Press Release - DECEMBER 20, 2017

A.M. Best Affirms Credit Ratings of Echelon Insurance and The Insurance Company of Prince Edward Island


CONTACTS:
 Gordon McLean
Senior Financial Analyst
+1 908 439 2200, ext. 5304
gordon.mclean@ambest.com

Raymond Thomson, CPCU, ARe, ARM
Associate Director
+1 908 439 2200, ext. 5621
raymond.thomson@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - DECEMBER 20, 2017
A.M. Best has affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb+” of Echelon Insurance (Echelon), as well as the FSR of B++ (Good) and the Long-Term ICR of “bbb” of The Insurance Company of Prince Edward Island (ICPEI) (Prince Edward Island, Canada). Concurrently, A.M. Best has affirmed the Long-Term ICR of “bb+” of Echelon and ICPEI’s publicly traded parent, Echelon Financial Holdings Inc. (EFH) [TSX: EFH]. The outlook of these Credit Ratings (ratings) is stable. All companies are domiciled in Mississauga, Ontario, unless otherwise specified.

The ratings of Echelon reflect its balance sheet strength, which A.M. Best categorizes as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The ratings of ICPEI reflect its balance sheet strength, which A.M. Best categorizes as adequate, as well as its adequate operating performance, limited business profile and appropriate ERM.

The ratings and outlooks for Echelon and ICPEI are based upon each company’s risk-adjusted capitalization, operating earnings and low exposure to losses occurring from natural catastrophes given each company’s respective focus on non-standard and associated auto liability lines of business. The ratings also consider the benefits derived from the parent holding company, which is publicly traded on the Toronto Stock Exchange, affording potentially greater financial flexibility.

These positive rating factors are offset partially by Echelon’s concentration within Ontario’s auto market, with results adversely affected by accident claims severity over the most recent five-year period, as well as strong competitive market pressures. Despite sound pre-tax operating earnings reported throughout the recent five-year period, policyholder surplus has declined due to the ongoing stockholder dividend payments to the parent for general use purposes, which has constrained the company’s ability to improve its capital base.

Offsetting rating factors for ICPEI include the impact of weather-related underwriting losses in recent years. While premium volume is divided fairly evenly among Prince Edward Island, New Brunswick and Nova Scotia, ICPEI’s lack of scale reflects its relatively small geographic footprint, which may increase its exposure to losses occurring from severe weather within the Atlantic Maritime provinces.

The ratings of EFH are based primarily on the overall financial strength of its operating insurance companies, Echelon and ICPEI. In addition to Echelon, EFH is the parent of CIM Reinsurance Company Ltd, a Barbados captive reinsurer, and CUISA Managing General Agency Corporation, a British Columbia specialty insurance agency.

Regarding future movement of Echelon’s ratings, positive rating actions could occur should operating results improve to a level that materially outperforms that of similarly rated carriers, while maintaining a strong balance sheet through retained earnings. Conversely, negative rating actions could occur should operating results decline due to a weakening in underwriting performance. Additionally, negative rating actions also may occur should the company’s balance sheet strength decline to a level that is not in line with A.M. Best’s expectation due to either excessive growth beyond expectation, or adverse reserve development, or if the company’s relationship to its parent changes in a manner that affects the company’s operations.

Regarding future movement of ICPEI’s ratings, positive rating actions could occur should operating results improve to a level that materially outperforms that of similarly rated carriers, while maintaining a strong level of risk-adjusted capitalization through retained earnings. Conversely, negative rating actions could occur should operating results decline due to a weakening in underwriting performance. Negative rating actions also may occur should the company’s risk-adjusted capitalization decline to a level that is not in line with A.M. Best’s expectation, or should the company’s relationship to its parent change in a manner that affects the company’s operations.

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source.


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