* First-quarter loss $1.06/shr vs loss $0.62/shr
* Gross premiums written falls 40 pct
* New management repurchases debt, speeds up cost-cutting
* Shares down 5.1 percent (Adds company, analyst comment, details; in U.S. dollars unless noted)
By Andrea Hopkins
TORONTO, May 8 (Reuters) - Kingsway Financial Services (KFS.TO) said on Friday its first-quarter loss nearly doubled from a year earlier, but touted a new leadership team intent on cutting costs and divesting non-core business.
Kingsway, which sells high-risk auto and truck insurance, said transition costs, a huge drop in trucking premiums and a drop in investment returns pushed its loss to $58.3 million, or $1.06 a share, in the first quarter.
That’s nearly double the net loss of $34.4 million, or 62 cents a share, in the first quarter of 2009, and above the 82 cent loss per share expected by Reuters Estimates.
Gross premiums written decreased a whopping 40 percent to $259.0 million in the quarter, while investment income dropped 25 percent to $27.0 million, mainly due to lower yields, the repayment of debt and the impact of lower premium volumes.
“They can ill-afford to have another quarter like this,” said Scotia Capital analyst Tom MacKinnon. “Their decision to increase the cost cuts going forward, buy back a little of the debt — they are all positive. But we haven’t seen anything happen yet.”
Kingsway shares were down 5.1 percent at C$2.95 Friday morning in Toronto, bucking the trend of the overall S&P/TSX financial index of banks and insurance companies, which was up 1.3 percent.
Boasting new leadership, Mississauga, Ontario-based Kingsway said it is now well-positioned to get serious about restructuring, having ousted its previous chief executive and filled the board with directors who support the goals of activist shareholder Stilwell Group.
“We’ve a smaller, more focused management team determined to hold ourselves accountable,” Chief Executive Colin Simpson told a conference call following the earnings report.
“The leadership team is backed by a new board of directors that is both supportive and demanding ... They are looking for less talk, more action and accountability, and excellence through execution. We intend to deliver.”
The board appointed Simpson in April after ousting Shaun Jackson just hours after the annual general meeting. Simpson had been the chief operating officer and in charge of the transformation program.
Stilwell Group, which owns about 10 percent of the company, had long pressured Kingsway to cut costs and sell anything not related to nonstandard auto insurance.
Kingsway, which has reduced its head count by 445 since January, said about 1,000 employees will be removed from the total workforce over the next 18 to 24 months.
“We are confident that we can increase the overall target for savings delivered through this initiative to a run-rate of $120 million by the end of 2010 from the previously announced $80 million,” Simpson said in a statement.
The board also approved the repurchase of up to $40 million in company debt, while the quarterly dividend was maintained at 2 cents a share.
Kingsway’s results have been hampered for several quarters by underwriting losses at U.S.-based subsidiary Lincoln General Insurance Co, and it has previously announced plans to put all but the strongest of Lincoln’s programs into run-off to the Pennsylvania Insurance Department.
Scotia Capital’s MacKinnon said he’d like to see some resolution with Pennsylvania regulators on the intended run-off, under which a buyer would be sought for claims connected to old policies, usually with unfavorable liabilities.
MacKinnon would also like to see “perhaps the sale of a non-core asset” by the second quarter to illustrate Kingsway’s commitment to turning things around.
“We definitely need to see an improvement in underwriting profitability,” he said. “There’s been a lot of talk but we haven’t seen any action yet.”
$1=$1.16 Canadian Additional reporting by Isheeta Sanghi in Bangalore; editing by Rob Wilson