Echelon Insurance Reports Second Quarter 2016 Results
TORONTO, Aug. 4, 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 on continued operations of $1.8 million, or $0.15 per diluted share, for the three months ended June 30, 2016.
The Company also announced today that it has entered into a definitive stock purchase agreement to sell its European insurance operations.
All operating results below refer to continued operations.
Second Quarter 2016 Highlights
- Net operating income on continued operations of $0.24 per share compared to an income of $0.21 per share in the second quarter of 2015.
- An underwriting loss on continued operations of $0.5 million for the quarter compared to an underwriting income of $0.3 million in the second quarter of 2015, negatively impacted by losses from Fort McMurray wildfires and a few unusually large auto claims.
- A combined operating ratio of 101% compared to 99% in the second quarter of 2015.
- Canadian operations generated a combined ratio of 97.7%.
- A 9% increase in net written premiums on continued operations over the same period in 2015 to $63.5 million, primarily driven by increased personal lines premiums.
- A loss of $2.23 per share on the International operations, consisting of an operating loss of $0.37 per share and a loss on the sale of the business of $1.86 per share.
- Total pre-tax gain on invested assets of $5.1 million in the quarter compared to a pre-tax loss of $1.1 million in the second quarter of 2015, primarily due to improved performance of the Canadian preferred share portfolio.
- An increase of $0.15 in book value per share from continued operations, less $2.23 per share for the International results, resulting in book value per share of $13.08.
"I am very pleased that we are executing on our strategy outlined in early 2016. We will have exited the European market expeditiously with no residual liabilities, allowing us to allocate our capital to grow the Canadian operations. At the same time we have completed the build of our surety, commercial auto and commercial property teams in order to offer our brokers a full product suite", commented Serge Lavoie, Chief Executive Officer.
"The second quarter was negatively impacted by the Fort McMurray wildfires and a very unusual number of large claims in Personal Lines. Our best wishes to those who have suffered losses and we continue to support our customers to manage their losses", he continued. "Our Canadian business has produced solid underwriting profits over time and the introduction of new products and enhanced systems will help accelerate growth through 2017 and beyond. We are building a much stronger and sustainable specialty insurance business in Canada directly aligned to the needs of our brokers and clients."
Financial Summary on Continued Operations
| $000s |
Three |
Three |
% |
Six Months |
Six Months |
% |
| Direct written and assumed |
67,791 |
63,378 |
7 |
109,912 |
105,604 |
4 |
| Net earned premiums |
45,247 |
43,140 |
5 |
88,595 |
85,681 |
3 |
| Underwriting income (loss) |
(502) |
271 |
(285) |
(2,540) |
(5,063) |
50 |
| Investment income (loss) |
4,916 |
3,782 |
30 |
8,861 |
8,942 |
(1) |
| Net income (loss) |
2,198 |
3,855 |
(43) |
3,116 |
4,733 |
(34) |
| Net operating income(1) |
2,873 |
2,569 |
12 |
3,916 |
1,659 |
136 |
| Net income per diluted share |
$0.15 |
$0.30 |
(50) |
$0.23 |
$0.41 |
(44) |
| Net operating income per diluted |
$0.24 |
$0.21 |
14 |
$0.33 |
$0.14 |
136 |
| Book value per share |
$13.08 |
$16.00 |
(18) |
$13.08 |
$16.00 |
(18) |
| (1) |
Net operating income is defined as underwriting income plus interest and dividend income, net of tax. |
| (2) |
Net operating income is adjusted to that attributable to shareholders for per share calculation. |
Second Quarter Review
Net operating income of $2.9 million or $0.24 per share was recorded in the quarter, compared to an income of $2.6 million or $0.21 per share in the second quarter of 2015. The increase was due to improved underwriting income of $1.5 million excluding the $2 million net impact of the Fort McMurray wildfire compared to underwriting income of $0.3 million for the same period in 2015.
Personal Lines generated an underwriting loss of $0.6 million compared to an underwriting income of $1.8 million in the same period last year primarily due to the net impact of the Fort McMurray wildfire on Personal Lines of $1.0 million and a few unusually large auto losses in the quarter.
