Kingsway Corporation · NYSE:KWY
Kingsway — Kingsway Financial Services — Investor Day (November 2006)
134 slides from Kingsway's investor day presentation, Nov 9, 2006
Slide 1: Kingsway Financial Services Inc. – Into A New Decade of Opportunity
Kingsway Financial Services Inc. Into A New Decade of Opportunity
Slide 2: Bill Star, President & CEO
"Bill Star | ent & CEO Into A New Decade of Opportunity
Slide 3: Agenda
Agenda 8:30-9:00 Reception 9:00-10:00 Bill Star, President & CEO, Kingsway Financial ¾Introduction, Kingsway Strategy, Building for the Future Shaun Jackson, Executive Vice President & CFO, Kingsway Financial ¾Financial Review Colin Simpson, Vice President & COO, York Fire & Casualty ¾Market Analysi
Slide 4: Agenda
Agenda 10:45 - 11:30 Scott Butler, Vice President - Personal Lines, Lincoln General ¾The Assigned Risk Market Shaun Jackson, Executive Vice President & CFO, Kingsway Financial ¾Industry Overview Bill Star, President & CEO, Kingsway Financial ¾Outlook 11:30 – 12:00 Q&A Session
Slide 5: Forward Looking Statements
Forward Looking Statements Certain information included in this presentation and statements made by the Company are not historical facts but are forward-looking statements relating to such matters as anticipated financial performance, business prospects, market conditions, legislative and regulatory
Slide 6: Corporate Overview
Corporate Overview Into A New Decade of Opportunity
Slide 7: Operating Strategy
Operating Strategy Focus on good risks within specialty markets where limited competition allows for a good spread of risk and above- average returns Emphasize positive underwriting margins, conservative investment policies and low combined ratios to achieve above-average earnings Refuse to sa
Slide 8: North American Market Leader
North American Market Leader Kingsway is: The second largest truck insurer in North America Ninth largest non-standard automobile insurer in North America The largest non-standard automobile insurer in Canada The largest motorcycle insurer in Canada
Slide 9: Building For The Future
Building For The Future Investing in people Mix of experienced and younger executives Investing in infrastructure IT systems SOX controls Investing in property for our growth New Head offices in Mississauga & York, PA Elk Grove Head Office
Slide 10: Shaun Jackson
Shaun Jackson Executive Vice President & CFO
Slide 11: Recent Financial Results
Recent Financial Results
Slide 12: Year-To-Date Results 2006 (U$)
Year-To-Date Results 2006 (U$) 2005 2006 Gross Premiums Written $1,455M 5% $1,524M Net Premiums Earned $1,347M - $1,342M Underwriting Profit $39.7M 2% $38.8M 33% Investment Income $68.1M $90.5M Net Income $99.1M 7% $106.5M
Slide 13: Year-To-Date Results 2006 (U$)
Year-To-Date Results 2006 (U$) 2005 2006 Net Realized Gains $30.0M 41% $17.8M Operating Earnings $76.8M 24% $95.1M Return on Equity 18.4% 1.8% 16.6% Earnings Per Share $1.74 7% $1.87 Operating Earnings Per Share $1.35 24% $1.67
Slide 14: Geographic Area – Gross Premiums Written YTD
Geographic Area – Gross Premiums Written YTD 2005 2006 Canada Canada 33% 31% United States United States 67% 69%
Slide 15: Diversified by Product Line
Diversified by Product Line Gross Premiums Written – YTD 2006 Trucking 32% Automobile 31% Commercial Automobile 13% Property & Liability 15% Other 5% Motorcycle 4%
Slide 16: Diversified by Geographical Area
Diversified by Geographical Area Gross Premiums Written – 2006 YTD Illinois 10% Florida 9% Alberta 4% Texas 6% Quebec 6% New York 5% New Jersey 2% Hawaii 3% Ontario 20% California 13% Other 22%
Slide 17: Segmented Numbers – YTD 2006 (Canada)
Segmented Numbers – YTD 2006 Canadian Operations - (U$) 2005 2006 % change Gross Premiums Written $475M $470M 1% 1% Net Premiums Earned $441M $435M Combined Ratio 97.3% 93.9% 3.4% Loss Ratio 70.1% 63.6% 6.5% 48% Net Income $35M $52M
Slide 18: Segmented Numbers – YTD 2006 (U.S.)
