TORONTO, August 9, 2017 – 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 $3.1 million, or $0.26 per diluted share, for the three months ended June 30, 2017.
All operating results below refer to continued operations.
Second Quarter 2017 Highlights
- Net operating income on continued operations of $0.28 per share compared to income of $0.24 per share in the second quarter of 2016, an increase of 17%.
- A combined operating ratio of 94% compared to 98% in the second quarter of 2016 driven by strong results in Personal Auto and Commercial Property and Liability.
- A 25% increase in direct written premiums over the same period in 2016 to $85.0 million as a result of growth in existing products in Ontario and Quebec Personal Lines, in addition to Commercial Lines products launched in 2016.
- Total pre-tax gain on invested assets of $0.1 million in the quarter, negatively impacted by higher short-term bond yields, compared to a pre-tax gain of $5.1 million in the second quarter of 2016.
- Closing book value per share of $12.25, an increase of 1.2% over the first quarter of 2017.
“We are pleased with the results for the quarter with strong results reported in both Personal and Commercial lines”, commented Serge Lavoie, Chief Executive Officer.
“Our product suite continues to be well received by our brokers, with Direct Written Premiums increasing by 27% in the first half of the year compared to 2016”, he continued. “As we complete the roll out of our new policy management system, we look forward to enhancing our services and to further build our relationships with our brokers across Canada. In British Columbia, we continue to work closely with our brokers and customers to manage the impact of the ongoing wildfires in the region”.
Financial Summary on Continued Operations
| $000s (except per share amounts) |
Three |
Three Months ended June 30, 2016 |
% |
Six Months ended |
Six Months ended |
% |
| Direct written and assumed premiums | 85,035 | 67,791 | 25 | 139,621 | 109,912 | 27 |
| Net earned premiums | 53,448 | 45,247 | 18 | 102,473 | 88,595 | 16 |
| Underwriting income (loss) | 1,477 | (502) | 394 | 2,193 | (2,541) | 186 |
| Investment income | 2,977 | 4,916 | (39) | 11,464 | 8,861 | 29 |
| Net income | 3,193 | 2,198 | 45 | 10,659 | 3,115 | 242 |
| Net operating income(1) | 3,338 | 2,873 | 16 | 5,654 | 3,916 | 44 |
| Net income per diluted share | $0.26 | $0.15 | 73 | $0.88 | $0.23 | 283 |
| Net operating income per diluted share(2) | $0.28 | $0.24 | 17 | $0.47 | $0.33 | 42 |
| Book value per share | $12.25 | $13.08 | (6) | $12.25 | $13.08 | (6) |
(1) Net operating income is defined as underwriting income plus interest and dividend income, net of tax, excluding catastrophe 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 $3.3 million or $0.28 per share in the quarter, compared to income of $2.9 million or $0.24 per share in the second quarter of 2016, an increase of 17%.
Direct written premiums increased by 25% to $85.0 million, primarily due to growth in both Quebec and Ontario Personal lines and the launch of Commercial lines products in 2016.
Personal Lines generated underwriting income of $1.4 million compared to an underwriting loss of $0.6 million in the same period last year, primarily due to strong performance in Ontario auto and overall in the Western region partially offset by weaker performance in Atlantic Canada related to large losses.
Commercial Lines generated an underwriting income of $2.1 million compared to a $1.6 million underwriting income in the same period last year, driven by strong performance in Commercial Property and Liability lines.
Investment income was $3.0 million compared to $4.9 million in the second quarter of 2016. The total pre-tax gain on invested assets was $0.1 million in the quarter, negatively impacted by higher short-term bond yields, compared to a pre-tax gain of $5.1 million in the second quarter of 2016. The fair value of Echelon’s investment portfolio, including finance receivables, was $440 million.
Net favourable development of prior year claims of $7.8 million was recorded in the second quarter of 2017, compared to favourable development of $7.3 million in the same period in 2016.
Operating Results
| Underwriting Income (Loss)(1) $000s |
Three Months ended June 30, 2017 |
Three Months ended June 30, 2016 | Six Months ended June 30, 2017 |
Six Months |
| Personal Lines | 1,350 | (569) | 3,240 | 174 |
| Commercial Lines | 2,119 | 1,586 | 3,119 | 840 |
| Key Operating Ratios | ||||
| Loss ratio | 59.5% | 62.4% | 59.2% | 63.8% |
| Expense ratio | 34.0% | 35.3% | 34.6% | 35.1% |
| Combined ratio | 93.5% | 97.7% | 93.8% | 98.9% |
| Loss Ratios | ||||
| Personal Lines | 65.8% | 68.6% | 64.2% | 67.2% |
| Commercial Lines | 42.0% | 42.2% | 44.7% | 52.6% |
(1) Excluding head office overhead costs
Six-Month Review
The Company reported net operating income of $5.7 million or $0.47 per share compared to $3.9 million or $0.33 per share for the same period in 2016, an increase of 42%.
Direct written premiums increased by 27%, attributable to continued growth in Personal and Commercial lines, and portfolio transfers from existing and new brokers.
Personal Lines generated underwriting income of $3.2 million compared to an underwriting income of $0.2 million in the same period last year, primarily due to strong performance in Ontario auto and the Western region.
Commercial Lines generated an underwriting income of $3.1 million compared to $0.8 million in the same period last year, predominantly due to strong performance in commercial property and liability.
Investment income was $11.5 million compared to $8.9 million in 2016, due to stronger performance of the preferred share portfolio and realized foreign exchange gains arising on investment hedges from the sale of the European operations in the first quarter of 2017, partially offset by weak fixed income performance due to rising bond yields in the second quarter of 2017. The total pre-tax return on invested assets was $5.2 million compared to $4.5 million in the same period of 2016.
Operating expenses incurred in 2017 increased by 7% over the prior year to $15.6 million, due to higher information technology costs.
Net favourable development of prior year claims of $11.1 million was recorded in the six months ended June 30, 2017 compared to favourable development of $9.3 million in the same period in 2016.
Capital Management
All related entities remain well capitalized. The Minimum Capital Test (MCT) ratio of EFH’s Canadian subsidiary, Echelon Insurance, as at June 30, 2017, was 242%, which comfortably exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions (OSFI). ICPEI’s MCT ratio of 340% was in excess of provincial supervisory targets.
The Company has approximately $16.5 million of excess deployable capital invested in liquid assets at the holding company. All regulated entities remain well-capitalized.
For the six month period ended June 30, 2017, total shareholders’ equity increased by $7.6 million to $145.1 million from December 31, 2016.
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.
Change in Compensation
Following a review of senior management compensation, the Company has revived its stock option compensation plan, effective June 29, 2017. Stock options will be issued to senior management, at the discretion of the Board and within the parameters of the stock option plan outlined in the Company’s Management Information Circular, dated March 10, 2017.
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 2017 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 10, 2017, 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 51025865. A live audio feed of the call will be available online through the Company’s website at icpeiholdings.ca, or directly at conference call.
A replay of the call will be available until August 17, 2017. To access the replay, call 416-849-0833, or toll free 1-855-859-2056, password 51025865. An archive will be available on our website following the event.
About Echelon Financial Holdings Inc.
Founded in 1998, Echelon operates in the property and casualty insurance industry in Canada, providing personal and commercial lines insurance exclusively through the broker channel. The Company operates and 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:
Kathy Shulman, Manager, Investor Relations, 905-214-7880 ir@icpeiholdings.ca
