Underwriting performance drives significant earnings increase

EGI Financial Holdings Inc. today announced its results for the third quarter ended September 30, 2006. The third quarter was characterized by very strong performance in EGI’s underwriting business, driving a 170% improvement in quarterly earnings per share.

Net income in the 2006 third quarter was $5.5 million compared with $1.7 million last year, an increase of 218%. Fully diluted net income per share was 54¢ in the 2006 period, compared to 20¢ in the same period last year. This represents an annualized return on equity, on a last-twelve-months basis, of 22.1%.

In the third quarter of 2006, EGI Financial continued to show strong growth in its Niche Products Division. This growth combined with the addition of the Ontario motorcycle program has offset the reduction in the Ontario non-standard automobile segment to produce a flat top line result. Direct written premiums totaled $29.2 million, 1% above the $28.5 million level in the corresponding period last year. Despite the modest increase in direct written premiums, net earned premiums rose 42% in the 2006 period from $20.1 million to $28.5 million, as a result of the termination of the quota share reinsurance arrangements, effective Dec. 31, 2005.

Underwriting profit in the quarter increased sharply to $6.4 million before allocation of corporate and other expenses, compared with $400,000 on the same basis last year. The strong increase was attributable to a decrease in the loss ratio compared to the prior year in the company’s non-standard automobile division, slightly offset by a $0.3 million ‘Incurred But Not Reported’ (IBNR) charge in the current quarter in the Niche Products Division. This charge reflects the view of the company’s independent actuary that, due to premium growth in this relatively new line of business, it is prudent to increase IBNR to ensure adequate claims reserving.

The combined ratio – the addition of the ratio of net losses incurred to net earned premiums, and the ratio of underwriting expenses to net earned premiums – for the third quarter of 2006 improved substantially to 78.1% compared with 98.6% for the same period last year. EGI Financial believes that the combined ratio is the best measure of the profitability of its underwriting business.

The loss ratio in the 2006 quarter – being net losses incurred expressed as a percentage of net earned premiums – was 48.9%, while the expense ratio, being expenses incurred expressed as a percentage of net earned premiums, was 29.2%. This compares with 71.7% and 26.9% respectively in the same period of 2005. The significant improvement in the loss ratio was the primary reason for the Company’s strong third quarter performance.

Investment income decreased 9% to $2.1 million in the third quarter, compared to $2.3 million in 2005. This was primarily due to the realization of &800,000 in gains in the 2005 period.

“We were very pleased by the performance of our business in the third quarter, particularly given the competitive conditions in our core automobile business,” said Douglas McIntyre, CEO of EGI Financial. “Our strong results, driven by steady growth in net revenue and excellent performance in underwriting and claims, underlines our proven success in analyzing risk and pricing appropriately.”

EGI Financial operates in the property and casualty insurance industry in Canada, primarily focusing on non-standard automobile insurance and other niche and specialty general insurance products.

EGI Financial’s common shares are traded on the Toronto Stock Exchange under the symbol EFH.