Echelon Insurance reports fourth quarter and 2015 annual results
TORONTO, Feb. 17, 2016 /CNW/ - Echelon Financial Holdings Inc. ("EFH" or "the Company") (TSX: EFH), which operates in the property and casualty insurance industry in Canada and Europe, today reported net income attributable to shareholders of $3.6 million, or $0.30 per diluted share, for the three months ended December 31, 2015.
Fourth Quarter Highlights
- Net operating income of $0.01 per share compared to $0.75 in the fourth quarter of 2014.
- Underwriting loss of $3.6 million for the quarter compared to underwriting income of $7.6 million in the fourth quarter of 2014.
- Combined operating ratio of 104% compared to 90% in the fourth quarter of 2014.
- A 72% increase in direct written premiums over the same period in 2014 to $135.3 million primarily driven by growth in the International division.
- Total pre-tax return on invested assets of $8.4 million in the quarter compared to a pre-tax return of $6.8 million in the fourth quarter of 2014.
- An increase in book value per share of 1.3% in the quarter to $15.75 per share.
"We're very pleased with the continued strong performance of our Canadian operations," said Steve Dobronyi, Chief Executive Officer. "Both Personal and Commercial businesses continue to exceed our target profitability, with combined ratios of 90% and 78% respectively for the quarter. Our Canadian business is consistently profitable with Personal Lines having now delivered an underwriting profit in 19 of the past 21 quarters and Commercial Lines 7 in a row."
"However, these great results are offset by a $6.8 million underwriting loss in the International segment," he continued. "The underwriting loss is primarily due to prior period reserve changes and one-time charges on cancelled programs."
"We are now four years into our journey in Europe and premium volumes have met the business plan. However, underwriting profitability has fallen short of expectations as the mix of business has drifted too heavily toward the less proven UK motor business. We are currently reviewing the strategy and the future of our International operations and our Company's capital allocation plans. At the same time, we continue to implement the previously announced measures to reduce our exposure to UK motor premiums and deliver consistent underwriting profitability in Europe."
Dividend
The Board of Directors declared a quarterly dividend of $0.12 per outstanding common share. The dividend is payable on April 1, 2016, to shareholders of record on March 10, 2016.
Financial Summary
| $000s (except per share amounts) |
Three Months |
Three Months |
% Change |
Twelve |
Twelve |
% Change |
| Direct written and assumed premiums |
135,282 |
78,832 |
72 |
495,091 |
364,904 |
36 |
| Net earned premiums |
81,503 |
77,491 |
5 |
310,911 |
278,034 |
12 |
| Underwriting income (loss) |
(3,591) |
7,584 |
(147) |
(6,099) |
4,927 |
(224) |
| Investment income |
6,788 |
6,358 |
7 |
13,887 |
24,333 |
(43) |
| Net income |
3,682 |
8,403 |
(56) |
8,218 |
18,732 |
(56) |
| Net operating income(1) |
151 |
9,005 |
(98) |
9,048 |
16,890 |
(46) |
| Net income per diluted share |
$0.30 |
$0.68 |
(56) |
$0.69 |
$1.56 |
(56) |
| Net operating income per diluted share(2) |
$0.01 |
$0.75 |
(99) |
$0.76 |
$1.40 |
(46) |
| Book value per share |
$15.75 |
$15.82 |
0 |
$15.75 |
$15.82 |
0 |
| (1) Net operating income is defined as net income excluding the impact of the change in discount rate and foreign exchange rates on unpaid |
|
| (2) Net operating income is adjusted to that attributable to shareholders for per share calculation. |
Fourth Quarter Review
Net operating income of $0.2 million or $0.01 per share was recorded in the quarter, compared to $9.0 million or $0.75 per share in the fourth quarter of 2014. The decrease was due to an underwriting loss of $3.6 million compared to underwriting income of $7.6 million for the same period in 2014.
Personal Lines generated underwriting income of $3.3 million compared to $5.5 million in the same period last year, due to a small number of large losses in personal property in Western Canada.
Commercial Lines generated underwriting income of $2.2 million compared to $2.0 underwriting income in the same period last year driven by improved results in Atlantic and Western Canada
The International segment generated an underwriting loss of $6.8 million compared to an income of $1.3 million in the same period last year, primarily due to $5.7 million of underwriting losses on programs provided with notice of cancellation, including the UK learning driver telematics program. This included one time adjustments of $2.0 million that were recorded for premium deficiencies, additional internal adjustment expenses and reserve recoveries related to the cancelled programs. Scandinavian warranty performance continues to perform at an 87% combined ratio.
Direct written premiums increased by 72%, attributable primarily to a $58.1 million or 170% growth in the International division.
