EGI Financial Reports Strong Fourth Quarter Profits

TORONTO, Feb. 25 /CNW/ - EGI Financial Holdings Inc. ("EGI Financial") (TSX: EFH) today announced its results for the three and twelve months ended December 31, 2010.

Q4 Financial Highlights

  • Total comprehensive income of $5.4 million compared to a loss of $(5.1) in the fourth quarter of 2009
  • Net income of $3.3 million from a loss of $(2.3) million in the fourth quarter of 2009
  • Net income per fully diluted share of $0.26 compared to a loss of $(0.19) in the fourth quarter of 2009
  • A 16% increase in net earned premiums over the fourth quarter of 2009
  • Investment income of $3.7 million - excluding realized gains, investment income was $3.3 million versus $2.7 million in the fourth quarter of 2009
  • A 10% increase in book value from the end of the fourth quarter of 2009 - book value at December 31, 2010, is $146 million, or $12.14 per share
  • An 8% increase in the total fair value of the investment portfolio (including premium finance receivables) to $398 million during the quarter

"We are pleased to report our third consecutive profitable quarter," said Steve Dobronyi, Chief Executive Officer of EGI.  "Our underwriting results continue to improve and, in the fourth quarter, we reached our profitability target by recording a combined ratio of 95%.  These results are evidence that the remedial actions taken over the past six to twelve months to restore the profitability of the business are having the desired effect."

"Both our Personal Lines and Niche Products divisions recorded an underwriting profit for the quarter," continued Mr. Dobronyi.  "This is our fourth consecutive quarter of improved underwriting performance and we're pleased to be ahead of where we expected to be at this point in time.  The increase in earned premiums demonstrates that our company continues to grow but at a controlled and more manageable rate."

"Our balance sheet remains strong and our regulated entities are well capitalized," added Mr. Dobronyi.  "We have a high quality investment portfolio, no goodwill and no debt.  These attributes all contribute to our A.M. Best issuer credit rating of bb+".

"Going forward, our priorities are clear," Mr. Dobronyi concluded.  "The Ontario automobile market remains in disrepair, which provides opportunities for specialty insurers such as EGI.  We will protect our core non-standard automobile business through optimum service to our producers and the sophisticated selection of risk.  We will diversify by product through the growth of our Niche Products division and by geography through our start-up U.S. operation and expansion into underserved segments of the Canadian market.  We expect 2011 to provide a number of compelling opportunities for enhanced growth and profitability and we have the right team in place to capitalize on them as they arise."

Financial Summary

$000s
(except per share amounts)
3-months ended
Dec. 31, 2010
3-months ended
Dec. 31, 2009
%
Change
12-months ended
Dec. 31, 2010
12-months ended
Dec. 31, 2009
%
Change
Direct written premiums 37,054 39,303 (6) 185,671 163,862 13
Net earned premiums 42,121 36,439 16 162,873 149,379 9
Underwriting income (loss) 2,058 (9,454) 122 (9,823) (9,339) (5)
Interest expense - 302 (100) 568 1,212 (53)
Investment income 3,721 6,476 (43) 17,581 17,771 (1)
Net income 3,323 (2,347) 242 4,233 4,515 (6)
Comprehensive income 5,361 (5,081) 206 12,337 14,084 (12)
Net income per diluted share 0.26 (0.19) 237 0.33 0.36 (8)
Book value per share 12.14 11.12 9 12.14 11.12 9

Fourth Quarter Highlights

Total comprehensive income was $5.4 million compared to a loss of $(5.1) in the fourth quarter of 2009.  Net income was $3.3 million versus a loss of $(2.3) million in the fourth quarter of 2009.

Underwriting income for the fourth quarter of 2010 was $2.1 million.  Both the Personal Lines and Niche Products division reported an underwriting profit and a significant improvement over the fourth quarter of 2009.  Remedial actions taken to restore profitability are having the desired effect.

