(November 30) – Queensway Financial Holdings’ third quarter results show a consolidated net loss for the third quarter of $49.1 million, sparking a $46.0 million loss for the nine-month period, compared to a loss of $36.0 million and $63.2 million, respectively, for the same periods last year. The loss per share was $4.04 in the third quarter, compared to $2.96 in the third quarter last year. The loss per share was $3.95 year-to-date, as compared with $5.22 loss for the same period last year.

This year’s third quarter net loss was substantially attributed to the Sun States Group, which reported net losses of $42.4 million for the quarter. The Sun States Group is comprised of four insurance entities: Atlantic Alliance Fidelity and Surety Company, International Indemnity Company (IIC), Queensway International Indemnity Company (QIIC) and Queensway Casualty Insurance Company (QCIC).

The Sun States Group loss includes current quarter charges, taken as a provision for bad debts, adjustments to deferred tax assets and other assets of $18.7 million, goodwill impairment of $11.5 million and claim reserve strengthening of $7.5 million. Also included in the Sun States Group’s loss is a $1.9 million pre-tax loss attributable to Atlantic Alliance which includes a $1.4 million write-down of goodwill. In November, Queensway entered into an agreement to sell the shares of Atlantic Alliance. The deal is expected to close within the next 60 days.

The Sun States Group’s results represent the outcome of an extensive investigative audit by new management that culminated in the recent decisions to stop writing business in QCIC and to reflect the adjustments as described above. The adjustments were necessitated by the recent discovery of accounting irregularities throughout the Sun States Group and claims reserving irregularities at QCIC that were not disclosed by prior management nor detected during past independent audits.

No more business is being written in IIC, leaving only QIIC as a writer of business in the Sun States Group, after the sale of Atlantic Alliance. The remaining business represents approximately $27 million of annual written premium as compared to $88 million of annual premium written in 1999.

“I am angered and deeply disappointed by the irregularities discovered at the Sun States Group by our internal auditors and by the magnitude of the loss that has resulted,” says Jim Petcoff, president and CEO. “Our on-going investigation of the Sun States Group has compelled us to exit certain business lines during 2000.”

The amount outstanding under the company’s senior debt facility was $48.5 million at the end of the third quarter, which is the same level as at the end of the second quarter. The senior debt facility matures on February 1, 2001 with renewal at the option of the lenders.

Queensway says it is pursuing alternative means of refinancing or repaying the facility prior to maturity in the event that the lenders do not renew it. “These alternatives include the sale of certain assets, and various debt and/or equity financing transactions.”

It is also pursuing alternative means of funding the $4.8 million due to the senior lenders in December. Due to the magnitude of the third quarter loss, the company says it is in violation of certain debt covenants with its senior lenders as of the end of the third quarter. Management is in discussions with the senior lenders requesting waivers or adjustments to these covenants.
-IE Staff