Kingsway’s Canadian subsidiaries report good 2007 Q2 results

Kingsway Financial Services Inc. (TSE:KFS, NYSE:KFS) has reported a 2007 Q2 net income of US$41.7 million, a 4% increase over the same quarter last year.
In a press release, Bill Star, the president and CEO, said he was pleased with the performance of our Canadian subsidiaries for the quarter and year to date, with each reporting an underwriting profit and increased levels of investment income.
Added Star: Each of our Canadian subsidiaries reported estimated favourable reserve development on unpaid claims recorded at the beginning of the year. However, they prudently did not release this prior period reserve surplus to earnings and instead continued to strengthen their balance sheet provision for unpaid claims.
But while Kingsways Canadian operations were reporting good financial results, the company said it was disappointed with the underwriting results of certain of our U.S. subsidiaries so far this year. Specifically, the company said the underwriting results of Lincoln General, although much improved in 2007 Q2, had a major negative impact on overall underwriting profitability.
At the same time, Kingsways other U.S. subsidiaries collectively reported an underwriting profit for the quarter and the year to date. Mendota Insurance Company, which we acquired during the quarter, also made a profitable contribution to the results despite absorbing certain nonrecurring transition costs.
Kingsways annualized return on equity [ROE] was 17.3% for 2007 Q2.
At the present time, industry conditions in both Canada and the U.S. are characterized by competitive pricing, modestly rising claims costs and other inflationary pressure on employee and other expenses, the company noted in its statement. As a result, the industry combined ratios are deteriorating. With investment yields remaining low by historical measure, we expect that the industry return on equity will continue to decline, but still exceed the growth in premium revenue in 2007.
Kingsway said it has mandated all of its subsidiaries to continue to price to target levels of underwriting profitability, which led to a modest decline in overall premium volumes over the last few quarters.