EGI Financial Holdings Inc. (TSX:EFH) today announced its results for the third quarter and nine months ended September 30, 2008.
"We are satisfied with the third quarter results, driven by strong performances within both of our Canadian business segments. Difficulties experienced in the launch of the Niche Products division's new Emergency Travel Health ("ETH") program in the 2007/2008 travel season are now behind us, having completely reengineered the 2008/2009 ETH product.", said Douglas McIntyre, Chief Executive Officer of EGI Financial. "The Niche Products division results improved dramatically from the first half of 2008, generating an overall loss ratio in the third quarter that exceeded our expectations. Our Personal Lines division has also continued to perform well, despite a lower amount of favourable loss development in the first nine months of 2008 when compared to the same period last year. With both of our Canadian business units exceeding performance expectations, we anticipate a continuation of strong results for the remainder of 2008".
In the third quarter of 2008, EGI Financial generated direct written and assumed premiums totaling $46.1 million, 8.8% above the $42.3 million recorded in the third quarter of 2007. Premium growth was achieved in both the Personal Lines and Niche Products business segments. In our Personal Lines division, direct premiums increased $2.4 million, an increase of 10% from 2007, with premium increases generated within the non-standard auto and motorcycle lines of business. Direct written premiums in the third quarter of 2008 for the Niche Products business increased $0.5 million or 3% over the same period of 2007. This increase was achieved despite a decrease in written premiums in the ETH line of business in the third quarter of 2008 to $5.0 million compared to $8.9 million written in the same period in 2007.
Net written and assumed premiums increased $3.4 million, or 8.7%, to $43.1 million compared to $39.6 million in the same period last year. This increase is consistent with the increase in direct written and assumed premiums in the period compared to 2007.
Net earned premiums for the three months ended September 30, 2008, totaled $36.2 million, an increase of $5.3 million, or 17.2% compared to $30.8 million in the third quarter of 2007. The growth in earned premiums reflects the increase in premiums written and assumed in 2008 compared to 2007 and the ETH premiums that were written in 2007 but earned in 2008.
Both the Personal Lines and Niche Products divisions recorded underwriting gains in the third quarter of 2008 of $1.3 million and $1.0 million respectively. The significant improvement in the Niche Products division results was primarily attributable to the underwriting gain experienced in the Emergency Travel Health line of business in the quarter of $0.4 million, compared to losses experienced in this line of business in the first half of 2008. The International division which is still in its start-up phase incurred a small underwriting loss of $0.3 million.
The combined ratio for the third quarter of 2008 (being the addition of the ratio of net losses incurred to net earned premiums and the ratio of underwriting expenses to net earned premiums) increased to 95.7% compared with 88.5% for the same period last year. EGI Financial believes that the full year combined ratio is the best measure of the profitability of its underwriting business.
The loss ratio in the quarter ended September 30, 2008 (being net losses incurred expressed as a percentage of net earned premiums) was 64.0%, while the expense ratio (being expenses incurred expressed as a percentage of net earned premiums) was 31.7%. This compares with 58.2% and 30.3% respectively in the same period of 2007. The Personal Lines division loss ratio increased to 69.0% from 60.3% in 2007 due to the loss ratio in the motorcycle line of business increasing to 136.1% from 113.1% for the same period in 2007. A high loss ratio is expected in this line of business in the summer months when exposure to losses peaks. Management previously recognized the need for a motorcycle rate increase and filed a 19.5% increase with the Ontario regulator earlier in the year, which was approved by FSCO in the second quarter of 2008. The full benefit of the rate increase will be experienced in the final quarter of 2008 and during 2009. The non-standard auto segment is exceeding expectations, recording an improvement in the current accident year (2008) losses and continued favourable prior year loss development, although notably a lesser amount compared to last year.
The Niche Products division recorded an improvement in loss ratio to 40.6% for the quarter compared to 42.3% for the third quarter of 2007. This result represents a significant improvement in the loss ratios over the first and second quarters, of 2008, of 66.7% and 97.0% respectively. With the Company's ETH offering for the 2008/2009 travel season redesigned, management expects the Niche Products division to continue reporting positive results for the remainder of 2008.
Investment income in the third quarter of 2008 was $3.2 million compared to $3.2 million last year. This result was achieved despite difficult conditions within the financial markets which generated an investment impairment provision of $0.5 million in the quarter. EGI's investment portfolio reflected a $61.7 million, or 24.7%, increase in fair value as at September 30, 2008, compared to September 30, 2007, including additions to the portfolio.
EGI does not currently hold any non-bank asset backed commercial paper (ABCP) in its investment portfolio.
Net income was $3.0 million for the three months ended September 30, 2008, a decrease of $1.5 million compared to net income of $4.5 million in the third quarter of 2007. The decrease in net income was primarily related to the decline in underwriting income compared to the same period in 2007. Fully diluted earnings per share were $0.26 in the third quarter of 2008, compared to $0.44 for the third quarter of 2007, a decrease of 40.9%. The annualized return on equity on a last-twelve-months basis was 11.0%. Earnings per share and return on equity have been adversely affected by the issuance of 1,943,630 common shares for net proceeds of $20.8 million pursuant to the completion of our rights offering on July 31, 2008. -- www.cnxmarketlink.com
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