Pa. Regulators Move Against Kingsway For 'Sham' Transfer

NU Online News Service, Nov. 17, 4:02 p.m. EST

Pennsylvania regulators said they will take legal action against Kingsway Financial Services, Inc. over its attempt to shed its ownership of troubled Pennsylvania insurer, Lincoln General Insurance Company.

The Pennsylvania Insurance Department said its action to prevent what it called a "sham" will include its wholly-owned subsidiary, Kingsway America, Inc.

According to the department, Lincoln General, a Pennsylvania insurance company specializing in commercial insurance for the trucking industry, has been experiencing financial difficulties, and the department has been in discussions with Lincoln General and Kingsway concerning Lincoln General's financial condition and Kingsway's responsibilities as the ultimate controlling corporation.

But, the department said, Kingsway attempted to dispose of its interest in Lincoln General by donating 100 percent of the stock of Lincoln General's immediate parent to 20 different charitable organizations.

Each charity received five percent of the parent's stock plus a check in the amount of $20,000 as an inducement to accept the shares, the department asserted.

Insurance Commissioner Joel Ario said, "Pennsylvania's insurance holding company laws require Insurance Department approval of a change of control of a Pennsylvania-domestic insurer. That did not occur. Instead, Kingsway sought to dispose of its control of Lincoln General without having another entity as the controlling shareholder. We are taking legal action to unwind this set of sham transactions."

He added, "In addition, we will be reaching out to the charities which have been unwitting participants in this transaction and will work with them to avoid any repercussions. We are hopeful to resolve this by the end of the year."

In a statement, Kingsway said, "Kingsway maintains its view that the donations of the Lincoln shares to the charities were lawfully made and that the DOI has no legal basis for demanding the unwinding of the donations.

"Kingsway further believes that any assertion by the DOI that the donations did not comply with law, or any suggestion that there could be any 'repercussions' for the charities which received the lawful donations, is not only incorrect but also inappropriate."