February 15, 2008 / 8:30 PM / 10 years ago

UPDATE 2-Kingsway CEO says disappointed by 2007 loss

(Adds industry outlook. In U.S. dollars unless noted)

TORONTO, Feb 15 (Reuters) - Insurer Kingsway Financial Services Inc (KFS.TO) reported fourth-quarter and full-year losses on Friday after substantially boosting reserves at its largest subsidiary, Pennsylvania-based Lincoln General.

The Canadian firm, which sells truck, motorcycle and auto policies, had warned in December that profit would take a hit because it had to increase reserve levels at Lincoln.

Kingsway said it lost $103.5 million in the three months ended Dec. 31, or $1.84 a share. That contrasted with net income of $16.8 million, or 30 cents a share, in the 2006 fourth quarter.

The $124.8 million reserve increase at Lincoln, which is meant to cover estimated claims for previous accident years, also pushed Kingsway to a net loss of $18.5 million for the year.

Its profit was $123.3 million in 2006.

“Overall, 2007 was an extremely disappointing year for the company due to the significant reserve increases which were necessary at our largest subsidiary, Lincoln,” Shaun Jackson, Kingsway’s president and chief executive, said in a statement.

The reserve increase overshadowed the “strong operating performance” at most of Kingsway’s U.S. subsidiaries and at all of its Canadian subsidiaries, as well as “healthy” investment returns from its securities portfolio, Jackson added.

North American property and casualty insurance markets remain very competitive, the company said. The industry is seeing slow premium growth, and combined ratios — a measure of underwriting profitability — will continue to deteriorate this year, Kingsway said.

“However, this deteriorating performance together with low interest rates, weak equity markets and potential impairments of assets will lead, we believe, to firmer pricing in many of our markets before the end of 2008,” the company said.

Kingsway said it has eliminated or is repricing “underperforming” insurance programs.

Kingsway stock, which was halted before the results were released, was last at C$11.89 on the Toronto Stock Exchange on Friday, down 3.6 percent.

$1=$1.01 Canadian Reporting by Lynne Olver; Editing by Peter Galloway

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