Mississauga, Ont.-based Kingsway Finan-cial Services Inc. is implementing a corporate restructuring plan in an attempt to turn around its fortunes.

The property and casualty insurer had a disastrous end to 2008 and is expecting to report a significant fourth-quarter loss of between US$324 million and US$344 million.

But those losses are just one of its problems. A dissident shareholder, New York-based investment manager Stilwell Group, has been making waves for Kingsway management. And Oldwick, N.J.-based rating agency A.M. Best Co. Inc. has downgraded the financial strength of Kingsway and its subsidiaries. The P&C insurer has no choice but to restructure.

Kingsway — which offers trucking insurance and non-standard automobile insurance to drivers who don’t meet the criteria for coverage set by standard auto insurers — has already reported a net loss of US$390 million for the nine months ended Sept. 30, 2008. This is mainly the result of underwriting losses at its York, Pa.-based subsidiary, Lincoln General Insurance Co., which lost a total of US$229 million in that period.

Earlier this month, Kingsway announced plans to start exiting non-core and unprofitable lines of business at both Lincoln General and a Mobile, Ala.-based subsidiary, Southern United Fire Insurance Co. As part of Kingsway’s restructuring plan, the company has also announced that it will consolidate its nine operating companies in the U.S. and Canada into three operating units — one in Canada and two in the U.S.

The consolidations, says Kingsway president and CEO Shaun Jackson, will occur over the next 18 to 24 months, and should simplify the management structure, reduce costs, introduce synergies and operational efficiencies, and position Kingsway to seize competitive advantage,

The company anticipates that the plan will deliver estimated annual savings of more than US$80 million by the end of 2010, and significantly reduce its future cost base. The restructuring will have an impact on employees, with an estimated 750 jobs being cut.

“The job losses will be the result of condensing the companies as well as exiting some businesses in the non-core lines that have been unprofitable,” Jackson says. “As we exit those lines, we won’t need as many resources to service those businesses and, unfortunately, there will be cuts.”

Kingsway suffered a blow when A.M. Best downgraded the financial strength ratings of Lincoln General as well as those of three other Kingsway subsidiaries: Mississauga-basedKingsway General Insurance Co., Elk Grove Village, Ill.-based American Country Insurance Co. and Barbados-based Kingsway Reinsurance Corp.

A.M. Best also downgraded the issuer credit rating of Kingsway America Inc., also of Elk Grove Village, and of the parent firm itself. Although the ratings dropped the companies into “fair” or “marginal” categories, Jackson says, the ratings will not have that large of an impact on most of Kingsway’s operating companies.

“I was obviously disappointed,” he says. “But for a lot of the businesses that we are in, the A.M. Best rating is not as relevant as it would be for many other companies. We are not in the lines of business in which our policyholders really pay a lot of attention to A.M. Best.”

Jackson’s biggest task at hand now is the restructuring plan, which is intended to restore Kingsway to profitability and build long-term shareholder value.

“It is obviously a very large change to the company,” Jackson says. “But I think it is certainly something that will have a major positive impact on the company.”

During the process of assessing how Kingsway could be run more efficiently, Jackson decided to reorganize and streamline the operation. He appointed Colin Simpson, Kingsway’s former senior vice president and chief strategy officer, as its new chief operating officer — a position created to oversee the restructuring.

“Colin is very well regarded and respected in the insurance community,” Jackson says. “He is ideally suited for this particular role, as he has had experience in various ‘change programs’ with a number of insurance companies within Canada and Britain.”

Kingsway has also shuffled and reappointed a number of executives in recent months. David Atkins was appointed non-executive chairman of the board of directors in January, when Michael Walsh resigned from the position for health reasons. Walsh remains as a director, but had felt that he needed a role with less responsibility, Jackson says. Peter Eccelton also joined the Kingsway board of directors in January, replacing John Beamish (who remains on the Kingsway General Insurance’s board) while Robert Gillespie resigned from the board altogether.

@page_break@Most notably, Stilwell Group, which owns 9% of Kingsway’s outstanding common shares, demanded this past November that Jackson be removed from the board and that more outside executives be added to the board. That campaign succeeded, in part, as Jackson was removed from the board in January.

“A CEO just doesn’t belong on the board of a struggling company,” says Joseph Stilwell, managing partner of Stilwell Group. “I expect to see the firm move out of all businesses except non-standard auto insurance — and to do it quickly. I expect Kingsway to devote itself to free up capital, so it can repurchase the company’s debt and equity in the open market.” IE