EGI Financial announces second quarter results

TORONTO, Aug. 8, 2012 /CNW/ - EGI Financial Holdings Inc. ("EGI" or "the Company") (TSX: EFH), which operates in the property and casualty insurance industry in Canada, the United States and Europe, today reported a net operating loss of $1.0 million, or $0.08 per diluted share, for the second quarter ended June 30, 2012, compared to net operating income of $1.5 million, or $0.12 per share, for the same quarter in 2011.

The loss was primarily attributed to a $5.3 million (pre-tax) impact from cancelled programs in the Niche Products division.

Second Quarter Highlights

• A combined operating ratio of 88% in Personal Lines, resulting in an underwriting profit of $3.6 million
• A 25% increase in written premiums over Q2 2011, and a 7% year-over-year increase in net earned premiums
• $9 million in premiums written in the Company's newly formed International division
• Book value per share of $12.99 as at June 30, 2012, compared to $12.40 as at June 30, 2011
• Investment income of $2.5 million, compared to $3.3 million in the second quarter of 2011

"We are very pleased to report our core Personal Lines business, which accounts for the majority of our earned premiums, significantly exceeded its target profitability in the quarter and more than doubled its underwriting income from the same quarter last year. The division has now recorded seven consecutive quarters of underwriting profitability," said Steve Dobronyi, Chief Executive Officer of EGI.  "However, our results in Canada suffered from the development of claims in our Niche Products division on previously cancelled programs. We continue to closely monitor these claims and are gaining greater certainty on the amount of the ultimate payouts as the claims develop."

"We are also pleased with the strong start to our International division," Mr. Dobronyi added. "The division has already become a substantial contributor of premiums to EGI and although it's still early, claims are well in line with expectations."

"Overall, we are satisfied with the profitability of our core business and the growth and diversification of new geographies.  Our focus for the second half of 2012 will be to protect that core while achieving consistent underwriting profits in our Niche Products division and continuing to scale up our U.S. and International divisions."

Financial Summary

$000s (except per share amounts)	3-months ended June 30, 2012	3-months ended June 30, 2011	% Change	6-months ended June 30, 2012	6-months ended June 30, 2011	% Change
Direct written premiums	66,106	52,751	25.3%	110,045	83,601	31.6%
Net earned premiums	43,957	41,056	7.1%	86,127	81,400	5.8%
Underwriting income (loss)	(4,309)	(1,220)	(253.2%)	(5,285)	(1,333)	(296.5%)
Investment income	2,501	3,281	(23.8%)	8,461	7,683	10.1%
Net income (loss)	(2,820)	1,410	(300.0%)	974	4,438	(78.1%)
Total Comprehensive income (loss)	(1,628)	593	(374.5%)	1,599	3,100	(48.4%)
Net operating income (loss)^(1)	(989)	1,538	(164.3%)	752	3,694	(79.6%)
Net income (loss) per diluted share	(0.20)	0.12	(266.7%)	0.13	0.37	(64.9%)
Net operating income (loss) per diluted share	(0.08)	0.12	(166.7%)	0.06	0.29	(79.3%)
Book value per share	12.99	12.40	4.8%	12.99	12.40	4.8%

(1)	Net operating income (loss) is defined as net income (loss) plus or minus after-tax impact of change in discount rate on unpaid claims, realized losses or gains on sale of investments and unrealized fair value changes on held-for-trading investments.

Second Quarter Commentary
Direct written premiums increased by 25.3% to $66.1 million, with growth mainly in the International and U.S. divisions. The International division is currently accepting premium on 13 active programs through producers in various jurisdictions in the European Union. The increase in the U.S. division is organic growth in Florida and Texas.

Net earned premiums were $44.0 million, an increase of 7.1% over the second quarter of 2011; net earned premium growth trailed that of written premiums as the International division's written premiums will be earned in the future.

Underwriting loss totaled $4.3 million versus $1.2 million in the prior period. Though the Company's core Personal Lines division recorded strong underwriting profitability, this was offset by start-up expenses in the new International division and net claims incurred in the Niche Products and U.S. divisions. The Niche Product division's results were mostly affected by a $5.3 million impact from the adverse claims from cancelled programs.  In the U.S., underwriting results were impacted by storm-related claims in Texas and relatively high operating expenses.

Investment income was $2.5 million compared to $3.3 million in the second quarter of 2011.  The decrease is attributable primarily to a provision for impairment of $1.9 million due to stock market conditions at the end of the quarter. Net realized gains on the sale of investments was $1.3 million in the quarter versus $0.3 million loss in the same quarter of 2011. Income from interest and dividends was $3.6 million, compared to $3.9 million in Q2 2011. The fair value of EGI's investment portfolio, plus finance receivables, increased 7.2% to $421 million as at June 30 from $393 million as at June 30, 2011.

Overall net loss was $2.8 million compared to income of $1.4 million in the second quarter of 2011. A net operating loss of $1.0 million was recorded in the quarter compared to income of $1.5 million in the second quarter of 2011.

Operating Results
Underwriting Income (Loss)*
$000s

Division	3-months ended June 30, 2012	3-months ended June 30, 2011	6-months ended June 30, 2012	6-months ended June 30, 2011
Personal Lines	3,631	1,121	4,294	2,150
Niche Products	(4,676)	(1,291)	(3,883)	(1,285)
U.S.	(2,075)	(562)	(3,494)	(1,329)
International	(702)	—	(1,364)	—

* Excluding head office overhead costs and impact of change in discount rate on unpaid claims

The significant improvement in underwriting income in the Company's Personal Lines division was primarily due to the performance of non-standard auto, which recorded a combined ratio of 86.3% in the second quarter compared to 92.3% in Q2 2011, as well as an improvement in motorcycle results. The division exceeded its target profitability with an overall combined ratio of 88.4%, compared to 96.5% in the same quarter of 2011.

