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ECONOMICAL MUTUAL INSURANCE COMPANY

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ECONOMICAL MUTUAL INSURANCE COMPANY Powered By Docstoc
					                THIS DOCUMENT IS VERY IMPORTANT TO YOUR FINANCIAL INTERESTS
            AND THE FUTURE OF ECONOMICAL. IT REQUIRES YOUR IMMEDIATE ATTENTION.

                                             PROXY CIRCULAR

                              TO BE USED IN CONNECTION WITH THE
                  ANNUAL AND SPECIAL MEETING OF THE MUTUAL POLICYHOLDERS OF


                       ECONOMICAL MUTUAL
                       INSURANCE COMPANY
                           SCHEDULED TO BE HELD ON THURSDAY, MAY 26, 2011

       THIS CIRCULAR SOLICITS YELLOW PROXIES BY AND ON BEHALF OF
                             VC & CO. ADVISORY LIMITED,
       WHICH IS ADVISING THE MORE THAN 100 MUTUAL POLICYHOLDERS
       SEEKING TO REPLACE THE BOARD OF DIRECTORS OF ECONOMICAL


 ECONOMICAL’S CURRENT DIRECTORS HAVE CONSISTENTLY FAILED TO TREAT
 YOU LIKE AN OWNER AND HAVE KEPT YOU IN THE DARK.

 THEY HAVE WORKED TO MAINTAIN THE STATUS QUO WHILE ECONOMICAL AND
 YOUR FINANCIAL INTERESTS SUFFERED.

 ECONOMICAL REQUIRES A NEW, PROFESSIONAL AND TRANSPARENT BOARD
 THAT IS COMMITTED TO PROTECTING YOUR INTERESTS.

 ACT NOW TO ELECT AN EXPERIENCED AND CAPABLE BOARD YOU CAN
 TRUST TO DELIVER VALUE.


This Circular has been prepared in relation to the annual and special meeting (the “Meeting”) of the mutual
policyholders of Economical Mutual Insurance Company (“Economical”) scheduled to be held on May 26, 2011, and at
any and all adjournments of postponements thereof. This Circular sets forth the background to the Policyholder
Proposals and the reasons why it is in your best interests to support the removal of the current directors of Economical
and the election to Economical’s board of the nine nominees (the “Policyholder Nominees”) identified on pages 12 to
15 of this Circular at the Meeting.

We urge you to carefully read this Circular, complete and sign the enclosed YELLOW proxy and return it to us. A
YELLOW proxy must be returned to us no later than May 13, 2011 in order to be deposited in time to be used at the
upcoming Meeting. Return your YELLOW proxy by using the enclosed postage paid return envelope, by fax to
416-947-1256, or by email to spriemer@voorco.com.

If you have any questions concerning this Circular, or in connection with the completion and delivery of your
YELLOW proxy, or would just like to share your perspective regarding Economical, please telephone Michael D.
Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274. We would very much welcome the
chance to speak to you. For further information, please also visit www.concernedeconomical.com.

                                                  April 12, 2011
   AN IMPORTANT MESSAGE TO ECONOMICAL’S MUTUAL POLICYHOLDERS

April 12, 2011


Dear Economical Mutual Policyholder,
We are VC & Co. Advisory Limited, which is in the business of providing strategic and other advice
to investors in undervalued, underperforming or mismanaged Canadian public and private
companies. We are currently advising the more than 100 mutual policyholders of Economical
Mutual Insurance Company – your fellow owners – who submitted the Policyholder Proposals. We
believe significant change is required at Economical. The time is now to elect a new board that you
can trust to protect your financial interests and the interests of Economical.
Your mutual policy has significant value – we believe more than $1 million, on average. But to
receive that value, you need a skilled, experienced and trustworthy board of directors that is
committed to your interests as the owners of Economical.
The current board cannot be trusted to properly protect your interests:
       ⇒         the current board has never treated you like an owner and has concealed the value of
                 your policy;
       ⇒         the current board has consistently failed to deliver any value to you;
       ⇒         the current board has always opposed demutualization and worked hard to avoid it,
                 and is only purporting to act now under the pressure of the Policyholder Proposals
                 initiative; and
       ⇒         the current board has a longstanding track record of poor governance, little
                 transparency or accountability to you and financial underperformance by
                 Economical.
The Policyholder Nominees include highly respected leaders in their respective fields, including a
former Chair of the Ontario Securities Commission, a former Commissioner of the RCMP and other
executives with deep experience in the insurance industry including the former Senior Vice President
and Chief Investment Officer of The Canada Life Assurance Company at the time of its
demutualization. The Policyholder Nominees are committed to responsibly unlocking and
delivering the significant value of your mutual policy and, unlike the current board, they collectively
have the experience and expertise to get the job done.
Earlier this year, when faced with the prospect of a policyholder vote on their performance, the
current directors spent hundreds of thousands of Economical’s dollars pursuing litigation, all in a
failed attempt to keep you – the owners of Economical – from determining who should represent
their interests.
Now, a Court has ordered Economical to hold the vote and give you a choice. This is your
opportunity to make a change for great purpose. Join the more than 100 other mutual policyholders
who want a board that will protect Economical and the interests of its owners. Vote your YELLOW
proxy FOR replacing the current board.
                                                 - ii -

The current board has undermined your ownership rights
The current board has demonstrated that it does not understand your ownership rights and cannot be
trusted to protect them. This was made clear during the lawsuit Economical launched in January
2011 in an attempt to prevent a vote on its leadership. During the course of this litigation:
       ⇒       Economical’s lawyer told the Court that Economical’s ownership structure was akin
               to a private “golf club” where membership could be purchased, but not sold or
               cashed in;
       ⇒       Economical’s Chairman of the Board gave evidence that he didn’t have a view as to
               whether the mutual policyholders were the real owners of Economical and had never
               expressed a view to Economical’s board as “it never came up”;
       ⇒       evidence was provided that, as recently as last October, Economical’s Chairman of
               the Board expressly told a potential buyer of Economical that no one (including the
               mutual policyholders) owns Economical but that the company is instead owned by
               the “community”; and
       ⇒       Economical described the “ownership” relationship between Economical and its
               mutual policyholders as merely “temporary” and characterized mutual policyholders
               as “custodians of ownership for the next generation”.
These statements undermine your ownership rights as a mutual policyholder. They also undermine
the current board’s credibility when it now asserts, in its materials trying to solicit your vote, that
Economical views the mutual policyholders as the “legitimate owners” of Economical. This is an
expedient reversal by the current board. How can you trust them now?
We urge you to vote only your YELLOW proxy to replace the current board with the Policyholder
Nominees who are committed to recognizing your ownership rights and protecting your interests.

The current board’s reversal on demutualization
The current board has long opposed demutualization and for years worked hard to avoid it. Now the
current board claims to favour demutualization in some form. This reversal was first announced to
you by way of a letter dated December 10, 2010, approximately one month after the Policyholder
Proposals initiative began.
The current board would like you to believe this reversal had nothing whatsoever to do with the
Policyholder Proposals. Consistent with that, Economical’s management proxy circular omits any
disclosure about the connection between the Policyholder Proposals and the formation of
Economical’s Special Committee.
In fact, we believe the current board’s recent conversion to demutualization was taken out of
expediency and self-preservation, and was entirely due to the pressure of the Policyholder Proposals
to replace the board. Economical has repeatedly tried to hide this linkage, a pattern dating back to
last December.
                                                               - iii -

You don’t have to take our word for it; look at the facts learned in the recent Court proceedings.
                                     When was the Special Committee formed?
What the current board originally said                                                The facts
                                                                               (1)
 “The committee was formed to examine                        In a sworn affidavit , Economical’s Chairman Gerald
strategic alternatives about a potential                     Hooper admitted the Special Committee was created
transaction several months ago” [emphasis                    on November 15, 2010, the very first business day
added] said the board in a letter to you                     after Economical learned of the Policyholder
dated December 10, 2010.                                     Proposals and less than one month before the board’s
                                                             letter to you dated December 10, 2010.

   Did the board know of the Policyholder Proposals when it created the Special Committee?
What the current board originally said                                                The facts
                          (1)                                                        (2)
In January 2011      Chairman Hooper In cross examination Mr. Hooper admitted:
claimed that the Special Committee was 1. The current board in fact knew of the solicitation
formed “prior to the directors of            efforts by VC & Co. before the Special Committee
Economical being aware of any                was formed.
communications or solicitation efforts by
VC & Co.”                                 2. The notice calling the November 15, 2010 board
                                             meeting at which the Special Committee was
In a December 14, 2010 communication to      formed was sent on November 12, 2010, the same
all Economical brokers, Economical           day that the first newspaper advertisement in
claimed that the Special Committee was       respect of the Policyholder Proposals initiative
formed “before VC & Co.’s proposals          appeared in The Globe and Mail.
became known.”
                                          3. The meeting notice attached a copy of the
                                             advertisement and stated: “Gerry Hooper would
                                             like you to participate in a conference call …
                                             regarding an item in today’s Globe and
                                             Mail…[PDF attached]”.

(1) Gerald Hooper affidavit dated January 12, 2011.
(2) Cross examination of Gerald Hooper, February 28, 2011.

We also learned in the Court proceedings that Economical’s board had for years ignored the
recommendations of management (led by Economical’s former President and Chief Executive
Officer, Noel Walpole) that Economical should demutualize. And yet, between the November 15,
2010 creation of the Special Committee and the December 14, 2010 demutualization announcement,
the board did not even consult with Mr. Walpole in the course of its deliberations, even though he
remained President and Chief Executive Officer.
We also learned through the Court proceedings that the current board was working to double the
number of mutual policyholders right up until the Policyholder Proposals initiative became public,
so as to dilute your voting interest and ensure that Economical remained structured as a mutual.
The board’s efforts were deliberate. Minutes from an October 28, 2009 board meeting reflect board
deliberations about ensuring that Economical remained a mutual for “generations.” Minutes from a
February 24, 2010 board meeting describe an initiative to recruit “policyholders who are believed to
support the continuation of the Company as a mutual company.”
                                                 - iv -

Clearly, the board had considered demutualization, rejected it, and was actively seeking to
implement a plan to frustrate any ability for you to elect a new board that would better protect your
interests.
You, the owners of Economical, were never told about this. Instead you were told, in the board’s
communications last December, that the board had suddenly determined that demutualization would
benefit Economical, and that “the Board has instituted a moratorium on the issuing of new mutual
insurance policies.”
Given these facts, do you really believe that the board’s reversal had nothing to do with the pressure
of the Policyholder Proposals? If you do not vote to replace the current board at the Meeting, that
pressure will be gone, and the same board that never wanted to demutualize will be left in control of
your company’s future.

Where is the demutualization plan?
Economical announced its intention to pursue demutualization four months ago, committing that it
would “expedite” its process and “present a final recommendation as well as the details and schedule
of the demutualization plan no later than the next annual meeting scheduled for May 26, 2011.”
Since then, Economical has sent you numerous “Progress Updates” on its demutualization plan.
They all, however, share one thing in common – they show little tangible progress being made.
Now, in their management proxy circular soliciting your vote for the Meeting, the current board
claims over and over again that “significant progress” has been made towards demutualization, but
provides no details to back up those claims. In fact, little progress has been made towards
demutualization over the past four months, while the board instead chose to focus on litigation
strategies to avoid a vote on the Policyholder Proposals at the Meeting.
Further, contrary to what they promised you four months ago, the current board now asks for your
vote but includes in their management proxy circular no “final recommendation” or even any
attempt to outline “the details and schedule of the demutualization plan”. The current board also
provides no guidance whatsoever with respect to what it believes is the approximate value of your
mutual policy. Instead, they ask for blind trust in a circumstance where they have not earned it.
We urge you to carefully scrutinize the board’s claims regarding “significant progress” towards
demutualization, and not to accept more abstract promises, platitudes and excuses. You deserve
better. You deserve results.

