Irregularities threaten Queensway

Listed insurer Queensway Financial Holdings Ltd. (TSE:QFH) posted a third quarter 2000 loss of $49.1 million equal to $4.04 a share largely as a result of what the company describes as “accounting irregularities” revealed at one of its major U.S. operating subsidiaries, Sun States Group (SSG).

Rating agency A.M. Best Co. has pulled back the financial ratings of most of Queensway’s operating subsidiaries to “B” based on concerns over the company’s debt structure. Queensway also recently missed payment of $3.7 million in senior debt obligations which were due at the end of 2000. The company also sold two of its operating subsidiaries in the U.S. in a bid to raise capital to meet its debt requirements.

The latest “irregularities” uncovered at Queensway’s operations follows similar developments in mid-1999 with its then troubled Paradigm subsidiary, the result of which saw the head-office’s management ousted and replaced by the U.S.-based Petcoff brothers in the roles of CEO/president and COO/vice president.

The most recent sale of two of SSG’s subsidiaries, Atlantic Alliance Fidelity (AAF) and Surety Co., to the Guarantee Co. of North America for an undisclosed amount, has reduced this subsidiary’s annual written premium contribution to the group coffers to $27 million compared with $88 million generated during 1999. SSG accounted for a $40.8 million loss for the first nine months of last year, with the operation’s combined ratio clocking in at 153% for the same period. In contrast, Queensway’s loss for the first nine months of last year amounted to $46 million, or 3.95 a share, with a combined ratio of 122%.

Other subsidiaries North Pointe Group (NPG), Westchester Group, and Paradigm Insurance Co., reported modest profit and revenue gains for the first nine months of last year. NPG’s pre-tax earnings for the quarter amounted to $4 million for the three quarters, while Paradigm generated net income of $2.2 million against the $40.2 million loss made at the end of September 1999. The Westchester Group reported pre-tax earnings of $1.7 million for the three quarters.

Queensway still faces payment of senior debt of $48.5 million, mostly due by the beginning of February this year. The company is currently looking at finding new lenders and extending the debt deadline. “I am angered and deeply disappointed by the irregularities discovered at the Sun States Group…Although the financial results are far below expectations, we are encouraged by the underlying strength of both the Westchester and North Pointe groups… as we continue to enhance the profitability of our remaining operating entities,” says president James Petcoff.