) -- Embroiled in a dispute with Pennsylvania's insurance regulator,

Kingsway Financial Services

(KFS) - Get Report

is in trouble.

The Ontario-based insurer gifted ownership of a U.S. subsidiary to 20 charities to limit its liabilities, and now the company looks terminal. Its stock price stands at a little more than $1.

It's not the only insurer whose shares have swung wildly as the credit crisis, worsened by the recession, has meant investing has become a buy-or-sell opportunity depending on the news of the day. Some companies' stocks, such as





(RDN) - Get Report

, are driven by rumor as much as profits or losses, or other facts.

Kingsway's stock has dropped more than 67% in a month, dragged down by the dispute with the insurance regulator. Ambac has fallen 29%, hurt by late filings, revelations of misstatements and the resignation of its chief financial officer. Insurance shares also rise on the barest of good news these days. Radian's stock popped 23% on Tuesday on lower-than-expected delinquency rates.

Kingsway is unlike Ambac in one way: Its beta (or stock-market correlation) of 0.84 is the opposite of Ambac's 2.15. You expect high returns for risking your money with Ambac. What you don't expect is the high risk that comes with Kingsway's low beta.

Kingsway's 74% decline in the past year is the worst performance of any insurance stock, with Ambac at No. 2. If it prevails in its court case with Pennsylvania's insurance regulator, Kingsway will get a reprieve, and its stock will certainly rocket. As with Ambac, whose stock is well below $1, Kingsway is massively speculative.

Still, it's not obvious from court documents that the insurer will lose its case. But there's no question Kingsway has tried to creatively segregate its business from

Lincoln General Insurance Co.

Unfortunately for Kingsway, having taken action it believed was best for stockholders, the regulator wants the deal unwound.

Sometimes creativity comes at the behest of regulators. Take


(MBI) - Get Report

, for example. It separated credit default swaps from the business to try to create a solid municipal bond insurer. The move was championed by New York's insurance superintendant at the time.

Interestingly, MBIA's creativity also is subject to lawsuits brought by, among others,

JP Morgan

(JPM) - Get Report


Bank of America

(BAC) - Get Report

. It seems that no one likes these splits, no matter if the intentions are good. Ambac's regulator, Wisconsin's Sean Dilweg, has criticized the MBIA transaction and said he won't allow Ambac to do the same.

If Kingsway and the regulator fail to reach a resolution out of court, the case could help define what control an insurer has over its own subsidiaries. By winning, the regulator could force the insurer into liquidation. Perhaps it sees the importance of establishing the rule of law is worth the cost of killing Kingsway.

As such, Kingsway investors have to accept they could lose everything. Those include activist investor Joseph Stilwell, who owns 10.7% of the stock and is its largest investor. He bought 100,000 shares at $3.12 on Nov. 16, four days before the court filing.

Reported by Gavin Magor in Jupiter, Fla.

Gavin Magor is the senior analyst responsible for assigning financial-strength ratings to insurance companies. He conducts industry analysis and supports consumer products. Magor has more than 22 years of international experience in operations and credit-risk management, commercial lending and analysis. His experience includes international assignments in Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.