Kingsway achieves record 1-Q underwriting profit (May 05, 2005)

Kingsway Financial Services Inc. (TSX: KFS) brought home an annualized return on equity (ROE) of 22.6% for the first quarter of 2005, showing a 5.7 percentage point gain on its 16.9% return achieved for the same period last year. The specialty risk insurer’s net earnings for the first quarter of this year rose by 52% to $46.8 million compared with the $30.8 million reported a year ago. This equates to diluted earnings of 82c a share for the latest reporting period, reflecting a 49% year-on-year increase from last year’s first quarter earnings of 55c a share.Much of Kingsway’s earnings improvement for the first quarter of 2005 is due to a significantly stronger underwriting result, which brought about an unprecedented quarterly underwriting profit of $18.9 million (2004 1-Q: $10.4 million). This saw the company’s combined ratio fall to 96.3% for this year’s first quarter from the 98.2% ratio shown at the end of 2004’s first quarter. Notably, the insurer’s claims costs for the latest reporting period fell by $72.3 million to $349.9 million from 2004’s first quarter cost of $422.2 million. Kingsway’s U.S. operations (which account for about 74% of total business) produced an underwriting profit of $14.1 million (2004 1-Q: $7.9 million) on the back of a combined ratio of 96% (2004 1-Q: 98.2% ratio). Canadian operations delivered an underwriting profit of $4.8 million (2004 1-Q: $2.5 million) with a combined ratio of 96.9% (2004 1-Q: 98.4% ratio).Kingsway’s investment income for the first quarter of this year rose by 21% year-on-year to $27 million (2004 1-Q: $22.3 million) while net realized gains more than doubled over the same period to $17 million (2004 1-Q: $6.7 million). The insurer’s net written premiums for the latest reporting period fell by 16% to $571.8 million compared with the $684.1 million reported for the same period last year. Net earned premiums also dropped by 13% year-on-year to $510.1 million (2004 1-Q: $584.8 million). Kingsway attributes the decline in net written and earned premium growth over the most recent quarter to primarily the increased cost of quota-share reinsurance treaties. "During the quarter we were pleased with the favorable development on our yearend unpaid claims, but nevertheless continued to increase our balance-sheet provisions for unpaid claims. We continue to hold firm on our premium rate levels which have led to reduced volume of business in certain of our markets. Our rate levels remain adequate to generate targeted underwriting margins and competition in most of our markets is rational, which bodes well for our financial results for the foreseeable future," says company president Bill Star.