Kingsway stock drops despite results

Despite posting another record financial showing for the second quarter of 2002, specialty insurer Kingsway Financial’s (TSE: KFS) stock dropped sharply upon release of the company’s second quarter results.

Net income for the latest reporting period rose by 42%, to $16.2 million from the $11.4 million reported for the quarter ending June 30, 2002. Earnings amounted to 33 a share, which is on par with that reported for the second-quarter of 2001. This, however, feel below investment analysts’ expectations – precipitating the stock price decline.

Nonetheless, results were positive for the company, with gross written premiums increasing 93%, to $502.6 million for the current period, and net premiums increasing 105% to $399.3 million. Investment income also rose significantly to $17.0 million for the second quarter of this year compared with the $11.6 million reported 12 months prior. For the first six months of the year, net income rose 58%, to $32.5 million from $20.6 million for the first half of 2001, partly affected by the discontinued amortization of goodwill. Earnings per share over the same period were up 10% to 66 a share.

Kingsway president Bill Star notes that the current pricing environment should provide continued growth into 2003. “The hard market conditions continue to provide unprecedented opportunities for profitable growth, particularly in the U.S. In Canada we continue to see strong growth and are satisfied that the recently approved rate changes will return the Ontario Automobile product to underwriting profitability.”

The company’s combined ratio was 99.9% for the quarter, resulting in underwriting profit of $300,000, a dramatic drop from the $3.1 million profit reported for the same period last year. In particular, the Canadian operation’s combined ratio rose to 108.9% from 97.7%, which the company attributes to the troubled Ontario auto market.