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Attention Business Editors
EGI Financial's Reinsurance Restructuring Generates $9 Million in Additional Unearned Premiums
TORONTO, Jan. 24 /CNW/ - EGI Financial Holdings Inc. (TSX:EFH)today
announced that it has completed the restructuring of its treaty reinsurance
coverages for 2006 in a manner consistent with the general plan previously
disclosed.
Enabled by its greater capital resources, EGI Financial did not renew its
quota share reinsurance treaty in 2006 and, in a change from prior years,
withdrew the portfolio of unexpired risks from its 2005 quota share treaty, at
no penalty. As a result of this withdrawal, approximately $9.2 million of
additional net unearned premiums will be recorded in EGI Financial's balance
sheet accounts as at December 31, 2005. To the extent that the underlying
policies remain in force, these premiums will be earned by EGI Financial
during the course of 2006. The Company has agreed to pay additional adjustable
deposits of $0.2 million to excess of loss and catastrophe reinsurers to
protect the Company's additional net exposure on the run-off of this 2005
policy-year business during 2006.
As at September 30, 2005, EGI Financial's actuary reported a loss ratio
of 74% on the quota share treaty, which generated a ceding commission income
rate to the Company of 19%. Consequently, had this business been retained by
the Company during the first three quarters of 2005, it would have produced an
incremental pre-tax underwriting profit of approximately 7% of the ceded
earned premiums. Management of EGI Financial believes that no deterioration
has occurred in this loss ratio in the intervening time.
"We are pleased to take this step, which utilizes our improved financial
strength to enhance the earnings outlook of the Company," said Douglas
McIntyre, Chief Executive Officer of EGI Financial.
By the terms of the quota share treaty, on or about March 1, 2006, the reinsurers will return approximately $7.1 million to the Company, being the
$9.2 million of ceded unearned premiums less the unearned ceding commission of
$2.1 million which had previously been paid by reinsurers to EGI Financial.
Such funds will be added to the Company's investment portfolio and invested in
the normal course, subject to its current investment policy, pending the
payment of claims and related claim expenses arising on the business.
In 2006, EGI Financial plans to retain a maximum of $950,000 of primary (i.e. from the first dollar) risk on each claim compared to $450,000 in 2005.
For 2006, EGI Financial has purchased additional excess of loss and
catastrophe reinsurance coverage totaling $19,050,000 (in excess of its
retention) for any one claim or series of claims arising from one event,
compared to $14,550,000 (including the quota share) in 2005. The Company's
excess of loss and catastrophe reinsurance rates increased from 9.1% of direct
written premiums, in 2005, to 12.0% in 2006, for the same coverage as the
Company carried in 2005. However, by retaining the additional primary risk,
the Company reduced its cost of excess of loss and catastrophe reinsurance to
an aggregate of 9.1% of direct written premiums, including the cost of the
additional $5 million of top layer reinsurance coverage.
Founded in 1997, EGI Financial operates in the property and casualty
insurance industry in Canada, primarily focusing on non-standard automobile
insurance and other niche and specialty general insurance products.
Forward-looking Statements
This news release contains forward-looking statements based on current expectations. These forward-looking statements entail various risks and
uncertainties that could cause actual results to differ materially from those
reflected in these forward-looking statements. EGI Financial assumes no
obligation to update the forward-looking statements, or to update the reasons
why actual results could differ from those reflected in the forward-looking
statements. Readers are cautioned not to place undue reliance on forward-
looking statements. Risks and uncertainties about EGI Financial's business are
more fully discussed in its disclosure materials, including its prospectus,
filed with the securities regulatory authorities in Canada, available at
www.sedar.com.
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/For further information: Douglas E. McIntyre, Chief Executive Officer,
EGI Financial Holdings Inc. (905) 565-7960/
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