The current board’s lack of transparency
Good governance starts with transparency. Ask yourself: prior to the Policyholder Proposals
initiative, when was the last time you heard from the current board regarding your rights and
entitlements as a mutual policyholder?
The current board should have provided you years ago with the basic information you needed to
properly understand your entitlements as a mutual policyholder. But they chose to keep you in the
dark. Can you imagine owning shares in a company that refused to tell you what those shares were
worth or give you the information necessary to determine it?
       ⇒       The current directors have long maintained a policy of not disclosing to mutual
               policyholders even the approximate number of mutual policies in existence, making
               it impossible for you to assess the value of your mutual policy.
                                                 -v-

       ⇒       Only after we began publicly expressing our own estimate did the current board
               finally acknowledge, in December 2010, that there were “approximately 1,000”
               mutual policies in existence. Even today, the current board has still not disclosed the
               exact number of mutual policies. Why have they been keeping this critical piece of
               information from Economical’s owners?
In a further clear sign that the current board only reacts under pressure, compare the disclosure on
director and executive compensation in this year’s management proxy circular to what you received
in prior years. This was the first year the current board has chosen to disclose how – and how
much – they pay themselves.
The Policyholder Nominees are committed to reporting to you – the owners of Economical – in a
timely, accurate and transparent basis so you can hold your directors to account.

The current board’s lack of accountability
Good governance requires accountability. The current directors have demonstrated that they do not
believe they should be accountable to you.
The objective of the Policyholder Proposals is to give mutual policyholders the opportunity to
replace the current board if you wish to do so. From inception, the current board has waged a fierce
campaign to prevent a vote on its leadership, spending untold hundreds of thousands of dollars of
your company’s money in the process.
The current board has also long hidden from the concept of director accountability by maintaining
Economical’s staggered board terms, where each director is elected for a three-year term, with only
one-third of the directors up for re-election each year. Staggered board terms are broadly seen as
serving primarily the interests of poorly performing directors by protecting them from having to face
re-election on an annual basis. Most properly governed companies eliminated staggered boards
many years ago.
We believe that director accountability ultimately flows from your power to elect and remove
directors. If the Policyholder Nominees are elected at the Meeting, they intend to amend
Economical’s by-laws such that every one of them is required to stand for re-election, and be
accountable to you, at each and every annual policyholders’ meeting going forward.

Economical’s financial underperformance – the legacy of the current board
The current board has recently highlighted what it described as the “significant improvement” in
Economical’s financial results for the year ended December 31, 2010. This is nothing but spin. Do
not be misled. Economical’s financial performance only appears to be improving when compared to
Economical’s very poor 2008 and 2009 financial results.
In fact, under the current board’s watch, Economical generated a net loss during 2008 of
$102 million and net income during 2009 of only $24 million. As well, Economical’s net income
during 2010 was still less than half of its average net income of approximately $140 million during
each of 2005, 2006 and 2007.
Economical’s board may try to blame the company’s poor financial performance on the recession or
other external factors, but the facts do not support that argument either. As shown on page 6 of this
Circular, Economical has consistently underperformed its industry peers by a wide margin over each
of the past five years. If Economical’s cost performance (as reflected by its Combined Ratio) had
simply met the average of its peer group over these five years, Economical would have generated
                                                - vi -

incremental pre-tax income over this period aggregating approximately $460 million. The current
board should be held accountable for this significant underperformance.
As Economical’s owners, you need a board that will ensure Economical operates to its full potential.
Economical has a dedicated base of employees and a vital broker network. With a strong,
experienced and credible board – the Policyholder Nominees – Economical’s future can be bright.

Economical’s misleading claims about fees and Westaim
To distract you from the absence of any tangible progress to report towards demutualization,
Economical devotes much of its management proxy circular to misleading claims around VC&Co.’s
fees and The Westaim Corporation. Permit us to set the record straight.

         VC&Co. fees
VC&Co.’s interests are fully aligned with those of mutual policyholders. Our fee arrangement with
the approximately 100 mutual policyholders who have entered into an agreement with us is that
those individual mutual policyholders will pay us 12.5% of what they ultimately receive in respect of
their mutual policies, if, as and when they receive it. These arrangements, which are fully described
at pages 16 to 18 of the Circular, reflect the fact that no mutual policyholder on their own could
accomplish the change to the board collectively being sought, which was correctly anticipated to be
fiercely resisted by the current board using Economical’s own financial resources against the
interests of its mutual policyholders.
Mutual policyholders who support changing the board and electing the Policyholder Nominees at the
Meeting are not being asked to sign any agreement with us, and will have no financial obligation
whatsoever to VC&Co. Instead, the approximately 100 mutual policyholders who previously
entered into an agreement with VC&Co. are effectively shouldering the financial burden for the
benefit of all mutual policyholders.
As a matter of fairness to those approximately 100 mutual policyholders, in the event that the board
is reconstituted at the Meeting, VC&Co. will ask the new board to consider having Economical
assume the costs of effecting this change. The new board will consider this request in accordance
with its fiduciary obligations to Economical. If approved, the amount that would otherwise have
been paid by those approximately 100 mutual policyholders would be paid by Economical if, as and
when such amount ever became payable, with the effect that the indirect cost to all mutual
policyholders would be approximately 1.25%.
We encourage you not to be misled by Economical’s claims in respect of fees. We are highly
confident that, under the leadership of the Policyholder Nominees, the incremental value that you
will receive in respect of your mutual policy will far exceed the approximately 1.25% that
Economical could end up paying to VC&Co. if the new board were to assume those obligations.

       Westaim
In the management proxy circular, the current board also makes a number of misleading claims in
relation to VC&Co. and its history with Westaim, repeating many of the same unsubstantiated and
untrue allegations it unsuccessfully advanced in the context of the recent Court proceedings.
Contrary to the claims of the current board, the Policyholder Proposals initiative has been pursued,
and continues to be pursued, solely on behalf of the mutual policyholders who submitted the
Policyholder Proposals. Further, neither VC&Co. nor any related entity nor any of their respective
principals has any ongoing relationship or ties whatsoever to Westaim, or to any potential buyer,
                                                 - vii -

investor or other interested party, related to Economical. While an entity related to VC&Co.
provided legal advice for a period of time to Westaim related to Economical, that involvement with
Westaim ended, as the evidence in the Court proceedings made abundantly clear, prior to VC&Co.
beginning the Policyholder Proposals initiative. There simply is no continuing relationship or
involvement of any nature between VC&Co. and Westaim related to Economical.
The current board’s claims in relation to Westaim are unfounded scare tactics. If elected, all of the
Policyholder Nominees would owe their duties to Economical. The suggestion that the new board
would pursue an improvident transaction with any party, or that VC&Co. would encourage them to
do so against its own financial interests and the interests of the mutual policyholders it is engaged to
protect, or that you the mutual policyholders would ultimately approve any such transaction, defies
common sense. The suggestion is neither credible nor worthy of Economical.

Moving to a brighter future – the Policyholder Nominees are the right board for Economical
With an average value of more than $1 million per mutual policyholder, you owe it to yourself to
carefully consider the issues and ensure that your vote counts. We do not think you can rely on the
current board, with its long-term commitment to the mutual structure, its sudden and expedient
reversal in the face of pressure, and its track record of poor governance and little transparency or
accountability.
The road ahead involves a complex process. It will only result in a positive outcome for you, and all
Economical stakeholders, if it is carefully overseen and directed by an experienced and credible
board of directors that is committed to your interests.
The Policyholder Nominees are well known, experienced and trusted business leaders who you can
rely on to make the right decisions for you, and restore the credibility of Economical’s board. We
encourage you to take the time to carefully review their qualifications and experience, which are
outlined on pages 12 to 15 of the Circular. Far from delaying the process of addressing
Economical’s structural issues and unlocking value for you, the election of the Policyholder
Nominees will accelerate this process as all parties will know that the new board is committed to
what it is saying and resolved to move forward. The election of the Policyholder Nominees will also
start the process of once again making Economical a place where employees can be proud of where
they work rather than embarrassed by the actions of their board.
The Policyholder Nominees, if elected at the Meeting, are committed to an inclusive process and will
openly and regularly consult with and seek the views of all interested stakeholder groups as
Economical moves forward. To facilitate that, they will establish a Special Advisory Committee of
mutual policyholders and retirees. Mr. Charles R. Appleton, a retiree from Economical after more
than 25 years service and one of the mutual policyholders who supported the Policyholder Proposals,
has agreed to Chair that Special Advisory Committee. See “Removal and Election of Directors –
Special Advisory Committee” below.
Economical is not a private “golf club”. It is a company with significant potential, but one that has
been poorly governed for too long. You can change that at the Meeting by electing the Policyholder
Nominees. This change will serve a fundamentally important purpose, ensuring that your financial
interests are protected and building a better Economical going forward.
                                               - viii -

Complete your YELLOW proxy today
We believe the choice is clear.
The current board has always worked to maintain Economical under its mutual structure and has
never well-served your interests. They have not earned your trust.
The Policyholder Nominees will bring a fresh perspective, deep experience and trusted reputations,
and the commitment and credibility needed to execute and deliver value to you.
We urge you to carefully read this Circular, complete and sign only the enclosed YELLOW proxy
and return it to us. Your YELLOW proxy must be received by us no later than May 13, 2011 in
order to be deposited in time to be used at the upcoming Meeting. Return your YELLOW proxy to
us in any of the following ways:
   •   mail it in the enclosed postage paid return envelope or, if you are sending it after May 6,
       2011, telephone us at 416-864-2274 and we will arrange for a courier or personal pick-up;
       or
   •   fax it to us at 416-947-1256; or
   •   email it as a scanned attachment to spriemer@voorco.com.
Please take the time to do this NOW to ensure it is received in time to be voted at the Meeting.
Even if you have previously signed a form of proxy in support of the current board – the more
recently dated YELLOW proxy automatically revokes the earlier one so please complete the
YELLOW proxy today.
If you have any questions concerning this Circular, or in connection with the completion and
delivery of your YELLOW proxy, or would just like to share your perspective regarding
Economical, please telephone either Michael D. Woollcombe or Shane A. Priemer of VC & Co.
Advisory Limited at 416-864-2274. We would very much welcome the chance to speak to you. We
also invite you to visit our website that is dedicated to this initiative at
www.concernedeconomical.com.
In order to ensure that you receive important timely information and updates from us as this process
moves forward, we also encourage you to provide us with your email or preferred contact
coordinates. You can provide us with that contact information either through the “Stay Informed”
page on our website, by email to spriemer@voorco.com or by telephone at 416-864-2274.
Sincerely,

VC & CO. ADVISORY LIMITED

“Michael D. Woollcombe”

MICHAEL D. WOOLLCOMBE
Executive Vice-President

Bay Adelaide Centre
333 Bay Street, Suite 910
Toronto, Ontario
M5H 2R2
                             - ix -




               You now have a choice to make.

Do nothing and leave your financial interests in the hands of the
    current board which has never delivered value to you.

                              OR

      Give your support to the Policyholder Nominees by
 signing, dating and returning the enclosed YELLOW proxy.
                                                   PROXY CIRCULAR

This proxy circular and the accompanying YELLOW form of proxy are furnished to you in connection with the
solicitation of proxies by and on behalf of VC & Co. Advisory Limited (“VC&Co.”), which is advising the more than
100 mutual policyholders who submitted the Policyholder Proposals, to be used at the annual and special meeting (the
“Meeting”) of the mutual policyholders of Economical Mutual Insurance Company (“Economical”) scheduled to be
held at Bingemans - Marshall Hall, 4425 Bingemans Centre Drive, Kitchener, Ontario on Thursday, May 26, 2011 at
1:00 p.m., and at any and all adjournments or postponements thereof.

THIS SOLICITATION OF PROXIES IS NOT MADE BY OR ON BEHALF OF CURRENT MANAGEMENT
OF ECONOMICAL. IF YOU SUPPORT CHANGING THE BOARD OF ECONOMICAL, ONLY USE THE
YELLOW FORM OF PROXY ENCLOSED WITH THIS CIRCULAR.

