Dominion Bond Rating Service has confirmed its ratings of Kingsway Financial Services Inc. and its U.S. holding company, Kingsway America Inc. at BBB, reflecting successful execution of the specialty insurer’s strategy.

DBRS commented that “the company’s success is due to its focus on underwriting profitability and effective claims management. Earnings have been excellent in both 2004 and 2005, reflecting firm industry-wide pricing, lower claims experience, and favourable reserve development.”

The ratings agency noted that Kingsway’s combined ratio for the first nine months of 2005 improved to 97% from 97.8% for all of 2004.

However, DBRS said that “industry profitability has probably peaked for this cycle, with regulation and competition putting downward pressure on pricing and some recovery in claims frequency. In the softer insurance market, Kingsway has been cutting back on writing insurance premiums, since pricing does not compensate for risk.”

“By not compromising on price in order to preserve volume or market share in soft markets, Kingsway is better able to avoid the worst of the traditional insurance cycle. Such discipline and its diversified niche markets allow the Group to enjoy both lower earnings volatility than its peer group and higher reported return on equity on average over the cycle,” DBRS said.

DBRS further commented that “having achieved growth and diversification through acquisition, the company is presently more focused on enhancing its pre-tax margins by improving underwriting, claims management processes and procedures, as well as overall cost efficiency. With more conservative reserves in place, earnings should be even less volatile in the future.”

The ratings agency added that “Kingsway has a proven record of making successful in-market acquisitions”.

Kingsway is the largest truck insurer in North America and the seventh largest non-standard automobile insurer in North America.