Canadian Underwriter

Kingsway delivers star performance

April 1, 1999   by Canadian Underwriter

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TSE-listed Kingsway Financial Services Inc. (KFS) disclosed an 18% rise in earnings to 86c a share for the 1998 financial year ended December compared with that of the previous year. The return on equity for the year clocked in at 13.4%.

Net income for the year rose by 40% to $31 million compared with $22 million reported for 1997. The lower increase rate in the earnings a share declaration results from a 20% rise in the number of ordinary shares in issue from a two for one equity split which was carried out in the second quarter of 1998.

Gross premiums written for 1998 amounted to $409.2 million (1997: $210.7 million) with net premiums written of $320.4 million (1997: $186.8 million). Net earned premiums of $314.6 million coupled with investment income of 37.6 million produced an operating income of $352.6 million for 1998 compared with the previous year’s $197 million. The value of total assets almost doubled to break through the billion barrier at $1.012 billion (1997: $511.229 million) although the company’s liabilities also rose substantially to $762.711 million compared with the previous year’s position of $297.981 million – a significant portion of the liabilities result from unpaid claims at $446.245 million.

Bill Star, president of KFS, is particularly happy with the lower combined ratio the company achieved for the full year. “We improved our combined ratio despite doubling the size of our company. With the Walshire and Hamilton acquisitions now complete, we are poised for profitable growth in 1999.”

The company was able to reduce its combined ratio to 93.9% for the year (1997: 95.8%), mainly due to a decline in the claims ratio to 61.6% compared with 1997’s 65.3%. The expense ratio for the year rose to 32.3% (1997: 30.5%) which Star attributes to higher operating costs of the U.S. operations.

The Canadian operations generated net earned premiums of $192 million for the year with the U.S. operations producing $123 million. Although the Canadian operations currently account for 60% of net premiums, the greater source of the company’s business will come from the U.S. in the year ahead, predicts Star. “I don’t see much growth in Canada this year, I expect that about two-thirds of the business will come from the U.S. by the end of the current financial year.”

Star says the company will focus on internal expansion of its operations this year, although a keen eye will be kept open for acquisitional opportunities. Overall, he expects the company’s gross premiums for the 1999 financial year will top $550 million. “Kingsway will do well in the year ahead, we expect to do better in the Ontario market than last year as many of the companies currently operating in the market are likely to pull back on their product ranges as the true cost of the market’s low rate pricing comes to bear.”

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