Kingsway Reports First Quarter Results

TORONTO, May 14 /CNW/ - (TSX: KFS, NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its financial results for the first quarter ended March 31, 2010. All amounts are in U.S. dollars unless indicated otherwise.

The Company reported a first quarter net income of $ 24.1 million or $0.46 per share diluted. The book value has decreased from $3.28 per share at December 31, 2009 to $3.26 per share at March 31, 2010.

The following are the highlights of the first quarter of 2010:

Major events:

    
    -   The disposal of Jevco resulted in the recognition of unrealized
        foreign currency exchange gains of $34.1 million. A corresponding
        reduction has been recorded in other comprehensive income.
    -   $84.8 million of the Company's debt was repurchased in the quarter,
        resulting in a gain of $15.1 million.
    

Operational results:

    
    -   An underwriting loss of $23.1 million was recorded in the US segment.
    -   A net loss of $7.2 million was recorded in the corporate segment.
    -   84% of gross premiums written were generated from non-standard
        automobile, the core line of business.
    -   Investment income decreased by 83% compared to the same period a year
        ago, which was largely due to the impact of a stronger Canadian
        dollar on the Company's unhedged Canadian dollar debt, as well as
        lower interest income from a smaller fixed-income securities
        portfolio.
    

Board of Directors

Dividend

The Board of Directors has decided that a quarterly dividend will not be declared for the first quarter of 2010.

About the Company

Kingsway focuses on non-standard automobile insurance in the United States of America. Kingsway's primary businesses are the insuring of automobile risks for drivers who do not meet the criteria for coverage by standard automobile insurers. The Company operates through wholly-owned insurance subsidiaries in the U.S. which it is currently consolidating into three operating units to reduce overhead and strengthen its competitive position.

The common shares of Kingsway Financial Services Inc. are listed on the Toronto Stock Exchange and the New York Stock Exchange, under the trading symbol "KFS".

This news release contains forward-looking information. This news release also contains certain non-GAAP measures. Please refer to the sections entitled "Forward Looking Statements" and "Non-GAAP Financial Measures" in the following Management's Discussion and Analysis.

    
    Kingsway Financial Services Inc.
    Management's Discussion and Analysis
    For the three months ended March 31, 2010
    (All amounts in U.S. dollars except where noted)
    

Financial Summary:

The following information throughout the Financial Summary and Management's Discussion and Analysis presents the financial results as continuing operations unless otherwise specifically stated as discontinued operations:

    
    -------------------------------------------------------------------------
                                                Three months ended March 31:
    -------------------------------------------------------------------------
    (in millions of dollars
     except per share values)                   2010        2009      Change
    -------------------------------------------------------------------------
    Gross premiums written                $     84.3  $    136.9        (38%)
    Underwriting loss                          (29.5)       (7.9)       273%
    Investment income                            1.4         8.3        (83%)
    Net realized gains (loss)                    0.5        (2.2)      (123%)
    Gain on buy back of debt                    15.1           -
    Loss from continuing operations            (16.8)       (5.6)       200%
    Net income (loss)                           24.1       (58.3)      (141%)
    Diluted loss per share - continuing
     operations                                (0.32)      (0.10)       220%
    Diluted earnings (loss) per share - net
     income (loss)                              0.46       (1.06)      (143%)
    Book value per share                        3.26        6.73        (52%)
    Combined ratio                            136.2%      105.8%       30.4%
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    -   The loss of $16.8 million from continuing operations for the quarter
        arose primarily from underwriting losses of $23.1 million in the US
        segment, which included adverse development of $6.5 million,
        partially offset by the gain on buy back of debt of $15.1 million and
        a $7.2 million loss in the corporate segment. The loss incurred in
        the corporate segment is a result of a higher remaining expense base
        in continuing operations as the Company is no longer allocating a
        portion of these costs to discontinued operations

    -   Gross premiums written decreased by 38% for the quarter to
        $84.3 million from $136.9 million in the first quarter last year. The
        significant reduction in premium volume is a reflection of the
        Company's strategy of discontinuing unprofitable lines of business,
        primarily within its commercial lines.

    -   As a result of the Company re-focusing its efforts on core,
        profitable lines of business, non standard automobile premiums for
        the three months to March 31, 2010 were $70.9 million or 84% of the
        total gross premiums written compared to $96.9 million or 71% of
        gross premiums written in the same period last year.

    -   The net adverse reserve development recorded in the quarter totaled
        $6.5 million. A large proportion of the increase in unfavorable
        unpaid claims development experienced was from the commercial lines
        of business which have now been significantly reduced.

    -   In the first quarter of 2010, the Company has incurred restructuring
        costs of $3.7 million, which was primarily severance costs for senior
        management in Canada.

    -   Investment income, excluding net realized gains was $1.4 million
        compared to $8.3 million for the same quarter of 2009, an 83%
        decrease. The decrease in investment income was as a result of
        smaller fixed income securities portfolio due to the reduction in
        premiums written; the strengthening Canadian dollar on the Company's
        unhedged Canadian dollar denominated debt; and the reduction in
        interest income from lower yields.

    -   General and Administrative expenses increased 35% to $24.6 million in
        the first quarter of 2010 from $18.2 million in the same quarter last
        year. This increase is primarily as a result of a higher remaining
        expense base in continuing operations as the Company is no longer
        allocating a portion of these costs to discontinued operations

    -   As at March 31, 2010, the book value per share was $3.26 compared to
        $3.28 as at December 31, 2009 and $6.73 as at March 31, 2009.
    

Kingsway Financial Services Inc.'s Management Discussion and Analysis

The following management's discussion and analysis ("MD&A") should be read in conjunction with: (i) the Kingsway Financial Services Inc.'s ("Kingsway" or the "Company") unaudited interim consolidated financial statements for the first quarter of fiscal 2010, and the notes related thereto; (ii) the annual MD&A for fiscal 2009 set out on pages 1 to 44 in the Company's 2009 Annual Report, including the section on risk factors; and (iii) the audited consolidated financial statements for fiscal 2009 set out on pages 51 to 106 of the Company's 2009 Annual Report, and the notes related thereto.

The Company's financial results are reported in U.S. dollars. Unless otherwise indicated, all amounts are in U.S. dollars and have been derived from financial statements prepared in accordance with Canadian generally accepted accounting principles (GAAP).

Non-GAAP Financial Measures

The Company uses both GAAP and certain non-GAAP financial measures to assess performance. Securities regulators require that companies caution readers about non-GAAP financial measures that do not have a standardized meaning under GAAP and are unlikely to be comparable to similar measures used by other companies. Kingsway, like many insurance companies, analyzes performance based on underwriting ratios such as combined, expense and loss ratios. The loss ratio is derived by dividing the amount of net claims incurred by net premiums earned. The expense ratio is derived by dividing the sum of commissions and premium taxes and general and administrative expenses by net premiums earned. The combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio below 100% demonstrates underwriting profit whereas a combined ratio over 100% demonstrates an underwriting loss. We believe that consistently delivering an underwriting profit is a key measure of performance of the underwriting business of a property and casualty insurance company. Although there is not a property and casualty industry defined standard that is consistently applied in calculating these ratios, The Company has historically included costs such as corporate office expenses and excluded premium finance revenues whereas other public companies have done otherwise in the calculation of their expense and combined ratios. Readers are therefore cautioned when comparing The Company's combined ratios to those of other public companies as they may not have been calculated on a comparable basis.

Date of MD&A

Unless otherwise noted, the information contained in this MD&A is based on information available to management as of May 14, 2010.

DISCONTINUED OPERATIONS

During 2008, the Company disposed of Canadian subsidiary York Fire and Casualty Insurance Company ("York Fire").

During 2009, the Company disposed of:

    
    -   HI Holdings and its subsidiary Zephyr Insurance Company ("Zephyr");
    -   the assets of Avalon Risk Management Inc. ("Avalon"); and
    -   Walshire Assurance Company ("Walshire") and its subsidiary Lincoln
        General Insurance Company ("Lincoln").
    

During the first quarter of 2010, the Company disposed of Jevco Insurance Company ("Jevco").

For further information on the Company refer to the Corporate Overview on pages 2 to 4 of the 2009 Annual Report

Each of the operations shown above are considered to be discontinued operations and are recorded as such in the statement of operations under the item "Income (loss) from discontinued operations, net of taxes". Assets and liabilities of discontinued operations have been reclassified and disclosed in the consolidated balance sheet as "Assets or Liabilities held for sale". In this Management Discussion and Analysis, unless otherwise disclosed, only continuing operating activities of the Company are included.

RESULTS OF CONTINUING OPERATIONS

Premiums

    
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                                                Three months ended March 31:
    (in millions of dollars)                    2010        2009      Change
    -------------------------------------------------------------------------
    Gross premiums written                $     84.3  $    136.9        (38%)
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    Net premiums written                  $     77.0  $    161.6        (52%)
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    Net premiums earned                   $     81.5  $    136.3        (40%)
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The following table provides a breakdown of gross premiums written by line of business:

    
    -------------------------------------------------------------------------
                                                Three months ended March 31:
    -------------------------------------------------------------------------
    (in millions of dollars)              2010                    2009

    Non-Standard Automobile   $     70.9       84.1%  $     96.9       70.8%
    Property (including
     liability)                      1.9         2.3         2.0         1.4
    Total Personal            $     72.8       86.4%  $     98.9       72.3%

    Commercial Automobile            9.0       10.7%  $     33.2       24.3%
    Trucking                           -           -         3.2         2.3
    Other                            2.5         2.9         1.6         1.1
    -------------------------------------------------------------------------
    Total Commercial          $     11.5       13.6%  $     38.0       27.7%
    -------------------------------------------------------------------------
    Total Gross Premiums
     Written                  $     84.3      100.0%  $    136.9        100%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Gross premiums written decreased by 38% for the quarter to $84.3 million from $136.9 million in the first quarter of last year. The significant reduction in premium volume across all segments is a reflection of the Company's strategy of discontinuing unprofitable lines of business, primarily within its commercial lines as well as the general impact on volume due to the ongoing economic situation in the US.

The Company reported decreases in gross premiums written in the major lines of business. Non standard automobile and commercial automobile decreased by 27% and 73% respectively for the quarter compared to the same period last year reflecting the Company's decision to terminate unprofitable business and exit certain commercial lines of business. Non standard automobile continues to be the Company's primary line of business, accounting for 84% of gross premiums written for the year to date compared to 71% last year. The proportion of commercial automobile premiums as a percent of the Company's total gross premiums written has declined to 11% from 24% last year.

Investment Income

    
    -------------------------------------------------------------------------
                                                Three months ended March 31:
    -------------------------------------------------------------------------
    (in millions of dollars)                    2010        2009      Change
    -------------------------------------------------------------------------

    Investment income                     $      1.4  $      8.3        (83%)

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Investment income in the quarter was $1.4 million, an 83% decrease compared to the same period last year. The primary reason for this decrease in the quarter is a loss of approximately $2.7 million from the impact of the strengthening Canadian dollar on the Company's unhedged Canadian dollar denominated debt. Also contributing to the decrease is the reduction in interest income from lower yields as a result of a reduction in short term interest rates in the U.S. and from the duration and risk profile of the portfolio having been reduced. A smaller fixed income securities portfolio as a result of the reduction in premiums written has also contributed to the lower interest income in the quarter. For a more detailed analysis of investment income see Note 6 to the Consolidated Financial Statements.