Commercial Lines generated an underwriting income of $1.6 million compared to $0.3 million underwriting income in the same period last year primarily due to favourable development on prior year claims. The Company continues to focus on growing the Canadian business through product expansion, technology investments, and strong broker relationships.
Net written premiums increased by 9% to $67.8 million, reflecting strong broker relationships and an increase in policies in force in Ontario and Western Canada.
Investment income was $4.9 million compared to an income of $3.8 million in the second quarter of 2015 due to improved results on Canadian preferred shares portfolio. There was a total pre-tax return on invested assets of $5.1 million in the quarter compared to a pre-tax loss of $1.1 million in the second quarter of 2015. The fair value of Echelon's investment portfolio, including finance receivables, was $415 million.
Operating expenses increased by $1.0 million or 17%, to $7.2 million in the second quarter of 2016 compared to $6.2 million in the comparative quarter, primarily due to an increase in salaries and benefits.
On a consolidated basis, a net favourable development of prior year claims of $7.3 million was recorded in the second quarter of 2016 compared to favourable development of $3.2 million in the same period in 2015.
Operating Results
| Underwriting Income $000s |
Three Months |
Three Months |
Six Months |
Six Months |
| Personal Lines |
(569) |
1,816 |
174 |
(1,850) |
| Commercial Lines |
1,586 |
254 |
840 |
698 |
| Total Canadian Operations |
1,017 |
2,070 |
1,014 |
(1,152) |
|
|
||||
| Loss ratio |
62.4% |
61.3% |
63.8% |
67.5% |
| Expense ratio |
35.3% |
33.9% |
35.1% |
33.8% |
| Combined ratio |
97.7% |
95.2% |
98.9% |
101.3% |
|
|
||||
| Personal Lines |
68.6% |
63.8% |
67.2% |
71.9% |
| Commercial Lines |
42.2% |
51.9% |
52.6% |
51.7% |
| (1) |
Excluding head office overhead costs |
Six-Month Review
Net operating income of $3.9 million or $0.33 per share was recorded compared to $1.7 million or $0.14 per share for the same period in 2015. The increase was due primarily to improved Personal Lines results in the year.
Personal Lines generated underwriting income of $0.2 million compared to an underwriting loss of $1.9 million in the same period last year, primarily due to higher favourable development on prior year claims.
Commercial Lines generated an underwriting income of $0.8 million compared to $0.7 million in the same period last year, primarily due to increased favourable development on prior year claims.
Net written premiums increased by 6%, attributable primarily to increases in personal lines policies.
Investment income was $8.9 million, in line with 2015. The total pre-tax return on invested assets was $4.5 million compared to $5.9 million in the same period of 2015.
Operating expenses incurred in 2016 increased by 12% over the prior year to $14.5 million reflecting an increase in salaries and benefits to support the Company's product and geographic expansion.
On a consolidated basis, a net favourable development of prior year claims of $9.3 million was recorded in the six months ended June 30, 2016 compared to favourable development of $6.0 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 June 30, 2016, was 240%, which exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions (OSFI). ICPEI's MCT ratio of 320% was in excess of provincial supervisory targets. The Company's European subsidiary, Qudos, had a Danish Financial Services Authority (DKFSA) Individual Solvency ratio of 113%, in excess of the DKFSA target.
The Company has approximately $5 million of excess deployable capital invested in liquid assets in the holding company. All regulated entities remain well-capitalized.
For the six months ended June 30, 2016, total shareholders' equity decreased by $31.3 million to $153.4 million from December 31, 2015.
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, August 5, 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 45538275. 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=1220804&s=1&k=A19853EE104693FA7A60874FA8A4D029
A replay of the call will be available until August 12, 2016. To access the replay, call 416-849-0833, or toll free 1-855-859-2056, password 45538275. An archive will be available on our website following the event.
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.
Company contact information: Kathy Shulman, Manager, Investor Relations; 905-214-7880; [email protected]
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