EGI Financial Reports Strong 2007 Results



    Looks forward to Opportunities Changing Market Cycle Has to Offer

    TORONTO, Feb. 21 /CNW/ - EGI Financial Holdings Inc. (TSX:EFH) today
announced its results for the fourth quarter and year ended December 31, 2007.
    "In competitive conditions persisting in the non-standard auto line of
business and increasing loss ratios being produced by standard line insurers,
EGI is poised to be opportunistic as standard line insurers reverse earlier
actions taken to gain market share", said Douglas McIntyre, Chief Executive
Officer of EGI Financial. "While underwriting results in the Canadian P&C
insurance industry continue to erode and trend down toward the industry's
historic norms, EGI will continue to aggressively pursue new business
initiatives presenting significant growth opportunities and further
diversification from the Ontario non-standard auto marketplace. With the
continued market downturn we are seeing an increase in the number of potential
acquisition opportunities and are encouraged by recent signs that sellers are
adjusting price expectations to more realistic levels, making acquisitions
more palatable to a growth oriented company such as EGI."

    
    -------------------------------------------------------------------------
                  3-months  3-months            12-months 12-months
                    ended     ended               ended     ended
                   Dec. 31, Dec. 31,      %      Dec. 31,  Dec. 31,     %
    $000            2007       2006    Change      2007      2006     Change
    -------------------------------------------------------------------------
    Direct written
     and assumed
     premiums       $43,098   $25,936    66.2%   $157,935  $117,834    34.0%
    -------------------------------------------------------------------------
    Net written
     and assumed
     premiums       $39,257   $22,949    71.1%   $146,511  $106,047    38.2%
    -------------------------------------------------------------------------
    Net earned
     premiums       $34,161   $24,190    41.2%   $119,606  $103,943    15.1%
    -------------------------------------------------------------------------
    Underwriting
     income            $609    $3,493   (82.6%)    $9,982   $14,510   (31.2%)
    -------------------------------------------------------------------------
    Investment
     income          $5,049    $4,456    13.3%    $12,954   $11,033    17.4%
    -------------------------------------------------------------------------
    Net income       $3,727    $5,200   (28.3%)   $15,065   $16,981   (11.3%)
    -------------------------------------------------------------------------
    Net income
     per diluted
     share            $0.35     $0.51   (31.4%)     $1.45     $1.67   (13.2%)
    -------------------------------------------------------------------------
    Book value       $10.50     $8.93    17.6%     $10.50     $8.93    17.6%
    -------------------------------------------------------------------------

    

