Ratings Recap: Kingsway Financial Downgraded

July 15, 2008

A.M. Best Co. has downgraded the issuer credit ratings to “bb-” from “bb” of Kingsway Financial Services Inc. of Ontario and Kingsway America Inc. in Illinois.

Concurrently, A.M. Best has downgraded the financial strength ratings to B+ (Good) from B++ (Good) and the ICRs to “bbb-” from “bbb” for most of the subsidiaries of KFSI.

Additionally, A.M. Best has downgraded all debt ratings of KAI and Kingsway General Partnership. All ratings have been removed from under review with negative implications and assigned a negative outlook, except where specified.

On December 18, 2007, the ratings were downgraded and placed under review with negative implications pending a corrective plan of action to improve risk-adjusted capitalization, operating performance and overall risk management, A.M. Best said. A.M. Best said the ratings have now been downgraded because the firm failed to supply a corrective action plan in-line with A.M. Best’s expectations.

Moreover, the rating downgrades are a result of KFSI’s weakened risk-adjusted capitalization, unfavorable operating performance, which continued into first quarter 2008, soft market pricing and pressure from competitors for market share in KFSI’s core non-standard auto, commercial auto and commercial trucking lines, according to the rating agency.

In A.M. Best’s opinion, capitalization is not expected to improve significantly in the near term and profitability also is expected to be below prior levels from diminishing revenues and soft market conditions. Furthermore, based on continuation in first quarter 2008, A.M. Best said it continues to be concerned about the adequacy of loss reserves, premium rates, management’s risk appetite as well as overall organizational risk management.

Source: A.M. Best

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