EGI Financial restructures 2006 treaty reinsurance

EGI Financial Holdings Inc. (TSX:EFH) has completed a plan to restructure its treaty reinsurance coverages for 2006.
Enabled by its greater capital resources, EGI Financial did not renew its quota share reinsurance treaty in 2006. In a change from prior years, it 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 Dec. 31, 2005.
To the extent that the underlying policies remain in force, EGI Financial will be earning these premiums during the course of 2006. The company has agreed to pay additional adjustable deposits of $200,000 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 Sept. 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 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, CEO of EGI Financial.
Under the terms of the quota share treaty, on or about Mar. 1, 2006, the reinsurers will return approximately $7.1 million to the company 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.