Kingsway Financial Services Notes Purchase of HI Holdings

September 12, 2005

Toronto-based Kingsway Financial Services Inc. has reached a definitive agreement to acquire HI Holdings Inc. (Hawaii).

The transaction includes HI’s wholly owned Zephyr Insurance Company Inc. (Zephyr). HI and Zephyr were formed in 2000 by its current shareholders that include Everest Reinsurance Company, Guy Carpenter & Company Inc., Hannover Ruckversicherung AG, and Island Holdings Inc. Subject to regulatory approval, HI and Kingsway expect the sale to close in the fourth quarter of this year. Philo Smith & Co. acted as financial advisor to HI.

“We are extremely pleased with the acquisition of Zephyr Insurance Company,” said Bill Star, president & CEO of Kingsway Financial Services Inc. “This transaction is consistent with our niche business strategy and our interest in acquiring profitable businesses that provide geographic and product diversification. Zephyr is a well run organization and we look forward to the company’s continued success as part of Kingsway.”

Zephyr is a provider of residential hurricane insurance coverage in the State of Hawaii. For the first six months of 2005, Zephyr generated Gross Premiums Written of U.S. $24 million and is projected to write approximately U.S. $50 million in Gross Premiums Written for 2005.

Kingsway currently operates in the State of Hawaii through Lincoln General Insurance Company, and American Service Insurance Company is also licenced to transact business in the state.

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