    In the fourth quarter of 2007, EGI Financial generated direct written and
assumed premiums totaling $43.1 million, 66.2% above the $25.9 million level
in the corresponding period last year. The increase was primarily attributable
to the new reinsurance treaties with AssuranceAmerica and from significant
premium growth generated by our Niche Products division, particularly in the
emergency travel health line of business. The significant growth in both the
Personal Lines and Niche Products segments more than offset weakness in the
Ontario non-standard auto business, where standard insurance carriers
continued to pursue what have traditionally been seen as non-standard risks.
    Net written and assumed premiums increased 71.1% to $39.3 million,
attributable to the above-mentioned growth and more effective utilization of
the Company's capital, through increased risk retention.
    Net earned premiums rose 41.2% in 2007 to $34.2 million from
$24.2 million last year, reflecting the year-over-year increase in direct
premiums written and assumed. The growth in net earned premiums is lower than
the growth in net premiums written due to the significant amount of emergency
travel health premiums written in the last quarter of 2007. This premium is
earned primarily during the period November 2007 through April 2008 resulting
in a significant unearned premium at December 31, 2007 in the amount of
$14.9 million. This premium will be earned in the first half of 2008.
    In the quarter ended December 31, 2007 total underwriting income
decreased 82.6% to $0.6 million, compared to $3.5 million in the 2006 period.
The primary reason for this result is the increase in the loss ratio in the
quarter to 65.1% compared to 61.0% in 2006. The increase is primarily
attributed to the increase in the Niche Products division loss ratio to 73.4%
in the quarter due to adverse loss experience recorded in the emergency travel
health line of business. Overall, favourable development of prior years claims
continued to be experienced in the last quarter of 2007, as was the case in
2006. As a result of the favourable development, prior year reserves of
$2.0 million and $2.5 million were released in the final quarter of 2007 and
2006 respectively. Also, although written premiums grew significantly in the
fourth quarter of 2007 due to growth in emergency travel health and U.S.
reinsurance arrangements, these lines are not yet contributing similar margins
as earned in our other core lines of business. As premiums are earned over the
next 12 months and as these lines mature, management believes these areas will
contribute more to profitability.
    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 fourth quarter of 2007 increased to 98.2% compared with 85.6%
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, 2007 - being net losses
incurred expressed as a percentage of net earned premiums - was 65.1%, while
the expense ratio - being expenses incurred expressed as a percentage of net
earned premiums - was 33.1%. This compares with 61.0% and 24.6% respectively
in the same period of 2006. The increase in the loss ratio was due to an
increase in net claims expense of $7.4 million, or 50%, to $22.2 million
compared to $14.8 million for the fourth quarter of 2006. The increase is
primarily attributed to the increase in the Niche Products division loss ratio
to 73.4% in the quarter due to adverse loss experience recorded in the
emergency travel health line of business. For the year ended December 31,
2007, the loss ratio in this line of business was 94%, while the loss ratio
from all other Niche programs in 2007 was 48%, which compares very favourably
to the 2006 loss ratio from this business segment of 52.6%.
    Investment income in the fourth quarter of 2007 was $5.1 million compared
to $4.5 million last year, an increase of 13.3%. EGI's investment portfolio
reflected a $57.3 million, or 25.6%, increase in fair value as at December 31,
2007, compared to December 31, 2006.
    EGI does not currently hold any non-bank asset backed commercial paper
(ABCP) in its investment portfolio.
    Net income was $3.7 million for the three months ended December 31, 2007,
a 28.3% decrease from $5.2 million in the fourth quarter of 2006. The decrease
in net income was primarily related to the increased loss ratio as described
above and an increase in net acquisition costs of $3.8 million, or 103% to
$7.5 million in the quarter ended December 31, 2007, compared to $3.7 million
in the same period in 2006. Fully diluted earnings per share were $0.35 in the
fourth quarter of 2007, compared to $0.51 for the fourth quarter of 2006, a
decrease of 31.4%. The annualized return on equity on a last-twelve-months
basis is 16.1%.

    
    Q4 2007 Personal Lines division performance:
    -   Net earned premiums increased 20.3% to $24.9 million
    -   Income before taxes decreased 40.5% to $2.2 million(*)
    -   Combined ratio of 91.6% compared with 82.2% for the 2006 period(*)

    Q4 2007 Niche Products division performance:
    -   Net earned premiums increased 165.9%, to $9.2 million
    -   Income before taxes decreased to a loss of $1.0 million from a break
        even position(*)
    -   Combined ratio of 110.5% compared with 101.2% for the 2006 period(*)

    (*) Note that, due to the reallocation of overhead expenses to the
    Niche Products division in 2007, income before taxes in the
    Personal Lines division was positively impacted by $0.1 million, with a
    corresponding negative impact on the Niche Products division. Corporate
    expenses of $0.1 million were not allocated to the divisions in the
    fourth quarter.
    

