Echelon Insurance reports second quarter results

TORONTO, Aug. 6, 2015 /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 income attributable to shareholders of $4.8 million, or $0.40 per diluted share, for the three months ended June 30, 2015.

Second Quarter 2015 Highlights

  • Net operating income of $0.42 per share compared to $0.02 in the second quarter of 2014
  • Underwriting income of $1.7 million for the quarter compared to underwriting loss of $3.3 million in the second quarter of last year
  • Combined operating ratio of 97.8% compared to 105.3% in the second quarter of 2014
  • A 36% increase in direct written premiums over the same period in 2014 to $138 million
  • Total pre-tax loss on invested assets of $2.9 million in the quarter compared to pre-tax gain of $6.6 million in the second quarter of 2014
  • A decrease in book value per share of 0.6% in the quarter to $16.00 per share. Excluding the impact of a shareholder dividend of $0.11, book value per share increased by $0.02.

"It was another quarter of strong underwriting results for the Company", commented Steve Dobronyi, Chief Executive Officer, "with all major segments making a contribution.  Personal Lines, which is the core of our Company, has recovered well from the slow start to the year, especially in Ontario and the Maritimes. Personal Lines has now delivered an underwriting profit in 17 of the past 19 quarters.  Commercial Lines, which supplements our core business, continues to demonstrate consistency and has been profitable for 5 consecutive quarters.  And the International segment continues to build on its impressive record of both growth and profitability. It wrote $74 million of premium in the quarter and has been profitable in 7 of the past 9 quarters, including 4 in a row."

"These underwriting results have put us back on track to meet our planned goals for the year", he continued.  "We're very pleased with the state of our Company and our position in the specialty insurance market.  We have a deep and experienced management team, a diversified and profitable base of business, a solid balance sheet and a scalable insurance platform to facilitate future growth opportunities.  We're looking forward to the remainder of the year, as we invest further in our infrastructure and, at the same time, deliver attractive returns to our shareholders."

Dividend

The Board of Directors declared a quarterly dividend of $0.11 per outstanding common share.  The dividend is payable on October 1, 2015, to shareholders of record on September 9, 2015.

Financial Summary

$000s

(except per share amounts)

Three

Months

Ended

June 30,

2015

Three

Months

Ended

June 30,

2014

%

Change

Six Months

Ended

June 30,

2015

Six Months

Ended

June 30,

2014

%

Change

Direct written premiums

137,759

101,428

36

228,645

181,196

26

Net earned premiums

76,025

61,885

23

145,222

123,983

17

Underwriting income (loss)

1,679

(3,311)

151

(1,830)

(2,779)

(34)

Investment income

3,950

5,496

(28)

9,862

11,630

(15)

Net income (loss)

5,111

(603)

(948)

8,268

4,792

73

Net operating income(1)

5,081

263

1,832

7,142

3,941

81

Net income per diluted share

$0.40

$0.02

1,900

$0.69

$0.46

50

Net operating income per diluted share(2)

$0.42

$0.02

2,000

$0.60

$0.33

82

Book value per share

$16.00

$14.99

7

$16.00

$14.99

7


(1)

Net operating income is defined as net income excluding the impact of the change in discount rate and foreign

exchange rates on unpaid claims, realized losses or gains on sale of investments, foreign exchange gain or

loss on investments, unrealized fair value changes on Fair Value Through Profit or Loss (FVTPL) investments

and one time, non-recurring charges.

(2)

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

Second Quarter Review

Net operating income of $5.1 million or $0.42 per share was recorded in the quarter, compared to $0.3 million or $0.02 per share in the second quarter of 2014.  The increase was primarily due to underwriting income of $1.7 million in the quarter compared to an underwriting loss of $3.3 million for the same period in 2014.

Personal Lines generated underwriting income of $1.8 million compared to $3.3 million in the same period last year due to slightly weaker performance in Ontario auto that was partially offset by strong performance in Atlantic Canada, particularly in Auto.

Commercial Lines generated underwriting income of $0.3 million compared to a $0.3 underwriting loss in the same period last year due to strong performance in Atlantic and Western Canada

The International division produced underwriting income of $1.4 million for the quarter compared to a loss of $5.4 million in the same period last year due to improved results in U.K. Auto that were negatively impacted in the second quarter of 2014 by adverse weather conditions.  Warranty, Commercial Property and Accident & Sickness programs written in Scandinavia continue to perform strongly.

