Kingsway Financial Services Inc.

Thank you. Welcome and Happy New Year to allof you.

I would like to thank you for joining metoday. Although I have spoken to you inthe past as theChief Financial Officer, this call is my first opportunity to doso as President andCEO of Kingsway.

Before we begin, I would like to read theusual warning regarding forward-looking statements. Theremarks that I will make during theconference call contain forward-looking statements that aresubject to risks and uncertainties, and for information identifying theimportant factors that could cause our actual results to differ materially fromthose anticipated in theforward-looking statements, you should read Kingsway’s Canadian and U.S.Securities filings included inour 2006 annual report under theheading risk factors inthe managementdiscussion and analysis section.

Thecompany disclaims any intention or obligation to update or revise anyforward-looking statements, whether as aresult of new information, future events or otherwise. Before I open up thecall for questions, I would like to make abrief statement which I hope will anticipate many of your questions.

I amsure that you will appreciate that inmy statement and inanswering your questions I will not beable to comment on expected results for thefourth quarter of 2007, as we arenow in theblackout period subsequent to quarter end and prior to theannouncement of thefourth quarter and annual results on February 15th. Firstly, I would like to thank Bill Star for thesupport that he hasgiven me over theyears, and more importantly, theguidance he hasprovided.

As many of you know, Bill founded acompany over 20 years ago; his entrepreneurial spirit hasbeen the major driverof the growth inKingsway. I have had thehonor to have worked with him over thelast 12.5 years and have learned agreat deal from him.

I wish him thevery best in hiswell-deserved retirement. I amexcited about thefuture of the company,and honored to have been chosen to succeed him as thecompany’s president and CEO.

What I would like to dotoday is to provide some insight into theannouncement that Kingsway made on December 18, and also share with you why I amvery positive about theoutlook for the yearwe have just entered. On December 18th Kingsway announced that itwould report a reserveincrease at itsLincoln General subsidiary inthe fourth quarterestimated between $95 million and $125 million.

Thepress release of that date provided anexplanation of some of thefactors giving rise to this increase, themost important of which was achange inthe methodology used inestimating Lincoln’s future claimliabilities. This estimated reserve increase, itwas stated there, would initself have a negativeimpact of approximately $1.41 to $1.87 pershare of net income and therefore inbooked value pershare.

Since that announcement, trading inthe company’s shares hasreflected a far largerthan expected impact, and several questions have been raised inthe press andelsewhere regarding theannouncement and Kingsway’s expectations regarding upcoming periods. Thefirst thing to note is that this reduction inour earnings and book value pershare will be partially offset by earnings from our other subsidiariesand also our investment income inthe fourth quarter of2007.

As a result, we areconfident that thebook value per share atDecember 31, 2007 will beover $17 and our shareholders’ equity will beapproximately $1 billion. Theestimated sanctity surplus inour insurance operating subsidiaries is expected to beapproximately $1.2 billion compared to annualized net premiums written ofapproximately $1.8 billion, which is aleverage ratio of 1.5:1.

This is amuch lower ratio than the3:1 ratio we were writing afew years ago. As you can see, we area strongly capitalizedinsurance group and we arewell-positioned to use our existing capital to profitably build our businesses.We do not need toraise additional equity and have significant unutilized underwriting capacityfor 2008.

By their very nature, claim liabilities can only beestimated using probabilistic methods, and arethus subject to uncertainty. However, based on theclaims data and other information that is currently available to management andthe company’sindependent external appointed actuary, therange that we announced represents abest estimate for increases inthe IBNR (incurred butnot reported) claim liabilities atLincoln.

While no one can becertain that there will beno further adverse development atLincoln inthe future, theintention of recognizing this larger than usual charge atthis time was to put this problem behind us. Following this increase, we expect Lincolnto be carryingapproximately $1 of IBNR for each $1 incase reserves, which is anunusually high amount.

