Echelon Insurance Reports Third Quarter 2017 Results
TORONTO, Nov. 2, 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 $0.9 million, or $0.07 per diluted share, for the three months ended September 30, 2017.
All operating results below refer to continued operations.
Third Quarter 2017 Highlights
- Net operating income on continued operations of $0.10 per share compared to income of $0.13 per share in the third quarter of 2016, a decrease of 23%.
- A combined operating ratio of 103% compared to 97% in the third quarter of 2016, driven by the impact of the British Columbia (BC) wildfires, one large loss in Commercial Auto, and increased Motorcycle claims due to unusually dry late summer weather experienced in Ontario. Excluding the impact of the wildfires, the Company would have reported a combined operating ratio of 99.5% for the quarter.
- A 34% increase in direct written premiums over the same period in 2016 to $78.0 million as a result of organic growth in Personal Lines and new Commercial Lines products launched in 2016.
- Net favourable development of prior year claims of $12.3 million was recorded in the third quarter of 2017 compared to net favourable development of $4.5 million in the same period in 2016 driven by better than expected development of prior year claims, particularly in Personal Lines, in addition to an increase in discount rate.
- A pre-tax loss on invested assets of $1.0 million in the quarter that was negatively impacted by lower returns on the fixed income portfolio due to higher short-term bond yields in the quarter, compared to a pre-tax gain of $3.7 million in the third quarter of 2016.
- Closing book value per share of $12.14, a decrease of 0.9% over the second quarter of 2017.
"Our results for the quarter were adversely impacted by the wildfires in British Columbia, a large loss in Commercial Auto and an unusual number of large losses in Motorcycle," commented Serge Lavoie, Chief Executive Officer. "We remain committed to supporting our customers who have experienced losses in BC, and across the country," he added. "We continue to execute on our broker-focused strategy, which has been well received by brokers across the country. We have also made good progress in the deployment of our new policy management system leading to improved broker connectivity and customer service in the future."
Financial Summary on Continued Operations
| $000s (except per share amounts) |
Three Months |
Three Months |
% |
Nine Months |
Nine Months |
% |
| Direct written and assumed premiums |
78,047 |
58,171 |
34 |
217,668 |
168,083 |
30 |
| Net earned premiums |
60,017 |
46,452 |
29 |
162,490 |
135,047 |
20 |
| Underwriting (loss) |
(3,428) |
(429) |
(699) |
(1,235) |
(2,969) |
58 |
| Investment income |
2,416 |
4,487 |
(46) |
13,880 |
13,348 |
4 |
| Net income |
810 |
1,402 |
(42) |
11,469 |
4,517 |
154 |
| Net operating income(1) |
1,211 |
1,580 |
(23) |
6,865 |
5,497 |
25 |
| Net income per diluted share |
$0.07 |
$0.10 |
(30) |
$0.95 |
$0.33 |
188 |
| Net operating income per diluted share(2) |
$0.10 |
$0.13 |
(23) |
$0.57 |
$0.46 |
24 |
| Book value per share |
$12.14 |
$12.90 |
(6) |
$12.14 |
$12.90 |
(6) |
| (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. |
Third Quarter Review
The Company reported net operating income of $1.2 million or $0.10 per share in the quarter, compared to income of $1.6 million or $0.13 per share in the third quarter of 2016, a decrease of 23%.
Direct written premiums increased by 34% to $78.0 million, primarily due to organic growth in Personal Lines and the growth of Commercial Lines products launched in 2016.
Personal Lines generated an underwriting loss of $0.2 million compared to an underwriting income of $0.2 million in the same period last year, due to a $2.0 million adverse impact from the wildfires in British Columbia in addition to an unusual number of large losses in the Motorcycle line of business. Excluding the impact of the wildfires, Personal Lines would have reported a combined ratio of 95.8% for the quarter.
Commercial Lines generated an underwriting loss of $1.5 million compared to an underwriting income of $1.3 million in the same period last year, driven by one large loss in Commercial Auto.
Investment income was $2.4 million compared to $4.5 million in the third quarter of 2016. The pre-tax loss on invested assets was $1.0 million in the quarter, negatively impacted by lower returns on the fixed income portfolio due to increased underlying government bond yields in the quarter, compared to a pre-tax gain of $3.7 million in the third quarter of 2016. The fair value of Echelon's investment portfolio, including finance receivables, was $452 million.
Net favourable development of prior year claims of $12.3 million was recorded in the third quarter of 2017, compared to favourable development of $4.5 million in the same period in 2016. Although the Company has experienced significant favourable development of prior year claims in the quarter there can be no assurance that this level of favourable development will recur in the future.
Operating Results
| Underwriting Income (Loss) (1) $000s |
Three Months |
Three Months |
Nine Months |
Nine Months |
|
| Personal Lines |
(161) |
179 |
3,079 |
353 |
|
| Commercial Lines |
(1,537) |
1,295 |
1,582 |
2,135 |
|
| Key Operating Ratios |
|||||
| Loss ratio |
72.2% |
61.5% |
64.0% |
63.0% |
|
| Expense ratio |
30.6% |
35.0% |
33.1% |
35.2% |
|
| Combined ratio |
102.8% |
96.5% |
97.1% |
98.2% |
|
| Loss Ratios |
|||||
| Personal Lines |
73.7% |
67.4% |
67.6% |
67.3% |
|
| Commercial Lines |
68.2% |
40.2% |
53.7% |
48.6% |
| (1) |
Excluding head office overhead costs |
Nine-Month Review
The Company reported net operating income of $6.9 million or $0.57 per share compared to $5.5 million or $0.46 per share for the same period in 2016, an increase of 24%.
Direct written premiums increased by 30% as a result of organic growth in Personal Lines and growth in new Commercial Line products launched in 2016.
Personal Lines generated underwriting income of $3.1 million compared to an underwriting income of $0.4 million in the same period last year, primarily due to strong performance in Ontario and Quebec auto.
Commercial Lines generated an underwriting income of $1.6 million compared to $2.1 million in the same period last year, predominantly due to one large loss in commercial auto.
Investment income was $13.9 million compared to $13.3 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 and dividend income. The total pre-tax return on invested assets was $4.2 million compared to $8.2 million in the same period of 2016 as a result of lower returns on the fixed income portfolio due to increased underlying government yields.
Operating expenses incurred in 2017 increased by 4% over the prior year to $22.9 million, primarily due to increased headcount and information technology costs.
Net favourable development of prior year claims of $23.5 million was recorded in the nine months ended September 30, 2017 compared to favourable development of $13.8 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 September 30, 2017, was 228%, which comfortably exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions (OSFI). ICPEI's MCT ratio of 329% was in excess of provincial supervisory targets.
The Company has approximately $16.3 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 its growth.
For the nine month period ended September 30, 2017, total shareholders' equity increased by $6.8 million to $144.2 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.
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, November 3, 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 95265092. A live audio feed of the call will be available online through the Company's website at echeloninsurance.ca, or directly at conference call.
A replay of the call will be available until November 10, 2017. To access the replay, call 416-849-0833, or toll free 1-855-859-2056, password 95265092. 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, providing personal and commercial lines insurance exclusively through the broker channel. The Company operates and 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.
Kathy Shulman, Manager, Investor Relations, 905-214-7880, [email protected]
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