EGI Financial Reports 2008 Year End Results



    Net Operating Income Up 35% in Q4, Despite Difficult Market Conditions

    TORONTO, Feb. 23 /CNW/ - EGI Financial Holdings Inc. (TSX: EFH) today
announced its results for the fourth quarter and year ended December 31, 2008.
    "In the face of unprecedented turmoil in worldwide financial markets, our
disciplined underwriting philosophy has enabled our Company to continue
generating profits and year-over-year growth in 2008. In a tough operating
environment within the Canadian P&C industry, we successfully drove
significant organic growth within our Personal Lines division, while
maintaining solid underwriting results and with an encouraging auto insurance
combined ratio of 92.9%. After encountering unsatisfactory results earlier in
2008, in the Niche Products division's Emergency Travel Health ("ETH") program
from the 2007/2008 travel season, we are pleased with the dramatic
year-over-year improvement following our extensive reengineering of the
program for the 2008/2009 season," said Douglas McIntyre, Chief Executive
Officer of EGI Financial. "With a loss ratio of 58.8% generated in the ETH
2008/2009 travel season as of December 31, 2008 and all other programs in the
Niche Products division performing well, the Company is positioned to perform
in line with our longer-term expectations of above average industry return in
2009."

    
    -------------------------------------------------------------------------
                  3 months  3 months           12 months 12 months
                     ended     ended               ended     ended
                   Dec. 31,  Dec. 31,        %   Dec. 31,  Dec. 31,        %
    $000s             2008      2007    Change      2008      2007    Change
    -------------------------------------------------------------------------
    Direct written
     and assumed
     premiums      $39,948   $43,098    (7.3)%  $170,730  $157,935      8.1%
    -------------------------------------------------------------------------
    Net written
     and assumed
     premiums       36,644    39,257    (6.7)%   158,107   146,511      7.9%
    -------------------------------------------------------------------------
    Net earned
     premiums       39,547    34,161     15.8%   157,255   119,606     31.5%
    -------------------------------------------------------------------------
    Underwriting
     income (loss)    (489)      868  (156.3)%       163    10,241   (98.4)%
    -------------------------------------------------------------------------
    Investment
     income (loss)  (2,481)    5,049  (149.1)%    10,009    12,954   (22.7)%
    -------------------------------------------------------------------------
    Net income
     (loss)         (2,323)    3,727  (162.3)%     5,979    15,065   (60.3)%
    -------------------------------------------------------------------------
    Net income
     (loss) per
     diluted share   (0.19)     0.35  (154.3)%      0.53      1.45   (63.4)%
    -------------------------------------------------------------------------
    Book value       10.16     10.50    (3.2)%     10.16     10.50    (3.2)%
    -------------------------------------------------------------------------
    Net operating
     income         $3,037    $2,256     34.6%    $9,083   $12,957   (29.9)%
    -------------------------------------------------------------------------
    Net operating
     income
     per share
     - diluted       $0.24     $0.22      9.1%     $0.80     $1.24   (35.4)%
    -------------------------------------------------------------------------


    Fourth Quarter Highlights
    -------------------------
    

    Net operating income, defined as net income plus/minus after-tax realized
losses/gains on investments, including 'other than temporary' impairments,
increased $0.8 million to $3.0 million in the final quarter of 2008 compared
to $2.2 million in the same period in 2007. In the last three months of 2008,
net operating income consisted of a net loss of $2.3 million, including a
downward market yield adjustment of $1.1 million, plus after-tax realized
losses on investments, including impairments, of $5.3 million, as compared to
net income of $3.7 million less after-tax realized gains on investments of
$1.5 million, in 2007.

