Full Story:
EGI Financial Holdings Reports Excellent 2006 Results
Strong Underwriting and Investment Performance Drive Outstanding Fourth
Quarter
<<
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3-months 3-months 12-months 12-months
ended ended % ended ended %
Dec 31, Dec 31, Increase/ Dec 31, Dec 31, Increase/
$000 2006 2005 (Decrease) 2006 2005 (Decrease)
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Direct
written
premiums $25,936 $28,081 (7.6%) $117,834 $117,006 0.7%
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Net earned
premiums $24,190 $19,950 21.3% $103,942 $76,344 36.1%
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Underwriting
income $3,493 $2,452 42.5% $14,510 $9,418 54.1%
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Investment
income $4,456 $1,815 145.5% $11,033 $7,527 46.6%
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Income
before
extra-
ordinary
gain $5,200 $3,058 70.1% $16,981 $11,208 51.5%
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Diluted
earnings
per share
before
extra-
ordinary
gain $0.51 $0.35 45.7% $1.67 $1.30 28.5%
-------------------------------------------------------------------------
>>
TORONTO, Feb. 22 /CNW/ - EGI Financial Holdings Inc. (TSX:EFH) today
announced its results for the fourth quarter and year ended December 31, 2006.
In the fourth quarter of 2006, the Company maintained the strong momentum
demonstrated in its underwriting business in the previous quarter, and also
benefited from realized gains in its investment portfolio. As a result, the
Company produced a 46% increase in quarterly earnings per share compared to
the prior year.
In the fourth quarter of 2006, the benefits of EGI Financial's decision
to develop its Niche Products business were reflected in the Company's
consolidated revenue. While competitive markets in Echelon's traditional
Personal Lines (formerly the Automobile) Division resulted in a 14% decline in
direct written premiums, the Niche Products Division experienced a 31%
increase. Total direct written premiums were $25.9 million compared with
$28.1 million in the corresponding period last year. Despite the decrease in
direct written premiums, net earned premiums rose 21% in the 2006 fourth
quarter from $20.0 million to $24.2 million, as a result of the elimination of
the 2005 quota share reinsurance arrangements.
Underwriting profit in the quarter increased 43% from $2.5 million to
$3.5 million. The strong increase was attributable primarily to the Company's
non-standard automobile business, which continues to experience redundancy in
its loss reserves, thus improving the auto loss ratio to 62.9% in 2006
compared to 63.5% in the same period last year. Also as a result of the
profitable underwriting results for policy year 2005, the company recorded
additional reinsurance commission income of $1.5 million.
The combined ratio -- the addition of the ratio of net losses incurred to
net earned premiums, and the ratio of underwriting expenses to net earned
premiums -- for the fourth quarter of 2006 improved to 85.6% compared with
88.1% for the same period last year. EGI Financial believes that the combined
ratio is the best measure of the profitability of its underwriting business.
The loss ratio in the 2006 fourth quarter -- being net losses incurred
expressed as a percentage of net earned premiums -- was 61.0%, while the
expense ratio, being expenses incurred expressed as a percentage of net earned
premiums, was 24.6%. This compares with 60.6% and 27.5% respectively in the
same period of 2005. The lower expense ratio was responsible for the
2.5 percentage point year-over-year improvement in the combined ratio.
Investment income increased 146% from $1.8 million to $4.5 million in the
final quarter of 2006. This significant year-over-year increase in 2006 was
primarily due to the realization of gains totaling $2.2 million, as well as an
increase in invested assets resulting from additional cash flow generated from
2006 operations and funds raised from the Company's Initial Public Offering in
December 2005.
Net income in the 2006 fourth quarter was $5.2 million compared with
$3.1 million last year, an increase of 70%. Fully diluted net income per share
was $0.51 in the 2006 period, compared to $0.35 in the same period last year.
The improvement was primarily attributable to the year-over-year improvement
in the combined ratio as well as the increase in investment income in 2006.
"EGI's business continued to perform well in the fourth quarter of 2006,"
said Douglas McIntyre, Chief Executive Officer of EGI Financial. "Despite the
ongoing competitive conditions in our core automobile business, we continue to
produce strong bottom-line results. I would note further that we are
accomplishing this while maintaining a very conservative reserving strategy.
In fact, the fourth quarter of 2006 marked the fifth consecutive quarter with
reserve releases, as approved by the Company's independent actuary."
<<
Q4 2006 Personal Lines (Automobile) Division performance:
- Underwriting revenue increased 17.4% to $20.7 million
- Underwriting income* increased 48.8% to $3.7 million from
$2.5 million
- Combined ratio 82.2% compared with 86.0% in 2005
Q4 2006 Niche Products Division performance:
- Underwriting revenue increased 51.0% to $3.5 million
- Underwriting income* decreased to a small loss from a profit of
$0.1 million
- Combined ratio 101.2% compared with 99.8% in 2005
* Before corporate expenses ($0.1 million in both years) and taxes,
which are not allocated by division
>>
EGI Financial also announced that, in light of the continued improvement
in the Company's financial performance, its Board of Directors has increased
the quarterly dividend by 25%. The Board has declared a dividend of $0.05 per
share, payable on March 30, 2007 to shareholders of record on March 15, 2007.
For the year ended December 31, 2006, EGI Financial generated gross
written premiums totaling $117.8 million, 1% above the $117.0 million level in
the corresponding period last year. Despite the modest increase in gross
written premiums, net earned premiums rose 36% in 2006 from $76.3 million to
$103.9 million.
Underwriting profit in the year increased 54% to $14.5 million compared
with $9.4 million on the same basis last year. The increase primarily
reflected the Company's disciplined underwriting focus and the auto division's
favourable claims environment, which led to the improved loss ratio.
