Kingsway reports reserve increase at Lincoln General subsidiary

Kingsway Financial Services Inc. [KFSI] has reported a reserve increase at its Lincoln General subsidiary in 2007 Q4.
“Following further review of trends in claims development at its Lincoln subsidiary, including the updated indications provided by the company’s external appointed actuary, the company expects to increase its claims incurred by between US$95 million and US$125 million during the fourth quarter,” Kingsway announced in a press release. “This estimated reserve increase is attributable to loss trends that have emerged primarily in Lincoln’s long-haul trucking and artisan contractors general liability books of business.
“These trends have caused the company to re-evaluate its methods for estimating claim liabilities at Lincoln.”
Kingsway said in the future it would be relying more often on Lincoln’s own data and trends rather than industry trends in calculating its estimated loss reserves for these lines of business.
Kingsway said it expected the impact of the reserve increase on the company’s net income would be a reduction of between US$79 million and US$105 million for 2007 Q4 and fiscal year 2007.
“We are very disappointed to report this further reserve increase at Lincoln,” Kingsway’s executive vice president and chief financial officer Shaun Jackson said in a release. Nevertheless, he added, “despite this significant reserve increase at Lincoln, the performance of our Canadian operations and many of our other U.S. subsidiaries has enabled the company to maintain a strong capital position.”
Based on the news, A.M. Best downgraded Lincoln General’s financial strength rating to B++ (Good) from A- (Excellent). The FSRs of B++ (Good) for both Kingsway General ?Insurance Company and York Fire & Casualty Insurance Company have been ?placed under review with negative implications.
A.M. Best also downgraded several of Kingsway’s issuer credit ratings.
“The rating downgrades are a result of KFSI’s weakened risk-adjusted ?capitalization, continued adverse reserve development, softening market ?conditions and operating performance, which is significantly below ?expectations,” A.M. Best reported in a news release. “The recent reserving action in Lincoln indicates a ?continuation of a long pattern of increases on prior accident years.”