Net Realized Gains (Losses)

The table below presents a summary of the net realized gains (losses) for the current quarter with comparative figures:

    
    -------------------------------------------------------------------------
                                                 Three months ended March 31:
    -------------------------------------------------------------------------
    (in millions of dollars)                    2010        2009      Change
    -------------------------------------------------------------------------
    Fixed income                          $      0.5  $     (0.6)       183%
    Equities                                       -        (1.4)      (100%)
    Impairments                                    -        (0.2)      (100%)
    -------------------------------------------------------------------------
    Total                                 $      0.5  $     (2.2)       123%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

For the three months ended March 31, 2010, sales from the securities portfolio resulted in a net realized gain of $0.5 million compared to a net realized loss of $2.2 million for the three months ended March 31, 2009.

Underwriting Results (excluding Corporate)

    
    -------------------------------------------------------------------------
                                                 Three months ended March 31:
    -------------------------------------------------------------------------
    (in millions of dollars)                    2010        2009      Change
    -------------------------------------------------------------------------
    Underwriting loss                     $    (23.1) $     (4.4)    (425.0%)
    Combined ratio                            128.4%      103.2%       25.2%
    Expense ratio                              45.8%       26.5%       19.3%
    -------------------------------------------------------------------------
    Loss ratio                                 82.6%       76.7%        5.9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The underwriting loss for the U.S. operating segment was $23.1 million for the quarter compared to a loss of $3.6 million in the first quarter of 2009. The underwriting loss for the quarter is attributable to unfavourable reserve development of $6.5 million and increases to expected loss ratios on the current accident year based upon revised indications of ultimate expected loss payments including an increase of incurred losses above expectations of approximately $4.0 million in the current accident year primarily relating to Florida personal injury claims which is in line with industry experience. In addition, the Company's expense base is still too large for the amount of premiums written.

Adverse Development on Unpaid Claims

    
    -------------------------------------------------------------------------
                                                Three months ended March 31:
    -------------------------------------------------------------------------
    (in millions of dollars)                             2010           2009
    -------------------------------------------------------------------------

    Favourable (unfavourable) change in estimated
     unpaid claims for prior accident years
     (Note 1):                                     $     (6.5)    $      1.6
    As a % of net premiums earned (Note 2):              8.0%          (1.2%)
    As a % of unpaid claims (Note 3):                    1.8%          (0.4%)
    -------------------------------------------------------------------------
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Note 1 - (Increase) decrease in estimates for unpaid claims from prior accident years reflected in current financial year results

Note 2 - Increase (decrease) in current financial year reported combined ratio

Note 3 - Increase (decrease) compared to estimated unpaid claims at the end of the preceding fiscal year

The Company experienced estimated net unfavourable unpaid claims development of $6.5 million for the quarter resulting in an increase of 8.0% to the combined ratio for the quarter compared with estimated net favourable unpaid claims development of $1.6 million in the same quarter last year. A large proportion of the increase in unfavorable unpaid claims development experienced was from the commercial lines of business which have now been significantly reduced.

In 2009, the Company's internal actuarial team was significantly strengthened and the process on reserving unpaid claims changed, resulting in a more thorough internal review of unpaid claims. In 2010, instead of adjusting the reserves to the independent external actuary's point estimate, the Company now utilizes its internally developed reserve estimates.

Expenses

The expense ratio excluding corporate, increased to 45.8% in the quarter compared to 25.9% for the same quarter last year. Costs included in the expense ratio are commissions, premium taxes, general and administration expenses and restructuring costs. Commissions as a percent of net premium earned have increased for the quarter compared to the same quarter last year due to the significant change in mix of business and the impact of the release of deferred policy acquisition costs due to reduced volumes of business written.

General and administrative expenses increased 35% to $24.6 million in the first quarter of 2010 from $18.2 million in the same quarter last year. This increase is primarily as a result of a higher remaining expense base in continuing operations as the Company is no longer allocating a portion of these costs to discontinued operations.

In line with the transformation plan, first quarter 2010 actions continue to reduce the current expense base. The impact of these actions will be fully realized during the remainder of 2010 and in to 2011. Charges related to the restructuring program have been completed.

Interest Expense

Interest expense in the first quarter of 2010 decreased to $5.5 million compared to $6.3 million for the first quarter of 2009 as a result of the debt buy-back activities in 2009.

Gain on Buy-Back of Senior Notes

During the quarter Kingsway America Inc. and Kingsway 2007 General Partnership purchased and cancelled $84.8 million face value of its senior unsecured debentures for $69.7 million recording a gain of $15.1 million.

Income Taxes

Income tax recovery on continuing operations for the first quarter was $2.7 million compared with an income tax recovery of $5.1 million for the same quarter last year. An increase in the valuation allowance of $4.0 million was recorded in the current quarter.

Income (Loss) from Continuing Operations and Earnings (Loss) Per Share - Continuing Operations

In the first quarter, the Company reported a loss from continuing operations of $16.8 million, compared to a loss from continuing operations of $5.6 million in the first quarter of last year. Diluted loss per share was $0.32 for the quarter compared to diluted loss per share of $0.10 for the first quarter of 2009. As noted above, the current quarter's loss is primarily due to the underwriting losses and corporate expenses which was partially offset by the gain on the buy back of debt.

Income (Loss) from Discontinued Operations

In the first quarter, the Company reported earnings from discontinued operations of $40.9 million, compared to a loss from discontinued operations of $52.7 million in the first quarter of last year. As a result of the disposal of Jevco, the Company realized a foreign currency exchange gain of $34.1 million that had previously been included in accumulated other comprehensive income.

Net Income (Loss) and Earnings (Loss) Per Share - Net Income (Loss)

In the first quarter, the Company reported a net income of $24.1 million, compared to net loss of $58.3 million in the first quarter of last year. Diluted earnings per share was $0.46 for the quarter compared to loss per share of $1.06 for the first quarter of 2009.

Balance Sheet

The table below shows a review of selected categories from the balance sheet reported in the financial statements as at March 31, 2010 compared to December 31, 2009.

    
    -------------------------------------------------------------------------
    As at
    (in millions of dollars except          March 31, December 31,
     per share values)                          2010        2009      Change
    -------------------------------------------------------------------------
    Assets
    Cash and cash equivalents             $    204.0  $     58.7      247.5%
    Securities                                 468.3       512.2       (8.6%)
    Accounts receivable and other assets        98.3        94.3        4.2%
    Income taxes recoverable                    14.1        15.9      (11.3%)
    Funds held in escrow                        27.1           -      100.0%
    Future income taxes                         10.2         9.5        7.4%
    Assets held for sale                           -     1,145.5     (100.0%)

    Liabilities
    Unearned premiums                          119.7       120.7       (0.8%)
    Unpaid claims                              347.4       368.5       (5.7%)
    Senior unsecured debentures                 95.4       176.8      (46.0%)
    Liabilities held for sale                      -       907.4     (100.0%)

    Shareholders' Equity
    Book value per share                        3.26        3.28       (0.6%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Cash:

The cash balance increased to $204.0 million as at March 31, 2010 compared to $58.7 million as at December 31, 2009. The increase in cash is primarily due to the proceeds received from the Jevco sale partially offset by the funds used to repurchase debt. The offset to the increase in cash is reflected by the reduction of assets and liabilities held for sale reduced to nil.

Securities:

The fair value of the securities portfolio decreased 9% to $468.2 million, compared to $512.2 million as at December 31, 2009.

As at March 31, 2010, 97.0% of the fixed income portfolio is rated 'A' or better. For a quantitative analysis of the credit exposure of the Company from its investment in fixed income securities and term deposits by rating as assigned by S&P or Moody's Investor Services see Note 6 to the financial statements.

The table below summarizes the fair value by contractual maturity of the fixed income securities portfolio, which includes term deposits and bonds, split between Canadian and U.S. operations:

    
    -------------------------------------------------------------------------
    Maturity Profile:
    -------------------------------------------------------------------------
    Due in less than one year                                           7.5%
    Due in one through five years                                       62.1
    Due after five through ten years                                    18.2
    Due after ten years                                                 12.2
    -------------------------------------------------------------------------
    Total                                                             100.0%
    -------------------------------------------------------------------------
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There were net unrealized gains of $12.0 million on the total securities portfolio at March 31, 2010 which is included as a component of "accumulated other comprehensive income", as compared to net unrealized gains of $5.8 million at December 31, 2009.

Accounts receivable and other assets:

The increase in accounts receivable is primarily a result of higher premiums written in the current quarter as compared to the fourth quarter of 2009.

Funds held in escrow:

Funds held in escrow are the remaining proceeds to be received from the Jevco sale once future contingent adjustments are known. See financial statement note 3 for further details.

Income taxes recoverable:

Income taxes recoverable decreased due to the receipt of income tax refunds that were generated from losses in the prior years.

Future income taxes:

Future income taxes have increased primarily due to timing differences that have arisen as a result of severance costs. The valuation allowance increased by $4.0 million in the current quarter. This allowance has been established as a result of the continuing losses of the US operations. Uncertainty over the Company's ability to utilize these loses over the short term has led to the Company recording this additional allowance.

Assets held for sale:

Assets held for sale at December 31, 2009 consisted of all of the assets of Jevco. These assets were sold on March 29, 2010.

Unearned premiums:

Unearned premiums decreased 0.8% since December 31, 2009 as a result of lower written premiums.

Liabilities held for sale

Liabilities held for sale at December 31, 2009, consisted of all of the liabilities of Jevco. These liabilities were sold on March 29, 2010.

Unpaid claims:

The following table presents a summary of the provision for unpaid claims by line of business:

    
    -------------------------------------------------------------------------
    (in millions of dollars)
    -------------------------------------------------------------------------
                                                     March 31,   December 31,
    Line of Business                                     2010           2009
    -------------------------------------------------------------------------
    Non-Standard Auto                              $    168.6     $    183.0
    Commercial Auto                                     171.9          165.0
    Property & Liability                                  3.0           14.5
    Other                                                 3.9            6.0
    -------------------------------------------------------------------------
    Total                                          $    347.4     $    368.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The provisions for unpaid claims decreased by 5.7% to $347.4 million at the end of the first quarter compared to $368.5 million at the end of 2009

The provision for unpaid claims includes case reserves for individual claims of $223.6 million ($229.6 million at December 31, 2009) and a provision for Incurred But Not Reported ("IBNR") claims which decreased 10.8% to $123.8 million ($138.9 million at December 31, 2009).

Book value per share:

Book value per share decreased by 1% to $3.26 at March 31, 2010 from $3.28 at December 31, 2009 as a result of the decrease of $23.2 million in the "Accumulated other comprehensive income" component of shareholders' equity partially offset by the diluted earnings per share of $0.46.

Contractual Obligations and Related Contingencies

Information concerning contractual maturities of financial instruments as at March 31, 2010 is shown in Note 14 of the financial statements. For further details on the Company's long term debt and interest obligations, refer to Note 17 of the Company's 2009 audited consolidated financial statements and pages 20 to 25 of the 2009 Annual Report which sets out the Company's contractual obligations as at December 31, 2009.

On June 29, 2009, Kingsway and Lincoln entered into an agreement with Rockwall Financial Advisors, LLC ("Rockwall Financial"). Pursuant to that agreement (the "Run-off Management Agreement"), Rockwall Financial was to serve as the run-off manager for Lincoln. In addition to base compensation of $1.3 million annually, the agreement provides for a minimum of $2.5 million to be paid to Rockwall Financial no later than March 1, 2014, provided the contract is not terminated by Kingsway or Lincoln for cause. As a result of the October 19, 2009 disposition of Lincoln, in 2009, the Company had accrued $3.2 million for the base compensation and the additional $2.5 million compensation for a total compensation of $5.7 million as at March 31, 2010.

