Lincoln General drives Kingsway 2008 Q4 losses

Kingsway Financial Services Inc. (TSX: KFS, NYSE: KFS) has reported a 2008 Q4 loss of US$360.4 million and a loss of US$405.9 for the entire year.
“The disappointing results in 2008 reflect the impact of legacy operational problems,” said Shaun Jackson, president and CEO. “The main factors contributing to the loss were the protracted problems at our largest subsidiary Lincoln General, losses on our securities portfolio and resulting valuation allowance on future tax assets and impairments to goodwill.
“Offsetting these negatives were profitable performance by a number of subsidiaries, and the sale of York Fire at an attractive price.”
Kingsway noted Lincoln General’s premium volume declined by US$83.8 million in 2008 Q4 (US$353.7 million for the year) compared to last year, in part because of “the impact of terminations of unprofitable or non-core programs and the continuing soft market conditions for the trucking business in the U.S.”
Jackson said resolution of the Lincoln situation is a “key component” of the company’s turnaround plans.
“As previously announced, we are looking at strategic alternatives in conjunction with the Pennsylvania Insurance Department regarding the future of Lincoln,” Jackson announced. “The outcome of these discussions may have a bearing on our capital position. We will report back to shareholders at the Apr. 23, 2009 Annual General Meeting.”
Kingsway was also beset by the kind of investment declines reported generally throughout the industry.
Kingsway said its 2008 Q4 investment income decreased by 24% in the quarter primarily due to lower short-term yields in Canada and the United States, as well as a reduction in the size of the company’s investment portfolio as a result of the repayment of bank debt and the sale of York Fire.
“Also contributing to the decrease in investment income in the quarter is the weakened Canadian dollar which reduces the investment income earned by the Canadian operations when reported in U.S. dollars,” the company noted. “Investment income for the full year has decreased by 4% for reasons described above.”
Canadian operations, excluding York Fire, had a combined ratio of 108.4% compared with 95.4% a year ago.