TORONTO - Vehicle insurer Kingsway Financial Services Inc. (TSE:KFS) returned to overall profitability in the second quarter despite tough market conditions, reporting a profit of US$6.3 million.
The earnings of 11 cents marked a significant improvement over the net loss of $34.4 million in the first quarter of 2008, but was below net income of $41.7 million reported in the second quarter of 2007, the company stated.
Kingsway said its securities portfolio provided steady income during the quarter despite challenging economic trends and volatile financial markets in the U.S. and Canada due to the worldwide credit crunch and slowing North American economy.
During the second quarter, gross premiums written were $443.2 million, 16 per cent lower than a year ago. Income from investments was stable at $33.6 million, while investments provided net realized gains of $10.9 million.
Book value per share decreased by four per cent to $15.49 as a result of the change in the market value of the securities portfolio which decreased book value by 81 cents.
Kingsway Financial said the "quarterly results reflect improved reserving experience and the benefit of the termination of unprofitable programs since year-end."
There was an estimated net unfavourable reserve development of $7.3 million - $4.6 million in Canada and $2.7 million in the U.S. - or-- cents per share on an after-tax basis in the second quarter.
That was 88 per cent lower than in the first quarter, compared to net favourable reserve development of $1.4 million in the second quarter last year.
Gross premiums declined by $92.4 million, or 26 per cent, in the quarter and by $118.4 million, or 16 per cent, year-to-date in the U.S., reflecting the impact of termination of unprofitable programs and the soft market conditions for the commercial automobile business.
"The return to profitability in the second quarter resulted from consistent income from our investment portfolio, despite challenging market conditions, and improving performance in our insurance operations, where we have established more conservative reserving practices," said Shuan Jackson, president and CEO.
"We have moved decisively to identify and remedy underperforming businesses in order to stabilize and then improve the future performance of our insurance programs."
The company also reduced its debt load during the quarter, repaying $89.8 million, which was the entire amount outstanding under its three-year revolving credit facility.
Kingsway repaid C$19.9 million of the C$69.8 million outstanding under the 365-day credit agreement, reducing total bank debt to US$48.8 million.
On the TSX, Kingsway Financial shares were trading up eight cents at $7.13.
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