EGI Financial Reports Strong Second Quarter Results



    Company continues to benefit from new business initiatives

    
    -------------------------------------------------------------------------
    $000                3-months  3-months         6-months  6-months
                           ended     ended            ended     ended
                         June 30,  June 30,    %    June 30,  June 30,    %
                            2007      2006  Change     2007      2006  Change
    -------------------------------------------------------------------------
    Direct written and
     assumed premiums    $42,299   $36,622   15.5%  $72,495   $62,714   15.6%
    -------------------------------------------------------------------------
    Net written and
     assumed premiums    $39,308   $32,970   19.2%  $67,631   $56,463   19.8%
    -------------------------------------------------------------------------
    Net earned premiums  $29,808   $26,189   13.8%  $54,598   $51,263    6.5%
    -------------------------------------------------------------------------
    Underwriting income  $ 4,533   $ 3,859   17.5%  $ 5,837   $ 4,789   21.9%
    -------------------------------------------------------------------------
    Investment income    $ 2,068   $ 1,801   14.8%  $ 4,669   $ 4,435    5.3%
    -------------------------------------------------------------------------
    Net income           $ 4,349   $ 3,857   12.8%  $ 6,876   $ 6,291    9.3%
    -------------------------------------------------------------------------
    Net income per
     diluted share       $  0.42   $  0.38   10.5%  $  0.66   $  0.62    6.5%
    -------------------------------------------------------------------------
    Book value           $  9.93   $  7.90   25.7%  $  9.93   $  7.90   25.7%
    -------------------------------------------------------------------------
    

    TORONTO, Aug. 14 /CNW/ - EGI Financial Holdings Inc. (TSX:EFH) today
announced its results for the second quarter and six-months ended June 30,
2007.
    In the second quarter of 2007, EGI Financial generated direct written and
assumed premiums totaling $42.3 million, 15.5% above the $36.6 million level
in the corresponding period last year. The increase was primarily attributable
to the growth in motorcycle premiums in Ontario, the new reinsurance treaties
with AssuranceAmerica and continued significant growth in the Niche Products
division, which combined to more than offset weakness in the Ontario
non-standard auto business.
    Net written and assumed premiums increased 19.2% 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 13.8% in 2007 to $29.8 million from $26.2 million last year, reflecting
the year-over-year increase in direct premiums written and assumed.
    In the quarter ended June 30, 2007 total underwriting income increased
17.5% to $4.5 million, compared to $3.9 million in the 2006 period. This
increase was attributable to a reduction in the loss ratio in the Personal
Lines division, which more than offset an increase in the loss ratio in the
Niche Products division, attributable to conservative IBNR reserves
established by the Company's external actuary.
    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 second quarter of 2007 improved to 84.8% compared
with 85.3% for the same period last year. EGI Financial believes that the
combined ratio is the best measure of the profitability of its underwriting
business.
    The loss ratio in the period ended June 30, 2007 - being net losses
incurred expressed as a percentage of net earned premiums - was 53.2%, while
the expense ratio -- being expenses incurred expressed as a percentage of net
earned premiums -- was 31.6%. This compares with 54.3% and 31.0% respectively
in the same period of 2006. The improvement in the loss ratio was primarily
attributable to non-standard automobile claims experience in the quarter.
    Investment income in the second quarter of 2007 was $2.1 million compared
to $1.8 million last year, an increase of 14.8%. The improvement reflects an
increase in the investment portfolio as well as a small reduction in realized
losses compared with 2006. EGI's investment portfolio reflected a
$36.7 million, or 19.6%, increase in fair value as at June 30, 2007, compared
to June 30, 2006.
    Net income was $4.3 million for the three months ended June 30, 2007, a
12.8% increase from $3.9 million in the second quarter of 2006. The primary
reason for the increase is the improvement in the loss ratio in the quarter to
53.2% compared to 54.3% last year. Fully diluted earnings per share were $0.42
in the second quarter of 2007, compared to $0.38 for the second quarter of
2006, an increase of 10.5%. This represents an annualized return on equity, on
a last-twelve-months basis, of 20.5%.
    "The strong growth in premiums and net income achieved in the second
quarter of 2007, while maintaining profitability, is validation of our
strategy to diversify our business beyond the Ontario non-standard automobile
market," said Douglas McIntyre, Chief Executive Officer of EGI Financial.
"While underwriting results in the P&C insurance industry are trending down
toward the industry's historic norms, EGI's new businesses are driving steady
growth."