Although theresponsibility for setting reserves belongs to management, Kingsway hasa corporate policythat we will always establish reserves ateach of our subsidiaries atthe end of each fiscalyear at alevel that is at leastat themidpoint of the amountrecommended by our external and independent appointed actuary. At September 30, 2007 thegross carried reserves for our other subsidiaries, other than Lincoln,were in excess of thepoint estimates recommended by theindependent actuaries.

Our other subsidiaries collectively reported net reserveredundancies of $35 million, or 3% of their carried, unpaid claims atthe beginning of theyear. At thesame time as therecent Lincoln review, we alsocarried out similar detailed reviews ateach of our other subsidiaries which showed little changefrom the healthyposition and thereserve redundancies which we reported atthe end of thethird quarter.

Inrecent periods, estimating theunpaid claim reserves for Lincoln hasbeen complicated by thefact that thecompany’s own claims data was insufficiently stable inthe view of theindependent actuary and management; proforma basis for projecting ultimate loss ratios. This instability was largely theresult of the factthat management of claims for much of Lincoln’sprogram business was being brought inhouse where previously theclaims were managed externally.

Lincoln grewrapidly during 2001 to 2003, and atthe time, outsourcedmany of the claims andunderwriting functions to third party service providers. Over time, itbecame apparent that we should gain atighter operational control of theclaims functions, and build our in-house claims capabilities.

At theend of 2002, approximately 65% of theclaims on Lincoln’s programbusiness were handled externally by third parties; whereas today only 14% areexternally handled. As claims were brought inand the case reservesincreased, this caused instability inthe underlying claimsdata that theactuaries used to predict future outcomes.

Consequently inthe past there hasbeen a heavy relianceon industry loss development factors inforecasting Lincoln’s ultimate lossratios. With thepassage of time, theindependent actuaries determined inlate November that thecompany’s own data was now sufficiently stable that itshould revise its actuarial models to primarily rely on thecompany’s own data and to markedly reduce theimpact of industry data.

This changein methodology is theprimary reason for theincrease in theexpected loss ratios, and is expected to significantly reduce thevolatility of estimates atLincoln going forward. Thedevelopment that Lincoln hasexperienced is due to thefact that theunderlying case reserves have developed differently than industry averages.

Thetwo lines of business atLincoln that were substantiallyaffected by this changein estimation aretrucking and anartisan contractors’ liability program inCalifornia. While we arehighly confident with respect to thetrucking reserves, there remains some residual uncertainty regarding theultimate losses on theartisans’ contractor liability program, which we consider to beimmaterial compared to theoverall reserves at Lincoln.

This is due to thefact that the claimsdata that is being used is less mature, and thebusiness’ longer tail; that is, that losses will bereported over a longerperiod of time; and finally, loss adjustment expenses area higher proportion ofthe ultimate expense. Theartisan contractor program represents about 5% of thetotal reserves of theconsolidated group.

Having said that, although theactuarial range of expected outcomes for this program is somewhat wider thanwith trucking, management believes that we have set theright number and we will have amuch tighter control on loss adjustment expenses inthe future. Shouldthere be anyadditional changes inestimates in thefuture, they will not bematerial to Lincoln or to thecorporate group.

We have taken another critical look atthis program and will beimplementing pricing increases going forward. We released arange of estimates inour December 18th release to allow us to finalize our view on theappropriate reserves on this program as of December 31, 2007 and to put thepast behind us.

It hasnot been the policy ofKingsway to provide quarterly earnings guidance, and we arenot intending to changethat policy today. However, inlight of recent trading and commentary and that may beaffecting that trading, we believe itis appropriate to make certain limited comments regarding theoutlook for 2008.

First, let mesay that setting asidethe impact of Lincoln’sadverse development, Kingsway hascontinued to operate very profitably. During the12 months ended September 30, Kingsway proforma earnings pershare before theimpact of Lincoln’s adverse lossdevelopment of $1.67 was $3.48 pershare.

This gives you some idea of thecompany’s earnings power with Lincoln’sreserving problems behind us. Thefoundation of thecompany’s expected earnings is thereturn on its investment portfolio.

