EGI Financial Reports 2008 Second Quarter Results



    Mature lines continue to perform well amid growing optimism for remainder
    of 2008

    TORONTO, Aug. 7 /CNW/ - EGI Financial Holdings Inc. (TSX:EFH) today
announced its results for the second quarter and six months ended June 30,
2008.
    "Despite the initial growing pains of the Niche Products division's new
Emergency Travel Health book of business and start up costs associated with
the International division, we are satisfied with the second quarter result,
driven by the strong performance of our mature business lines.", said Douglas
McIntyre, Chief Executive Officer of EGI Financial. "Excluding losses from
these two developing businesses, the remaining business lines are exceeding
expectations, despite a lower amount of favourable loss development in the
first half of 2008. With the most recent travel season behind us and concrete
steps being taken to redesign the Company's travel health product offering for
the 2008/2009 travel season, we anticipate stronger results over the remainder
of 2008."

    
    -------------------------------------------------------------------------
                  3 months  3 months            6 months  6 months
                     ended     ended               ended     ended
                  June 30,  June 30,         %  June 30,  June 30,         %
    $000's            2008      2007    Change      2008      2007    Change
    -------------------------------------------------------------------------
    Direct written
     and assumed
     premiums       49,779    42,299     17.7%    84,715    72,495     16.8%
    -------------------------------------------------------------------------
    Net written
     and assumed
     premiums       45,975    39,308     17.0%    78,397    67,631     15.9%
    -------------------------------------------------------------------------
    Net earned
     premiums       35,999    29,808     20.8%    81,558    54,598     49.4%
    -------------------------------------------------------------------------
    Underwriting
     income           (465)    4,533   (110.2%)     (862)    5,837   (114.8%)
    -------------------------------------------------------------------------
    Investment
     income          4,718     2,068    128.1%     9,305     4,669     99.3%
    -------------------------------------------------------------------------
    Net income       2,690     4,349    (38.1%)    5,276     6,876    (23.3%)
    -------------------------------------------------------------------------
    Net income per
     diluted share    0.25      0.42    (37.2%)     0.50      0.66    (24.2%)
    -------------------------------------------------------------------------
    Book value       10.62      9.93      6.9%     10.62      9.93      6.9%
    -------------------------------------------------------------------------
    

    In the second quarter of 2008, EGI Financial generated direct written and
assumed premiums totaling $49.8 million, 17.7% above the $42.3 million
recorded in the second quarter of 2007. Premium growth was achieved in both
the Personal Lines and Niche Products business segments. The mature programs
within our Niche Products business segment continued to achieve significant
growth, with direct premiums written increasing to $11.1 million in the second
quarter of 2008, an increase of $3.1 million or 38.8% over the same period in
2007.
    Net written and assumed premiums increased $6.7 million, or 17.0%, to
$46 million compared to $39.3 million in the same period last year. This
increase is consistent with the increase in direct written and assumed
premiums in the period compared to 2007.
    Net earned premiums for the three months ended June 30, 2008, totaled
$36.0 million, an increase of $6.2 million, or 20.1% compared to $29.8 million
in the second quarter of 2007. The growth in earned premiums reflects the
increase in premiums written and assumed in 2008 compared to 2007 and the ETH
premiums that were written in 2007 but earned in 2008.
    An underwriting loss of $0.5 million was incurred in the second quarter
of 2008 compared to an underwriting gain of $4.5 million in the same period of
2007. Losses from EGI's two newest sources of business are the contributing
factors to the shortfall in underwriting income for the quarter. The Emergency
Travel Health business incurred a loss of $4.5 million and the International
division business incurred a loss of $0.8 million for the quarter. With the
exception of the results from these two new sources of business, underwriting
results generated by the Company's more mature books of business are in line
with the comparable period in 2007, despite a lower amount of favourable
claims reserve development in 2008.
    The combined ratio - being the addition of the ratio of net losses
incurred to net earned premiums, and the ratio of underwriting expenses to net
earned premiums - for the second quarter of 2008 increased to 101.3% compared
with 84.8% for the same period last year. EGI Financial believes that the full
year combined ratio is the best measure of the profitability of its
underwriting business.
    The loss ratio in the quarter ended June 30, 2008 - being net losses
incurred expressed as a percentage of net earned premiums - was 67.7%, while
the expense ratio - being expenses incurred expressed as a percentage of net
earned premiums - was 33.6%. This compares with 53.2% and 31.6% respectively
in the same period of 2007. As mentioned above the significant increase in the
loss ratio resulted from adverse loss experience from the Emergency Travel
Health line of business in the Niche Products division and negative
development of prior year losses from the International division. The loss
ratio from the Personal Lines division was in line with expectations,
recording an improvement in the current accident year (2008) losses and
continued favourable prior year loss development, although notably to a lesser
extent compared to last year. The ETH loss ratio was 238% in the quarter
resulting primarily from loss development and some late reporting related to
claims incurred prior to March 31, 2008. The underwriting loss ratio for the
more mature programs (excluding ETH) in the Niche Products division was better
than expected at 46% for the quarter compared to 53% in the prior year, prior
to writing any ETH business. The resulting total Niche Products division loss
ratio of 97% for the second quarter of 2008 is expected to improve in the last
two quarters of the year, as management has taken steps to redesign the
Company's ETH offering for the 2008/2009 travel season.
    Investment income in the second quarter of 2008 was $4.7 million compared
to $2.1 million last year, an increase of 128.1%. EGI's investment portfolio
reflected a $52.3 million, or 22%, increase in fair value as at June 30, 2008,
compared to June 30, 2007.
    EGI does not currently hold any non-bank asset backed commercial paper
(ABCP) in its investment portfolio.
    Net income was $2.7 million for the three months ended June 30, 2008, a
38.1% decrease from $4.3 million in the second quarter of 2007. The decrease
in net income was primarily related to the increased loss ratio as described
above. Fully diluted earnings per share were $0.25 in the second quarter of
2008, compared to $0.42 for the second quarter of 2007, a decrease of 37.2%.
The annualized return on equity on a last-twelve-months basis is 13.5%.
    Q2 2008 Personal Lines division performance:

