Kingsway Financial Services Inc. (NYSE: KFS) shares surged higher after an activist shareholder threatened to take action to unlock value. The Stilwell Group, which owns a 9 percent stake in the firm, demanded that the company institute aggressive cost-cutting measures and focus on its core business in a Schedule 13D filing with the SEC. If not, the hedge fund vowed to seek board representation during the next annual meeting scheduled for February 10th of next year.

“If a majority of owners of Kingsway support our nominees on February 10th, we pledge to work aggressively to reduce expenses, to exit non-core lines, and to reduce balance sheet risk,” said managing member Joseph Stilwell. “Further, if we win, I commit to hold our 9 percent stake for at least the next three years.”

Kingsway has acted by selling non-core businesses and getting out of unprofitable insurance lines as well as cut 162 jobs and freeze salaries to lower costs. However, the firm still reported a net loss of $17.4 million, or 32 cents per share, in the third quarter. As a result, Stilwell recommends that shareholders vote to remove CEO Shaun Jackson and Michael Walsh and replace them with his own slate of directors. The result could be a much improved bottom line and higher profits for shareholders.

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The Chubb Corporation (CB)
The Allstate Corporation (ALL)
The Travelers Companies (TRV)

The Chubb Corporation (NYSE: CB) may not sound attractive, but many insiders are a believer in the stock. The firm repurchased some 5.9 million shares during the third quarter and said it would buyback up to 20 million shares over the next year while paying a dividend of 33 cents per share. This is a clear demonstration of financial strength and confidence in the company.

Several other notable hedge funds are also buyers of the stock. Dreman Value Management is well known for its 17% annualized returns and counts the stock among his holdings. Meanwhile, Dodge & Cox is another high profile owner that has posted an annualized return of over 14.5% over the past 10 years. Combined, this is good news for the Chubb Corporation.

During the third quarter, Chubb Corporation reported $264 million in net income compared to $738 million a year earlier. The losses in the third quarter will be about $400 million and come as a result of catastrophes like Hurricane Ike, which included Chubb’s shares in the Texas Windstorm Insurance Association. However, the S&P recently upgraded the stock to A+ while Best affirmed it at A++.

Overall, the Chubb Corporation may be an attractive way to get on the ground floor of this strong stock with other insiders and the company itself!

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HCC Insurance Holdings Inc. (HCC)
The Travelers Companies (TRV)
Loews Corporation (L)

The Securities and Exchange Commission (SEC), concerned about its recent bad press, continues to prosecute insider trading through the Christmas season. Last week, the regulatory body charged seven individuals and two companies involved in an insider trading ring.

The SEC alleged that Matthew Devlin, formerly of Lehman Brothers, traded on and tipped his clients and friends with confidential and non-public information about 13 impending corporate transactions. Some of these friends, who worked in the financial or legal professions, also tipped off other clients.

Devlin obtained the privileged information from his wife, a partner in the NYC office of an international public relations firm working on the deals. The illicit trading occurred from at least March 2004 through July 2008, yielding more than $4.8 million in profits. Devlin was also rewarded with cash and luxury items in exchange for the information, including a widescreen TV, leather jacket, and Porsche driving lessons.

The traders attempted to avoid detection by trading in the securities of the target companies in numerous accounts that were not associated with Lehman or Devlin. To further conceal their illicit trading, at least two of the defendants sold off some of the shares they had purchased based on inside information prior to public announcements of the deals. In addition, Devlin and one of his tippees arranged to buy shares on Devlin's behalf so Devlin could profit from the nonpublic information but evade scrutiny.

The companies targeted from this scam included: InVision Technologies, Inc.; Eon Labs, Inc.; Mylan, Inc.; Abgenix, Inc.; Aztar Corporation; Veritas, DGC, Inc.; Mercantile Bankshares Corporation; Alcan, Inc.; Ventana Medical Systems, Inc.; Pharmion Corporation; Take-Two Interactive Software, Inc.; Anheuser-Busch, Inc.; and Rohm and Haas Company.

"The Commission is unwavering in its determination to pursue illegal insider trading by securities professionals, lawyers, and others," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "Today's enforcement action is another example of the exemplary working relationships among the SEC, criminal authorities, FINRA and other self-regulatory organizations."