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Press release from CNW Group

EGI Financial Reports Strong Fourth Quarter Profits

Friday, February 25, 2011

EGI Financial Reports Strong Fourth Quarter Profits07:02 EST Friday, February 25, 2011TORONTO, Feb. 25 /CNW/ - EGI Financial Holdings Inc. ("EGI Financial") (TSX: EFH) today announced its results for the three and twelve months ended December 31, 2010.Q4 Financial HighlightsTotal comprehensive income of $5.4 million compared to a loss of $(5.1) in the fourth quarter of 2009Net income of $3.3 million from a loss of $(2.3) million in the fourth quarter of 2009Net income per fully diluted share of $0.26 compared to a loss of $(0.19) in the fourth quarter of 2009A 16% increase in net earned premiums over the fourth quarter of 2009Investment income of $3.7 million - excluding realized gains, investment income was $3.3 million versus $2.7 million in the fourth quarter of 2009A 10% increase in book value from the end of the fourth quarter of 2009 - book value at December 31, 2010, is $146 million, or $12.14 per shareAn 8% increase in the total fair value of the investment portfolio (including premium finance receivables) to $398 million during the quarter"We are pleased to report our third consecutive profitable quarter," said Steve Dobronyi, Chief Executive Officer of EGI.  "Our underwriting results continue to improve and, in the fourth quarter, we reached our profitability target by recording a combined ratio of 95%.  These results are evidence that the remedial actions taken over the past six to twelve months to restore the profitability of the business are having the desired effect.""Both our Personal Lines and Niche Products divisions recorded an underwriting profit for the quarter," continued Mr. Dobronyi.  "This is our fourth consecutive quarter of improved underwriting performance and we're pleased to be ahead of where we expected to be at this point in time.  The increase in earned premiums demonstrates that our company continues to grow but at a controlled and more manageable rate.""Our balance sheet remains strong and our regulated entities are well capitalized," added Mr. Dobronyi.  "We have a high quality investment portfolio, no goodwill and no debt.  These attributes all contribute to our A.M. Best issuer credit rating of bb+"."Going forward, our priorities are clear," Mr. Dobronyi concluded.  "The Ontario automobile market remains in disrepair, which provides opportunities for specialty insurers such as EGI.  We will protect our core non-standard automobile business through optimum service to our producers and the sophisticated selection of risk.  We will diversify by product through the growth of our Niche Products division and by geography through our start-up U.S. operation and expansion into underserved segments of the Canadian market.  We expect 2011 to provide a number of compelling opportunities for enhanced growth and profitability and we have the right team in place to capitalize on them as they arise."Financial Summary$000s(except per share amounts)3-months endedDec. 31, 20103-months ended Dec. 31, 2009%Change12-months ended Dec. 31, 201012-months ended Dec. 31, 2009%ChangeDirect written premiums37,05439,303(6)185,671163,86213Net earned premiums42,12136,43916162,873149,3799Underwriting income (loss)2,058(9,454)122(9,823)(9,339)(5)Interest expense-302(100)5681,212(53)Investment income3,7216,476(43)17,58117,771(1)Net income3,323(2,347)2424,2334,515(6)Comprehensive income5,361(5,081)20612,33714,084(12)Net income per diluted share0.26(0.19)2370.330.36(8)Book value per share12.1411.12912.1411.129Fourth Quarter HighlightsTotal comprehensive income was $5.4 million compared to a loss of $(5.1) in the fourth quarter of 2009.  Net income was $3.3 million versus a loss of $(2.3) million in the fourth quarter of 2009.Underwriting income for the fourth quarter of 2010 was $2.1 million.  Both the Personal Lines and Niche Products division reported an underwriting profit and a significant improvement over the fourth quarter of 2009.  Remedial actions taken to restore profitability are having the desired effect.     Underwriting Income (loss)*$millions3-months ended Dec. 31, 20103-months ended Dec. 31, 200912-months ended Dec. 31, 201012-months ended Dec. 31, 2009Personal Lines$0.5$(4.5)$(7.5)$(0.7)Niche Products$2.0$(3.5)$0.2$(3.4)International$(0.2)$(1.1)$(1.3)$(3.9)* Excluding head office overhead costsIn Personal Lines, the company targeted incurred claims in the Greater Toronto Area, in an effort to restore the profitability of Ontario private passenger business.  These initiatives included significant premium rate increases, changes to underwriting guidelines, the cancellation and rehabilitation of certain brokers, reduced commissions in select areas, the introduction of a maximum 6-month policy term and, as a last resort, judicial use of the Ontario risk sharing pool.In Niche Products, the improved underwriting results are due to greater underwriting discipline, a renewed attention to our Niche Products operating principles and more active management at the program level, such as the repricing or cancellation of underperforming programs.In the fourth quarter of 2010, net earned premiums increased by 16% over the fourth quarter of 2009.Direct written premiums decreased by 6% in the fourth quarter compared to the same period in 2009.  