The significant increase in underwriting losses in the Niche Products division was primarily due to claims on cancelled programs. Due to developments in the quarter, an additional bulk reserve of $2.0 million was added to these programs.

The U.S. division recorded net earned premiums of $3.1 million in the quarter compared to $0.3 million in the comparative period in 2011, leading to a substantial improvement in the division's combined ratio.  However, storms in Texas and an increase in Personal Injury Protection (PIP) losses in Florida resulted in higher underwriting losses than the second quarter of 2011. Note that new regulatory PIP reforms for Florida were recently passed, with an effective date of July 1, 2012 for certain changes and January 1, 2013 for the remainder.

The International division recorded net earned premiums of $1.2 million and gross written premiums of $9.0 million. It recorded an underwriting loss of $0.7 million as a result of start-up costs associated with the development of its operations.

Combined Ratio*

Division	3-months ended June 30, 2012	3-months ended June 30, 2011	6-months ended June 30, 2012	6-months ended June 30, 2011
Personal Lines	88.4%	96.5%	93.2%	96.6%
Niche Products active programs	90.8%	88.8%	87.1%	91.5%
Niche Products cancelled programs	665.4%	308.8%	399.4%	191.3%
U.S.	166.5%	286.1%	166.5%	386.7%
International	160.3%	—	202.2%	—

* Combined ratio excludes impact of change in discount rate on unpaid claims.

Company Results

Key Operating Ratios	3-months ended June 30, 2012	3-months ended June 30, 2011	6-months ended June 30, 2012	6-months ended June 30, 2011
Loss ratio *	71.3%	67.1%	68.5%	66.4%
Expense ratio	38.5%	35.9%	37.6%	35.2%
Combined ratio	109.8%	103.0%	106.1%	101.6%

* Loss ratio excludes impact of change in discount rate on unpaid claims

Six Month Review
For the six months ended June 30, 2011, the Company recorded net operating income of $0.8 million compared to $3.7 million over the first half of 2011.  The decrease is primarily due to poor underwriting results in the Niche Products division in the second quarter as a result of cancelled programs and start-up costs in the U.S. and International divisions. Personal Lines recorded underwriting income in both quarters and exceeded its target profitability in the second quarter.

Direct written premiums increased 31.6% to $110.0 million from $83.6 million from the first half of 2011, mainly due to growth in the U.S. and International divisions. Net earned premiums increased 5.8% to $86.1 million from $81.4 million in the first half of 2011.

Combined, the divisions experienced $2.2 million in positive claims development, compared to $2.9 million in the first half of 2011.

Investment income increased 10.1% to $8.5 million versus $7.7 million in the same period last year.

Financial Position
As at June 30, 2012, total equity of the Company increased to $156.2 million from $154.8 million at December 31, 2011, due to total comprehensive income of $1.6 million, contributed surplus of $0.1 million from stock options, less $0.3 million for the repurchase of common shares.

As at June 30, 2012, Echelon General's Minimum Capital Test (MCT) ratio was at 210%, significantly exceeding the minimum regulatory capital level required by the Office of the Superintendent of Financial Institutions.

For the quarter ended June 30, 2012, EGI was debt-free, well capitalized and its Net Written Premiums-to-Capital ratio is a conservative 1.2:1.

Full Financial Statements and Management's Discussion and Analysis (MD&A) will be available at a later time today on SEDAR at www.sedar.com and on the Company's web site at: www.egi.ca.

About EGI
Founded in 1997, EGI operates in the property and casualty insurance industry in Canada, the United States and Europe, primarily focusing on non-standard automobile insurance and other niche and specialty general insurance products.  EGI's common shares are traded on the Toronto Stock Exchange under the symbol EFH.

Non-IFRS Financial Measures
EGI uses International Financial Reporting Standards (IFRS) and certain non-IFRS measures to assess performance.  Readers are cautioned that non-IFRS measures do not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies.  EGI analyzes performance based on operating income and underwriting ratios such as combined, expense and loss ratios.

Forward-looking Information
This news release contains forward-looking information based on current expectations.  This information includes, but is not limited to, statements about the operations, business, financial condition, priorities, targets, ongoing objectives, strategies and outlook of EGI for 2012 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's control, affect the operations, performance and results of EGI and its business and could cause actual results to differ materially from the expectations expressed in any of this forward-looking information.

EGI does not undertake to update any forward-looking information.  Additional information about the risks and uncertainties about EGI's business is provided in its disclosure materials, including its Annual Information Form and Management Discussion & Analysis, filed with the securities regulatory authorities in Canada, available at www.sedar.com.

Conference Call
A conference call for analysts and interested listeners will be held on Thursday, August 9, 2012, at 11:00 a.m. (ET). The call-in numbers for participants are 647-427-7450 or toll free 888-231-8191, Conference ID 98123395. A live audio feed of the call will be available online through the Company's website at www.egi.ca, or directly at http://www.newswire.ca/en/webcast/detail/1002823/1083239

A replay of the call will be available until August 16, 2012. To access the replay, call 416-849-0833, or toll free 1-855-859-2056, enter password 98123395.

 

SOURCE: EGI Financial Holdings Inc.

Steve Dobronyi
Chief Executive Officer
EGI Financial Holdings Inc.
Telephone: [phone]
Email: [email protected]