AtSeptember 30, 2007 investedassets were equivalent to over $63 pershare. These assets had anannualized pre-tax yield of 4.8% inthe third quarter.

Theincrease in reserves atLincoln hasno impact on these investments. Second, Kingsway is adiversified insurance group operating ina variety of marketsand geographical locations.

Theoverall performance of thecompany’s other U.S.and Canadian subsidiaries continues to berelatively strong inwhat has been asoft insurance market. Contrary to some comments that have been made, we havesufficient capital and liquidity to continue to not only operate our businessesbut to invest in theirgrowth.

As anexample, on December 31, thecompany retired $78 million of senior debentures that matured on that date.Earlier in December weannounced an increase inour bank line to $70 million, which we will utilize to repay this maturingdebt. By refinancing, we were able to reduce our costof funding on this debt.

As I have said inmany investor presentations, I have always considered thegrowth in book value pershare as the mostappropriate method of assessing thesuccess of theproperty and casualty company. On apro forma basis,Kingsway third quarter book value pershare, adjusted for theexpected fourth quarter reserve increase atLincoln, was inexcess of $17 pershare.

That is before any positive impact of earnings from sources other than Lincolnfor the fourthquarter. At theend of 2002, Kingsway’s book value pershare was $8.01; therefore, even after taking over $260 million inadverse development atLincoln and 2006 and 2007, thecompany’s book value pershare will have compounded by almost 17% perannum over the lastfive years.

Again, this reflects theearnings power of Kingsway diversified businesses. Inearly December we completed our budgeting process for 2008 which hasbeen presented to and approved by our board.

Management’s instructions to thesubsidiary presidents was to produce arealistic budget which takes into account thefact that the NorthAmerican insurance markets arelikely to remain soft and interest rates to remain lowduring 2008. Budgeted combined ratios, though less than 100%, areslightly higher than what we would like and we have tried to beconservative in otherrespects.

For example, we included no realized gains inour securities portfolio inour budgeting, although realized gains have averaged $32 million on anannualized basis for thelast five years. When I compare our budget with thecurrent Bloomberg estimates, I amquite confident that we will not disappoint you.

I would also like to comment on thedowngrade we have received from A.M. Best for Lincolnand for certain of our other subsidiaries.

Since theA.M. Best announcement, we have been inclose contact with our business partners and we have been overwhelmed by themessages of support and theindications of commitment from them.

Much of thecommercial business that we write through Lincolnwill still be able tocontinue with its current rating. Thebusiness that does have arequirement for Apaper we expect to shortly secure anarrangement with athird party that will allow us to retain most of theprofitable business.

While therating action will have some impact on business volumes, we anticipate that itwill also result in theelimination of some marginally profitable business inthe current softmarket, which together with theother initiatives we intend to take atLincoln will make ita profitable company. In Canada,the A.M.

Best rating,though of interest, is not aprimary driver of our business volumes. For our non-standard automobilebusiness and much of our specialty lines, anA rating from A.M.Best is not anecessity.

Thereserve increases at Lincolnduring the past year hascaused us to critically look atits programs; we areconfident that thecontinuing programs will produce asuitable underwriting profit for Lincolngoing forward; however, we will continue to carefully review marginal businessand take further remedial action inearly 2008 if necessary. As we look forward to 2008, there area number of managementinitiatives that I plan to undertake to make thecompany stronger and more profitable.

I will commit to reporting on theseinitiatives at regularintervals during theyear. Inconclusion, I hope that you agree with methat the marketreaction to the Lincolnreserve announcement was very overdone.

Kingsway remains afinancially strong company with avery good long-term record for earnings and book value growth. We have mademistakes in thepast, one of which was to growtoo quickly in 2002and 2003, hoping to take advantage of thehard market.

It isimportant that we learn from themistakes of the past,that we don’t repeat them and that we identify problems quickly and decisivelydeal with them. We intend to doso.

Having taken these decisive steps in2007, we see no reasonwhy Kingsway will not return to its record of growing earnings and book value in2008 and in subsequentyears. I am veryexcited about our prospects.