Segmented Numbers - YTD 2006 U.S. Operations - (US$) 2005 2006 % change Gross Premiums Written $980M $1,054M 8% Net Premiums Earned $905M $907M - Combined Ratio 97.0% 98.7% 1.7% Loss Ratio 67.2% 70.4% 3.2% 15% Net Income $64M $54M
Slide 19: Loss Reserving
Loss Reserving Into A New Decade of Opportunity
Slide 20: Significant Reserve Strength
Significant Reserve Strength (U$) 2005 2006 Q3 Q4 Q1 Q2 Q3 Net Premiums Earned $461M $445M $427M $456M $458M 1% Total Loss Reserves $1,808M $1,844M $1,853M $1,923M $1,943M 7% IBNR $673M $696M $652M $728M $747M 11%
Slide 21: Reserve Risk
Reserve Risk Insurance subsidiary company management and U.S. and Canadian Chief actuaries establish reserves quarterly Kingsway staff, independent consultant (Tillinghast) and KPMG, review the reserves on a quarterly basis Annual external independent actuarial certification of all insurance s
Slide 22: Investment Portfolio
Investment Portfolio
Slide 23: Investment Portfolio – Q3 2006 (Fair Value)
Investment Portfolio – Q3 2006 (Fair Value) Accrued Interest & Term Deposits 14% Government Bonds 12% Cash 1% Premium Finance Receivables 3% Equities 14% Corporate Bonds 56%
Slide 24: Investment Portfolio – Maturity Profile
Investment Portfolio Maturity Profile of Fixed Income Portfolio 31/12/05 30/09/06 0 – 1 year 30% 24% 1 – 5 years 45% 47% 75% 71% Over 5 years 25% 29% 100% 100%
Slide 25: Investment Portfolio
Investment Portfolio 30/09/05 30/09/06 9% Value Per Common Share Outstanding U$51.09 U$55.65 17% Yield on Fixed Income * 3.6% 4.2% * Year to September 30 (annualized)
Slide 26: Investment Yield Summary
Investment Yield Summary 2002 2003 2004 2005 YTD 2006 Annualized investment yield 3.9% 3.3% 3.2% 3.4% 4.2% Annualized realized yield 4.9% 5.6% 4.0% 4.7% 4.8% Annualized total return yield 6.1% 6.4% 4.9% 3.2% 4.8%
Slide 27: Investment Portfolio (U$)
Investment Portfolio (U$) Investment Portfolio* Investment Portfolio Cash Flow Generated At Fair Value Per Share From Operations (in millions) (in millions) 2001 $775 $15.92 $134 2002 $1,346 $27.59 $382 2003 $2,124 $38.04 $471 2004 $2,644 $47.04 $392 2005 $2,933 $51.93 $274 2006 –YTD $3,121 $55.65 $
Slide 28: Invested Assets Drive Earnings
Invested Assets Drive Earnings (U$ Millions) 3500 160 140 3000 120 2500 100 2000 Invested Assets 80 Total Investment Income 1500 60 1000 40 500 20 0 0 2001 2002 2003 2004 2005 2006* Years ended December 31 * as at September 30 (income annualized)
Slide 29: Interest Rates in Canada and the US
Interest Rates in Canada and the US 6% 5% 4% 3% 2% 1% 0% Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 U.S. Canada As at September 30, 2006, approximately 63% of the Kingsway fixed income portfolio was in U.S. securities.
