NU Online News Service, June 17, 10:30 a.m.EDT

Kingsway Financial Services Inc. said it is looking to disposeof non-standard automobile insurance subsidiary, Mendota InsuranceCompany.

Kingsway, which for more than a year has been looking to cutcosts and consolidate operations, acquired Mendota in April 2007.At the time the Eagan, Minn.-based insurer was owned by TheTravelers Companies.

The company's last disposition has not gone smoothly. Late in2009 Kingsway got rid of its interest in Lincoln General InsuranceCo. by equally donating stock in the company to charities withoutregulatory approval from Pennsylvania, where Lincoln General isdomiciled. State regulators called the transaction unlawful.

The Pennsylvania Insurance Department filed a complaint with theCommonwealth Court of Pennsylvania, which dismissed thedepartment's legal action. The Pennsylvania Insurance Department isappealing.

The Minnesota Department of Commerce, which houses the insurancecommissioner's office, said it is aware of Kingsway's intentionswith Mendota and "as of yet, we have no concerns," said spokeswomanRochelle Barnhart.

In March, Rockwall Financial, hired to be the run-off managerfor Lincoln General, stopped providing services because the firmsaid Kingsway was not paying it.

Rockwall Financial has demanded arbitration and is seeking morethan $26 million. Kingsway intends to defend the arbitrationvigorously, it said in its first quarter filing.

The Toronto-based nonstandard auto insurance provider for theUnited States has been undergoing a transformation sinceshareholders The Stilwell Group of New York began to demand thatthe company sell unprofitable businesses in order to return to acombined ratio under 100.

Stilwell, a money management firm, also demanded changes to thecompany's leadership.

Colin Simpson in April said he was stepping down as Kingsway'schief executive about a year after he took over for W. ShaunJackson. Larry Swets is now the company's CEO.

Kingsway reported improved results for the first quarter. Netincome was $24.1 million compared to a loss of $58.3 million duringthe same time last year.