Definity Financial Corporation et al.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption from dealer registration requirement in respect of a share sales service established by a demutualized life insurance company -- time-limited relief granted subject to terms and conditions.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 74(1).
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 13.4 and 15.1.
May 13, 2022
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF DEFINITY FINANCIAL CORPORATION, DEFINITY INSURANCE COMPANY (formerly known as Economical Mutual Insurance Company) AND COMPUTERSHARE INVESTOR SERVICES INC.
DECISION
Background
The principal regulator in the Jurisdiction has received an application from Definity Financial Corporation (Definity Financial) and Definity Insurance Company (formerly known as Economical Mutual Insurance Company) (Definity Insurance and, together with Definity Financial, the Filers) for a decision under the securities legislation of the Jurisdiction (the Legislation) that pursuant to Section 74 of the Securities Act (Ontario) (the Act), the requirement under subsection 25(1) of the Act to be registered as a dealer shall not apply to the Filers or Computershare Investor Services Inc., as the administrator under the Share Selling Service (as defined in paragraph 15 below) (the Share Sales Agent) in respect of any trades of common shares of Definity Financial (Definity Shares) pursuant to the Share Selling Service (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) The Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, the Northwest Territories and Nunavut.
Interpretation
Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filers:
1. Definity Financial is a corporation existing under the Insurance Companies Act (Canada) (the ICA).
2. Definity Financial is a reporting issuer in each of the provinces and territories of Canada and is not in default of any applicable requirements under securities legislation thereof.
3. The registered and head office of Definity Financial is located at 111 Westmount Road South, Waterloo, Ontario, N2J 4S4.
4. Definity Insurance is a corporation existing under the ICA.
5. Definity Insurance is not a reporting issuer in any of the provinces or territories of Canada and is not in default of any applicable requirements under securities legislation thereof.
6. The registered and head office of Definity Insurance is located at 111 Westmount Road South, Waterloo, Ontario, N2J 4S4.
7. The authorized share capital of Definity Financial consists of an unlimited number of Definity Shares and an unlimited number of preferred shares. The Definity Shares are listed on the Toronto Stock Exchange under the symbol "DFY".
8. Definity Financial was created to become the owner of the shares of Definity Insurance in connection with the demutualization of Definity Insurance from a mutual property and casualty insurance company with mutual policyholders into a company with common shares (the Demutualization). Demutualization is a regulated legal process by which a mutual insurance company converts from a company with mutual policyholders as its voting members and no shareholders, to a share company with voting shareholders.
9. The Demutualization was implemented on November 23, 2021 pursuant to the ICA and the Mutual Property and Casualty Insurance Company with Non-Mutual Policyholders Conversion Regulations under the ICA (the Demutualization Regulations), and a conversion plan (the Conversion Plan) approved pursuant thereto.
10. Under the Demutualization, mutual and non-mutual policyholders of Definity Insurance as of a specified eligibility date were eligible to participate in the distribution of benefits (in the form of cash, Definity Shares or a combination of cash and Definity Shares) (Demutualization Benefits) in accordance with the Demutualization Regulations and the Conversion Plan. Such policyholders are referred to as Eligible Policyholders.
11. At the effective time of the Demutualization, the following steps occurred simultaneously pursuant to the Conversion Plan:
(a) Definity Insurance ceased to be a mutual property and casualty insurance company and became a property and casualty insurance company with common shares;
(b) All of Definity Insurance's policyholders ceased to have any rights with respect to, or any interest in, Definity Insurance as a mutual company;
(c) Amended and restated by-laws of Definity Insurance came into force, including a by-law authorizing the issuance of common shares of Definity Insurance;
(d) Definity Insurance issued common shares to Definity Financial in consideration for Definity Financial issuing Definity Shares to Eligible Policyholders;
(e) Definity Financial issued Definity Shares to certain Eligible Policyholders in accordance with the Conversion Plan; and
(f) Definity Financial repurchased and cancelled the one Definity Share that had been held by Definity Insurance.