Slide 30: Contribution of Net Realized Gains to Investment Income
Contribution of Net Realized Gains to Investment Income Net Realized % of % of Reported Gains (U$M) Portfolio Investment Income 2001 7.8 1.2% 19% 2002 10.4 1.0% 20% 2003 41.5 2.4% 42% 2004 20.4 0.9% 22% 2005 38.2 1.4% 29% 2006* 17.8 0.8% 16% * As at September 30 (realized gains annualized in calcula
Slide 31: Financial Strength
Financial Strength Into A New Decade of Opportunity
Slide 32: Financial Strength
Financial Strength Years ended December 31 2002 2003 2004 2005 Q3 2006 NPW to Stat. Surplus 3.1x 2.9x 2.2x 2.0x 1.7x Interest Coverage 7.6x 5.2x 6.7x 7.2x 6.7x Senior Debt to Cap 28% 22% 25% 23% 23%
Slide 33: Capital Surplus in Excess of Minimum Regulatory Requirement
Capital Surplus in Excess of Minimum Regulatory Requirement- As at Sept 30, 2006 (U$ millions) Minimum Capital Surplus Over Minimum Statutory Capital Required* Canadian Subs 274 171 103 U.S. Subs 283 152 131 Captive Reinsurers 497 126 371 Kingsway Total 605 * OSFI and FSCO require Canadian subsidiar
Slide 34: Financial Performance Last 5 Years
Financial Performance Last 5 Years
Slide 35: Growth in Gross Premiums Written
Growth in Gross Premiums Written (U$ Millions) 3 4 % AG R Ye ar C $1,887 $2,002 $1,895 5 $1,524* $1,353 $688 $1,455* 2001 2002 2003 2004 2005 2006 Years ended December 31 * To Sept 30
Slide 36: Growth in Net Income
Growth in Net Income (U$ Millions) $135.0 4 9 % AG R $106.5* a r C $101.0 5 Ye $60.9 $50.6 $99.1* $29.0 2001 2002 2003 2004 2005 2006 Years ended December 31 * To Sept 30
Slide 37: Diluted Earnings Per Share (U$)
Diluted Earnings Per Share (U$) $2.37 $1.87* $1.79 $1.15 $1.02 $1.74* $0.77 5 Year CAGR 34% 2001 2002 2003 2004 2005 2006 Years ended December 31 * To Sept 30
Slide 38: Book Value Per Share (U$)
Book Value Per Share (U$) $16.14* $14.25 $11.86 $9.91 $13.65* $8.01 $6.92 5 Year CAGR 22% 2001 2002 2003 2004 2005 2006 Years ended December 31 * At Sept 30
Slide 39: Consistent Performance
Consistent Performance * Annualized (U$) Return on Equity Combined Ratio 1995 19.8% 96.6% 1996 21.4% 95.6% 1997 16.5% 95.8% 1998 13.4% 93.9% 1999 5.5% 102.6% 2000 10.6% 101.0% 2001 13.3% 99.1% 2002 13.9% 99.8% 2003 12.9% 101.6% 2004 16.6% 97.8% 2005 18.4% 97.2% 2006 – YTD 16.6% * 97.1%
Slide 40: Colin Simpson
Colin Simpson Vice President & COO, York Fire
Slide 41: Colin Simpson
Colin Simpson Joined Kingsway Financial Group in 2004 Insurance Experience – 10 years + (8 in senior management roles) Countries – UK (4 years) & Canada (6 years) Expertise – Corporate Development / Change Management / Strategic Planning / Finance Qualifications – Chartered Accountant (PwC)
Slide 42: York Fire & Casualty Insurance
York Fire & Casualty Insurance Established in 1955 A member of the Kingsway Financial Group of companies since 1996. Primary focus - The distribution of standard personal and small commercial products Distribution - The independent broker network in Ontario and Alberta - Broker network of approx
Slide 43: Number of Brokers - YTD
Broker numbers have remained relatively steady although we are appointing more in 2006. Quality of broker is critical to our success. Number of Brokers - YTD 250 200 Num ber of 150 Brokers YTD 100 50 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Slide 44: Our First Decade with Kingsway
Our First Decade with Kingsway 1996 2005 Increase 6.4x Gross Premium Written (C$M) $33 $210 392x Underwriting Profit (C$M) $0.04 $17.24 3.5x # of Employees 40 140
Slide 45: York Fire Premium Growth
York Fire has experienced rapid premium growth in recent years. York Fire - GPW (C$M) 250 200 150 A lberta GPW 100 Ontario GPW 50 - 2006* 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 * Projected
Slide 46: Improved Underwriting Profitability
Improved Underwriting Profitability Combined Ratio 125% 120% 115% 110% 105% 100% 95% 90% 2001 2002 2003 2004 2005
Slide 47: Strategic Vision
Strategic Vision A pre-eminent Canadian insurer of choice for standard personal and commercial products Use Canadian ‘home base’ and strength in ownership as market leverage to achieve this goal Broker choice will be driven by Stability of market; Dedication to relationship management; C
Slide 48: The YF Broker Community
The YF Broker Community “The choice of independent broker that York Fire forms a partnership with is pivotal in determining the future success of our company.” Brokerage adds value to the transaction of the sale of an insurance policy to a customer, by (among other things) taking a complex produ