In March 2010, Rockwall Financial stopped providing its services as the manager of the Lincoln run-off. Rockwall Financial notified Kingsway that it was terminating the Run-off Management Agreement, because, it claimed, Kingsway had not made certain payments to Rockwall Financial and had otherwise breached the Run-off Management Agreement. Shortly before Rockwall Financial's unilateral decision to stop providing services to support Lincoln, Rockwall Financial had entered into a settlement agreement to dispose of pending litigation between Rockwall Financial and Lincoln in which Rockwall Financial received payments and a release. In that litigation, Lincoln had alleged, among other things, that Rockwall Financial had engaged in self-dealing and other misconduct while serving as the Lincoln run-off manager.

Rockwall Financial then served upon Kingsway a demand for arbitration, claiming that Kingsway had breached the Run-off Management Agreement, and sought damages in excess of $26 million. Kingsway intends to defend the arbitration vigorously. As part of its defense of the matter, Kingsway intends to show that Rockwall Financial did not meet its obligations under the Run-off Management Agreement, abandoning the Lincoln run-off without cause. Kingsway may argue that Rockwall Financial breached the Run-off Management Agreement and, as a result, is not entitled to the sums it demands. Kingsway has reserved its rights to argue that Rockwall Financial was guilty of willful misconduct and/or gross negligence.

The Company is also the defendant in two separate breach of contract suits filed by two former employees.

Liquidity and Capital Resources

During the three months ended March 31, 2010, the cash used in operating activities were $74.8 million and $46.4 million, respectively. The Company's insurance subsidiaries fund their obligations primarily through the premium and investment income and maturities in the securities portfolio.

Certain debentures issued by the Company contain negative covenants in their trust indentures, placing limitations and restrictions over certain actions without the prior written consent of the indenture trustees. Included in the negative covenants is the limitation on the incurrence of additional debt in the event that the total debt to total capital ratio or the senior debt to total capital ratio exceed 50% and 35%, respectively. The total debt is calculated on a pro-forma basis taking into account the issuance of additional debt. The debentures also include covenants limiting the issuance and sale of voting stock of restricted subsidiaries, the payment of dividends or any other payment in respect of capital stock of the Company, or the retirement of debt subordinate to the debentures covered by the trust indentures if, after giving effect to such payments as described in the trust indentures, the total debt to total capital ratio exceeds 50%.

As at March 31, 2010 the Company's total debt to capital and senior debt to capital ratios were 59.7% and 38.8% respectively. As a result, the limitations and restrictions described above are currently applicable. The Board of Directors is considering alternatives to reduce these ratios to remove the limitations and restrictions in place.

As a holding company, Kingsway derives cash from its subsidiaries generally in the form of dividends and management fees to meet its obligations, which primarily consist of dividend and interest payments. The Company believes that it has the flexibility to obtain the funds needed to fulfill its cash requirements and also to satisfy regulatory capital requirements over the next twelve months. The operating insurance subsidiaries require regulatory approval for the return of capital and, in certain circumstances, prior to the payment of dividends. In the event that dividends and management fees available to the Company are inadequate to service its obligations, the Company would need to raise capital, sell assets or restructure its debt obligations.

On June 26, 2009, KFS Capital LLC, an indirect wholly-owned subsidiary of the Company, commenced a take-over bid (the "KLROC Offer") to acquire up to 1,000,000 preferred, retractable, redeemable, cumulative units of Kingsway Linked Return of Capital Trust at a price per unit of C$12.00 in cash. The KLROC Offer expired on Tuesday, August 4, 2009 and 694,015 units were tendered. This tender was paid for using available cash.

The Company acquired ownership of 121,000 of the KLROC units outside of the tender offer at an average price of C$ 10.45 per unit through a series of purchases on the Toronto Stock Exchange. As a result of these acquisitions, the Company beneficially owns and controls 833,715 units, representing approximately 26.72% of the issued and outstanding units.

Subsequent to the Quarter end the Company announced that it intends to commence an offer to purchase for cash up to a maximum of 750,000 of the KLROC units, at a price per unit of C$17.50.

Kingsway 2007 General Partnership, an indirect wholly-owned subsidiary of the Company announced on July 14, 2009 the commencement of a modified "Dutch Auction" tender offer (the "2012 Offer") for a portion of its outstanding Unsecured 6% Debentures due July 11, 2012 (the "2012 Debentures"). The 2012 Offer provided for a cash purchase of 2012 Debentures at a price per C$1,000 principal amount of debentures of not less than C$540 and not greater than C$620, for a maximum aggregate purchase price to the offeror not to exceed C$31 million (excluding accrued and unpaid interest). The 2012 Offer expired Friday, August 14, 2009 with valid tenders (that were not withdrawn) of C$9,174,000 in aggregate principal amount of Debentures. Kingsway 2007 General Partnership accepted for purchase all such tendered Debentures at the highest price specified of C$620 per C$1,000 principal amount. This tender was paid for using available cash.

On March 29, 2010, as part of the closing of the Jevco sale transaction the Company repurchased $36.9 million (C$37.5 million) of par value of the "2012 Debentures" realizing a gain of $6.2 million. The Company also repurchased $47.9 million of par value of the 7.50% senior notes due 2014 "2014 Debentures" realizing a gain of $9.5 million.

The Company announced on July 29, 2009 an amendment to its normal course issuer bid for common shares had been approved by the Toronto Stock Exchange ("TSX"). The normal course issuer bid was originally announced by the Company on November 28, 2008. Purchases under the normal course issuer bid from December 2, 2008 to December 1, 2009 were limited to 2,753,426 common shares (or approximately 5% of the aggregate number of common shares outstanding on November 15, 2008). Purchases under the normal course issuer bid, as amended, were limited to 5,386,545 common shares, or 10% of the public float on November 28, 2008. The normal course issue bid, as amended, terminated on December 1, 2009. Under this normal course issuer bid, 3,472,700 shares were repurchased at an average price of C$3.77.

As at March 31, 2010 the Company was adequately capitalized to support the premium volume of the insurance subsidiaries.

In the United States, a risk based capital ("RBC") formula is used by the National Association of Insurance Commissioners ("NAIC") to identify property and casualty insurance companies that may not be adequately capitalized. The NAIC requires that capital and surplus not fall below 200% of the authorized control level. As at March 31, 2010, all U.S. subsidiaries, are estimated to be above the required RBC levels, with RBC ratio estimates ranging between 428% and 601%, and have estimated aggregate capital of approximately $80.4 million in excess of the 200% level. Effective January 1, 2010, the company expanded its utilization of an existing intercompany pooling arrangement to incorporate additional affiliated insurance entities. Under this agreement, premiums, losses, acquisition costs and underwriting expenses are pooled and then allocated to the members of the pool based upon predetermined participation percentages. The current members of the pool along with their corresponding participation percentage are as follows; Mendota Insurance Company (30%), Mendakota Insurance Company (5%), American Service Insurance Company (30%), American Country Insurance Company (15%), and Universal Casualty Company (20%).

On October 19, 2009, the Company announced that its indirect wholly owned subsidiary, Kingsway America Inc. ("KAI"), had disposed of its entire interest in KAI's wholly owned subsidiary Walshire. Walshire is the sole shareholder of Lincoln. All of the stock of Walshire has been donated to charity, and with this disposition Lincoln ceased being a member of the Kingsway group of companies.

The Pennsylvania Insurance Department ("DOI") has challenged the disposition to charities of Walshire and its subsidiaries. On November 20, 2009, the DOI filed a complaint in the Commonwealth Court of Pennsylvania ("Commonwealth Court") against the Company, KAI and Walshire, seeking a declaration that the disposition was unlawful and not valid. The Company disagreed with the DOI's position and maintains that the donations of Walshire shares to the charities were lawful and valid. On November 19, 2009, the day before the DOI's complaint, the Company and KAI filed a complaint in the Commonwealth Court against the DOI seeking a declaration that the statute upon which the DOI principally relies did not apply to the donations. In response to the Company's complaint, the DOI filed a New Matter (in essence, a counterclaim). The Company has demurred to each of the claims in the DOI's complaint, thereby putting the legal sufficiency of the DOI's claims at issue. Subsequent to the quarter end, on April 1, 2010 the Commonwealth Court of Pennsylvania dismissed all claims against the Company. The court sustained the Company's objection to the action and rejected the arguments made by the DOI.

Subsequent to the quarter end, on April 30, 2010, the DOI filed a notice of appeal to the Pennsylvania Supreme Court relating to the Commonwealth Court's April 1, 2010 decision. The Company intends to oppose this appeal.

If the ultimate decision of the courts is unfavorable for the Company, the control of Lincoln may revert back to the Company, which would result in Lincoln's financial results being included in the Company's consolidated financial statements. If the Commonwealth Court deems the transaction to be invalid, it could ultimately lead to the Company being in breach of its public debt covenants should Lincoln go into liquidation while still part of the Company. The Company's public debt is material, and a breach in covenants could lead to the debt being called and paid before maturity.

As part of the ongoing transformation program, during the second quarter of 2009 the Company began terminating all related party reinsurance treaties. As at September 30, 2009, all treaties between Kingsway Reinsurance Corporation and the U.S. operating companies have been commuted. As noted above, treaties between the Canadian operating companies and Kingsway Reinsurance (Bermuda) Limited were commuted effective October 1, 2009. This initiative has resulted in increased capital in our operating companies and it has released excess capital from the captive reinsurers to be used for corporate purposes.

As at September 30, 2009, following the commutation of all intercompany reinsurance treaties between Kingsway Reinsurance Corporation and the Company's U.S. operating subsidiaries, a significant portion of the remaining capital at Kingsway Reinsurance Corporation was repatriated. A portion of this capital was re-deployed directly into the U.S. operating subsidiaries and a portion was held at the parent company for corporate purposes. The regulatory capital remaining in Kingsway Reinsurance Corporation following the commutation of all related party reinsurance treaties is below the amount required under the Insurance Act of Barbados where Kingsway Reinsurance Corporation is domiciled. The Company considers this situation to be temporary as the calculation of the minimum capital required is based upon the premiums of the previous calendar year when the level of underwriting activity was significantly greater than those of the ongoing Barbados operation. This situation has been communicated to the Office of the Supervisor of Insurance in Barbados which has accepted the Company's commitment to resolve the shortfall in 2010. At that time, the Company believes that the capital available will exceed the capital required with no additional capital required.

As at March 31, 2010, the capital maintained by Kingsway Reinsurance (Bermuda) Limited was approximately $0.5 million in excess of the regulatory capital requirements in Bermuda.

Off-Balance Sheet Financing

The Company entered into an off-balance sheet transaction through the Kingsway Linked Return of Capital Trust transaction that was completed on July 14, 2005 which is more fully described in Note 17(d) of the 2009 audited consolidated annual financial statements and on page 25 of the 2009 Annual Report. The Company has one other off-balance sheet financing arrangement as described on page 25 of the 2009 Annual Report.

Critical accounting estimates and assumptions

The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. The year-to-date results of the Company reflect management's judgments regarding the impact of prevailing global credit, and equity market conditions. Given the uncertainty surrounding the continued volatility in these markets, and the general lack of liquidity in financial markets, the actual financial results could differ from those estimates.

There are no new critical accounting estimates or assumptions compared to the information provided in the annual MD&A, as described on page 28 of the 2009 Annual Report.

Related Party Transactions

Related-party transactions, including services provided to or received by the Company's subsidiaries, are carried out in the normal course of operations and are measured at the amount of consideration paid or received as established and agreed by the parties. Management believes that consideration paid for such services approximate fair value. For additional details, see Note 13 of the financial statements.