12. In addition, on November 23, 2021 and following implementation of the Demutualization, Definity Financial completed an initial public offering of Definity Shares (the IPO) pursuant to a final PREP prospectus and supplemented PREP prospectus dated November 17, 2021. Definity Financial became a reporting issuer in each of the provinces and territories of Canada upon the issuance of a receipt for its final prospectus for the IPO.
13. Definity Shares distributed pursuant to the Demutualization were issued and registered in the name of the applicable shareholder in the direct registration system maintained by Definity Financial's transfer agent.
14. The Conversion Plan includes certain trading restrictions (the Market Stabilization Restrictions), which apply to Definity Shares issued to Eligible Policyholders in the Demutualization for 180 calendar days following the later of the effective date of the Demutualization and the closing of the IPO.
15. To comply with the Demutualization Regulations, and as contemplated in the Conversion Plan, following expiry of the Market Stabilization Restrictions, it is intended that Definity Financial will establish a program (the Share Selling Service) administered by the Share Sales Agent through which Eligible Policyholders who received Definity Shares as Demutualization Benefits will be able to sell them. Under the Share Selling Service, it is anticipated that Eligible Policyholders will be able to sell their Definity Shares by instructing the Share Sales Agent to do so.
16. Definity Financial will make the Share Selling Service available only on a commercially reasonable basis and, accordingly, may decide that the Share Selling Service in certain jurisdictions will only be available to persons who hold their Definity Shares through the direct registration system maintained by the transfer agent of Definity Financial, which is currently Computershare Trust Company of Canada, an affiliate of the Share Sales Agent. At this time, Definity Financial expects the Share Selling Service would be available in all provinces and territories of Canada.
17. The Share Selling Service is expected to commence approximately 180 days following the completion of the IPO and terminate two years after completion of the IPO; provided, however, that Definity Financial may terminate the Share Selling Service earlier in any jurisdiction upon a minimum of 90 days' written notice to Eligible Policyholders entitled to use the Share Selling Service in that jurisdiction.
18. Under the Share Selling Service, it is expected that the Share Sales Agent will establish an account with a registered investment dealer and member of the Investment Industry Regulatory Organization of Canada (the Assisting Dealer) and will, through the Assisting Dealer, arrange to sell Eligible Policyholders' Definity Shares and remit the proceeds, less applicable fees, to the applicable Eligible Policyholders The Assisting Dealer will not open individual accounts or engage in "know your client" procedures with respect to Eligible Policyholders utilizing the Share Selling Service and will not have any contact with Eligible Policyholders. The Assisting Dealer may change from time to time.
19. Under the Share Selling Service, only sell orders at the market price would be accepted by the Share Sales Agent and no advice regarding the decision to sell or hold Definity Shares would be offered to any Eligible Policyholder. It is expected that there will be a fee involved with the Share Selling Service, but Eligible Policyholders will not be required to create their own brokerage account. It is therefore anticipated that the Share Selling Service will offer a more convenient way for many Eligible Policyholders to sell Definity Shares than if they sold them on their own. Any Eligible Policyholder who wishes to sell its Definity Shares in another manner (for example, by transferring their holdings to another dealer with whom they have a brokerage relationship), after expiry of the Market Stabilization Restrictions, would be free to do so. No fees are anticipated to be charged by the transfer agent or the Share Sales Agent for the transfer by Eligible Policyholders to their own broker-dealer.
20. The Share Sales Agent will prepare an information statement or brochure describing the Share Selling Service, including disclosure of applicable fees. The Share Sales Agent will also maintain a toll-free number and a call centre through which Eligible Policyholders may ask questions and obtain information about the Share Selling Service. Any information distributed to Eligible Policyholders regarding the Share Selling Service will not contain any investment advice as to the desirability of Eligible Policyholders holding or selling their Definity Shares.
