Kingsway Posts 7% Increase in Net to $64.6 Million

February 13, 2004

Canada’s Kingsway Financial Services Inc., a leading provider in the U.S. of non-standard auto insurance, announced that its net income for the year increased by 7 percent to a record C$85.3 million (U.S. $64.6 million) compared to the C$79.5 million (U.S.$60.22 million) in 2002. In the fourth quarter Kingsway’s net income was C$18 million (U.S.$13.63 million), compared to C$25.4 million (U.S.$19.24 million) in the fourth quarter of 2002.

The figure would have been even higher, but the 20 percent appreciation of the Canadian dollar against its U.S. namesake effectively lowered the figure by 20 percent.

The company noted the following highlights in its announcement:
– Diluted earnings per share increased to C$1.62 (U.S.$1.227), after currency translation reduced earnings per share by 20 cents compared to 2002.
– Return on equity was 12.9 percent.
– Combined ratio of 101.4 percent for the year. Current accident year combined ratio of 93.1 percent.
– Gross premiums written increased 24 percent to a record C$2.6 billion (U.S.$1.97 billion).
– Book value per share increased to C$12.63 (U.S.$ $9.57) after a currency translation adjustment which reduced book value per share by C$1.88 (U.S.$1.424) for the year.
– All insurance subsidiaries strengthened reserves to at least the point estimate recommended by independent actuaries.
– Provision for claims occurring prior to December 31, 2002 increased by C$196.8 million (U.S.$149.1 million) or C$2.48 (U.S. $1.88) per share after tax.
– Cash flow from operations of C$617.2 million (U.S.$467.6 million).
– Investment portfolio increased 28 percent to C$2.7 billion (U.S.$2.05 billion).

Kingsway explained that as a “significant portion of the Company’s operations and net assets are denominated in U.S. dollars whereas the Company reports in Canadian dollars. During the fourth quarter and for the year the Canadian dollar appreciated significantly against the U.S. dollar thereby affecting the comparability to the same periods of 2002. Had the results of the U.S. operations been translated at the same exchange rates as the same periods last year, net income for the year would have been further increased by C$10.5 million (U.S.$7.95 million) and by C$3.2 million (U.S.$2.42 million) for the quarter.”

Kingsway noted that its “return on equity on an annualized basis was 12.9 percent for the year compared to 13.8 percent last year. Diluted earnings per share was 32 cents (U.S.24 cents) for the quarter and C$1.62 (U.S.$1.227) for the year. Had the results of the U.S. operations been translated at the same exchange rates as the same periods as last year, diluted earnings per share would have increased to C$1.82 (U.S.1.38) for the year, which is a 13 percent increase compared to the C$1.61 (U.S.$1.22) reported in 2002 on 7 percent more shares outstanding.”

“We have strengthened our reserves significantly to ensure that unpaid claims reserves at each subsidiary are at the independent actuaries point estimate or higher”, stated President and CEO Bill Star. “We would have reported a 20 percent increase in net income over last year if the exchange rate for U.S. dollars remained at 2002 levels. In 2003 we undertook three specific initiatives with respect to our claims reserving, firstly, we insisted that our companies complete an extensive claims review, secondly, they set their initial case reserves higher, and thirdly, they substantially increase their IBNR reserves. In 2003 we took decisive steps to ensure that we achieved our stated commitment to reach claim reserve levels recommended by independent actuaries by year-end. Despite the challenges that we faced in 2003 it still turned out to be the most profitable in our history. As a result, we are well positioned to produce much better results in 2004 and to reach our targeted underwriting profit goals.”

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