Kingsway net income jumps 22% on investment gains

Mississauga-based Kingsway Financial Services (NYSE, TSX: KFS) saw net income rise for the second quarter ending June 30, 2004 by 22% to $33.3 million, compared to $27.3 million for the same period a year earlier. This translates to earnings per share of $0.59, up 7% from a year earlier, with 14% more shares outstanding.Investment income provided the big boost, up 26% for the most recent quarter to $24.1 million from $19.2 million a year earlier.The company saw premium growth in both its U.S. and Canadian operations, with U.S. gross written premiums up 5% to $476.4 million (Q2 2003: $453.9 million) and Canadian GWP up 28% to $225.6 million. Combined, GWP rose 11% to $702.0 million compared with $629.9 million during the same period in 2003.For the second quarter of this year, the company posted an underwriting profit of $13.2 million on a combined ratio of 97.7%, a sharp increase over the profit of $4.7 million and combined ratio of 99.2% posted a year earlier.On an annualized basis, return on equity was 17.2% for the second quarter and 17.0% for the six months of 2004.These strong results came despite the company’s decision to enter into two new, flexible reinsurance treaties, which saw net premiums earned reduced by $61.4 million, underwriting profit by $2.4 million, net income by $1.6 million and earnings per share by $0.03 for the quarter and year to date.”The results of our Canadian operations are particularly pleasing with each Canadian subsidiary producing an underwriting profit in the quarter. The decisive actions that we have taken in Canada are leading to premium growth and improved underwriting results,” says Kingsway CEO Bill Star. “The current maturity profile of our fixed income portfolio should also allow us to grow our investment income should interest rates rise. We are well positioned to benefit from the favorable insurance conditions in many of our markets and a rising interest rate climate.”For the first six months of 2004, net income was a record $64.1 million, up 24% over the $51.7 million reported last year. Earnings per share rose 10% to $1.14 with 14% more shares outstanding during the same comparative period.GWP increased by 6% to $1.4 billion for the six-month period, despite a drop in U.S. GWP to $1.02 billion from $1.03 billion. However, Canadian GWP rose 29% for the first half of 2004, to $390.2 million from $303.1 million last year. Net earned premiums remained stable at $1.2 billion.For the first half of 2004, the company posted a record underwriting profit of $23.6 million on a combined ratio of 98.0% compared with profit of $22.5 million on a ratio of 98.1% in the first six months of 2003.The U.S. operations posted a combined ratio of 98.5% compared to 96.1% a year ago, while the Canadian operations posted 96.5% compared to 105.4%. However, the company notes U.S. results were dragged down by the translation of results to Canadian currency as of January 1, 2005 the company will report all results in US dollars.Investment income increased to $46.4 million in the first half of this year from $34.9 million last year. As of June 30, 2004, total assets had grown to $4.2 billion.