21. When a sale request is made, the Share Sales Agent will request the transfer agent to transfer or credit the applicable shares to the Assisting Dealer. The Assisting Dealer will effect the sale, collect the proceeds upon settlement of the trade, and transfer the gross proceeds to the Share Sales Agent, who will remit the net proceeds to the selling Eligible Policyholder by cheque sent to the address of the selling Eligible Policyholder as shown in Definity Financial's security register. The fees payable to the Share Sales Agent will be deducted from the gross proceeds of sale.
22. Neither the Filers nor the Share Sales Agent will require, recommend, or advise that Eligible Policyholders hold or sell their Definity Shares and Eligible Policyholders who wish to sell such securities will not be required to do so through Share Selling Service. These facts will be outlined in the information statements or brochures describing the Share Selling Service.
23. The Filers and/or the Share Sales Agent may periodically remind Eligible Policyholders of the availability of the Share Selling Service through mailings or other transmission (including by electronic means) of disclosure documents, notices, information statements, brochures or similar documents or in response to inquiries. The information provided will be information about the availability and operation of the Share Selling Service as opposed to providing investment advice as to the desirability of an Eligible Policyholder holding or selling its Definity Shares or seeking to persuade Eligible Policyholders to use it.
24. In providing the Share Selling Service, the Filers and the Share Sales Agent will be facilitating trades pursuant to the Share Selling Service by: (i) receiving orders from Eligible Policyholders to sell their Definity Shares, (ii) instructing the Assisting Dealer to execute the order to sell the Definity Shares, (iii) remitting the proceeds less applicable fees from the sale of Definity Shares to the Eligible Policyholders, and (iv) the Share Sales Agent receiving a fee from the Eligible Policyholders for the Share Selling Service.
25. Definity Financial and Definity Insurance carry out activities under the Share Sale Service with the same employees who, upon request, may direct Eligible Policyholders to the Share Sales Agent or may provide information statements or brochures to the Eligible Policyholders prepared by the Shares Sales Agent.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted, provided that:
(a) The Filers only facilitate the sale of Definity Shares by Eligible Policyholders through the Share Sales Agent;
(b) The Filers and the Share Sales Agent deal honestly, fairly and in good faith with Eligible Policyholders with respect to facilitating the sale of Definity Shares through the Share Selling Service;
(c) The Filers, the Share Sales Agent and their directors, officers, employees, contractors, and agents will not provide recommendations or advice regarding the decision to sell or hold the Definity Shares through the Share Selling Service to the Eligible Policyholders;
(d) The Filers and the Share Sales Agent will each inform Eligible Policyholders who may have inquiries concerning their decision to sell or hold the Definity Shares under the Share Selling Service to seek professional advice;
(e) Definity Financial will provide on a timely basis any report, document or information to the principal regulator that may be requested by the principal regulator from time to time for the purpose of monitoring compliance with securities legislation and the conditions in the Decision with respect to the Share Selling Service, in a format acceptable to the principal regulator;
(f) The Share Sales Agent only facilitates the sale of Definity Shares by Eligible Policyholders in connection with the Share Selling Service through an Assisting Dealer, which will be an investment dealer and member of the Investment Industry Regulatory Organization of Canada;
(g) Where an Eligible Policyholder uses the Share Selling Service, the Share Sales Agent will provide the Eligible Policyholder with a statement outlining the detail of the trade(s) made under the Share Selling Service, including the number of Definity Shares sold, the proceeds of any sale and the fees paid by the Eligible Policyholder;
(h) The Share Sales Agent holds any client securities and client cash separate and apart from Definity Financial's and the Share Sales Agent's own property and holds client cash in a designated trust account held at a Canadian financial institution in trust for the Eligible Policyholders, pending distribution out to the Eligible Policyholders;
(i) The Share Sales Agent maintains records sufficient to show the registered ownership of the cash and securities of each Eligible Policyholder;
(j) The Share Sales Agent remits the proceeds of any trade under the Share Selling Service, less applicable fees, to the Eligible Policyholder as soon as practicable following the receipt of the settlement proceeds from the Assisting Dealer; and
(k) This Decision will expire on a date that is the earlier of:
(i) the date Definity Financial ceases to make available the Share Selling Service, and
(ii) two years from the date of this Decision.