Individually, 10 of the 15 companies reported first-quarter income declines, including Toronto-based Kingsway Financial, which reported the only bottom-line loss of the quarter–$34.3 million, compared to income of $19.6 million in first-quarter 2007.

“Our results were unacceptable to management” and to shareholders, Shaun Jackson, Kingsway's president and CEO, said during an investor conference call, explaining that the loss was primarily the result a $52.8 million increase in estimated claims reserves at Lincoln General, where reserves had already gotten a $213 million boost in 2007, mainly on trucking business.

“An influx of claims from outside third parties over the last two years had led to increased workloads for the adjusters. Case loads are now down to industry levels,” Mr. Jackson said, noting that reserve hikes on case files now being worked internally prompted actuaries to recommend higher levels of reserves for incurred-but-not-reported claims.

With 96 cents of IBNR for every dollar of case reserves, he said the company is taking a more conservative stance on reserving going forward, also highlighting executive management changes and strategic business reviews of Lincoln's remaining programs.

“Remedial actions” will be taken on underperforming business that hasn't already been axed, he said, noting that repair work begun last year has already resulted in a heavier mix of non-standard auto business.

“In this business, the actions that you take don't translate into your results currently. It does take time,” he said, in response to analyst questioning why the Lincoln operation has not been shut down.

“Looking ahead, we expect the current soft market conditions to continue throughout the remainder of 2008, which presents Kingsway with an opportunity to get our own house in order for when the market cycle turns,” he said. “With our emphasis on nonstandard auto, we see greater opportunities once markets firm.”

Predicting a quicker turn than William Berkley (see related article), Mr. Jackson, whose firm writes 71 percent of its book in the United States and the remainder in Canada, said that “we do foresee the hardening on market conditions in 2009, particularly in the United States, which we anticipate will be a response to worsening combined ratios.”

Other specialty insurers, including Berkley, American Financial Group and Markel Corp., saw their first-quarter earnings impacted by investment losses.

W.R. Berkley reported a 13 percent drop on investment income resulting from lower returns on its alternative investment portfolio; Glen Allen, Va.-based Markel and Cincinnati-based American Financial reported realized investment losses of $56 million and $52 million, respectively.

On a more positive note, Argo Group International, Meadowbrook and Navigators Group reported double-digit increases in net income for the quarter, while Darwin Professional Underwriters, one of the smallest carriers on our list, saw its bottom line jump 185 percent to $14.0 million.

The Farmington, Conn.-based company attributed the improvement to a 25-point drop in its loss ratio, coming mainly from $7.5 million of favorable loss development related to prior accident years.

While Darwin CEO Stephen Sills reported that renewal pricing decreased 13 percent in the quarter and predicted that “extremely competitive market conditions will continue for the foreseeable future,” he explained profit growth by paraphrasing the lyrics of Kenny Rogers' song, “The Gambler.”

Darwin's profit levels “bear out reliance on our underwriting team's judgment as to what it takes to get a deal done, and when it no longer makes sense to 'hold them' and not compete on an account,” he said, citing his reference to the song's “know when to hold 'em, know when to fold 'em” lyrics.

Darwin reported net written premiums growth of 18.5 percent in the quarter, and Mr. Sills said the company “continued to execute [a] strategy of unearthing opportunities to grow,” focusing in particular on “getting bigger by getting smaller”–in other words, setting its sights on small account business.

He said 47 percent of the in-force book is now small-account business, reporting that Darwin's prices were down only 8.1 percent on small accounts in the quarter, compared to 13.6 percent and 19.1 percent on medium and large-sized accounts, respectively.

“We believe we can grow, but we are cautious about it,” he said, noting that Darwin's 2007 annual report cover is wrapped in yellow caution tape–”a metaphor for our view of the business environment.”

“We believe we can grow, but are cautious about it,” Mr. Sills said.

W.R. Berkley's annual report cover is also a metaphor, according to Mr. Berkley, chair and CEO of the Greenwich, Conn.-based company. The cover shows the image of a painting owned by Mr. Berkley, titled “Bluffing” by John George Brown. The painting, of two young boys playing a game of poker, “reveals my view of industry financials,” Mr. Berkley told NU.

Like Darwin, Argo Group reported an 18.5 percent jump in net premiums in the quarter, but with very different volume levels to start with, Bermuda-based Argo's premium volume soared to $237.5 million, compared to just $58.0 million at Darwin.

Growing even faster was Philadelphia Insurance in Bala Cynwyd, Pa., recording a 20 percent increase in net premium to $406 million–the largest jump of any specialty insurer on our list.

Both Philadelphia and Argo attributed some of their growth to program acquisitions in the quarter. In addition, Philadelphia's CEO, James Maguire Jr., also reported strong growth in a variety of commercial lines, noting that 80 percent of Philadelphia's book is commercial.

Mr. Maguire reported a 34 percent jump for a condominium association package (to $48 million in gross premiums), 54 percent growth on a religious associations package (to $23 million), and 22 percent growth for a daycare product (to $11 million), among others. He also reported double-digit increases in miscellaneous professional liability, as well as private and nonprofit directors and officers liability products.

United America Indemnity reported the largest overall decline in net premiums among the specialty carriers NU reviewed in the quarter–39 percent to $82 million, partially explaining a 67 percent drop in net income.

The Cayman Island company also attributed the income slide to increased frequency of weather-related claims and increased average severity of losses related to fires.

CEO Larry Frakes did not see any of the retreat from standard markets competitors that Mr. Berkley witnessed. Describing market conditions to investors on a recent earnings conference call, Mr. Frakes said that “the major stocks [standard lines stock insurance companies] continue to attack portions of the nonstandard market. In addition, competition has increased from new entrants.”

In addition, he said, “we have indications that commercial rates have dropped 10 percent on average in many sectors of our market…as compared to fourth-quarter 2007.”

Mr. Frakes also reported that the company terminated roughly $14 million of business in its Penn-America unit, which writes small commercial accounts through general agents.

Penn-America also felt a large impact from a softening coastal property market, he said, noting that the company has had a large presence in the small package market in coastal states with wind exposures. “We have seen [that business] migrate to more competitive writers,” he said.

“Some property insurers are pricing business in catastrophe-prone areas with anticipated underwriting income of only 3-to-5 percent, with no regard for the catastrophe component–hoping that a major catastrophe loss does not occur.