Slide 49: Market Analysis
Market Analysis Into A New Decade of Opportunity
Slide 50: The Personal Lines Market
The Personal Lines Market (Total Market C$34bn – roughly 50% in Ontario) Direct 30 / 40 % Corporate Partnerships (PC / Canadian Tire etc.) 50 % 60 / 70 % Independent Broker Network 50 % YF = around 0.6% market share Yr 2006 Yr 2007 Yr 2008 The Broker Network market could decline by some 20 to 30% ov
Slide 51: Which Companies will prevail?
Which Companies will prevail? Those that support the growing market Those with market capacity / balanced portfolio Those with a long term strategy – offering stability of market to brokers Those that enable a broker to compete in the direct market Those with critical mass Those with a s
Slide 52: Why will York Fire prevail?
Why will York Fire prevail? We understand the market & our brokers Canadian Heritage / Canadian Decisions We have a long term strategy – offering stability of market to our brokers Our approach and technology will enable our brokers to compete with the direct market Strength & stability of
Slide 53: Who is Key to our success?
Who is Key to our success? SUCCESS BROKERS YORK FIRE TEAM
Slide 54: Underwriting & Marketing
Underwriting & Marketing
Slide 55: Personal Lines Underwriting
Personal Lines Underwriting The Personal Lines Philosophy We will consistently provide above “Market Average Service” to our brokers and customers. Our timeliness of response will be supported through relationship management at an underwriting level. York Fire will continue to operate within our app
Slide 56: Commercial Lines Underwriting
Commercial Lines Underwriting The Commercial Underwriting Philosophy York Fire Commercial Underwriting is committed to working in partnership with our independent broker network to achieve profitable results through quality risk selection and the provision of competitive standard product offerings,
Slide 57: The Result so far – Retention Rate
The Result so far …. 2006 - recording the highest overall retention rates ever experienced within York Fire’s history. Core Total - Retention Rate Trend 86.0% 84.0% 82.0% 80.0% 78.0% 76.0% 74.0% 72.0% 70.0% Jan-05 Mar-05 May-05 Jul-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-05 Sep-06
Slide 58: The Result so far – Retention Rate
The Result so far …. 2006 - recording the highest overall retention rates ever experienced within York Fire’s history. Core Total - Retention Rate Trend 86.0% 84.0% 82.0% Production 80.0% Issues (IT) 78.0% 76.0% Filed Rates 74.0% Market rates effective 72.0% Delayed FSCO Approval 70.0% Jan-05 Mar-05
Slide 59: The Result so far – Retention Rate
The Result so far …. 2006 - recording the highest overall retention rates ever experienced within York Fire’s history. Core Total - Retention Rate Trend 86.0% 84.0% Service Standard Focus 82.0% 80.0% 78.0% 76.0% 74.0% Executive Executive Forum Forum 72.0% Marketing Communication Communication 70.0%
Slide 60: Claims
Claims Into A New Decade of Opportunity
Slide 61: Claims Department
Claims Department The Claims Philosophy The York Fire & Casualty Claims Department will seek a balance of exceeding the expectations of both internal and external customers, while at the same time effectively controlling loss and expense costs. York Fire Claims will settle all claims in a fair and t
Slide 62: Closing Ratio
York Fire Claims Management Team have made great strides in 2005 & 2006 to improve both claims service and claims management practices Closing Ratio - All Coverage 1.40 1.20 1.00 Closing Ratio 0.80 0.60 0.40 0.20 0.00 Aug-04 Nov-04 Feb-05 May-05 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Month
Slide 63: Claims Fraud
Claims Fraud York Fire (along with other KFSI Companies) actively fight insurance fraud. Vendors – specifically Treatment Centres Policy Holders - Total Theft / fictitious claims Successes that have gone to court April 2006, Counterfeit Liability Cards (Pink Slips) – 8 Arrested June 2005,
Slide 64: Technology
Technology Into A New Decade of Opportunity
Slide 65: Our Objective
Our Objective Using Technology to get back to the Basics The Basics are ….. driven to be …. People Predictable Partnerships Consistent Value added Service Responsive …by the effective use of technology that YF will make available to our Brokers. “The Ease of Doing Business – Keep it Simple”
Slide 66: Our Customers...
