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


February 18, 2016   by Canadian Underwriter


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An underwriting loss in the fourth quarter of 2015 contributed to Echelon Financial Holdings Inc. (EFH) seeing net income drop 56% for both 2015 Q4 and full-year 2015.

Echelon's net income down 56% in 2015 Q4

Net income for the three months ended Dec. 31, 2015 was approximately $3.7 million compared to about $8.4 million for the same period of 2014, notes a statement Wednesday from EFH, which operates in the property and casualty insurance industry in Canada and Europe. For the full year, net income was $8.2 million in 2015 compared to $18.7 million in 2014, it adds.

Net operating income was also down for both the fourth quarter of 2015 and the full year (the decrease is related to poorer International results).

EFH reports that net operating income for 2015 Q4 decreased 98% to $151,000 (compared to $9.0 million in the prior-year quarter) and was down 46% to about $9.0 million (compared to $16.9 million in 2014) for full-year 2015.

In terms of underwriting income or loss, the company saw a loss of about $3.6 million in 2015 Q4 compared to an income of approximately $7.6 million in 2014 Q4, a decrease of 147%. For 2015, the underwriting loss was about $6.1 million, down 224% from about $4.9 million in 2014.

In 2015 Q4, Personal Lines generated underwriting income of $3.3 million compared to $5.5 million in the same period of 2014. This was “due to a small number of large losses in personal property in Western Canada,” EFH reports.

For Commercial Lines, underwriting income was $2.2 million in the fourth quarter of 2015 compared to $2.0 underwriting income in the same quarter of 2014. This was driven by improved results in Atlantic and Western Canada.

However, the company’s International segment saw an underwriting loss of $6.8 million in 2015 Q4 compared to an income of $1.3 million in 2014 Q4. This was “primarily due to $5.7 million of underwriting losses on programs provided with notice of cancellation, including the U.K. learning driver telematics program.”

[Click on image below to enlarge]

EFH Financial Summary

On the rise, though, was direct written and assumed premiums, which increased 72% to $135.3 million in the fourth quarter of 2015 compared to $78.8 million in the same quarter of 2014. The increase over the same period in 2014 was “attributable primarily to a $58.1 million or 170% growth in the International division,” EFH reports.

For the 12 months ended Dec. 31, 2015, direct written and assumed premiums amounted to $495.1 million compared $364.9 million, an increase of 36%. The increase was “attributable primarily to a $118.1 million or 66% growth in the International division,” the company statement notes.

Steve Dobronyi

“We’re very pleased with the continued strong performance of our Canadian operations,” Steve Dobronyi (pictured right), EFH’s chief executive officer, notes in the company statement.

“Both Personal and Commercial businesses continue to exceed our target profitability, with combined ratios of 90% and 78%, respectively, for the quarter,” Dobronyi says, pointing out that Personal Lines has delivered an underwriting profit in 19 of the past 21 quarters and Commercial Lines seven in a row.

The Canadian results, however, “are offset by a $6.8 million underwriting loss in the International segment,” he explains.

Although EFH premium volumes in Europe are being met, “underwriting profitability has fallen short of expectations as the mix of business has drifted too heavily toward the less proven U.K. motor business,” Dobronyi says.

“We are currently reviewing the strategy and the future of our International operations and our company’s capital allocation plans,” he notes, but will continue to implement measures to reduce the company’s “exposure to U.K. motor premiums and deliver consistent underwriting profitability in Europe.”

Other financial results announced Wednesday include the following:

  • combined operating ratio of 104% in the fourth quarter of 2015 compared to 90% in the fourth quarter of 2014;
  • 1.3% increase in book value per share to $15.75 per share in 2015 Q4 compared to $15.82 per share in 2014 Q4;
  • investment income of $6.8 million in the fourth quarter of 2015 compared to an income of $6.4 million in same period of 2014; and
  • on a consolidated basis, a net favourable development of prior-year claims of $8.1 million in 2015 Q4 compared to favourable development of $0.9 million in 2014 Q4.

“All regulated entities remain well-capitalized,” EFH reports. “The Minimum Capital Test (MCT) ratio of EFH’s Canadian subsidiary, Echelon Insurance, as at December 31, 2015, was 241%, which comfortably exceeds the supervisory regulatory capital level required by the Office of the Superintendent of Financial Institutions,” the company statement notes.

As for the company’s European subsidiary, Qudos, it had a Danish Financial Services Authority (DKFSA) Individual Solvency ratio of 122%, in excess of the DKFSA target, the press release adds.