Thank you for joining us today, and now I would behappy to answer any questions you may have.

Good afternoon. Shaun, doyou intend to have someone backfill your previous position of CFO?

I justnoticed on the pressrelease that you were still listed as theCFO.

That is something, Doug, that I hope to make anannouncement regarding relatively soon, but I dointend to have areplacement CFO.

With Lincoln General, I know that last quarter therisk-based capital ratios were close to the200% level and I know that you had to capitalize, inject some capital into thatsubsidiary. After this reserve charge, does that put itagain in aposition where itwould need an additionalcapital injection?

Where would thesource of that capital be?

We expect that Lincolnwill require a furthercapital injection. Infact, we have made acapital injection over thelast couple of weeks.

We expect that those capital injections will come fromsources within thegroup, Doug. We have alot of companies that areover-capitalized and sowe intend to fund that through internal sources.

And that would beprimarily from thecash on hand in Barbadosor Bermuda? Not necessarily drawing on aline of credit?

That is correct. We have over-capitalized companiesthroughout the group,and so of course, partof our structure is to beable to draw capital from, as you pointed out, thetwo captives relatively quickly, easily, and they areboth over-capitalized inour view so that wouldbe theprimary source of thecapital we would need to support Lincoln.

Infact, some of thelosses from this recent increase, alarge portion of those losses will actually berecognized in theBarbadoscaptive, and that is already contemplated inthe announcement wemade in terms ofquantifying theimpact.

When you said thecase reserves were developing differently, obviously there were more casereserves required. Is this afrequency problem or severity problem?

Steve, I think theissue was theindependent actuaries and management felt that theindustry development factors, because of theinconsistency in thedata, it hasproven with experience that thecompany’s own case reserves didn’t develop inthe same way that theindustry reserves were anticipated they would. Soit is really one of, Ithink as we come to realize that with thebenefit of hindsight, theindustry factors were not appropriate but again, we didn’t know that atthe time.

We now knowwith the benefit ofhindsight.

I just want to beclear too that this is allrelated to those accident years ’01 to ’03 and those arethe programs that yousubsequently terminated?

Themost recent increase, some of theincreases, a lot ofincreases were related to themore current accident years. But as we put – and I think perhaps again, with thebenefit of hindsight, we were perhaps optimistic insome of the originalreserves that were set for ’05, ’06 and ’07.

’05, ’06 and ’07 on our continuingprograms, as we look atit today and put thereserves back into theappropriate years, those years for our continuing businesses doshow, are producing anunderwriting profit.

Thanks and good afternoon. Shaun, I think inthe prepared remarksyou made a commentabout the stock price.Have you perhaps thought of breaking up thecompany and maybe putting some sections inrun off to somehow deal with thecredibility issues here?

Well, as I said on thecall also, Amit, allsubsidiaries areperforming very well. As we look atLincoln’s continuing business we feel that itis producing a profit soI am not clear why wewould put any of thepieces of the companyinto run off, if they remain profitable going forward.

Maybe we can discuss that offline. Just moving on to theA.M.

Best press release, I think atthe end ittalks about several steps which perhaps they want you to take inorder to deal with thesituation, and then itgoes on to say thatfailure to do sowould result infurther negative pressure which could result ina downgrading of theratings. Have you been intouch with A.M.

Best recently and have you gone over allof your plans with them?

We have had discussions with A.M. Best, but as I said on thecall, much of our business is not sensitive to theA.M.

Best rating and we expect to have afacility in place thatwill allow us to write any business that is ratings sensitive and retain themost profitable business.

I was trying to find theemployment agreements and I did not have much luck; I think inthe Kit states there areno employment agreements. But arethere specific hurdles which need to becleared?

I amnot sure I understand thequestion.

Targets which thetop management needs to achieve? Or is itpretty open ended?

I amnot sure of thequestion. Are youasking about our incentive compensation?

Yes, that is what I amasking about.

We have anincentive compensation program.

And with therecent management change,I would expect thedetails to be inthe proxy?

