OLDWICK, N.J., December 18 /CNW/ - A.M. Best Co. has downgraded the
issuer credit ratings (ICR) to "bb" from "bbb-"of Kingsway Financial Services
Inc. (KFSI), (Mississauga, Ontario) and Kingsway America Inc. (KAI) (Elk Grove
Village, IL). The ratings have been placed under review with negative
Concurrently, A.M. Best has downgraded the financial strength rating
(FSR) to B++ (Good) from A- (Excellent) and the ICR to "bbb" from "a-" of
KFSI's subsidiary, Lincoln General Insurance Company (Lincoln) (York, PA).
These ratings remain under review with negative implications.
Additionally, A.M. Best has downgraded the debt ratings to "bb" from
"bbb-" on KFSI's CAD 78 million 8.25% senior unsecured debentures due 2007,
KAI's USD 125 million 7.5% senior unsecured notes due 2014 and its USD 74.1
million 7.12% senior unsecured notes due 2015. These debt ratings have been
placed under review with negative implications. The debt ratings of KAI are
based upon the unconditional guarantee of KFSI.
In addition, A.M. Best has assigned a debt rating of "bb" to Kingsway
General Partnership's CAD 100 million, 6% senior unsecured debentures, due
July 2012. This rating has been placed under review with negative
implications. This debt is unconditionally guaranteed by KFSI and KAI. (See
below for a detailed listing of the companies and ratings.)
The rating downgrades are a result of KFSI's weakened risk-adjusted
capitalization, continued adverse reserve development, softening market
conditions and operating performance, which is significantly below
expectations. The recent reserving action in Lincoln indicates a continuation
of a long pattern of increases on prior accident years. In A.M. Best's
opinion, recent reserving increases primarily are a result of a systemic
problem within the organization as a result of Lincoln's rapid growth in 2002
and 2003. Given the significant reserve deficiencies that Lincoln has
exhibited, A.M. Best has concerns about current pricing levels and the
challenge the company will face to increase rates or select better risks in
the current soft market. Moreover, Lincoln is highly dependent upon Kingsway
Reinsurance Corporation (KRC) (Barbados) for reinsurance protection as a
primary source of capital support. Because of the concentration of risk in the
affiliated reinsurer, Lincoln's capitalization is highly susceptible to
changes in the financial position of KRC and the overall capitalization of
KFSI. In addition, the reserve increases in 2007 on prior accident years have
put current year earnings significantly under projections, and the overall
capitalization of KFSI has been weakened. Furthermore, KFSI has relied more
heavily upon debt financing in recent years to raise capital to support its
operation. While the company's debt leverage is not excessive, it is a concern
when viewed with the continuing pattern of loss reserve development and
diminishing earnings performance.
The under review status is based upon KFSI successfully executing a
corrective plan of action to improve capitalization, debt leverage, reserve
development, operating performance and overall enterprise risk management.
Failure to execute this plan favorably will result in further negative rating
pressure, which could result in a downgrading of the ratings.
The FSR has been downgraded to B (Fair) from A- (Excellent) and the ICR
to "bb" from "a-" for Kingsway Reinsurance Corporation. The ratings remain
under review with negative implications.
The FSRs have been downgraded to B++ (Good) from A- (Excellent) and the
ICRs to "bbb" from "a-" for the following subsidiaries of Kingsway Financial
Services Inc. These ratings have been placed under review with negative
-- American Service Insurance Company Inc.
-- JEVCO Insurance Company
-- Kingsway Reinsurance (Bermuda) Ltd.
-- Southern United Fire Insurance Company
-- Universal Casualty Company
The FSRs have been downgraded to B++ (Good) from A (Excellent) and the
ICRs to "bbb" from "a" for Mendota Insurance Company and its wholly owned
subsidiary, Mendakota Insurance Company. These ratings remain under review
with negative implications. These companies were purchased by KFSI in second
The FSRs of B+ (Good) and the ICRs of "bbb-"have been placed under review
with negative implications for American Country Insurance Company and U.S.
Security Insurance Company Inc.
The FSRs of B++ (Good) and the ICRs of "bbb" of Kingsway General
Insurance Company and York Fire & Casualty Insurance Company have been placed
under review with negative implications.
Founded in 1899, A.M. Best Company is a global full-service credit rating
organization dedicated to serving the financial and health care service
industries, including insurance companies, banks, hospitals and health care
system providers. For more information, visit www.ambest.com.
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