The majority of the decline in written premiums is temporary and due to management's decision to renew all Ontario private passenger policies with a maximum six-month term, effective November 1, 2010. This initiative was undertaken to accelerate the impact of premium rate increases, while also increasing administrative fees associated with six-month policies. There was also a small decrease in written premiums in the Niche Products division which is the result of the cancellation of several unprofitable programs during 2010.Investment income was $3.7 million during the fourth quarter.  Excluding realized gains, investment income was $3.3 million versus $2.7 million in the fourth quarter of 2009.12-Month ReviewFor the twelve months ended December 31, 2010, the Company recorded net income of $4.2 million, compared with net income of $4.5 million in the same period of 2009.  During the year an underwriting loss of $9.8 million was incurred, an increase of $0.5 million from the twelve months ended December 31, 2009.EGI's underwriting performance has improved quarter over quarter throughout 2010 as evidenced by the combined ratios below.      Combined Ratio3-months ended Dec. 31, 20093-months ended Mar. 31, 20103-months ended June 30, 20103-months ended Sep. 30, 20103-months ended Dec. 31, 2010Personal Lines116%114%105%108%98%Niche142%113%108%97%79%EGI Overall126%115%108%107%95%      EGI's target profitability is for a 95% combined ratio and this target was achieved in the fourth quarter of 2010.Direct written premiums increased by 13% to $186 million for the year ended December 31, 2010.  Direct written premiums for the Personal Lines division increased by 14% to $134 million.  The increase in premium volume is due to hardening conditions in the Ontario personal auto market and the growth of ancillary product lines, partially offset by remedial actions to deter unprofitable business and improve underwriting results.  In the Niche Products division, direct written premiums increased by 13% to $51 million. The majority of the increase came from the Commercial Auto product line.For the year ended December 31, 2010, shareholders' equity increased by 10% to $146 million.As at December 31, 2010, Echelon's Minimum Capital Test (MCT) ratio was 250% compared to the P&C insurance industry average Minimum Capital Test ratio of 237% (as per Office of the Superintendent of Financial Institutions' (OSFI) third-quarter 2010 information).EGI's Net Written Premiums-to-Capital ratio is a conservative 1.1:1.  EGI intends to preserve and grow its underwriting capital through appropriate pricing, underwriting discipline and conservative loss reserving practices.Selected pages from EGI's unaudited Financial Statements, along with supplementary information regarding the Company's quarterly results, are attached to this press release.About EGI FinancialFounded in 1997, EGI Financial operates in the property and casualty insurance industry in Canada and the United States, primarily focusing on non-standard automobile insurance and other niche and specialty general insurance products.  EGI Financial's common shares are traded on the Toronto Stock Exchange under the symbol EFH.Non-GAAP Financial MeasuresEGI Financial uses both Canadian generally accepted accounting principles (GAAP) and certain non-GAAP measures to assess performance.  Readers are cautioned that non-GAAP measures do not have a standardized meaning under GAAP and may not be comparable to similar measures used by other companies.  EGI Financial analyzes performance based on underwriting ratios such as combined, expense and loss ratios as defined in regulations established under the Insurance Companies Act (Canada).Forward-looking InformationThis 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 EGI Financial for 2011 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 EGI Financial's control, affect the operations, performance and results of EGI Financial and its business and could cause actual results to differ materially from the expectations expressed in any of this forward-looking information.EGI Financial does not undertake to update any forward-looking information.  Additional information about the risks and uncertainties about EGI Financial's business is provided in its disclosure materials, including its annual information form, filed with the securities regulatory authorities in Canada, available at www.sedar.com.EGI FINANCIAL HOLDINGS INC.Unaudited Consolidated Balance Sheets(in $ thousands)    December 31 2010December 31 2009Assets     Cash and short-term deposits17,03346,885Investments353,643294,365Reinsurers' share - unearned premiums6,4714,972 - provision for unpaid claims36,15238,736Accounts receivable31,71232,950Due from insurance companies7,3525,545Deferred policy acquisition costs15,97914,807Property and equipment414838Intangible assets531468Future income taxes4,1353,952Prepaid expenses and other assets1,3612,947 474,783446,465Liabilities     Bank indebtedness-19,550Provision for unpaid claims239,036207,220Unearned premiums78,33572,643Unearned commission728513Income taxes payable2,3944,151Accounts payable and accrued liabilities4,8246,312Payable to insurance companies2,0931,829Other liabilities1,007816 