Losses increase for Kingsway Financial as it winds down Amigo Insurance in Florida

Kingsway Financial Services Inc. of Toronto, whose holdings include non-standard auto insurance carriers in the United States, has released its financial results for the first quarter of 2013, recording a net loss of $17.34 million on revenues of $33.63 million.

In the first quarter of 2012, Kingsway had reported a net loss of $12.522 million on revenues of $36.65 million. All figures are in U.S. currency.

In its financial statements filed last Friday with the U.S. Securities and Exchange Commission, Kingsway Financial noted that underwriting gross premiums were $43.5 million in the quarter ending March 31, 2013, up 10.7% from $39.3 million in the same period in 2012.

Subsidiaries include Mendota Insurance Company and Mendakota Insurance Company, both based in Minnesota. Maison Insurance Company, which provides homeowner coverage in Louisiana, received its certificate of authority from the state last November and is led by president and CEO Doug Raucy.

Kingsway is taking action to place a fourth subsidiary, Kingsway Amigo Insurance Company of Florida, in voluntary run-off.

“The increase in gross premiums written is the result of increased non-standard automobile premium volumes at Mendota and Mendakota and business written by Maison, which did not begin operations until the fourth quarter of 2012, partially offset by a decrease in non-standard and commercial automobile premium volumes at Amigo reflecting the actions begun by the Company during the fourth quarter of 2012 to place Amigo into voluntary run-off,” Kingway stated.

Other subsidiaries in Kingsway’s underwriting group include Universal Casualty Company, Advantage Auto, Kingsway Reinsurance Corp. and Kingsway Reinsurance (Bermuda) Ltd.

On Jan. 30 of this year, the Florida Office of Insurance Regulation approved Amigo’s plan to withdraw from offering commercial lines in the state, Kingsway reported.

“In April 2013, Kingsway filed a comprehensive run-off plan with the OIR, which outlines plans for Amigo’s run-off,” the firm stated May 10 in its SEC filing. “The comprehensive run-off plan is subject to OIR approval.”

As of Dec. 31, 2012, the company noted, the risk-based capital (RBC) formula for Amigo, using a calculation provided by the U.S. National Association of Insurance Commissioners (NAIC), was 157%.

NAIC is the regulatory support organization governed by the chief insurance regulators from the 50 states (plus the District of Columbia and five territories). In states where its formulas apply, if the total adjusted capital of a carrier is between150 to 200% of its Authorized Control Level, the firm must prepare a report to the regulator outlining a comprehensive financial plan that identifies the conditions that contributed to the company’s financial condition.

A requirement for “company action” is also triggered, in jurisdictions where NAIC’s property/casualty trend test has been enacted, where the  RBC ratio is between 200 and 300% and the combined ratio is greater than 120%.

“Amigo’s RBC was 157%, which is at the company action level, as defined by the NAIC,” Kingsway stated in its SEC filing. “As of Dec. 31, 2012, surplus as regards policyholders reported by each of our insurance subsidiaries, with the exception of Amigo, exceeded the 200% threshold.”

Kingsway’s underwriting subsidiaries provide coverage in 18 U.S. states. For the three months ending March 31, non-standard auto comprised 95.2% of the firm’s gross premiums written, though Maison provides homeowner coverage (including flood, wind and hail) while Mendota’s products include coverage under the U.S. National Flood Insurance Program.

Across all its carriers, Kingway’s underwriting combined ratio was 124.3% in the three months ending March 31, 2013, up 7.7 points from 116.6% from the same period in 2012. The loss ratio in underwriting was 71.8% in the first quarter of 2013, down from 74.4% in the same period in 2012.

“The decrease in the loss ratio for the three months ended March 31, 2013 is primarily due to favorable development on unpaid loss and loss adjustment expenses at UCC which more than offset the effect of storm-related losses incurred at Maison during the first quarter of 2013,” the company reported.

Kingway’s other major division is services, in which it reported total revenue of $43.49 million in the latest quarter, compared to $40.58 million in the first quarter of 2012. Subsidiaries in the services arm include Assigned Risk Solutions Ltd., a P&C agent and third party administrator licenced in 22 states but generating most of its revenue in New York and New Jersey.

The services branch also includes Boca Raton, Florida-based IWS, which provides vehicle service agreements and mechanical breakdown insurance, which in turn is distributed by credit unions in 26 states and in Puerto Rico. Last November, Kingsway formed IWS by acquiring some of the assets of Intercontinental Warranty Services Inc.

“The Insurance Services service fee and commission income increased 37.9% to $13.1 million for the three months ended March 31, 2013 compared with $9.5 million for the three months ended March 31, 2012,” Kingsway reported. “This increase was primarily driven by the inclusion of IWS in 2013 following its acquisition during the fourth quarter of 2012.”

Last March, Kingsway reported full-year results, recording net premiums earned in 2012 of $114.9 million, down from $156.4 million in 2011.

Its 2012 revenue was $150.4 million, down from $228.5 million in 2011 to $150.4 million last year. The net loss for 2012 was $53 million, compared to $27.4 million in 2011.