    
    -------------------------------------------------------------------------
                                                     YTD       YTD
                   Q4 2008   Q4 2007    Change      2008      2007    Change
    -------------------------------------------------------------------------
    Net income
     (loss)        $(2,323)   $3,727  (162.3)%    $5,979   $15,065   (60.3)%
    -------------------------------------------------------------------------
    Add losses
     (deduct gains)
     from sales of
     investments     7,998    (2,297) (448.2)%     4,833    (3,350) (244.2)%
    -------------------------------------------------------------------------
    Tax impact      (2,638)      828  (419.5)%    (1,729)    1,242  (239.2)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net operating
     income         $3,037    $2,256     34.6%    $9,083   $12,957   (29.9)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net operating
     income
     per share
     - diluted       $0.24     $0.22      9.1%     $0.80     $1.24   (35.4)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net operating
     income
     Per share
     - basic         $0.26     $0.23     13.0%     $0.86     $1.34   (35.8)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The significant improvement in net operating income in the fourth quarter
of 2008, compared to 2007, is primarily related to the improved results in the
ETH line of business and the foreign exchange gain of $2.3 million on U.S.
funds held to offset the related claims liabilities.
    In the fourth quarter of 2008, EGI Financial generated direct written and
assumed premiums totaling $40.0 million, 7.3% below the $43.1 million recorded
in the fourth quarter of 2007. This decrease was the result of the planned
reduction in premiums generated by the Niche Products division's ETH line of
business. This line of business generated $3.5 million of premiums, a decrease
of $8.0 million, compared to the $11.5 million in the final quarter of 2007.
The lower premiums in the ETH line of business is due to stricter underwriting
restrictions put in place for the 2008/2009 travel season to return this line
of business to profitability. Excluding the decline in ETH business, the Niche
Products division continued to generate premium growth in the last quarter of
2008, with premiums written of $10.1 million, an increase of $2.4 million or
31.2% over the same period last year. In our Personal Lines division, direct
written and assumed premiums increased $0.5 million to $22.2 million, an
increase of 2.3% from 2007. In the International division assumed premiums
increased $1.9 million or 86.4% to $4.1 million compared to $2.2 million in
the last quarter of 2007.
    Net written and assumed premiums decreased $2.7 million, or 6.9%, to
$36.6 million compared to $39.2 million in the same period last year. This
decrease is consistent with the decrease in direct written and assumed
premiums in the period compared to 2007.
    Net earned premiums for the three months ended December 31, 2008, totaled
$39.5 million, an increase of $5.3 million, or 15.5% compared to $34.2 million
in the fourth quarter of 2007. The growth in earned premiums was achieved
despite the decrease in net premiums written in the final quarter of 2008.
This is the result of growth in lines of business other than ETH. As ETH
premiums are earned primarily during the winter months (December to March),
the premium decline in this line of business in the fourth quarter of 2008
will not fully impact net earned premiums until the first quarter of 2009.
    Both the Personal Lines and Niche Products divisions recorded
underwriting gains in the fourth quarter of 2008 of $0.5 million and $0.2
million respectively. The Personal Lines result represents a decrease in
underwriting income of $1.5 million compared to the underwriting income of
$2.0 million in the fourth quarter of 2007. This was primarily due to an
increase in the loss ratio to 70.2% in 2008 compared to 61.0% for the fourth
quarter of 2007. The fourth quarter 2008 loss ratio was negatively impacted by
a market yield adjustment due to the decline in the actuarial discount rate
from 2.8% used in 2007 to 2.45% in 2008, which depressed our reported Canadian
