S&P Rates Kingsway Debt ‘BB+’- Affirms Group’s ‘BBB’ Rating

September 25, 2003

Standard & Poor’s Ratings Services announced that it has assigned its ‘BB+’ global scale preferred share rating to Kingsway Financial Services’ (KFS) “guarantee of Kingsway Financial Capital Trust I’s U.S. trust preferred securities issue of up to US$72 million.” It also reaffirmed its ‘BBB’ long-term counterparty credit rating on KFS with a stable outlook.

“Funds will be used to support growth of new business and to partially repay older, more expensive existing debt,” stated S&P credit analyst Kevin Maher.

The rating agency said it “expects KFS’ organic growth to return to a more normalized annual level of 10%-15% in 2004 from 99% in 2002, with business continuing to be split closer to 75% from the U.S. and 25% from Canada in 2003-2004. Consolidated combined ratios for KFS and its insurance subsidiaries should continue to remain less than 100% and to improve, though reunderwriting, market conditions, and competition might cause KFS’ Ontario auto business to lag the U.S. in profitability by another year or two. KFS’ Ontario auto insurance business was expected to return to profitability in 2003 because the company has received approval for a rate increase, with market conditions continuing to support rate increases in the other territories in which the company operates. Results in this segment have improved, but still produce a combined ratio of more than 110%.”

S&P noted that the stable outlook reflects its “expectations that KFS will experience organic growth in the 10%-15% per year range, prospectively returning to more normal growth down from the 99% growth of 2002, with premium growth about three-quarters from the U.S. operations and one-quarter from the more mature Canadian operations in 2003 and 2004.”

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