    
    -   Net earned premiums increased to $24.5 million from $23.0 million in
        2007
    -   Underwriting income decreased to $4.5 million from $5.0 million in
        2007
    -   Combined ratio of 81.7% compared with 78.3% for the 2007 period

    Q2 2008 Niche Products division performance:
    -   Net earned premiums increased to $8.7 million from $4.7 million in
        2007
    -   Underwriting loss increased to $3.7 million from a loss of
        $0.2 million in 2007
    -   Combined ratio of 143.0% compared with 104.7% for the 2007 period

    Q2 2008 International division performance:
    -   Net earned premiums increased to $2.8 million from $2.1 million in
        2007
    -   Underwriting loss increased to $0.8 million compared to break even in
        2007
    -   Combined ratio of 128.9% compared with 99.0% for the 2007 period
    

    For the six months ended June 30, 2008, EGI Financial generated direct
written premiums totaling $84.7 million, 16.8% above the $72.5 million for the
first half of 2007. Growth has been achieved in both Canadian divisions in
2008. Direct written premiums from Personal Lines totaled $58.6 million in the
first half of 2008 which represents a 13.8% increase compared to $51.5 million
written in the same period in 2007. Non-standard auto recorded growth of 10.2%
to $45.6 million and the motorcycle line achieved growth of 22.6% compared to
the same period in 2007. The Niche Products division recorded written premiums
of $20.0 million in the first six months of 2008 compared to $13.6 million for
the same period of 2007 for a growth rate of 47%. Emergency Travel Health
accounted for $3.1 million of the total written premium increase of
$6.4 million.
    Net written and assumed premiums increased $10.8 million, or 16%, to
$78.4 million compared to $67.6 million in the same period last year. This
increase is consistent with the increase in direct written and assumed
premiums in the period compared to 2007.
    In the six-month period ended June 30, 2008 total underwriting
contribution decreased $6.7 million to an underwriting loss of $0.9 million,
compared to an underwriting gain of $5.8 million for the comparable period in
2007.
    The combined ratio for the six-month period in 2008 was 100.2% compared
with 89.3% for the same period last year. The loss ratio in the 2008 period
was 68.1% and the expense ratio was 32.1%. This compares with 56.7% and 32.6%
respectively in the same period last year.
    Investment income for the six months ended June 30, 2008 was $9.3 million
compared to $4.7 million for the same period in 2007. As in Q1, the
improvement in 2008 is the result of an increase in the fair value of the
investment portfolio on a year-over-year basis.
    Net income decreased 23.3%, to $5.3 million for the six months ended
June 30, 2008, compared to $6.9 million for the same period in 2007, due
primarily to the increase in the loss ratio in 2008. Fully diluted net income
per share, on the same basis, was $0.50 in the 2008 period, compared to $0.66
in the same period last year, a decrease of 15.1%.

