EGI Financial Reports Q1 2009 Results



    Tough Operating Environment Impacts Seasonally Slow Quarter

    TORONTO, May 7 /CNW/ - EGI Financial Holdings Inc. (TSX: EFH) today
announced its results for the first quarter ended March 31, 2009.
    "Despite our extensive re-engineering of the Niche Products division's
Emergency Travel Health (ETH) program and an encouraging start to the
2008/2009 travel season in the fourth quarter of 2008, first quarter 2009
results failed to meet our expectations. Adverse loss experience from this
line of business, although measurably better than 2008, depressed our Niche
Products division's results", said Douglas McIntyre, Chief Executive Officer
of EGI Financial. "With the bulk of EGI's current exposure limited to the
second quarter, due to the peak travel period for policyholders in the winter
months, the next quarter will determine what further remedial action may be
necessary. While we continue to experience growing pains with the ETH
offering, we remain encouraged with our seasoned Personal Lines and other
Niche Products programs which continued to perform in line with expectations,
generating attractive loss ratios of 70.1% and 55.1% respectively in the
quarter."

    
    -------------------------------------------------------------------------
                                           3 months     3 months
                                              ended        ended
                                           March 31,    March 31,
    $000s                                      2009         2008    % Change
    -------------------------------------------------------------------------
    Direct written and assumed premiums     $31,616      $34,936       (9.5%)
    -------------------------------------------------------------------------
    Net written and assumed premiums         29,058       32,422      (10.4%)
    -------------------------------------------------------------------------
    Net earned premiums                      41,573       45,559       (8.7%)
    -------------------------------------------------------------------------
    Underwriting loss                        (1,872)        (397)          -
    -------------------------------------------------------------------------
    Investment income                         1,874        4,587      (59.1%)
    -------------------------------------------------------------------------
    Net income (loss)                          (230)       2,586     (108.9%)
    -------------------------------------------------------------------------
    Net income (loss) per diluted share       (0.02)        0.25       (108%)
    -------------------------------------------------------------------------
    Book value                                10.21        10.74       (4.9%)
    -------------------------------------------------------------------------
    Net operating income                       $818       $1,793      (54.4%)
    -------------------------------------------------------------------------
    Net operating income per diluted share    $0.07        $0.17      (58.8%)
    -------------------------------------------------------------------------

    First Quarter Highlights
    ------------------------

    Net operating income, defined as net income plus/minus after-tax realized
losses/gains on investments, including 'other than temporary' impairments, was
$0.8 million or $0.07 per share on a diluted basis for the first quarter of
2009. This compares to net operating income of $1.8 million or $0.17 per share
for the same period in 2008.

