As part of its strategy to return to profitability, Kingsway Financial Services Inc. plans number of initiatives that collectively are expected to reduce costs by approximately US$20 million in 2009, the company announced Wednesday.

The proposed actions include reducing headcount, freezing salaries and eliminating bonuses except for exceptional performance, and reducing corporate overhead.

“Management is continuing to review all aspects of Kingsway’s organizational structure, with a view to reducing expenses and in early January we expect to finalize our next round of expense reduction initiatives. These initiatives combined with firmer pricing should result in improved underwriting ratios,” said Shaun Jackson, president and CEO, in a release.

“The combination of reducing costs, eliminating unprofitable business and increasing rates will contribute to overall profitability and returns for shareholders. We are focused on maximizing shareholder value by setting the company on a course to achieve an underwriting profit as well as predictable performance, resulting in a steadily growing book value per share for all shareholders,” said Jackson.

The reductions announced for 2009 fall into three categories:

> Kingsway is merging the operations of four of its U.S. subsidiaries — American Country Insurance into American Service Insurance and Southern United Insurance into Hamilton Risk Management. These mergers plus consolidation of the company’s two offices in Montreal and rationalization at its assigned risk agency, RPCIA, will reduce head count by 162, resulting in savings of approximately US$8 million.

> Kingsway is taking steps to reduce total compensation, while continuing to reward performance where appropriate. The company is freezing salaries of all employees effective immediately and putting the executive incentive compensation plan on hold. It has also instituted a hiring freeze with the exception of specific skill needs. Collectively, these compensation initiatives are expected to save approximately US$7.8 million in 2009.

Kingsway is reducing a number of overhead expenses including marketing and promotion, and certain costs related to information technology, amounting to approximately US$4.2 million.

Kingsway has called a special shareholders’ meeting to be held on Feb. 10, 2009.
The meeting was requested by New York-based money management firm Stilwell Group, which owns about 8% of Kingsway’s common shares.

Stilwell Group has called the meeting for the stated purpose of removing Jackson and Michael Walsh, non-executive chairman of the board and replacing them with two of their own nominees.

Kingsway is one of the largest non-standard automobile insurers and truck insurers in North America based on A.M. Best data.

IE