“Run-off” the cliff and into the ground. The sleazy (and continuing) story of multi-national insurer Kingsway Financial Services

As I spoke with my source on the telephone my jaw literally dropped—-between my day job as a CPA and passion as a hobbyist investor I thought I had seen the sleaziest of the sleazy in characters like Angelo Mozilo, John Mack, Ed Liddy, Hank Greenberg etc but those guys have nothing on the management team of Canadian insurer Kingsway Financial Services Inc. Once again I was also reminded that while stories like the Balloon Boy and White House Party crashers dominate the news, the best stories in my opinion come from the world of finance and are generally under reported by the media. First some background courtesy of Yahoo Finance:

Kingsway Financial Services Inc., through its subsidiaries, provides property and casualty insurance to individuals and businesses in the United States and Canada. It primarily offers non-standard automobile and trucking insurance. The company’s non-standard automobile insurance covers drivers who do not qualify for standard automobile insurance coverage because of their payment history, driving record, place of residence, age, vehicle type, or other factors; and trucking insurance cover liability, accident benefits, physical damage, cargo, and comprehensive general liability under a package program. It also provides standard automobile insurance; commercial automobile insurance; commercial and personal property coverages; motorcycle insurance; residential wind insurance coverage; construction defect claims; and other specialty coverages, such as customs, bail, and surety bonds. In addition, the company purchases reinsurance from third parties.

The Yahoo profile typically derives from the first footnote to the annual financial statements issued by the company. Not included of course is a short financial history which in Kingsway’s case we define as beginning in 2005 when this huge company began to implode racked by bad underwriting and investment decisions. In this case the shareholders tried to get management to right the ship led by activist investor Joseph Stilwell whose group owns over 10% of Kingsway. Mr Stilwell also could answer to the title bagholder as I’ll explain a bit later.

In Kingsway’s case the problems are massive and well documented. Over the past year several of the Board of Directors have resigned as has the Chief Financial Officer and Kingsway’s unresponsive CEO W. Shaun Jackson. Insurer specialized AM Best and the other ratings agencies have been steadily downgrading the company which also appears to be in violation of certain debt covenants. One particular operating company, Lincoln General Insurance Company, which underwrote commercial truck insurance in Pennsylvania was particularly unprofitable to the detriment of the entire organization. Continue reading ““Run-off” the cliff and into the ground. The sleazy (and continuing) story of multi-national insurer Kingsway Financial Services”