EGI Financial Profits up 25% in Q1 2012

TORONTO, May 10, 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 income of $3.8 million, or $0.33 per basic and diluted share, for the first quarter ended March 31, 2012, a 25% increase over the first quarter of 2011.

First Quarter Highlights

• A 42% increase in written premiums over Q1 2011, and a 5% increase in net earned premiums
• Investment income of $6.0 million, compared to $4.4 million in the first quarter of 2011
• An increase in book value per share to $13.14, as at March 31, 2012, from $12.85, as at the end of 2011
• Net operating income of $1.7 million, or $0.14 per share, compared to $2.2 million, or $0.18 per share, in Q1 2011
• A combined operating ratio of 96% in Canada, and a combined ratio of 102% for the entire Company
• Significant growth in written premiums in the start-up U.S. division
• The Company's new International division commenced writing premiums
• On March 30, the Company received approval from the TSX to commence a normal course issuer bid to repurchase and cancel up to 0.7 million common shares (approximately 10% of the public float as of March 23)

"We are pleased to report a strong start to 2012 and a continuation of the progress we made in 2010 and 2011," said Steve Dobronyi, Chief Executive Officer of EGI.  "In the first quarter, we produced a 41% increase in underwriting profit in our Canadian operations, which accounts for more than 90% of our business."

"We were especially satisfied with the strong growth in profitability in our Niche Products division due to improved claims performance, a reflection of our renewed focus on underwriting discipline in these programs," continued Mr. Dobronyi.  "Our core Personal Lines division also recorded healthy underwriting profits while operating in a challenging, though improving, market for non-standard automobile insurance."

"Our start-up U.S. division was negatively impacted by storms in Texas, but we recognize the seasonality of such losses and are pleased with the continued quarter-over-quarter increase in premiums written by the division. We anticipate improvements in the division's operating performance as it grows its business," Mr. Dobronyi added.  "We're also happy to report our International division began writing premiums in the first quarter in Europe, business that is similar in nature to that written by our Niche Products division in Canada.

"Our focus in 2012 is to ensure our Canadian business provides consistent underwriting profits and a stable platform, and to diversify our business by growing our U.S. and International divisions into significant contributors to our overall results."

Financial Summary

$000s (except per share amounts)	3 months ended Mar. 31, 2012	3 months ended Mar. 31, 2011	% Change
Direct written premiums	43,939	30,850	42.4
Net earned premiums	42,170	40,344	4.5
Underwriting income (loss)	(976)	(113)	(763.7)
Investment income	5,960	4,402	35.4
Net income	3,794	3,028	25.3
Comprehensive income	3,227	2,507	28.7
Net operating income^(1)	1,747	2,165	(19.3)
Net income per diluted share	0.33	0.25	32.0
Net operating income per diluted share	0.14	0.18	(22.2)
Book value per share	13.14	12.35	6.4

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

First Quarter Commentary

Direct written premiums increased by 42.4%, mainly in the Personal Lines and U.S. divisions. The increase in Personal Lines is primarily the result of management's initiative to write and renew all Ontario private passenger automobile policies with a six-month policy term in late 2010, resulting in lower written premiums in the first quarter of 2011, a decision that did not affect net earned premiums. The increase in the U.S. division is organic growth in this start-up operation, which operates currently in Florida and Texas. Direct written premiums were $3.9 million, an increase of $3.6 million from the first quarter of 2011.

Underwriting losses totaled $1.0 million versus $0.1 million in the prior period. The Company's Canadian businesses recorded underwriting profitability, which was offset by start-up costs in the U.S. and in the new International division, which commenced underwriting business in the quarter.

Investment income was $6.0 million, an increase from $4.4 million in the first quarter of 2011.  The increase is attributable to greater net realized gains on the sale of investments of $2.7 million in the quarter versus $1.0 million in the first quarter of 2011. Income from interest and dividends was $3.7 million, compared to $3.5 million in Q1 2011. The fair value of EGI's investment portfolio, plus finance receivables, increased 5.3% to $406.2 million from March 31, 2011.