Investment income was $6.8 million compared to an income of $6.4 million in the fourth quarter of 2014. The total pre-tax return on invested assets was $8.4 million in the quarter compared to $6.8 million in the fourth quarter of 2014. The fair value of Echelon's investment portfolio, including finance receivables, was $550 million, a 2% increase from the fourth quarter of the prior year. This was driven by strong performance of preferred shares in the quarter.
On a consolidated basis, a net favourable development of prior year claims of $8.1 million was recorded in the fourth quarter of 2015 compared to favourable development of $0.9 million in the same period in 2014.
Operating Results
| Underwriting Income (Loss)(1) $000s |
Three Months Ended |
Three Months Ended |
Twelve Months Ended |
Twelve Months Ended |
| Personal Lines |
3,303 |
5,526 |
3,309 |
11,605 |
| Commercial Lines |
2,198 |
1,985 |
4,889 |
1,487 |
| International |
(6,786) |
1,293 |
(5,651) |
(3,179) |
| Key Operating Ratios |
||||
| Loss ratio(2) |
64.4% |
51.0% |
62.2% |
58.3% |
| Expense ratio |
40.0% |
39.2% |
39.8% |
39.9% |
| Combined ratio |
104.4% |
90.2% |
102.0% |
98.2% |
| Loss Ratios(2) |
||||
| Personal Lines |
58.7% |
51.4% |
66.5% |
58.2% |
| Commercial Lines |
38.3% |
39.0% |
48.5% |
47.5% |
| International |
76.6% |
54.9% |
62.1% |
62.5% |
| (1) Excluding head office overhead costs and impact of change in discount and foreign exchange rate on unpaid claims |
|
| (2) Loss ratio excludes impact of change in discount and foreign exchange rate on unpaid claims |
Twelve-Month Review
Net operating income of $9.0 million or $0.76 per share was recorded compared to $16.9 million or $1.40 per share for the same period in 2014. The decrease is related to poorer International results.
An underwriting loss of $6.1 million was reported compared to income of $4.9 million for the same period in 2014, driven by strong results in Commercial lines, offset by poor performance on UK auto cancelled programs in the International segment.
Direct written premiums increased by 36%, attributable primarily to a $118.1 million or 66% growth in the International division.
Investment income was $13.9 million compared to $24.3 million in 2014 primarily due to market losses on Canadian preferred shares. Total pre-tax return on invested assets was $13.6 million compared to $26.8 million in the same period of 2014. The fair value of Echelon's investment portfolio, including finance receivables, was $550 million, down 2% from the fourth quarter of the prior year.
Operating expenses incurred in 2015 increased by 11% over the prior year, in line with the 12% increase in net earned premiums.
On a consolidated basis, a net favourable development of prior year claims of $17.9 million was recorded in the twelve months ended December 31, 2015 compared to favourable development of $11.3 million in the same period in 2014.
Capital Management
All regulated entities remain well-capitalized. The Minimum Capital Test (MCT) ratio of EFH's Canadian subsidiary, Echelon Insurance, as at December 31, 2015, was 241%, which comfortably exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions (OSFI). ICPEI's MCT ratio of 296% was in excess of provincial supervisory targets. The Company's European subsidiary, Qudos, had a Danish Financial Services Authority (DKFSA) Individual Solvency ratio of 122%, in excess of the DKFSA target.
In addition to excess capital at Echelon Insurance, the Company has approximately $11 million of excess deployable capital invested in liquid assets in the holding company.
For the twelve months ended December 31, 2015, total shareholders' equity increased by $1.1 million to $184.7 million from December 31, 2014.
Full Financial Statements and Management's Discussion and Analysis (MD&A) are available on SEDAR and on the Company's web site at Echelon.
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.
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 2015 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 and 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 Thursday, February 18, 2016, 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 27533328. A live audio feed of the call will be available online through the Company's website at www.echelon-insurance.ca, or directly at http://event.on24.com/r.htm?e=1119899&s=1&k=22C2D2145D0D2D51659FC92BB97ECB55
A replay of the call will be available until February 25, 2016. To access the replay, call 416-849-0833, or toll free 1-855-859-2056, enter password 27533328
About Echelon Financial Holdings Inc.
Founded in 1997, Echelon operates in the property and casualty insurance industry in Canada and Europe, primarily focusing on non-standard automobile insurance and other specialty P&C insurance products. The Company operates and distributes insurance products through Echelon Insurance, The Insurance Company of Prince Edward Island and Qudos Insurance. It trades on the Toronto Stock Exchange under the symbol EFH. For more information, please visit echeloninsurance.ca.
SOURCE Echelon Financial Holdings Inc.
Kathy Shulman, Manager, Investor Relations, 905-214-7880, [email protected]
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