    For the year ended December 31, 2007, EGI Financial generated direct
written premiums totaling $157.9 million, 34.0% above the $117.8 million level
in the corresponding period last year. As indicated in the Company's third
quarter Management's Discussion and Analysis, EGI's new business initiatives
have resulted in a significant increase in premiums despite competitive market
conditions in Ontario non-standard auto business.
    Net written and assumed premiums increased 38.1% to $146.5 million. As
noted in Q4, the incremental growth above that of written premiums was
primarily attributable to the new business lines and more effective
utilization of the Company's capital, through greater retention of risk. Net
earned premiums rose 15.1% in 2007 to $119.6 million from $103.9 million. 
This increase is lower than the percentage increase in premiums written due to
the significant amount of emergency travel health insurance premium written in
the last quarter of 2007 but unearned as at December 31, 2007. This unearned
premium of $14.9 million will earn in the first half of 2008.
    In the year ended December 31, 2007 total underwriting income decreased
31.2% to $10.0 million, compared to $14.5 million in 2006. The decrease was
attributable to a higher loss ratio and the fact that the comparable period in
2006 comprised one of the most robust periods on record within the Canadian
P&C Insurance Industry.
    The combined ratio for the year ended December 31, 2007 was 91.7%
compared with 86.0% for the same period last year. The loss ratio in the 2007
period was 59.5% and the expense ratio was 32.2%. This compares with 57.2% and
28.8% respectively in the same period last year.
    Investment income for the year ended December 31, 2007 was $12.9 million
compared to $11.0 million for the same period in 2006. As in Q4, the
improvement in 2007 is the result of an increase in the investment portfolio
on a year-over-year basis.
    Net income decreased 11.3%, to $15.1 million for the year ended December
31, 2007, compared to $17.0 million for the same period in 2006, due primarily
to the increase in the loss ratio in 2007. Fully diluted net income per share,
on the same basis, was $1.45 in the 2007 period, compared to $1.67 in the same
period last year, a decrease of 13.2%.

    
    Year ended December 31, 2007 Personal Lines division performance:
    -   Net earned premiums increased 5.2% to $95.7 million
    -   Income before taxes decreased 28.5% to $10.8 million(*)
    -   Combined ratio of 88.6% compared with 83.4% for the 2006 period(*)

    Year ended December 31, 2007 Niche Products division performance:
    -   Net earned premiums increased 85.3% to $23.9 million
    -   Income before taxes increased 19.4% to $0.3 million(*)
    -   Combined ratio of 98.8% compared with 98.1% for the 2006 period(*)

    (*) Note that, due to the reallocation of overhead expenses to the
    Niche Products division in 2007, income before taxes in the
    Personal Lines division was positively impacted by $0.7 million, with a
    corresponding negative impact on the Niche Products division. Corporate
    expenses of $0.7 million were not allocated to the divisions in the
    twelve months ended December 31, 2007.
    

    EGI Financial also announced that its Board of Directors has declared a
20% increase in its dividend to $0.06 per common share, payable on March 28,
2008 to shareholders of record on March 14, 2008.
    For the year ended December 31, 2007 approximately 30% of EGI Financial's
revenue was generated within the Niche Products division with the remaining
70% generated within the Personal Lines division. Geographically, EGI's
business in 2007 was derived from Ontario (76%), Quebec (9%), Alberta (2%),
other jurisdictions in Canada (5%) and United States (8%).
    On January 1, 2007 the Company adopted, on a prospective basis, two new
accounting standards related to financial instruments, which were issued by
the Canadian Institute of Chartered Accountants. The new standards result in
the recording of all investments at fair value in the Consolidated Balance
Sheet. In addition, cumulative changes in the fair value of investments are
reported in Accumulated Other Comprehensive Income (AOCI), a new component of
Shareholders' Equity.
    Upon adoption of these standards, total assets of EGI increased by
$8.0 million to reflect the adjustment to fair value of investments as at
January 1, 2007 previously measured at cost or amortized cost. Also on January
1, 2007, the AOCI was credited an amount of $5.3 million representing the
adjustment to fair value of investments, as noted above, net of income tax.
During 2007, Other Comprehensive Losses were incurred totaling $3.1 million
resulting in an AOCI balance of $2.2 million as at December 31, 2007.
    Attributable in part to these changes, total assets at December 31, 2007
were $370.1 million. The investment portfolio at fair value, including cash
and premium finance receipts, increased to $280.7 million, or $28.99 per
share, compared to $223.4 million, or $23.18 per share, a year earlier. Book
value per share was $10.50 at December 31, 2007 compared with $8.93 per share
as at Dec. 31, 2006 and $10.39 per share at September 30, 2007.
    The annualized ratio of net written premiums in the twelve months ended
December 31, 2007 to shareholders' equity was 1.4 times. Echelon's Minimum
Capital Test (MCT) margin at December 31, 2007 was 292%, 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 the Company's web site at:
www.egi.ca/financial.html.
    "While 2007 represented a more competitive market phase within the
Canadian P&C insurance industry compared to 2006, our results were in line
with management's expectations," added Mr. McIntyre. "As we look out to 2008
and beyond, we expect to continue producing strong financial results while
driving forward with profitable diversification and expansion initiatives."

