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I own some Westaim which had  the destinction of being a net-net. It is being reorganized and recaptialized and acquiring an insurance company from Kingsway Financial. This site is deep in inurance knowledge and insight any opinions on this transaction or any of the players would be appreciated.

 

 

TORONTO (Dow Jones)--Kingsway Financial Services Inc. (KFS) has agreed to sell its stake in Jevco Insurance Co. to money manager Westaim Corp. for about C$263 million to repay debt.

 

The sale also enables the troubled Canadian property and casualty insurer to shore up its capital. Kingsway, which is embroiled in a lawsuit with the Pennsyvlania government over its U.S. unit Lincoln General Insurance Co., has been shedding units to stay afloat. Jevco, which specializes in non-standard auto, and property and liability insurance, was considered one of its better subsidiaries.

 

"As far as the company remaining a going concern, this is a pretty good step towards that," says Dean Evans, an analyst at Keefe, Bruyette & Woods Inc. in New York. "There's a big chance that they'll end up taking a lot more losses due to the Lincon General lawsuit, so they needed to shore up their capital, which this does. They're selling off everything they can."

 

Kingsway shares are up 32 Canadian cents, or 21%, to C$1.84. Westaim is also up 10 Canadian cents, or 22%, to 53 Canadian cents.

 

Toronto-based Kingsway is selling Jevco at a price equal to 94.5% of the unit's book value as of Dec. 31. The company will also receive a dividend of up to C$40 million from Jevco before the deal closes, expected on or around March 31.

 

In November, the Pennsylvania Insurance Department took legal action against Kingsway when the insurer tried to sell Lincoln General by donating the company's stock to charity in what the Department called "sham transactions."

 

"The fear is that Kingsway is forced to take Lincoln General back, and then, they're responsible for all of its liabilities, and the potential hole at Lincoln General is anybody's guess," says Evans. "The best thing for Kingsway is to shore up its capital, and get as much capital as they can so if they are forced to take Lincoln General back, they can cover the losses."

 

The company said in a statement it plans to immediately purchase sufficient debt to ensure it satisfies all its financial covenants. Conditional debt-repurchase agreements have been executed in respect of about US$47 million of its debt. Kingsway wasn't immediately available to comment.

 

As reported late last year, Kingsway announced plans to sell its majority stake in Jevco, but was aiming to remain a "non-influential" investor. News of the deal at that time led to downgrades by both A.M. Best and S&P due to liquidity concerns.

 

Westaim, an Alberta investment company with C$70 billion in assets, is managed by former Ontario Teachers' Pension Plan fund manager veterans, Leo de Bever and Brian Gibson. Following this purchase, its new focus will be on the Canadian insurance business.

 

To finance the deal, Westaim expects to issue 550 million subscription receipts at 50 Canadian cents each to raise C$275 million. Each receipt will entitle the holder to receive one share of Westaim.

 

-By Caroline Van Hasselt, Dow Jones Newswires; 416-306-2023; caroline.vanhasselt@dowjones.com

 

(Judy McKinnon, Dow Jones Newswires; 416-306-2100; judy.mckinnon@dowjones.com contributed to this story.)

 

 

 

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=XEDvhaD9Q%2FqK9fJIaH6T9g%3D%3D. You can use this link on the day this article is published and the following day.

 

 

 

(END) Dow Jones Newswires

 

January 25, 2010 13:46 ET (18:46 GMT)

 

Copyright © 2010 Dow Jones & Company, Inc.

 

 

 

 

 

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Companies:

WESTAIM CORPORATION (THE)(WED-T), KINGSWAY FINANCIAL SERVICES INC(KFS-T) 

 

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On balance this should work out very well for them over time. But it may be a lot more volatile that everyone thinks.

 

Its highly likely that the sale has a regulatory 'dowry' of some kind, especially as Kingsway is also being allowed to take a 40M dividend. Most would also think that 94.5% of BV is over-paying for what looks like a forced sale, so what are they getting for the 'premium'.

 

The sharecount is extremely high, & the shareprice prohibits institutional ownership. A 30% drop in price on news of a reserving problem is not unrealistic, as is a 25:1 consolidation & additional equity issue.

 

Real question is what the exit plan is. Sell the rehabilitated & repaired asset to someone else (wise), or use it to build a new company around (not so wise) ?

 

SD 

 

 

 

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Regarding Westaim, Cameron MacDonald seem to be the new jockey here. He's a GoodWood fund manager and a focused value investor. I do not know him and have not heard of him before that transaction. It would be interesting to dig more about him. He seems to want to shift Westaim toward a diversified conglomerate with good businesses bought at good prices. Does somebody know more about him?

 

Regarding Jevco, I don't know much about that insurance company. They seem to be a specialized insurer in automotive industry (higher risk profiles) and have recently diversified into more traditional fields. Somebody have more information about that company? It could be a TIG kind of situation, but it also could be a Northbridge one. That's what I'm trying to figure out actually. A jewel or a poisoned kool-aid glass?

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Jevco has a lot of promise, but its had Kingsways hands all over it.

Did the Lincoln 'reserving culture' spread to this ? & don't I really need to see the loss triangles for the next 8 quarter or so to determine that ? If there are no issues, its probably worth more than what they paid.

 

If there are no further acquisitions, how is value maximized 3 years on ? As a larger specialty division of an existing carrier at 1.35-1.65x BV (current uncertainty has gone), or as a stand-alone company ?

 

Lot of interesting opportunities at 10:1 consolidation.

 

SD 

 

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I've been following Goodwood for a couple of years.  Goodwood has a value investment focus.  They largely play in undervalued Canadian small and mid-caps.  They're thoughtful and focused on their craft.  This should be a good partnership for Westaim.

-O

 

Regarding Westaim, Cameron MacDonald seem to be the new jockey here. He's a GoodWood fund manager and a focused value investor. I do not know him and have not heard of him before that transaction. It would be interesting to dig more about him. He seems to want to shift Westaim toward a diversified conglomerate with good businesses bought at good prices. Does somebody know more about him?

 

Regarding Jevco, I don't know much about that insurance company. They seem to be a specialized insurer in automotive industry (higher risk profiles) and have recently diversified into more traditional fields. Somebody have more information about that company? It could be a TIG kind of situation, but it also could be a Northbridge one. That's what I'm trying to figure out actually. A jewel or a poisoned kool-aid glass?

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  • 2 weeks later...

Westaim raised a nice chunk of change

 

http://www.newswire.ca/en/releases/archive/February2010/09/c8076.html

TORONTO, Feb. 9 /CNW/ - The Westaim Corporation (Westaim or the Company) (TSX: "WED") announced today that it has completed the sale of an aggregate of 546,745,000 subscription receipts (Subscription Receipts) at a purchase price of $0.50  each for aggregate gross proceeds of $273,372,500. An aggregate of 219 million Subscription Receipts were sold pursuant to an underwriting and agency agreement between Westaim and GMP Securities LP (GMP) dated February 9, 2010. An additional 296 million Subscription Receipts were purchased by Her Majesty the Queen in Right of the Province of Alberta (HMQ) through Alberta Investment Management Corporation (AIMCo). As well, an aggregate of 31,745,000 Subscription Receipts were purchased by directors and officers of Westaim, funds managed by Goodwood Inc., existing senior management of JEVCO and certain other designated investors (collectively the Designated Purchasers). A second closing is scheduled for February 19, 2010  in respect of the sale of the remaining 3,255,000 Subscription Receipts to certain other Designated Purchasers for gross proceeds of $1,627,500.

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At closing, Jevco’s expected MCT ratio will be about 220% - this is an improvement from 190% at YE/08.  And it’s even after taking into account a $40 million dividend that Jevco is paying Kingsway upon closing.  An improved capital ratio is usually good news – but this one is for the wrong reasons – surrounding the uncertainty of the Kingsway situation, brokers are moving Jevco policies to competitors (creating somewhat of an unplanned partial run-off). 

 

Jevco is obviously in better hands.  How timely it is – depends on a few things:

  • Does the bleeding (losing market share) stop now that it is out of KFS’s hands and in WED’s?
  • If WED’s philosophy with this will be to take on a higher equity exposure --- they will need to decrease the company’s leverage further – so perhaps underwriting volumes will not be the first priority for WED?  And equities are still not that cheap.
  • Amid the Kingsway crisis -- how much Jevco talent left for competitors?  The best always seem to leave first.
  • Could there be further talent drain?  In any acquisition, there is always the risk of talent leaving – as they don’t buy into a new philosophy. 

 

Jevco’s two prime competitors are Pafco (Allstate) & Echelon (EGI Financial).  In normal circumstances – the bigger threat to competent non-standard insurers isn’t each other – but rather the larger standard insurers moving into their space.  The interesting thing is this cycle is in a phase where standard insurers have been in this space for several years and are now seeing profit margins erode and the trend seems to be towards the start of an exiting phase -- hence a hardening of non-standard seems to be taking shape.

 

The non-standard insurance companies that would be most timely at this juncture – would seem to be those that are least levered.  Despite probably taking some market share from Jevco -- EGI Financial has improved their MCT ratio from 268% (YE/08) to 314% (Q3/09).  Their annualized ratio of net written premiums to shareholders equity was 1.1:1 at Q3/09.  This is well below the 2.5:1 ratio they feel is fully leveraged capital – meaning they have tons of room to take on further Jevco bleeding, standard exiting and their on-going niche product growth plus the recent move into Florida.

 

Westaim will probably do well with Jevco.  I just don’t see them being in as good of shape to go after this hardening cycle and in fact will probably have to back off some more if they want to increase equity exposure quickly.  Meanwhile WED trades at about a 15% premium to the private placement to purchase Jevco at .95x BV at December 31/09.  YE results are due out in a couple weeks for EFH – I think we will find that it’s currently been trading at about .90x YE BV.

 

I do of course own a position in EFH.  I plan on keeping an eye on WED – it might make a lot of sense particularly if markets get very cheap sometime in the next several years.  A Cheap stock market, combined with a very underleveraged Jevco could be a real winner – I just don’t see either at the moment. 

 

UCP / DD 

 

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