Echelon Financial Holdings reports $3.7 million net loss for 2015 Q3 compared to $5.5 million net income in prior-year quarter

Echelon Financial Holdings Inc. (EFH) has reported a net loss of $3.7 million for the three months ended Sept. 30, 2015 compared to net income of $5.5 million – a 167% decrease – for the same quarter in 2014.

For the first nine months of 2015, EFH is still on the plus side, posting a net income of $4.5 million compared to $10.3 million for the same period in 2014, but still a decrease of 56%, notes a statement late Thursday from EFH, which operates in the property and casualty insurance industry in Canada and Europe.

Net operating income for the third quarter of 2015 also took a hit, falling 56% to $1.8 million compared to $3.9 million for the third quarter of 2014.

“The decrease was primarily due to lower underwriting income in the International segment, in addition to higher corporate expenses. Corporate expenses include a $1.0 million, one-time payment to SGI Canada for favourable development on prior-year claims reserves at The Insurance Company of Prince Edward Island,” notes the company statement.

The first nine months of 2015 for net operating income, however, was more consistent, with EFH posting $8.9 million for the period ended Sept. 30, 2015, up 8% from the $8.3 million for the same period of 2014.

Direct written and assumed premiums increased by 25% to $131.1 million in 2015 Q3 compared to $104.9 million in 2014 Q3. EFH reports the increase is “attributable primarily to a $23.1 million, or 40%, growth in the International division.”

For 2015 Q3, net earned premium (NEP) was $84.2 million, up 10% from $76.6 million in 2014 Q3, the company reports. For the first nine months of the year, there was a 14% increase to $229.4 million compared to $200.5 million for the same period last year.

Despite the increase in NEP, the underwriting loss was $678,000 in the third quarter of 2015 compared to underwriting income of $122,000 for the prior-year quarter. For the first nine months of the year, the underwriting loss was $2.5 million compared to about $2.7 million for the same period in 2014.

EFH reports that Personal Lines generated underwriting income of $1.9 million in 2015 Q3 compared to $0.5 million in the same period last year as a result of strong performance in Atlantic Canada, Quebec and Western Canada.

For Commercial Lines, underwriting income was $2.0 million compared to $0.8 million, due to strong results in Quebec Commercial lines and Western Canada commercial property. [click image below to enlarge]

Net operating income for the third quarter of 2015 also took a hit, falling 56% to $1.8 million compared to $3.9 million for the third quarter of 2014.

The International division, however, generated an underwriting loss of $2.1 million compared to underwriting income of $0.6 million in the same period of 2014. This was “primarily due to higher claims frequency than expected from the U.K.-based telematics learner driver‎ program,” the company reports.

Performance on the investment front also contributed to EFH’s net loss, with the investment loss for 2015 Q3 amounting to $2.8 million compared to investment gains of $6.3 million in 2014 Q3.

“The preferred share portfolio was adversely impacted by decreasing interest rates in Canada,” the company statement points out. “Fixed income was adversely impacted by increasing interest rates in Europe and widening corporate spreads globally. These losses were partially offset by currency gains due to the strengthening of the Euro to the Canadian dollar,” EFH adds.

Results for the first nine months showed a decline as well, with investment income dropping 61% to $7.1 million in 2015 compared to about $18.0 million for the same period in 2014.

“Overall, it was a mixed quarter for the company,” EFH CEO Steve Dobronyi says. “Strong underwriting results in Canada were more than offset by volatility in capital markets and disappointing results in Europe,” Dobronyi (pictured below) reports.

“In Europe, results were impacted by a spike in claims frequency on young drivers, and as a result, we continue to build prudent reserves to support the business. We have already taken immediate action on the affected areas and have de-risked the underwriting profile through program cancellations, underwriting restrictions and other management initiatives,” he says.

EFH reports that following a full review, management actions have been undertaken to limit the risk of the International segment:

• a telematics learner driver program has now been provided with provisional notice of cancellation;

• a marginally profitable Accident and Sickness program has been cancelled, effective Jan. 1, 2016;

• a new program moratorium has been implemented with immediate effect; and

• an increase in external reinsurance and coinsurance has been implemented, in addition to premium volume caps on all U.K. and Irish motor insurance programs.

“We are well-positioned to selectively underwrite only the risks with the highest profit margins and are excited by the opportunity to now realize the value that’s been built,” Dobronyi says in the statement.

“Coupled with the consistent profitability of our Canadian business and an increase in our shareholder dividend, Echelon continues to offer an attractive mix of value, growth and income to our shareholders,” he adds.