Echelon Financial Holdings Inc. Reports Fourth Quarter 2018 Results
TORONTO, Feb. 14, 2019 /CNW/ - Echelon Financial Holdings Inc. ("EFH" or "the Company") (TSX: EFH), which operates in the property and casualty insurance industry in Canada, today reported a net loss attributable to shareholders of $7.8 million, or $0.65 per diluted share, for the three months ended December 31, 2018. Excluding costs related to the sale of Echelon Insurance and the unregulated warranty business of Echelon Financial Holdings Inc., the Company reported a net income attributable to shareholders of $0.1 million or $0.01 per diluted share.
Discontinued Operations
Agreement to sell Echelon Insurance
On November 9, 2018 the Company entered into a definitive agreement to sell Echelon Insurance and its unregulated warranty business ("Discontinued Canadian operations"). The agreement was approved by the Company's shareholders on January 23, 2019 at a special shareholders meeting, and is now subject to regulatory approvals. The Company anticipates that these approvals will be received during the second quarter of 2019. The detailed terms and conditions of the definitive agreement, including the potential impact of the sale are disclosed in greater detail in EFH's recent SEDAR filings.
Discontinued European Operations
On August 4, 2016, The Company entered into a definitive stock purchase agreement to sell its European insurance subsidiary to New Nordic Odin Guernsey Limited (NNGL), subject to regulatory approval. On February 28, 2017, regulatory approval was received from the Danish Financial Supervisory Authority, which completed the necessary approvals required for the sale. The Company completed the sale on March 7, 2017, and retained no residual insurance risk or other financial risk, other than credit risk associated with the loan receivable from the sale. The loan was repaid on June 29, 2018.
Fourth Quarter 2018 Highlights
- Net operating income of $0.19 per share compared to a loss of $0.51 per share in the fourth quarter of 2017.
- A combined operating ratio of 99% compared to 115% in the fourth quarter of 2017.
- A 30% increase in direct written premiums over the same period in 2017 to $88.3 million as a result of organic growth in Personal and Commercial Lines nationally.
- A pre-tax loss on invested assets of $1.4 million in the quarter compared to a pre-tax gain of $3.6 million in the prior year quarter due to negative returns on the preferred share portfolio.
- Closing book value per share of $12.21, a decrease of $0.68 from the third quarter of 2018. Costs related to the sale of the Discontinued Canadian operations and severance reduced the book value per share by $0.64.
"Echelon reported a combined operating ratio of 99% for the fourth quarter, and 97% for 2018," commented Serge Lavoie, Chief Executive Officer. "While we are committed to continuing to improve our profitability, we are encouraged by the marked improvement in our fourth quarter and year-end results over the same prior period."
"Our Commercial Lines segment performed well during the fourth quarter, with an 87% combined ratio," he continued. "Commercial Lines were also profitable for the year, with a 96% overall combined ratio. We have recorded continued growth in this segment, with a 55% increase in direct written premium year-over-year. In 2018, Commercial Lines represented 39% of our portfolio, up from 34% in 2017. A more balanced book of business will support our future profitability."
"Our Personal Lines division finished the year with a profitable 98% combined ratio. These positive year-end results were again driven by strong performance and profitable growth in Ontario."
"During the quarter, we continued our review of rates and underwriting rules to address isolated profitability concerns in Atlantic and Western Canada," he added.
"Overall, we are pleased with our 2018 results, and the progress that we have made," he concluded.
Financial Summary on Continued Operations
$000s (except per share amounts) |
Three Months |
Three Months |
% Change |
Twelve Months |
Twelve |
% Change |
Direct written and assumed premiums |
88,285 |
68,050 |
30 |
385,432 |
285,718 |
35 |
Net earned premiums |
82,124 |
64,906 |
27 |
324,635 |
227,396 |
43 |
Underwriting income (loss) |
(1,721) |
(11,208) |
85 |
(1,605) |
(12,443) |
87 |
Investment income (loss) |
(593) |
3,316 |
(118) |
7,153 |
17,196 |
(58) |
Transaction cost and severance |
(7,644) |
(87) |
(8,686) |
(7,980) |
(262) |
(2,946) |
Net income (loss) |
(7,426) |
(4,826) |
(54) |
2,375 |
6,643 |
(64) |
Net operating income (loss)(1) |
2,292 |
(6,252) |
137 |
10,916 |
613 |
1,681 |
Net income (loss) per diluted share |
($0.65) |
($0.42) |
(55) |
($0.20) |
$0.38 |
(153) |
Net operating income (loss) per diluted share(2) |
$0.19 |
($0.51) |
137 |
$0.89 |
$0.05 |
1,680 |
Book value per share |
$12.21 |
$12.01 |
2 |
$12.21 |
$12.01 |
2 |
(1) |
Net operating income is defined as underwriting income plus interest and dividend income, net of tax, excluding catastrophic losses. |
(2) |
Net operating income is adjusted to that attributable to shareholders for per share calculation. |
Fourth Quarter Review
The Company reported net operating income of $2.3 million or $0.19 per share in the quarter, compared to a loss of $6.3 million or $0.51 per share in the fourth quarter of 2017, an increase of 137%.