On January 4, 2010, the Company and its subsidiary Kingsway America Inc. acquired certain assets of Itasca Financial, LLC, a property and casualty insurance industry advisory firm, owned and controlled by Mr.Swets, a former director of the Company. The consideration for the assets purchased is equal to $1.5 million cash and one million restricted common shares of the Company. The value of the consideration paid was approximately $2.5 million at the time of close.

Subsequent to the transaction, certain employees of Itasca are now employees within the KAI group, including Mr. Swets.

In March 2009, the Company obtained a $20 million financing facility from American Physicians Assurance Corporation ("AP Assurance") to allow for specific capital initiatives. Two of the members of the Company's Board of Directors also sit on the board of AP Assurance making it a related party. The facility was at fair market terms and conditions. No funds were ever drawn on this facility and it has expired. In the fourth quarter of 2009, a new $20 million facility was obtained from AP Assurance. This new facility was at fair market terms and conditions. No funds were ever drawn on this facility and it was terminated on February 25, 2010.

In March 2010, the Company signed an agreement with AP Assurance to provide investment management and investment accounting services to the Company, commencing April 1, 2010. This agreement is at fair market terms and conditions.

In 2009, in addition to a previously agreed retainer of C$0.1 million, the Board of Directors had decided to pay additional retainer payments of $0.4 million and C$0.1 million to the Chairman of the Board. Of these additional amounts, in 2009, the Company had paid $0.2 million and C$0.1 million as at March 31, 2010. In 2010, the remaining $0.2 million owing was paid.

In the first quarter of 2010, in addition to a previously agreed retainer of C$0.2 million, the Board of Directors had decided to pay an additional $0.1 million to the Chairman of the Board. This additional payment was made subsequent to the quarter end.

International Financial Reporting Standards (IFRS)

The discussion in this section is not significantly different than what was disclosed on pages 30 to 35 in the Company's 2009 annual report as that information provided a status update as of March 30, 2010. The Company's transition towards International Financial Reporting Standards ("IFRS") is on track and progressing according to plan.

The Accounting Standards Board requires all Canadian public companies to adopt International Financial Reporting Standards ("IFRS") for the preparation of financial statements for fiscal years beginning on or after January 1, 2011. Accordingly, the Company will report its financial results for the year ending December 31, 2011 and its quarterly results commencing with the quarter ending March 31, 2011 in accordance with IFRS. The Company will also report comparative prior period results on an IFRS basis, including an opening balance sheet as of January 1, 2010. As permitted by the U.S. Securities and Exchange Commission ("SEC") the Company will not provide a reconciliation of its IFRS reported results to U.S. generally accepted accounting principles ("US GAAP") in its annual consolidated financial statements.

IFRS consist of the IFRS's, International Accounting Standards ("IAS"), and interpretations developed by the International Financial Reporting Interpretations Committee ("IFRIC") or the former Standing Interpretations Committee. IFRS uses a conceptual framework similar to that of Canadian GAAP, but there are significant differences in recognition, measurement and disclosures. These differences have been identified and will be addressed in the course of implementing IFRS.

A formal IFRS Project Charter ("Project Charter") and an IFRS Project Plan ("Project Plan") were prepared during the Initial Assessment Phase of the Project, outlining the key elements and timing of the plan, and were both approved by the IFRS Project Steering Committee and Audit Committee.

The Project Charter focuses on the purpose and objectives of the project, expectations and deliverables to key stakeholders, project scope and approach, milestone plan with completion criteria, date and deliverables, significant project risks and mitigation actions, roles and responsibilities of the IFRS Project Steering and Implementation Committees, project management, issue resolution, and communication plan.

The project Plan is updated on a regular basis and tracked by the level of completion of the detailed activities as shown below:

    
    -------------------------------------------------------------------------
    Phase       Estimated   Key elements              Status at March 31,
                completion                            2010
                time
    -------------------------------------------------------------------------
    Phase 1 -   November   a) Form IFRS Project       Completed
    Initial     2008          Steering and
    Assessment                Implementation
                              Committees;
                           b) Prepare a Project
                              Charter and a
                              Project Plan;
                           c) Prepare high level
                              impact assessment on
                              the Company's
                              financial statements
    -------------------------------------------------------------------------
    Phase 2 -    December  a) Identify IFRS             Completed activities:
    Detailed     2009         standards applicable      ---------------------
    Assessment                to the Company;        a) Identified IFRS
                           b) IFRS vs. Canadian         standards applicable
                              GAAP/U.S. GAAP            to the Company;
                              accounting/disclosure  b) IFRS vs. Canadian
                              gap analysis              GAAP accounting/
                           c) IFRS 1 analysis           disclosure gap
                           d) Accounting strategy       analysis;
                              analysis (i.e.         c) IFRS 1 analysis;
                              preliminary accounting d) Preliminary
                              policy choices);          accounting
                           e) Information technology    policy choices
                              and internal controls     (i.e. Accounting
                              impact assessments        strategy analysis);
                           f) Business impact        e) Information
                              assessment (such as       technology and
                              assess impact on          internal controls
                              contracts which are       impact assessments
                              based on Canadian      f) Business impact
                              GAAP measures);           assessment;
                           g) Bonuses/variable       g) Design training
                              compensation impact       strategy for the
                              assessment                employees directly
                           h) Design training           or indirectly
                              strategy for the          associated with IFRS
                              employees directly        conversion;
                              or indirectly          h) Comply with the
                              associated with           regulatory reporting
                              IFRS conversion;          requirements
                           i) Comply with the           (i.e. OSFI, FSCO and
                              regulatory                CSA requirements);
                              reporting requirements
                              (i.e. OSFI, FSCO and      Pending activities
                              requirements)             ------------------
                                                     a) Bonuses/variable
                                                        compensation
                                                        impact assessment

    -------------------------------------------------------------------------
    Phase 3 -   July 2010  a) Financial impact          Completed activities:
    Solutions                 analysis;                 --------------------
    Development            b) Quantification of      a) Financial impact
                              IFRS and Canadian         analysis;
                              GAAP differences;      b) Selection and
                           c) Selection and             documentation of
                              documentation of          IFRS accounting
                              IFRS accounting           policies;
                              policies;              c) Design of internal
                           d) Design of internal        controls;
                              controls;              d) Document proposed
                           e) Document proposed         system changes;
                              system changes;        e) Comply with the
                           f) Renegotiate contracts     regulatory reporting
                              if impacted by IFRS;      requirements (i.e.
                           g) Redesign compensation     OSFI, FSCO and CSA
                              plan;                     requirements)
                           h) Prepare implementation
                              plan for accounting       In progress
                              and reporting, systems,   -----------
                              business and people;   a) Quantification of
                           i) Perform income tax        IFRS and Canadian
                              impact assessment,        GAAP differences;
                           j) Prepare proforma IFRS  b) Prepare proforma
                              financial statements;     IFRS financial
                           k) Revisit communication     statements;
                              and training strategy; c) Perform income tax
                           l) Comply with the           impact assessment,
                              regulatory reporting
                              requirements (i.e.        Pending
                              OSFI, FSCO and CSA        -------
                              requirements)          a) Renegotiate
                                                        contracts, if
                                                        impacted by IFRS;
                                                     b) Redesign compensation
                                                        plan;
                                                     c) Prepare
                                                        implementation plan
                                                        for accounting and
                                                        reporting, systems,
                                                        business and people;
                                                     d) Revisit communication
                                                        and training
                                                        strategy;
    -------------------------------------------------------------------------
    Phase 4 -   December   a) Implementation            Pending
    Implement   2010          of IFRS accounting
    -ation                    policies;
                           b) Prepare for the fiscal
                              year 2010 IFRS opening
                              balance sheet;
                           c) Prepare IFRS
                              comparatives for the
                              first quarter to fourth
                              quarter of 2010;
                           d) Perform system
                              enhancements to report
                              information under IFRS;
                           e) Implement new
                              accounting and
                              business processes;
                           f) Document changes to
                              internal controls;
                           g) Comply with the
                              regulatory reporting
                              requirements
                              (i.e. OSFI, FSCO and
                              CSA requirements);
                           h) Execute IFRS technical
                              training and change to
                              processes;
                           i) Draft accounting policy
                              manual and guidelines
                           j) Continuous monitoring
                              of changes to IFRS
                              standards, processes
                              and systems.
    -------------------------------------------------------------------------
    

The entire project is expected to be completed by December 31, 2010.

Throughout the project the Company continues to monitor exposure drafts and standards released by the International Accounting Standards Board and the International Financial Reporting Interpretations Committee.

    
    1.  IFRS 1: First-Time Adoption of IFRS
        -----------------------------------
    

IFRS 1, First-time Adoption of International Financial Reporting Standards ("IFRS 1") applies when an entity adopts IFRS for the first time. IFRS 1 generally requires that an entity apply all IFRS effective at the end of its first IFRS reporting period retrospectively. However, IFRS 1 does require certain mandatory exceptions and permits limited optional exemptions to full retrospective application of standards in force at a first-time adopter's reporting date.

The following are the optional exemptions, that KFSI has elected at the transition date of January 1, 2010, to apply prospectively, whose impact is expected to be significant during preparation of the first financial statements under IFRS:

    
        1. Business combinations
           ---------------------

        IFRS 1 permits a first-time adopter may elect not to apply IFRS 3,
        Business Combinations retrospectively to business combinations that
        occurred before the date of transition to IFRS. KFSI has elected this
        exemption and will prospectively apply IFRS 3 to business
        combinations from the transition date of January 1, 2010. The
        classification and measurement of past business combinations will be
        based on acquisition date values and the goodwill carrying amount
        will be based on Canadian GAAP, subject to additional considerations
        under IFRS 1, Appendix B.

        2. Cumulative translation differences
           ----------------------------------

        International Accounting Standards ("IAS") 21, The Effects of Changes
        in Foreign Exchange Rates, requires an entity to determine the
        translation differences in accordance with IFRS from the date on
        which a subsidiary was formed or acquired. IFRS 1 allows cumulative
        translation differences for all foreign operations to be deemed zero
        at the date of transition to IFRS, with future gains or losses on
        subsequent disposal of any foreign operations to exclude translation
        differences arising from periods prior to the date of transition to
        IFRS. KFSI has elected to deem all cumulative translation differences
        to zero on the transition date to IFRS. Cumulative translation
        balance of $14.8 million will be deemed zero at December 31, 2009,
        and the transition date will be the reference point for future
        foreign entity disposals.

        3. Designation of previously recognized financial instruments
           ----------------------------------------------------------

        An entity is permitted to designate at the date of transition any
        financial asset as available for sale, or a financial instrument at
        fair value through profit and loss (FVTPL) provided that the asset or
        liability meets the criteria for such classification (IAS 39.9(b)
        (i), (b) (ii) and (11A)). KFSI has elected to designate its senior
        unsecured debentures at FVTPL. This comprises of a $125.0 million
        note issued by Kingsway America Inc. due in 2014 and a C$100.0
        million debenture offering by a general partnership of the company
        due in 2012 of $97.6 million and $79.2 million respectively at
        December 31, 2009. The debt is currently classified as other
        financial liabilities and measured at amortized cost using the
        effective interest rate method under Canadian GAAP. The FVTPL
        election will firstly, reduce the accounting mismatch since the
        majority of the fixed income securities portfolio, which share
        interest rate risk with the debt liabilities, is classified as
        available for sale and measured at fair value, and secondly because
        the Kingsway debt is managed and evaluated on the basis of its fair
        value. As a result of the above change in accounting policy, a
        previously unrealized gain estimated at $73.3 million will be
        recognized in the retained earnings on transition date to IFRS.
        Subsequent gains or losses on fair valuation of the debt will be
        recognized in the profit and loss account under IFRS. As a result of
        gains recognized on the repurchase of senior indebtedness and the
        appreciation in the market value of the Company's senior indebtedness
        since the transition date the unrealized gain described above will
        decline significantly following the transition date.
    