underwriting income by approximately $1.0 million. The significant improvement
in the Niche Products division from a loss of $1.0 million in 2007 was
primarily attributable to a decline in the loss ratio due to the improvement
in the ETH line of business for the current 2008/2009 travel season. The
International division which is still in its start-up phase incurred an
underwriting loss of $1.0 million as a result of adverse claims experience and
development during the quarter. The International division has exited the
third-party assumed reinsurance business to focus on becoming an insurer of
U.S. business at the earliest possible time.
    The combined ratio for the fourth quarter of 2008 (being the addition of
the ratio of net losses incurred to net earned premiums and the ratio of
underwriting expenses to net earned premiums) increased to 101.2% compared
with 97.4% 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 December 31, 2008 (being net losses
incurred expressed as a percentage of net earned premiums) was 68.7%, while
the expense ratio (being expenses incurred expressed as a percentage of net
earned premiums) was 32.5%. This compares with 65.1% and 32.3% respectively in
the same period of 2007. Note that the fourth quarter 2008 loss ratio includes
the negative impact of the market yield adjustment of $1.1 million. The
Personal Lines division loss ratio increased to 70.4% from 61.0% in the fourth
quarter of 2007. The increase in the loss ratio was due to a decline in
favourable loss development of prior year claims to $0.1 million from $2.0
million in the same period in 2007. The International division which is in its
start-up phase saw its loss ratio increase to 90.3% in the fourth quarter
compared to 72.1% in the previous year. The increase in 2008 was primarily due
to adverse claims experience resulting from unfavourable loss development of
2007 accident year claims of $0.3 million from assumed reinsurance business
written in this division.
    The Niche Products division recorded a much improved loss ratio of 56.5%
for the quarter compared to 73.4% for the fourth quarter of 2007. The
significant improvement is primarily due to the improvement in the ETH line of
business loss ratio in 2008. As a result, the loss ratio for the ETH 2008/09
travel season as of December 31, 2008, was 58.8%, representing a significant
improvement from the 91.9% loss ratio generated in the ETH 2007/2008 travel
season as of December 31, 2007.
    In the final quarter of 2008 income from investments decreased
significantly to a net loss on investments of $2.5 million compared to
investment income of $5.1 million in the final quarter of 2007. The result was
due to the realization of losses of $3.3 million on the sale of investments
during the quarter, and the recording of investment impairments of $4.7
million in the period brought on by the steep and prolonged downturn in the
financial markets. Partially offsetting the realized losses on sale of
investments and impairments recorded in the quarter were foreign exchange
gains of $2.3 million. The gain resulted from the relative weakening of the
Canadian dollar during the quarter and its positive impact on the value of
bank balances held in U.S. currency to support related claims liabilities
denominated in U.S. currency.
    EGI has minimal exposure to non-bank asset backed commercial paper (ABCP)
in its investment portfolio.
    For the quarter ended December 31, 2008, the net loss before income taxes
was $3.3 million compared to net income of $5.7 million for the final quarter
of 2007, resulting from a higher combined ratio of 101.2%, compared to 97.5%
for the same period in 2007, and the above mentioned investment losses and
impairments compared to the gains in the prior 2007 period. The significant
decline in the performance of the Company's investment portfolio led to a
fully diluted loss per share of $0.19 in the fourth quarter of 2008, compared
to earnings of $0.35 per share for the fourth quarter of 2007. Also negatively
impacted due to the above mentioned decline in investment returns was the
annualized return on equity on a last-twelve-months basis which fell to 5.4%,
from 16.1% as of December 31, 2007, and 11.0% as of the end of the third
quarter of 2008.