         
Underwriting Income (loss)*
$millions
3-months ended
Dec. 31, 2010
3-months ended
Dec. 31, 2009
12-months ended
Dec. 31, 2010
12-months ended
Dec. 31, 2009
Personal Lines $0.5 $(4.5) $(7.5) $(0.7)
Niche Products $2.0 $(3.5) $0.2 $(3.4)
International $(0.2) $(1.1) $(1.3) $(3.9)

* Excluding head office overhead costs

In Personal Lines, the company targeted incurred claims in the Greater Toronto Area, in an effort to restore the profitability of Ontario private passenger business.  These initiatives included significant premium rate increases, changes to underwriting guidelines, the cancellation and rehabilitation of certain brokers, reduced commissions in select areas, the introduction of a maximum 6-month policy term and, as a last resort, judicial use of the Ontario risk sharing pool.

In Niche Products, the improved underwriting results are due to greater underwriting discipline, a renewed attention to our Niche Products operating principles and more active management at the program level, such as the repricing or cancellation of underperforming programs.

In the fourth quarter of 2010, net earned premiums increased by 16% over the fourth quarter of 2009.

Direct written premiums decreased by 6% in the fourth quarter compared to the same period in 2009.  The majority of the decline in written premiums is temporary and due to management's decision to renew all Ontario private passenger policies with a maximum six-month term, effective November 1, 2010. This initiative was undertaken to accelerate the impact of premium rate increases, while also increasing administrative fees associated with six-month policies. There was also a small decrease in written premiums in the Niche Products division which is the result of the cancellation of several unprofitable programs during 2010.

Investment income was $3.7 million during the fourth quarter.  Excluding realized gains, investment income was $3.3 million versus $2.7 million in the fourth quarter of 2009.

12-Month Review

For the twelve months ended December 31, 2010, the Company recorded net income of $4.2 million, compared with net income of $4.5 million in the same period of 2009.  During the year an underwriting loss of $9.8 million was incurred, an increase of $0.5 million from the twelve months ended December 31, 2009.

EGI's underwriting performance has improved quarter over quarter throughout 2010 as evidenced by the combined ratios below.

           
Combined Ratio 3-months ended
Dec. 31, 2009
3-months ended
Mar. 31, 2010
3-months ended
June 30, 2010
3-months ended
Sep. 30, 2010
3-months ended
Dec. 31, 2010
Personal Lines 116% 114% 105% 108% 98%
Niche 142% 113% 108% 97% 79%
EGI Overall 126% 115% 108% 107% 95%
           

EGI's target profitability is for a 95% combined ratio and this target was achieved in the fourth quarter of 2010.

Direct written premiums increased by 13% to $186 million for the year ended December 31, 2010.  Direct written premiums for the Personal Lines division increased by 14% to $134 million.  The increase in premium volume is due to hardening conditions in the Ontario personal auto market and the growth of ancillary product lines, partially offset by remedial actions to deter unprofitable business and improve underwriting results.  In the Niche Products division, direct written premiums increased by 13% to $51 million. The majority of the increase came from the Commercial Auto product line.

For the year ended December 31, 2010, shareholders' equity increased by 10% to $146 million.

As at December 31, 2010, Echelon's Minimum Capital Test (MCT) ratio was 250% compared to the P&C insurance industry average Minimum Capital Test ratio of 237% (as per Office of the Superintendent of Financial Institutions' (OSFI) third-quarter 2010 information).

EGI's Net Written Premiums-to-Capital ratio is a conservative 1.1:1.  EGI intends to preserve and grow its underwriting capital through appropriate pricing, underwriting discipline and conservative loss reserving practices.

Selected pages from EGI's unaudited Financial Statements, along with supplementary information regarding the Company's quarterly results, are attached to this press release.

About EGI Financial

Founded in 1997, EGI Financial operates in the property and casualty insurance industry in Canada and the United States, primarily focusing on non-standard automobile insurance and other niche and specialty general insurance products.  EGI Financial's common shares are traded on the Toronto Stock Exchange under the symbol EFH.

Non-GAAP Financial Measures

EGI Financial uses both Canadian generally accepted accounting principles (GAAP) and certain non-GAAP measures to assess performance.  Readers are cautioned that non-GAAP measures do not have a standardized meaning under GAAP and may not be comparable to similar measures used by other companies.  EGI Financial analyzes performance based on underwriting ratios such as combined, expense and loss ratios as defined in regulations established under the Insurance Companies Act (Canada).

Forward-looking Information

This news release contains forward-looking information based on current expectations.  This information includes, but is not limited to, statements about the operations, business, financial condition, priorities, targets, ongoing objectives, strategies and outlook of EGI Financial for 2011 and subsequent periods.

