Echelon Insurance Reports Third Quarter 2016 Results

TORONTO, Nov. 2, 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 income attributable to shareholders on continued operations of $1.2 million, or $0.10 per diluted share, for the three months ended September 30, 2016.

All operating results below refer to continued operations.

Third Quarter 2016 Highlights

  • Net operating income on continued operations of $0.13 per share compared to an income of $0.30 per share in the third quarter of 2015.

  • A Canadian combined operating ratio of 97% compared to 92% in the third quarter of 2015, primarily due to strong commercial and motorcycle results, offset by weaker Ontario auto results.

  • A 14% increase in net written premiums on continued operations over the same period in 2015 to $52.9 million, primarily driven by additional new products in personal lines and commercial lines premiums across Canada.

  • Total pre-tax gain on invested assets of $3.7 million in the quarter compared to a pre-tax loss of $5.5 million in the third quarter of 2015, primarily due to stronger performance of the preferred share portfolio.

  • Closing book value per share of $12.90.

  • A change of control application has been submitted to the Danish Financial Services Authority for approval of the divestiture of the Company's European operations.

"We continue to execute on our strategy outlined earlier in the year and have successfully launched our Surety and Commercial Auto products during the quarter. We have also made significant progress on the divestiture process of the European operations, which is now pending approval from the Danish regulatory authority" commented Serge Lavoie, Chief Executive Officer.

"I am pleased with the results for the third quarter, especially the Commercial Lines segment. Although Personal Lines was negatively impacted by an increase in claims frequency in Ontario auto, the results were offset by strong investment performance," he continued. "We have a strong balance sheet that will provide us with a solid launching pad for 2017 and beyond."

Financial Summary on Continued Operations

$000s

(except per share amounts)

Three Months
Ended
September 30,
2016

Three Months
Ended
September 30,
2015

%

Change

Nine Months
Ended
September 30,
2016

Nine Months
Ended
September 30,
2015

%

Change

Direct written and assumed premiums

58,171

50,769

15

168,083

156,373

7

Net earned premiums

46,452

46,882

(1)

135,047

132,563

2

Underwriting (loss) income

(429)

1,420

(130)

(2,969)

(3,643)

19

Investment income (loss)

4,487

(2,606)

272

13,348

6,336

111

Net income (loss)

1,402

(1,277)

210

4,517

3,456

31

Net operating income(1)

1,580

3,558

(56)

5,497

5,217

5

Net income (loss) per diluted share

$0.10

($0.11)

191

$0.33

$0.30

10

Net operating income per diluted share(2)

$0.13

$0.30

(57)

$0.46

$0.44

5

Book value per share

$12.90

$15.55

(17)

$12.90

$15.55

(17)


(1)    

Net operating income is defined as underwriting income plus interest and dividend income, net of tax, excluding catastrophe losses.

(2)    

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

 

Third Quarter Review

Net operating income of $1.6 million or $0.13 per share was recorded in the quarter, compared to an income of $3.6 million or $0.30 per share in the third quarter of 2015. The decrease was due to an underwriting loss of $0.4 million compared to underwriting income of $1.4 million for the same period in 2015.

Personal Lines generated underwriting income of $0.2 million compared to an underwriting income of $1.9 million in the same period last year primarily due to weaker performance than the comparable period in Ontario Auto.

Commercial Lines generated an underwriting income of $1.3 million compared to $2.0 million underwriting income in the same period last year primarily due to expenses incurred in launching new lines of business in surety and commercial auto. The Company continues to focus on growing the Canadian business through product expansion, technology investments and strong broker relationships.

Net written premiums increased by 14% to $52.9 million, primarily due to additional new products in personal lines and commercial lines across Canada.

Investment income was $4.5 million compared to a loss of $2.6 million in the third quarter of 2015 due to improved results on the Canadian preferred shares portfolio.  There was a total pre-tax return on invested assets of $3.7 million in the quarter compared to a pre-tax loss of $5.5 million in the third quarter of 2015, primarily due to stronger performance of the preferred share portfolio. The fair value of Echelon's investment portfolio, including finance receivables, was $411 million.

Operating expenses increased by $0.4 million or 5%, to $7.5 million in the third quarter of 2016 compared to $7.1 million in the comparative quarter primarily due to increased hiring costs for the launches of the new surety and commercial auto lines.

On a consolidated basis, a net favourable development of prior year claims of $4.5 million was recorded in the third quarter of 2016 compared to favourable development of $6.0 million in the same period in 2015.

Operating Results

Underwriting Income (Loss)(1)
$000s

Three Months Ended
September 30, 2016

Three Months Ended
September 30, 2015

Nine Months Ended
 September 30, 2016

Nine Months Ended
 September 30, 2015

Personal Lines

179

1,856

353

6

Commercial Lines

1,295

1,993

2,135

2,691






Key Operating Ratios





Loss ratio

61.5%

60.3%

63.0%

65.0%

Expense ratio

35.0%

31.5%

35.2%

33.0%

Combined ratio

96.5%

91.8%

98.2%

98.0%






Combined Ratios





Personal Lines

99.5%

94.5%

99.7%

100.0%

Commercial Lines

87.2%

84.6%

93.1%

91.5%



(1)  Excluding head office overhead costs

 

Nine-Month Review

Net operating income of $5.5 million or $0.46 per share was recorded compared to $5.2 million or $0.44 per share for the same period in 2015. The increase was due primarily to improved Personal Lines results in the year.

Personal Lines generated underwriting income of $0.4 million compared to break even underwriting income in the same period last year primarily due to better winter driving conditions experienced in Ontario and Atlantic auto in the first quarter of 2016.

Commercial Lines generated an underwriting income of $2.1 million compared to $2.7 million in the same period last year, primarily due to expenses incurred in launching new product lines in surety and commercial auto.

Net written premiums increased by 8%, attributable primarily due to growth in personal lines products written in Ontario and Quebec in addition to the strong launch of new commercial auto and surety product lines.

Investment income was $13.3 million compared to a $6.3 million in 2015, primarily due to strong performance of the preferred share portfolio compared to the prior period. Total pre-tax return on invested assets was $8.2 million compared to $0.2 million in the same period of 2015.

Operating expenses incurred in 2016 increased by 10% over the prior year to $22.0 million primarily due to increased hiring costs for the launch of the new surety and commercial auto lines.

On a consolidated basis, a net favourable development of prior year claims of $13.8 million was recorded in the nine months ended September 30, 2016 compared to favourable development of $12.0 million in the same period in 2015.

Capital Management

The Minimum Capital Test (MCT) ratio of EFH's Canadian subsidiary, Echelon Insurance, as at September 30, 2016, was 228%, which exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions (OSFI). ICPEI's MCT ratio of 331% was in excess of provincial supervisory targets. The Company's European subsidiary, Qudos, had a Danish Financial Services Authority (DKFSA) Individual Solvency ratio of 110%, in excess of the supervisory target.

The Company has approximately $5 million of excess deployable capital invested in liquid assets in the holding company.  All regulated entities remain well-capitalized.

For the nine months ended September 30, 2016, total shareholders' equity decreased by $33.4 million to $151.3 million from December 31, 2015 due to discontinued loss of $35.3 million, including impairment of $21.0 million.

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 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 Friday, November 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 95997439.  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=1285121&s=1&k=13124ECA384817A03126543D7CAA42F8.

A replay of the call will be available until November 11, 2016. To access the replay, call 416-849-0833, or toll free 1-855-859-2056, password 95997439. An archive will be available on our website following the event.

About Echelon Financial Holdings Inc.

Founded in 1998, 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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