All operating results below refer to continued operations.
Second Quarter 2018 Highlights
- Net operating income on continued operations of $0.24 per share compared $0.28 per share in the second quarter of 2017.
- A combined operating ratio of 97% compared to 94% in the second quarter of 2017.
- A 33% increase in direct written premiums over the same period in 2017 to $112.8 million as a result of organic growth in Personal and Commercial Lines nationally.
- A pre-tax gain on invested assets of $2.5 million in the quarter compared to a pre-tax gain of $0.1 million in the prior year quarter, a result of positive returns from both the Fixed Income and Preferred Share portfolios.
- Closing book value per share of $12.88, an increase of $0.41 or 3% from the first quarter of 2018. This increase was driven by positive underwriting income, and investment returns.
“Our second quarter results were positive, with a 97% combined ratio, and continued growth across all lines and regions,” commented Serge Lavoie, Chief Executive Officer.
“Our Personal Lines results were consistent with the second quarter of 2017,” he continued. “These results were driven by strong performance in Ontario and Western Canada, offset by weaker automobile results in both Quebec and Atlantic Canada. We are pleased with the consistency that our year-over-year results have shown, and expect continued Personal Lines profitability due to rate increases that were implemented in Quebec, Nova Scotia and Alberta.”
“While profitable overall at a 96% combined ratio, our Commercial Lines results were impacted by large losses in Western Canada, which were largely fire-related,” he explained. “Our Commercial Lines segment was profitable despite these isolated incidents, and we expect that it will perform profitably into the future.”
“As outlined in previous quarters, we continue work to ensure rate adequacy across all lines, and to introduce ongoing system enhancements,” he continued. “During the quarter, we extended our Passport Portal to all Ontario brokers, and are now preparing for the launch of this new platform to our Alberta and Quebec brokers. In Ontario, we have seen tremendous uptake on our enhanced upload feature, which has streamlined the policy issuance process both for Echelon, and for our brokers. At the end of the quarter, our Ontario brokers were uploading 50 percent of their personal lines policies, drastically reducing the manual input required from our underwriters. Our goal is for 90 percent or more of all policies to be submitted and processed by our automated system.”
“Broker feedback on these system and process enhancements has been positive, and we are pleased with the ongoing support that we are seeing from brokers across all lines and regions.”
Financial Summary on Continued Operations
| $000s
(except per share amounts) |
Three Months ended June 30, 2018 |
Three Months ended June 30, 2017 |
%
Change |
Six Months ended June 30, 2018 |
Six Months ended June 30, 2017 |
%
Change |
| Direct written and assumed premiums | 112,833 | 85,035 | 33 | 192,120 | 139,621 | 38 |
| Net earned premiums | 75,280 | 53,448 | 41 | 146,802 | 102,473 | 43 |
| Underwriting income | 364 | 1,477 | (75) | 1,611 | 2,193 | (27) |
| Investment income | 2,759 | 2,977 | (7) | 4,718 | 11,464 | (59) |
| Net income | 3,964 | 3,193 | 24 | 9,631 | 10,659 | (10) |
| Net operating income(1) | 2,935 | 3,338 | (12) | 6,476 | 5,654 | 15 |
| Net income per diluted share | $0.33 | $0.26 | 27 | $0.81 | $0.88 | (8) |
| Net operating income per diluted share(2) | $0.24 | $0.28 | (14) | $0.53 | $0.47 | 13 |
| Book value per share | $12.88 | $12.25 | 5 | $12.88 | $12.25 | 5 |
(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.
Second Quarter Review
The Company reported net operating income of $2.9 million or $0.24 per share in the quarter, compared to income of $3.3 million or $0.28 per share in the second quarter of 2017, a decrease of 14%.
Direct written premiums increased by 33% to $112.8 million, driven by organic growth in Ontario Personal Auto, and Commercial Lines nationally. Rate increases continue to support this organic growth, particularly in Commercial Auto.
Personal Lines generated an underwriting income of $1.6 million, comparable to an underwriting income of $1.4 million in the same period last year, with stable growth coming largely from our automobile lines of business.
Commercial Lines generated an underwriting income of $1.0 million compared to an underwriting income of $2.1 million in the same period last year due to weaker results in commercial property, driven by a few fire-related losses in Western Canada.
Operating expenses were largely in line with the prior year quarter, despite a substantial increase in written and earned premiums. This led to a 2.6% decrease in the Company’s expense ratio, attributable to operational efficiencies realized as a result of the Passport System rollout.
Investment income was $2.8 million compared to $3.0 million in the second quarter of 2017. The pre-tax gain on invested assets was $2.5 million in the quarter, compared to a pre-tax gain of $0.1 million in the second quarter of 2017. The fair value of Echelon’s investment portfolio, including finance receivables, was $492 million.
Net favourable development of prior year claims of $4.7 million was recorded in the second quarter of 2018, compared to favourable development of $7.8 million in the same period in 2017.
Operating Results
| Underwriting Income(1) $000s |
Three Months ended June 30, 2018 |
Three Months ended June 30, 2017 |
Six Months ended June 30, 2018 |
Six Months ended June 30, 2017 |
| Personal Lines | 1,641 | 1,350 | 3,620 | 3,240 |
| Commercial Lines | 1,008 | 2,119 | 2,255 | 3,119 |
| Key Operating Ratios | ||||
| Loss ratio | 65.1% | 59.5% | 61.8% | 59.2% |
| Expense ratio | 31.4% | 34.0% | 34.2% | 34.6% |
| Combined ratio | 96.5% | 93.5% | 96.0% | 93.8% |
| Loss Ratios | ||||
| Personal Lines | 69.3% | 65.8% | 66.7% | 64.2% |
| Commercial Lines | 57.4% | 42.0% | 53.0% | 44.7% |
(1) Excluding corporate expenses and the impact of change in claims discount rates.
Capital Management
All related entities remain well capitalized. The Minimum Capital Test (MCT) ratio of EFH’s subsidiary, Echelon Insurance, as at June 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 315% was also in excess of provincial supervisory targets.
As at June 30, 2018, the Company has approximately $27 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 the growth in its insurance operating companies.
For the period ended June 30, 2018, total shareholders’ equity increased by $10.7 million to $153.6 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 icpeiholdings.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 March 7, 2017, the Company completed the sale of its European operations. As part of the sale, the Company entered into a loan agreement with New Nordic Odin Guernsey Limited on March 7, 2017 to lend the principal amount of 91.5 million Danish Krone (DKK). The remaining loan outstanding amount was repaid on June 29, 2018.
Echelon denies all allegations made in a recent press release issued by New Nordic Advisors, and is consulting with legal counsel on its course of action. Following discussions with the Company, New Nordic Advisors has agreed to withdraw its allegations of fraud and misrepresentation. Discussions are continuing with New Nordic Advisors.
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 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.
Conference Call
A conference call for analysts and interested listeners will be held on Thursday, August 9, 2018, at 11:00 a.m. (ET). The call-in numbers for participants are 416-764-8609 or toll free 1-888-390-0605, Conference ID 71623165. A live audio feed of the call will be available online through the Company’s website at icpeiholdings.ca, or directly at the following link.
A replay of the call will be available until August 16, 2018. To access the replay, call 416-764-8677, or toll free 1-888-390-0541, password 623165. An archive will be available on our website following the event.
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 icpeiholdings.ca.
Company contact information: Jennifer Kew, Investor Relations, 905-214-7880, ir@icpeiholdings.ca