This information is based upon certain material factors or assumptions that were applied in drawing a conclusion or making a projection as reflected in the forward-looking information.  By its nature, this information is subject to inherent risks and uncertainties that may be general or specific.  A variety of material factors, many of which are beyond EGI Financial's control, affect the operations, performance and results of EGI Financial and its business and could cause actual results to differ materially from the expectations expressed in any of this forward-looking information.

EGI Financial does not undertake to update any forward-looking information.  Additional information about the risks and uncertainties about EGI Financial's business is provided in its disclosure materials, including its annual information form, filed with the securities regulatory authorities in Canada, available at www.sedar.com.

EGI FINANCIAL HOLDINGS INC.
Unaudited Consolidated Balance Sheets
(in $ thousands)
     
  December 31
2010
December 31
2009
Assets    
     
Cash and short-term deposits 17,033 46,885
Investments 353,643 294,365
Reinsurers' share - unearned premiums 6,471 4,972
  - provision for unpaid claims 36,152 38,736
Accounts receivable 31,712 32,950
Due from insurance companies 7,352 5,545
Deferred policy acquisition costs 15,979 14,807
Property and equipment 414 838
Intangible assets 531 468
Future income taxes 4,135 3,952
Prepaid expenses and other assets 1,361 2,947
  474,783 446,465
Liabilities    
     
Bank indebtedness - 19,550
Provision for unpaid claims 239,036 207,220
Unearned premiums 78,335 72,643
Unearned commission 728 513
Income taxes payable 2,394 4,151
Accounts payable and accrued liabilities 4,824 6,312
Payable to insurance companies 2,093 1,829
Other liabilities 1,007 816
  328,417 313,034
Shareholders' Equity    
     
Share capital 69,087 68,618
Contributed surplus 532 403
Retained earnings 64,534 60,301
Accumulated other comprehensive income 12,213 4,109
  146,366 133,431
  474,783 446,465
     

EGI FINANCIAL HOLDINGS INC.
Unaudited Consolidated Statements of Income and Comprehensive Income
for the years ended December 31
(in $ thousands)
(except per share amounts)
     
  2010 2009
Revenue    
  Direct written and assumed premiums 185,671 163,862
  Net written and assumed premiums 167,066 149,745
  Net earned premiums 162,873 149,379
  Investment income 17,581 17,771
  180,454 167,150
Expenses    
  Incurred claims 119,130 108,194
  Acquisition costs 35,834 34,429
  Operating costs 17,732 16,095
  Interest expense 568 1,212
  173,264 159,930
Income before income taxes 7,190 7,220
Income tax expense 2,957 2,705
     
Net income 4,233 4,515
     
Other comprehensive income (loss), net of taxes    
  Change in unrealized gains on available-for-sale securities:    
  Net unrealized gains (losses) on available-for-sale investments 12,183 14,344
  Reclassification of net realized (gains) losses to net income (3,487) (4,250)
Unrealized losses on translation of financial statements of self-sustaining foreign operations (592) (525)
Other comprehensive income (loss) 8,104 9,569
Total comprehensive income (loss) 12,337 14,084
     
     
Earnings per share    
  Net income per share - basic $0.35 $0.38
  Net income per share - diluted $0.33 $0.36
       

EGI FINANCIAL HOLDINGS INC.
Unaudited Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31
(in $ thousands)
     
  2010 2009
Share capital    
  Balance, beginning of year 68,618 67,056
  Common shares issued 469 1,562
  Balance, end of year 69,087 68,618
     
Contributed surplus    
  Balance, beginning of year 403 403
  Stock options - granted (net of forfeitures) 263 191
   - exercised   (134) (191)
  Balance, end of year 532 403
     
Retained earnings    
  Balance, beginning of year 60,301 56,605
  Net income 4,233 4,515
  Dividends - Common shares - (819)
  Balance, end of year 64,534 60,301
     
Accumulated other comprehensive income (loss)    
  Balance beginning of year 4,109 (5,460)
  Other comprehensive income (loss) 8,104 9,569
  Balance, end of year 12,213 4,109
     
Shareholders' equity, end of year 146,366 133,431
     

EGI FINANCIAL HOLDINGS INC.
Unaudited Consolidated Statements of Cash Flows
for the years ended December 31
(in $ thousands)
     