There are currently nine directors serving on Economical’s board of directors. We are soliciting proxies:

    (a) in support of a resolution removing from office, effective immediately, all directors of Economical whose term
        in office would otherwise continue following completion of the Meeting;

    (b) to elect the following nine nominees to the board of directors of Economical, to hold office for terms of one,
        two or three years as set forth herein: J. Bruce Barraclough, Stanley M. Beck, Q.C., Kathryn A. Giffen, Norman
        D. Inkster, Kenneth W. Lalonde, Robert W. Morrison, C. Ian Ross, Michael D. Woollcombe and Glen O.
        Wright (the “Policyholder Nominees”) ; and

    (c) to appoint Ernst & Young LLP as auditors of Economical to hold office until the next annual meeting.

YOUR VOTE IS VERY IMPORTANT TO YOUR FINANCIAL INTERESTS AND THE FUTURE OF
ECONOMICAL. IF YOU AGREE THAT THE POLICYHOLDER NOMINEES WILL BETTER SERVE YOUR
INTERESTS, PLEASE VOTE AS FOLLOWS:


                   RECOMMENDATION TO MUTUAL POLICYHOLDERS:

           Vote FOR the removal from office, effective immediately, of all directors of Economical
   X
           whose term in office would otherwise continue following completion of the Meeting;

           Vote FOR the election of the Policyholder Nominees as directors of Economical (J.
   X
           Bruce Barraclough, Stanley M. Beck, Q.C., Kathryn A. Giffen, Norman D. Inkster,
           Kenneth W. Lalonde, Robert W. Morrison, C. Ian Ross, Michael D. Woollcombe and
           Glen O. Wright); and

           Vote FOR the appointment of Ernst & Young LLP as auditors of Economical, to hold
   X
           office until the next annual meeting.


AS TIME IS OF THE ESSENCE, PLEASE RETURN YOUR YELLOW PROXY TO US AS SOON AS
POSSIBLE. RETURN YOUR YELLOW PROXY BY USING THE ENCLOSED POSTAGE PAID RETURN
ENVELOPE, BY FAX TO 416-947-1256, OR BY EMAIL TO SPRIEMER@VOORCO.COM. COMPLETED
PROXIES MAY ALSO BE HAND DELIVERED TO VC & CO. ADVISORY LIMITED AT BAY ADELAIDE
CENTRE, 333 BAY STREET, SUITE 910, TORONTO, ONTARIO, M5H 2R2.

IN ORDER TO BE DEPOSITED IN TIME TO BE USED AT THE MEETING, YOUR YELLOW PROXY
MUST REACH US NO LATER THAN MAY 13, 2011.
                            If you have any questions, or require any assistance in voting your mutual policy,
             please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                              For further information, please also visit www.concernedeconomical.com
                                                              -2-
Certain of the information concerning Economical contained in this Circular has been taken from or is based upon
available documents or records from Economical (including its management proxy circular) and other public sources.
Although we have no knowledge that would indicate that any statements contained herein taken from or based upon such
documents and records or other public sources are untrue or incomplete, we do not assume any responsibility for the
accuracy or completeness of the information taken from or based upon such documents, records and public sources, or
for any failure by Economical to disclose events or facts which may have occurred or which may affect the significance
or accuracy of any such information but which are unknown to us. The registered and head office address of Economical
is 111 Westmount Road South, Waterloo, Ontario.

                                        REASONS FOR THIS SOLICITATION

Set forth below are the principal reasons that we believe it is in your best interests, and the best interests of all
Economical stakeholders, to replace Economical’s current directors with the Policyholder Nominees at the Meeting.

THE NEED FOR CHANGE AT ECONOMICAL

While Economical’s mutual structure has deep roots in the company’s proud 140-year origins, the reality is that, as has
become particularly evident over the past five or so years, Economical has outgrown those origins and its mutual
structure. The current board’s failure to recognize or act on that reality has impeded the company’s growth and
diminished value for mutual policyholders.

On December 30, 2010, more than 100 mutual policyholders submitted policyholder proposals (the “Policyholder
Proposals”) that call for the replacement of Economical’s current board. The Policyholder Proposals reflect serious and
widespread concerns among Economical’s mutual policyholders regarding the direction and present board leadership at
Economical. The Policyholder Proposals give all mutual policyholders the opportunity to elect a new board that will
responsibly address the structural issues that have been impeding Economical’s business, enhance value for mutual
policyholders and properly safeguard the interests of Economical and its brokers, employees, retirees and other
stakeholders.

You are the Owners of Economical and Action is Required to Protect Your Interests

We believe that Economical has a value today of more than $1 billion, or on average more than $1 million per mutual
policyholder (based on approximately 1,000 mutual policies outstanding).

In our view, the true owners of Economical are its mutual policyholders, and we have been consistently saying so. You
as the mutual policyholders elect Economical’s board of directors. Under Economical’s by-laws, you are also the only
class of stakeholder entitled to share in Economical’s earnings. Upon a demutualization or other event that results in
value being available for distribution, that value belongs to you as the owners of Economical. Any other conclusion
would be inconsistent not only with Economical’s by-laws, but also with the policy framework that was carefully
established and consistently applied by the Federal government in the context of the life insurance company
demutualizations approximately 10 years ago.

As mutual policyholders, you are entitled to a board of directors that understands and respects your rights as the owners
of Economical. Recent actions of the current board make clear that they neither understand, nor can be trusted to protect,
your ownership rights:

   •      as part of the current board’s recent unsuccessful Court challenge trying to avoid a vote on their leadership,
          Economical’s lead lawyer argued in open Court that Economical’s ownership structure, with its
          approximately 1,000 mutual policyholders, was akin to a private “golf club” where membership could be
          purchased, but not sold or cashed in;

   •      the current Chairman of the Board’s recent evidence under oath, given on February 28, 2011, was that he
          didn’t even have a view as to whether the mutual policyholders were the real owners of Economical and had
          never expressed a view to Economical’s board as “it never came up”. He gave this evidence more than two
          months after the current board’s announcement that it would be pursuing a demutualization plan;

                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                              -3-
   •       other sworn evidence emerged in the recent Court proceedings that, as recently as October 13, 2010, the
           current Chairman of the Board told a potential strategic partner of Economical that no one (including the
           mutual policyholders) owns Economical but that the company is instead owned by the “community”; and

   •       as recently as March 11, 2011, Economical described the “ownership” relationship between Economical and
           its mutual policyholders as merely “temporary” and characterized mutual policyholders as “custodians of
           ownership for the next generation”.

These statements, and others like them under the watch of the current board, undermine your ownership rights as mutual
policyholders. They also reflect the same dangerous misconceptions as are currently being urged by those seeking to
maintain the status quo and avoid any value being delivered to you as mutual policyholders. It is one thing for these
misguided views to be expressed by self-interested lobby groups trying to block Economical’s demutualization; it is
simply unacceptable for them to come from the board you elect to safeguard your financial interests.

These statements also undermine the current board’s credibility when it now asserts, in its materials trying to solicit your
vote, that Economical views the mutual policyholders as the “legitimate owners” of Economical. This is an expedient
reversal by the current board. How can you trust them now?

Unlike the current board, the Policyholder Nominees understand and are committed to your ownership rights and will
responsibly protect your interests.

The Current Board’s Reactionary “Demutualization Plan” – The Path They Had Always Opposed

The current board would like you to believe that, in announcing its demutualization plan on December 14, 2010, it acted
thoughtfully and after careful study to address Economical’s capital constraints, and that it is committed to effecting a
demutualization. The current board would also like you to believe that its demutualization plan had nothing to do with
the pressure of the Policyholder Proposals initiative or the current board’s efforts to avoid a vote on its leadership.

The reality is far different, and we believe shows that you cannot rely on the current board to responsibly follow through
on its demutualization promises:

   •       When the current board announced its demutualization plan on December 14, 2010, it publicly acknowledged
           for the first time the need to change Economical’s structure in order to remain competitive and achieve its
           potential, and that Economical’s mutual structure had been restricting its ability to raise the additional capital
           required to invest in its business. But the reality is that none of those issues were new, and the current board
           had known about them but steadfastly opposed addressing them – or effecting any change to Economical’s
           mutual structure – for years.

   •       The recent evidence under oath of Noel Walpole, Economical’s former President and Chief Executive Officer,
           was that he had for years been advocating to the board consideration of a demutualization or other structural
           solution so as to allow Economical access to the capital required to allow its business to properly compete and
           keep pace with increasingly stringent regulatory capital requirements. The current board consistently refused
           to follow management’s recommendations. And then, between the November 15, 2010 creation of the Special
           Committee and the December 14, 2010 demutualization announcement, the board did not even consult with
           Mr. Walpole in the course of its deliberations, even though he remained President and Chief Executive
           Officer.

   •       The current board wasn’t just opposed to considering demutualization alternatives, it was actively taking steps
           during 2010 to expand the number of mutual policyholders – which would dilute your ownership interest and
           reduce the value of your mutual policy – in a manner deliberately intended to ensure that Economical
           remained a mutual for “generations”. In particular, board minutes which Economical was compelled to
           produce in the recent litigation show that the current board decided during 2010 to seek to double over a
           period of years the number of outstanding mutual policies and to issue them to people “who are believed to
           support the continuation of the Company as a mutual company”. This strategy continued until November 15,
           2010, the first business day after the Policyholder Proposals initiative began.

                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                              -4-
   •      Why would a board that really believed in the merits of demutualization and protecting the interests of mutual
          policyholders have been actively seeking to dilute your ownership interests and ensure that Economical
          remained a mutual for generations? The positions are irreconcilable. It is also noteworthy that the board
          decisions made earlier in 2010 were based on the recommendations of a “Special Committee on Mutuality”
          that was chaired by Ms. Karen Gaven and consisted of her and two of the other three directors who now form
          the new Special Committee (chaired by the same Ms. Gaven) which is ostensibly committed to
          demutualization.

   •      What caused the current board to suddenly purport to abandon its longstanding determination for Economical
          to remain a mutual? We believe that this was a direct result of the pressure brought to bear by the
          Policyholder Proposals initiative. When that initiative first began, the current board originally sought to
          create the impression, including in its November 24, 2010 letter to you, that demutualization was all but
          impossible. But then, only weeks later, and in a last minute attempt to prevent the submission of those
          Policyholder Proposals and convince you that the current board was finally acting in your best interests, the
          board flip-flopped and announced that it would itself develop and pursue a plan to demutualize. In making its
          demutualization announcement, we believe that the current board was hoping to make the Policyholder
          Proposals initiative appear redundant so as to avoid a vote on the current board’s leadership. Mutual
          policyholders, however, knew better, and the Policyholder Proposals were duly submitted to Economical at
          the end of December 2010.

   •      In its December 10, 2010 letter to you, the current board told you that the Special Committee had been formed
          “several months” earlier. The same statement was also made in Economical’s press release announcing the
          demutualization. These statements were not truthful. The Special Committee was in fact formed less than
          one month earlier (on November 15, 2010), the first business day after the current board learned of the
          Policyholder Proposals initiative.

We believe that the facts, including those that emerged through the recent Court application, make clear that the current
board has consistently and steadfastly opposed demutualization and has not been forthcoming with you. The current
board has never before taken any action to deliver value to you as mutual policyholders. They have only reluctantly
begun to act now under the pressure of the looming vote on their leadership, pressure that will cease if the board is not
changed at the Meeting. The current board’s prior actions speak much more loudly than its recent self-serving promises,
and we believe those actions foreshadow a return to the longstanding status quo – and a very negative outcome for you
and Economical – if the board is not changed at the Meeting.

Now is the time for real change at Economical. Mutual policyholders must seize the opportunity to elect a new board
that is genuinely committed to following through and delivering value to you on a timely and transparent basis. A
new independent board is the only way to ensure that you realize the considerable value of your mutual policies and,
at the same time, create a stronger, more vibrant, more transparent and much better governed Economical.

Where is the Current Board’s Demutualization Plan?

