Bermuda-based Kingsway Re among those affected

AM Best has downgraded the issuer credit ratings (ICR) of Kingsway Financial Services Inc (KFSI) and Illinois-based Kingsway America Inc (KAI) to “bb-” from “bb”.

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

Additionally, AM 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 capitalisation, operating performance and overall risk management. In the absence of a corrective action plan in-line with AM 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 capitalisation, 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 AM Best’s opinion, capitalisation 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, AM Best continues to be concerned about the adequacy of loss reserves, premium rates, management’s risk appetite as well as overall organisational 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 for Mendakota Insurance Company (Mendakota) has been downgraded to B+ (Good) from B++ (Good) and the ICR to “bbb-” from “bbb”, a wholly owned subsidiary of Mendota Insurance Company. Mendakota is now group rated with its parent, Mendota Insurance Company.

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

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

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

The FSR for US Security Insurance Company, Inc of B+ (Good) and ICR of “bbb-” have been affirmed.