Echelon Insurance Reports Third Quarter Results and Increases Common Share Dividend by 9%
TORONTO, Nov. 5, 2015 /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 a net loss attributable to shareholders of $3.6 million, or $0.31 per diluted share, for the three months ended September 30, 2015.
The Company also announced a 9% increase in its quarterly dividend to 12 cents per share.
Third Quarter 2015 Highlights
- Net operating income of $0.15 per share compared to $0.33 in the third quarter of 2014.
- An underwriting loss of $0.7 million for the quarter compared to underwriting income of $0.1 million in the third quarter of 2014.
- Combined operating ratio of 100.8% compared to 99.8% in the third quarter of 2014.
- A 25% increase in direct written premiums over the same period in 2014 to $131.2 million, mostly driven by growth in the International division.
- Total pre-tax loss on invested assets of $1.2 million in the quarter compared to pre-tax return of $4.3 million in the third quarter of 2014, primarily due to mark-to-market losses on Canadian preferred shares.
- A decrease in book value per share of 2.8% in the quarter to $15.55 per share, primarily due to weak investment results.
"Overall, it was a mixed quarter for the company," said Steve Dobronyi, Chief Executive Officer. "Strong underwriting results in Canada were more than offset by volatility in capital markets and disappointing results in Europe."
"Ontario, Quebec and the Maritimes all made strong contributions to underwriting profits," he commented. "In Europe, results were impacted by a spike in claims frequency on young drivers and as a result we continue to build prudent reserves to support the business. We have already taken immediate action on the affected areas and have de-risked the underwriting profile through program cancellations, underwriting restrictions and other management initiatives."
"We're proud of the business that we've built in Europe over the past several years," he continued. "We are well positioned to selectively underwrite only the risks with the highest profit margins and are excited by the opportunity to now realize the value that's been built. Coupled with the consistent profitability of our Canadian business and an increase in our shareholder dividend, Echelon continues to offer an attractive mix of value, growth and income to our shareholders."
Dividend
The Board of Directors increased the quarterly dividend by 9% to 12 cents per outstanding common share. The dividend is payable on January 4, 2016, to shareholders of record on December 8, 2015.
Financial Summary
| $000s |
Three Months |
Three Months |
% |
Nine Months |
Nine Months |
% |
| Direct written and assumed premiums |
131,164 |
104,876 |
25 |
359,809 |
286,072 |
26 |
| Net earned premiums |
84,186 |
76,560 |
10 |
229,408 |
200,543 |
14 |
| Underwriting (loss) income |
(678) |
122 |
(656) |
(2,508) |
(2,657) |
(6) |
| Investment (loss) income |
(2,763) |
6,345 |
(144) |
7,099 |
17,974 |
(61) |
| Net income (loss) |
(3,732) |
5,536 |
(167) |
4,536 |
10,328 |
(56) |
| Net operating income(1) |
1,754 |
3,944 |
(56) |
8,896 |
8,277 |
8 |
| Net income (loss) per diluted share |
($0.31) |
$0.41 |
(176) |
$0.39 |
$0.87 |
(55) |
| Net operating income per diluted share(2) |
$0.15 |
$0.33 |
(55) |
$0.74 |
$0.68 |
9 |
| Book value per share |
$15.55 |
$15.19 |
2 |
$15.55 |
$15.19 |
2 |
| (1) |
Net operating income is defined as net income excluding the impact of the change in discount rate and foreign exchange rates on unpaid claims and investments, realized losses or gains on sale of investments, discontinued operations, unrealized fair value changes on Fair Value Through Profit or Loss (FVTPL) investments and one-time, non-recurring charges. |
| (2) |
Net operating income is adjusted to that attributable to shareholders for per share calculation. |
Third Quarter Review
Net operating income of $1.8 million or $0.15 per share was recorded in the quarter, compared to $3.9 million or $0.33 per share in the third quarter of 2014. The decrease was primarily due to lower underwriting income in the International segment, in addition to higher corporate expenses. Corporate expenses include a $1.0 million one-time payment to SGI Canada for favourable development on prior year claims reserves at The Insurance Company of Prince Edward Island ("ICPEI").
Personal Lines generated underwriting income of $1.9 million compared to $0.5 million in the same period last year, due to strong performance in Atlantic Canada, Quebec and Western Canada.
Commercial Lines generated underwriting income of $2.0 million compared to $0.8 million in the same period last year, due to strong results in Quebec Commercial lines and Western Canada commercial property.
The International division generated an underwriting loss of $2.1 million compared to underwriting income of $0.6 million in the same period last year primarily due to higher claims frequency than expected from the UK-based telematics learner driver program. Details of de-risking initiatives in the European operations are provided below.
Direct written premiums increased by 25%, attributable primarily to a $23.1 million, or 40%, growth in the International division.
Investment losses were $2.8 million compared to investment gains of $6.3 million in the third quarter of 2014. The total pre-tax loss on invested assets was $1.2 million in the quarter compared to $4.3 million pre-tax gain in the third quarter of 2014. The preferred share portfolio was adversely impacted by decreasing interest rates in Canada. Fixed income was adversely impacted by increasing interest rates in Europe and widening corporate spreads globally. These losses were partially offset by currency gains due to the strengthening of the Euro to the Canadian dollar. The fair value of Echelon's investment portfolio, including finance receivables, was $545 million, up 3% from the third quarter of 2014.