The Special Committee was formed approximately five months ago. The current board announced its demutualization
process approximately four months ago. It promised you on December 14, 2010 that it would “expedite” that process and
“present a final recommendation as well as the details and schedule of the demutualization plan no later than the next
annual meeting scheduled for May 26, 2011.”

Since that time, you have received a number of “Progress Updates” from the current board. These have consistently
asserted that work “continues on schedule” and endeavoured to leave you with the impression that progress was being
made. And yet, when you read these updates carefully, the current board has reported no tangible progress and no
specifics of what, if anything, has actually been accomplished or even what is intended.

Now, in their management proxy circular soliciting your vote for the Meeting, the current board claims over and over
again that “significant progress” has been made towards demutualization, but provides no details to back up those
claims. We believe that, in fact, little progress has been made towards demutualization over the past four months, while
the board instead chose to focus on litigation strategies to avoid a vote on the Policyholder Proposals at the Meeting.

                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                              -5-
Further, contrary to what they promised you four months ago, the current board now asks for your vote but includes in
their management proxy circular no “final recommendation” or even any attempt to outline “the details and schedule of
the demutualization plan”. The current board also provides no guidance whatsoever with respect to what it believes is
the approximate value of your mutual policy.

As a result, almost five months after the Special Committee was formed, the current board still purports to be pursuing
the same two general alternatives first announced December 14, 2010, a “possible initial offering” or a “sponsored
demutualization” (i.e., a sale of Economical), without any indication of where either alternative actually stands, which is
preferred and why, what “qualified third parties” it is actually talking to or considering, and the anticipated outcome for
mutual policyholders.

Mutual policyholders are once again left in the dark, and asked by the current board for blind trust in circumstances
where the board has not earned it.

We also believe that the current board’s lack of credibility is materially damaging the prospect of a successful outcome
for you. The current board purports to be actively considering an initial public offering, and yet it retained a financial
advisor (Blair Franklin Capital Partners Inc.) with no distribution capability or ability to complete such an offering. Five
months after the Special Committee was formed, the current board lists in its management proxy circular, under the
heading “Significant Progress Towards Demutualization”, that the Special Committee has now “prepared a request for
proposals for selection of a lead underwriter manager”. [Emphasis added] If a “possible initial offering” is one of the
two alternatives that has been under consideration by the current board for almost five months, why is the board only
now preparing a request for proposals? We are concerned that the current board’s process is not intended to ever reach a
successful conclusion, but instead designed to buy time until after the Meeting when, if the current board remains in
place, it may choose to revert back to the status quo.

At this critical crossroads, Economical requires strong, experienced and credible leadership. That leadership will
directly and significantly impact the value you ultimately receive in respect of your mutual policy and the timeframe
within which you receive it. We urge you not to be fooled by the current board, which for years has resisted the very
change that it now purports to be pursuing.

Economical’s Financial Underperformance – The Legacy of the Current Board

In its February 25, 2011 update to you, the current board highlighted what it described as the “significant improvement”
in Economical’s financial results for the year ended December 31, 2010, claiming that its “[e]nhanced performance and
growing financial strength give additional support to the demutualization process”.

Compared to Economical’s very poor 2008 and poor 2009 financial results, 2010 did represent an improvement. Under
the current board’s watch, Economical generated a net loss during 2008 of $102.4 million and net income during 2009 of
only $24.1 million. So with net income during 2010 of $64.4 million, Economical’s most recent financial results were
undoubtedly better than they had been. But Economical’s net income during 2010 was still less than half of its average
net income of approximately $140 million in each of 2005, 2006 and 2007.

More importantly, what the current board has never provided to you is any analysis of how Economical’s performance
over the past five years compared to its industry peers. In our view, Economical’s relative performance against its peer
group is the best indicator of the true health of Economical’s business and the strength or weakness of its operations
under the current board’s control.

The two charts below show that Economical has in fact chronically underperformed its peer group in each of the past
five years, including 2010.

Firstly, as shown on the following page, during each of the past five years, Economical’s cost performance (as reflected
by its Combined Ratio) has underperformed its peer group by a significant 5% on average:




                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                                                                            -6-


                                                                                      Combined Ratio (1)

                                                                            Peer Group Average (2)                 Economical                  Weaker
                                    115                                                                                                      Performance


                                    110
              Combined Ratio (%)




                                    105


                                    100


                                              95


                                              90                                                                                              Stronger
                                                                                                                                             Performance
                                              85
                                                              2006             2007                  2008          2009            2010


                                                   Economical has had a weaker cost performance than the Peer Group average in
                                                   each of the last 5 years, averaging an underperformance of 5% from 2006 - 2010
              _________________________________________________
              Source: Public disclosure, SCOR Report, MSA Research.
             (1) Combined ratio is defined as the ratio of insurance claims paid plus operating expenses to total premiums earned.
             (2) Peer Group consists of Aviva Canada Inc., Desjardins General Insurance Group, Intact Financial Corporation, The Royal and
                  SunAlliance Canada Group, The Co-operators, and Wawanesa Insurance, all of whom have a business mix that includes Ontario
                  auto premiums representing 20% to 40% of total premiums written.

The effect of this cost side underperformance over the past five years is significant. If Economical had performed
consistent with simply the average of its peers over these five years, Economical would have generated incremental pre-
tax income over this period aggregating approximately $460 million. In 2010 alone, a year in which Economical has
said it successfully focussed on profitability rather than revenues, Economical would have generated approximately $72
million of incremental pre-tax income by managing its cost performance consistent with its peer average.

Further, during each of the past five years, Economical has underperformed its peer group by an average of 8% on the
important measure of return on equity:

                                                                                          Return on Equity

                                                                               Peer Group Average
                                                                                                      (1)
                                                                                                                      Economical               Stronger
                                                   25                                                                                        Performance

                                                   20

                                                   15
                            Return on Equity (%)




                                                   10

                                                     5

                                                     0

                                                    (5)

                                                   (10)
                                                                                                                                               Weaker
                                                   (15)                                                                                      Performance
                                                                 2006             2007                      2008      2009            2010



                                                   Economical has had a lower return on equity than the Peer Group average in each
                                                     of the last five years, averaging an underperformance of 8% from 2006 - 2010
                     _______________________________________________
                                   (1)                   Source and Peer Group as per above.



                            If you have any questions, or require any assistance in voting your mutual policy,
             please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                                                                  For further information, please also visit www.concernedeconomical.com
                                                              -7-
Economical’s return on equity is an important metric that will be carefully scrutinized by interested parties and capital
markets participants, and affect the value you ultimately receive, as Economical moves forward to address its structure.

It is also noteworthy that, over the period from 2006 to 2010, while Economical’s peer group has grown written
premiums, Economical’s annual gross written premiums have decreased by approximately $200 million, or about 10%.

We encourage you to carefully review these charts and consider this information. The current board should be held
accountable for Economical’s significant financial underperformance.

Economical needs a strong and capable new board that can lead it to stronger financial performance.

The Current Board’s Lack of Transparency

Good governance starts with transparency.

Ask yourself, prior to the Policyholder Proposals initiative, when was the last time you heard from the current board
regarding your rights and entitlements as a mutual policyholder or the very significant value they appear to have never
wanted you to know existed in your mutual policy?

Until the Policyholder Proposals initiative began, you in fact had no way of even beginning to assess the value of your
mutual policy. This was a direct consequence of the current board’s longstanding policy of withholding the critical
information required to make this assessment – the number of mutual policies in existence. The current board finally
acknowledged in November 2010 that Economical had “approximately 1,000” mutual policies. Even today, the current
board has never disclosed to you, the owners of Economical, the exact number of mutual policies.

In a further clear sign that the current board only reacts under pressure, compare the director and executive compensation
disclosure included in this year’s management proxy circular to what you received in prior years. Until this year, the
current board never included any of this disclosure in its annual proxy materials, choosing not even to disclose how –
and how much – the current directors paid themselves. We believe you are entitled to know each year how directors are
paid, so you can assess whether director pay matches director performance.

The current Chairman of the Board recently sought to justify Economical’s historical lack of disclosure on the basis that
“Economical has provided mutual policyholders much more information than is legally required” and that “[m]utual
policyholders do not, in an economic sense, pay anything for the voting and other rights that differentiate them from
‘cash’ policyholders”. Both of these assertions miss the point. Unlike cash policyholders, you and the other mutual
policyholders are the owners of Economical, whether the Chairman of the Board accepts that or not. Further, a properly
functioning board concerns itself not only with meeting minimum legal requirements for disclosure, but more
fundamentally with ensuring that you as the owners of the business receive, on a timely basis, all information reasonably
necessary for you to properly understand and monitor both the company’s performance and your ownership interest.

Unlike the current board, the Policyholder Nominees will consistently report to you on a timely, accurate and fully
transparent basis in relation to all matters involving the business and affairs of Economical.

The Current Board’s Lack of Accountability

Good governance also requires accountability.

At a corporation such as Economical, director accountability ultimately flows from your power to elect and remove
directors so as to ensure the board is comprised of persons in whom a majority of mutual policyholders have trust and
confidence. With the support of more than 100 mutual policyholders, that is what the Policyholder Proposals initiative is
designed to achieve.

The recent actions of the current directors in relation to the Policyholder Proposals show that they do not believe they
should be accountable to you. From inception, they have used your money to wage a fierce and ongoing legal and public
relations campaign to avoid a vote on their leadership. After they were unsuccessful in avoiding the December 30, 2010

                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                              -8-
submission of the Policyholder Proposals, they then spent hundreds of thousands of dollars more of Economical’s
money, against your interests, trying to block a vote in Court.

After losing the Court application, the current board now purports to justify these wasteful expenditures as having simply
been intended to seek “clarity on procedures” related to the Meeting. This position is not credible or accurate.

As part of its legal campaign, the board made serious allegations against seven mutual policyholders (who supported the
Policyholder Proposals initiative). These allegations were shown to be unfounded and the current board withdrew them.
Rather than publicly apologize for wronging these individuals, the current board’s lawyer callously conceded that
Economical “did what it did” and “stubbed its toe” by accusing innocent individuals of things they never did. These
reckless and unfounded allegations were contrary to the best interests of Economical and its mutual policyholders and a
gross misuse by the current board of Economical’s financial resources. The making of these unfounded allegations also
damaged Economical’s reputation.

The current board has also long hidden from the concept of director accountability by maintaining Economical’s
staggered board terms, where each director is elected for a three-year term, with only one-third of the directors up for re-
election each year. Staggered board terms have in modern times properly come to be seen as serving primarily the
interests of poorly performing directors by protecting them from having to face re-election on an annual basis. Most
properly governed companies eliminated them years ago. The Canadian Coalition for Good Governance, a not-for-profit
corporation that represents the interests of Canada’s largest institutional shareholders, recently described “expected best
practices” for boards as including that “all directors should be up for election each year – board terms should not be
staggered.”

There is no justification for continuing Economical’s staggered board terms. Ms. Gavan, the Chair of the Special
Committee, recently sought to defend Economical’s practice based on the ostensible need for board “continuity of
knowledge”. Why is it that none of Canada’s six largest banks, or its two largest life insurers, each of which has a
business far more complex than Economical, have staggered board terms to protect the tenure of their directors, let alone
to ensure “continuity of knowledge”? There simply is no credible reason for Economical to cling to staggered board
terms other than director entrenchment.

The Policyholder Nominees intend, if elected at the Meeting, to amend Economical’s by-laws such that they and all
future directors of Economical are required to stand for re-election at each and every annual policyholders’ meeting.

The current board’s recent litigation tactics to try to avoid a vote on its leadership, and the significant misuse of
Economical’s resources that those efforts involved, were not in your best interests and reflect a fundamental
disrespect by the current board for mutual policyholders. The current board has consistently shown that it does not
consider itself accountable to you. We believe that you, as a mutual policyholder, deserve better from your directors.