KFSI has also elected the following IFRS 1 exemptions on transition date. The impact has been determined not to be significant to the financial statements on adoption of IFRS.

    
        -  Share-Based Payment Transactions: KFSI has elected to apply IFRS
           2, Share Based Payments requirements for equity settled share
           based payments prospectively from transition date. There is no
           impact on the consolidated financial statements on transition date
           resulting from this election.

        -  Insurance Contracts: IFRS 1 election allows KFSI as a first-time
           adopter to apply the transitional provisions of IFRS 4, Insurance
           contracts. See 2(d) below.

        -  Fair Value or Revaluation as Deemed Costs: IFRS 1 election was
           made to apply fair value deemed cost on transition date for self
           constructed property. The fair value of the self constructed
           property was determined on transition date, and approximated the
           carrying value. There is no significant financial impact as a
           result of this election as the fair value approximated the
           carrying value on transition date.

        -  Leases: IFRS 1 election allows a first time adopter to determine
           whether an arrangement existing at the date of transition to IFRSs
           contains a lease on the basis of facts and circumstances existing
           at that date. Based on assessment performed in the IAS 17 Leases
           Position Paper, as the Company adopted EIC-150 on January 1, 2005,
           which is substantially equivalent to IFRIC 4, no new arrangements
           which may contain a lease where identified, and there is no
           impact.

        -  Investments in Subsidiaries, Jointly Controlled Entities and
           Associates: KFSI has elected the IFRS 1 exemption to present
           investment in subsidiaries based on Canadian GAAP carrying value,
           in the separate financial statements, as the deemed cost under
           IFRS on transition date.

    2.  Accounting Impact Analysis
        --------------------------
    

During the Detailed Assessment Phase- Phase 2, an IFRS Accounting Impact Matrix was prepared, analyzing IFRS/ Canadian GAAP accounting differences, and the expected impact on the Company and its subsidiaries on adoption of IFRS. Based on the IFRS standards expected to have a significant impact on the Company and its subsidiaries, Position Papers were prepared to individually assess the financial, process, internal controls, information systems and people impact of each selected standard on the Company on adoption of IFRS. The quantification of the financial impact is in progress.

Highlighted below are the standards expected to have a significant impact on adoption of IFRS by the Company and its subsidiaries:

    
        a) Consolidated and Separate Financial Statements

        IAS 27 Consolidated and Separate Financial Statements requires that a
        parent shall consolidate its investments in subsidiaries using the
        control model. The Company recognizes entities in which it is not
        considered to be the primary beneficiary as variable interest
        entities (VIE), under Canadian GAAP, which entities are therefore not
        consolidated. Applying the control model under IAS 27 and SIC 12
        Special Purpose Entities, Kingsway ROC GP and Kingsway ROC LLC whose
        shares are wholly owned by the Company and Kingsway Linked Return on
        Capital (K- LROC) and Kingsway Note Trust (KN Trust) qualify as
        subsidiaries and SPEs respectively, which will be consolidated on
        adoption of IFRS. The Company is in the process of quantifying the
        financial impact of consolidating the additional entities on adoption
        of IFRS. The consolidation model will therefore be updated on
        adoption of IFRS to accommodate additional subsidiaries and SPEs
        under IFRS. Controls have been designed over the identification
        process of intercompany transactions with subsidiaries that will be
        consolidated for the first time under IFRS.

        IAS 27 also requires that a group uses uniform accounting policies
        for reporting like transactions and other events in similar
        circumstances, which will require the harmonization of accounting
        policies and the chart of accounts across the group on adoption of
        IFRS. Controls have been designed to ensure that the accounting
        policy differences within the group are appropriately dealt with, and
        the harmonized policies communicated across the group.

        b) Investment property

        IAS 40 Investment Property requires that land or a building, or part
        of a building, or both held by the owner or by the lessee under a
        finance lease to earn rentals or for capital appreciation or both is
        classified as an investment property. The Company and its
        subsidiaries own properties which are partially leased to third
        parties and owner occupied, and as the leased portions could be
        separately sold or leased out under a finance lease, IAS 40 requires
        that they are separately accounted for as investment property under
        IAS 40 or property under IAS 16 Property, Plant and Equipment. On
        adoption of IFRS, the Company will therefore reclassify the leased
        portions to investment properties and the owner occupied portions of
        the properties will be classified as property under IAS 16.

        After the transition date, the Company will continue to subsequently
        measure investment properties on a cost basis and depreciation will
        be determined using the straight line basis. Fair valuation of
        investment properties will also be performed on transition date and
        periodically thereafter, for disclosure purposes in the IFRS
        financial statements as required by IAS 40.

        During the Implementation Phase, system changes will be required
        including the creation of new general ledger accounts and mapping of
        the accounts to the financial statements to accommodate the new class
        of assets under IFRS. The fair value appraisal will be conducted by a
        qualified appraiser and controls have been designed over the inputs
        and review of outputs of the appraiser.

        c) Insurance contracts

        IFRS 4 Insurance Contracts allows insurers adopting IFRS to continue
        with their existing accounting policies. IFRS also permits entities
        to continue to apply their existing policies for measuring insurance
        liabilities, subject to a liability adequacy test. Based on the
        qualitative and quantitative assessment done in the Position Paper,
        the impact on adoption of IFRS 4 is not significant.

        IFRS 4 introduces new disclosures, which will be included in the
        Company's financial statements on adoption of IFRS. These include
        disclosures of insurance risk sensitivity, surrounding the nature and
        extent of risks arising from its insurance contracts, and showing the
        impact on profit or loss and equity if changes in the relevant risk
        variables that were reasonably possible at the end of the reporting
        period had occurred, and the methods and assumptions used in
        preparing the sensitivity analysis. New disclosures also include
        concentration of insurance risk, detailing management's basis of
        determining insurance risk concentration and a description of the
        shared characteristics identifying each concentration. In determining
        insurance risk sensitivity and concentration, the Company will
        implement additional monitoring controls over the use of estimates
        and end user computing processes.

        IFRS 4 also disallows off setting of insurance liabilities against
        related insurance assets as well as income and expenses which are
        offset from reinsurance amounts.

        d) Impairment of Assets

        IAS 36 requires that intangible assets with indefinite lives are
        tested for impairment on the transition date and annually going
        forward, by comparing the carrying value with the recoverable amount
        irrespective of whether there is an indication that it is impaired,
        whereas under Canadian GAAP, an evaluation was performed whenever
        events or changes in circumstances indicate the carrying amount may
        not be recoverable. The Company will therefore perform a full
        impairment test by determining the recoverable value of an asset
        under IFRS based on the higher of fair value less costs to sell or
        value in use. The value in use of an asset will be based on
        discounted cash flows under IFRS.

        At December 31, 2009, KFSI had intangible assets with indefinite
        useful lives with a carrying value of $10.1 million. The Company is
        in the process of performing the impairment test for intangible
        assets on transition date based on IAS 36 requirements.

        Based on the expected process changes above on adoption of IAS 36,
        the system will be modified to track the history of impairment losses
        arising on an individual asset basis- if any, and the impairment
        model will also be updated to apply discounted cash flows to
        determine the value in use of an asset under IFRS. Controls will be
        put in place for the appropriate selection of the discount rate and
        over tracking of impairments by asset in the event that an impairment
        charge is reversed.

        e) Property, Plant and Equipment

        IAS 16 requires that each part of an item of property, plant and
        equipment with a cost that is significant in relation to total cost
        of the item shall be depreciated separately. An analysis completed in
        the first quarter 2010 of the usefully lives of components of
        buildings was performed and the impact of separately depreciating the
        components was determined to be immaterial. Accordingly depreciation
        will continue under the current method.

        f) Non-current Assets Held for Sale and Discontinued Operations

        Included in Liabilities Held for Sale at December 31, 2009 was a
        deferred gain of C$0.8 million related to a sale and leaseback of
        property owned by the Jevco subsidiary. The lease is an operating
        lease. IAS 17 requires that the gain be recognized in profit or loss
        at the date of the transaction. Accordingly the gain will be credited
        to retained earnings in our opening balance sheet.

        g) Share-Based Payment Transactions

        IFRS 2 Share Based Payment s requires that forfeitures of equity
        settled share based payments which have been granted, are estimated
        upfront and re-estimated each period based on actual experience to
        determine the compensation expense over the vesting period. The
        Company will therefore change its basis of determining the estimate,
        which is currently based on actual forfeitures at period end over the
        vesting period. There will be no financial impact over the vesting
        period of the granted shares, although the estimated periodic
        compensation expense may differ from the current accounting policy.

        On adoption of IFRS, each of the Company's subsidiaries, whose
        employees participate in the Kingsway Financial Stock Option
        Incentive Plan in which the parent company grants rights to its
        shares, to employees of its subsidiaries, will each recognize the
        corresponding compensation benefit for its employees, and a
        corresponding increase in equity as a contribution from the parent
        Company in accordance with IFRIC 11 Group and Treasury shares
        transactions. There will be no impact on the consolidated financial
        statements. Change management controls will be required over the
        accounting for the stock options at subsidiary level.

        h) Presentation of financial statements

        The Company has made additional accounting policy choices as a result
        of adoption of IFRS which will affect the disclosures in the
        financial statements, among which is the accounting policy choice for
        an entity to present its expenses either by nature or function on the
        face of the Statement of Comprehensive Income. The Company will
        present its expenses by nature, which is deemed to provide more
        relevant information as an insurance company. This will result in
        significant changes to the current mapping of the general ledger to
        the financial statements and appropriate controls will be
        implemented.

    3.  Impact on processes, information systems and controls
        -----------------------------------------------------
    

While new processes, internal controls and modifications to the existing information systems have been identified in the respective IFRS Position Papers, and plans are also underway to implement the changes arising from the new accounting policies selected under IFRS, except as described above, the Company has determined that the other changes to its current accounting, information systems or its processes as a result of the conversion to IFRS will not be significant.

In the Position papers, the Company identified the processes and information systems changes which will be required as a result of adoption of IFRS. Proposed internal controls have been designed as part of the Position Papers analysis, to mitigate the risks arising from the process and information systems changes and to also ensure the internal control over financial reporting is robust. The process and internal controls changes resulting from adoption of IFRS have been identified in the respective Position Papers and will be formally documented and updated as the project progresses. Internal controls which have been designed to address the changes in processes as a result of adoption of IFRS are expected to be implemented and evaluated during Phase 4 Implementation Phase, of the project.

Regular Steering Committee meetings attended by various members of management are held to communicate, review the project progress and deliverables. The Audit Committee continues to provide oversight to the IFRS project, and reviews the project status periodically. To date, the group's IFRS 1 elections and IFRS accounting policy choices have been approved by both the Steering and Audit Committees.

    
    4.  Financial reporting expertise, including training requirements
        --------------------------------------------------------------
    

Initial education and training sessions on the adoption of IFRS, have been communicated to the Company's finance and accounting staff. A training program has been prepared for more detailed sessions across the group to be held within the Solutions Development and Implementation Phases of the project. This will focus among others, on the Company's IFRS policy choices, and the changes to the existing procedures and controls as a result of adopting IFRS. An additional IFRS Resource was also contracted to provide additional support to the in-house management team. Current resources are deemed appropriate to satisfactorily carry out the project to completion.

