Kingsway Reports Q4, FY Loss

February 20, 2008

In its earnings report (in U.S. dollars) released last week Toronto-based Kingsway Financial Services Inc. reported a fourth quarter loss of $103.5 million, and an $18.5 million loss for the full year.

The Company said the “net loss was primarily attributable to the reserve increase for estimated unfavorable reserve development for prior accident years at its Lincoln General (‘Lincoln’) subsidiary previously announced on December 18, 2007.”

President and CEO Shaun Jackson acknowledged that 2007 “was an extremely disappointing year for the Company due to the significant reserve increases which were necessary at our largest subsidiary, Lincoln. The reserve increase of $124.8 million in the quarter significantly reduced earnings.”

Jackson added, however, that Kingsway is now “on a sound footing for future growth in profitability. During 2007, we implemented many improvements and corrective actions at Lincoln, which we expect will result in much improved performance. Not only have reserves been greatly increased, but we are also eliminating or repricing underperforming insurance programs and have enhanced several operational procedures.”

He also noted that the “increase in reserves at Lincoln has overshadowed the strong operating performance from most of our U.S. subsidiaries and all of our Canadian subsidiaries, as well as healthy investment returns from our securities portfolio. We ended the year with net premiums written of approximately $1.8 billion and statutory surplus in our operating insurance subsidiaries of approximately $1.2 billion.

“This is a conservative level of premium leverage, which we anticipate will further strengthen in 2008, providing us with significant flexibility to benefit from improving insurance market conditions. Book value per share grew by 5 percent during 2007 due to currency fluctuations and disappointing operating results. Over the last five years book value has grown at a compound annual growth rate of 16 percent, illustrating the benefits of Kingsway’s diverse operations.”

Kingsways bulletin observed that P/C “insurance markets in Canada and the U.S. continue to be very price competitive as the industry is experiencing slow premium growth while at the same time reporting increases in capital and surplus.” The Company, which specializes in truck and automobile coverage, has been affected by the situation. Its combined ratio ballooned to 130.2 percent in the fourth quarter of 2007, and rose to 109.3 percent from 98.8 percent for the full year.

The full report, supplemental information and a rebroadcast of the earnings conference call may be obtained on the Company’s web site at:

Source: Kingsway

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