THE POLICYHOLDER NOMINEES ARE THE RIGHT BOARD FOR ECONOMICAL

The road ahead involves a complex and complicated process. There can be no doubt that it will only result in a positive
outcome for you, and for all Economical stakeholders, if it is carefully overseen and directed by a strong, experienced
and credible board of directors that is committed to your interests. That board, and the decisions it makes, will
fundamentally affect the value, if any, that you ultimately receive on your mutual policy. With an average value of
more than $1 million per mutual policyholder, it is in your interests to take the time required to consider the issues and
ensure that your vote counts.

The board elected at the Meeting will be called upon to make many important decisions and judgment calls that will
fundamentally affect you and all Economical stakeholders. Going forward, that board will need to:

   •       carefully and thoughtfully determine, with appropriate input from all stakeholders, including brokers,
           employees and retirees, the right path forward for Economical;

   •       once the right path forward is determined by the board, carefully oversee the timely implementation of that
           strategy;

                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                              -9-
   •      supervise discussions with the Federal Department of Finance concerning the board’s chosen strategy;

   •      appropriately balance competing stakeholder interests in a sensitive manner that allows the board to
          implement its chosen strategy on the most timely basis;

   •      oversee the implementation of the mechanic ultimately determined to come to a fair and equitable allocation
          of value among mutual policyholders;

   •      re-establish credibility with all internal and external stakeholders, and interested third parties, so as to regain
          the trust and momentum that has been lost by the current board’s failure to tangibly advance the
          demutualization process over the past five months.

There is much work to be done. The Policyholder Nominees have the skills, experience and commitment required to
successfully complete that work and to properly unlock the full value of your mutual policy on a timely basis. They also
have the proven capabilities and track records required to responsibly govern Economical in a manner that restores its
board image and will allow all stakeholders to once again be proud to be associated with Economical. You and all other
Economical stakeholders deserve no less.

We encourage you to carefully review and consider the Policyholder Nominees’ qualifications, their business and
governance experience and their track records of accomplishment. We also encourage you to compare the Policyholder
Nominees against the current board and their track-record at Economical.

The Policyholder Nominees will, if elected at the Meeting, commence a prudent and thorough review of all available
alternatives and then promptly move to implement, in a timely manner, the alternative that makes the most sense for
Economical and all its stakeholders, including mutual policyholders.

In conducting that review, the new board will openly and regularly consult with and seek the views of all interested
stakeholder groups. To facilitate that, the Policyholder Nominees will, if elected at the Meeting, establish a Special
Advisory Committee of mutual policyholders and retirees, which will be chaired by Mr. Charles R. Appleton as
described under “Removal and Election of Directors – Special Advisory Committee” below. The new board will also
consult and seek the views and input of Economical’s current employees throughout the process, recognizing that
ultimately Economical’s future success rests on the continued dedication, services and peace of mind of Economical’s
vital employee base.

As well, the Policyholder Nominees are committed to ensuring that the input and interests of Economical’s vital broker
network are properly taken into account by the new board and reflected in its determination of the right path forward for
Economical. The Policyholder Nominees recognize that a strong and vibrant relationship, and open lines of
communication, between Economical and its brokers is critical to both the short and long term strength of Economical’s
business.

The Policyholder Nominees will comprise an independent board. All of the Policyholder Nominees are independent of
Economical and will act in the best interests of Economical and its owners. This will not be VC& Co.’s board, it will be
your board. With the exception of Michael D. Woollcombe, none of the Policyholder Nominees are employed by
VC&Co. or have any agreements, arrangements or understandings, financial or otherwise, with VC&Co. related to
Economical.

We believe that the future for Economical and its mutual policyholders, under the direction of the Policyholder
Nominees, is promising. Economical is one of the top 10 property and casualty insurance companies in Canada. Through
the dedication and efforts of its current and former employees and vital broker network, Economical has developed into
a leading property and casualty insurer. However, Economical can do better. It can do better for itself, its mutual
policyholders, its employees, its brokers and its communities. That positive change will begin with the election of the
Policyholder Nominees at the Meeting, who will diligently work to address Economical’s structural issues in a manner
that unlocks value for mutual policyholders on a timely basis and makes for a better Economical for all stakeholders.



                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                              - 10 -
Economical is not a private “golf club”, and its mutual policyholders should not accept a board that treats it as such.
The time has come to finally provide Economical with the professional board direction and leadership it requires to
ensure that you realize on the considerable value of your mutual policy while at the same time creating a stronger,
more vibrant, more transparent and much better governed Economical. The Policyholder Nominees are the right
board for Economical, and we encourage you to seize this critical opportunity for change. The choice is yours to
make.

                                     BACKGROUND TO THIS SOLICITATION

This solicitation arises out of the Policyholder Proposals initiative, which began publicly on November 12, 2010 when
VC&Co. placed a newspaper advertisement in the The Globe and Mail advising that it was considering the rights and
entitlements of Economical’s mutual policyholders and actions that may be available to enhance value for such mutual
policyholders. On November 13, 2010, VC&Co. ran a similar newspaper advertisement in the Waterloo Region Record.

Prior to placing those advertisements, VC&Co. had investigated, commencing in late October, what alternatives might
be open to mutual policyholders to address the structural issues facing Economical and to enhance value for all mutual
policyholders. VC&Co. had concluded as a result of these investigations that the optimal path forward for mutual
policyholders was to have a choice, at the next policyholders’ meeting, to elect a different board of directors who would
better serve the interests of Economical and all its mutual policyholders and other stakeholders.

In response to its November 12 and 13, 2010 newspaper advertisements, VC&Co. received telephone calls from a
number of mutual policyholders. Many of these mutual policyholders expressed a lack of confidence in the current
board’s willingness and/or capability to properly address the structural issues facing Economical or to do anything
meaningful to enhance value for mutual policyholders. Many also expressed frustration at the current board’s lack of
transparency and the poor quality of its reporting to mutual policyholders and a strong sense that collective action by
mutual policyholders was long overdue.

On November 15, 2010, VC&Co. finalized the Policyholder Proposals and the form of the agreement (the “VC&Co.
Agreement”) that it intended to seek to enter into with mutual policyholders who signed the Policyholder Proposals.
The Policyholder Proposals and the VC&Co. Agreement were signed by the first two mutual policyholders on that day.

Also on November 15, 2010, Economical’s board of directors established the Special Committee.

On or about November 24, 2010, Economical sent a letter to its mutual policyholders, signed by Mr. Hooper and Ms.
Gavan. The letter made a number of false and misleading statements about VC&Co. and the Policyholder Proposals
initiative. The letter also stated: “One of the options [VC&Co.] proposes is the demutualization of Economical Mutual.
There is no precedent in Canada for the demutualization of a property and casualty insurance company and there are no
regulations in place to permit or govern such a change. The process and potential outcome are unknown”. On November
30, 2010, the board sent a similar email to Economical’s brokers.

On December 1, 2010, VC&Co. sent a letter to the mutual policyholders and brokers with whom it had been in contact
seeking to address and correct the misinformation being circulated by the current board such that mutual policyholders
could make an informed choice with respect to whether or not to support the submission of the Policyholder Proposals.
VC&Co. provided Economical with a copy this letter and asked the current board to circulate the letter to all mutual
policyholders and brokers. The Special Committee refused to do so.

On December 14, 2010, just three weeks after it had dismissed demutualization as practically impossible, the current
board announced that it would develop and execute a plan to demutualize Economical. VC&Co. responded that same day
with a letter to the mutual policyholders and brokers with whom it had been in contact outlining the many reasons why
the submission of the Policyholder Proposals remained critically important to all mutual policyholders.

On December 30, 2010, the Policyholder Proposals were submitted to Economical signed by more than the requisite 100
mutual policyholders.



                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                              - 11 -
On January 14, 2011, VC&Co. sent a letter to Mr. Hooper and Ms. Gavan and requested a meeting to discuss the path
forward and the policyholder meeting scheduled for May 26, 2011 with a view to what was in the best interests of
Economical and all its stakeholders. VC&Co. also stated that it wanted to discuss the implementation of appropriate
procedures to protect the interests of the existing mutual policyholders as matters moved forward. VC&Co. was
concerned that, in the absence of certain protections, events such as deaths, sales of homes and other events might result
in mutual policyholders unfairly losing some or all of the benefit that would otherwise accrue to them when
Economical’s value is unlocked. The current board replied that it was not interested in meeting at that time.

Later in the day on January 14, 2011, VC&Co. learned that the current board had commenced its Court application
seeking to prevent the Policyholder Proposals from coming to a vote at the Meeting.

On January 17, 2011, VC&Co. received a letter dated January 14, 2011 from Economical providing formal notice of
Economical’s refusal to attach the Policyholder Proposals to its notice of the Meeting. This letter asserted for the first
time that the Policyholder Proposals had not been signed by at least 100 mutual policyholders entitled to vote at the
Meeting.

In correspondence on January 21, 2011, counsel to Economical argued that certain of the mutual policyholders who
signed the Policyholder Proposals had mutual policies that were came up for renewal prior to the Meeting and therefore
were not necessarily “entitled to vote” at the Meeting. Counsel to Economical also advised that certain mutual policies
may be invalid because they were issued on the basis of “inside information”.

On February 1, 2011, counsel to Economical provided a proposed Amended Notice of Application, through which
Economical sought an additional declaration that the Policyholder Proposals were not signed by 100 mutual
policyholders on the basis that seven who signed had somehow obtained their policies through “inside information” from
Economical such that they were disentitled to the right to vote. In filing this Amended Notice of Application,
Economical abandoned its earlier argument from January 21, 2011 based on pending mutual policy renewals.

On February 25, 2011, a cross-application was filed in the Court proceedings seeking a number of procedural protections
surrounding the conduct of the Meeting, including the appointment of an Independent Chairman for the Meeting.

During February and March 2011, Economical and VC&Co. filed affidavit evidence, including from the seven mutual
policyholders whom Economical claimed had engaged in “insider trading” to obtain their policies, and conducted various
examinations and cross-examinations.

On March 6, 2011, Economical advised that it was withdrawing its allegations related to the seven mutual policyholders
whom Economical claimed had engaged in “insider trading” to obtain their policies.

The hearing of the Court application took place March 22-24, 2011.

On April 6, 2011, the Ontario Superior Court of Justice ordered Economical to proceed with a vote of its mutual
policyholders on the proposals to remove and replace all of Economical’s current directors. The Court declined to require
Economical to place the proposal amending Economical’s by-laws before the Meeting or to impose the procedural
protections around the Meeting that had been sought.

                                   REMOVAL AND ELECTION OF DIRECTORS

The current board of directors is comprised of Mary N. Bales, A. Scott Carson, Karen L. Gavan, Gerald A. Hooper,
David A. MacIntosh, Charles M.W. Ormston, Terry J. Reidel, Katherine Mabe and Michael Stramaglia. The term in
office of Messrs. MacIntosh and Reidel as well as Ms. Gavan will expire at the end of the Meeting.

At the Meeting, mutual policyholders will be asked to consider a resolution to remove from office, effective
immediately, all directors of Economical whose term in office would otherwise continue following completion of the
Meeting.



                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                              - 12 -
If this resolution passes, mutual policyholders will then be asked to consider a resolution to elect nine nominees to serve
as directors of Economical. As set forth in the table below, the nine Policyholder Nominees (J. Bruce Barraclough,
Stanley M. Beck, Q.C., Kathryn A. Giffen, Norman D. Inkster, Kenneth W. Lalonde, Robert W. Morrison, C. Ian Ross,
Michael D. Woollcombe and Glen O. Wright) will be nominated for election at the Meeting. None of the Policyholder
Nominees currently holds a mutual policy.

Economical’s by-laws currently provide for staggered board terms whereby one-third of the nine directors come up for
re-election annually. The Insurance Companies Act (Canada) provides that a director elected to fill a vacancy created by
the removal of a director holds office for the unexpired term of the director’s predecessor. Assuming the removal at the
Meeting of all six current directors whose term in office would otherwise continue following the completion of the
Meeting, there will be three director vacancies created with unexpired terms of one-year and three director vacancies
created with unexpired terms of two years. These vacancies are in addition to the election of three directors for a three-
year term.