    -------------------------------------------------------------------------
                                            Q1 2009      Q1 2008      Change
    -------------------------------------------------------------------------
    Net income (loss)                       $  (230)     $ 2,586     (108.9%)
    -------------------------------------------------------------------------
    Add losses (deduct gains)
     from sales of investments                1,564       (1,183)    (232.2%)
    -------------------------------------------------------------------------
    Tax impact                                 (516)         390      232.3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net operating income                    $   818      $ 1,793      (54.4%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net operating income
     per share - diluted                      $0.07        $0.17      (58.8%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net operating income
     Per share - basic                        $0.07        $0.18      (61.1%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    In the first quarter of 2009, EGI Financial generated direct written and
assumed premiums totaling $31.6 million, 9.5% below the $34.9 million recorded
in the first quarter of 2008. The primary reasons for this decrease were lower
ETH premiums and the termination of U.S. assumed reinsurance contracts
effective December 31, 2008. Only one reinsurance contract remained in-force
in the first quarter of 2009, which was cancelled effective March 31, 2009.
Premiums will continue to be earned pursuant to these arrangements in 2009,
from policies issued in 2008; however, no further contracts will be written in
2009. As a result, assumed premiums in the International division declined by
$3.7 million compared to the first quarter of 2008.
    Personal Lines direct written premiums increased $0.5 million to $23.0
million in the first quarter of 2009 compared to $22.5 million in the first
quarter of 2008. Despite ongoing competitive conditions in the market,
non-standard auto premiums increased to $20.3 million, an increase of $0.4
million or 2% compared to $19.9 million in the first three months of 2008.
Motorcycle direct written premiums increased to $2.5 million compared to $2.4
million in the first quarter of 2008, this growth being primarily derived from
our exclusive arrangement with an Ontario based motorcycle insurance broker.
Direct written premiums for the Niche Products division decreased slightly to
$8.7 million for the three months ended March 31, 2009, compared to $8.8
million in the same period in 2008. The decrease is attributable to the
decline in ETH written premiums to $0.9 million in the first quarter of 2009
compared to $2.6 million in 2008. As noted in earlier reports, the decline in
ETH premiums was anticipated by EGI due to premium rate increases and more
restrictive underwriting criteria implemented for the 2008-09 travel season.
    Net written and assumed premiums decreased $3.3 million, or 10.4%, to
$29.1 million compared to $32.4 in the same period last year. This decrease is
consistent with the decrease in direct written and assumed premiums in the
period compared to 2008.
    Net earned premiums for the three months ended March 31, 2009, totaled
$41.6 million, a decrease of $4.0 million, or 8.7%, compared to $45.6 million
in the first three months of 2008. The decrease is primarily attributable to
the previously noted decline in ETH written premiums in the last quarter of
2008 and first quarter of 2009, which resulted in less earned premium in the
first quarter of 2009 compared to the first quarter of 2008. ETH business is
seasonal in nature, and primarily earned during the winter months, resulting
in a relatively low amount of unearned premiums remaining from this line of
business, to be earned in the remainder of 2009.
    The significant decline in written premiums from the International
division, due to cancellation of U.S. reinsurance treaties effective December
31, 2008, has not yet had a negative impact on earned premiums as premiums
will continue to be earned during 2009 from policies issued in 2008. As these
policies expire during 2009, earned premiums on assumed business in this
division will also decline.
    The decline in underwriting income in the first quarter of 2009 was
primarily the result of increases in the loss ratios of each of our divisions
compared to the same period in 2008. Influencing this result was the decrease
in the total positive development of prior year claims to $1.4 million in the
first quarter of 2009 compared to positive development of $3.2 million in the
same period in 2008.
    The combined ratio for the first quarter of 2009 increased to 104.5%
compared with 100.8% 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 March 31, 2009 was 71.9% while the
expense ratio was 32.6%. This compares with 68.4% and 32.4% respectively in
the same period of 2008. The Personal Lines division loss ratio increased
nominally to 70.1% compared to 68.8% in the first quarter of 2008. The
increase is primarily attributable to the severe winter driving conditions
experienced in the first quarter of 2009 and a slight decrease in the positive
development of prior year claims compared to the same period in 2008. Positive
development of prior year claims in the first quarter of 2009 for this
division was $1.5 million compared to $1.6 million last year. The 2009 loss
ratio, despite the tough operating conditions in the quarter, continues to
produce underwriting gains for this well established division. The Niche
Products division incurred a loss ratio of 71.1% in the first three months of
2009 compared to 66.7% in the same period in 2008. Underwriting losses related
to the Emergency Travel Health (ETH) line of business have decreased modestly
compared to 2008. However, adverse loss experience from this line of business
continues to be the primary reason for the underwriting loss incurred by the
division.
    The increase in the above mentioned Niche Products division loss ratio
was the result of adverse loss experience in the ETH line of business
resulting in a loss ratio of 89.6%. All other programs in the Niche Products
division experienced a loss ratio of 55.1% in the first quarter of 2009
compared to a loss ratio of 36.6% for these programs in the first quarter of
2008. It should be noted that the 2008 loss ratio on Niche programs, excluding
ETH, was low as a result of positive development of prior year claims in that
period.
    The underwriting loss incurred in the International division of $0.7
million is the result of adverse claims development, primarily related to the
run-off of reinsurance assumed treaties with U.S. non standard auto
reinsurers, the largest of which was cancelled effective December 31, 2008.
The remaining contract was cancelled effective March 31, 2009. As this
discontinued business runs off, the future impact on EGI's financial results
of these contracts is expected to be significantly reduced.
    Investment income for the three months ended March 31, 2009 was $1.9
million compared to $4.6 million for the same period in 2008. Income from
interest and dividends, after deducting investment expenses, decreased to $3.0
million compared to $3.2 million in the same period last year, due to lower
yields earned on the bond portfolio. Net realized losses on the sale of
investments were $1.6 million in the first three months of 2009 compared to
net gains of $1.2 million in the same period in 2008. Net realized losses, in
the first three months of 2009, include an investment impairment provision
recorded of $2.0 million on specific investments considered to be other than
temporarily impaired. No investment impairments were recorded in the first
quarter of 2008.
    EGI's investment portfolio, including finance receivables, based on fair
values, increased to $283.1 million, or 8%, compared to total fair values of
$262.2 million as at March 31, 2008. The increase was primarily due to funds
raised of $20.8 million pursuant to EGI's rights offering in July 2008.
    EGI has minimal exposure to non-bank asset backed commercial paper (ABCP)
in its investment portfolio.
    For the quarter ended March 31, 2009, the net loss before income taxes
was $0.3 million compared to net income of $3.9 million for the first quarter
of 2008, resulting from a higher combined ratio of 104.5%, compared to 100.8%
for the same period in 2008, and the above mentioned investment losses and
impairments compared to the gains in the prior 2008 period. The significant
decline in the performance of the Company's investment portfolio was a
significant factor in the fully diluted loss per share of $0.02 in the first
quarter of 2009, compared to earnings of $0.25 per share for the first quarter
of 2008. Also negatively impacted was the annualized return on equity on a
last-twelve-months basis which fell to 2.8%, from 15.3% as of March 31, 2008,
and 5.4% as of the end of 2008.

