“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”

Jim Brown on Chinese Drywall, the Pollution Exclusion and Corban

Thursday, October 15, 2009
Baton Rouge, Louisiana

BLEAK LOUISIANA INSURANCE CLIMATE IN MONTHS TO COME!

There should be plenty of good news on the property insurance front, both in Louisiana and throughout the gulf south. Hurricane season is over, the third year in a row without the threat of a major storm. One would think this would be both good news and the beginning of price drops. But that’s not the case. There are bad financial storm clouds arising that bode ill for Louisiana policy holders in the coming year. Look for higher rates and less coverage. Here are some of the problem areas.

The new troubling insurance buzzword for homeowners? Chinese drywall. Thousands of Louisiana homes have been infested with defective drywall from China that was imported during the construction boom following Katrina to meet heavy demand. For reasons yet unknown, the drywall was contaminated with various sulfur compounds. This reaction causes quick metal corrosion allowing plumbing and appliances to fail. The foul odor that follows makes these homes unlivable and expensive to repair, and the defective sheetrock has to be torn out.

So you call you insurance company – right? Unfortunately, in most cases, insurance companies have been rejecting drywall claims, and even going so far as to not renew the homeowner’s policy. Property insurance companies, particularly in Louisiana, argue that drywall damage was not a “sudden event” like wind damage or flooding. Since 1984, insurance companies have been adding “pollution exclusion” to all their homeowner policies, stating that no coverage exists when a pollutant cases damage. Drywall problems, according to the insurance industry, cause damage over a period of time, and therefore the homeowner should have taken action for damage control.

This is not supposed to be the case in Louisiana. The Louisiana Insurance Department, back in the late 1990s, specifically defined the scope of such exclusion more narrowly than most states and allowed it to be applied “only to those injuries or damage caused by environmental pollution.” Simply put, nothing like drywall damage should be excluded, said the Insurance Commissioner at that time (obviously, a pretty bright guy). The Louisiana Supreme Court followed the Insurance department’s reasoning in the landmark case of Doerr v. Mobil Oil Corp. in 2000. Continue reading “Jim Brown on Chinese Drywall, the Pollution Exclusion and Corban”

Catching up a week’s worth of insurance news: The windpool and a Sun Herald Editorial

I noted the Sun Herald ran an insurance related editorial and covered the continuing fight to get another 40 million dollar taxpayer subsidy from the legislature to the windpool this session. We’ll start with the heavily commented upon editorial that ran Thursday:

To appreciate the urgency of finding a way to lower residential insurance rates on the Coast, consider where our economy would be if a large segment of South Mississippians were not paying hundreds and thousands of additional dollars in premiums each year.

Much of that money would be circulating.

It could be used to make car payments. It could be used to make home improvements. It could be used to make countless purchases.

It could be used to pay for medical and dental services now being put on hold due to the expense.

Surely every sector of our economy — wholesale as well as retail, dining and entertainment as well as professional services — would be bolstered, if not booming.

Instead, insurance costs drain our economy of needed cash. Continue reading “Catching up a week’s worth of insurance news: The windpool and a Sun Herald Editorial”

“The causes of ineptitude can be traced…”

Two members of the Troubled Asset Relief Program Oversight Panel today recommended in a minority report that Congress create an optional federal charter for insurers…that may be utilized by insurance firms to underwrite, market, and sell products on a national basis…allowing insurance firms to choose…Congress can build upon the success of state guarantee pools and maintain state jurisdiction over premium taxes…

Money…All for money…Make your money…Hide your money…Stuff your money…Hump your money…Save your money…All for money…The causes of ineptitude…Can be traced… to the tyranny of Money…All for money…

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All the world’s a stage – a perspective on the global implications of proposed federal backstop

And one man in his time plays many part.
All the world’s a stage,
And all the men and women merely players;
They have their exits and their entrances,

Edward Liddy is a player who made made his exit as CEO of Allstate in December 2006 and his entrance as CEO of AIG  this past September.

One of the many parts he will play in his time is the role of  advocate for a federal backstop to the property/casualty insurance insurance industry – a role he played at a December 2005 industry conference.

… catastrophic storms can impact geographies beyond traditional coastal areas, is precisely why the industry needs a federal backstop.

Liddy said the approach is two-pronged: states should have a pool funded with a portion of premiums paid by policyholders — modeled after the reinsurance-like Florida Hurricane Catastrophe Fund as well as a federal backstop that would be broadly funded and would grow on a tax-free basis…

In December 2005, I was too busy finding coats for families that had lost theirs and more to Katrina to give insurance much thought. However, the idea of a federal backstop is about as appealing to me as spending another night in a travel trailer with no heat.

Having given insurance a great deal of thought since joining Sop on Slabbed, I see a clear connection between a federal backstop and the world stage that is the place where the men and women of the insurance industry will increasingly make their exits and entrances.  In that regard, I found Liddy’s comments recorded in a  transcipt of the PBS program, CEO Exchange, particularly interesting. Continue reading “All the world’s a stage – a perspective on the global implications of proposed federal backstop”