In order to comply with the Insurance Companies Act (Canada) and Economical’s by-laws, and as set forth below, one-
third of the Policyholder Nominees are proposed for election for a one-year term, one-third of the Policyholder
Nominees are proposed for election for a two-year term and one-third of the Policyholder Nominees are proposed for
election for a three-year term. However, as indicated above, the Policyholder Nominees, if elected, intend following the
Meeting to amend Economical’s by-laws to remove the staggered board terms such that, at all future annual meetings, all
directors of Economical will be elected annually for one-year terms.

Name and Residency of
Nominee                                  Principal Occupation/Background                                 Term of Election

J. Bruce Barraclough                     Corporate Director; previously with Ernst &                          One year
(Ontario, Canada)                        Young LLP for more than 37 years

Stanley M. Beck, Q.C.                    President, Granville Arbitrations Limited and                        One year
(Ontario, Canada)                        one of Canada’s leading governance experts;
                                         previously Chairman of the Ontario Securities
                                         Commission

Kathryn A. Giffen                        Corporate Director; previously senior executive                      One year
(Ontario, Canada)                        in insurance and financial services industry
                                         including President and Chief Operating
                                         Officer of RBC Life Insurance

Norman D. Inkster                        President, INKSTER Incorporated; previously                         Two years
(Ontario, Canada)                        Commissioner of the Royal Canadian Mounted
                                         Police, President of Interpol and Global
                                         Managing Partner of KPMG’s international
                                         forensics practice

Kenneth W. Lalonde                       Corporate Director; prior senior executive roles                    Two years
(Ontario, Canada)                        in insurance and financial services sector
                                         including President and Chief Executive
                                         Officer of The CUMIS Group Limited

Robert W. Morrison                       Corporate Director; previously senior executive                     Two years
(Ontario, Canada)                        in insurance sector including Senior Vice-
                                         President and Chief Investment Officer of The
                                         Canada Life Assurance Company through its
                                         demutualization and initial public offering



                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                             - 13 -
Name and Residency of
Nominee                                 Principal Occupation/Background                                Term of Election

C. Ian Ross                             Corporate Director; extensive board leadership,                    Three years
(Ontario, Canada)                       senior management and transactional
                                        experience in broad range of sectors

Michael D. Woollcombe                   Partner, Voorheis & Co. LLP, and Executive                         Three years
(Ontario, Canada)                       Vice-President, VC&Co.

Glen O. Wright                          Corporate Director; highly experienced                             Three years
(Ontario, Canada)                       Waterloo businessman involved in insurance
                                        and other industries who has played multitude
                                        of senior executive and board leadership roles
                                        in both private and public sectors



Nominee Profiles

Further background information with respect to the Policyholder Nominees is set forth below:

J. Bruce Barraclough

Mr. Barraclough worked for Ernst & Young LLP for 37 years, 27 of which were as a Partner. His clients consisted of
public companies, large and small, with both domestic and international operations, trading on the Toronto Stock
Exchange or TSX Venture Exchange and Foreign Private Issuers registered in the United States. During his career, Mr.
Barraclough has gained extensive experience with initial public offerings, due diligence and spin-offs. Mr. Barraclough
is currently a director and Chairman of the Audit Committee of HudBay Minerals Inc. and was previously a director of
Coalcorp Mining Inc. Mr. Barraclough is also a Fellow of the Institute of Chartered Accountants of Ontario and holds
the designation of Chartered Director from The Directors College (a joint venture of McMaster University and The
Conference Board of Canada).

Stanley M. Beck, Q.C.

Mr. Beck is a former Chairman of the Ontario Securities Commission and former Professor of Law and Dean at Osgoode
Hall Law School. Mr. Beck is currently the President of Granville Arbitrations Limited, an arbitration and mediation
firm that specializes in grievance mediation, and also acts as a consultant on securities and corporate matters.
Additionally, Mr. Beck is currently Chairman of the Board of GMP Capital Inc. and a director of Utility Corp.,
NewGrowth Corp. and First National Financial L.P. Mr. Beck is also currently the Chair of the Canadian Foundation for
Advancement of Investor Rights, an independent national non-profit agency that seeks to advance the interests of
investors and the integrity and fairness of Canadian capital markets. Mr. Beck has been a director of a number of other
public companies including serving as Chairman of the Board of 407 International Inc. and as a director of Altamira Inc.
and Canadian Tire Bank Inc.




                            If you have any questions, or require any assistance in voting your mutual policy,
             please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                              For further information, please also visit www.concernedeconomical.com
                                                              - 14 -
Kathryn A. Giffen

Ms. Giffen is an accomplished business leader with extensive experience in the insurance and financial services industry
and roots in the Kitchener-Waterloo area. From 1997 to 2004, she was involved in leading the successful build and
operation of RBC Life Insurance, serving as its President and Chief Operating Officer from 2000 to 2004. Subsequently,
through to 2008, she served as Head of Strategy, Planning and Business Analytics for RBC Financial Group’s Canadian
personal and business markets including banking, investments and property and casualty and life insurance. During this
period, she also sat as a director of a number of subsidiaries of RBC Financial Group. She is currently the Chair of the
Board of Women’s College Hospital and Chair of its Executive Committee. She is also currently a director of Canadian
Sports Centre Ontario. Prior to joining Royal Bank, Ms. Giffen practised law in Kitchener-Waterloo, was counsel for
Gore Mutual Insurance Company and held a variety of senior management positions at Clarica, including Director of
Administration and Human Resources.

Norman D. Inkster

Mr. Inkster is a former Commissioner of the Royal Canadian Mounted Police during which time he managed all aspects
of Canada’s largest police force with approximately 21,000 employees and a $1.7 billion budget. Mr. Inkster also
previously served as the President of Interpol. He is a recognized expert in national and international law enforcement
and forensic investigations. Following his retirement from the RCMP, Mr. Inkster became the Global Managing Partner
for the international forensics practice of KPMG. Since 2003, Mr. Inkster has been the President of INKSTER
Incorporated (and its predecessors), a private consulting entity that provides investigative, security and law reform
services to domestic and foreign governments and international financial institutions. Mr. Inkster currently serves as
Chairman of the Board of VIQ Solutions Inc. and on the Investment Committee of Westerkirk Capital. He previously
acted as Special Adviser to the Auditor General of Canada, served on the Security Advisory Board of Unisys
Corporation and, following the events of September 11, 2001, was appointed Special Adviser on matters of security by
the Government of Ontario. Mr. Inkster is an Officer of the Order of Canada, a member of the Canadian and
International Associations of Chiefs of Police, Honourary Chief of the Blackfoot Tribe and Honourary Member of the
Bear Clan of the Cree Nation.

Kenneth W. Lalonde

Mr. Lalonde is an experienced business leader with significant experience in the insurance and financial services sectors.
From 2006 to 2009, Mr. Lalonde was President and Chief Executive Officer of The CUMIS Group Limited, an
integrated financial services company which manufactures and distributes life and property and casualty insurance
products to credit unions and their members. Prior to joining The CUMIS Group Limited, Mr. Lalonde worked for
approximately 15 years in a number of senior executive capacities with Canadian Imperial Bank of Commerce, including
as Executive Vice-President of Branch and Small Business Banking. While at CIBC, Mr. Lalonde also served as
Chairman and Chief Executive Officer of CIBC Insurance Management Company Ltd., where he was responsible for the
restructuring of CIBC’s property and casualty and life insurance division. Mr. Lalonde has previously served as a
director of The CUMIS Group Limited , Credential Financial, CIBC Mortgages Inc., CIBC Life Insurance Inc., Intria
Items Inc. and the Toronto International Film Festival.

Robert W. Morrison

Mr. Morrison is an experienced retired senior insurance executive. He was formerly with The Canada Life Assurance
Company, having served as its Senior Vice-President and Chief Investment Officer through to 2003. In that role, Mr.
Morrison was directly involved in helping to execute Canada Life’s demutualization and initial public offering. Mr.
Morrison has also held senior management roles with a number of other insurance companies, including Prudential of
England and Travelers Canada. Mr. Morrison currently serves as a trustee of the Kingsway Linked Return of Capital
Trust, a member of Bank of Nova Scotia’s Master Trust Committee for Canadian pension assets and as a director (past
Chair) of West Park Healthcare Centre. Mr. Morrison was previously a director of The University of Toronto Asset
Management Company and previously also served on the board of West Park Healthcare Centre’s Foundation.




                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                              - 15 -
C. Ian Ross

Mr. Ross has extensive senior management and transactional experience, having previously served as Governor and
President and Chief Executive Officer of Ortech Corporation, Chairman, President and Chief Executive Officer of
Provincial Papers Inc. and President and Chief Executive Officer of Paperboard Industries Corp. Mr. Ross currently
serves as Chairman of Growthworks Canadian Fund Ltd., and as a director of Ontario Power Generation Inc., Clearford
Industries Inc., RuggedCom Inc. and ING Direct Asset Management Limited. Mr. Ross has also served as a director of a
number of other public companies including as Chairman of the Board of Menu Foods Income Trust and Chairman of
the Board of Pet Valu Canada Inc. Mr. Ross is also a former Senior Director of Administration in the Dean’s Office of
the Richard Ivey School of Business, University of Western Ontario.

Michael D. Woollcombe

Mr. Woollcombe is a Partner of Voorheis & Co. LLP and Executive Vice-President of VC&Co. and its parent, VC &
Co. Incorporated. These businesses provide strategic and other advice to investors in undervalued, underperforming or
mismanaged Canadian public and private companies and in other special situations, with clients that have included a
broad range of institutional investors and investment managers as well as public and private companies and their boards
of directors. Mr. Woollcombe is currently a director of Jameson Bank (a Canadian Schedule 1 Bank), a director of
Globility Communications Corporation (a Canadian Competitive Local Exchange Carrier associated with Primus
Telecommunications Group, Incorporated) and a director and the trustee of various entities through which Calpine
Corporation holds its 50% ownership interest in Greenfield Energy Centre LP (an electricity generating facility in
Courtright, Ontario). Mr. Woollcombe is a former director of Pet Valu, Inc. and Stelco Inc. Prior to joining Voorheis &
Co. LLP in 1997, Mr. Woollcombe practised corporate and securities law with a major Canadian law firm.

Glen O. Wright

Mr. Wright is an experienced Waterloo businessman who is currently Chair of PrinterOn Corporation (a Waterloo
Region based technology company) and Chair of LeanCor LLC (Kitchener, Ontario and Florence, Kentucky). Mr.
Wright’s private sector career has been focused in the insurance industry where he founded Wright, Mogg and
Associates Ltd., an employee benefit and actuarial consulting firm that was subsequently sold to Cowan Insurance
Group. Mr. Wright served as Chairman of Cowan Insurance Group until 2002. Mr. Wright also previously served as
Chair of Ontario’s Workplace Safety and Insurance Board (formerly the Workers’ Compensation Board) and Chair of
Hydro One Inc. Mr. Wright currently serves as a director of TurboSonic Technologies, Inc. (Waterloo, Ontario),
Waterloo North Hydro and MedManager Interactive Corp. (Kitchener, Ontario). He has previously served as a director
of Gore Mutual Insurance Company, Wilfred Laurier University and the Canadian Broadcasting Corporation. A long
time Waterloo resident, Mr. Wright also has a history of public service. He has served as a senior advisor to federal and
provincial leaders, is currently a member of the Joint Public Advisory Committee of the NAFTA Commission for
Environmental Cooperation, and early in his career served on Waterloo City Council and the Region of Waterloo
Council.

Special Advisory Committee

The Policyholder Nominees, if elected at the Meeting, are committed to an inclusive process and will openly and
regularly consult with and seek the views of all interested stakeholder groups as Economical moves forward.

To facilitate that, they will establish a Special Advisory Committee of mutual policyholders and retirees to liaise with the
new board and provide regular and formalized advice and input regarding the views of Economical’s broader
constituents as the new board considers and responsibly addresses the structural issues that have been impeding
Economical’s business. The Policyholder Nominees believe that this Special Advisory Committee will prove a valuable
resource in ensuring that all interests are properly taken into account in the new board’s decision making.