    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, February 22, 2008 at 10:00 a.m. (ET). The call-in numbers for
participants are 416-644-3415 or toll free, 800-732-6179. A live audio feed of
the call will also be available on the Internet at: 
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2166560
    A replay of the call will be available from 12:00 p.m. (ET) on February
22, 2008 until 11:59 p.m. on February 29, 2008. To access the replay, call
416-640-1917 or toll free, 877-289-8525, enter pass code number 21262687, and
then press the pound key. 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                                                 2007        2006

    Cash and short-term deposits                          22,785      17,153
    Investments                                          238,310     179,383
    Reinsurers' share - unearned premiums                  3,602       3,831
                      - provision for unpaid claims       48,461      48,385
    Accounts receivable                                   25,382      22,182
    Income taxes recoverable                               3,278         572
    Due from insurance companies                           6,199       3,996
    Deferred policy acquisition costs                     15,530       7,465
    Capital assets                                         1,250         799
    Future income taxes                                    2,674       4,403
    Prepaid expenses and other assets                      2,613         270
                                                        ---------   ---------
                                                         370,084     288,439
                                                        ---------   ---------
                                                        ---------   ---------

    Liabilities

    Bank indebtedness                                     19,550           -
    Provision for unpaid claims                          169,091     146,101
    Unearned premiums                                     69,190      43,154
    Unearned commission                                      291         733
    Accounts payable and accrued liabilities               5,444       4,746
    Payable to insurance companies                         3,894       4,428
    Income taxes payable                                       -       3,151
    Other liabilities                                        953          85
                                                        ---------   ---------
                                                         268,413     202,398
                                                        ---------   ---------

    Shareholders' Equity

    Share capital                                         46,040      45,833
    Contributed surplus                                      247         149
    Retained earnings                                     53,193      40,059
    Accumulated other comprehensive income                 2,191           -
                                                        ---------   ---------
                                                         101,671      86,041
                                                        ---------   ---------
                                                         370,084     288,439
                                                        ---------   ---------
                                                        ---------   ---------



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

                                                            2007        2006
    Revenue:
      Direct written and assumed premiums                157,935     117,834
                                                       ----------  ----------
      Net written and assumed premiums                   146,511     106,047
                                                       ----------  ----------
      Net earned premiums                                119,606     103,942
      Investment income                                   12,954      11,034
                                                       ----------  ----------
                                                         132,560     114,976
                                                       ----------  ----------
    Expenses
      Incurred claims                                     71,179      59,503
      Acquisition costs                                   26,143      19,499
      Operating costs                                     12,043      10,431
      Interest expense                                       259           -
                                                       ----------  ----------
                                                         109,624      89,433
                                                       ----------  ----------
    Income before income taxes                            22,936      25,543
    Income tax expense                                     7,871       8,562
                                                       ----------  ----------

    Net income                                            15,065      16,981
                                                       ----------  ----------
                                                       ----------  ----------

    Earnings per share
      Basic net income per share                       $    1.56   $    1.76
      Diluted net income per share                     $    1.45   $    1.67




                         EGI FINANCIAL HOLDINGS INC.
     Unaudited Consolidated Statements of Changes in Shareholders' Equity
                           and Comprehensive Income
                       For the Years ended December 31
                   (in $ thousands, except share amounts)