Direct written premiums increased by 30% to $88.3 million. The increase in premiums was driven by continued organic growth in Ontario Personal Auto, supplemented by rate increases in both Commercial and Personal Lines.
Personal Lines generated an underwriting loss of $3.8 million, compared to an underwriting loss of $12.3 million in the same period last year, a result driven by improved Atlantic auto performance.
Commercial Lines generated an underwriting income of $4.4 million, compared to an underwriting income of $2.4 million in the same period last year, due to improved commercial auto results.
The Company's expense ratio decreased over the prior period by 2.3%, attributable to operational efficiencies realized as a result of the Passport System rollout.
Investment loss was $0.6 million compared to income of $3.3 million in the fourth quarter of 2017. The pre-tax loss on invested assets was $1.4 million in the quarter, compared to a pre-tax gain of $3.6 million in the fourth quarter of 2017, due to negative return on the Preferred Share portfolio. The fair value of Echelon's investment portfolio, including finance receivables, was $143 million.
Net adverse development on prior year claims of $4.8 million was recorded in the fourth quarter of 2018, compared to favourable development of $2.3 million in the same period in 2017.
Operating Results
Underwriting Income(1) $000s |
Three Months |
Three Months |
Twelve Months |
Twelve Months |
Personal Lines |
(3,835) |
(12,265) |
3,685 |
(9,186) |
Commercial Lines |
4,398 |
2,421 |
4,870 |
4,003 |
Key Operating Ratios |
||||
Loss ratio |
67.8% |
81.4% |
65.0% |
69.0% |
Expense ratio |
31.5% |
33.8% |
32.4% |
33.3% |
Combined ratio |
99.3% |
115.2% |
97.4% |
102.3% |
Loss Ratios |
||||
Personal Lines |
83.3% |
95.3% |
70.7% |
75.3% |
Commercial Lines |
44.6% |
47.9% |
54.8% |
51.9% |
(1) |
Excluding head office overhead costs |
Capital Management
All related entities remain well capitalized. The Minimum Capital Test (MCT) ratio of EFH's subsidiary, Echelon Insurance, as at December 31, 2018, was 221%, which comfortably exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions (OSFI). ICPEI's MCT ratio of 370% was also in excess of provincial supervisory targets.
For the period ended December 31, 2018, total shareholders' equity increased by $2.8 million to $145.7 million from December 31, 2017.
Full Financial Statements and Management's Discussion and Analysis (MD&A) are available on SEDAR and on the Company's web site at echeloninsurance.ca.
Non-IFRS Financial Measures
EFH uses International Financial Reporting Standards (IFRS) and certain non-IFRS measures to assess performance. Readers are cautioned that non-IFRS measures do not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies. EFH analyzes performance based on operating income and underwriting ratios such as combined, expense and loss ratios.
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, litigation outcomes and outlook of EFH for 2018 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 EFH's control, affect the operations, performance and results of its business and could cause actual results to differ materially from the expectations expressed in any of this forward-looking information.
EFH does not undertake to update any forward-looking information. Additional information about the risks and uncertainties about Echelon's business is provided in its disclosure materials, including its Annual Information Form and Management Discussion & Analysis, filed with the securities regulatory authorities in Canada, available at www.sedar.com.
About Echelon Financial Holdings Inc.
Founded in 1998, Echelon Financial Holdings Inc. operates in the property and casualty insurance industry in Canada, providing personal and commercial lines insurance exclusively through the broker channel. The Company distributes insurance products through Echelon Insurance and The Insurance Company of Prince Edward Island. It trades on the Toronto Stock Exchange under the symbol EFH. For more information, please visit echeloninsurance.ca.
SOURCE Echelon Financial Holdings Inc.
Company contact information: Jennifer Kew, Investor Relations, 905-214-7880, [email protected]
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