Echelon Insurance Reports Fourth Quarter 2017 Results
TORONTO, Feb. 15, 2018 /CNW/ - Echelon Financial Holdings Inc. ("EFH" or "the Company") (TSX: EFH), which operates in the property and casualty insurance industry in Canada, today reported net loss attributable to shareholders on continued operations of $5.0 million, or $0.42 per diluted share, for the three months ended December 31, 2017.
All operating results below refer to continued operations.
Fourth Quarter 2017 Highlights
- Net operating loss on continued operations of $0.51 per share compared to income of $0.40 per share in the fourth quarter of 2016.
- A combined operating ratio of 115% compared to 90% in the fourth quarter of 2016, primarily due to increased severity of claims compared to the prior year quarter, especially in Atlantic Auto.
- A 38% increase in direct written premiums over the same period in 2016 to $68.1 million as a result of organic growth in Personal Lines and growth in new Commercial Lines products launched in 2016.
- A pre-tax gain on invested assets of $3.6 million in the quarter compared to a pre-tax loss of $0.6 million in the prior year quarter, attributable to positive returns on the fixed income portfolio driven by spread compression in provincial and corporate bonds in addition to strong returns in the preferred share and equity portfolios.
- Closing book value per share of $12.01, a decrease of 1% over the third quarter of 2017.
"Despite unsatisfactory results in the fourth quarter of 2017, we have made significant progress in achieving the strategic objectives that were set out at the beginning of the year," commented Serge Lavoie, Chief Executive Officer. "2017 marked the launch of new products and our policy management system, and Echelon received strong support from our broker partners."
"Notwithstanding these achievements, our financial results in the most recent quarter were impacted by increased claims severity in our Personal Automobile business, particularly in Atlantic Canada, and increased claims frequency in Ontario Auto," he continued. "We are confident that multiple actions taken to refine our rates since the summer of 2016 will begin to take effect on our results over the coming quarters. In addition, we recently filed for additional single and double-digit rate increases across Canada, and we are committed to continual product and rate reviews to ensure the profitability of our operations."
Financial Summary on Continued Operations
| $000s (except per share amounts) |
Three Months ended December 31, 2017 |
Three Months ended December 31, 2016 |
% Change |
Twelve Months ended December 31, 2017 |
Twelve Months ended December 31, 2016 |
% Change |
||||
| Direct written and assumed premiums |
68,050 |
49,403 |
38 |
285,718 |
217,486 |
31 |
||||
| Net earned premiums |
64,906 |
46,013 |
41 |
227,396 |
181,060 |
26 |
||||
| Underwriting (loss) income |
(11,208) |
2,555 |
(539) |
(12,443) |
(414) |
(2,906) |
||||
| Investment income |
3,316 |
3,159 |
5 |
17,196 |
16,507 |
4 |
||||
| Net (loss) income |
(4,826) |
2,601 |
(286) |
6,643 |
7,118 |
(7) |
||||
| Net operating (loss) income(1) |
(6,252) |
4,857 |
(229) |
613 |
10,354 |
(94) |
||||
| Net (loss) income per diluted share |
($0.42) |
$0.22 |
(291) |
$0.54 |
$0.55 |
(2) |
||||
| Net operating (loss) income per diluted share(2) |
($0.51) |
$0.40 |
(228) |
$0.05 |
$0.86 |
(94) |
||||
| Book value per share |
$12.01 |
$11.70 |
3 |
$12.01 |
$11.70 |
3 |
||||
| (1) |
Net operating income is defined as underwriting income plus interest and dividend income, net of tax, excluding catastrophe losses. |
| (2) |
Net operating income is adjusted to that attributable to shareholders for per share calculation. |
Fourth Quarter Review
The Company reported net operating loss of $6.3 million or $0.51 per share in the quarter, compared to income of $4.9 million or $0.40 per share in the fourth quarter of 2016, a decrease of 228%.
Direct written premiums increased by 38% to $68.1 million, primarily due to organic growth in Personal Lines and new Commercial Lines products launched in 2016.
Personal Lines generated an underwriting loss of $12.3 million compared to an underwriting loss of $3.5 million in the same period last year, due to increased severity of claims in Atlantic Canada, and higher frequency in Ontario auto compared to the same period last year.
Commercial Lines generated an underwriting income of $2.4 million compared to an underwriting income of $7.9 million in the same period last year due to increased frequency in the Warranty book in Western Canada and reduced reserve redundancies experienced in the quarter.
Investment income was $3.3 million compared to $3.2 million in the fourth quarter of 2016. The pre-tax gain on invested assets was $3.6 million in the quarter due to positive returns in the fixed income, preferred share and equity portfolios, compared to a pre-tax loss of $0.6 million in the fourth quarter of 2016. The fair value of Echelon's investment portfolio, including finance receivables, was $469 million.
