EGI Financial Reports Profitable Q3 2009 Results

TORONTO , Nov. 9 /CNW/ - EGI Financial Holdings Inc. ("EGI") (TSX: EFH) today announced its results for the third quarter ended September 30, 2009 .

    
    2009 Third Quarter Highlights:

    -   Net operating income decreased 67.5% to $1.3 million from
        $4.0 million in Q3 2008
    -   Book value per share increased 14.1% to $11.62 from $10.18 in Q3 2008
    -   Investment income increased 6.2% to $3.4 million from $3.2 million in
        Q3 2008
    -   Other comprehensive income increased to $5.7 million from a loss of
        $7.6 million in Q3 2008
    

"Despite operating in a very challenging economic and industry environment, we reported a profitable third quarter," said Douglas McIntyre, Chief Executive Officer of EGI Financial. "Both our Personal Lines and Niche Products divisions recorded underwriting profits during the period, generating a combined $1.2 million in underwriting income. While our International division incurred a loss during the quarter, it was entirely related to the claims deterioration on discontinued reinsurance treaties and the start-up costs associated with the launch of our wholly-owned U.S. subsidiary, Echelon Insurance Company of America, which we believe will present significant growth opportunities going forward."

"The economic crisis of the past year has continued to suppress overall demand for insurance, extending the soft market cycle. In Ontario, despite recent rate increases, automobile insurance remains under tremendous pressure, as rising claims costs continue to outstrip premium increases, eroding profit margins for standard insurers," continued Mr. McIntyre . "We believe that these factors will contribute to a hardening of the insurance market and increased underwriting selectivity on the part of standard insurers. Historically, challenging market conditions have driven increased business flow to EGI. In our Canadian operations, we may already be seeing the beginning of this shift, as both our Personal Lines and Niche Products divisions saw significant volume increases during the third quarter."

    
    Financial Summary
    -------------------------------------------------------------------------
                              3-months
                   3-months      ended          9-months   9-months
    $000s             ended  September             ended      ended
     (except      September         30,        September  September
     per share           30,      2008       %        30,        30,       %
     amounts)          2009  (Restated) Change      2009       2008   Change
    -------------------------------------------------------------------------
    Direct written
     and assumed
     premiums        44,455     46,062    (3.5)  124,558    130,783     (4.8)
    -------------------------------------------------------------------------
    Net written
     and assumed
     premiums        40,753     43,062    (5.4)  113,932    121,464     (6.2)
    -------------------------------------------------------------------------
    Net earned
     premiums        35,881     36,150    (0.7)  112,940    117,708     (4.1)
    -------------------------------------------------------------------------
    Underwriting
     income (loss)      284      2,894   (90.2)      115        651    (82.3)
    -------------------------------------------------------------------------
    Investment
     income           3,403      3,186     6.8    11,294     12,491     (9.6)
    -------------------------------------------------------------------------
    Net income        2,261      3,958   (42.9)    6,862      8,302    (17.3)
    -------------------------------------------------------------------------
    Net income per
     diluted share     0.18       0.33   (45.5)     0.54       0.76    (28.9)
    -------------------------------------------------------------------------
    Book value per
     share            11.62      10.18    14.1     11.62      10.18     14.1
    -------------------------------------------------------------------------
    Net operating
     income           1,328      3,990   (66.7)    4,805      6,181    (22.3)
    -------------------------------------------------------------------------
    Net operating
     income per
     diluted share     0.10       0.34   (70.6)     0.38       0.55    (30.9)
    -------------------------------------------------------------------------


    Third Quarter Highlights
    ------------------------
    

Net operating income, defined as net income excluding after-tax realized losses/gains on investments, and 'other than temporary' impairments, was $1.3 million or $0.10 per share on a diluted basis for the third quarter of 2009. This compares to net operating income of $4.0 million or $0.34 per share for the same period in 2008.

In the third quarter of 2009, EGI Financial generated direct written and assumed premiums totaling $44.5 million , 3.5% below the $46.1 million recorded in the third quarter of 2008, despite significant growth in non-standard auto premiums. The increase in premium volume of the non-standard auto line was offset by the impact of the cancellation of U.S. assumed reinsurance contracts effective December 31, 2008 , and March 31, 2009 . Premiums continue to be earned on the U.S. assumed reinsurance business pursuant to these contracts in 2009, from policies issued prior to cancellation; 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 third quarter of 2008.

Personal Lines direct written premiums increased by $4.8 million to $31.4 million in the third quarter of 2009 compared to $26.6 million in the third quarter of 2008. Non-standard auto premiums increased 23.7% over the prior year to $27.1 million . Motorcycle direct written premiums decreased slightly to $3.5 million compared to $3.6 million in the third quarter of 2008, due to a reduction in the number of policies written as the result of rate increases implemented to improve the underwriting performance of this product. Direct written premiums for the Niche Products division decreased to $13.1 million for the three months ended September 30, 2009 , compared to $15.7 million in the same period in 2008, due to the reduction in premium from the Emergency Travel Health (ETH) program. Excluding the ETH business, premiums written from core Niche programs increased 18.7% to $12.7 million in the third quarter of 2009, from $10.7 million in the same period last year.

Company-wide, net written and assumed premiums decreased by 5.4% to $40.7 million compared to $43.0 in the same period last year. This decrease is slightly higher than the decrease in direct written premium, due to a change in the mix of business in 2009.

