S&P’s downgrades Kingsway to a ‘CCC+’

Standard & Poor’s (S&P’s) has lowered its unsolicited long-term counterparty credit and senior unsecured debt ratings on Kingsway Financial Services Inc. to ‘CCC+’ from ‘B-’.
The negative outlook “reflects our assessment of the company’s weak profitability, weak liquidity, weak capital adequacy, uncertain insurance franchise, reduced competitive position, weak management oversight, weak enterprise risk management and limited financial flexibility,” an S&P’s release says.
“The downgrade reflects our concerns over the company’s rapidly deteriorating profitability, liquidity position, and capital adequacy which we believe will worsen as Kingsway continues to face very difficult underwriting conditions and reserve strengthening issues, which have also developed in other operations besides Lincoln General,” said Foster Cheng, a credit analyst with S&P’s.
“It also reflects our concerns over its worsening franchise value.”
Kingsway’s most recent quarterly results represents the 11th straight quarter that Kingsway and Lincoln General have needed to increase its reserves; over that time, the company has incurred about US$490 million in reserve strengthening “with no clear end in sight,” S&P’s said.
“The reserve development at its other operations — including run-off business at Kingsway General, its largest Canadian operations — is particularly alarming, in our view, as it could signal the development of ‘Lincoln-like’ reserve issues at those operating companies as well,” S&P’s said.
Canadian Underwriter contacted Kingsway, but as of press deadline no one was available for comment.