Net favourable development of prior year claims of $2.3 million was recorded in the fourth quarter of 2017, compared to favourable development of $3.4 million in the same period in 2016.
Operating Results
| Underwriting Income (Loss)(1) $000s |
Three Months ended December 31, 2017 |
Three Months ended December 31, 2016 |
Twelve Months ended December 31, 2017 |
Twelve Months ended December 31, 2016 |
| Personal Lines |
(12,265) |
(3,530) |
(9,186) |
(3,177) |
| Commercial Lines |
2,421 |
7,856 |
4,003 |
9,991 |
| Key Operating Ratios |
||||
| Loss ratio |
81.4% |
55.8% |
69.0% |
61.2% |
| Expense ratio |
33.8% |
34.5% |
33.3% |
35.0% |
| Combined ratio |
115.2% |
90.3% |
102.3% |
96.2% |
| Loss Ratios |
||||
| Personal Lines |
95.3% |
78.3% |
75.3% |
70.1% |
| Commercial Lines |
47.9% |
(18.3)% |
51.9% |
31.2% |
| (1) |
Excluding head office overhead costs |
Twelve-Month Review
The Company reported net operating income of $0.6 million or $0.05 per share compared to $10.4 million or $0.86 per share for the same period in 2016, a decrease of 94%.
Direct written premiums increased by 31% as a result of organic growth in Personal Lines and new Commercial Lines products launched in 2016.
Personal Lines generated an underwriting loss of $9.2 million compared to an underwriting loss of $3.2 million in the same period last year as a result of increased severity of claims in Atlantic Auto and Ontario Motorcycle and a $2 million net impact of the British Columbia wildfires.
Commercial Lines generated an underwriting income of $4.0 million compared to $10.0 million in the same period last year, primarily due to weaker results in Warranty and Commercial Auto, in addition to reduced redundancies on prior claims.
Investment income was $17.2 million compared to $16.5 million in 2016, due to realized foreign exchange gains arising on investment hedges from the sale of the European operations in the first quarter of 2017, partially offset by lower interest income. The total pre-tax return on invested assets was $7.8 million compared to $7.5 million in the same period of 2016.
Operating expenses incurred in 2017 increased by 6% over the prior year to $31.0 million, primarily due to increased headcount and information technology costs.
Net favourable development of prior year claims of $25.7 million was recorded in the twelve months ended December 31, 2017, compared to favourable development of $17.2 million in the same period in 2016. Although the Company has experienced significant favourable development of prior year claims in the year, there can be no assurance that this level of favourable development will recur in the future.
Capital Management
All related entities remain well capitalized. The Minimum Capital Test (MCT) ratio of EFH's Canadian subsidiary, Echelon Insurance, as at December 31, 2017, was 212%, which comfortably exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions (OSFI). ICPEI's MCT ratio of 355% was in excess of provincial supervisory targets.
As at December 31, 2017, the Company has approximately $29 million of excess deployable capital invested in liquid assets at the holding company. EFH currently intends to use any excess capital in addition to capital generated from its operations to fund the growth in its insurance operating companies.
For the twelve-month period ended December 31, 2017, total shareholders' equity increased by $5.4 million to $142.8 million from December 31, 2016.
Full Financial Statements and Management's Discussion and Analysis (MD&A) are available on SEDAR and on the Company's web site at echeloninsurance.ca.
Non-IFRS Financial Measures
EFH 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. EFH analyzes performance based on operating income and underwriting ratios such as combined, expense and loss ratios.
Discontinued Operations
On March 7, 2017, the Company completed the sale of its European operations. The European operation results are referred to as discontinued operations in this release.
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 EFH for 2017 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 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.
EFH does not undertake to update any forward-looking information. Additional information about the risks and uncertainties about Echelon'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 Friday, February 16, 2018, at 11:00 a.m. (ET). The call-in numbers for participants are 647-427-7450 or toll free 1-888-231-8191, Conference ID 9293626. A live audio feed of the call will be available online through the Company's website at echeloninsurance.ca, or directly at the following link.
A replay of the call will be available until February 23, 2018. To access the replay, call 416-849-0833, or toll free 1-855-859-2056, password 9293626. An archive will be available on our website following the event.
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 Echelon Insurance and The Insurance Company of Prince Edward Island. It trades on the Toronto Stock Exchange under the symbol EFH. For more information, please visit echeloninsurance.ca.
SOURCE Echelon Financial Holdings Inc.
Jennifer Kew, Investor Relations, 905-214-7880, [email protected]
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