EGI Financial Holdings Inc., whose subsidiaries provide high-risk auto and other insurance products, has released its financial results for 2012, reporting a significant drop in the combined ratio for auto.
Last year, Toronto-based EGI recorded net income of $19.36 million on direct written premiums of $220.149 million, compared to net income of $7.52 million on direct written premiums of $174.892 million in 2011. For the fourth quarter of 2012, net income was $4.513 million (up year-over-year from $3.254 million ) on direct written premiums of $52.326 million (up year-over-year from $44.324 million).
The 158% increase in net income for the full year was "attributable mainly to investment income of $34.0 million, of which $20.8 million was generated in the third quarter through realized gains from investments," EGI stated in a press release.
EGI's subsidiaries include Mississauga, Ont.-based Echelon General Insurance Company, American Colonial Insurance Company and Holte, Denmark-based Qudos Insurance. The firm provides auto insurance to high-risk drivers. It also provides "niche" insurance products including property, liability, legal expense, accident and health.
Its underwriting losses from international operations was $3.136 million last year, but underwriting income from personal lines was $11.898 million, up from $7.046 million in 2011. The firm's performance in personal lines improved year over year, due mainly to the performance of non-standard auto, where the combined ratio dropped from 98.7% in the fourth quarter of 2011 to 74.9% in the fourth quarter of 2012.
"New insurance regulations that were introduced in Ontario in September 2010 seem to be having a positive impact on the development of claims," the company said in a press release. Two years ago the Ontario government put a $3,500 cap on accident benefit payments for auto-related injuries classified under the minor injury guideline. It also reduced medical, rehabilitation, attendant care and income replacement benefits in the standard auto policy (SAP) for non-catastrophic injuries.
"Management remains cautiously optimistic on the favourable impact of the Ontario reforms to date," EGI stated in its press release Monday, but added there are five uncertainties. One is from personal injury lawyers seeking "new avenues for awards." The second is the definition of catastrophic injury, while the third is the combination of physical and psychological impairments in assessing the "whole person impairment."
Another uncertainty is the potential implementation of the 38 recommendations from the Ontario Anti-Fraud Task Force, which the ruling minority Liberals government is promising to implement. The fifth is the backlog of cases before the Financial Services Commission of Ontario.
"These issues are expected to have the greatest impact in the Greater Toronto Area, which is a territory where EGI is not a significant writer."
For all lines, EGI's combined ratio was 101.9% for all of 2012, compared to 99.6% in 2011. For the final quarter, the combined ratio for all lines dropped, from 96.6% in 2011 to 96.1% in 2012. Broken down by area, the loss ratio for full-year 2012 was 58.1% for personal lines (down from 65.1% in 2011), 66.5% in niche products (up from 56.6% in 2011), 101.5% for the U.S. (up from 90.3% in 2011) and 71.9% for international operations.
"The International division recorded an underwriting loss of $1.2 million as a result of start-up costs, the seasonality of motorcycle business, the write-off of certain new business expenses and a lack of material earned premium," EGI stated."
In addition to Qudos, EGI's international subsidiaries include CIM Reinsurance of Barbados.
Last May, EGI acquired CUISA Managing General Agency Corp. of British Columbia, which provides insurance services to 160 credit union-owned broker offices in B.C. It attributes the 25.9% year-over-year increase in direct written premiums to the CUISA acquisition and the international division.