Non-standard auto in Ontario contributes to Q1 underwriting loss for EGI

EGI Financial Holdings Inc., a carrier whose lines include non-standard auto, reported Thursday a net loss of $910,000 in the first quarter of this year, attributing its results in part to a “long winter” in Ontario and the settlement of a mortgage broker errors and omissions claim. 

Toronto-based EGI reported an underwriting loss of $4.4 million in the first three months of 2013, compared to a loss of $976,000 in the same period of 2012. Its net income in the first quarter of 2012 was $3.79 million.

The firm operates in Canada through Echelon General Insurance Company and writes non-standard auto in Florida. In Denmark it owns the majority of Qudos, which offers motorcycle, taxi, non-standard auto and warranty insurance primarily to the Danish and British markets.

“Performance of the International division was particularly strong,” EGI stated in a press release. “The division recorded a modest underwriting loss of $0.3 million, its best quarterly result since it started writing premiums one year ago.”

While written premiums in EGI’s international operations were $462,000 in the first quarter of 2012, they increased to $14.88 million in the same period of this year.

But in personal lines, which includes coverage for motorcycles, antique and classic vehicles, trailers, motor homes and recreational vehicles, direct written premiums for the first quarter dropped 7% year over year, from $29.8 million in the first quarter of 2012 to $27.6 million in the three months ending March 31, 2013. The loss ratio for personal lines increased year over year, from 68.5% in the first quarter of 2012 to 73.5% in the same period this year.

The combined ratio in personal lines rose from 96.4% in the first three months of 2012 to 103.9% in the first quarter of 2013. In its management discussion and analysis posted to SEDAR, EGI Financial attributed the increase in the combined ratio, in part, to the “underperformance of Ontario non-standard auto,” which recorded a combined ratio of 109.9% in the first quarter compared to 98.3% in the first quarter of 2012.

“The long winter in Ontario had a negative impact on the severity of claims received in the first quarter. No material changes were made in underwriting standards or brokers from previous quarters.”

Another factor in personal lines was a lower positive development of prior year claims in the first quarter of 2013 compared to the same period in 2012.  EGI Financial added that the motorcycle and personal lines business outside of Ontario, which had a combined ratio of 77% in the first quarter of 2012, offset its Ontario performance.

In its specialty programs, which includes higher-premium property, primary and excess liability, legal expense and extended warranty, EGI reported direct written premiums increased 10% year over year, from $9.82 million in the first quarter of 2012 to $10.77 million in the first three months of 2013.

However, the first-quarter combined ratio increase from 87.6% in 2012 to 115.7% this year. Although EGI reported first-quarter underwriting income of $1.04 million in specialty programs in 2012, in the first quarter of this year it reported an underwriting loss of $1.3 million.

“The commercial property line of business experienced underwriting losses of $1.5 million in Q1 2013 primarily due to three large losses,” the firm stated in its MD&A, adding that $300,000 of the “adverse experience was due to the settlement and closure of one of our largest and most complex Mortgage Broker (errors and omissions) claims.”

Investment income for the first quarter also dropped, from $6 million in 2012 to $5.1 million in 2013.

For the company as a whole, direct written premiums were up 30.7% year over year, from $43.9 million in the first three months of 2012 to $57.4 million in the first quarter of 2013. The loss ratio for the quarter ending March 31, 2013 was 73.1% compared to 65.7% in Q1 2012 while the combined ratio was 109.2% this year, up from 102.3% in Q1 2012.

Of its four business segments, the one in which the loss ratio was highest in the U.S., at 88.1%.

“The U.S. operations recorded a substantial improvement in their performance, resulting in a combined ratio of 126.2% versus 173.2% for the same period last year,” EGI stated in a press release. “The improved performance was due to the Company’s exit from the Texas market; newly implemented underwriting and pricing changes towards the end of 2012 in Florida; larger scale and a greater proportion of more profitable renewal business compared to the prior year.”