We are very pleased to announce that Mr. Charles Appleton, one of the mutual policyholders who supported the
Policyholder Proposals, has agreed to serve as Chairman of the Special Advisory Committee. Mr. Appleton, who resides
in Cambridge, Ontario, held various senior positions at Economical including Vice President of Marketing and retired in
1996. Mr. Appleton was employed by Economical for more than 25 years, and is well known and respected by a broad

                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                             - 16 -
spectrum of former and current employees. Following the completion of the Meeting, Mr. Appleton, in consultation
with the new board, will populate the Special Advisory Committee with an appropriate number of other representatives.

Recommendation to Economical’s Mutual Policyholders


     Vote FOR the removal from office, effective immediately, of all directors
      whose term in office would otherwise continue following the Meeting

        Vote FOR the election of the Policyholder Nominees as directors of
       Economical (J. Bruce Barraclough, Stanley M. Beck, Q.C., Kathryn A.
       Giffen, Norman D. Inkster, Kenneth W. Lalonde, Robert W. Morrison,
             C. Ian Ross, Michael D. Woollcombe and Glen O. Wright)

The representatives named in the enclosed YELLOW proxy intend to cast the votes represented by such proxy FOR the
removal from office, effective immediately, of all directors whose term in office would otherwise continue following the
Meeting and FOR the election of the Policyholder Nominees to hold office for terms of one, two or three years as set
forth herein (unless you direct that the vote represented thereby be voted against the removal of such directors or
withheld from voting in the election of the Policyholder Nominees).

It is not contemplated that any of the Policyholder Nominees will be unable to serve as a director of Economical.
However, if that should occur for any reason prior to the Meeting, the representatives named in the enclosed YELLOW
form of proxy intend to cast the votes represented by such proxy in the manner described above for another nominee at
their discretion unless you have specified in your proxy that your vote is to be withheld from voting on the election of
directors.

                                      INFORMATION REGARDING VC&CO.

VC&Co. is acting solely and exclusively for and on behalf of the more than 100 mutual policyholders of Economical
who submitted the Policyholder Proposals. The two principals of VC&Co., G. Wesley Voorheis and Michael D.
Woollcombe, are also the principals of VC & Co. Incorporated and Voorheis & Co. LLP (“VoorheisCo.”).

VC & Co. Incorporated and VoorheisCo. have carried on a respected specialized advisory business for more than 15
years. These businesses provide strategic and other advice to investors in undervalued, underperforming or mismanaged
Canadian public and private companies and in other special situations, with clients that have included a broad range of
institutional investors and investment managers as well as public and private companies and their boards of directors.

VC&Co. is the legal entity created and owned by VC & Co. Incorporated to facilitate efforts on behalf of Economical’s
mutual policyholders. VC&Co. is not financed or backed by anyone other than VC & Co. Incorporated (and indirectly,
Messrs. Voorheis and Woollcombe).

VC&Co. Agreement with Mutual Policyholders

As previously indicated, those mutual policyholders who agreed to support the Policyholder Proposals during November
and December 2010 were also asked by VC&Co. to enter into the VC&Co. Agreement.

MUTUAL POLICYHOLDERS WHO SUPPORT CHANGING THE BOARD AND ELECTING THE
POLICYHOLDER NOMINEES AT THE MEETING ARE NOT BEING ASKED TO SIGN THE VC&CO.
AGREEMENT AND WILL HAVE NO FINANCIAL OBLIGATION WHATSOEVER TO VC&CO. TO VOTE
IN FAVOUR OF CHANGING THE BOARD AND ELECTING THE POLICYHOLDER NOMINEES ALL
THAT IS REQUIRED IS THE EXECUTION AND DELIVERY OF THE YELLOW PROXY.


                            If you have any questions, or require any assistance in voting your mutual policy,
             please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                              For further information, please also visit www.concernedeconomical.com
                                                              - 17 -
The VC&Co. Agreement provides that VC&Co. will: (a) conduct such investigations as it considers desirable in
connection with Economical and the consideration of appropriate strategies to address the structural issues facing it and
to enhance value for all mutual policyholders of Economical in a manner that is in the best interests of Economical and
all its mutual and other policyholders and that respects all stakeholders; (b) consider and, if appropriate, work with
mutual policyholders to submit one or more proposals under the Insurance Companies Act (Canada) with a view to
changing the composition of Economical’s board of directors; (c) seek to identify suitable alternative directors for
Economical; (d) assist in the preparation of any dissident proxy circular required and in soliciting proxies from mutual
policyholders; (e) consider and, if appropriate, initiate and/or pursue such legal or other proceedings on behalf of one or
more mutual policyholders as may be determined to be in the best interests of the mutual policyholders; and (f) otherwise
assist in implementing an appropriate strategy to address the structural issues facing Economical and to enhance value
for all mutual policyholders in a manner that is in the best interests of Economical and all its mutual and other
policyholders and that respects all stakeholders.

The VC&Co. Agreement provides for the sole and exclusive basis through which VC&Co. will receive compensation for
its efforts in connection with Economical. In structuring its fee arrangements, VC&Co. sought to ensure that the
respective interests of VC&Co. and mutual policyholders were properly aligned and that the arrangements fairly took
into account the substantial costs and risks that VC&Co. would have to bear for the process to move forward. The fee
arrangements set forth in the VC&Co. Agreement provide as follows:

    (a) VC&Co. has agreed to be responsible for the payment of all third party costs incurred in connection with
        facilitating a reconstitution of Economical’s board, subject to its ability to seek reimbursement from
        Economical for such third party costs upon a reconstitution of the board;

    (b) each mutual policyholder signing the VC&Co. Agreement has agreed to pay VC&Co. 12.5% of the proceeds
        received by him or her during the six year term of the VC&Co. Agreement (excluding amounts received on
        insurance claims or as ordinary course dividends), if, as and when any such amounts are received by the
        relevant mutual policyholder;

    (c) upon a reconstitution of Economical’s board, VC&Co. is entitled to a $1 million interim fee, which fee is to be
        paid pro-rata by the mutual policyholders who signed the VC&Co. Agreement and is fully credited against any
        fee referred to in paragraph (b) above thereafter payable, provided that if Economical does not agree to
        reimburse the mutual policyholders for payment of such interim fee, VC&Co. will not seek payment of it such
        that the mutual policyholders signing the Policyholder Proposals will never be out-of-pocket for any part of
        such interim fee; and

    (d) upon a reconstitution of Economical’s board, VC&Co. will seek reimbursement from Economical for third
        party costs previously incurred by VC&Co. and also seek to have Economical enter into an agreement to
        assume the obligations of those mutual policyholders who signed the VC&Co. Agreement (such that all fees
        payable to VC&Co. would be funded by Economical rather than the approximately 100 individual mutual
        policyholders who signed the VC&Co. Agreement).

The rationale for the reimbursement provision in paragraph (c) above and the assumption provision in paragraph (d)
above is that, if the board is reconstituted by vote of a majority of the mutual policyholders at the Meeting, that means by
definition that a majority of the mutual policyholders have determined that the board changes brought about through the
Policyholder Proposals were in the best interests of Economical and all mutual policyholders. In those circumstances, it
is fair that the costs of effecting that change to the board be paid by Economical such that those costs be effectively
spread over all mutual policyholders. The effect of doing so would be that, rather than have the approximately 100
mutual policyholders who signed the VC&Co. Agreement pay 12.5% of any monies they ultimately receive to VC&Co.,
no mutual policyholders would pay anything to VC&Co. but instead the amount that would otherwise have been paid by
those approximately 100 mutual policyholders would be paid by Economical if, as and when such amount otherwise
became payable (with the effect that the indirect cost to all mutual policyholders would be approximately 1.25%).

Regardless of whether or not the Policyholder Nominees are elected as directors at the Meeting, Economical is under no
obligation whatsoever to either assume any of the fees payable by the mutual policyholders who signed the VC&Co.
Agreement or to reimburse VC&Co. for any third party costs it has incurred. Economical would only become subject to

                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                              - 18 -
any such obligation in the event that it were to be approved by the board of directors of Economical following the
Meeting. In light of Mr. Woollcombe’s involvement with VC&Co., he will recuse himself entirely from and not
participate in any board deliberations or voting that may occur with respect to these matters.

VC&Co. has no agreement, arrangement or understanding with any of the Policyholder Nominees relating to whether or
not they will approve the reimbursement or assumption of any, all or none of these obligations in the event that the board
is reconstituted at the Meeting. Further, neither Mr. Woollcombe nor any other representative of VC&Co. has sought or
obtained the views of any of the Policyholder Nominees with respect to these matters. In the event that the board is
reconstituted at the Meeting, the eight Policyholder Nominees (excluding Mr. Woollcombe) will consider the matter in
accordance with their fiduciary duties to Economical.

In assessing the misleading claims of the current board in relation to VC&Co.’s fee arrangements, we encourage you to
consider that these fee arrangements align the interests of VC&Co. with your own financial interests. These
arrangements are also reflective of the fact that no mutual policyholder on its own could accomplish the change to the
board collectively being sought, which was correctly anticipated to be fiercely resisted by the current board using
Economical’s own financial resources against the interests of its mutual policyholders.
We are also highly confident that, under the leadership of the Policyholder Nominees, the incremental value that you will
receive in respect of your mutual policy will far exceed the approximately 1.25% that Economical could end up paying
to VC&Co. if the new board were to assume those obligations.

Former Involvement with The Westaim Corporation

None of VC&Co., VC&Co. Incorporated or VoorheisCo., or any related person or entity (including Messrs. Woollcombe
or Voorheis), have any agreements, arrangements or understandings whatsoever related to Economical or the pursuit of
the Policyholder Proposals or any other matter connected to Economical with any person or entity other than the mutual
policyholders who submitted the Policyholder Proposals (and the legal and other advisors who have been assisting with
the Policyholder Proposals initiative). In particular, and contrary to the persistent but untrue allegations of the current
board, there are no such agreements, arrangements or understandings whatsoever with any potential bidder or interested
party, including The Westaim Corporation (“Westaim”) or any person or entity related to it.

In the early summer of 2010, VoorheisCo., as part of its ongoing legal advisory business, was asked to and did provide
legal advice for a period of time to Westaim related to Westaim’s potential interest in Economical. After Westaim’s
approach to Economical was rebuffed by Mr. Hooper at a meeting on October 13, 2010, Westaim advised VoorheisCo.
that Westaim was unlikely to pursue its interest in Economical at that time and also advised VoorheisCo. that it no longer
required VoorheisCo’s services. VoorheisCo. and Westaim agreed that they would go their separate ways in relation to
Economical from that point forward. VoorheisCo. and Westaim also agreed as part of that separation that any initiative
that VoorheisCo. or VC&Co. might thereafter choose to pursue on behalf of Economical’s policyholders would be
entirely separate and apart from Westaim and pursued solely and exclusively on behalf of Economical’s mutual
policyholders and without any regard whatsoever to the interests of Westaim or anyone else other than the mutual
policyholders. This separation and the termination of VoorheisCo.’s involvement with Westaim occurred in October
2010, prior to VC&Co. beginning the Policyholder Proposals initiative.

The current board’s claims in relation to Westaim are unfounded scare tactics. If elected, all of the Policyholder
Nominees would owe their duties to Economical. The suggestion that the new board would pursue an improvident
transaction with any party, or that VC&Co. would encourage them to do so against its own financial interests and the
interests of the mutual policyholders it is engaged to protect, or that you the mutual policyholders would ultimately
approve any such transaction, defies common sense. The suggestion is neither credible nor worthy of Economical.

Interests in Material Transactions of Economical

Except to the extent described elsewhere in this Circular, to the knowledge of VC&Co., none of VC&Co., its directors or
officers, or the Policyholder Nominees, nor any associate or affiliate of any such persons, has had any material interest,
direct or indirect, in any transaction since the commencement of Economical’s most recently completed financial year or
in any proposed transaction which has materially affected or would materially affect Economical or any of its affiliates.