    
    5.  Future Modifications to IFRS
        ----------------------------
    

The IAS is in process of modifying current standards and is expected to issue new standards in the coming months. The Company will continue to review proposed and issued standards and interpretations. The impact of these changes on the Company's business activities cannot be quantified at this date.

Disclosure of Outstanding Share Data

As at March 31, 2010, the Company had 52,095,828 common shares outstanding and there have been no changes up to the reporting date.

Summary of Quarterly Results

The following table presents the financial results over the previous eight quarters.

    
    -------------------------------------------------------------------------
    (in millions of dollars except per share values)
    -------------------------------------------------------------------------
                2010    2009    2009    2009    2009    2008    2008    2008
                  Q1      Q4      Q3      Q2      Q1      Q4      Q3      Q2
    -------------------------------------------------------------------------
    Gross
     premiums
     written  $ 84.3  $ 70.4  $ 82.8  $ 86.7  $136.9  $101.2  $118.8  $127.0
    Net
     premiums
     earned     81.5    79.7   103.0   111.1   136.4   119.3   153.1   100.3
    Total
     Revenue    83.4    71.3   106.7   122.6   142.6   115.3   152.4   144.3
    -------------------------------------------------------------------------
    Net income
     (loss)
     from
     continuing
     opera-
     tions     (16.8)  (65.2)  (24.0)  (11.6)   (5.6) (165.2)    9.4    (3.3)
    Net income
     (loss)     24.1   (75.5) (118.1)  (38.4)  (58.3) (360.4)  (17.4)    6.3
    -------------------------------------------------------------------------
    Earnings
     (loss) per
     share -
     continuing
     operations
    Basic     $(0.32) $(1.26) $(0.44) $(0.21) $(0.10) $(3.00) $ 0.17 $ (0.06)
    Diluted   $(0.32) $(1.26) $(0.44) $(0.21) $(0.10) $(3.00) $ 0.17 $ (0.06)
    Earnings
     (loss) per
     share -
     net income
     (loss)
    Basic     $ 0.46  $(1.46) $(2.19) $(0.70) $(1.06) $(6.53) $(0.32) $ 0.11
    Diluted   $ 0.46  $(1.46) $(2.19) $(0.70) $(1.06) $(6.53) $(0.32) $ 0.11
    -------------------------------------------------------------------------



    Supplementary Financial Information from Continuing Operations

    -------------------------------------------------------------------------
    Financial Strength Indicators:
    -------------------------------------------------------------------------
    Some of the key indicators of the Company's
     financial strength are as follows:
    -------------------------------------------------------------------------
                                                     March 31,   December 31,
                                                         2010           2009
    -------------------------------------------------------------------------
    Senior debt to capitalization ratio                 38.8%          48.7%

    Total debt to capitalization ratio                  59.7%          66.6%
    -------------------------------------------------------------------------
    

Outlook

The Company's 2009 Annual Report includes description and analysis of the key factors and events that could impact future earnings under the heading "Risk Factors" in the section entitled "Management's Discussion and Analysis". These factors and events have, for the most part, remained substantially unchanged except as otherwise disclosed herein.

Internal Controls over Financial Reporting and Disclosure Controls & Procedures

Management of the Company is responsible for designing internal controls over financial reporting for the Company as defined under National Instrument 52-109 issued by the Canadian Securities Administrators. Management has designed such internal controls over financial reporting, or caused them to be designed under its supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with GAAP. There has been no change in the Company's internal control over financial reporting that occurred during the Company's most recent interim period that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Management of the Company is responsible for establishing and maintaining disclosure controls and procedures for the Company as defined under National Instrument 52-109 issued by the Canadian Securities Administrators. Management has designed such disclosure controls and procedures, or caused them to be designed under its supervision, to provide reasonable assurance that material information relating to the Company, including its consolidated subsidiaries, is made known to the Chief Executive Officer and the Chief Financial Officer by others within those entities, particularly during the period in which the interim filings are being prepared.

Forward Looking Statements

This press release (including the Management's Discussion and Analysis) includes "forward looking statements" that are subject to risks and uncertainties. These statements relate to future events or future performance and reflect management's current expectations and assumptions. The words "anticipate", "expect", "believe", "may", "should", "estimate", "project", "outlook", "forecast" or similar words are used to identify such forward looking information. Such forward looking statements reflect management's current beliefs and are based on information currently available to management of the Company. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward looking statements, see the Company's securities filings, including its 2009 Annual Report under the heading Risk Factors in the Management's Discussion and Analysis section. The securities filings can be accessed on the Canadian Securities Administrators' website at www.sedar.com, and on the EDGAR section of the U.S. Securities and Exchange Commission's website at www.sec.gov or through the Company's website at www.kingsway-financial.com. The Company disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

Additional Information

Additional information relating to the Company, including the Company's Annual Report and the Company's Annual Information Form is on SEDAR at www.sedar.com.

    
    KINGSWAY FINANCIAL SERVICES INC.
    CONSOLIDATED STATEMENT OF OPERATIONS
    (In thousands of U.S. dollars, except for per share values)
    -------------------------------------------------------------------------
    (Unaudited)                                 Three months ended March 31:
    -------------------------------------------------------------------------
                                                         2010           2009
    -------------------------------------------------------------------------
    Gross premiums written                         $   84,293     $  136,922
    -------------------------------------------------------------------------
    Net premiums written                           $   76,952     $  161,573
    -------------------------------------------------------------------------
    Revenue:
      Net premiums earned                          $   81,475     $  136,346
      Investment income (Note 6)                        1,421          8,251
      Net realized gain (loss) (Note 6)                   517         (2,173)
    -------------------------------------------------------------------------
                                                       83,413        142,424
    -------------------------------------------------------------------------

    Expenses:
      Claims incurred                              $   67,284     $  104,651
      Commissions and premiums taxes                   15,384         20,050
      General and administrative expenses              24,582         18,210
      Restructuring costs (Note 10)                     3,690          1,329
      Interest expense                                  5,508          6,296
      Amortization of intangibles                       1,521          2,564
    -------------------------------------------------------------------------
                                                      117,969        153,100
    -------------------------------------------------------------------------
    Loss before unusual item and income taxes         (34,556)       (10,676)
    Gain on buy-back of senior notes (Note 12)         15,103              -
    -------------------------------------------------------------------------
    Loss from continuing operations before
     income taxes                                     (19,453)       (10,676)
    Income tax recovery                                (2,657)        (5,086)
    -------------------------------------------------------------------------
    Loss from continuing operations                   (16,796)        (5,590)
    Income (loss) from discontinued operations,
     net of taxes (Note 3)                              8,359        (51,061)
    Income (loss) on disposal of discontinued
     operations, net of taxes (Note 3)                 32,533         (1,616)
    -------------------------------------------------------------------------
    Net Income (loss)                              $   24,096     $  (58,267)
    -------------------------------------------------------------------------
    Loss per share - continuing operations:
    Basic:                                         $    (0.32)    $    (0.10)
    Diluted:                                       $    (0.32)    $    (0.10)
    -------------------------------------------------------------------------
    Earnings (loss) per share - net income (loss):
    Basic:                                         $     0.46     $    (1.06)
    Diluted:                                       $     0.46     $    (1.06)
    Weighted average shares outstanding
     (in '000s):
    Basic:                                             52,062         55,069
    Diluted:                                           52,062         55,107
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    KINGSWAY FINANCIAL SERVICES INC.
    CONSOLIDATED BALANCE SHEETS
    (In thousands of U.S. dollars)
    -------------------------------------------------------------------------
                                                     March 31,   December 31,
                                                         2010           2009
                                                   (unaudited)
    -------------------------------------------------------------------------
    ASSETS
      Cash and cash equivalents                    $  204,009     $   58,726
      Securities (Note 6)                             468,262        512,197
      Accrued investment income                         4,038          4,158
      Financed premiums                                17,876         15,237
      Accounts receivable and other assets             98,274         94,285
      Funds held in escrow (Note 3)                    27,072              -
      Due from reinsurers and other insurers            6,253          4,938
      Deferred policy acquisition costs                26,843         29,088
      Income taxes recoverable                         14,053         15,883
      Future income taxes                              10,197          9,481
      Capital assets                                   29,835         30,308
      Goodwill and intangible assets                   37,356         37,573
      Assets held for sale (Note 3)                         -      1,145,481
    -------------------------------------------------------------------------
                                                   $  944,068     $1,957,355
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS' EQUITY

    LIABILITIES
      Loans payable                                $   66,222     $   66,222
      Accounts payable and accrued liabilities         58,187         61,041
      Unearned premiums                               119,724        120,657
      Unpaid claims                                   347,402        368,501
      Senior unsecured debentures                      95,381        176,764
      Subordinated indebtedness                        87,423         87,415
      Liabilities held for sale (Note 3)                    -        907,416
    -------------------------------------------------------------------------
                                                      774,339      1,788,016
    -------------------------------------------------------------------------
    SHAREHOLDERS' EQUITY
      Share capital
        Issued and outstanding number of
         common shares                                296,091        295,291
          52,095,828 - March 31, 2010
          51,595,828 - December 31, 2009
      Contributed surplus                              19,205         20,549
      Deficit                                        (169,476)      (193,572)
      Accumulated other comprehensive income           23,909         47,071
    -------------------------------------------------------------------------
                                                      169,729        169,339
    -------------------------------------------------------------------------
                                                   $  944,068     $1,957,355
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    KINGSWAY FINANCIAL SERVICES INC.
    CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
    (In thousands of U.S. dollars)
    -------------------------------------------------------------------------
                                                Three months ended March 31:
    -------------------------------------------------------------------------
    (Unaudited)                                          2010           2009
    Share capital
    Balance at beginning of period                 $  295,291     $  322,344
    Issued during the period (Note 13)                    800              -
    -------------------------------------------------------------------------
    Balance at end of period                          296,091        322,344
    -------------------------------------------------------------------------
    Contributed surplus
    Balance at beginning of period                 $   20,549     $    9,791
    Forfeited options                                  (1,718)        (1,095)
    Stock option expense                                  374            457
    -------------------------------------------------------------------------
    Balance at end of period                           19,205          9,153
    -------------------------------------------------------------------------
    Retained earnings (deficit)
    Balance at beginning ofperiod                 $ (193,572)    $   98,564
    Net income (loss) for the period                   24,096        (58,267)
    Common share dividends                                  -           (872)
    -------------------------------------------------------------------------
    Balance at end of period                         (169,476)        39,425
    -------------------------------------------------------------------------
    Accumulated other comprehensive income
    Balance at beginning of period                 $   47,071     $   22,873
    Other comprehensive income (loss)                 (23,162)       (23,248)
    -------------------------------------------------------------------------
    Balance at end of period                           23,909           (375)
    -------------------------------------------------------------------------
    Total shareholders' equity at end of period    $  169,729     $  370,547
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    KINGSWAY FINANCIAL SERVICES INC.
    CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
    (In thousands of U.S. dollars)
    -------------------------------------------------------------------------
                                                Three months ended March 31:
    -------------------------------------------------------------------------
    (Unaudited)                                          2010           2009
    -------------------------------------------------------------------------
    Comprehensive income (loss)
    Net income (loss)                              $   24,096     $  (58,267)
    Other comprehensive income (loss), net of taxes:
    - Change in unrealized gains (losses) on
       available-for-sale securities:
      Unrealized gains (losses) arising during the
       period, net of income taxes(1)                   3,220         (1,162)
      Recognition of realized gains to net income,
       net of income taxes(2)                          (5,105)       (11,202)
    - Unrealized gains (losses) on translating
       financial statement of self-sustaining foreign
       operations                                      13,259         (9,523)
    - Recognition of currency translation gain on
       disposal of subsidiary (Note 3)                (34,075)             -
    - Gain (loss) on cash flow hedge                     (461)        (1,361)
    -------------------------------------------------------------------------
    Other comprehensive income                        (23,162)       (23,248)
    -------------------------------------------------------------------------
    Comprehensive income (loss)                    $      934     $  (81,515)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Net of income tax of $1,378 for the three months ended March 31, 2010
        and $(3,750) for the three months ended March 31, 2009.
    (2) Net of income tax of $(2,370) for the three months ended March 31,
        2010 and $(2,670) for the three months ended March 31, 2009.