Our Customers... Into A New Decade of Opportunity
Slide 67: Broker Quotations
Broker Quotations Quotations from YF’s September 2006 Executive Forum’s …. “Keep growing for us [the Brokers] to be a competitive domestic provider” Paul Armstrong, Paul C Armstrong Ins. Brokers Ltd “Nice to see and appreciate the changes in the “mind set” of YF” Bryce Allen, Allen Insurance
Slide 68: Conclusion
Conclusion York Fire: Understands our market and our brokers Has market competitive technology Has financial strength to grow profitably Has come a long way and has a strategy for continued growth
Slide 69: Scott Wollney
Scott Wollney President, Avalon Risk Management
Slide 70: Scott Wollney
Scott Wollney Joined Kingsway Financial Group in 1998 President of Avalon Risk Management Experience: 16 years in the transportation related insurance field Started career in Seattle, returning to Chicago after 5 years Qualifications – MBA in Finance and Strategy
Slide 71: Overview
Overview 1. Operational Overview 2. Financial Results 3. Expansion Plans
Slide 72: Operational Overview
Operational Overview
Slide 73: Strategy
Strategy Vision Statement Avalon Risk Management will always be a premier provider of innovative insurance and surety solutions as a valued business partner within our selected industries; always maintaining integrity and profitability
Slide 74: Business Functions
Business Functions WHOLESALE RETAIL AGENCY AGENCY U.S. Customs Bonds E&O, Liability, Cargo Insurance P&C, Auto, Truck GA/MGA/TPA Underwriting Manager Claims Handling Software License
Slide 75: Scope
Scope Seattle Boston Chicago New York San Francisco Los Angeles Atlanta Houston Miami With Kingsway’s support, Avalon was founded in 1998 with 4 offices We now have 9 offices and approximately 120 employees nationwide
Slide 76: Product Mix
Product Mix P&C (Truck) 35% P&C (Non Truck) 8% Prof/Legal Liab. 17% Bonds 23% Cargo 17%
Slide 77: Financial Results
+ Kingsway Financial Services Inc. Financial Results Into A New Decade of Opportunity
Slide 78: Financial Contribution
Financial Contribution Operating Profit Underwriting Profit Asset Value
Slide 79: Key Indicators
Key Indicators 1998 2005 Increase 20.8x Premiums Managed – Total (U$M) 2.2 45.7 23.7x Premiums Managed – KFS (U$M) 1.0 23.7 10.0x # of Employees 12 120
Slide 80: Operating Profit
Operating Profit Operating Revenue Increasing pace due to brand recognition Broader distribution channel Greater diversification of revenue streams Reduced seasonality Operating Expense Increasing economies of scale and scope
Slide 81: Premium Trend
Premium Trend U$M 60 50 40 30 Prem ium s Managed KFS Portion 20 10 0 1998 2000 2002 2004 2006 Annualized
Slide 82: Premium Trend
Premium Trend Strategic partnerships with related companies Ability to develop specialty programs More than 50% of premium written Leverage current strengths
Slide 83: Agency Value
Agency Value Insurance Brokerage Valuations Industry trades at 27.24 PE ratio Operating margins are 12.2% Equates to approximately 3.3X revenue Examples Company Price/Sales Aon (AOC) 1.11 Arthur J. Gallagher (AJG) 1.76 Brown & Brown (BRO) 4.98 Marsh & Mclennan (MMC) 1.34 For the purpos
Slide 84: Agency Value
Agency Value Initial Investment of U$5.9 million in 1998 Annualized 2006 revenue of U$15.5 million Agency asset value of U$21.7 million (1.4X revenue) Increasing approximately U$1 million per quarter Annualized 2006 underwriting contribution of U$3.5 million Shareholder value of U$31.5 m
