Echelon Insurance Reports Fourth Quarter and 2016 annual Results
TORONTO, Feb. 16, 2017 /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 income attributable to shareholders on continued operations of $2.6 million, or $0.22 per diluted share, for the three months ended December 31, 2016.
All operating results below refer to continued operations.
Fourth Quarter 2016 Highlights
- Net operating income on continued operations of $0.40 per share compared to an income of $0.39 per share in the fourth quarter of 2015.
- A Canadian combined operating ratio of 90% compared to 88% in the fourth quarter of 2015 driven by exceptionally strong commercial lines results in the quarter, offset by weak performance in Ontario auto.
- A 15% increase in direct written premiums over the same period in 2015 to $49.4 million, primarily driven by additional new commercial lines products across Canada.
- Total pre-tax loss on invested assets of $0.6 million in the quarter compared to a pre-tax gain of $6.2 million in the fourth quarter of 2015, largely due to higher government bond yields and lower gains on Preferred Shares compared to prior year quarter.
- Closing book value per share of $11.70.
- We are currently awaiting approval for the change of control application submitted to the Danish Financial Services authority for the divestiture of the European operations.
"We have made meaningful progress on our strategy, which was outlined earlier in the year. In addition to improving our personal lines operations, we have built strong teams to support our surety, commercial auto and commercial property products. These expanded business lines have been very well received by existing and new brokers, and we look forward to continuing to build and develop our relationships with them" commented Serge Lavoie, Chief Executive Officer. "We are also scheduled to roll out our policy management system to the majority of our brokers in Ontario, Quebec and Alberta in the next few weeks which will greatly improve our ability to transact seamlessly with them. We continue to wait for approval from the Danish Financial Services authority on the sale on of our European operations. Our expectation is that we will have a decision within the next two or three weeks.
"Our fourth quarter results were mixed. We were very pleased by the exceptional results reported in commercial lines across the country, however, our Personal Lines performance was negatively impacted by increased claims severity in Ontario auto, in line with market experience" he continued. "Most of these claims were reported prior to the introduction of the June 2016 reforms, which we hope will reduce catastrophic claims moving forward. We will continue to monitor our claims closely".
Financial Summary on Continued Operations
| $000s (except per share amounts) |
Three |
Three |
% Change |
Twelve |
Twelve |
% Change |
| Direct written and assumed premiums |
49,403 |
43,100 |
15 |
217,486 |
199,473 |
9 |
| Net earned premiums |
46,013 |
43,905 |
5 |
181,060 |
176,468 |
3 |
| Underwriting income (loss) |
2,555 |
3,197 |
(20) |
(414) |
(447) |
7 |
| Investment income (1) |
3,159 |
6,277 |
(50) |
16,507 |
12,613 |
31 |
| Net income |
2,601 |
8,807 |
(70) |
7,118 |
12,262 |
(42) |
| Net operating income(2) |
4,857 |
4,705 |
3 |
10,354 |
9,922 |
4 |
| Earnings per diluted share |
$0.22 |
$0.72 |
(69) |
$0.55 |
$1.02 |
(46) |
| Net operating income per diluted share |
$0.40 |
$0.39 |
3 |
$0.86 |
$0.83 |
4 |
| Book value per share |
$11.70 |
$15.75 |
(26) |
$11.70 |
$15.75 |
(26) |
| (1) |
Net investment income consists of interest income, dividend income and premium financing charges, less interest expense. |
| (2) |
Net operating income is defined as underwriting income plus interest and dividend income, net of tax. Underwriting income excludes impact of change in claims discount rates, foreign exchange on unpaid claims and investments, and non-recurring items. Net operating income is adjusted to that attributable to shareholders for per share calculation. |
Fourth Quarter Review
Net operating income of $4.9 million or $0.40 per share was recorded in the quarter, compared to an income of $4.7 million or $0.39 per share in the fourth quarter of 2015.