    
    Q4 2008 Personal Lines division performance:
    -   Net earned premiums increased to $25.5 million from $22.5 million in
        2007
    -   Underwriting income decreased to $0.5 million from $2.1 million in
        2007(*)
    -   Combined ratio of 98.2% compared with 90.9% for the 2007 period

    Q4 2008 Niche Products division performance:
    -   Net earned premiums increased to $10.2 million from $9.2 million in
        2007
    -   Underwriting income increased to $0.2 million from a loss of
        $1.0 million in 2007(*)
    -   Combined ratio of 98.2% compared with 110.5% for the 2007 period

    Q4 2008 International division performance:
    -   Net earned premiums increased to $3.8 million from $2.4 million in
        2007
    -   Underwriting loss increased to $1.0 million compared to a loss of
        $0.1 million in 2007(*)
    -   Combined ratio of 126.2% compared with 103.0% for the 2007 period

    (*) Note: The underwriting income for 2008 and 2007 was net of
    $0.1 million of corporate and other expenses, for each period, which have
    not been allocated by division.

    2008 Full Year Highlights
    -------------------------
    

    For the year ended December 31, 2008, EGI Financial generated direct
written and assumed premiums totaling $170.7 million, 8.1% above the $157.9
million level in the corresponding period last year. Premium growth has been
achieved in both Canadian divisions in 2008. Despite difficult market
conditions in the P&C Industry, direct written premiums from Personal Lines
increased to $107.5 million from $97.4 million in 2007, an increase of 10.4%.
Non-standard auto recorded growth of 6.3% and the motorcycle line achieved
growth of 20.1% compared to the same period in 2007. The Niche Products
division recorded written premiums of $49.3 million in the year ended December
31, 2008 compared to $48.1 million for the same period of 2007 for a growth
rate of 2.5%. This increase has been achieved despite a significant decrease
of $7.6 million in the ETH written premiums to $11.5 million from $19.1
million in 2007. All other Niche lines of business recorded significant growth
in 2008 compared to 2007 and management continues to view this division as a
primary source of growth for EGI.
    Net written and assumed premiums increased $11.6 million, or 7.9%, to
$158.1 million compared to $146.5 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.
    For the year ended December 31, 2008 total underwriting contribution
decreased $10.0 million to an underwriting gain of $0.2 million, compared to
an underwriting gain of $10.2 million for the comparable period in 2007.
    The combined ratio for the year ended December 31, 2008 was 99.9%
compared with 91.4% for the same period last year. The loss ratio in the 2008
period was 67.3% and the expense ratio was 32.6%. This compares with 59.5% and
31.9% respectively in the same period last year.
    The Personal Lines division loss ratio was 65.6% for the year compared to
59.1% in 2007. The primary reason for the increase in the loss ratio was the
decline in favourable loss development, related to prior year claims, to $5.1
million compared to $11.9 million in 2007. The Niche Products division loss
ratio was 66.0% in 2008 compared to 56.1% for the full year 2007. The increase
was the result of adverse claims experience in the ETH line of business
related to the 2007/08 travel season. The loss ratio for the International
division was 85.7% in 2008 compared to 73.9% in the prior year due to higher
than expected claims incurred from assumed reinsurance arrangements.
    Investment income for the year ended December 31, 2008 was $10.0 million
compared to $12.9 million for the same period in 2007. The decline reflects
$4.7 million of investment impairments recorded at year end, as a result of
the deep and prolonged drop in value of Canadian equities and the uncertainty
of recovery. The net realized loss on investment of $0.1 million compares to
net realized gains on disposal of investments of $3.4 million earned in 2007.
Partly offsetting the net losses on investments were foreign exchange gains of
$2.7 million in 2008 derived from funds held in U.S. currency and the impact
of the weakened Canadian dollar in 2008.
    Net operating income, defined as net income plus/minus after-tax realized
losses/gains on investments, including impairments, was $9.2 million for the
year ended December 31, 2008 compared to $12.9 million in 2007. The decrease
of $3.7 million, or 29%, is much lower than the decline in net income
primarily due to the investment impairments of $4.7 million recorded at year
end 2008
    Net income before taxes decreased 60.7%, to $9.0 million for the year
ended December 31, 2008, compared to $22.9 million for the same period in
2007, due primarily to the increase in the loss ratio and investment losses in
2008. Fully diluted net income per share, on the same basis, was $0.53 in the
2008 period, compared to $1.45 in the same period last year, a decrease of
63.4%.

    
    Year ended December 31, 2008, Personal Lines division performance:
    -   Net earned premiums increased 12.5% to $98.7 million
    -   Underwriting income decreased 33.8% to $7.1 million(*)
    -   Combined ratio of 92.9% compared with 87.8% in 2007

    Year ended December 31, 2008, Niche Products division performance:
    -   Net earned premiums increased 92.5% to $46.0 million
    -   Underwriting loss of $3.2 million versus gain of $0.3 million in
        2007(*)
    -   Combined ratio of 106.9% compared with 98.8% in 2007

    Year ended December 31, 2008, International division performance:
    -   Net earned premiums increased 57.2% to $12.6 million
    -   Underwriting loss of $2.4 million versus breakeven in 2007(*)
    -   Combined ratio of 119.1% compared with 100.2% in 2007

    (*) Note: The underwriting income for 2008 and 2007 was net of
    $1.3 million and $0.7 million of corporate and other expenses,
    respectively, which have not been allocated by division. The increase in
    corporate and other expenses in 2008 was due to expenses associated with
    potential acquisition reviews during the year.
    

    EGI Financial also announced that its Board of Directors has declared a
dividend increase to $0.07 per common share, payable on March 27, 2009 to
shareholders of record on March 13, 2009.
    For the year ended December 31, 2008, approximately 29% of EGI
Financial's revenue was generated within the Niche Products division, 8%
within the International division and the remaining 63% generated within the
Personal Lines division. Geographically, EGI's business in 2008 was derived
from Ontario (61%), Quebec (15%), Alberta (6%), British Columbia (5%), other
jurisdictions in Canada (5%) and United States (8%).
    The annualized ratio of net written premiums to shareholders' equity for
the year ended December 31, 2008 was 1.3 times compared to 1.4 times at
December 31, 2007. This level of leverage continues to be well below the 2.5:1
ratio which management feels is fully leveraged capital. Echelon's Minimum
Capital Test (MCT) margin at December 31, 2008 was 268%, providing EGI
Financial with the financial strength to grow its business utilizing its
current resources.
    Full Financial Statements and Management's Discussion and Analysis (MD&A)
will be available at a later date on SEDAR and on the Company's web site at:
www.egi.ca.
    "With the deep and prolonged downturn in the financial markets
compounding problems currently faced by many insurance industry participants,
EGI remains favourably positioned, relative to its competitors, with a strong
balance sheet to exploit growth opportunities as they arise in 2009," added
Mr. McIntyre. "With standard lines insurers' margins continuing to erode,
competitive conditions are expected to continue easing in the non-standard
auto marketplace during 2009."

