A.M. Best Co. announced that it has downgraded the financial strength ratings to “B++ “(Very Good) from “A-” (Excellent) of Kingsway Financial Services, Inc.’s Canadian subsidiaries, Kingsway General Insurance Company and York Fire and Casualty Company, both of Ontario. It also assigned the ratings a negative outlook.
“The downgrade of Kingsway General and York Fire and Casualty is due to their continued poor operating and underwriting performance and weak capitalization,” said Best. “Partially offsetting these negative factors are the significant rate increases taken in 2002 and 2003, the strengthening of loss reserves, the progress they have made to reduce claims costs, as well as the explicit financial support of Kingsway.
“Both Canadian subsidiaries continued to show poor operating and underwriting results in 2003 due to significant reserve strengthening of prior accident year claims, primarily on their core non-standard automobile and commercial trucking lines of business. Despite infusions of new capital from Kingsway during 2003, surplus remains highly leveraged as premium growth remains strong.” Best also said it was concerned about “the impact of regulatory changes to the automobile insurance products occurring in Ontario and Alberta on the profitability of the companies.”
The bulletin did note that Kingsway “has taken action to improve results by increasing rates and reducing loss costs. Moreover, prior accident year loss reserves were strengthened to reduce the potential for further adverse development.” It has also “demonstrated its continued commitment to raising additional capital to provide support for the ongoing operations of its Canadian insurance subsidiaries.”
Best said, however, that “the ratings of all of the Kingsway insurance subsidiaries in both the United States and Canada will remain under pressure pending the ability of Kingsway to lower underwriting leverage by raising capital, meeting their 2004 profit targets, controlling premium growth and eliminating adverse loss reserve development.”
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