Slide 85: Expansion
Expansion Into A New Decade of Opportunity
Slide 86: Products/Services
Managed Growth Products/Services 25% Sustainable Annual Growth Target Markets
Slide 87: Opportunities
Opportunities Products/Services “Start Up” focus was market share Paradigm shift to expand client relationships 75% purchase 1 line 16% purchase 2 lines 7% purchase 3 lines 3% purchase 4 lines Less than 1% purchase 5 lines Adding 1 additional line would increase revenue by 61% Limi
Slide 88: Opportunities
Opportunities Target Markets (Expansion) Building on “transportation” focus Specialty programs develop with KFS Insurance Companies A – Rated Carriers Controlled distribution Increased retention Thorough underwriting Mutual interest in sales focus Greater access to resources
Slide 89: Target Markets
Target Markets Trucking – Market size U$13B Synergies Sister-company relationship with Lincoln General Referral via 3PL clients “Program” business through large clients Livery & Para Transit – Market size U$650M - U$800M Synergies Sister-company relationship with American Country Geographi
Slide 90: Target Markets
Target Markets Moving & Storage – Market size U$500M Synergies Sister-company relationship with Universal Casualty Transactional 1st party coverage High frequency, low severity claim activity
Slide 91: Supporting Organic Growth
Supporting Organic Growth Professional Development Recruiting Annual process Partnered with “big ten” universities Criteria Training Formal Academic Incorporates strategic partners Testing/feedback throughout
Slide 92: Future Expansion
Future Expansion Acquisitions Criteria Approach Goals
Slide 93: Conclusion
Conclusion Into A New Decade of Opportunity
Slide 94: Conclusion
Conclusion Operational Strategic Industry focused “Premier Provider” Financial Agency value Underwriting contribution to KFSI Group Expansion Continued growth 25% sustainable rate Increasing size Expanding margins
Slide 95: Scott Butler
Scott Butler Vice President, Lincoln General
Slide 96: The Assigned Risk Market
The Assigned Risk Market
Slide 97: Today's Agenda
Today’s Agenda Definition of assigned risk Market opportunity Premiums and revenue streams Lincoln results – Q3 2006 Competition
Slide 98: Defining Assigned Risk
Defining Assigned Risk Assigned risk (a.k.a. the involuntary market) was created by the insurance industry to address the needs of consumers who could not find insurance in the voluntary market All voluntary writers service the involuntary market, and are assigned a quota share based on their pr
Slide 99: Defining Assigned Risk – cont'd
Defining Assigned Risk – cont’d Governing boards: Establish plan rules, rates & underwriting guidelines Provide oversight for producers, excused & servicing carriers Voluntary writers can be “excused” of their risk-bearing obligations by paying a “buyout” fee to Lincoln General, an approved
Slide 100: Assigned Risk Market
Assigned Risk Market (U$M) $1,800 $1,600 |~ $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 2002 2003 2004 2005 2006E 2007E 2008E > Commercial Lines Personal Lines Into A New Decade of Opportunity
Slide 101: Assigned Risk - Personal Lines
Assigned Risk - Personal Lines New Jersey California 34% 3% Other 3% Pennsylvania 2006 Written Premium 4% $716 Million* New York 56% *AIPSO estimate Aug/06 to Oct/06
Slide 102: Assigned Risk Commercial Auto & Trucking