    
    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 2009 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 on
Tuesday February 24, 2009 at 10:00 a.m. (ET). The call-in numbers for
participants are (416) 644-3416 or toll free, (800) 733-7560. A live audio
feed of the call will be broadcast on the internet through the Company's
website at www.egi.ca, or directly at:
    http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2529340.
    A replay of the call will be available from 12:00 p.m. (ET) on February
24, 2009 until 11:59 p.m. on March 3, 2009. To access the replay, call (416)
640-1917 or toll free, (877) 289-8525, enter pass code number 21295719. The
replay can also be accessed over the Internet at the above address.


    
                         EGI FINANCIAL HOLDINGS INC.
                    Unaudited Consolidated Balance Sheets
                              as at December 31
                   (in $ thousands, except share amounts)


    Assets                                                  2008        2007

    Cash and short-term deposits                          29,111      22,785
    Investments                                          259,774     238,310
    Reinsurers' share
      - unearned premiums                                  3,712       3,602
      - provision for unpaid claims                       41,901      48,461
    Accounts receivable                                   27,565      25,382
    Income taxes recoverable                               7,202       3,278
    Due from insurance companies                           9,063       6,199
    Deferred policy acquisition costs                     14,703      15,530
    Fixed assets                                           2,372       1,250
    Future income taxes                                    3,172       2,674
    Prepaid expenses and other assets                      4,205       2,613
                                                       ----------  ----------
                                                         402,780     370,084
                                                       ----------  ----------
                                                       ----------  ----------

    Liabilities

    Bank indebtedness                                     19,550      19,550
    Provision for unpaid claims                          185,255     169,091
    Unearned premiums                                     71,154      69,190
    Unearned commission                                      363         291
    Income taxes payable                                     429           -
    Accounts payable and accrued liabilities               4,291       5,444
    Payable to insurance companies                         2,460       3,894
    Other liabilities                                        674         953
                                                       ----------  ----------
                                                         284,176     268,413
                                                       ----------  ----------

    Shareholders' Equity

    Share capital                                         67,056      46,040
    Contributed surplus                                      403         247
    Retained earnings                                     56,605      53,193
    Accumulated other comprehensive (loss) income         (5,460)      2,191
                                                       ----------  ----------
                                                         118,604     101,671
                                                       ----------  ----------
                                                         402,780     370,084
                                                       ----------  ----------
                                                       ----------  ----------



                         EGI FINANCIAL HOLDINGS INC.
                 Unaudited Consolidated Statements of Income
                       For the Years Ended December 31
                   (in $ thousands, except share amounts)

                                                            2008        2007

    Revenue:
      Direct written and assumed premiums                170,730     157,935
                                                       ----------  ----------
      Net written and assumed premiums                   158,107     146,511
                                                       ----------  ----------
      Net earned premiums                                157,255     119,606
      Investment income                                   10,009      12,954
                                                       ----------  ----------
                                                         167,264     132,560
                                                       ----------  ----------
    Expenses
      Incurred claims                                    105,837      71,179
      Acquisition costs                                   37,026      26,143
      Operating costs                                     14,229      12,043
      Interest                                             1,216         259
                                                       ----------  ----------
                                                         158,308     109,624
                                                       ----------  ----------
    Income before income taxes                             8,956      22,936
    Income tax expense                                     2,977       7,871
                                                       ----------  ----------

    Net income                                             5,979      15,065
                                                       ----------  ----------
                                                       ----------  ----------

    Earnings per share
      Net income per share - basic                         $0.57       $1.56
      Net income per share - diluted                       $0.53       $1.45



                         EGI FINANCIAL HOLDINGS INC.
               Unaudited Consolidated Statements of Changes in
            Shareholders' Equity and Comprehensive (Loss) Income
                       for the years ended December 31
                              (in $ thousands)