The combined ratio for 2006 was 86.0% compared with 88.0% for the same
period last year. The loss ratio in the 2006 period was 57.2% and the expense
ratio was 28.8%. This compares with 60.3% and 27.7% respectively in the 2005
period.
Investment income for 2006 was $11.0 million compared to $7.5 million
last year, an increase of 47%, reflecting the realized gains and increased
size of the portfolio, as noted above.
Net income in 2006 was $17.0 million compared with $11.2 million last
year, before extraordinary gains, an increase of 52%. Fully diluted net income
per share, on the same basis, was $1.67 in 2006, compared to $1.30 last year.
This represents an annualized return on equity of 21.4%.
<<
Year ended December 31, 2006 Personal Lines (Automobile) Division
performance:
- Underwriting revenue increased 30.7% to $91.0 million
- Underwriting income* increased 61.6% to $15.1 million
- Combined ratio reduced to 83.4% from 86.5% in 2005
Year ended December 31, 2006 Niche Products Division performance:
- Underwriting revenue increased 86.6% to $12.9 million
- Underwriting income* decreased from $0.5 million to $0.2 million,
primarily due to an IBNR bulk claims reserve charge of $0.8 million
during the year
- Combined ratio 98.1% compared with 96.4% for the 2005 period
* Before corporate expenses ($0.9 million in 2006; $0.4 million in
2005) and taxes, which are not allocated by division
>>
Geographically, EGI Financial's business in 2006 was derived from Ontario
(86%), Quebec (8%), Alberta (2%) and other jurisdictions in Canada (4%).
Total assets at December 31, 2006 were $288.4 million. The investment
portfolio at book value, including cash and premium finance receipts,
increased to $215.2 million (market value was $223.4 million or $23.18 per
share), compared to $187.4 million (market value $194.6 million or $20.31 per
share) a year earlier. The fair value increment over book value of the
investment portfolio increased to $0.84 per share from $0.75 per share at
December 31, 2005.
At year-end 2006, the common share portfolio had a market value of
$25.5 million including $7.1 million of net unrealized gains ($0.74 per common
share outstanding), while the bond portfolio included net unrealized gains
totaling $1.0 million ($0.10 per common share outstanding).
Book value per share was $8.93 at December 31, 2006 compared with
$7.33 per share a year earlier.
The annualized ratio of net written premiums in 2006 to shareholders'
equity was 1.23 times. Echelon's Minimum Capital Test (MCT) margin at year-end
2006 was 364%, providing EGI Financial with the financial strength to grow its
business utilizing its current resources.
Full Financial Statements and Management's Discussion and Analysis (MD&A)
will be available at a later date at www.sedar.com and on the Company's web
site at: www.egi.ca/financial.html.
"2006 was not just a year of financial success for EGI. We also made very
considerable progress in advancing our other business objectives, despite
challenges in our home market and main line of business," added Mr. McIntyre.
"We continued to successfully diversify our business, both by expanding our
Niche Products business and also entering the Ontario motorcycle insurance
market, where we generated $7.6 million in direct written premiums. We are
actively expanding our business geographically with our two-year agreement
with AssuranceAmerica, under which we will reinsure up to US$15 million of
non-standard automobile premiums in 2007 in the southeastern United States."
EGI 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 are unlikely to 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). Return on equity (ROE) is a non-GAAP
measure which represents EGI Financial's net income for the twelve months
ended on the date indicated divided by the average shareholders' equity over
the same twelve-month period.
About EGI Financial
-------------------
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. EGI
Financial's common shares are traded on the Toronto Stock Exchange under the
symbol EFH.
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 EGI Financial for 2006 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.
Conference call
---------------
A conference call for analysts and interested listeners will be held
Friday, February 23, 2007 at 11:00 a.m. (ET). The call-in numbers for
participants are 416-644-3417 or 800-732-6179. A live audio feed of the call
will also be available on the Internet at:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1737340br> A replay of the call will be available from 1:00 p.m. (ET) on
February 23, 2007 until 11:59 p.m. on March 2, 2007. To access the replay,
call 416-640-1917 or 877-289-8525, enter pass code number 21219407, and then
press the pound (#) key. The replay can also be accessed over the Internet at
the above address.
EGI FINANCIAL HOLDINGS INC.
Unaudited Consolidated Balance Sheets
as at December 31
(in $ thousands, except share amounts)
Assets 2006 2005
Cash and short-term deposits...................... 17,153 15,899
Investments (note 4).............................. 179,383 152,736
Reinsurers' share - unearned premiums (note 5).... 3,831 2,761
- unpaid claims (note 6)........ 48,385 54,043
Accounts receivable............................... 22,182 22,271
Income taxes recoverable.......................... 572 273
Due from insurance companies...................... 3,996 2,504
Deferred policy acquisition costs................. 7,465 6,289
Capital assets (note 8)........................... 799 560
Future income taxes (note 12)..................... 4,403 3,133
Prepaid expenses and other assets................. 270 262
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288,439 260,731
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Liabilities
Provision for unpaid claims (note 6).............. 146,101 129,173
Unearned premiums (note 5)........................ 43,154 39,973
Unearned commission............................... 733 1,261
Accounts payable and accrued liabilities.......... 4,746 4,503
Payable to insurance companies.................... 4,428 7,340
Income taxes payable.............................. 3,151 5,708
Other liabilities................................. 85 188
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202,398 188,146
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Shareholders' Equity
Share capital (note 9)............................ 45,833 47,660
Contributed surplus (note 10)..................... 149 80
Retained earnings................................. 40,059 24,845
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86,041 72,585
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288,439 260,731
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