    KINGSWAY FINANCIAL SERVICES INC.
    CONSOLIDATED STATEMENT OF CASH FLOWS
    (In thousands of U.S. dollars)
    -------------------------------------------------------------------------
                                                Three months ended March 31:
    -------------------------------------------------------------------------
    (Unaudited)                                          2010           2009
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operating activities
    Net income (loss)                              $   24,096     $  (58,267)
    Items not affecting cash:
      Loss (income) from discontinued operations      (40,892)        52,677
      Amortization                                      2,226          2,953
      Future and current income taxes                  (2,657)        (5,086)
      Net realized (gains) losses                        (517)         2,173
      Amortization of bond premiums and discounts       2,267             52
      Net change in other non-cash balances           (59,273)       (40,854)
    -------------------------------------------------------------------------
                                                      (74,750)       (46,352)
    -------------------------------------------------------------------------
    Financing activities
    Share capital                                         800              -
    Contributed surplus                                (1,344)          (638)
    Dividends paid                                          -           (872)
    Bank indebtedness and loans payable                     8              7
    Senior unsecured indebtedness                     (81,383)        (2,433)
    -------------------------------------------------------------------------
                                                      (81,919)        (3,936)
    -------------------------------------------------------------------------
    Investing activities
    Purchase of securities                            (33,219)      (178,454)
    Proceeds from sale of securities                   85,116        381,278
    Financed premiums receivable, net                  (2,639)        (1,625)
    Net proceeds from sale of discontinued operations 252,661         (1,941)
    Net capital assets and intangible assets               33          7,006
    -------------------------------------------------------------------------
                                                      301,952        206,264
    -------------------------------------------------------------------------

    Net change in cash and cash equivalents           145,283        155,976
    Cash and cash equivalents at beginning of period   58,726         63,928
    -------------------------------------------------------------------------
    Cash and cash equivalents at end of period        204,009        219,904
    -------------------------------------------------------------------------
    Less cash and cash equivalents of discontinued
     operations at end of period                            -         44,878
    -------------------------------------------------------------------------
    Cash and cash equivalents of continuing
     operations at end of period                   $  204,009     $  175,026
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    KINGSWAY FINANCIAL SERVICES INC.
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    For the three months ended March 31, 2010 and 2009
    (Unaudited - tabular amounts in thousands of U.S. dollars)
    -------------------------------------------------------------------------

    NOTE 1 Basis of Presentation
    -------------------------------------------------------------------------

    These unaudited interim consolidated financial statements have been
    prepared by management in accordance with Canadian generally accepted
    accounting principles ("GAAP") using the same accounting policies as were
    used for the Company's consolidated financial statements for the year
    ended December 31, 2009. These interim consolidated financial statements
    do not contain all disclosures required by Canadian GAAP and accordingly
    should be read in conjunction with the Company's audited consolidated
    financial statements for the year ended December 31, 2009 as set out on
    pages 51 to 106 of the Company's 2009 Annual Report.

    NOTE 2 Changes in Accounting Policies
    -------------------------------------------------------------------------

    There were no new accounting policies adopted in the first quarter of the
    current fiscal year.

    NOTE 3 Discontinued Operations
    -------------------------------------------------------------------------

    Walshire, Zephyr and Avalon, previously disclosed as part of the United
    States segment, and Jevco, Kingsway General Insurance Company ("KGIC")
    and York Fire, previously disclosed as part of the Canadian segment, have
    been classified as discontinued operations and the results of their
    operations are reported separately for all periods presented.

    Summarized financial information for discontinued operations is shown
    below.

    -------------------------------------------------------------------------
                                                Three months ended March 31:
    -------------------------------------------------------------------------
                                                         2010           2009
    -------------------------------------------------------------------------
    Operations:
    Revenue                                        $   84,861     $  154,936
    -------------------------------------------------------------------------
    Income (loss) from discontinued operations
     before taxes                                      13,438        (52,567)
    Income tax (recovery)                               5,079         (1,506)
    -------------------------------------------------------------------------
    Income (loss) from discontinued operations
     before loss on disposal, net of taxes         $    8,359     $  (51,061)
    -------------------------------------------------------------------------
    Disposals:
    Gain (loss) on disposal before income taxes    $   31,959     $   (1,941)
    Income taxes recovery                                (574)          (325)
    -------------------------------------------------------------------------
    Gain (loss) on disposal, net of taxes          $   32,533     $   (1,616)
    -------------------------------------------------------------------------
    Income (loss) from discontinued operations,
     net of taxes                                  $   40,892     $  (52,677)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                                                    31-Mar-10      31-Dec-09
    -------------------------------------------------------------------------
    Assets
    Cash and cash equivalents                      $        -     $   62,155
    Securities                                              -        852,131
    Accrued Investment Income                               -          5,970
    Finance Premiums                                        -         51,340
    Accounts Receivable and other assets                    -         19,930
    Due from reinsurers and other insurers                  -         76,293
    Deferred policy acquisition costs                       -         29,974
    Income taxes recoverable                                -         (5,295)
    Future income taxes                                     -          2,802
    Capital assets                                          -         48,885
    Goodwill and other intangible assets                    -          1,296
    -------------------------------------------------------------------------
    Assets held for sale and discontinued
     operations                                    $        -     $1,145,481
    -------------------------------------------------------------------------
    Liabilities
    Accounts payable and accrued liabilities       $        -     $    9,759
    Unearned premiums                                       -        144,323
    Unpaid claims                                           -        753,334
    -------------------------------------------------------------------------
    Liabilities held for sale and discontinued
     operations                                    $        -     $  907,416
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Walshire:

    In May 2009, the Company placed all of Lincoln into voluntary run-off.
    After that date Lincoln continued to experience losses from unfavourable
    reserve development. The result of Lincoln's operational losses greatly
    reduced the Company's capital flexibility and created the potential of
    the Company breaching the covenants in its trust indentures. These
    ongoing losses also contributed to the financial strength rating
    downgrades of all operating companies.

    On October 19, 2009, with the objective of protecting the interests of
    the Company's stakeholders, Kingsway America Inc. ("KAI"), an indirect
    wholly owned subsidiary of the Company, disposed of its entire interest
    in its wholly owned subsidiary, Walshire. Walshire is the sole
    shareholder of Lincoln. All of the stock of Walshire has been donated to
    charities, and with this disposition Lincoln ceases being a member of the
    Kingsway group of companies.

    The Pennsylvania Insurance Department ("DOI") has challenged the
    disposition of Lincoln. On November 20, 2009, DOI filed a complaint in
    the Commonwealth Court of Pennsylvania ("Commonwealth Court") against the
    Company, KAI and Walshire, seeking a declaration that the disposition was
    unlawful and not valid. The Company disagreed with the DOI's position and
    maintains that the donations of Walshire shares to the charities were
    lawful and valid. On November 19, 2009, the day before the DOI's
    complaint, the Company and KAI filed a complaint in the Commonwealth
    Court against the DOI seeking a declaration that the statute upon which
    the DOI principally relies did not apply to the donations. In response to
    the Company's complaint, the DOI filed a New Matter (in essence, a
    Counterclaim). The Company has demurred to each of the claims in the
    DOI's complaint, thereby putting the legal sufficiency of the DOI's
    claims at issue. The demurrers were argued to a panel of the Commonwealth
    Court on February 9, 2010. Subsequent to the quarter end, on April 1,
    2010, the Commonwealth Court dismissed all claims against the Company.
    The Commonwealth Court sustained the Company's objection to the action
    and rejected the arguments made by the DOI. Subsequent to the quarter
    end, on April 30, 2010, the DOI filed a notice of appeal to the
    Pennsylvania Supreme Court relating to the April 1, 2010 decision. The
    Company intends to oppose this appeal.

    If the ultimate decision of the courts is unfavorable for the Company,
    the control of Lincoln may revert back to the Company, which would result
    in Lincoln's financial results being included in the Company's
    consolidated financial statements. If the Pennsylvania Supreme Court or a
    higher court deems the transaction to be invalid, it could ultimately
    lead to the Company being in breach of its public debt covenants should
    Lincoln go into liquidation while still part of the Company. The
    Company's public debt is material, and a breach in covenants could lead
    to the debt being called and paid before maturity.

    The Company's commitment to the DOI to provide a $10.0 million cash
    payment to Lincoln was paid in 2009. The Company also has continuing
    obligations on reinsurance agreements with Lincoln which are at market
    terms and conditions. These ongoing obligations are not significant and
    do not provide the Company with any control or significant influence over
    the operating activities or financial results of Lincoln.

    On June 29, 2009, Kingsway and Lincoln entered into an agreement with
    Rockwall Financial Advisors, LLC ("Rockwall Financial"). Pursuant to that
    agreement (the "Run-off Management Agreement"), Rockwall Financial was to
    serve as the run-off manager for Lincoln. In addition to base
    compensation of $1.3 million annually, the agreement provides for a
    minimum of $2.5 million to be paid to Rockwall Financial no later than
    March 1, 2014, provided the contract is not terminated by Kingsway or
    Lincoln for cause. As a result of the October 19, 2009 disposition of
    Lincoln, in 2009, the Company had accrued $3.2 million for the base
    compensation and the additional $2.5 million compensation for a total
    compensation of $5.7 million as at March 31, 2010.

    In March 2010, Rockwall Financial stopped providing its services as the
    manager of the Lincoln run-off. Rockwall Financial notified Kingsway that
    it was terminating the Run-off Management Agreement, because, it claimed,
    Kingsway had not made certain payments to Rockwall Financial and had
    otherwise breached the Run-off Management Agreement. Shortly before
    Rockwall Financial's unilateral decision to stop providing services to
    support Lincoln, Rockwall Financial had entered into a settlement
    agreement to dispose of pending litigation between Rockwall Financial and
    Lincoln in which Rockwall Financial received payments and a release. In
    that litigation, Lincoln had alleged, among other things, that Rockwall
    Financial had engaged in self-dealing and other misconduct while serving
    as the Lincoln run-off manager.

    Rockwall Financial then served upon Kingsway a demand for arbitration,
    claiming that Kingsway had breached the Run-off Management Agreement, and
    sought damages in excess of $26 million. Kingsway intends to defend the
    arbitration vigorously. As part of its defense of the matter, Kingsway
    intends to show that Rockwall Financial did not meet its obligations
    under the Run-off Management Agreement, abandoning the Lincoln run-off
    without cause. Kingsway may argue that Rockwall Financial breached the
    Run-off Management Agreement and, as a result, is not entitled to the
    sums it demands.