Total operating and corporate expenses, including a $1.0 million ICPEI purchase adjustment, incurred in the third quarter of 2015 were in line with the prior year. Excluding the ICPEI purchase price adjustment of $1 million, total operating expenses decreased by 11% compared to the comparative quarter, primarily due to lower technology-related amortization.
On a consolidated basis, a net favourable development of prior year claims of $4.8 million was recorded in the third quarter of 2015 compared to favourable development of $5.6 million in the same period in 2014.
De-Risking of the International Segment
After a full review, the following management actions have been undertaken to limit the risk of the International segment:
- A telematics learner driver program has now been provided with provisional notice of cancellation.
- A marginally profitable Accident and Sickness program has been cancelled, effective January 1, 2016.
- A new program moratorium has been implemented with immediate effect.
- An increase in external reinsurance and coinsurance has been implemented, in addition to premium volume caps on all UK and Irish motor insurance programs. Over 85% of the UK and Irish motor business will be ceded externally in 2016, an increase from approximately 50% in 2015. As a result, the net premiums for UK and Irish motor, as a percentage of our overall European business, will decrease from approximately 50% in 2015 to about 20% in 2016.
We believe the actions above will result in a smaller International segment, but one that is more profitable, more proven, less volatile and less capital intensive. It will have a more balanced risk profile and greater diversification by both product and geography, and it will allow management to focus more of its time and efforts on the highly profitable and successful Scandinavian business.
Nine-Month Review
Net operating income of $8.9 million or $0.74 per share was recorded compared to $8.3 million or $0.68 per share for the same period in 2014 primarily due to higher underwriting, interest and dividend income. Direct written premiums increased by 26%, attributable primarily to a $60.0 million, or 42%, growth in the International division and the inclusion of a full year of ICPEI premiums.
Investment income was $7.1 million compared to $18.0 million in the third quarter of 2014 primarily due to mark-to-market losses on Canadian preferred shares. The total pre-tax return on invested assets was $5.3 million compared to $20.1 million in the same period of 2014.
Total operating and corporate expenses, including the $1.0 million ICPEI purchase adjustment incurred in the first nine months 2015, increased by 8% over the prior year, lower than the 14% increase in net earned premiums.
On a consolidated basis, a net favourable development of prior year claims of $9.7 million was recorded in the nine months ended September 30, 2015, compared to favourable development of $10.2 million in the same period in 2014.
Operating Results
| Underwriting Income |
Three Months |
Three Months |
Nine Months |
Nine Months |
| Personal Lines |
1,856 |
478 |
6 |
6,079 |
| Commercial Lines |
1,993 |
804 |
2,691 |
(498) |
| International |
(2,098) |
568 |
1,135 |
(4,473) |
| Key Operating Ratios |
||||
| Loss ratio(2) |
61.5% |
60.4% |
61.4% |
61.1% |
| Expense ratio |
39.3% |
39.4% |
39.7% |
40.2% |
| Combined ratio |
100.8% |
99.8% |
101.1% |
101.3% |
| Loss Ratios(2) |
||||
| Personal Lines |
63.5% |
65.4% |
69.1% |
60.8% |
| Commercial Lines |
51.9% |
38.1% |
51.8% |
50.6% |
| International |
62.9% |
61.5% |
56.5% |
65.6% |
| (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 |
Capital Management
The Minimum Capital Test (MCT) ratio of EFH's Canadian subsidiary, Echelon Insurance, as at September 30, 2015, was 216%, which comfortably exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions (OSFI). ICPEI's MCT ratio of 267% was in excess of provincial supervisory targets. The Company's European subsidiary, Qudos, had a Danish Financial Services Authority (DKFSA) Individual Solvency ratio of 120%, in excess of the DKFSA target. In September 2015, the Company injected $5 million of capital into its European subsidiary to support its premium growth and strengthen its regulatory ratios. The Company's ownership stake has increased to 95.5% from 93% as at June 30, 2015.
The Company repurchased 27,700 common shares at an average price of $14.21 for a total consideration of $0.4 million under an automatic share repurchase plan up to November 5, 2015. Year-to-date, the Company re-purchased and cancelled 74,600 common shares under the NCIB program at an average price of $13.41 per share for a total consideration of $1.0 million.
In addition to excess capital at Echelon Insurance, the Company has approximately $17 million of excess deployable capital invested in liquid assets in the holding company.
For the nine months ended September 30, 2015, total shareholders' equity decreased by $1.1 million to $182.5 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 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 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 Friday, November 6, 2015, 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 62642570. 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=1078724&s=1&k=D7FC0F5DCBB61CFE7CC14F4133ACC628
A replay of the call will be available until November 13, 2015. To access the replay, call 416-849-0833, or toll free 1-855-859-2056, enter password 62642570. An archive will be available on our website following the event.
About Echelon Insurance
Founded in 1998, Echelon operates in the property and casualty insurance industry in Canada and Europe, primarily focusing on non-standard automobile insurance and other niche and specialty insurance solutions. 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, 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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