Well, there is disclosure inthe proxy of ourcompensation program.

That’s allfor now, I will requeue. Thanks somuch.

Just to beclear, the latestreserve adjustments relate to theyears ’05 through ’07? Is that what you said inresponse to a previousquestion?

Yes they do. Itrelates to ’04, ’05 and ’06, but primarily ’05 and ’06.

But again, as I saidearlier, when we allocate that to theappropriate years and we look atour continuing business, we still feel that Lincolnbusiness going forward should produce anunderwriting profit.

And when we getyour Q4 numbers, I know inyour Q3 numbers you gave some indication of RBCratios and excess capital ratios atsome of the subs. Willwe get that as well inthe Q4 numbers?

We arenot expecting to reduce our disclosure, John, soI would expect that would bethe case.

With this going on, arethe acquisitionsmoving to thebackburner for thetime being, or are youstill active in thatarea?

I think our primary focus, certainly for theearlier part of 2008 is going to belooking at ouroperations and trying to improve theprofitability as opposed to looking externally.

Shaun, itwas interesting; you mentioned something and I don’t know if I misinterpreted,but you talked about inyour budgeting that you arelooking at softmarkets for ’08. I believe Bill hinted inthe last call thatthey were looking for arecovery in rates in’08.

Is that just amore conservative view you guys aretaking or is that just aslightly different interpretation of what is going on inthe market?

I think theKingsway model hasbeen to react to market conditions. My comments were related to instructionsthat we gave to our companies when they did thebudget.

We told them to interpret softer conditions for ’08 and lower interestrates. We believe that would set out arealistic and conservative budget for 2008 that we presented to theboard.

Can you explain to meif there is arelationship between Bill Star’s departure and theperformance at Lincoln?

Well, I think theannouncement was fairly clear that Bill retired.

So thetiming was just coincidental?

I think Bill with theboard felt it was anappropriate time for him to retire. Bill is remaining as Chairmanof the company.

Reserves relating to IBNR, you reference you areat least atthe midpoint, if not inmost cases, above themidpoint of the rangethat the independentactuary has set out. Ijust had a questionthat is specific to Lincoln, given themost recent increase inreserves, what is theworst-case scenario of that range and have you basically taken theupper end of that range to beconservative and try and prevent any further surprises down theroad?

As I said inthe comments, Daniel, thereason we put a rangearound this estimate was to allow us to review that as we go through thecourse of the next fewweeks. So certainlyour objective is to put this issue behind us.

Sorry, I may bemissing something, but thespecific number you used, was itbased upon the upperend of the range?

Itwas between themidpoint and the upperend of the range, andthat is why we put arange around thenumber.

If you could just comment on themagnitude of some of therecent rate decreasesover the past 12months that Southern United hasbeen taken in theTexas non-standard automarketplace? You’ve reference obviously soft markets, but if you could providesome order of magnitude of what Southern United hasbeen seeing?

Southern United is one of our very small subsidiaries. Theycertainly incompetitive market conditions, I wouldn’t consider its results to bematerial to theoverall group, Daniel.

Certainly what we areseeing in markets iscompetitive pricing, but that hasled to, in somemarkets, our volumes declining because of thecompetitive nature of themarket.

My final question, just as afollow-up to one of theprevious questions that was asked with respect to reviewing potential sales ofcertain subsidiaries or thecompany as a whole,and your comment was most of thesubsidiaries areperforming really well and there would beno reason to shut them down or sell them off. But inthe event that themarket doesn’t respond to what you have been saying on thecall today in avery positive way and you continue to trade ata discount to book ina range of 20%, onewould assume you have no choice but to look atputting a process inplace.

And just to follow up on that, another question someoneraised before was have you put acquisitions on thebackburner given your current currency? Somy question is, what type of timeframe areyou willing to live with to bring themarket back onside before you would undertake aprocess such as that?

First, let mecomment about two things: themarket and theoperations of thecompany. As I said on thecall, we feel that we arewell capitalized, we have sufficient underwriting capacity to support ourbusinesses and growour businesses.

