A.M. Best Places Ratings of Kingsway Under Review

November 28, 2002

A.M. Best Co. announced that it has placed the financial strength ratings of the insurance subsidiaries of Ontario-based Kingsway Financial Services Inc., and the senior unsecured debt rating of “bbb” on its 1999 syndicated bank facility, under review with negative implications.

Kingsway, which specializes in non-standard auto coverage in the U.S. and Canada, expressed its confidence that the review would not result in adverse ratings changes. Bill Star, President & CEO stated that “We expect the initiatives we have taken and the completion of our previously announced capital raising program will be viewed favorably by A.M. Best and will allow us to continue to enjoy financial strength ratings which will not impact any aspect of our business. We look forward to meeting with A.M. Best next month in the course of their annual review to discuss our future plans.”

Best’s bulletin specified that the review would examine the following subsidiary companies:
— Kingsway General Insurance Company A (Excellent)
— JEVCO Insurance Company A (Excellent)
— York Fire and Casualty Company A (Excellent)
— Kingsway Reinsurance (Bermuda) Ltd. A (Excellent)
— Lincoln General Insurance Company A- (Excellent)
— Universal Casualty Company A- (Excellent)
— American Service Insurance Company B++ (Very Good)
— American Country Insurance Company B+ (Very Good)
— Southern United Fire Insurance Company B+ (Very Good)
— US Security Insurance Company B (Fair)

It indicated that it has concerns “about the group’s elevated underwriting leverage position due to significant growth in written premiums.” It acknowledged that “Kingsway is in the process of raising capital to support the expected growth of its business and for general corporate purposes including repayment of all or a portion of its revolving credit facility.”

The main source of the rating agency’s concern is that the “group’s premium growth has far exceeded A.M. Best’s expectations for 2002, and Kingsway’s management has indicated its U.S. operations are projected to continue showing strong increases through 2003.” It therefore felt it necessary to place the ratings under review pending the completion of the company’s capital raising efforts.

A.M. Best also expressed “concerns regarding Kingsway’s level of profitability and its ability to effectively manage and administer the underwriting and claims functions.” It noted that “although the underlying operating performance of the group has improved, some key operational areas are still underperforming. “

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