Direct written premiums increased by 36%, attributable primarily to the continued growth of the International division and the inclusion of premiums written by The Insurance Company of Prince Edward Island (ICPEI).  Growth in the quarter in the International division can be primarily attributed to rate increases and strong renewals on the Company's Irish Motor program that started writing business in the second quarter of 2013.

Investment income was $4.0 million compared to $5.5 million in the second quarter of 2014.  Total pre-tax loss on invested assets was $2.9 million in the quarter compared to $6.6 million pre-tax gain in the second quarter of 2014.  The Canadian preferred share portfolio continued to perform poorly due to negative market sentiment.  The fixed income portfolio also performed weakly due to increasing bond yields in Canada and Europe. The fair value of Echelon's investment portfolio, including finance receivables, was $532 million, down 1% from the fourth quarter of the prior year.

Operating expenses incurred in the second quarter of 2015 increased by 15% over the prior year, below the 23% increase in net earned premiums.

On a consolidated basis, a net favourable development of prior year claims of $2.6 million was recorded in the second quarter of 2015 compared to favourable development of $1.4 million in the same period in 2014.

Operating Results


Underwriting Income

(Loss)(1)

$000s

Three Months

Ended June 30,

2015

Three Months

Ended June 30,

2014

Six Months

Ended

June 30, 2015

Six Months

Ended

June 30, 2014

Personal Lines

1,816

3,306

(1,850)

5,601

Commercial Lines

254

(290)

698

(1,302)

International

1,408

(5,429)

3,233

(5,042)

Key Operating Ratios





Loss ratio(2)

58.6%

65.4%

61.3%

61.5%

Expense ratio

39.2%

39.9%

40.0%

40.7%

Combined ratio

97.8%

105.3%

101.3%

102.2%

Combined Ratios(1)





Personal Lines

94.7%

88.5%

102.8%

90.0%

Commercial Lines

97.1%

102.6%

96.2%

105.9%

International

95.7%

123.6%

94.6%

110.9%



(1)

Excluding head office overhead costs and impact of change in discount and foreign exchange

rate on unpaid claims

(2)

Loss ratio excludes impact of change in discount and foreign exchange rate on unpaid claims

Six-Month Review

Net operating income of $7.1 million or $0.60 per share was recorded compared to $3.9 million or $0.33 per share for the same period in 2014.  The increase was primarily due to higher underwriting income, specifically in the International division.

Direct written premiums increased by 26%, attributable primarily to growth in the International division and the inclusion of premiums written by ICPEI.

Investment income was $9.9 million compared to $11.6 million in the second quarter of 2014.  Total pre-tax return on invested assets was $5.9 million compared to $15.9 million in the first half of 2014 driven by lower preferred share and fixed income returns.  The fair value of Echelon's investment portfolio, including finance receivables, was $532 million, down 1% from the fourth quarter of the prior year.

Operating expenses incurred in the first six months of 2015 increased by 13% over the prior year, below the 17% increase in net earned premiums.

On a consolidated basis, a net favourable development of prior year claims of $4.9 million was recorded in the six months ended June 30, 2015, compared to favourable development of $4.7 million in the same period in 2014.

Capital Management

The Minimum Capital Test (MCT) ratio of EFH's Canadian subsidiary, Echelon Insurance, as at June 30, 2015, was 220%, which comfortably exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions (OSFI). ICPEI's MCT ratio of 261% was in excess of provincial supervisory targets.

In addition, the Company has approximately $23 million of excess deployable capital invested in liquid assets in the holding company.  All regulated entities remain well-capitalized. In June 2015, the Company injected $5 million of capital into its European subsidiary to support its strong premium growth and strengthen its regulatory ratios.

For the six months ended June 30, 2015, total shareholders' equity increased by $4.1 million to $187.8 million from December 31, 2014.

Full Financial Statements and Management's Discussion and Analysis (MD&A) are available on SEDAR and on the Company's web site at Echelon.

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 2015 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 Friday, August 7, 2015, 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 76681768.  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=1019291&s=1&k=8B92467CF0D775750DEA9B7E977D2190

A replay of the call will be available until August 14, 2015.  To access the replay, call 416-849-0833, or toll free 1-855-859-2056, enter password 76681768.

About Echelon Insurance

Founded in 1998, Echelon operates in the property and casualty insurance industry in Canada and Europe, primarily focused on providing non-standard automobile insurance and other niche and specialty insurance solutions.  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, visit echeloninsurance.ca.

SOURCE Echelon Financial Holdings Inc.

For further information: Kathy Shulman, Investor Relations Manager, Echelon Financial Holdings Inc., Telephone: 905-214-7880, Email: ir@echeloninsurance.ca

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