Echelon Financial Holdings Inc. Reports First Quarter 2020 Results

TORONTO, May 26, 2020 /CNW/ - Echelon Financial Holdings Inc. ("EFH" or "The Company") (TSX: EFH) which operates in the property and casualty insurance industry in Canada, today reported results for the first quarter of 2020.

The rapid spread of the COVID-19 virus, which was declared by the World Health Organization to be a pandemic on March 11, 2020, and actions taken in Canada and globally in response to COVID-19, have significantly disrupted business activities. ICPEI implemented its emergency operational plan which included transitioning most employees to work from home and only a small number of staff in the office to perform functions which could not be performed remotely. Although the office was closed to the public, claim services and support for brokers continued during this time.  Since May 4, 2020, ICPEI has begun a partial reopening of its office in Charlottetown.

ICPEI has provided a number of accommodations to its policyholders if they experience hardship because of COVID-19 and adjust their auto premiums due to reduction of use. ICPEI has only experienced a very minor increase in the number of customer defaults and very few requests to lower monthly premiums based on lower usage of vehicles. These did not have a significant impact on the results of the Company in the first quarter of 2020 as it recorded a provision of $200.

The number of motor vehicle claims decreased significantly in the month of March and its impact is reflected in the lower claims expense in the first quarter of 2020. The experience for April is similar to March of this year. ICPEI suspended a recently approved auto rate increase in New Brunswick which was to be effective June 1, 2020 and filed for a slight reduction in auto rates in the Halifax Nova Scotia territory.

The effects on the Company's development of critical estimates during the first quarter of 2020 are described below:

Investment valuation

The Company's valuation technique and recognition of impairment remain unchanged. The Company's investments are valued at fair value using Level 1 or Level 2 inputs that are primarily based on quoted market prices. The Company has no Level 3 investments that require more assumptions and judgement in their valuation. As a result of the market volatility in March, the Company recorded a loss in investment of $749 in its profit and loss and $2,370 of unrealized loss in its other comprehensive loss. Market volatility continued and in April the Company recovered some of those losses.

Provision for unpaid claims

ICPEI does not provide insurance coverage specifically for pandemic risk. However, in its commercial property policies, it offers coverage for business interruption. Based on outside legal counsel review and Insurance Bureau of Canada guidance, ICPEI does not believe that business interruption claims from pandemic Covid-19 are covered perils. No provision has been made.  ICPEI will monitor all developments.

Credit risk

During the first quarter of 2020, the Company's exposure to credit risk increased primarily due to the potential effects of COVID-19 pandemic on the Company's reinsurers, insurance contract receivables from customers, and issuers of the Company's investments in bonds. There were no significant changes used in the first quarter of 2020 to monitor and evaluate credit risks. There was no downgrade of reinsurers' credit rating and there were no significant delinquent payments from customers. Valuation of investment bonds is based on observable market values which already reflect the associated credit risks associated with the issuers.

There has been no development in the arbitration proceedings relating to the claim filed by New Nordic Odin Denmark against the Company other than it has been delayed due to the COVID-19 pandemic and the case is not expected to be heard until the fourth quarter of this year.

FIRST QUARTER HIGHLIGHTS

• Direct written premiums increased in the first quarter by $1.1 million over the same period in 2019 as the Company implemented rate increases. The COVID-19 pandemic did not have a significant impact on direct premiums written for the first quarter of 2020.
  
  
• Underwriting income was $0.4 million better than the same period in 2019 as earned premium was $0.9 million higher while net incurred claims was $0.2 million lower; offset by higher net acquisition and operating expenses.
  
  
• Investment income was $0.6 million lower in the first quarter compared to same period in 2019 largely due to adverse performance of preferred shares portfolio which had negative fair value change of $ 0.8 million that was charged to income. The equity market had a major downturn in the month of March 2020 because of the COVID 19 pandemic resulting in a net unrealized loss of $2.4 million in other comprehensive loss and a $0.1 million write down on equity investment in this quarter.
  
  
• Closing book value per share of $7.29 compared to $7.45 at end of 2019; largely due to the other comprehensive loss to shareholders.

Financial Summary 

	3 months ended March 31
($ THOUSANDS except per share amounts)	2020	2019
Direct written and assumed premiums	8,037	6,957
Net earned premiums	8,459	7,541
Net claims incurred	4,386	4,551
Net acquisition costs	1,890	1,663
Operating expenses	1,337	922
Corporate expense	340	503
Underwriting  income ^(1)	846	405
Investment (loss) income ^(2)	(21)	555
Impact of change in discount rate on claims	131	(171)
Net  income before income taxes	616	286
Income tax expense	168	83
Net  income on continued operations	448	203
Net (loss) on discontinued operations	-	(9,187)
Net Income (loss)	448	(8,984)
Net  income (loss) attributed to:
Shareholders of the Company – continued operations	331	82
Shareholders of the Company – discontinued operations	-	(9,187)
Non-controlling interest – continued operations	117	121
Earnings (loss)  per share
Continued operations
Basic	$0.03	$0.01
Diluted	$0.03	$0.01
Discontinued operations
Basic	-	($0.77)
Diluted	-	($0.77)

^(1)	Underwriting income excludes impact of change in claims discount rates and corporate expenses.
^(2)	Net investment income consists of interest income, dividend income, less investment expense.

Non-IFRS Financial Measures 
EFH uses both IFRS and certain non-IFRS measures to assess performance.  Securities regulators require that companies caution readers about non-IFRS measures that do not have a standardized meaning under IFRS and are unlikely to be comparable to similar measures used by other companies.  EFH analyzes performance based on underwriting income and underwriting ratios such as combined, expense and loss ratios, which are non-IFRS measures.  Underwriting income is defined as net earned premiums less net claims incurred, net acquisition expenses, general expenses, integration costs and excludes any impact of change in discount rate on claims and corporate expenses.

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, litigation outcomes and outlook of EFH.  These statements, which appear in this press release generally can be identified by the use of forward-looking words such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "plan", "would", "should", "could", "trend", "predict", "likely", "potential" or "continue" or the negative thereof and similar variations.

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 EFH's control, affect the operations, performance and results of its business and could cause actual results to differ materially from the expectations expressed in any of this forward-looking information.

About Echelon Financial Holdings Inc.
Founded in 1998, Echelon Financial Holdings Inc. operates in the property and casualty insurance industry in Canada, providing personal and commercial lines insurance exclusively through the broker channel.  The Company distributes insurance products through The Insurance Company of Prince Edward Island.  It trades on the Toronto Stock Exchange under the symbol EFH.  

SOURCE Echelon Financial Holdings Inc.

please visit www.efh.ca; Investor Relations, 905-602-2150, [email protected]

Related Links

http://www.echeloninsurance.ca/