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Press release from CNW Group

EGI Financial Profits up 81%

Friday, February 24, 2012

EGI Financial Profits up 81%07:40 EST Friday, February 24, 2012TORONTO, Feb. 24, 2012 /CNW/ - EGI Financial Holdings Inc. ("EGI" or "the Company") (TSX: EFH) today reported net income of $3.3 million for the three months ended December 31, 2011.  For the full year 2011 EGI's net income increased 81% to $7.5 million from $4.2 million in 2010.Q4 HighlightsNet operating income of $2.4 million, or $0.22 per shareCombined operating ratio of 96.4%A 19.6% increase in direct written premiums over the same period in 2010Investment income of $5.2 million compared to $3.6 million in the fourth quarter of 2010Full Year HighlightsNet operating income of $8.6 million, or $0.73 per share compared to $0.9 million in 2010A year-over-year increase of 5.8% in book value to $155 million, or $12.85 per shareA combined operating ratio of 99.6%A $13 million improvement in underwriting results for the Personal Lines divisionThe launch of Qudos, a European-based property & casualty insurance operation which will be involved in the underwriting of European niche and specialty insurance programs of the type currently underwritten by EGI's Niche Products division"We are pleased to report a strong finish to a very successful year," said Steve Dobronyi, Chief Executive Officer of EGI. "We produced an overall underwriting profit for the total Company, which places us a full year ahead of our long-term strategic plan.""We're particularly pleased with the performance of our core business," continued Mr. Dobronyi.  "Our Personal Lines division exceeded its target profitability for the year by generating a 94.5% combined ratio.  We recorded an underwriting profit in Ontario auto insurance, a remarkable result in the current environment.""Our goal is to maintain this momentum and deliver consistent underwriting profits," Mr. Dobronyi concluded.  "Our strategic intent is to be a growth company, and our business now has a solid foundation to build upon.  Our balance sheet is strong, which will allow us to capitalize on niche insurance opportunities that are presenting themselves in the current market."Financial Summary$000s(except per share amounts)3 monthsended Dec. 31, 20113 monthsended Dec.31, 2010%Change12 monthsended Dec.31, 201112 monthsended Dec.31, 2010%ChangeDirect written premiums44,32437,05419.6%174,892185,671(5.8%)Net earned premiums42,37542,1210.6%165,447162,8731.6%Underwriting income (loss) (1)1,5121,726(12.4%)588(9,335)106.3%Interest expense----568(100.0%)Investment income5,2453,61145.3%13,86717,465(20.6%)Net income3,2543,2470.2%7,5204,15281.1%Total Comprehensive income5,0755,361(5.3%)8,22912,337(33.3%)Net operating income(2)2,4363,282(25.8%)8,585939814.3%Net income per diluted share0.290.277.4%0.640.3488.2%Net operating income per diluted share0.220.27(18.5%)0.730.08812.5%Book value per share12.8512.145.8%12.8512.145.8%       (1)     Underwriting income (loss) excludes impact of change in discount rate on unpaid claims - an increase in reserves of $660 and $(332) for the fourth quarter of 2011 and 2010, respectively; $1,843 and $488 for the year 2011 and 2010, respectively.(2)     Net operating income is defined as net income plus or minus after-tax impact of change in discount rate on unpaid claims, realized losses or gains on sale of investments and unrealized fair value changes on held-for-trading investments.EGI has prepared its financial statements in accordance with International Financial Reporting Standards (IFRS), replacing prior Canadian Generally Accepted Accounting Principles ("GAAP").  The adjustments related to the transition to IFRS had no impact on the total shareholders' equity of EGI.Fourth Quarter CommentaryNet operating income of $2.4 million was recorded in the quarter compared to $3.3 million in the fourth quarter of 2010.  Net operating income per share was $0.22.Underwriting profits totaled $1.5 million versus $1.7 million in the prior period demonstrating strong consistency in results.Direct written premiums increased by 19.6%, primarily the result of: the organic growth of the Company's start-up U.S. operation; and management's initiative to write and renew all Ontario private passenger automobile policies with a maximum six-month policy term.  