Echelon Financial Holdings Inc. Reports First Quarter 2019 Results

TORONTO, May 14, 2019 /CNW/ - Echelon Financial Holdings Inc. ("EFH" or "the Company") (TSX: EFH), which operates in the property and casualty insurance industry in Canada, today reported a net loss attributable to shareholders of $9.1 million, or $0.76 per diluted share, for the three months ended March 31, 2019. Excluding costs related to the sale of Echelon Insurance and the unregulated warranty business of Echelon Financial Holdings Inc., the Company reported a net loss attributable to shareholders of $6.0 million or $0.50 per diluted share.

Discontinued Operations

Agreement to sell Echelon Insurance

On November 9, 2018 the Company entered into a definitive agreement to sell Echelon Insurance and its unregulated warranty business ("Discontinued Canadian operations"). The agreement was approved by the Company's shareholders on January 23, 2019 at a special shareholders meeting, and is now subject to regulatory approvals. The Company anticipates that these approvals will be received during the second quarter of 2019. The detailed terms and conditions of the definitive agreement, including the potential impact of the sale are disclosed in greater detail in EFH's recent SEDAR filings.

Discontinued European Operations

On August 4, 2016, Echelon entered into a definitive stock purchase agreement to sell its European insurance subsidiary to New Nordic Odin Guernsey Limited (NNGL), subject to regulatory approval. On February 28, 2017, regulatory approval was received from the Danish Financial Supervisory Authority, which completed the necessary approvals required for the sale. The Company completed the sale on March 7, 2017, and retains no residual insurance risk or other financial risk, other than credit risk associated with the loan receivable from the sale. The loan was repaid on June 29, 2018.

First Quarter 2019 Highlights

• Net operating loss of $0.36 per share compared to an income of $0.29 per share in the first quarter of 2018.
  
  
• A combined operating ratio of 109% compared to 95% in the first quarter of 2018.
  
  
• A 25% increase in direct written premiums over the same period in 2018 to $98.9 million as a result of organic growth in Personal and Commercial Lines nationally.
  
  
• A pre-tax gain on invested assets of $7.5 million in the quarter compared to $0.9 million in the prior year quarter, positively impacted by lower short-term bond yields resulting in better performance of the Fixed Income and Preferred Share portfolio.
  
  
• Closing book value per share of $11.74, a decrease of $0.47 from the fourth quarter of 2018. Costs related to the sale of the Discontinued Canadian operations reduced the book value per share by $0.26.

"Echelon reported a combined operating ratio of 109% for the first quarter of 2019, compared to 95% for 2018," commented Serge Lavoie, Chief Executive Officer. "These results were driven by our Personal and Commercial Automobile lines of business in Ontario and Quebec, which were negatively impacted by extended winter weather conditions."

"We continue to work towards the close of the sale of Echelon Insurance and EFH's unregulated warranty business to CAA Club Group, and remain confident that this transaction will close during the second quarter." he concluded.

Financial Summary on Continued Operations

First Quarter Review

The Company reported a net operating loss of $4.4 million or $0.36 per share in the quarter, compared to income of $3.5 million or $0.29 per share in the first quarter of 2018, a decrease of 224%.

Direct written premiums increased by 25% to $98.9 million. The increase in premiums was driven by continued organic growth in Ontario Personal Auto, supplemented by rate increases in both Commercial and Personal Lines.

Personal Lines generated an underwriting loss of $5.1 million, compared to an underwriting income of $2.0 million in the same period last year, a result driven by poor automobile results in Ontario and Quebec.

Commercial Lines recorded an underwriting loss of $2.0 million, compared to an underwriting income of $1.2 million in the same period last year, due to weaker warranty and surety results.

The Company's expense ratio decreased over the prior period by 3.4%, attributable to operational efficiencies realized as a result of the Passport System rollout and reduced salary expense ratio from increased scale.

Investment income was $3.7 million, compared to $2.0 million in the first quarter of 2018. The pre-tax gain on invested assets was $7.5 million in the quarter, compared to $0.9 million in the first quarter of 2018. The fair value of Echelon's investment portfolio, including finance receivables, was $536 million.

Net adverse development on prior year claims of $6.6 million was recorded in the first quarter of 2019, compared to favourable development of $3.6 million in the same period in 2018.

Operating Results

Capital Management

All related entities remain well capitalized. The Minimum Capital Test (MCT) ratio of EFH's subsidiary, Echelon Insurance, as at March 31, 2019, was 215%, which comfortably exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions (OSFI). ICPEI's MCT ratio of 407% was also in excess of provincial supervisory targets.

For the period ended March 31, 2019, total shareholders' equity decreased by $5.2 million to $140.4 million from December 31, 2018.

As of March 31, 2019, EFH has approximately $13.5 million of net liquid assets and will receive proceeds of $175 million from the sale of Echelon Insurance to CAA. Additionally, EFH holds 75% of ICPEI with proportional shareholder's equity of $12 million.

Full Financial Statements and Management's Discussion and Analysis (MD&A) are available on SEDAR and on the Company's web site at echeloninsurance.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.

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, litigation outcomes and outlook of EFH for 2019 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.

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 echeloninsurance.ca.

SOURCE Echelon Financial Holdings Inc.