Echelon Financial Holdings Inc. Reports Second Quarter 2020 Results

TORONTO, Aug. 20, 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 second quarter of 2020. 

COVID-19 PANDEMIC UPDATE
Since June, 2020, ICPEI has resumed full operations in its office in Charlottetown while employees in the Mississauga office are still working from home.

ICPEI continued to provide a number of accommodations to its policyholders if they experienced hardship because of COVID-19 and adjusted 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.

The number of motor vehicle claims in second quarter and for the six months ended June 30, 2020 was lower compared to the same periods in prior year. The impact is reflected in the lower claims expense. The lower frequency of claims in auto is related to reduced driving and better weather conditions. In the first quarter of 2020, ICPEI recorded a provision of $0.2 million for expenses. While no specific claim losses have been recorded, in the second quarter, provision for unpaid claims was increased by $0.6 million as provision for adverse development ("PFAD") to incorporate uncertainty of COVID-19 impact on claims.

ICPEI has postponed auto rate increase of 25% in New Brunswick which was to be effective June 1, 2020 to be effective September 1, 2020 and at the same time offered a 10% COVID-19 discount to New Brunswick auto rates. ICPEI implemented a slight reduction in auto rates in the Province of Nova Scotia.

The effects on the Company's development of critical estimates during the second 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. In this quarter, markets have recovered most of the losses suffered in the first quarter of this year. The Company recorded a gain in investment of $0.5 million in its profit and loss and recorded $2.7 million of unrealized gain in its other comprehensive income.

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. PFAD margin factors were revised to incorporate uncertainty of the impact of COVID-19 on claims which resulted in increase in IBNR of $0.6 million in the second quarter. ICPEI will continue to monitor all developments in future.

Credit risk

During the second quarter of 2020, the Company's exposure to credit risk continued to remain high primarily due to the continued 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 second 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.

SECOND QUARTER HIGHLIGHTS

• Direct written premiums increased in the second quarter by $0.8 million over the same period in 2019. The COVID-19 pandemic did not have a significant impact on direct premiums written for the second quarter of 2020 when compared to the same period in prior year.
  
  
• Underwriting income was $0.6 million better than the same period in 2019 as earned premium was $1.0 million higher while net incurred claims was $0.1 million lower; offset by higher net acquisition and operating expenses.
  
  
• Investment income was $0.6 million higher in the second quarter compared to same period in 2019 largely due to positive performance of preferred shares portfolio which had positive fair value change of $0.5 million that was recorded to income.
  
  
• Closing book value per share of $7.52 compared to $7.29 at end of first quarter; largely due to the impact of gains in other comprehensive income to shareholders.

The financial information below compares three and six months ended June 30, 2020 results with the same periods in 2019.

	3 months ended June 30		6 months ended June 30
($ THOUSANDS except per share amounts)	2020	2019	2020	2019
Direct written and assumed premiums	11,793	10,972	19,830	17,929
Net earned premiums	8,971	7,921	17,430	15,462
Net claims incurred	4,769	4,853	9,155	9,405
Net acquisition costs	2,194	1,701	4,084	3,364
Operating expenses	1,297	1,239	2,634	2,162
Corporate expense	253	201	593	703
Underwriting  income ^(1)	711	128	1,557	531
Investment  income ^(2)	987	430	966	985
Impact of change in discount rate on claims	(131)	(138)	-	(308)
Net  income before income taxes	1,314	219	1,930	505
Income tax expense	442	22	610	105
Net  income on continued operations	872	197	1,320	400
Net  income on discontinued operations	-	55,405	-	46,220
Net Income	872	55,602	1,320	46,620
Net  income attributed to:
Shareholders of the Company –	624	138	954	220
continued operations
Shareholders of the Company –	-	55,405	-	46,220
discontinued operations
Non-controlling interest – continued	248	59	366	180
operations
Earnings per share
Continued operations
Basic	$0.05	$0.01	$0.08	$0.02
Diluted	$0.05	$0.01	$0.08	$0.02
Discontinued operations
Basic	-	$4.62	-	$3.86
Diluted	-	$4.54	-	$3.77

^(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 costs, operating expenses, and excludes any impact of change in discount rate on claims and corporate expenses. Loss ratio is net claims incurred divided by net earned premiums. Expense ratio is net acquisition costs plus operating expenses divided by net earned premiums. Combined ratio is the sum of loss ratio and expense ratio. 

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.  

For more information, please visit www.efh.ca

SOURCE Echelon Financial Holdings Inc.

Investor Relations, 905-602-2150, [email protected]

Related Links

http://www.echeloninsurance.ca/