The U.S. operations wrote $1.9 million of premium in the fourth quarter.Investment income was $5.2 million, an increase from $3.6 million in the fourth quarter of 2010.  The increase was primarily due to a net realized gain on investments of $1.8 million versus a gain of $0.4 million in the same period in 2010.  The realized gain is after an impairment provision of $1.9 million that accounts for market value declines in investment holdings that were considered impaired during the quarter under the new IFRS standards.  Interest and dividend income decreased slightly to $3.3 million versus $3.4 million in the same period in 2010.The fair value of EGI's investment portfolio, including finance receivables, increased by 3.1% to $404 million from the beginning of the year.  Gains on bonds were offset by declines in stocks and lower receivables due to the move to six-month policy terms in Ontario Auto.In the fourth quarter of 2011, the U.S. operation, formerly part of the International division, was renamed the U.S. division.  In the U.S. division, the deferred tax asset was written down to $nil, resulting in a post-tax charge to earnings of $0.5 million.  This is a one-time, non-recurring event.The International division now comprises all business outside of Canada and the United States, including Qudos Insurance A/S ("Qudos"), a newly-licensed (October 2011) insurance company domiciled in Denmark and CIM Reinsurance Company Ltd., EGI's wholly-owned captive reinsurance company domiciled in Barbados.  On October 24, 2011, the Company invested approximately Euro 7.5 million by acquiring all of the preference shares and 51% of the voting shares of Qudos' parent company, QIC Holdings ApS, a newly-formed Danish holding company which had no assets or liabilities prior to this transaction.Operating ResultsUnderwriting Income (Loss)*$000s3 months ended Dec. 31, 20113 months ended Dec. 31, 201012 months ended Dec. 31, 201112 months ended Dec. 31, 2010Personal Lines3,3222417,043(7,044)Niche Products1691,931(1,244)251U.S. and International(1,695)(231)(3,718)(1,316)* Excluding head office overhead costs and impact of change in discount rate on unpaid claims.The performance of the Company's Personal Lines division improved significantly in the fourth quarter of 2011, recording underwriting income of $3.3 million, a $3.1 million increase over the same period last year. Improvements in Ontario auto insurance, as well as the continued profitability of Quebec, Nova Scotia and specialty vehicle insurance business all contributed to the favourable result.The Niche Products division recorded an underwriting income of $0.2 million compared to $1.9 million in the fourth quarter of 2010.  The decrease was primarily due to the increase in the loss ratio in 2011.Investments in EGI's start-up operation in the United States resulted in a $1.3 million underwriting loss in the U.S. division.Loss Ratio *3-months endedDec. 31, 20113-months endedDec 31, 201012-months endedDec 31, 201112-months endedDec 31, 2010Personal Lines59.1%72.6%65.1%77.9%Niche Products52.1%39.8%56.6%59.8%U.S. and InternationalN/A**N/A**N/A**N/A***   Loss ratio excludes impact of change in discount rate on unpaid claims.** Due to the minimal earned premium in the U.S. and International divisions, the ratios are not meaningful and have been excluded.The loss ratio for the Company's Personal Lines division improved significantly to 59.1% compared to 72.6% during the same period in 2010.  The Ontario auto insurance market has realized improvements across the industry due to regulatory reforms implemented September 1, 2010, and a greater attention to fraudulent claims.  The improvement for EGI has been even more pronounced due to the implementation of significant premium rate increases over the past 18 to 24 months and numerous remedial actions taken by management to restore underwriting profitability, with a particular focus on reducing claims exposure in the Greater Toronto Area.The loss ratio for the Niche Products division increased to 52.1% from 39.8% in the same period in 2010.  The loss ratio in 2011 included one large liability claim for $0.5 million.Key Operating Ratios3 months ended Dec. 31, 20113 months ended Dec. 31, 201012 months ended Dec. 31, 201112 months ended Dec. 31, 2010Loss ratio *59.0%64.1%63.6%72.8%Expense ratio37.4%31.8%36.0%32.9%Combined ratio96.4%95.9%99.6%105.7%* Loss ratio excludes impact of change in discount rate on unpaid claims.The combined ratio for the fourth quarter of 2011 for all lines of business was 96.4%, a 0.5% decrease from 95.9% in the same time period in 2010.  