    
    Q2 2007 Personal Lines division performance:
    -  Net earned premiums increased 8.1% to $25.1 million
    -  Income before taxes increased 35.9% to $5.0 million(*)
    -  Combined ratio 80.0% compared with 84.1% for the 2006 period(*)

    Q2 2007 Niche Products division performance:
    -  Net earned premiums increased 58.7%, to $4.7 million
    -  Income before taxes decreased from $0.5 million to a loss of
       $0.2 million(*)
    -  Combined ratio 104.7% compared with 81.8% for the 2006 period(*)

    (*) Note that, due to the commencement of a reallocation of overhead
        expenses to the Niche Products division, income before taxes in the
        Personal Lines division was positively impacted by $0.4 million, with
        a corresponding negative impact on the Niche Products division.
        Corporate expenses of $0.3 million were not allocated to the
        divisions in the second quarter.
    

    For the six months ended June 30, 2007, EGI Financial generated direct
written and assumed premiums totaling $72.5 million, 15.6% above the
$62.7 million level in the corresponding period last year. As indicated in the
second quarter discussion, EGI's new business initiatives have resulted in an
increase in premiums despite competitive market conditions in Ontario
non-standard auto business.
    Net written and assumed premiums increased 19.8% to $67.6 million. As
noted in Q2, the incremental growth above that of written premiums was
primarily attributable to more effective utilization of the Company's capital,
through greater retention of risk. Net earned premiums rose 6.5% in 2007 to
$54.6 million from $51.3 million. While this was less than the increase in net
written and assumed premiums due to the Company's changing mix of business,
the additional premiums will earn over the second half of the year.
    In the six months ended June 30, 2007 total underwriting income increased
21.9% to $5.8 million, compared to $4.8 million in 2006. The increase was
attributable to an improved loss ratio and increased income from Niche
Products, before the change in allocated corporate expenses.
    The combined ratio for the six-month period in 2007 was 89.3% compared
with 90.6% for the same period last year. The loss ratio in the 2007 period
was 56.7% and the expense ratio was 32.6%. This compares with 60.0% and 30.6%
respectively in the first half of 2006.
    Investment income for the six months ended June 30, 2007 was $4.7 million
compared to $4.4 million for the same period in 2006. As in Q2, the
improvement in 2007 is the result of an increase in the investment portfolio
on a year-over-year basis.
    Net income increased 9.3%, to $6.9 million for the six months ended
June 30, 2007, compared to $6.3 million for the same period in 2006, due
primarily to the improvement in the loss ratio in 2007. Fully diluted net
income per share, on the same basis, was $0.66 in the 2007 period, compared to
$0.62 in the same period last year, an increase of 6.5%.

    
    Six-months 2007 Personal Lines division performance:
    -  Net earned premiums decreased 0.8% to $45.5 million
    -  Income before taxes increased 15.3% to $5.8 million(*)
    -  Combined ratio 87.3% compared with 89.1% for the 2006 period(*)

    Six-months 2007 Niche Products division performance:
    -  Net earned premiums increased 69.0% to $5.8 million
    -  Income before taxes increased 56.8% to $0.6 million(*)
    -  Combined ratio 93.9% compared with 93.5% for the 2006 period(*)

    (*) Note that, due to the commencement of a reallocation of overhead
        expenses to the Niche Products division, income before taxes in the
        Personal Lines division was positively impacted by $0.4 million, with
        a corresponding negative impact on the Niche Products division.
        Corporate and other expenses of $0.5 million were not allocated to
        the divisions in the six months ended June 30, 2007.
    

    EGI Financial also announced that its Board of Directors has declared a
dividend of $0.05 per common share, payable on September 28, 2007 to
shareholders of record on September 14, 2007.
    Geographically, EGI Financial's business in the first half of 2007 was
derived from Ontario (71%), Quebec (9%), Alberta (3%), other jurisdictions in
Canada (7%) and United States (10%).
    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. In addition,
the AOCI was credited an amount of $5.2 million representing the adjustment to
fair value of investments, net of income tax. This amount is offset by an
Other Comprehensive Loss of $1.4 million in the first half of 2007, reflecting
a decline in fair value of bonds in the period.
    Attributable in part to these changes, total assets at June 30, 2007 were
$317.5 million. The investment portfolio at fair value, including cash and
premium finance receipts, increased to $237.2 million, or $24.59 per share,
compared to $205.9 million, or $21.43 per share, a year earlier. Book value
per share was $9.93 at June 30, 2007 compared with $8.93 per share as at
Dec. 31, 2006 and $7.90 per share at June 30, 2006.
    The annualized ratio of net written premiums in the first half of 2007 to
shareholders' equity was 1.4 times. Echelon's Minimum Capital Test (MCT)
margin at June 30, 2007 was 315%, 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)
are available on the Company's web site at: www.egi.ca/financial.html.
    "The first half of 2007 was in line with management's expectations,"
added Mr. McIntyre. "As we look out to the balance of 2007, we expect to
continue to produce solid financial results."