328,417313,034Shareholders' Equity     Share capital69,08768,618Contributed surplus532403Retained earnings64,53460,301Accumulated other comprehensive income12,2134,109 146,366133,431 474,783446,465   EGI FINANCIAL HOLDINGS INC.Unaudited Consolidated Statements of Income and Comprehensive Incomefor the years ended December 31(in $ thousands)(except per share amounts)    20102009Revenue   Direct written and assumed premiums185,671163,862 Net written and assumed premiums167,066149,745 Net earned premiums162,873149,379 Investment income17,58117,771 180,454167,150Expenses   Incurred claims119,130108,194 Acquisition costs35,83434,429 Operating costs17,73216,095 Interest expense5681,212 173,264159,930Income before income taxes7,1907,220Income tax expense2,9572,705   Net income4,2334,515   Other comprehensive income (loss), net of taxes   Change in unrealized gains on available-for-sale securities:   Net unrealized gains (losses) on available-for-sale investments12,18314,344 Reclassification of net realized (gains) losses to net income(3,487)(4,250)Unrealized losses on translation of financial statements of self-sustaining foreign operations(592)(525)Other comprehensive income (loss)8,1049,569Total comprehensive income (loss)12,33714,084      Earnings per share   Net income per share - basic$0.35$0.38 Net income per share - diluted$0.33$0.36    EGI FINANCIAL HOLDINGS INC.Unaudited Consolidated Statements of Changes in Shareholders' Equityfor the years ended December 31(in $ thousands)    20102009Share capital   Balance, beginning of year68,61867,056 Common shares issued4691,562 Balance, end of year69,08768,618   Contributed surplus   Balance, beginning of year403403 Stock options - granted (net of forfeitures)263191  - exercised  (134)(191) Balance, end of year532403   Retained earnings   Balance, beginning of year60,30156,605 Net income4,2334,515 Dividends - Common shares-(819) Balance, end of year64,53460,301   Accumulated other comprehensive income (loss)   Balance beginning of year4,109(5,460) Other comprehensive income (loss)8,1049,569 Balance, end of year12,2134,109   Shareholders' equity, end of year146,366133,431   EGI FINANCIAL HOLDINGS INC.Unaudited Consolidated Statements of Cash Flowsfor the years ended December 31(in $ thousands)    20102009Cash provided by (used in):  Operating activities   Net income4,2334,515 Items not involving cash:    Amortization9531,326  Amortization of premiums on bonds900736  Realized and unrealized (gains) losses on investments(5,065)(6,860)  Increase (decrease) in accrued investment income(135)97  Other356191 1,2425Cash flow from changes in   Reinsurers' share of unearned premiums(1,499)(1,260) Reinsurers' share of unpaid claims2,5843,165 Accounts receivable1,238(5,385) Income taxes recoverable-7,202 Due from insurance companies(1,807)3,518 Accounts payable and accrued liabilities(818)1,682 Provision for unpaid claims31,81621,965 Unearned premiums5,6921,489 Income taxes payable(5,617)(742) Future income taxes(183)(780) Prepaid expenses and other assets1,5861,258 Deferred policy acquisition costs(1,172)(104) 33,06232,013Financing activities   Repayment of bank indebtedness(19,550)  Issue of common shares2421,371 Common share dividends-(819) (19,308)552Investing activities   Acquisition of subsidiary, net of cash acquired22- Purchases of property and equipment and intangible assets(592)(260) Purchase of investments(382,899)(256,454) Sale/maturity of investments339,863241,923 (43,606)(14,791)   Increase in cash and short-term deposits(29,852)17,774Cash and short-term deposits, beginning of year46,88529,111Cash and short-term deposits, end of year17,03346,885   Supplementary information   Income taxes paid9,0954,392 Interest paid6841,215    SUPPLEMENTARY INFORMATION BY DIVISION (Unaudited)    For the three months ended December 31, 2010For the three months endedDecember 31, 2009 CanadaInternationalCanadaInternational($THOUSANDS)PersonalLinesNicheProductsTotal PersonalLinesNicheProductsTotal Direct written premium    26,52710,37336,90015527,75911,54439,303-Underwriting revenue32,4299,61042,0398227,7578,38536,142296Underwriting income (loss)5081,9772,485(222)(4,516)(3,525)(8,041)(1,069)           Loss ratio71.8%39.3%64.4%N/A (1)88.1%96.2%90.0%344.3%Expense ratio26.6%40.1%29.7%N/A (1)28.2%45.8%32.2%116.2%Combined ratio98.4%79.4%94.1%N/A (1)116.3%142.0%122.2%460.5%         Prior year development (deficiency) redundancy(59)279220377(191)(762)(953)(590)    Full Year 2010Full Year 2009 CanadaInternationalCanadaInternational($THOUSANDS)PersonalLinesNicheProductsTotal PersonalLinesNicheProductsTotal Direct premiums written134,04251,423185,465206117,99446,570164,564(702)Underwriting revenue123,52539,190162,715158104,97839,104144,0825,296Underwriting income (loss)(7,461)181(7,280)(1,316)(717)(3,366)(4,083)(3,930)           Loss ratio78.3%59.9%73.8%N/A (1)72.0%66.3%70.5%126.0%Expense ratio27.7%39.6%30.6%N/A (1)28.7%42.4%32.4%48.2%Combined ratio106.0%99.5%104.4%N/A (1)100.7%108.7%102.9%174.2%         Prior year development (deficiency) redundancy1,7331,2452,9781,1133,692(1,816)1,876(1,164)(1)      Due to the minimal earned premium in the International division the ratios are not meaningful.For further information: Steve Dobronyi Chief Executive Officer EGI Financial Holdings Inc. Telephone:  905.214.7880 Email:  ir@egi.ca