Canadian Underwriter

Echelon Financial Holdings’ net loss rises to $4.5 million in 2016 Q1, dividend suspended, strategy is to build on Canada’s strengths

May 5, 2016   by Canadian Underwriter

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Challenges in Echelon Financial Holdings Inc.’s International business overshadowed solid Canadian profits, contributing to the company reporting a net loss in 2016 Q1 compared to the prior-year quarter.

Financial charts and graphsNet loss for the three months ended Mar. 31, 2016 amounted to $4.5 million, down 244% from the net income of $3.2 million in the same quarter of 2015, reports Echelon Financial Holdings (EFH), which operates in the property and casualty insurance industry in Canada and Europe. The company primarily focuses on non-standard automobile insurance and other specialty p&c insurance products, operating and distributing through Echelon Insurance, The Insurance Company of Prince Edward Island and Qudos Insurance.

In terms of net operating income or loss, the drop was greater, with EFH recording a loss of $4.0 million in 2016 Q1 compared to an income of $2.1 million in 2015 Q1, notes a company statement issued earlier this week.

Overall, direct written and assumed premiums, as well as net earned premiums (NEP) increased, while underwriting income decreased.

Specifically, direct written and assumed premiums were up 4% to $94.4 million in the first quarter of 2016 compared to $90.9 million in the same quarter of 2015, and NEP amounted to $79.4 million compared to $69.2 million, a 15% increase.

In addition, there was a 10% decrease in net written premiums to $63.1 million in the first quarter, “primarily driven by additional co-insurance and reinsurance on motor programs written in the International segment,” EFH reports.

Overall, the underwriting loss for the company rose 169% to $9.4 million in the first quarter of 2016 compared to $3.5 million in the same quarter of 2015.

The International division generated an underwriting loss of $7.4 million compared to an income of $1.8 million in the same period, primarily as a result of losses in the United Kingdom and Irish auto programs, notes the EFH statement. “We have initiated a full claims review on these programs,” it adds.

In Canada, though, Personal Lines generated underwriting income of $0.7 million in 2016 Q1 compared to an underwriting loss of $3.7 million in 2015 Q1. This was “primarily due to benign driving conditions in Ontario and Atlantic auto.”

For Commercial Lines, EFH notes that the underwriting loss was $0.8 million compared to $0.4 million underwriting income, primarily because of a large loss in commercial property. “The company continues to focus on growing the Canadian business through product expansion, technology investments, and strong broker relationships,” the statement notes.

Echelon-Operating Results (2016 Q1)

The weak International performance also contributed to a higher combined operating ratio in 2016 Q1, which rose to 112% compared to 105%.

“Our Canadian business, particularly Personal Lines, continues to produce stable, consistent profits,” EFH CEO Steve Dobronyi (pictured below left) says, but the Canadian results are overshadowed by the challenges in the International business.

Echelon Financial Holdings CEO Steve Dobronyi

“As we’ve previously announced, we are exploring a structured process and a broad range of options to divest the International segment. This will allow us to focus on our top priority of building and growing our Canadian operations,” Dobronyi continues.

Related: Net income for Echelon Financial Holdings down 56% to $3.7 million in 2015 Q4 compared to 2014 Q4

That being the case, the Board of Directors “has elected to suspend the quarterly common share dividend until further notice,” the statement notes. “This decision provides the opportunity to retain capital for future Canadian growth initiatives.”

EFH will build on Canada’s strengths by “enhancing our product offering coast-to-coast and launching a new technology platform for speed and agility,” says company president Serge Lavoie (pictured below right). “Our team is fully committed to the broker channel with a highly responsive, hands-on, flexible approach to partnerships.”

Serge Lavoie

Serge Lavoie, president of Echelon Financial Holdings

EFH reports that the Canadian business remains solid, with stable direct written premiums and improved year-over-year underwriting results overall.

Other results for the first quarter of 2016 include the following:

  • investment income was $5.2 million compared to an income of $5.9 million in the first quarter of 2015;
  • operating expenses increased by $0.7 million, or 8%, to $9.2 million in compared to $8.5 million, primarily due to an increase in salaries and benefits; and
  • on a consolidated basis, a net favourable development of prior-year claims of $1.4 million was recorded in the first quarter compared to favourable development of $2.4 million.