                                                            2007        2006
    Share capital
      Balance, beginning of year                          45,833      47,660
      Common shares issued                                   207         328
      Redemption of Series F special shares                    -      (2,155)
                                                       ----------  ----------
      Balance, end of year                                46,040      45,833
                                                       ----------  ----------

    Contributed surplus
      Balance, beginning of year                             149          80
      Stock options  - granted                               123          97
                     - exercised                             (25)        (28)
                                                       ----------  ----------
      Balance, end of year                                   247         149
                                                       ----------  ----------

    Retained earnings
      Balance, beginning of year                          40,059      24,845
      Net income                                          15,065      16,981
      Dividends  - Series F special shares                     -        (229)
                 - Common shares                          (1,931)     (1,538)
                                                       ----------  ----------
      Balance, end of year                                53,193      40,059
                                                       ----------  ----------

    Accumulated other comprehensive income
      Balance beginning of year                                -
      Transition adjustment - financial instruments,
       net of income taxes of $2,723                       5,301
      Other comprehensive loss                            (3,110)
                                                       ----------
      Balance, end of year                                 2,191
                                                       ----------

    Shareholders' equity, end of year                    101,671      86,041
                                                       ----------  ----------
                                                       ----------  ----------

    Comprehensive income
      Net income                                          15,065
      Other comprehensive loss, net of taxes
      Net unrealized losses on available-for-sale
       securities                                           (957)
      Reclassification of net realized gains to net
       income                                             (2,153)
                                                       ----------
      Other comprehensive loss                            (3,110)
                                                       ----------
      Total comprehensive income                          11,955
                                                       ----------
                                                       ----------



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

                                                            2007        2006
    Cash provided by (used in):
    Operating activities
      Net income                                          15,065      16,981
      Items not involving cash
        Amortization of capital assets                       406         433
        Amortization of premium on bonds                     368         386
        Realized gains on investments                     (3,195)     (3,489)
        Other                                                123          97
                                                       ----------  ----------
                                                          12,767      14,408
    Cash flow from changes in
      Reinsurers' share of unearned premiums                 229      (1,070)
      Reinsurers' share of unpaid claims                     (76)      5,658
      Accounts receivable                                 (3,200)         89
      Income taxes recoverable                            (2,706)       (299)
      Due from insurance companies                        (2,203)     (1,492)
      Accounts payable and accrued liabilities               590      (3,300)
      Provision for unpaid claims                         22,990      16,928
      Unearned premiums                                   26,036       3,181
      Income taxes payable                                (3,151)     (2,557)
      Future income taxes                                    (58)     (1,270)
      Prepaid expenses and other assets                   (2,343)         (8)
      Deferred policy acquisition costs                   (8,065)     (1,176)
                                                       ----------  ----------
                                                          40,810      29,092
                                                       ----------  ----------
    Financing activities
      Increase in bank indebtedness                       19,550           -
      Issue of common shares                                 182         300
      Series F special share dividends                         -        (229)
      Redemption of Series F special shares                    -      (2,155)
      Common share dividends                              (1,931)     (1,538)
                                                       ----------  ----------
                                                          17,801      (3,622)
                                                       ----------  ----------
    Investing activities
      Purchase of capital assets                            (857)       (672)
      Purchase of investments                           (256,245)   (193,256)
      Sale/maturity of investments                       204,123     169,712
                                                       ----------  ----------
                                                         (52,979)    (24,216)
                                                       ----------  ----------

    Increase in cash and short-term deposits               5,632       1,254
    Cash and short-term deposits, beginning of year       17,153      15,899
                                                       ----------  ----------
    Cash and short-term deposits, end of year             22,785      17,153
                                                       ----------  ----------
                                                       ----------  ----------

    Supplementary information
      Income taxes paid                                   13,095      12,713
      Interest paid                                          196           -
    

    %SEDAR: 00022868E




For further information:

For further information: Douglas E. McIntyre, Chief Executive Officer,
EGI Financial Holdings Inc., Telephone: (905) 564-9215


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