February 20, 2009 / 5:55 PM / 9 years ago

UPDATE 3-Kingsway Financial loss widens, shares sag

* Q4 loss $6.53 vs $1.84

* Cuts dividend to C$0.02 from C$0.075

* Shares fall 7.9 percent to C$2.90 (Adds quotes, updates to close. In U.S. dollars unless indicated)

By Jennifer Kwan

TORONTO, Feb 20 (Reuters) - Kingsway Financial Services Inc KFS.TO said on Friday its quarterly loss came in even deeper than it had estimated last week, leading the insurer to cut its dividend and sending its shares as much as 15 percent lower.

The loss -- three times wider than in the same period a year earlier -- reflected weak underwriting results, net realized losses on investments, as well as a non-cash charge for future tax allowances.

For the year, Kingsway said problems at its largest unit, Lincoln General Insurance Co, were a major source of its “disappointing results.”

“Results underline that we still have a lot of work to do to restore the company to an acceptable level of profitability,” Chief Executive Shaun Jackson said during a conference call on Friday.

Kingsway said it was cutting income from non-core and unprofitable lines of business, and lowering volatility of the balance sheet by divesting its common share equity portfolio.

The company lowered its dividend to 2 Canadian cents from 7.5 Canadian cents in the previous quarter.

Kingsway, which specializes in insurance for high-risk drivers, reported a fourth-quarter net loss of $360.4 million, or $6.53 a share, compared with a loss of $103.5 million, or $1.84, a year ago.

The company issued a profit warning earlier this month, saying it expected to report a fourth-quarter loss of up to $344 million, or $6.24 a share.

The reported loss is steeper than originally forecast largely due to a “higher-than-expected valuation allowance against the future tax asset,” the company said.

When it issued the profit warning, Kingsway also said it would seek to sell non-core assets and reaffirmed its restructuring plan, estimating it would cut about 750 more jobs over the next 18 to 24 months.

“The company’s got a strategy that I think is necessary but the execution of which is going to have to be flawless,” said Tom MacKinnon, an analyst at Scotia Capital.

In recent months, Kingsway has come under pressure from shareholder Stilwell Group to focus more on its core business of non-standard auto insurance, which has resulted in a board shakeup.

“We are looking to move Kingsway in a new direction,” said Joseph Stilwell, general partner of Stilwell Group in New York, which owns about 9 percent of Kingsway. “I believe we will have a profitable, non-standard auto company next year at this time.”

Kingsway, which operates in Canada and the United States, said its underwriting loss for the quarter was $99.7 million, versus a loss of $141.3 million in the year-earlier period.

The combined ratio, a measure of profitability, was 132.6 percent, compared with 132.7 percent a year earlier.

Gross premiums written dropped to $295.6 million from $420.6 million in part because of soft insurance markets, while investment income fell to $28.3 million from $37.3 million.

Kingsway shares closed down 25 Canadian cents, or 7.94 percent, at C$2.90 on the Toronto Stock Exchange. Earlier in the day, the stock was down nearly 15 percent.

$1=$1.25 Canadian Additional reporting by Supantha Mukherjee in Bangalore; editing by Rob Wilson

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