Assigned Risk Commercial Auto & Trucking Other 2% 2006 Estimated Premium New York $122 Million* 98% *AIPSO estimate Aug/06 to Oct/06
Slide 103: New York Assigned Risk Commercial Lines
New York Assigned Risk Commercial Lines Public Auto (Buyout) Public Auto 12% (Non-Risk) Trucking 21% 11% 2006 Estimated Premium $118.8 Million* Commercial Auto 56% *AIPSO estimate Aug/06 to Oct/06
Slide 104: Take Out Market
Take Out Market Voluntary takeout – NY assigned risk Defined: assigned risks taken out of the involuntary market and written in the voluntary market 2006 = $200 million estimate 2007 = $220 million projected 2008 = $240 million projected NY personal auto market Personal auto = $10.2B;
Slide 105: Total Market Opportunities
Total Market Opportunities (U$M)
Slide 106: Lincoln Results
Lincoln Results YTD 2006 Revenues (U$M) $60.0 $54.6 $5.4 Voluntary Assigned Risk Total
Slide 107: Assigned Risk Premiums (2006)
Assigned Risk Premiums Assigned Risk Voluntary Personal Commercial Auto Auto Takeout 39% 8% 2006 Estimated Written Premium* U$80 Million Assigned Risk Personal Auto 53% *AIPSO (assigned risk) estimate Aug/06 to Oct/06
Slide 108: Assigned Risk Premiums (2007)
Assigned Risk Premiums Voluntary Personal Assigned Risk Auto Takeout Commercial Auto 13% 31% 2007 Estimated Written Premium* U$140 Million Assigned Risk Personal Auto 56% *AIPSO (assigned risk) estimate Aug/06 to Oct/06
Slide 109: 2007 Buyout Season Overview
2007 Buyout Season Overview 2007 Buyout Marketing Issued 2200 quotes 994 buyout contracts 41 new customers; U$35 million in projected revenues 98% of 2007 contracts are final as of 11/1/06 Buyout Fees Overall increased 4.6% NY personal assigned risk increased 7% 2007 Major Clients
Slide 110: Limited Competition
Limited Competition Main Competition Auto One – Division of One Beacon All states personal & commercial Clarendon – Division of Hanover Re. NJ, NY & PA only Takeout Credit Competitors – NY Only Country-Wide Insurance Company Eveready Insurance Company
Slide 111: Assigned Risk Program – 2007 Projections
Assigned Risk Program – 2007 Projections Total projected written premium = U$140 million Primary revenues Assigned risk premiums and related buyout fee income Secondary revenues Take out program - NY voluntary private passenger auto Take out credit income - NY Driver class and territor
Slide 112: Shaun Jackson
Shaun Jackson Executive Vice President & C.F.O.
Slide 113: Industry Overview
‘* Kingsway Financial Services Inc. Industry Overview Into A New Decade of Opportunity
Slide 114: The Canadian P & C Industry
The Canadian P & C Industry
Slide 115: The Canadian P&C Industry
The Canadian P&C Industry 2001 2002 2003 2004 2005 Net premium written * (C$B) 26.4 31.6 35.4 37.7 37.1 Return on Equity ** (%) 2.0 2.1 12.2 20.6 18.8 Combined Ratio ** (%) 111.4 105.7 99.2 90.1 91.9 Premium to surplus ratio ** 1.2 1.5 1.5 1.4 1.2 Surplus ** (C$B) 19.3 18.6 20.3 23.0 26.0 * Canadian
Slide 116: The Canadian P&C Industry
The Canadian P&C Industry ROE (%)* Change in NPW (%) ** * The Quarterly Report – IAO Actuarial Consulting Services Inc. ** Canadian Insurance Magazine – Annual Statistical Issue
Slide 117: The Canadian P&C Industry
The Canadian P&C Industry BofC Rate Industry CR* * Source: IAO The Quarterly Report (2nd Quarter, 2006) 2006 Industry CR as at June 30, 2006
Slide 118: Facility Association and Risk Sharing Pool
Facility Association and Risk Sharing Pool 2002 2003 2004 2005 2006* Alberta Earned premium (C$M) 55 129 215 369 206 Loss ratio (%) 78 63 68 88 92 Ontario Earned premium (C$M) 202 566 688 410 155 Loss ratio (%) 124 110 74 75 85 * June YTD
