Mississauga, Ont.-based Kingsway Financial Services Inc. reported a net loss of US$38.4 million for the second quarter ended June 30, compared with net income of US$6.3 million in Q2 2008.

The loss reflects the adverse development in run-off businesses, transition costs, a significant drop in revenue from discontinued and run-off businesses, a reduced return on investments and several one-time charges.

“The second quarter’s poor financial results reflect the legacy of past business strategies and practices that we are rapidly eliminating or changing through our ongoing transformation work,” said Colin Simpson, Kingsway’s president and CEO. “Since being appointed to the role of CEO early in the second quarter, I have restructured the senior management team to get the right talent in key roles and taken steps to put the company back on a solid financial footing. The team has reached out to regulators to explain the new directions we’re taking and seek their support. We believe the Kingsway that emerges from the transformation — considerably streamlined, with less complexity, and with strengthened relationships with key stakeholders — will succeed, over time, in delivering solid results to shareholders.”

Kingsway also announced changes to the board of directors and provided shareholders with an update on its company-wide transformation.

In Q2, the firm appointed Daniel Brazier to the role of interim chief financial officer in May 2009, with a mandate to closely examine all accounting practices with fresh eyes, rigour and discipline. Under Brazier’s guidance, Kingsway accelerated plans to restore financial stability by:

– launching a debt buy-back plan through a structured capital initiative;
– recapitalizing the core operating units by repatriating funds currently committed to reinsurance subsidiaries; and
– continuing to seek and leverage cost reduction opportunities.

As a result of these and other initiatives during Q2, Kingsway says it is ahead of plan on a number of key deliverables, and on track to achieve an annualized savings run-rate of US$120 million by yearend 2010.

Kingsway further announced that Colin Simpson joined the board of directors, effective Aug. 6. He replaces William Andrus, who resigned effective Aug. 1.

“Management and the board of directors are completely aligned and unrelenting in our focus on execution,” said Simpson. “The overarching strategy has not changed; we are focusing on profitable core business, getting the right infrastructure in place to support it, and reducing our cost base to become more competitive in the marketplace. We will continue to evaluate and refine the details of the plan as business conditions shift to ensure we meet our objectives of returning the company to financial stability, restoring shareholder value, and building a strong foundation for the future. While we have made significant progress to date, it will take time for the positive effects of many of these actions, such as our major business unit consolidations, to be reflected in our financial results. We expect to continue to gain momentum during the remainder of 2009 and throughout 2010.”