I think theboard’s goal and management’s goal is to maximize shareholder’s value over thelong run, andcertainly the board atthis present time definitely believes that thecurrent market value doesn’t reflect thetrue fair value of thecompany. I think we believe that thebest way to enable shareholders to receive full value is to give meand my team anopportunity to restore theconfidence in investorsby again producing stable and growing earnings.

This I believe will lead to thesignificant revaluation of Kingsway’s shares inthe marketplace.

Can you give us thetail length of theliability, especially of thetrucking business? And then you talked about this artisan contract liabilitybusiness as well.

If you could give thetail length on that business?

Thetrucking business is typically, some elements of itdepends on the aspectof theclaim, Tom, if it is aphysical damage that is usually afairly short tail aspect of it. Some of theliability type claims can last longer.

You have to remember that inthe States thetrucking business that we write through Lincolnis only a $1 millionprimary liability limit, soit is not thesame level of liability exposure that we have had through our Canadianbusinesses. I would sayon average that tail on that business is inthe two-and-a-half tothree year range if we aretalking about theliability aspect of it, some parts of itcould go a little bitlonger.

Theartisan contractor business, which I said inmy comments is only arelatively small part of our business, itis an annual programof about $70 million of annual premiums. Thereserves on that program areonly about 5% of our total consolidated reserves.

That program, aspects of itare somewhatlonger. Thecosts on that program areprimarily the defensecosts of defending our insurers.

Just as aframe of reference on that program, we look atthe total casereserves on that program and we look atthe IBNR reserves, we arecarrying over $3 of IBNR for every $1 of case reserves, and we consider as Ithink we have said several times, that alot of the destiny ofthat program and theprofitability of that program, to some extent, we feel we can exert anelement of more control over itby virtue of the factthat we tend to work much harder to control our loss adjustment expenses onthat program going forward.

You did alittle bit of buy back awhile ago; are youquiet now? Can you getback in and dosome buy back?

Report to the15th and then comment on, I mean, you would certainly want to buyback stock below book.

I think you will seethat in thelast week of December, thebuyback, we haven’t filed our insider trading for thecompany. The companywas actively buying back stock.

Severalinsiders, directors were buying stock. I think drawing support for thecompany.

We have acorporate policy that we areblacked out as individuals and blacked out as acorporation from theend of the quarter until two business days after weannounced our results, soeffectively as of today we areblacked out until mid-February.

Interms of the reserveincrease, I think you mentioned ’04, ’05 and ’06 and I amwondering, is there aballpark proportion as to how much of thereserve increase came from where?

As I said, Amit, themajority of thereserve increase is from the’05 and ’06 years. Even after theincreases, theinformation, thereserving indicates that those years for our continuing business atLincoln will still remainprofitable from anunderwriting perspective.

Then interms of, I think you talked about theinternal versus external claims handling. I think you mentioned a14% number.

I went back and looked atyour investor presentation, and that is thesame number that was as of 3Q07. Should we expect that number to declinesubstantially going forward?

Well, itis now a relativelysmall number anyway, Amit. I mean, itmay decline slightly because there area few smaller programsthat we are bringingin-house.

It isstaying within that 15%. Alarge portion of that is announced on our automobile program manager where we arevery comfortable with theclaims handling on that program.

I mean, itis down to arelatively small number anyway, Amit. I don’t know that itis going to decline to zero.

Obviously with this huge reserve increase, would you saythat it is fair toassume that going forward thechances of anadditional reserve increase arefairly minimal?

As I said inthe call, ourintention with this increase was to put thepast behind us.

Soyou are saying that inthe next severalquarters we should not seea reserve hit, andhence that would restore theconfidence, right?

As I said, we intend to put itbehind us. We expect that by using more focus on thecompany’s own development factors that should lead to more stable reservinggoing forward.

Thank you very much for joining metoday. As I said, I look forward to speaking with you again following ourfourth quarter and year end earnings release which is scheduled formid-February.

Thanks again.