Kingsway Grows Net Income by 24% for 2005; Dividend Increases 25%

February 8, 2006

Canada-based Kingsway Financial Services Inc. reported financial results for the fourth quarter and year ended Dec. 31, 2005 (Cdn dollars except where indicated).

Net income for the quarter increased 16% to $42.1 million compared to $36.3 million in the fourth quarter of 2004 and in U.S. dollars increased 20% to U$35.9 million from U$29.8 million. Net income for the year increased 24% to a record $163.1 million (increased 34% to U$135.0 million), over the $131.0 million (U$101.0 million) reported last year.

Return on equity (annualized) was 18.4% in the quarter compared to 18.2% in the fourth quarter of 2004, and was 18.8% for the year compared to 17.4% in 2004. Diluted earnings per share increased 16% to $0.74 (19% to U$0.63), compared to $0.64 (U$0.53) for the same quarter of 2004. For the year, diluted earnings per share increased by 23% to a record $2.86 (32% to U$2.37) over $2.32 (U$1.79) last year.

“I am very pleased to again report record earnings. 2005 was an outstanding year in which we delivered record earnings for each quarter and for the year,” said Bill Star, president & CEO. “Our disciplined underwriting approach has led to an improved combined ratio and record underwriting profits in 2005 on lower premium volume than 2004. During the year we continued to build our book value per share and strengthen our capital position, and as a result I am pleased to announce that the Board has today approved a (25%) increase in our quarterly dividend. Pricing is generally stable and we continue to see growth opportunities in the extremely fragmented U.S. markets. Our diversification in the U.S. and Canada together with our dominant niche market positions provide us with a strong foundation as we enter 2006.”

During the fourth quarter, gross premiums written declined 11% to $515.3 million (7% to U$439.3 million), compared with $579.0 million (U$474.0 million) in the same quarter last year. Gross premiums written were $2.30 billion (U$1.89 billion) for 2005, compared to $2.61 billion (U$2.00 billion) for 2004. U.S. operations represented 68% of gross premiums written in 2005, compared with 71% last year. Trucking, non-standard automobile and commercial automobile premiums represented 31%, 29% and 12%, respectively, of gross premiums written for the year compared with 29%, 35% and 12%, respectively, last year.

For the quarter gross premiums written from U.S. operations decreased 11% to $357.5 million (8% to U$304.8 million) compared with $403.2 million (U$330.0 million) last year. For the year, gross premiums written by U.S. operations were $1.56 billion (U$1.28 billion) compared to $1.85 billion (U$1.42 billion) last year. The decline in premiums written by the company’s U.S. operations compared to the previous year is mainly attributable to competitive pricing in some non-standard automobile markets and the termination of certain programs.

Gross premiums written from Canadian operations were $157.8 million (U$134.5 million) for the quarter compared to $175.8 million (U$144.0 million) last year and for the year were $740.1 million (U$609.9 million) compared to $760.6 million (U$583.5 million) last year. The decline in gross premiums written by the company’s Canadian operations is mainly attributable to Alberta non- standard automobile where the majority of its premiums are now ceded to the residual market facility.

Net premiums written decreased 7% to $473.3 million (U$403.5 million) compared with $506.4 million (U$414.6 million) for the same quarter of last year, and were $2.21 billion (U$1.82 billion) for the year compared to $2.27 billion (U$1.74 billion) for 2004. Premiums ceded to reinsurers represented 8% of gross premiums written (4% for the year) compared to 13% in the same quarter last year (13% for the year). Premiums ceded to reinsurers included $10.8 million (U$9.2 million) related to Zephyr Insurance in Hawaii which was acquired in the fourth quarter of 2005.

Net premiums earned declined 5% to $522.4 million (1% to U$445.4 million) for the quarter compared with $550.9 million (U$451.3 million) for the same quarter last year. For 2005, net premiums earned were $2.17 billion (U$1.79 billion) compared with $2.31 billion (U$1.78 billion) in the same period last year. For U.S. operations, net premiums earned decreased 9% to $356.7 million (U$304.1 million) compared with $390.2 million (U$319.6 million) in the same quarter of 2004.

Net premiums earned from Canadian operations increased by 3% to $165.7 million (U$141.3 million) compared with $160.8 million (U$131.8 million) in the same quarter last year. For the year, net premiums earned from U.S. operations were $1.47 billion (U$1.21 billion) compared to $1.66 billion (U$1.28 billion) last year, and for the Canadian operations were $705.5 million (U$582.5 million) and $652.4 million (U$501.9 million), respectively.

The combined ratio was 97.7% (97.2% for the year) resulting in an underwriting profit of $11.9 million (U$10.1 million) in the quarter and $60.6 million (U$49.8 million) year to date. For the quarter, the U.S. operations combined ratio was 100.1% (95.3% last year). The Canadian operations combined ratio improved to 92.7% (105.4% last year) which produced an underwriting profit of $12.1 million (loss of $8.6 million last year).

For the year, U.S. operations combined ratio was 97.7% (97.7% last year) which produced an underwriting profit of $33.5 million ($37.7 million last year), and for Canadian operations was 96.1% (97.9% last year), with an underwriting profit of $27.2 million ($13.6 million last year). For the year, the loss ratio for Canadian operations improved to 68.3% compared to 72.2% last year and for the U.S. operations improved to 68.3% compared to 70.3% last year.

Provisions for unpaid claims increased by 6% to $2,144.8 million (9% to U$1,844.2 million) compared to $2,030.4 million (U$1,689.2 million) at the end of 2004. At Dec. 31, 2005 the provision for unpaid claims comprised case reserves for individual claims amounting to $1,335.9 million ($1,218.7 million last year) and a provision for Incurred But Not Reported claims of $808.9 million ($811.8 million last year).

For each of the company’s insurance subsidiaries the provision for unpaid claims are at least 100% of the point estimate recommended by their independent appointed actuary as at Dec. 31, 2005.

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