AM Best


A.M. Best Downgrades Ratings of Kingsway Financial Services Inc., Kingsway America Inc. and Operating Subsidiaries


CONTACTS:

Analyst(s)

Charles M. Huber

(908) 439-2200, ext. 5122

charles.huber@ambest.com

Joseph A. Burtone

(908) 439-2200, ext. 5125

joseph.burtone@ambest.com

Public Relations

Jim Peavy

(908) 439-2200, ext. 5644

james.peavy@ambest.com

Rachelle Morrow

(908) 439-2200, ext. 5378

rachelle.morrow@ambest.com


FOR IMMEDIATE RELEASE

OLDWICK, N.J. - JULY 14, 2008 12:00 AM (EDT)
A.M. Best Co. has downgraded the issuer credit ratings (ICR) to "bb-" from "bb" of Kingsway Financial Services Inc. (KFSI) (Mississauga, Ontario) and Kingsway America Inc. (KAI) (Elk Grove Village, IL).

Concurrently, A.M. Best has downgraded the financial strength ratings (FSR) to B+ (Good) from B++ (Good) and the ICRs to "bbb-" from "bbb" for most of the subsidiaries of KFSI.

Additionally, A.M. Best has downgraded all debt ratings of KAI and Kingsway General Partnership. All ratings have been removed from under review with negative implications and assigned a negative outlook, except where specified. (See below for a detailed listing of the companies and ratings.)

On December 18, 2007, the ratings were downgraded and placed under review with negative implications pending a corrective plan of action to improve risk-adjusted capitalization, operating performance and overall risk management. In the absence of a corrective action plan in-line with A.M. Best's expectations for the prior rating level, the ratings have been downgraded.

Moreover, the rating downgrades are a result of KFSI's weakened risk-adjusted capitalization, unfavorable operating performance, which continued into first quarter 2008, soft market pricing and pressure from competitors for market share in KFSI's core non-standard auto, commercial auto and commercial trucking lines. In A.M. Best's opinion, capitalization is not expected to improve significantly in the near term and profitability also is expected to be below prior levels from diminishing revenues and soft market conditions. Furthermore, based on continuation in first quarter 2008, A.M. Best continues to be concerned about the adequacy of loss reserves, premium rates, management's risk appetite as well as overall organizational risk management.

The FSR has been downgraded to B+ (Good) from B++ (Good) and the ICRs to "bbb-" from "bbb" for the following subsidiaries of Kingsway Financial Services Inc..

- American Service Insurance Company, Inc.

- Lincoln General Insurance Company.

- Mendota Insurance Company

- Southern United Fire Insurance Company

- Universal Casualty Company

- JEVCO Insurance Company

- Kingsway General Insurance Company

- Kingsway Reinsurance (Bermuda) Ltd.


The FSR has been downgraded to B+ (Good) from B++ (Good) and the ICR to "bbb-" from "bbb" for Mendakota Insurance Company (Mendakota), a wholly owned subsidiary of Mendota Insurance Company. Mendakota is now group rated with its parent, Mendota Insurance Company.

The FSR has been downgraded to B (Fair) from B++ (Good) and the ICR to "bb" from "bbb" for York Fire & Casualty Insurance Company.

The FSR has been downgraded to B- (Fair) from B (Fair) and the ICR to "bb-" from "bb" for Kingsway Reinsurance Corporation.

The FSR has been downgraded to B (Fair) from B+ (Good) and the ICR to "bb+" from "bbb-" for American Country Insurance Company. The outlook assigned to the FSR is stable, and the outlook assigned to the ICR is negative.



The FSR of B+ (Good) and ICR of "bbb-" have been affirmed for U.S. Security Insurance Company, Inc.

The following debt ratings have been downgraded:

Kingsway America Inc.—

- to "bb-" from "bb" on USD 125 million 7.5% senior unsecured notes, due 2014

- to "bb-" from "bb" on USD 74.1 million 7.12% senior unsecured notes, due 2015

Kingsway Financial Services Inc. (issued under Kingsway General Partnership)—

- to "bb-" from "bb" on CAD 100 million 6% senior unsecured debentures, due 2012

All debt is unconditionally guaranteed by KFSI and KAI, and all the above ratings have been removed from under review with negative implications and assigned a negative outlook, except where specified.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

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