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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.

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Presentation on theme: "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."— Presentation transcript:

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2 Welcome

3 YOUR BOARD OF DIRECTORS

4 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

5 14 YEARS OF SERVICE

6 YOUR SENIOR MANAGEMENT TEAM

7 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

8 BUSINESS OF THE MEETING

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10 FINANCIAL STATEMENTS APPOINTMENT OF AUDITORS ELECTION OF DIRECTORS

11 PRESENTATIONS

12 Gerald Hooper Chairman of the Board of Directors Economical Insurance

13 Mutual policyholders equity 2012 ANNUAL GENERAL MEETING

14 2008 – 2011 combined ratio 2012 ANNUAL GENERAL MEETING * Presented on an undiscounted basis * * Represents loss ratio and expense ratio 108.5%106.1% 102.9% 98.1%

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17 Karen Gavan President and chief executive officer Economical Insurance

18 Transformation Ownership transformation Business transformation Creating value

19 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. 2012 ANNUAL GENERAL MEETING WHAT WE WANT TO ACCOMPLISH

20 Mission To provide security and support for our customers and distribution partners; to be there when our customers need us most. 2012 ANNUAL GENERAL MEETING WHY WE EXIST Damage from the Goderich tornado Damage from the Slave Lake fires

21 Values: 2012 ANNUAL GENERAL MEETING Customer focus Integrity Achievement Learning Collaboration WHAT WE STAND FOR Guide our Behaviour

22 Achieving our vision: 2012 ANNUAL GENERAL MEETING 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

23 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 2012 ANNUAL GENERAL MEETING

24 2011 key accomplishments Executive leadership Refreshed brand Predictive analytics Energie auto Corporate responsibility 2012 ANNUAL GENERAL MEETING

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26 2011 key accomplishments Executive leadership Refreshed brand Predictive analytics Energie auto Corporate responsibility 2012 ANNUAL GENERAL MEETING

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28 2011 results 2012 ANNUAL GENERAL MEETING 20112010 Net income ($ million)$91.0$81.3 Gross Written Premiums ($ million)$1,723.2$1,722.0 Underwriting income ($ million)$32.4($48.5)

29 2011 results 20112010 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% 2012 ANNUAL GENERAL MEETING

30 2011 combined ratio: Top competitors 2012 ANNUAL GENERAL MEETING BestWorst

31 2011 Claims ratios: Top competitors 2012 ANNUAL GENERAL MEETING BestWorst

32 Top competitors: relative size RankGroupMarket share 1Intact + AXA + Jevco16.9% 2Aviva8.2% 3 RSA + LUnion Canadienne 6.9% 4TD Meloche6.1% 5Wawanesa5.7% 6Co-operators5.1% 7State Farm4.7% 8Desjardins4.4% 9Economical4.1% 10Northbridge3.1% 65.2% 2012 ANNUAL GENERAL MEETING

33 Q1 2012 results 1 st Quarter 20121 st Quarter 2011 Gross Written Premiums ($ millions)$381.0$360.6 Combined ratio96.5%98.0% Claims ratio61.6%64.0% Expense ratio34.9%34.0% Net income ($ millions)$40.9$29.0 Mutual Policyholders Equity$1,340.9$1,300.1 Minimum Capital Test287.9%256.9% 2012 ANNUAL GENERAL MEETING

34 2012 outlook Sustained profitable growth Demutualization readiness Risk management and disciplined underwriting Productivity improvement Top quartile performance 2012 ANNUAL GENERAL MEETING

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36 John Bowey Chair of the Special Committee

37 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 1871Economical Now Optimal Structure: Mutual Optimal Structure: Stock Company

38 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

39 Strategic actions Sponsored Demutualization IPO Process Allocation of Value Communication with Mutual Policyholders Implementation of Strategic Plan Regulatory The Board of Directors their advisors and management have created a comprehensive plan to demutualize and maintain profitable operations

40 Drafting of regulations The 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 / 2012Spring 2012

41 Regulatory process Choose optimal path: IPO or Sponsored Demutualization

42 Dual track process Indicative Market Pricing Sponsored Demutualization Drafting of Regulations (Department of Finance) Initial Public Offering Bids Preferred Transaction Chosen Regulations Complete Mutual Policyholder Vote on Demutualization and Approval OSFI Approval Demutualization

43 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

44 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 advisors to prepare Economical for public company reporting requirements The Board has engaged BMO Capital Markets and RBC Capital Markets as lead underwriters for the IPO

45 Reference points for valuation of Economical Select North American Comparables

46 Allocation of value The Department of Finance will likely look to the LifeCo demutualizations as a precedent for determining the allocation of value to mutual policyholders

47 Variable allocation Variable 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 Economicals 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

48 Strategic actions Sponsored Demutualization IPO Process Allocation of Value Communication with Mutual Policyholders Implementation of Strategic Plan Regulatory

49 Strategic actions Sponsored Demutualization IPO Process Allocation of Value Communication with Mutual Policyholders Implementation of Strategic Plan Regulatory

50 Strategic actions Sponsored Demutualization IPO Process Allocation of Value Communication with Mutual Policyholders Implementation of Strategic Plan Regulatory

51 Strategic actions Sponsored Demutualization IPO Process Allocation of Value Communication with Mutual Policyholders Implementation of Strategic Plan Regulatory

52 Strategic actions Sponsored Demutualization IPO Process Allocation of Value Communication with Mutual Policyholders Implementation of Strategic Plan Regulatory

53 Strategic actions Sponsored Demutualization IPO Process Allocation of Value Communication with Mutual Policyholders Implementation of Strategic Plan Regulatory

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