Echelon Insurance reports first quarter 2016 results

TORONTO, May 3, 2016 /CNW/ - Echelon Financial Holdings Inc. ("EFH" or "the Company") (TSX: EFH), which operates in the property and casualty insurance industry in Canada and Europe, today reported net loss attributable to shareholders of $4.4 million, or $0.38 per diluted share, for the three months ended March 31, 2016.

First Quarter 2016 Highlights

  • Net operating loss of $0.33 per share compared to an income of $0.17 per share in the first quarter of 2015.

  • An underwriting loss of $9.4 million for the quarter compared to an underwriting loss of $3.5 million in the first quarter of 2015.

  • A combined operating ratio of 112% compared to 105% in the first quarter of 2015 primarily due to weak performance in the International segment. The Canadian business remains solid with stable direct written premiums and improved year-over-year underwriting results overall.

  • A 10% decrease in net written premiums over the same period in 2015 to $63.1 million, primarily driven by additional co-insurance and reinsurance on motor programs written in the International segment.

  • Total pre-tax loss on invested assets of $3.1 million in the quarter compared to a pre-tax return of $8.8 million in the first quarter of 2015, primarily due to poor performance of the preferred share portfolio.

  • Book value per share of $15.16 per share, a decrease of 3.7% in the quarter.

"Our Canadian business, particularly Personal Lines, continues to produce stable, consistent profits," commented Steve Dobronyi, Chief Executive Officer.  "However, the Canadian results are overshadowed by the challenges in our International business.  As we've previously announced, we are exploring a structured process and a broad range of options to divest the International segment.  This will allow us to focus on our top priority of building and growing our Canadian operations."

"The strategy for Canada is to build on our strengths," added Serge Lavoie, President Echelon Insurance.  "We're enhancing our product offering coast-to-coast and launching a new technology platform for speed and agility.  Our team is fully committed to the broker channel with a highly responsive, hands-on, flexible approach to partnerships."

Dividend

The Board of Directors has elected to suspend the quarterly common share dividend until further notice.  This decision provides the opportunity to retain capital for future Canadian growth initiatives.

Financial Summary

$000s

(except per share amounts)

Three Months Ended
March 31, 2016

Three Months Ended
March 31, 2015

%

Change

Direct written and assumed premiums

94,400

90,886

4

Net earned premiums

79,397

69,197

15





Underwriting income (loss)

(9,430)

(3,509)

169

Investment income

5,185

5,912

(12)

Net income (loss)

(4,549)

3,157

(244)

Net operating income (loss)(1)

(4,000)

2,062

(294)





Net income (loss) per diluted share

$(0.38)

$0.29

(231)

Net operating income (loss) per diluted share(2)

$(0.33)

$0.17

(294)

Book value per share

$15.16

$16.11

(6)





(1) Net operating income is defined as underwriting income plus interest and dividend income, net of tax.

(2) Net operating income is adjusted to that attributable to shareholders for per share calculation.

First Quarter Review

Net operating loss of $4.0 million or $0.33 per share was recorded in the quarter, compared to an income of $2.1 million or $0.17 per share in the first quarter of 2015.  The decrease was due to an underwriting loss of $9.4 million compared to underwriting loss of $3.5 million for the same period in 2015.

Personal Lines generated underwriting income of $0.7 million compared to an underwriting loss of $3.7 million in the same period last year primarily due to benign driving conditions in Ontario and Atlantic auto.

Commercial Lines generated an underwriting loss of $0.8 million compared to $0.4 million underwriting income in the same period last year primarily due to a large loss in commercial property. The Company continues to focus on growing the Canadian business through product expansion, technology investments, and strong broker relationships.

The International division generated an underwriting loss of $7.4 million compared to an income of $1.8 million in the same period primarily due to losses in the UK and Irish auto programs. We have initiated a full claims review on these programs. A decision on continuity of these programs will be taken very shortly. In addition, Michel Trudeau has been appointed CEO of our European subsidiary, Qudos, replacing Brian Clausen.

Net written premiums decreased by 10%, primarily due to de-risking efforts on the UK and Irish programs in the International segment which started in the fourth quarter of 2015.

Investment income was $5.2 million compared to an income of $5.9 million in the first quarter of 2015.  There was a total pre-tax loss on invested assets of $3.1 million in the quarter compared to a pre-tax return of $8.8 million in the first quarter of 2015.  The fair value of Echelon's investment portfolio, including finance receivables, was $547 million, a slight decrease of 0.5% from the fourth quarter of the prior year.

Operating expenses increased by $0.7 million or 8%, to $9.2 million in the first quarter of 2016 compared to $8.5 million in the comparative quarter primarily due to an increase in salaries and benefits.

On a consolidated basis, a net favourable development of prior year claims of $1.4 million was recorded in the first quarter of 2016 compared to favourable development of $2.4 million in the same period in 2015.

Operating Results




Underwriting Income (Loss)(1)

$000s

Three Months Ended
 March 31, 2016

Three Months Ended
 March 31, 2015

Personal Lines

743

(3,666)

Commercial Lines

(763)

444

International

(7,374)

1,825




Key Operating Ratios



Loss ratio

72.4%

64.3%

Expense ratio

39.5%

40.8%

Combined ratio

111.9%

105.1%




Loss Ratios



Personal Lines

65.7%

80.3%

Commercial Lines

63.8%

51.5%

International

80.9%

49.2%


(1) Excluding head office overhead costs.

Capital Management

The Minimum Capital Test (MCT) ratio of EFH's Canadian subsidiary, Echelon Insurance, as at March 31, 2016, was 225%, which exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions (OSFI). ICPEI's MCT ratio of 291% was in excess of provincial supervisory targets. The Company's European subsidiary, Qudos, had a Danish Financial Services Authority (DKFSA) Individual Solvency ratio of 118%, in excess of the DKFSA minimum.

The Company has approximately $5 million of excess deployable capital invested in liquid assets in the holding company.

For the three months ended March 31, 2016, total shareholders' equity decreased by $7.2 million to $177.5 million from December 31, 2015.

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 and outlook of EFH for 2016 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 and 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.

Conference Call

A conference call for analysts and interested listeners will be held on Wednesday, May 4, 2016, at 11:00 a.m. (ET).  The call-in numbers for participants are 647-427-7450 or toll free 1-888-231-8191, Conference ID 83738254.  A live audio feed of the call will be available online through the Company's website at echeloninsurance.ca, or directly at http://event.on24.com/r.htm?e=1166187&s=1&k=40246B903D006FF9B683971A54B349D8.

A replay of the call will be available until May 11, 2016.  To access the replay, call 416-849-0833, or toll free 1-855-859-2056, enter password 83738254.  An archive will be available on our website following the event.

About Echelon Financial Holdings Inc.

Founded in 1997, Echelon operates in the property and casualty insurance industry in Canada and Europe, primarily focusing on non-standard automobile insurance and other specialty P&C insurance products. The Company operates and distributes insurance products through Echelon Insurance, The Insurance Company of Prince Edward Island and Qudos Insurance. It trades on the Toronto Stock Exchange under the symbol EFH. For more information, please visit echeloninsurance.ca.

SOURCE Echelon Financial Holdings Inc.

For further information: Company contact information: Kathy Shulman, Manager, Investor Relations, 905-214-7880, ir@echeloninsurance.ca

RELATED LINKS
http://www.echeloninsurance.ca/

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