The increase in investment income resulted in a 25.3% increase in overall net income, from $3.0 million in the first quarter of 2011 to $3.8 million in this quarter.  Net operating income of $1.7 million was recorded in the quarter compared to $2.2 million in the first quarter of 2011.  Net operating income per share was $0.14.

Operating Results

Underwriting Income (Loss)* $000s	3 months ended Mar. 31, 2012	3 months ended Mar. 31, 2011
Personal Lines	666	1,030
Niche Products	795	6
U.S.	(1,416)	(768)
International	(670)	N/A

* Excluding head office overhead costs

Underwriting income in the Company's Personal Lines division remains on track with a combined operating ratio of 97.9%.  Strong performance in Ontario and Quebec was offset by several large claims on the East coast.

The significant increase in underwriting income in the Niche Products division was primarily due to an improvement in claims experience, most notably in commercial property, liability and errors and omissions insurance.

The U.S. division recorded net earned premiums of $2.2 million in the quarter compared to $0.2 million in the comparative period, leading to a substantial decrease in the division's combined ratio. However, claims costs in Texas resulted in higher underwriting losses than the first quarter of 2011.

The International division recorded an underwriting loss of $0.7 million as a result of the initial start-up costs associated with the development of its operations. The division, which is comprised of European niche products program business, began writing business in this quarter.

Loss Ratio	3 months ended Mar. 31, 2012	3 months ended Mar. 31, 2011
Personal Lines	68.5%	68.1%
Niche Products	42.5%	56.1%
U.S.	115.6%	112.8%
International	N/A*	N/A*

* Due to the minimal earned premium in the International division, the ratios are not meaningful and have been excluded.

The loss ratio for the Company's Personal Lines division was 68.5% in the quarter compared to 68.1% during the same period in 2011. The frequency of claims over $0.5 million increased in the period compared to the same quarter in 2011.

The loss ratio for the Niche Products division improved significantly to 42.5% from 56.1% in the same period in 2011, the result of price increases, program cancellations, greater underwriting discipline and other management actions to restore the profitability of the business.

The loss ratio in the U.S. division increased modestly. However, the continued increase in net earned premiums contributed to the division's improvement in its overall combined ratio to 166% versus 574% in the first quarter of 2011 when premiums were minimal.

Company Results

Key Operating Ratios	3 months ended Mar. 31, 2012	3 months ended Mar. 31, 2011
Loss ratio	65.7%	65.7%
Expense ratio	36.6%	34.6%
Combined ratio	102.3%	100.3%

The increase in the overall combined ratio for EGI is primarily due to expenses in the start-up International and U.S. divisions, partially offset by profits recorded in the two Canadian divisions.

Financial Position

For the three months ended March 31, 2012, total equity of the Company increased to $158.1 million from $154.8 million at December 31, 2011, due to net income of $3.8 million minus other comprehensive loss of $0.6 million and increase in contributed surplus of $0.1 million.

As at March 31, 2012, Echelon General's Minimum Capital Test (MCT) ratio was 218%, which significantly exceeds the minimum regulatory capital level required by the Office of the Superintendent of Financial Institutions.

For the quarter ended March 31, 2012, EGI was debt-free, well capitalized and its Net Written Premiums-to-Capital ratio remains a conservative 1.0:1.

Full Financial Statements and Management's Discussion and Analysis (MD&A) will be available at a later time today on SEDAR 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, May 10, 2012, at 10:00 a.m. (ET). The call-in numbers for participants are 647-427-7450 or toll free 888-231-8191, Conference ID 70636985.

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/viewEvent.cgi?eventID=3873540.  A replay of the call will be available until May 17, 2012. To access the replay, call 416-849-0833, or toll free 1-855-859-2056, enter password 70636985.

 

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