Echelon Insurance Reports Third Quarter 2018 Results
TORONTO, Nov. 14, 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 income attributable to shareholders on continued operations of $0.3 million, or $0.02 per diluted share, for the three months ended September 30, 2018.
Agreement to sell Echelon Insurance
On November 9, 2018, the Company announced that it has entered into a definitive agreement to sell Echelon Insurance, its main operating subsidiary, and the unregulated warranty business held directly by EFH to CAA Club Group for $175 million, payable in cash. This agreement is subject to customary conditions including receipt of shareholder approval, required insurance regulatory and government approvals, Toronto Stock Exchange approval and Competition Act approval. The terms and conditions of the Agreement will be disclosed in greater detail in EFH's information circular (the "Information Circular") that is anticipated to be mailed to shareholders in December 2018.
Based on EFH's reported balance sheet as at September 30, 2018, The Company estimates that after the sale, the remaining liquid net tangible assets are $28 million in addition to its interest in ICPEI which is approximately $10 million.
Third Quarter 2018 Highlights
- Net operating income of $0.18 per share compared to $0.10 per share in the third quarter of 2017.
- A combined operating ratio of 98% compared to 103% in the third quarter of 2017.
- A 35% increase in direct written premiums over the same period in 2017 to $105.0 million as a result of organic growth in Personal and Commercial Lines nationally.
- A pre-tax gain on invested assets of $1.8 million in the quarter compared to a pre-tax loss of $1.0 million in the prior year quarter, as a result of positive returns from both the Fixed Income and Preferred Share portfolios.
- Closing book value per share of $12.89, an increase of $0.01 from the second quarter of 2018.
"Echelon reported positive third quarter results, with a 98% combined operating ratio, and strong growth in both Personal and Commercial Lines," commented Serge Lavoie, Chief Executive Officer.
"Our Personal Lines segment performed well, with a 94% combined ratio overall. These results were again driven by strong performance in Ontario Auto, a segment that continues to grow profitably. We saw some deterioration in our Commercial Lines results during the quarter, however, this segment remains profitable year-to-date, with a 99.4% combined ratio," he continued.
"During the quarter, we saw strong growth and profitability in our largest regions, Ontario and Quebec. These results were offset by weaker performances in Atlantic and Western Canada. We are actively conducting rate and underwriting reviews to address profitability in these regions.
"We continued to focus and invest in our systems during the quarter. In addition to enhancing our Passport Portal in preparation for its launch to Alberta and Quebec brokers, we introduced a new data warehouse and analytics platform, which our Actuarial team will leverage to conduct enhanced data analysis, and predictive modeling," he continued. "Our Brokers are enthusiastic about our improved technology, and are increasing their use of our direct upload feature. During the end of the quarter, 70% of new business submissions were uploaded directly to our Passport System for processing and issuance, bringing us closer to our goal of 90% usage."
"Overall, we are pleased with our recent progress, and are satisfied with the gradual return to profitability that we are seeing in our third quarter results year over year." he concluded.
Financial Summary on Continued Operations
$000s (except per share amounts) |
Three Months |
Three Months |
% Change |
Nine Months |
Nine Months |
% Change |
Direct written and assumed premiums |
105,027 |
78,047 |
35 |
297,147 |
217,668 |
37 |
Net earned premiums |
95,709 |
60,017 |
59 |
242,511 |
162,490 |
49 |
Underwriting income |
(1,495) |
(3,428) |
(56) |
116 |
(1,235) |
(109) |
Investment income |
3,028 |
2,416 |
25 |
7,746 |
13,880 |
(44) |
Net income |
170 |
810 |
(79) |
9,801 |
11,469 |
(15) |
Net operating income(1) |
2,147 |
1,211 |
77 |
8,624 |
6,865 |
26 |
Net income per diluted share |
$0.02 |
$0.07 |
(71) |
$0.83 |
$0.95 |
(13) |
Net operating income per diluted share(2) |
$0.18 |
$0.10 |
80 |
$0.71 |
$0.57 |
25 |
Book value per share |
$12.89 |
$12.14 |
6 |
$12.89 |
$12.14 |
6 |
(1) |
Net operating income is defined as underwriting income plus interest and dividend income, net of tax, excluding catastrophic 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 $2.1 million or $0.18 per share in the quarter, compared to income of $1.2 million or $0.10 per share in the third quarter of 2017, an increase of 80%.
Direct written premiums increased by 35% to $105.0 million. The increase in premiums was driven by organic growth in Ontario Personal Auto and rate increases in Quebec Commercial Lines.
Personal Lines generated an underwriting income of $3.9 million, compared to an underwriting loss of $0.2 million in the same period last year, driven by exceptional results in Ontario auto.
Commercial Lines generated an underwriting loss of $1.8 million compared to an underwriting loss of $1.5 million in the same period last year due to strengthening of prior year reserves.
The Company's expense ratio decreased by 0.5% over the prior period, attributable to operational efficiencies realized as a result of the Passport system rollout.
Investment income was $3.0 million compared to $2.4 million in the third quarter of 2017. The pre-tax gain on invested assets was $1.8 million in the quarter, compared to a pre-tax loss of $1.0 million in the third quarter of 2017. The fair value of Echelon's investment portfolio, including finance receivables, was $528 million.
Net favourable development of prior year claims of $2.1 million was recorded in the third quarter of 2018, compared to favourable development of $12.3 million in the same period in 2017.
Operating Results
Underwriting Income(1) $000s |
Three Months |
Three Months |
Nine Months |
Nine Months |
Personal Lines |
3,900 |
(161) |
7,520 |
3,079 |
Commercial Lines |
(1,783) |
(1,537) |
472 |
1,582 |
Key Operating Ratios |
||||
Loss ratio |
67.7% |
72.2% |
64.1% |
64.0% |
Expense ratio |
30.1% |
30.6% |
32.6% |
33.1% |
Combined ratio |
97.8% |
102.8% |
96.7% |
97.1% |
Loss Ratios |
||||
Personal Lines |
67.0% |
73.7% |
66.8% |
67.6% |
Commercial Lines |
69.1% |
68.2% |
58.9% |
53.7% |
(1) Excluding head office overhead costs |
Capital Management
All related entities remain well capitalized. The Minimum Capital Test (MCT) ratio of EFH's subsidiary, Echelon Insurance, as at September 30, 2018, was 231%, which comfortably exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions (OSFI). ICPEI's MCT ratio of 297% was also in excess of provincial supervisory targets.
For the period ended September 30, 2018, total shareholders' equity increased by $10.9 million to $153.7 million from December 31, 2017.
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 August 4, 2016, Echelon entered into a definitive stock purchase agreement to sell its European insurance subsidiary to New Nordic Odin Guernsey Limited (NNGL), subject to regulatory approval. On February 28, 2017, regulatory approval was received from the Danish Financial Supervisory Authority, which completed the necessary approvals required for the sale. The Company completed the sale on March 7, 2017, and retains no residual insurance risk or other financial risk, other than credit risk associated with the loan receivable from the sale. The loan was repaid on June 29, 2018.
On October 29, 2018, the Company filed a Statement of Defence in response to a claim filed with the Danish Institute of Arbitration by New Nordic Advisors Limited (NNAL). The claim by NNAL relates to the sale of the Company's European Operations to NNGL. The Company denies all allegations made against it by NNAL and believes there is no merit to NNAL's claim for €45.8 million in damages.
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, litigation outcomes and outlook of EFH for 2018 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.
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.
Company contact information: Jennifer Kew, Investor Relations, 905-214-7880, [email protected]
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