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Kingsway Financial Services Inc. Message Board

  • boc1boc123 boc1boc123 Aug 2, 2007 9:18 PM Flag

    Lincoln General

    Looks like the underpricing of the MGAs is going to catch up with Lincoln! When is KFAS's mgt gonna learn????? Stop letting your MGAs price accounts 30-40-50% of the market!

    Best Places Two Kingsway Subs 'Under Review/Negative'- Company Analysis
    June 8, 2007
    A.M. Best Co. has placed the financial strength rating (FSR) of "A-" (Excellent) and the issuer credit ratings (ICR) of "a-" of Penn.-based Lincoln General Insurance Company. "The under review status of Lincoln's ratings is due to its continued poor operating performance, due primarily to adverse loss reserve development," Best explained. "As a result, risk-adjusted capitalization has deteriorated and no longer adequately supports the underwriting and investment risks at the current rating level, given the poor operating performance."
    Best also pointed out that it "remains concerned with this continued poor reserving trend of KFSI overall."
    The rating agency believes that "market conditions in Lincoln's core commercial trucking, commercial auto and non-standard personal auto markets will have put greater pressure on pricing," largely as a result of "significant reserve deficiencies." Best also noted that "Lincoln is highly dependent upon KRC for reinsurance protection and as a primary source of capital support. Because of the concentration of risk in the affiliated reinsurer, Lincoln's capitalization is highly susceptible to changes in the financial position of KRC and the overall capitalization of KFSI."
    KRC is in turn under review as it supports Lincoln General. Therefore, Best indicated, that if there's further weakening in its risk-adjusted capitalization, it "may not support the current ratings without additional capital support from KFSI." In addition, "as a dedicated reinsurer of KFSI's U.S. business, KRC is also dependent upon the profitability of its U.S. affiliates." Citing "current soft market conditions," Best indicated that it doesn't "expect KRC's 2007 earnings to be as strong as they have been in recent years," and it would therefore downgrade the ratings if they KRC's financial projections "do not exceed" its expectations, 'or if capital is not replenished by KFSI."
    As far as KFSI's ICR's are concerned, Best said they are "reflective of its history of profitable operating performance, market leadership position among commercial trucking and professional non-standard auto writers in the United States and Canada, good geographic spread of risk and financial flexibility as a publicly traded company."
    However, Best warned that KFSI's "diminished risk-adjusted capitalization due to a continuing pattern of adverse reserve development and the growing use of debt to finance," which Best sees as "an aggressive growth appetite through organic growth as well as acquisitions," should be considered as offsetting factors. "While the recent adverse development of loss reserves is not material relative to KFSI's overall reserve position, it is a continuation of a loss development pattern that in aggregate is material," Best continued. It added that even though reserves have been increased, in its opinion "the pattern of adverse loss development will continue and be difficult to absorb in a soft market."

 
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