Slide 119: Outlook – Canadian Market
Outlook – Canadian Market Personal Automobile Trucking Commercial Lines Direct Writers Broker Consolidation “Kingsway will maintain a disciplined pricing approach”
Slide 120: The U.S. P & C Industry
The U.S. P & C Industry Into A New Decade of Opportunity
Slide 121: Top Trucking Insurers in N.A. (U$)
Top Trucking Insurers in N.A. (U$) $648M Great West Casualty/Old Republic $587M Kingsway $404M Empire $341M Liberty Mutual $338M Canal $162M Markel (Canada) * Source: 2005 A.M. Best Data compiled by Kingsway
Slide 122: Top Ten Non-standard Auto Companies in North America
Top Ten Non-standard Auto Companies in North America Direct Premium Share of Industry Written (U$B) (%) A B 1 Progressive 11.7 31.6 7.1 2 Allstate 4.1 11.0 2.5 3 GEICO 2.9 7.9 1.8 4 State Farm 2.1 5.8 1.3 5 Mid Century (Farmers) 1.6 4.3 1.0 6 Mercury Insurance Group 0.7 1.9 0.4 7 Sentry 0.7 1.8 0.4
Slide 123: U.S. Non-Standard Auto Market
U.S. Non-Standard Auto Market GPW (U$B) Loss Ratio (%) 40 75 38 73 36 71 34 69 32 67 Loss Ratio 30 65 GPW 28 63 26 61 24 59 22 57 20 55 2000 2001 2002 2003 2004 2005 Years ended December 31 Source: AM Best data compiled by Kingsway
Slide 124: The U.S. P&C Industry
The U.S. P&C Industry Federal Rate Industry CR* Source: 2005 A.M. Best data compiled by Kingsway
Slide 125: Reinsurance – Impact of Hurricane Katrina, Rita and Wilma
Reinsurance – Impact of Hurricane Katrina, Rita and Wilma Capacity decreases Estimated losses U$65 – U$90 billion Approximately U$30 billion of capital was raised US Personal Lines Rate on line increases of 30% to 60% Retention increases of 25% to 50% Quota share capacity is being sque
Slide 126: Bill Star, President & CEO
"Bill Star | ent & CEO Into A New Decade of Opportunity
Slide 127: Our First Decade on the TSX
Our First Decade on the TSX (U$) 1995 2005 Increase 43.0x Gross Premiums Written $44M $1.9B Net Income $2.8M $135.0M 49.9x Shareholders Equity $27M $805M 29.9x Investment Portfolio $45M $2,933M 64.8x Investments per share $2.35 $51.93 22.1x
Slide 128: NYSE Fifth Anniversary Celebration
NYSE Fifth Anniversary Celebration
Slide 129: Our First Five Years on the NYSE
Our First Five Years on the NYSE (U$) 2001 2005 Increase 2.8x Gross Premiums Written $688M $1.9B Net Income $29.0M $135.0M 4.7x Shareholders Equity $337M $805M 2.4x Investment Portfolio $0.8B $2.9B 3.8x Investments per share $15.92 $51.93 3.3x
Slide 130: Building For The Future
Building For The Future Shaun Jackson Strong financial results & capitalization Industry outlook Colin Simpson York’s position in Canadian market Value created under KFS Scott Wollney Start-up investment Growth and value creation Scott Butler Niche program management Assigned
Slide 131: Kingsway America – Elk Grove Village
Kingsway America – Elk Grove Village
Slide 132: Lincoln General – York, PA
i < a Kingsway Financial Services Inc. \ Lincoln General — York, PA Into A New Decade of Opportunity
Slide 133: New Corporate Headquarters, Mississauga, Ontario
J < | KINGSWAY FINANCIAL SERVICES INC. New Corporate Headquarters, Mississauga, Ontario Archxes Design Inc., Architects Into A New Decade of Opportunity
Slide 134: Kingsway Financial Services Inc.
Kingsway Financial Services Inc. Into A New Decade of Opportunity
Kingsway Financial Services — Investor Day (November 2006) on 6ix