    About EGI Financial
    -------------------
    Founded in 1997, EGI Financial operates in the property and casualty
insurance industry in Canada, 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
Wednesday, August 15, 2007 at 10:00 a.m. (ET). The call-in numbers for
participants are 416-644-3423 or 800-594-3790. A live audio feed of the call
will also be available on the Internet at:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1951400
    A replay of the call will be available from 12:00 p.m. (ET) on August 15,
2007 until 11:59 p.m. on August 22, 2007. To access the replay, call
416-640-1917 or 877-289-8525, enter pass code number 21242413, and then press
the pound (No.) key. The replay can also be accessed over the Internet at the
above address.



    
                         EGI FINANCIAL HOLDINGS INC.
                         Consolidated Balance Sheets
                              (in $ thousands)


                                                       June 30   December 31
    Assets                                                2007          2006
                                                    (unaudited)
    Cash and short-term deposits .................  $   12,959    $   17,153
    Investments (note 3) .........................     203,841       179,383
    Reinsurers' share - unearned premiums ........       3,343         3,831
                      - unpaid claims ............      49,596        48,385
    Accounts receivable ..........................      25,290        22,182
    Income taxes recoverable .....................         658           572
    Due from insurance companies .................       6,839         3,996
    Deferred policy acquisition costs ............      10,226         7,465
    Capital assets ...............................       1,112           799
    Future income taxes ..........................       3,313         4,403
    Prepaid expenses and other assets ............         323           270
                                                   ------------  ------------
                                                    $  317,500    $  288,439
                                                   ------------  ------------
                                                   ------------  ------------

    Liabilities

    Provision for unpaid claims (note 4) .........     156,003       146,101
    Unearned premiums ............................      55,355        43,154
    Unearned commission ..........................         472           733
    Accounts payable and accrued liabilities .....       4,858         4,746
    Payable to insurance companies ...............       3,636         4,428
    Income taxes payable .........................       1,056         3,151
    Other liabilities ............................         280            85
                                                   ------------  ------------
                                                       221,660       202,398
                                                   ------------  ------------

    Shareholders' Equity

    Share capital (note 6) .......................      45,871        45,833
    Contributed surplus ..........................         200           149
    Retained earnings ............................      45,971        40,059
    Accumulated other comprehensive income .......       3,798             -
                                                   ------------  ------------
                                                        95,840        86,041
                                                   ------------  ------------
                                                    $  317,500    $  288,439
                                                   ------------  ------------
                                                   ------------  ------------



                         EGI FINANCIAL HOLDINGS INC.
                      Consolidated Statements of Income
                       for the Quarters ended June 30
                 (in $ thousands, except per share amounts)


                                  Quarter to June 30     6 months to June 30
                               ----------------------  ----------------------
                                    2007        2006        2007        2006
                                                (unaudited)
                               ----------------------------------------------
    Revenue:
      Direct written and
       assumed premiums        $  42,299   $  36,622   $  72,495   $  62,714
                               ----------  ----------  ----------  ----------
      Net written and assumed
       premiums                   39,308      32,970      67,631      56,463
                               ----------  ----------  ----------  ----------
      Net earned premiums         29,808      26,189      54,598      51,263
      Investment income            2,068       1,801       4,669       4,435
                               ----------  ----------  ----------  ----------
                               $  31,876   $  27,990   $  59,267   $  55,698
                               ----------  ----------  ----------  ----------
    Expenses
      Incurred claims             15,844      14,213      30,975      30,792
      Acquisition costs            6,518       4,939      12,148       9,919
      Operating costs              2,913       3,178       5,638       5,764
                               ----------  ----------  ----------  ----------
                                  25,275      22,330      48,761      46,475
                               ----------  ----------  ----------  ----------
    Income before income taxes     6,601       5,660      10,506       9,223
    Income tax expense             2,252       1,803       3,630       2,932
                               ----------  ----------  ----------  ----------

    Net income                 $   4,349   $   3,857   $   6,876   $   6,291
                               ----------  ----------  ----------  ----------

    Earnings per share
     (note 7)
      Net income per share     $    0.45   $    0.40   $    0.71   $    0.65
      Net income per diluted
       share                   $    0.42   $    0.38   $    0.66   $    0.62



                         EGI FINANCIAL HOLDINGS INC.
         Consolidated Statements of Changes in Shareholders' Equity
                          and Comprehensive Income
                       for the Quarters ended June 30
                              (in $ thousands)