                                                            2008        2007
                                                       ----------  ----------
    Share capital
      Balance, beginning of year                         $46,040     $45,833
      Common shares issued                                21,016         207
                                                       ----------  ----------
      Balance, end of year                                67,056      46,040
                                                       ----------  ----------

    Contributed surplus
      Balance, beginning of year                             247         149
      Stock options
        - granted                                            186         123
        - exercised                                          (30)        (25)
                                                       ----------  ----------
      Balance, end of year                                   403         247
                                                       ----------  ----------

    Retained earnings
      Balance, beginning of year                          53,193      40,059
      Net income                                           5,979      15,065
      Dividends - Common shares                           (2,567)     (1,931)
                                                       ----------  ----------
      Balance, end of year                                56,605      53,193
                                                       ----------  ----------

    Accumulated other comprehensive (loss) income
      Balance beginning of year                            2,191           -
      Transition adjustment - financial instruments            -       5,301
      Other comprehensive (loss)                          (7,651)     (3,110)
                                                       ----------  ----------
      Balance, end of year                                (5,460)      2,191
                                                       ----------  ----------

    Shareholders' equity, end of year                   $118,604    $101,671
                                                       ----------  ----------
    Comprehensive income
      Net income                                          $5,979     $15,065
                                                       ----------  ----------
      Other comprehensive loss, net of taxes
      Change in unrealized gains on
       available-for-sale securities:
        Net unrealized gains (losses) on
         available-for-sale securities                   (10,618)       (957)
        Reclassification of net realized (gains)
         losses to net income                              3,120      (2,153)
      Unrealized losses on translation of
       financial statements of self-sustaining
       foreign operations                                   (153)          -
                                                       ----------  ----------
      Other comprehensive (loss)                          (7,651)     (3,110)
                                                       ----------  ----------
      Total comprehensive (loss) income                  $(1,672)    $11,955
                                                       ----------  ----------



                         EGI FINANCIAL HOLDINGS INC.
               Unaudited Consolidated Statements of Cash Flows
                       for the years ended December 31
                              (in $ thousands)

                                                            2008        2007
                                                       ----------  ----------
    Cash provided by (used in):
    Operating activities
      Net income                                          $5,979     $15,065
      Items not involving cash
        Amortization of capital assets                       674         406
        Amortization of premiums on bonds                    501         368
        Realized losses (gains) on investments             4,833      (3,350)
        Increase in accrued investment income               (285)       (426)
        Other                                                186         123
                                                       ----------  ----------
                                                          11,888      12,186
    Cash flow from changes in
      Reinsurers' share of unearned premiums                (110)        229
      Reinsurers' share of unpaid claims                   6,560         (76)
      Accounts receivable                                 (2,183)     (3,200)
      Income taxes recoverable                            (3,495)     (2,706)
      Due from insurance companies                        (2,864)     (2,203)
      Accounts payable and accrued liabilities            (2,794)        590
      Provision for unpaid claims                         16,164      22,990
      Unearned premiums                                    1,964      26,036
      Income taxes payable                                     -      (3,151)
      Future income taxes                                  2,988         547
      Prepaid expenses and other assets                   (1,592)     (2,343)
      Deferred policy acquisition costs                      827      (8,065)
                                                       ----------  ----------
                                                          27,353      40,834
                                                       ----------  ----------
    Financing activities
      Increase in bank indebtedness                            -      19,550
      Issue of common shares                              20,986         182
      Common share dividends                              (2,567)     (1,931)
                                                       ----------  ----------
                                                          18,419      17,801
                                                       ----------  ----------
    Investing activities
      Purchase of capital assets                          (1,796)       (857)
      Purchase of investments                           (249,873)   (256,245)
      Sale/maturity of investments                       212,223     204,099
                                                       ----------  ----------
                                                         (39,446)    (53,003)
                                                       ----------  ----------

    Increase in cash and short-term deposits              $6,326      $5,632
    Cash and short-term deposits, beginning of year       22,785      17,153
                                                       ----------  ----------
    Cash and short-term deposits, end of year            $29,111     $22,785
                                                       ----------  ----------
                                                       ----------  ----------

    Supplementary information
      Income taxes paid                                   $9,021     $13,095
      Interest paid                                       $1,209        $196
    

    %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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