A.M. Best Downgrades Kingsway & Several Subsidiaries

A.M. Best Co. has downgraded the issuer credit ratings (ICR) and senior debt ratings to “b-” from “b” of Kingsway Financial Services Inc. (KFSI) (Mississauga, Ontario) and Kingsway America Inc. (KAI) (Elk Grove Village, IL). In addition, A.M. Best has downgraded the financial strength rating (FSR) to B (Fair) from B+ (Good) and the ICRs to “bb” from “bbb-” of several KFSI wholly-owned property/casualty and reinsurance subsidiaries. All ratings have been placed under review with negative implications. (See below for detailed listing of the companies and ratings.)

The under review status is based on KFSI’s announcement on Feb. 9, 2009, that it will take a material loss in fourth quarter 2008. KFSI’s net loss projections between $324 million and $344 million for the quarter are far in excess of information previously provided to A.M. Best. KFSI’s estimated losses primarily stem from write-downs of its equity portfolio, adverse loss reserve development at Lincoln General Insurance Co. (Elk Grove, IL) and non-cash related charges.

The downgrading of the ratings of KFSI, KAI and selected operating subsidiaries reflects the significant deterioration in the parent company’s financial condition and recognizes A.M. Best’s assessment of the weakened overall capitalization of the entire organization. On Jan. 22, 2009, A.M. Best downgraded the ratings of KFSI, KAI and several subsidiaries within KFSI’s group based on results through September 2008 and financial projections for the remainder of the year. Actual losses for fourth quarter 2008, based on KFSI’s press release of Feb. 9, 2009, are significantly higher than projected.

The ratings will remain under review pending completion of A.M. Best’s analysis of the company’s year-end 2008 results.

The FSR has been downgraded to B (Fair) from B+ (Good), the ICRs have been downgraded to “bb” from “bbb-” and the ratings have been placed under review with negative implications for the following subsidiaries of Kingsway Financial Services Inc.:

— American Service Insurance Company, Inc.
— JEVCO Insurance Company
— Kingsway Reinsurance (Bermuda) Ltd.
— Mendota Insurance Company
— Mendakota Insurance Company
— Southern United Fire Insurance Company
— U.S. Security Insurance Company, Inc.
— Universal Casualty Company

The FSRs of B- (Fair) and ICRs of “bb-” have been placed under review with negative implications for Lincoln General Insurance Company and American Country Insurance Company.

The FSR of B (Fair) and ICR of “bb” have been placed under review with negative implications for Kingsway General Insurance Company.

The FSR of C++ (Marginal) and ICR of “b” have been placed under review with negative implications for Kingsway Reinsurance Corporation.

The following debt ratings have been downgraded and placed under review with negative implications:

Kingsway America Inc.—
–to “b-” from “b” on USD 125 million 7.5% senior unsecured notes, due 2014
— to “b-” from “b” on USD 74.1 million 7.12% senior unsecured notes, due 2015

Kingsway Financial Services Inc. (issued under Kingsway General Partnership)—
— to “b-” from “b” on CAD 100 million 6% senior unsecured debentures, due 2012

All senior debt is unconditionally guaranteed by KFSI and KAI.

Source: A.M. Best