Net earned premiums for the three months ended September 30, 2009 , totaled $35.9 million , a decrease of 0.7%, compared to $36.2 million in the third quarter of 2008. The decrease is primarily attributable to the cancellation of U.S. assumed reinsurance contracts, which are in run-off in 2009. As a result, earned premiums from this division will continue to decline, on a quarterly basis, for the remainder of 2009. Minimal premiums will be earned from this business in 2010.

Net earned premiums from the Canadian divisions (Personal Lines and Niche Products) increased 7.5% to $35.4 million in the third quarter of 2009.

Underwriting income of $0.3 million was recorded in the third quarter of 2009, compared with $2.9 million during the same period in 2008. The decrease was primarily due to the higher loss ratio experienced by the Personal Lines and Niche Products divisions, as well as an increased underwriting loss reported by the International division. A significant portion of the $0.7 million underwriting loss incurred by the International division was attributable to start-up costs associated with the Company's U.S. operations.

During the third quarter of 2009, the loss ratio for the Niche Products division was 48.7%, compared to 40.6% for the same period in 2008. Despite being higher than the excellent result achieved in the third quarter of 2008, the loss ratio in the Niche Products division this quarter was in line with management's expectations. For the three months ended September 30, 2009 , underwriting income for the Personal Lines division decreased by $1.9 million over the prior year to $0.8 million . The loss ratio for the Personal Lines division during the three months ended September 30, 2009 , increased to 67.1% compared to 63.6% during the third quarter of 2008.

The combined ratio for the third quarter of 2009 for all lines of business increased to 99.2% compared with 91.9% 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.

Investment income for the third quarter of 2009 increased to $3.4 million , compared to $3.2 million for the same period in 2008. The increase was due primarily to the realization of gains on the sale of investments of $1.4 million in the third quarter of 2009, compared with net gains of $0.1 million in the same period in 2008. No impairment provisions were recorded during the third quarter of 2009.

EGI's investment portfolio, including finance receivables, increased 8.1% to $305.3 million , compared to $282.3 million as at September 30, 2008 .

For the quarter ended September 30, 2009 , the net income before income taxes was $3.4 million , compared to net income of $5.8 million for the third quarter of 2008.

For the quarter ended September 30, 2009 , approximately 27% of EGI Financial's revenue was generated within the Niche Products division, 4% within the International division and the remaining 69% within the Personal Lines division. Geographically, EGI's business in 2009 was derived from Ontario 71%, Quebec 12%, Alberta 4%, British Columbia 5%, other jurisdictions in Canada 5% and United States 3%.

    
    Nine Month Highlights
    ----------------------
    

Net operating income was $4.8 million or $0.38 per share on a diluted basis for the first nine months of 2009. This compares to net operating income of $6.2 million , or $0.55 per share, for the same period in 2008.

For the nine months ended September 30, 2009 , direct written premiums totaled $124.6 million , a decrease of 4.8% compared to the first nine months of 2008. Direct written premiums from Personal Lines increased 5.9% to $90.2 million in the first nine months of 2009. Non-standard auto recorded growth of 9.5% to $74.0 million , offset by a decline in the motorcycle line of 8.7% compared to the same period in 2008. The decline in the motorcycle line was due to premium rate increases implemented during the first half of 2009, resulting in a reduction in the number of policies written. The Niche Products division recorded written premiums of $35.0 million in the first nine months of 2009 compared to $35.7 million for the same period of 2008. The slight decline resulted from the planned decrease in ETH premiums in 2009. Excluding the ETH line of business, premiums written from core Niche programs rose by 21.7% to $33.6 million .

As noted earlier, assumed reinsurance contracts in place in the International division in 2008 have been cancelled. In the first nine months of 2009, this resulted in negative premiums written of $0.7 million , compared to $9.8 million in premiums written for the same period in 2008.

Net written and assumed premiums decreased 6.2% to $113.9 million compared to $121.4 million in the same period last year. This decrease is slightly higher than the decrease in direct written and assumed premiums due to a change in the mix of business in 2009.

In the nine-month period ended September 30, 2009 total underwriting contribution decreased by $0.5 million over 2008 to an underwriting gain of $0.1 million .

The combined ratio for the nine-month period in 2009 was 99.9%, compared with 99.4% for the same period last year. The loss ratio in the 2009 period was 66.1% and the expense ratio was 33.8%, compared with 66.8% and 32.6%, respectively, in the same period last year.

Investment income for the nine months ended September 30, 2009 , was $11.3 million compared to $12.5 million for the same period in 2008. Net realized gains on the sale of investments decreased slightly to $3.1 million compared to realized gains of $3.2 million in the first nine months of 2008.

Net income decreased 17.3%, to $6.9 million for the nine months ended September 30, 2009 , compared to $8.3 million for the same period in 2008.

The annualized ratio of net written premiums to shareholders' equity for the quarter ended September 30, 2009 was 1.1 times compared to 1.4 times for the quarter ended September 30, 2008 . This level of leverage continues to be well below the 2.5:1 ratio which management believes is fully leveraged capital. Echelon's Minimum Capital Test (MCT) margin at September 30, 2009 was 314%, 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.

    
    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 may not 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 November 9, 2009 at 2:00 p.m. (ET ). The call-in numbers for participants are 416-644-3423 or toll free, 800-731-5319, Conference ID 4171198.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=2837780

A replay of the call will be available until November 16, 2009 . To access the replay, call 416-640-1917 or toll free, 877-289-8525, enter access code number 4171198 followed by the pound key. The replay can also be accessed over the Internet at the above address.

%SEDAR: 00022868E

For further information: Douglas E. McIntyre, Chief Executive Officer, EGI Financial Holdings Inc., Telephone: [phone]