  2010 2009
Cash provided by (used in):    
Operating activities    
  Net income 4,233 4,515
  Items not involving cash:    
    Amortization 953 1,326
    Amortization of premiums on bonds 900 736
    Realized and unrealized (gains) losses on investments (5,065) (6,860)
    Increase (decrease) in accrued investment income (135) 97
    Other 356 191
  1,242 5
Cash flow from changes in    
  Reinsurers' share of unearned premiums (1,499) (1,260)
  Reinsurers' share of unpaid claims 2,584 3,165
  Accounts receivable 1,238 (5,385)
  Income taxes recoverable - 7,202
  Due from insurance companies (1,807) 3,518
  Accounts payable and accrued liabilities (818) 1,682
  Provision for unpaid claims 31,816 21,965
  Unearned premiums 5,692 1,489
  Income taxes payable (5,617) (742)
  Future income taxes (183) (780)
  Prepaid expenses and other assets 1,586 1,258
  Deferred policy acquisition costs (1,172) (104)
  33,062 32,013
Financing activities    
  Repayment of bank indebtedness (19,550)  
  Issue of common shares 242 1,371
  Common share dividends - (819)
  (19,308) 552
Investing activities    
  Acquisition of subsidiary, net of cash acquired 22 -
  Purchases of property and equipment and intangible assets (592) (260)
  Purchase of investments (382,899) (256,454)
  Sale/maturity of investments 339,863 241,923
  (43,606) (14,791)
     
Increase in cash and short-term deposits (29,852) 17,774
Cash and short-term deposits, beginning of year 46,885 29,111
Cash and short-term deposits, end of year 17,033 46,885
     
Supplementary information    
  Income taxes paid 9,095 4,392
  Interest paid 684 1,215
       

SUPPLEMENTARY INFORMATION BY DIVISION (Unaudited)

     
  For the three months ended
December 31, 2010
For the three months ended
December 31, 2009
  Canada International Canada International
($THOUSANDS) Personal
Lines
Niche
Products
Total   Personal
Lines
Niche
Products
Total  
Direct written premium     26,527 10,373 36,900 155 27,759 11,544 39,303 -
Underwriting revenue 32,429 9,610 42,039 82 27,757 8,385 36,142 296
Underwriting income (loss) 508 1,977 2,485 (222) (4,516) (3,525) (8,041) (1,069)
                   
Loss ratio 71.8% 39.3% 64.4% N/A (1) 88.1% 96.2% 90.0% 344.3%
Expense ratio 26.6% 40.1% 29.7% N/A (1) 28.2% 45.8% 32.2% 116.2%
Combined ratio 98.4% 79.4% 94.1% N/A (1) 116.3% 142.0% 122.2% 460.5%
                 
Prior year development (deficiency) redundancy (59) 279 220 377 (191) (762) (953) (590)

     
  Full Year 2010 Full Year 2009
  Canada International Canada International
($THOUSANDS) Personal
Lines
Niche
Products
Total   Personal
Lines
Niche
Products
Total  
Direct premiums written 134,042 51,423 185,465 206 117,994 46,570 164,564 (702)
Underwriting revenue 123,525 39,190 162,715 158 104,978 39,104 144,082 5,296
Underwriting income (loss) (7,461) 181 (7,280) (1,316) (717) (3,366) (4,083) (3,930)
                   
Loss ratio 78.3% 59.9% 73.8% N/A (1) 72.0% 66.3% 70.5% 126.0%
Expense ratio 27.7% 39.6% 30.6% N/A (1) 28.7% 42.4% 32.4% 48.2%
Combined ratio 106.0% 99.5% 104.4% N/A (1) 100.7% 108.7% 102.9% 174.2%
                 
Prior year development (deficiency) redundancy 1,733 1,245 2,978 1,113 3,692 (1,816) 1,876 (1,164)

(1)      Due to the minimal earned premium in the International division the ratios are not meaningful.

SOURCE EGI Financial Holdings Inc.

For further information:

Steve Dobronyi
Chief Executive Officer
EGI Financial Holdings Inc.
Telephone:  905.214.7880
Email:  ir@egi.ca

Profil de l'entreprise

EGI Financial Holdings Inc.

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