Kingsway Financial Services Inc. returned to profitability during the second quarter, marking a significant improvement over the net loss of US$34.4 million reported in the first quarter of 2008.

The Mississauga, Ont.-based car and truck insurance company reported net income of US$6.3 million, or 11¢ a diluted per share for the quarter ended June 30. That compares with US$41.7 million, or 74¢ a share, in the second quarter of 2007.

Gross premiums written were US$443.2 million, or 16% lower than the US$525.2 million a year ago.

Kingsways’ securities portfolio continued to provide steady income despite challenging economic trends and volatile financial markets in the U.S. and Canada. Investment income, excluding net realized gains, was US$33.6 million, virtually unchanged from a year ago. During the quarter, the investment portfolio produced net realized gains of US$10.9 million, which is net of an adjustment of US$9.9 million for the writedown of securities held which were deemed to be other than temporarily impaired.

Compared with the first quarter of 2008, operating results improved despite challenging industry conditions. Kingsway said quarterly results reflect improved reserving experience and the benefit of the termination of unprofitable programs since year-end.

The combined ratio was 107% in the second quarter, marking an improvement over the first quarter but above the 100.8% reported in Q2 2007.

Gross premiums declined by US$118.4 million year to date in the U.S., reflecting the impact of termination of unprofitable programs and also the soft market conditions for commercial automobile business.

For the quarter, U.S. operations represented 59% of gross premiums compared with 68% a year ago, while Canadian operations represented 41% compared with 32% a year ago.

“The return to overall profitability in the second quarter resulted from consistent income from our investment portfolio, despite challenging market conditions, and improving performance in our insurance operations, where we have established more conservative reserving practices. We have moved decisively to identify and remedy underperforming businesses in order to stabilize and then improve the future performance of our insurance operations,” said Shaun Jackson, president and CEO, in a news release..

Kingsway is one of the largest non-standard automobile insurers and truck insurers in North America. Cnadian subsidiaries include Kingsway General Insurance Co., York Fire & Casualty Insurance Co. and Jevco Insurance Co. U.S. subsidiaries include Universal Casualty Co., American Service Insurance Co., Southern United Fire Insurance Co., Lincoln General Insurance Co., U.S. Security Insurance Co., American Country Insurance Co., Zephyr Insurance Co., Mendota Insurance Co., Mendakota Insurance Co. and Avalon Risk Management, Inc.