The decrease was the result of improved claims experience in Personal Lines.Impact of change in discount rate on unpaid claims - Market Yield Adjustment (MYA) 3 months ended Dec 31, 20113 months ended Dec. 31, 201012 months ended Dec. 31, 201112 months ended Dec. 31, 2010Loss Ratio without MYA59.0%64.1%63.6%72.8%MYA1.6%(0.8)%1.2%0.3%Loss Ratio with MYA60.6%63.3%64.8%73.1%     Combined ratio without MYA96.4%95.9%99.6%105.7%MYA1.6%(0.8)1.2%0.3%Combined Ratio with MYA98.0%95.1%100.8%106.0%Twelve-Month ReviewFor the twelve months ended December 31, 2011, the Company recorded net operating income of $8.6 million, an improvement of $7.6 million over the prior year.  The increase is the result of significantly improved underwriting results, which showed a $9.9 million upswing over 2010.Both Personal Lines and Niche Products generated substantial improvements in loss ratios over the year.  The loss ratio in Personal Lines improved to 65.1% from 77.9% and in Niche Products to 56.6% from 59.8%.Net earned premiums increased to $165.4 million from $162.9 million in the same period of 2010.  Net earned premiums in Personal Lines increased to $129.0 million from $123.5 million in 2010.  Net earned premiums in Niche Products decreased to $34.2 million from $39.2 million due to the cancellation of certain unprofitable programs.  The U.S. division recorded net earned premiums of $2.3 million for the twelve months ended December 31, 2011.Claims reserves have consistently shown favourable development over the years.  In 2011, reserve releases were $6.4 million compared to $4.1 million in 2010.Investment income decreased to $13.9 million versus $17.5 million in the same period last year. This is largely the result of impairment provisions of $6.6 million in 2011 to account for market value declines in investment holdings under the new IFRS standards that were adopted at the beginning of this year.  No impairment provisions were taken in 2010.Financial PositionFor the twelve months ended December 31, 2011, total equity increased by $8.5 million to $155 million from December 31, 2010, due mostly to net income of $7.5 million and other comprehensive income of $0.7 million.As at December 31, 2011, Echelon General Insurance Company's Minimum Capital Test (MCT) ratio was 238%, which comfortably exceeds the minimum regulatory capital level required by the Office of the Superintendent of Financial Institutions.For the year ended December 31, 2011, EGI was debt-free, well capitalized and its Net Written Premiums-to-Capital ratio is a conservative 1.0:1.Full Financial Statements and Management's Discussion and Analysis (MD&A) will be available at a later time today on SEDAR and on the Company's web site at: EGIFounded in 1997, EGI operates in the property and casualty insurance industry in Canada, the United States and Europe, primarily focusing on non-standard automobile insurance and other niche and specialty general insurance products.  EGI's common shares are traded on the Toronto Stock Exchange under the symbol EFH.Non-IFRS Financial MeasuresEGI 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.  EGI analyzes performance based on operating income and underwriting ratios such as combined, expense and loss ratios.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 for 2012 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'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.EGI does not undertake to update any forward-looking information.  Additional information about the risks and uncertainties about EGI'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 CallA conference call for analysts and interested listeners will be held on Friday, February 24, 2012, at 11:00 a.m. (ET).  The call-in numbers for participants are 647-427-7450 or toll free 888-231-8191, Conference ID 43195269.  A live audio feed of the call will be available online through EGI's website, or directly at replay of the call will be available until March 2, 2012.  To access the replay, call 416-849-0833, or toll free 1-855-859-2056, enter password 43195269.   For further information: Steve Dobronyi Chief Executive Officer EGI Financial Holdings Inc. Telephone: 905-214-7880 Email: