A.M. Best Downgrades Ratings of Lincoln General Insurance Company

A.M. Best Co. has downgraded the financial strength rating to D (Poor) from B- (Fair) and the issuer credit rating to ?c? from ?bb-? of Lincoln General Insurance Company (Lincoln) (York, PA). The ratings have been removed from under review with negative implications and assigned a negative outlook.

The downgrades are a result of a significant drop in Lincoln?s risk-adjusted capitalization and change in business profile following its submission on May 7, 2009, of a proposed RBC Plan (the Plan) for the company. This action comes from a decision by Lincoln?s ultimate parent, Kingsway Financial Services Inc. (KFSI) (Mississauga, Ontario) [NYSE/TSX: KFS] not to continue operations at Lincoln following several years of significant operating losses, which culminated in a regulatory action level event on March 1, 2009.

The Commonwealth of Pennsylvania Insurance Department accepted the Plan on May 29, 2009. The Plan calls for the solvent run off of all of Lincoln?s liabilities and the cessation of all underwriting activity except where Lincoln has a contractual or legal obligation to maintain. Included in the Plan is the commutation of all intercompany reinsurance with Kingsway Reinsurance Corporation, a Barbados affiliate, which provided Lincoln with significant reinsurance protection. As a result of the commutation, which was effective January 1, 2009, and continued unprofitable operating performance, risk-adjusted capitalization has declined.

Partially offsetting these negative rating factors is the change in senior management at Lincoln. The company has contracted Rockwall Financial Advisors, LLC, a company whose executives have many years of successfully managing the run-off of insurance businesses. Several of Rockwall?s top executives have been hired by Lincoln to manage the company through the first five years of its run off. In addition, limited capital support is being provided by KFSI and an extensive expense reduction initiative is underway to help Lincoln remain solvent during the run-off period.

The positive factors are partially mitigated by the significant execution risk in the Plan, including the timing and amount of claims payments, adverse reserve development remaining within projected amounts, investment returns meeting expectations and expenses being prudently managed.

The ratings of KFSI and its remaining insurance subsidiaries remain under review with negative implications pending A.M. Best?s completion of its analysis of these companies.