Queensway’s court coup

Achange in senior executive positions at Toronto-based Queensway Financial Holdings Ltd. (TSE: QFH) has resulted in a shift in power from Canadian to U.S. management. A statement recently released by the company says James Petcoff and Mathew Petcoff will be taking over as CEO/president and COO/vice president. Canadian David Rooney, who previously handled the portfolio of CEO, will continue as chairman of the QFH board.

According to market speculation, the management change was brought about as an “internal coup” in response to past poor acquisition decisions — namely Paradigm Insurance Co which was purchased by QFH last year. QFH posted a 60% drop in net earnings for the 1998 financial year primarily due to a $13 million under-reserve disclosed at Paradigm subsequent to the conclusion of the acquisition. Releasing its first quarter results for this year, the directors announced a plan to discontinue the operations of Paradigm at a total write-down cost of between $23 million and $28 million. QFH also recently announced agreement with U.S.-based Healthcare Specialty Co. to dispose of Paradigm’s medical malpractice book of business.

The Petcoff brothers originate from U.S-based North Pointe Financial, also acquired by QFH last year. James Petcoff is currently the single largest shareholder of QFH with roughly a 9% stake of the voting equity. The executive management change bodes well for the company, comments Robert De Rose, an analyst at rating agency A.M. Best & Company. The shift in management control will not influence the credit rating of QFH, he adds. QFH’s operations, which are mainly located in the U.S. although the company does have exposure to Ontario’s insurance market, are individually rated. The only operation currently under review for rating purposes is Paradigm, De Rose remarks. “I don’t see any negative implications [from the management change] for the company, there’s a positive spin in that both James and Mathew Petcoff have extensive experience in the management of insurance operations.”

In addition, De Rose points out that the majority of QFH’s interests are located in the U.S. In that respect, he adds, “”it makes sense to have U.S. experience behind the wheel”.

James Petcoff, QFH’s new CEO, says from a management perspective, the decision was taken to focus on consolidating and enhancing operations already acquired. Although he does not rule out further acquisitions this year, Petcoff plans on developing the operational side of the business. None of QFH’s executive board members have been replaced, he comments.