March 1, 2004 by Canadian Underwriter
Specialty insurer Kingsway Financial Services (TXS: KFS) saw its return on equity drop slightly for the 2003 financial year, although the company still boasted a double-digit return. For the 12 months ending December 2003, Kingsway’s ROE clocked in at 12.9%, showing moderate weakness on the 13.8% return posted the year prior. However, the insurer’s net income for the year rose 7% to $83.5 million, or $1.62 a share, compared with the $79.5 million, or $1.61 a share, generated for 2002.
The company’s gross written premiums rose for 2003 to $2.6 billion compared with the $2.1 billion reported the year prior. Net earned premiums grew to $2.4 billion from $1.7 billion in 2002. The insurer’s investment income for 2003 increased by nearly 21% year-on-year to $78.4 million (2002: $64.9 million). However, Kingsway posted a higher claims ratio for 2003 at 74.3% versus the 71.4% ratio shown for 2002 on the back of an underwriting loss of $33.9 million compared with 2002’s loss of $2.6 million. As a result, the insurer’s combined ratio rose marginally to 101.4% from the 99.8% ratio reflected from the previous year.
Kingsway’s Canadian operations posted an underwriting loss of $65.4 million on combined ratio of 111.8% for 2003 (2002: underwriting loss of $34.9 million on a combined ratio of 108.4%) while unfavorable development on prior year claims rose to $103.9 million for Canadian business in 2003 (up from the $65.8 million reported for 2002). In contrast, the company’s U.S. operations generated an underwriting profit of $31.5 million for 2003 on a combined ratio of 98.3%, although this was down from the $37.5 million posted for 2002 on a combined ratio of 97.2%. Adverse development on the U.S. book clocked in at $92.8 million for 2003 compared with the $35.3 million reported for the previous year. Kingsway CEO Bill Star notes that the company took reserve charges in 2003 which negatively impacted the company’s return for the year. Notably, the insurer had to increase its provision for unpaid claims by 39% during 2003 as well as contend with the negative drag of the stronger Canadian dollar.