Personal Lines generated an underwriting loss of $3.5 million compared to an underwriting income of $3.3 million in the same period last year, primarily due to weak performance in Ontario auto driven by increased severity in claims. Commercial Lines generated an underwriting income of $7.9 million compared to $2.2 million in the same period last year due to strong performance across Canada. The Company continues to focus on growing the Canadian business through product expansion, investments in technology and strong broker relationships.
Direct written premiums increased by 15% to $49.4 million, primarily due to new product lines
Investment income was $3.2 million compared to $6.3 million in the fourth quarter of 2015 primarily due to lower preferred shares mark-to-market gains in the quarter compared to prior year quarter. The total pre-tax loss on invested assets was $0.6 million in the quarter compared to a pre-tax gain of $6.2 million in the fourth quarter of 2015, primarily due to higher government bond yields and weaker Preferred Share performance compared to the prior year quarter. The fair value of Echelon's investment portfolio, including finance receivables, was $410 million.
Net favourable development of prior year claims of $3.4 million was recorded in the fourth quarter of 2016 compared to favourable development of $8.3 million in the same period in 2015.
Operating Results
| Underwriting Income (Loss)(1) $000s |
Three Months Ended |
Three Months Ended |
Twelve Months |
Twelve Months |
| Personal Lines |
(3,530) |
3,303 |
(3,177) |
3,309 |
| Commercial Lines |
7,856 |
2,198 |
9,991 |
4,889 |
| Key Operating Ratios |
||||
| Loss ratio |
55.8% |
53.9% |
61.2% |
62.2% |
| Expense ratio |
34.5% |
33.6% |
35.0% |
33.2% |
| Combined ratio |
90.3% |
87.5% |
96.2% |
95.4% |
| Combined Ratios |
||||
| Personal Lines |
110.1% |
90.3% |
102.3% |
97.5% |
| Commercial Lines |
26.9% |
78.4% |
75.9% |
88.3% |
| (1) Excluding head office overhead costs |
Twelve-Month Review
Net operating income of $10.4 million or $0.86 per share was recorded compared to $9.9 million or $0.83 per share for the same period in 2015.
Personal lines generated an underwriting loss of $3.2 million compared to an underwriting income of $3.3 million in the same period last year, primarily due to weaker performance in Ontario auto. Commercial lines generated an underwriting income of $10.0 million compared to $4.9 million in the same period last year due to strong performance of property and liability, warranty and commercial auto products.
Direct written premiums increased by 9%, attributable predominantly to new product lines in surety and commercial auto and stronger broker relationships.
Investment income was $16.5 million compared to a $12.6 million in 2015, primarily due to improved performance of the preferred share portfolio compared to the prior period. Total pre-tax return on invested assets was $7.5 million compared to $6.0 million in the same period of 2015.
Operating expenses incurred in 2016 increased by 5% over the prior year to $29.2 million due to costs associated with upgrading and rolling out a new policy management system.
Net favourable development of prior year claims of $17.2 million was recorded in the twelve months ended December 31, 2016 compared to favourable development of $20.3 million in the same period in 2015.
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, 2016, was 237%, which exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions (OSFI). ICPEI's MCT ratio of 340% comfortably exceeded provincial supervisory targets. In addition, the Company has approximately $5 million of excess deployable capital invested in liquid assets in the holding company.
For the twelve months ended December 31, 2016, total shareholders' equity decreased by $43.5 million to $137.4 million from December 31, 2015, including impairment of $23.4 million relating to discontinued operations.
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.
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 2016 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 Friday, February 17, 2017, 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 56995968. A live audio feed of the call will be available online through the Company's website at echeloninsurance.ca, or directly at http://event.on24.com/r.htm?e=1352391&s=1&k=1DB94A55B815493C36AC893CD17A2B10
A replay of the call will be available until February 24, 2017. To access the replay, call 416-849-0833, or toll free 1-855-859-2056, password 56995968. An archive will be available on our website following the event.
About Echelon Financial Holdings Inc.
Founded in 1998, Echelon operates in the property and casualty insurance industry in Canada, 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.
Company contact information: Kathy Shulman, Manager, Investor Relations 905-214-7880 [email protected]
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