                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                              - 19 -
Interests in the Matters to be Acted Upon at the Meeting

To the knowledge of VC&Co., the only matters to be acted upon at the Meeting are the matters referred to herein.
Except to the extent described elsewhere in this Circular, none of VC&Co. nor any of the Policyholder Nominees, nor
any associate or affiliate of any such persons, has any material interest in the matters to be acted upon at the Meeting.

                                        OTHER BUSINESS AT THE MEETING

At the Meeting, management of Economical will propose that mutual policyholders approve a resolution appointing
Ernst & Young LLP as auditors of Economical for the financial year commencing January 1, 2011 and ending December
31, 2011 to hold office until the next annual meeting of mutual policyholders of Economical at remuneration to be fixed
by the board. The representatives named in the enclosed YELLOW proxy intend to cast the votes represented by such
proxy FOR that resolution (unless you direct in the enclosed YELLOW proxy that the shares represented thereby be
voted against such resolution).

                                         GENERAL PROXY INFORMATION

Solicitation of Proxies

This Circular is furnished by VC&Co., which is advising the more than 100 mutual policyholders who signed the
Policyholder Proposals, in connection with the solicitation by VC&Co. and on its behalf of proxies for use at the
Meeting scheduled to be held at Bingemans - Marshall Hall, 4425 Bingemans Centre Drive, Kitchener, Ontario on
Thursday, May 26, 2011 at 1:00 p.m., and at any and all adjournments or postponements thereof. Proxies may be
solicited by mail, telephone, fax or other electronic means and in person, as well as by newspaper or other media
advertising.

The costs incurred in the preparation and mailing of this Circular and the solicitation will be borne by VC&Co. VC&Co.
expects to seek reimbursement from Economical for its out-of-pocket expenses, including legal fees, incurred in
connection with the Policyholder Proposals. See “Information Regarding VC&Co - VC&Co. Agreement with Mutual
Policyholders” above for more information.

Other than as contemplated or disclosed herein, no person is authorized to give information or to make any
representations relating to the matters contemplated by this Circular other than those contained in this Circular and, if
given or made, such information or representations must not be relied upon as having been authorized to be given or
made.

Appointment and Revocation of Proxies

The representatives named as proxyholders in the enclosed YELLOW form of proxy are Michael D. Woollcombe and
failing him Shane A. Priemer (Mr. Woollcombe being a Policyholder Nominee). A mutual policyholder has the right
to appoint any person or company to represent him or her at the Meeting. A mutual policyholder wishing to
appoint some other person (who need not be a mutual policyholder of Economical) to represent him or her at the
Meeting has the right to do so, either by inserting such person’s name in the blank space provided in the accompanying
YELLOW form of proxy or by completing another proper form of proxy.

Mutual policyholders should carefully complete and sign their proxies in accordance with the instructions on the
YELLOW form of proxy in order to ensure that their proxies can be used at the Meeting.

AS TIME IS OF THE ESSENCE, PLEASE RETURN YOUR YELLOW PROXY TO US AS SOON AS
POSSIBLE. RETURN YOUR YELLOW PROXY BY USING THE ENCLOSED POSTAGE PAID RETURN
ENVELOPE, BY FAX TO 416-947-1256, OR BY EMAIL TO SPRIEMER@VOORCO.COM. COMPLETED
PROXIES MAY ALSO BE HAND DELIVERED TO VC & CO. ADVISORY LIMITED AT BAY ADELAIDE
CENTRE, 333 BAY STREET, SUITE 910, TORONTO, ONTARIO, M5H 2R2.



                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                              - 20 -
IN ORDER TO BE DEPOSITED IN TIME TO BE USED AT THE MEETING, YOUR YELLOW PROXY
MUST REACH US NO LATER THAN MAY 13, 2011.

Proxies received by us by May 13, 2011 will be deposited by us in time for use at the Meeting.

Mutual policyholders needing assistance completing and returning a YELLOW proxy should call Michael D.
Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274.

IF YOU HAVE SUBMITTED A FORM OF PROXY FROM MANAGEMENT BEFORE RECEIVING THIS
INFORMATION, YOU HAVE EVERY RIGHT TO CHANGE YOUR VOTE, BY SIMPLY VOTING AGAIN,
USING THE ENCLOSED YELLOW PROXY. ASSUMING TIMELY DELIVERY, YOUR LATER DATED
PROXY WILL AUTOMATICALLY REVOKE ANY PROXY PREVIOUSLY SUBMITTED.

In addition, a mutual policyholder who has given a proxy may revoke such proxy: (A) by depositing an instrument in
writing executed by the mutual policyholder or by the mutual policyholder’s attorney authorized in writing to do so
either (i) at the head office of Economical at any time up to and including the last business day before the day of the
Meeting, or any adjournment or postponement thereof, at which the proxy is to be used; or (ii) with the chairperson of
the Meeting on the day of, and prior to the start of, the Meeting, or any adjournment or postponement thereof; or (B) in
any other manner permitted by law.

You should follow the procedures set out in the enclosed YELLOW form of proxy and as set out below.

In order to vote for the Policyholder Nominees you should do the following:

1.       Complete the YELLOW form of proxy enclosed, including by marking: “VOTE FOR” with respect to the
         removal from office of all directors of Economical whose term in office would otherwise continue following
         completion of the Meeting; “VOTE FOR” with respect to the election of the Policyholder Nominees as the
         directors of Economical to hold office for terms of one, two or three years as set forth herein; and “VOTE
         FOR” the appointment of Ernst & Young LLP as auditors of Economical, all as outlined in the YELLOW
         form of proxy.

2.       Sign and date the YELLOW form of proxy and return it to us in any of the following ways:

         •   mail it in the enclosed postage paid return envelope or, if you are sending it after May 6, 2011, telephone
             us at 416-864-2274 and we will arrange for a courier or personal pick-up;

         •   fax it to us at 416-947-1256; or

         •   email it as a scanned attachment to spriemer@voorco.com.

         Please take the time to do this NOW.

If you support the Policyholder Nominees, then DO NOT RETURN ANY OTHER PROXY BUT THE YELLOW
PROXY.

Record Date and Voting by Mutual Policyholders

As set out in the management proxy circular, each holder of a mutual policy of Economical at 5:00 p.m. (Eastern Time)
on May 25, 2011, is entitled to cast one vote per mutual policyholder on all matters proposed to come before the
Meeting.

Economical’s by-laws provide that if any policy shall be issued in the joint names of two or more persons, any one of
them present at the Meeting or represented by proxy duly appointed may vote in the absence of the other or others, but in
the case more than one of them be present at any Meeting, either in person or by proxy duly appointed, only the person


                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                                             - 21 -
whose name first appears on such policy, or the proxy duly appointed, as the case may be, shall be entitled to vote in
respect thereof.

Voting of Mutual Policies Represented By Proxy

The mutual policies of Economical represented by properly executed YELLOW proxies solicited by us will be voted or
withheld from voting in accordance with the instructions of the applicable mutual policyholder on any ballot that may be
called for at the Meeting, or any adjournment or postponement thereof, and where the mutual policyholder specifies a
choice with respect to any matter to be acted upon at the Meeting, the mutual policy represented by such proxy will be
voted in accordance with the specification so made. In the absence of a specification with respect to the resolution
removing from office all directors of Economical whose term in office would otherwise continue following
completion of the Meeting, such mutual policies will be VOTED FOR the approval of such resolution. Unless a
mutual policyholder giving a proxy specifies that the proxy be withheld from voting on the election of all or any of
the directors or the appointment of the auditors, the representatives named in the enclosed YELLOW form of
proxy intend to cast the votes represented by such proxy FOR the election of the Policyholder Nominees as the
directors of Economical at the Meeting to hold office for terms of one, two or three years as set forth herein and
for the appointment of Ernst & Young LLP as auditors of Economical.

The enclosed YELLOW form of proxy confers discretionary authority upon the proxyholders named therein to
vote in the judgment of such persons in respect of amendments or variations, if any, to matters identified in the
Notice of Meeting and other matters, if any, which may properly come before the Meeting. As at the date hereof,
VC&Co. is not aware of any such amendments, variations or other matters to be presented for action at the Meeting.
However, if any amendment, variation or other matter should properly come before the Meeting, the mutual policies of
Economical represented by YELLOW proxies will be voted on such matters in accordance with the best judgment of the
proxyholder.


                    RECOMMENDATION TO MUTUAL POLICYHOLDERS:

           Vote FOR the removal from office, effective immediately, of all directors of Economical
   X       whose term in office would otherwise continue following completion of the Meeting;

           Vote FOR the election of the Policyholder Nominees as directors of Economical (J.
   X
           Bruce Barraclough, Stanley M. Beck, Q.C., Kathryn A. Giffen, Norman D. Inkster,
           Kenneth W. Lalonde, Robert W. Morrison, C. Ian Ross, Michael D. Woollcombe and
           Glen O. Wright); and

   X       Vote FOR the appointment of Ernst & Young LLP as auditors of Economical, to hold
           office until the next annual meeting.


                                            ADDITIONAL INFORMATION

Additional information concerning Economical and the Meeting is set forth in the management proxy circular, including
information concerning executive compensation and indebtedness of directors and executive officers. Financial
information regarding Economical is provided in its comparative financial statements and management’s discussion and
analysis for its most recently completed financial year, which have been sent to mutual policyholders by Economical.




                            If you have any questions, or require any assistance in voting your mutual policy,
             please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                              For further information, please also visit www.concernedeconomical.com
                                                              - 22 -
                                                         APPROVAL

Information contained herein, unless otherwise indicated, is given as of the date hereof. The contents and sending of this
Circular have been approved by VC & Co. Advisory Limited.

April 12, 2011

VC & CO. ADVISORY LIMITED


“Michael D. Woollcombe”

MICHAEL D. WOOLLCOMBE
Executive Vice-President




                             If you have any questions, or require any assistance in voting your mutual policy,
              please telephone Michael D. Woollcombe or Shane A. Priemer of VC & Co. Advisory Limited at 416-864-2274

                               For further information, please also visit www.concernedeconomical.com
                                             How To Cast Your Vote

       If, after reading this proxy circular, you agree that changes are necessary to the board of directors
       of Economical, please follow the instructions on the enclosed YELLOW proxy.
                       To ensure your vote counts, vote your YELLOW proxy TODAY
                                     Time is critical – please act immediately
       In order to be deposited in time to be used at the Meeting, we must receive your proxy no later than
       May 13, 2011.
                                          TIME IS OF THE ESSENCE



IF YOU HAVE SUBMITTED A FORM OF PROXY FROM MANAGEMENT BEFORE RECEIVING THIS
INFORMATION, YOU HAVE EVERY RIGHT TO CHANGE YOUR VOTE, BY SIMPLY VOTING AGAIN,
USING THE ENCLOSED YELLOW PROXY. ASSUMING TIMELY DELIVERY, YOUR LATER DATED
PROXY WILL AUTOMATICALLY REVOKE ANY PROXY PREVIOUSLY SUBMITTED.



                                      FOLLOW THE DIRECTIONS ON THE
                                          YELLOW PROXY FORM

For your vote to count, you must follow the directions on the YELLOW proxy form.



                    How do I send in my YELLOW proxy form?

Mutual policyholders should carefully complete, sign and date their proxy in accordance with the instructions on the
YELLOW form of proxy in order to ensure their proxies can be used at the Meeting. Please return your completed
YELLOW proxy to us in any of the following ways:

             -        mail it in the enclosed postage paid return envelope or, if you are sending it after May 6, 2011,
                      telephone us at 416-864-2274 and we will arrange for a courier or personal pick-up;

             -        fax it to us at 416-947-1256; or

             -        email it as a scanned attachment to spriemer@voorco.com.



                    I have questions about how to fill out my YELLOW proxy form?

Mutual policyholders with any questions should contact Michael D. Woollcombe or Shane A. Priemer of VC & Co.
Advisory Limited at 416-864-2274 (collect calls accepted) for assistance in completing their YELLOW proxy form.

				
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