                                  Quarter to June 30     6 months to June 30
                               ----------------------  ----------------------
                                    2007        2006        2007        2006
                                                (unaudited)
                               ----------------------------------------------
    Share capital
      Balance, beginning of
       period                  $  45,852   $  45,522   $  45,833   $  47,660
      Common shares issued            19         148          38         165
      Redemption of Series F
       special shares                  -           -           -      (2,155)
                               ----------  ----------  ----------  ----------
      Balance, end of period      45,871      45,670      45,871      45,670
                               ----------  ----------  ----------  ----------

    Contributed surplus
      Balance, beginning
       of period                     174         107         149          80
      Stock options - granted         28          21          55          48
                    - exercised       (2)                     (4)
                               ----------  ----------  ----------  ----------
      Balance, end of period         200         128         200         128
                               ----------  ----------  ----------  ----------

    Retained earnings
      Balance, beginning of
       period                     42,104      26,667      40,059      24,845
      Net income                   4,349       3,857       6,876       6,291
      Dividends - Series F
                  special
                  shares               -           -           -        (229)
                - Common shares     (482)       (384)       (964)       (767)
                               ----------  ----------  ----------  ----------
      Balance, end of period      45,971      30,140      45,971      30,140
                               ----------  ----------  ----------  ----------

    Accumulated other
     comprehensive income
      Balance beginning of
       period                      5,307                       -
      Transition adjustment
       - financial instruments         -                   5,173
      Net change in unrealized
       gains/losses on
       available-for-sale
       securities                 (1,509)                 (1,375)
                               ----------              ----------
      Balance, end of period       3,798                   3,798
                               ----------              ----------

    Shareholders' equity, end
     of period                 $  95,840   $  75,938   $  95,840   $  75,938
                               ----------  ----------  ----------  ----------
    Comprehensive income
      Net income                   4,349                   6,876
      Other comprehensive
       income, net of taxes
      Net unrealized gains
       (losses) on available-
       for-sale securities        (1,192)                   (793)
      Reclassification
       adjustment for gains/
       losses included in
       net income                   (317)                   (582)
                               ----------              ----------
      Other comprehensive
       income                     (1,509)                 (1,375)
                               ----------              ----------
      Total comprehensive
       income                  $   2,840               $   5,501
                               ----------              ----------



                         EGI FINANCIAL HOLDINGS INC.
                    Consolidated Statements of Cash Flows
                       for the Quarters ended June 30
                              (in $ thousands)


                                  Quarter to June 30     6 months to June 30
                               ----------------------  ----------------------
                                    2007        2006        2007        2006
                                                (unaudited)
                               ----------------------------------------------
    Cash provided by (used in):
    Operating activities:
      Net income               $   4,349   $   3,857   $   6,876   $   6,291
      Items not involving cash:
        Amortization of capital
         assets                       93         104         193         223
        Amortization of premium
         on bonds                    105         105         228         173
        Realized losses (gains)
         on investments              277         406        (107)       (453)
        Other                         28           -          55           -
                               ----------  ----------  ----------  ----------
                                   4,852       4,472       7,245       6,234

    Net change in other non-
     cash balances                 8,510      11,030       8,348       9,663
                               ----------  ----------  ----------  ----------
                               $  13,362   $  15,502   $  15,593   $  15,897
                               ----------  ----------  ----------  ----------

    Financing activities:
      Issue of common shares          17         148          34         165
      Redemption of Series F
       special shares                  -           -           -      (2,384)
      Common share dividends        (482)       (384)       (964)       (767)
                               ----------  ----------  ----------  ----------
                               $    (465)  $    (236)  $    (930)  $  (2,986)
                               ----------  ----------  ----------  ----------
    Investing activities:
      Purchase of capital
       assets                       (278)       (116)       (506)       (191)
      Purchase of investments    (59,122)    (48,643)   (106,396)   (110,468)
      Sale/maturity of
       investments                51,728      38,313      88,045     100,021
                               ----------  ----------  ----------  ----------
                               $  (7,672)  $ (10,446)  $ (18,857)  $ (10,638)
                               ----------  ----------  ----------  ----------

    Increase (decrease) in cash
     and short-term deposits       5,225       4,820      (4,194)      2,273
    Cash and short-term
     deposits, beginning of
     period                        7,734      13,352      17,153      15,899
                               ----------  ----------  ----------  ----------
    Cash and short-term
     deposits, end of period   $  12,959   $  18,172   $  12,959   $  18,172
                               ----------  ----------  ----------  ----------

    Supplementary information
      Income taxes paid        $   2,145   $     542   $   6,836   $   6,568
                               ----------  ----------  ----------  ----------
    

    %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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