Kingsway income jumps on U.S. growth

Kingsway Financial Services (TSX, NYSE: KFS) brought in record net income for the fourth quarter 2002 and strong full-year earnings, largely as a result of performance from its U.S. operations.
Net income for the quarter ending December 31, 2002 was up 154% to $25.4 million from $10 million for the same period a year earlier. Earnings per share increased 122% for the quarter, to $0.51 from $0.23 a year earlier.
Full-year net income is $79.5 million, up 77% from 2001’s $44.9 million. Earnings per share for 2002 are $1.61, up 35% from the $1.19 recorded in 2001.
Gross written premiums (GWP) for the fourth quarter 2002 are $600.1 million, up 106% from the $291.6 million written in the last quarter of 2001. Net premiums earned for the same period were up to $1.74 billion, a 99% increase on the $872.8 million reported in fourth quarter 2001. Unearned premiums as of December 31, 2002 are $776.3 versus the $424.1 million reported at the end of 2001.
Much of this growth came from U.S. operations, where GWP jumped 127% for the quarter to $468.3 million, or 78% of total GWP. For the year, U.S. operations accounted for $1.63 billion in GWP, a 130% increase over 2001, and representing 77% of total GWP. Net earned premiums in the U.S. are $435.1 million for the quarter and $1.32 billion for the year.
Canadian operations did grow, with GWP up 54% to $131.7% for the fourth quarter of 2002, and up 38% to $490.8 million for the full year. Net earned premiums are $113.6 million for the quarter and $415.2 million for the year.
Another benefit was an income tax credit for 2002 of $8.8 million, versus a $10.1 million charge the year prior. Discontinued goodwill amortization also amounted to a positive effect of $5.8 million, or $0.15 per share.
Investment income grew to $64.9 million in 2002, versus $52.6 million in 2001, with net realized gains jumping to $16.3 million from $12.1 million comparing year-on-year.
The company was able to bring its combined ratio down to 98.9% for the fourth quarter 2002, versus 101.6% for the same period a year earlier. For the year however, the combined ratio is 99.8% versus 99.1% in 2001. The company’s U.S. operations saw the combined ratio rise slightly to 97.2%, but it was the 108.4% combined for the Canadian operations that was the real culprit, up from 103.1% in 2001. The Canadian operations also saw an underwriting loss in 2002 of $34.9 million (2001: $9.8 million) as a result of the troubled Ontario auto market.
Kingsway CEO Bill Star is confident recent legislative changes to the Ontario auto product will have a positive effect in the coming year, however. “2002 was an extremely exciting and positive year for Kingsway Financial. We established record levels of net income, earnings per share and revenue for the year,” Star notes. “The growth and profitability of our U.S. operations continues to be excellent, and we expect continued improvement in 2003. We are also confident that we have taken the necessary actions to combat fraud problems in Ontario and are encouraged by the progress of legislative change. Despite Ontario automobile, 2002 was the best year in our history, and we expect that 2003 will be even better.”