combined ratio 96.5% 98.0%
Claims ratio 61.6% 64.0%
Expense ratio 34.9% 34.0%
Net income ($ millions) $40.9 $29.0
Mutual Policyholder’s Equity $1,340.9 $1,300.1
Minimum Capital Test 287.9% 256.9%
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
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2012 outlook
• Sustained profitable growth
• Demutualization readiness
• Risk management and disciplined underwriting
• Productivity improvement
• Top quartile performance
2 0 1 2 A N N U A L G E N E RA L M E E T I N G
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John BoweyCha i r o f the Spec ia l Commi t tee
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Why is the Board pursuing demutualization?
• Collection of farmers in Kitchener banding together to help neighbours in times of hardship
• National group offering comprehensive personal and commercial insurance coverage
• 1.1 million policies in force and over $4.5 billion in assets
• Competes directly against large national and global corporations who have easy access to capital
Economical in 1871 Economical Now
Optimal Structure: Mutual Optimal Structure: Stock Company
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Benefits of demutualization to Economical
• Improves stability through access to additional capital
• Supports organic growth – allows the Company to seek a “Financial Strength Rating” without retaining excess capital
• Access to share capital will position Economical for meaningful participation in industry consolidation
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Strategic actions
Sponsored Demutualizati
on
IPO Process
Allocation of Value
Communication
with Mutual Policyholders
Implementation of Strategic Plan
RegulatoryThe Board of Directors their advisors and management
have created a comprehensive plan to demutualize and maintain
profitable operations
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Drafting of regulationsThe Special Committee, Board and Management have each played a role in extensive, ongoing discussions with Government representatives
• Submitted supplemental commentaries to Government
• Continued to pursue framework for fair and equitable regulations through meetings with all levels of Government
• Appeared before the House of Commons Finance Committee to further the position of the Company in the required regulations
• Continued discussions with all levels of Government
• Meetings with Finance and various government officials
• Response to Consultation Paper, extensive meetings and discussions with Finance
Spring / Fall 2011 Winter 2011 / 2012 Spring 2012
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Regulatory process
Choose optimal path:
IPO or Sponsored Demutualization
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Dual track process
Indicative Market Pricing
Sponsored Demutualization
Drafting of Regulations(Department of Finance)
Initial Public Offering
Bids
Preferred Transaction
Chosen
Reg
ula
tion
s C
om
ple
te
Mutual Policyholder Vote on Demutualizationand Approval
OSFI Approval
Dem
utu
aliza
tion
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Sponsored Demutualization process
Strategic
In-market
Institutional
Execute CA and Receive
CIM
First Round Proposals
Field is Narrowed
Formal Due
Diligence
Formal / Binding
Proposals
The Board of Directors, with their advisors Blair Franklin, have created a robust auction
The majority of the parties that signed the Confidentiality Agreement have made proposals - formal due diligence is now being undertaken by select parties
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IPO process
Prepare for Public Company Reporting
Requirements
Draft Prospectus, Form Syndicate, Complete
Roadshow
Engage Accounting
Firm
Engage Underwriters
Engage Accounting
Firm
Convert,Distribute Shares,List on
Exchange
Management and the Board have engaged and worked with advisorsto prepare Economical for public company reporting requirements
The Board has engaged BMO Capital Markets and RBC Capital Markets as lead underwriters for the IPO
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0.0x
0.5x
1.0x
1.5x
2.0x
2.5xUS Companies - Price / Book Value CDN Companies - Price / Book Value
Average Price / Book Value = 1.2x
Reference points for valuation of EconomicalSelect North American Comparables
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Allocation of valueThe Department of Finance will likely look to the LifeCo demutualizations as a precedent for determining the allocation of value to mutual policyholders
20%
10%
25%
25%
15%
80%
90%
75%
75%
85%
0% 20% 40% 60% 80% 100%
FixedAllocation
VariableAllocation
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Variable allocationVariable allocations will be different from the Lifeco allocations due to the difference in the underlying policies
“Duration of the policy” will likely be a key criteria in the case of Economical’s demutualization
Engage Accounting Firm
Lifeco Variable Allocation Factors Recommended
• Policy premium
• Contribution to Surplus
• Policy reserves
• Cash values
• Amounts of coverage
• Duration of the Policy
Engage Accounting Firm
Likely P&C Variable Allocation Factors Recommended
• Policy premium
• Amounts and type of coverage
• Duration of the policy
• Premium Notes
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Strategic actions
Sponsored Demutualizati
on
IPO Process
Allocation of Value
Communication
with Mutual Policyholders
Implementation of Strategic Plan
Regulatory
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Strategic actions
Sponsored Demutualizati
on
IPO Process
Allocation of Value
Communication
with Mutual Policyholders
Implementation of Strategic Plan
Regulatory
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Strategic actions
Sponsored Demutualizati
on
IPO Process
Allocation of Value
Communication
with Mutual Policyholders
Implementation of Strategic Plan
Regulatory
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Strategic actions
Sponsored Demutualizati
on
IPO Process
Allocation of Value
Communication
with Mutual Policyholders
Implementation of Strategic Plan
Regulatory
![Page 52: Welcome YOUR BOARD OF DIRECTORS John H. Bowey A. Scott Carson Richard M. Freeborough David A. MacIntosh Charles M.W. Ormston Michael P. Stramaglia W.](https://reader036.fdocuments.in/reader036/viewer/2022081515/551685b0550346a2698b5fc7/html5/thumbnails/52.jpg)
Strategic actions
Sponsored Demutualizati
on
IPO Process
Allocation of Value
Communication
with Mutual Policyholders
Implementation of Strategic Plan
Regulatory
![Page 53: Welcome YOUR BOARD OF DIRECTORS John H. Bowey A. Scott Carson Richard M. Freeborough David A. MacIntosh Charles M.W. Ormston Michael P. Stramaglia W.](https://reader036.fdocuments.in/reader036/viewer/2022081515/551685b0550346a2698b5fc7/html5/thumbnails/53.jpg)
Strategic actions
Sponsored Demutualizati
on
IPO Process
Allocation of Value
Communication
with Mutual Policyholders
Implementation of Strategic Plan
Regulatory
![Page 54: Welcome YOUR BOARD OF DIRECTORS John H. Bowey A. Scott Carson Richard M. Freeborough David A. MacIntosh Charles M.W. Ormston Michael P. Stramaglia W.](https://reader036.fdocuments.in/reader036/viewer/2022081515/551685b0550346a2698b5fc7/html5/thumbnails/54.jpg)