    
    Six months ended June 30, 2008, Personal Lines division performance:
    -   Net earned premiums increased 11.9% to $47.6 million
    -   Income before taxes decreased 7.2% to $5.3 million
    -   Combined ratio of 88.9% compared with 86.5% for the 2007 period

    Six months ended June 30, 2008, Niche Products division performance:
    -   Net earned premiums increased 212.1% to $28.4 million
    -   Loss before taxes of $4.4 million versus gain of $0.5 million in 2007
    -   Combined ratio of 115.6% compared with 93.9% for the 2007 period

    Six months ended June 30, 2008, International division performance:
    -   Net earned premiums increased 86.4% to $5.6 million
    -   Loss before taxes of $1.1 million versus breakeven in 2007
    -   Combined ratio of 119.4% compared with 99.2% for the 2007 period
    

    EGI Financial also announced that its Board of Directors has declared a
dividend of $0.06 per common share, payable on September 26, 2008 to
shareholders of record on September 12, 2008.
    For the six-months ended June 30, 2008, approximately 35% of EGI
Financial's revenue was generated within the Niche Products division, 7%
within the International division with the remaining 58% generated within the
Personal Lines division. Geographically, EGI's business in the first six
months of 2008 was derived from Ontario (58%), Quebec (19%), Alberta (6%),
other jurisdictions in Canada (5%) and United States (12%).
    The annualized ratio of net written premiums to shareholders' equity in
the first six months of 2008 was 1.5 times. Echelon's Minimum Capital Test
(MCT) margin at June 30, 2008 was 292%, providing EGI Financial with the
financial strength to grow its business utilizing its current resources.
    In July 2008, the Company issued rights to eligible holders of
outstanding common shares of the Company of record on July 4, 2008, to
subscribe for and purchase from the Company up to an aggregate of 1,943,630
Common Shares, at a price of $10.75. The exercise of the rights on July 31,
2008, coupled with support through a stand-by commitment agreement with
Covington Fund II Inc., resulted in the issuance of 1,943,630 common shares
for $20,794,000 in net proceeds. The Company intends to use the proceeds for
general corporate purposes which may include the financing of internal organic
growth and paying, in whole or in part, for acquisitions.
    Full Financial Statements and Management's Discussion and Analysis (MD&A)
will be available at a later date on the Company's web site at:
www.egi.ca/financial.html.
    "We continue to invest in the future by introducing innovative programs
and leveraging existing producer relationships to drive organic growth, while
exploring niche opportunities in new markets," added Mr. McIntyre. "With some
easing of competitive conditions in the non-standard auto marketplace, EGI is
favourably positioned to exploit profitable growth opportunities and continue
creating value for our shareholders."

    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 are unlikely to 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). Return on equity (ROE) is a non-GAAP
measure which represents EGI Financial's net income for the twelve months
ended on the date indicated divided by the average shareholders' equity over
the same twelve-month period.

    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 2007 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.

    Conference Call
    ---------------
    A conference call for analysts and interested listeners will be held
Friday, August 8, 2008 at 10:00 a.m. (ET). The call-in numbers for
participants are (416) 644-3425 or toll free, (800) 590-1508. A live audio
feed of the call will also be available on the Internet at:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2333100
    or through the Company's website at www.egi.ca/calls.html
    A replay of the call will be available from 12:00 p.m. (ET) on August 8,
2008 until 11:59 p.m. on August 15, 2008. To access the replay, call (416)
640-1917 or toll free, (877) 289-8525, enter pass code number 21277926, and
then press the pound key. The replay can also be accessed over the Internet at
the above address.

    %SEDAR: 00022868E




For further information:

For further information: Douglas E. McIntyre, Chief Executive Officer,
EGI Financial Holdings Inc., Telephone: (905) 214-7880


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