Q1 26% increase in net incomeKingsway reports 26% increase in net income
Thursday May 6, 11:43 am ET
TORONTO, May 6 /PRNewswire-FirstCall/ - Kingsway Financial Services Inc. (TSE:KFS, NYSE:KFS) today announced financial results for the first quarter ended March 31, 2004.
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Q1 2004 Summary
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- Earnings per share increased 12% to 55 cents (diluted) compared to Q1
2003
- Net income increased 26% to $30.8 million compared to Q1 2003
- Combined ratio improved to 98.2% compared to 101.4% for fiscal 2003
- Underwriting profit of $10.4 million
- Annualized return on equity 16.9%
- Book value per share $13.39 an increase of 6% from year end
- Investment portfolio increased to $2.9 billion or $51.11 per share
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Net income increased by 26% to $30.8 million, compared to $24.4 million in the first quarter of last year. Return on equity (annualized) was 16.9% in the quarter compared to 16.0% in the same quarter last year. The combined ratio was 98.2% compared to 96.8% in the same quarter last year, producing an underwriting profit of $10.4 million in the quarter. Diluted earnings per share increased 12% to 55 cents for the quarter, compared to 49 cents for the first quarter of 2003.
"We are very pleased with the solid start we have made to 2004", said Bill Star, President & Chief Executive Officer. "We are particularly encouraged by the strong improvement in results from our Canadian operations as a result of rate increases and claims fraud initiative we have implemented. We are well positioned to take advantage of the prevailing insurance market conditions, and see no softening of rates in any of our business lines. The short maturity profile of our investment portfolio also means we are poised to benefit when interest rates rise."
Premium Growth
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During the first quarter of 2004, gross premiums written increased to $710.4 million, compared with $702.6 million in the first quarter last year. A significant portion of the Company's operations and net assets are denominated in U.S. dollars whereas the Company reports in Canadian dollars. In the quarter, U.S. operations represented 77% of gross premiums written compared with 82% in the first quarter last year. Written premiums from U.S. operations decreased to $545.8 million compared with $575.6 million last year, whereas in U.S. dollars they increased by 9% to U.S.$413.7 million. The effect of currency translation reduced reported levels of gross premiums written for the U.S. operations by $77.3 million in the quarter compared to the same period of 2003. Written premiums from Canadian operations grew 30% to $164.6 million for the quarter, compared to $127.0 million in Q1 last year.
Net premiums written increased 3% to $684.1 million compared with $666.7 million for the first quarter of last year. Net premiums earned increased 6% to $584.8 million for the quarter, compared with $551.3 million for the first quarter last year. For U.S. operations, net premiums earned decreased to $429.7 million compared with $439.1 million in the first quarter of 2003, whereas in U.S. dollars they increased by 11% to U.S.$325.3 million compared to Q1 last year. Net premiums earned from Canadian operations increased by 38% to $155.1 million compared with $112.2 million last year.
Underwriting Profit & Combined Ratio
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The combined ratio of 98.2% for the first quarter produced an underwriting profit of $10.4 million. For the quarter, the U.S. operations combined ratio was 98.2% and 98.4% for the Canadian operations.
The results for the quarter include increases in the provision for unpaid claims occurring prior to December 31, 2003 of approximately $6.5 million ($4.3 million after tax). These increases represent 1.1% of the net premiums earned in the quarter and 0.4% of the unpaid claims recorded as at December 31, 2003. The Company increased its estimated provision for incurred but not reported claims (IBNR) and specific estimates for each individual claim based on historical settlement patterns (case reserves). During the quarter, the IBNR provision was increased by $50 million or 7% to $797.0 million and the case reserves were increased 13% to $1,039 million.
Investment Income
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Investment income increased 42% to $22.3 million compared with $15.8 million for the first quarter of 2003. Net realized gains amounted to $6.8 million compared with net realized losses of $0.7 million in the first quarter of 2003. Net realized losses in 2003 included adjustments to the carrying value for declines in market value considered other than temporary of $2.6 million in the quarter on investments still held compared to $nil for the first quarter of 2004.
Net unrealized gains on the investment portfolio were $83.1 million ($1.48 per share outstanding) at March 31, 2004, as compared to $52.5 million (94 cents per share outstanding) at the end of 2003.
Balance Sheet
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Total assets as at March 31, 2004 grew to $4.0 billion. During the quarter, shareholders' equity was increased by $13.3 million and book value per share by 24 cents as a result of the change in the unrealized currency translation adjustment. As a result of this and the earnings in the quarter, book value per share increased by 6% to $13.39 from $12.63 as at December 31, 2003.
The investment portfolio, including cash and accrued investment income, increased 7% to $2,870.0 million (market value $2,953.1 million), compared to $2,674.1 million (market value $2,726.7 million) as at December 31, 2003. The investment portfolio represents $51.11 per common share at March 31, 2004. At March 31, 2004 24% of the fixed income portfolio matures in less than one year and 61% matures after one year and in less than five years, and we are well positioned to advantage should interest rates increase.
Currency
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The Company reports in Canadian dollars, whereas 77% of its gross premiums in the quarter were generated from its U.S. operations. During 2003 the Canadian dollar appreciated against the U.S. dollar thereby affecting the comparability of results. When the Company's results are translated into U.S. dollars, gross premiums written increased by 19%, net income by 48% and earnings per share by 31% compared to the first quarter of 2003.
Executive Appointments
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The Company is pleased to announce the appointment of John Clark to the position of President & Chief Executive Officer of Lincoln General Insurance Company, replacing Gary Bhogwani who has accepted a position outside of the Company. Tom Ossmann has been appointed as President & Chief Executive Officer of American Service Insurance Company. "I am pleased to announce the appointments of John and Tom to their new roles", said Bill Star, President & Chief Executive Officer. "These appointments are indicative of the depth of executive talent that we have within the Kingsway group of companies."