    
    Q1 2009 Personal Lines division performance:

    -  Net earned premiums increased to $25.2 million from $23.1 million in
       2008
    -  Underwriting income decreased to $0.4 million from $0.8 million in
       2008(*)
    -  Combined ratio of 98.4% compared with 96.3% for the 2008 period

    Q1 2009 Niche Products division performance:

    -  Net earned premiums deceased to $13.5 million from $19.7 million in
       2008
    -  Underwriting loss increased to $1.2 million from a loss of
       $0.7 million in 2008(*)
    -  Combined ratio of 109.4% compared with 103.4% for the 2008 period

    Q1 2009 International division performance:

    -  Net earned premiums increased to $2.9 million from $2.8 million in
       2008
    -  Underwriting loss increased to $0.7 million from a loss of
       $0.3 million in 2008(*)
    -  Combined ratio of 125.9% compared with 109.9% for the 2008 period

    (*)Note: The underwriting income for 2009 and 2008 was net of
    $0.3 million of corporate and other expenses, for each period, which have
    not been allocated by division.
    

    For the quarter ended March 31, 2009, approximately 32% of EGI
Financial's revenue was generated within the Niche Products division, 7%
within the International division and the remaining 61% generated within the
Personal Lines division. Geographically, EGI's business in 2009 was derived
from Ontario (68%), Quebec (12%), Alberta (3%), British Columbia (6%), other
jurisdictions in Canada (4%) and United States (7%).
    "With Ontario automobile insurance market loss ratios deteriorating
rapidly, we expect the erosion of standard line insurers' margins will force
them to increase rates and tighten their underwriting through 2009 and 2010.
This market firming will, we anticipate, create expanded growth opportunities
for non-standard automobile carriers. As we move into a hardening market, EGI
remains favourably positioned, relative to its competitors, to exploit growth
opportunities as they arise" added Mr. McIntyre. "With past average auto
insurance rate increases in Ontario being insufficient to keep ahead of the
industry's ballooning Accident Benefit loss ratios, EGI's management believes
that retrenchment in the near-term, on the part of standard insurers, is
inevitable. While implementing these actions has taken longer than many
expected, tightening of underwriting rates and rules by standard companies
will create a significant opportunity for a non-standard auto insurer such as
EGI. Our senior management team is focused on preparing our operations to
handle the expected enhanced business flow, while maintaining our underwriting
and service standards."
    The annualized ratio of net written premiums to shareholders' equity for
the quarter ended March 31, 2009 was 1.3 times compared to 1.4 times at March
31, 2008. 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 March 31, 2009 was 314%, providing EGI Financial with the
financial strength to grow its business utilizing its current resources.
    EGI Financial also announced that approval was received in April 2009
from the Florida Office of Insurance Regulation, permitting Echelon Insurance
Company of America ("EICA") to become an authorized domestic insurer in the
state of Florida, with authority to write Private Passenger Automobile
Liability and Private Passenger Auto Physical Damage lines of insurance in
that state. In preparation for the issuance by Florida of a Certificate of
Authority for EICA, EGI's wholly-owned U.S. subsidiary EGI Insurance Services,
Inc. will be funding the initial capitalization of US$10 million required for
its newly formed Florida subsidiary.
    Anticipating the near-term launch of its U.S.-based insurance carrier,
EGI's Board of Directors has decided not to declare a dividend on EGI's common
shares. In the past, dividends had been paid while acquisitions and other
growth opportunities were being explored. EGI intends to direct its current
financial resources and future earnings to building on its existing base in
Canada, the development of EICA and to broadening its footprint in the U.S.
non-standard auto marketplace.
    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.

    
    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
Friday May 8, 2009 at 10:00 a.m. (ET). The call-in numbers for participants
are (416) 644-3414 or toll free, (800) 733-7571. 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=2599520.
    A replay of the call will be available from 12:00 p.m. (ET) on May 8,
2009 until 11:59 p.m. on May 15, 2009. To access the replay, call (416)
640-1917 or toll free, (877) 289-8525, enter pass code number 21301937. 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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