    At September 30, 2009, the total investment in Walshire was written down
    to nil. After taking into account the operating loss of Lincoln from
    October 1 to 19, 2009, factoring in realized investment gains and the
    write down of net assets, a net gain on disposal of $1.4 million was
    recorded and included in discontinued operations. The results of Lincoln
    from January 1 to October 19, 2009, the aggregate of the write-down of
    the investment in Walshire and the $10.0 million cash payment have been
    included in the income (loss) from discontinued operations, net of taxes
    line item in the Company's consolidated statement of operations for the
    year ended December 31, 2009.

    The Company's revenues from discontinued operations relating to Walshire
    were nil and $68.2 million in the first quarters of 2010 and 2009
    respectively. In total, the Company's loss from discontinued operations
    relating to Walshire, net of taxes was $2.7 million and $42.0 million in
    first quarters of 2010 and 2009 respectively.

    At the date of disposition, the securities, other non-cash assets and
    total liabilities of Walshire were $649.1 million, $322.7 million and
    $889.3 million respectively.

    Zephyr:

    On October 30, 2009, the Company completed its previously announced sale
    of Zephyr, a specialty property insurance company founded specifically to
    protect Hawaii homeowners and residents from catastrophic loss due to
    hurricanes, for $31.5 million plus a settlement of pre-closing earnings
    and other post closing adjustments of $4.5 million.

    As a result of the disposal, the Company recognized an after tax gain of
    $2.9 million during 2009. The Company's revenues from discontinued
    operations relating to Zephyr were nil and $3.6 million in the first
    quarters of 2010 and 2009 respectively. In total, the Company's income
    from discontinued operations relating to Zephyr, net of taxes were nil
    and $2.2 million in the first quarters of 2010 and 2009 respectively.

    Avalon:

    On October 9, 2009, specific assets of Avalon were sold for $1.5 million
    pursuant to an Asset Purchase agreement with FMG Specialty Insurance
    Agency LLC. The agreement also included a transition services agreement.

    As a result of the disposal, the Company recognized an after tax gain of
    $1.0 million during 2009. The Company wrote down the remaining associated
    intangible assets of $1.6 million. The Company's revenues from
    discontinued operations relating to Avalon were nil and $3.6 million in
    the first quarters of 2010 and 2009 respectively. In total, the Company's
    income from discontinued operations relating to Avalon, net of taxes were
    nil and nil in the first quarters of 2010 and 2009 respectively.

    Canadian Operations:

    As a result of the Company's ongoing strategic initiatives, on October 1,
    2009, Jevco assumed the assets and liabilities of KGIC, a wholly owned
    Canadian subsidiary of the Company.

    On November 20, 2009, the Company was advised by A. M. Best Company
    ("A. M. Best") that the financial strength rating for Jevco was
    downgraded from "B" to "B-". On November 23, 2009, as a result of A.M.
    Best's downgrade of Jevco's financial strength rating, the Company
    undertook to dispose of its majority interest in Jevco.

    On January 25, 2010, the Company entered into a definitive purchase
    agreement with The Westaim Corporation ("Westaim") to sell all of the
    issued and outstanding shares of Jevco to Westaim. On March 29, 2010,
    after receipt of all required regulatory approvals, the sale was
    completed for a purchase price of C$263.3 million. This was based on
    94.5% of the difference between the book value of Jevco as at December
    31, 2009 and a dividend of C$10.8 million, an investment portfolio
    adjustment relating to the change in market value at the closing date and
    is subject to certain future contingent adjustments. The contingent
    adjustments include up to C$20.0 million decrease in the purchase price
    relating to specific future adverse claims development to be determined
    at the end of 2012. The Company also has the option to sell a property
    that was included in the purchase agreement. The purchase price will
    decrease if the sale price of the property is less than its carrying
    value, up to a maximum of approximately C$6.3 million. The purchase price
    will increase by 94.5% of every dollar that the sale price exceeds the
    carrying value. C$27.5 million of the proceeds from the Jevco sale is
    being held in escrow until these contingent adjustments are finalized.
    Subsequent to the quarter end, on April 2, 2010, the Company entered an
    agreement to sell the property for approximately its carrying value. The
    sale of the property is expected to be completed in the second quarter of
    2010.

    As a result of the disposal of Jevco, the Company realized an after tax
    gain of $32.5 million in the first quarter of 2010. Included in this gain
    is a $34.1 million foreign currency exchange gain previously recorded in
    accumulated other comprehensive income and now recognized as a result of
    the disposal of Jevco in 2010.

    In 2009, given that the purchase price of Jevco was less than its net
    book value, it was determined that the goodwill relating to the Canadian
    operating segment was fully impaired. As a result, the Company recorded
    in operating income a non-cash goodwill impairment charge relating to the
    Canadian operations of $6.9 million in the fourth quarter of 2009.

    The Company's revenues from discontinued operations relating to the
    Canadian Operations were $84.9 million and $79.7 million in the first
    quarters of 2010 and 2009 respectively. In total, the Company's income
    from discontinued operations relating to the Canadian Operations, net of
    taxes were $43.6 million, and a loss of $9.1 million in the first
    quarters of 2010 and 2009 respectively.

    At the date of disposition, the securities, other non-cash assets and
    total liabilities of Jevco were $909.4 million, $248.7 million and
    $913.6 million respectively.

    Due to covenant restrictions associated with the sale of restricted
    subsidiaries under the Kingsway America Inc., 7.50% senior notes and the
    Kingsway 2007 General Partnership, 6.00% senior unsecured debentures, the
    Company was required to lower its applicable ratios to a level where the
    restrictions would no longer apply. The Company entered into a series of
    contingent trades which were completed on March 30, 2010, whereby the
    Company repurchased $84.8 million of par value of the senior unsecured
    debentures. The repurchase resulted in a gain of $15.1 million gain, is
    recorded in the first quarter of 2010.

    York Fire:

    On September 30, 2008, the Company sold York Fire, a primarily standard
    insurance writer, to La Capitale General Insurance Inc. for C$95 million
    in cash. The final settlement was completed in the first quarter of 2009
    and the adjustments were reflected accordingly. The Company's revenues
    from discontinued operations relating to York Fire were nil and
    $(0.2) million in the first quarters of 2010 and 2009 respectively. In
    total, the Company's loss from discontinued operations relating to York
    Fire, net of taxes were nil and $3.8 million in the first quarters of
    2010 and 2009 respectively.

    NOTE 4 Stock-based Compensation
    -------------------------------------------------------------------------

    Per share value of options granted during the quarter was C$1.55. Per
    share value of options granted in March 2009 were C$0.45 and C$0.97. The
    fair value of the options granted was estimated at the date of grant
    using a Black-Scholes option pricing model with the following weighted
    average assumptions:

    -------------------------------------------------------------------------
                                                             As at March 31:
    -------------------------------------------------------------------------
                                                         2010           2009
    -------------------------------------------------------------------------
    Risk-free interest rate                              3.7%          1.78%
    Dividend yield                                       0.0%          4.21%
    Volatility of the expected market price of the
     Company's common shares                           193.7%          88.1%
    Expected option life (in years)                       4.0            4.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Black-Scholes option valuation model was developed for use in
    estimating fair value of traded options which have no vesting
    restrictions and are fully transferable. As the Company's employee stock
    options have characteristics significantly different from those of traded
    options, and because changes in the subjective input assumptions can
    materially affect the fair value estimate, in management's opinion, the
    above pro forma adjustments are not necessarily a reliable single measure
    of the fair value of the Company's employee stock options.

    In the first quarter 2010, the Company recognized a reversal of
    compensation expense as a result of forfeited options of $1.7 million
    compared to $1.1 million for the same quarter in 2009.

    NOTE 5 Segmented Information
    -------------------------------------------------------------------------

    The Company provides property and casualty insurance. Previously, the
    Company managed these businesses in three reportable segments, Canada,
    the United States and Corporate. As a result of implementing its
    corporate restructuring plan, exiting non-core business and the sale of
    its remaining Canadian operations, the Company now manages its business
    in the following three segments: the United States, Business in Run-off
    and Corporate. The United States segment consists of U.S. operations and
    includes transactions with one of the Company's reinsurance subsidiaries.
    The business in Run-off is comprised of the Southern United Fire
    Insurance Company Inc. business. Results for the Company's operating
    segments are based on the Company's internal financial reporting systems
    and are consistent with those followed in the preparation of the
    consolidated financial statements.

    -------------------------------------------------------------------------
                                      Three months ended March 31, 2010
    -------------------------------------------------------------------------
                                  United
                                  States     Run-Off   Corporate       Total
    -------------------------------------------------------------------------
    Gross premiums written    $   84,204  $       89  $        -  $   84,293
    Net premiums earned           81,056         420           -      81,476
    Investment income (loss)       4,058         141      (2,778)      1,421
    Net realized gain                517           -           -         517
    Interest expense               5,508           -           -       5,508
    Amortization of capital
     assets                          661           8          36         705
    Amortization of intangible
     assets and goodwill
     impairment                    1,521           -           -       1,521
    Income tax expense
     (recovery)                   (1,115)        363      (1,905)     (2,657)
    Loss from continuing
     operations after tax         (9,443)       (134)     (7,219)    (16,796)
    Total assets*           $  736,431  $      123  $  207,514  $  944,068
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    * Assets held for sale were $nil



    -------------------------------------------------------------------------
                                      Three months ended March 31, 2009
    -------------------------------------------------------------------------
                                  United
                                  States     Run-Off   Corporate       Total
    -------------------------------------------------------------------------
    Gross premiums written    $  132,114  $    4,808  $        -  $  136,922
    Net premiums earned          126,601       9,745           -     136,346
    Investment income              5,354         125       2,772       8,251
    Net realized gain (loss)      (2,179)          6           -      (2,173)
    Interest expense               6,296           -           -       6,296
    Amortization of capital
     assets                          229          13         146         388
    Amortization of intangible
     assets and goodwill
     impairment                    1,922           4         638       2,564
    Income tax expense
     (recovery)                   (3,662)          -      (1,424)     (5,086)
    Loss from continuing
     operations after tax         (2,144)     (3,501)         55      (5,590)
    Total assets (excluding
     assets held for sale)* $1,148,185  $   55,962  $   83,169  $1,287,316
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    * Total assets were $3,098,789 and assets held for sale were $1,811,473

    NOTE 6 Securities
    -------------------------------------------------------------------------

    The table below provides the amortized cost and fair values of
    securities:

    -------------------------------------------------------------------------
                                              March 31, 2010
    -------------------------------------------------------------------------
                                               Gross       Gross
                               Amortized  Unrealized  Unrealized        Fair
                                    Cost       Gains      Losses       Value
    -------------------------------------------------------------------------
    Term deposits             $    1,633  $        -  $        -  $    1,633
    Bonds:
    Canadian  - Government           213           6           -         219
    U.S.      - Government       247,344       4,836        (103)    252,077
              - Corporate        176,270       4,936        (420)    180,786
              - Commercial
                 Mortgage
                 backed           15,620          28         (18)     15,630
              - Other asset
                 backed            5,985         184         (36)      6,133
    Sub-total                 $  447,065  $    9,990  $     (577) $  456,478
    -------------------------------------------------------------------------
    Preferred
     shares   - Canadian*        9,055       2,647           -      11,702
              - U.S.                  92           -         (10)         82
    -------------------------------------------------------------------------
                              $  456,212  $   12,637  $     (587) $  468,262
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                                            December 31, 2009
    -------------------------------------------------------------------------
                                               Gross       Gross
                               Amortized  Unrealized  Unrealized        Fair
                                    Cost       Gains      Losses       Value
    -------------------------------------------------------------------------
    Term deposits             $   23,791  $        -  $        -  $   23,791
    Bonds:
    Canadian  - Government           208           7           -         215
    U.S.      - Government       265,117       4,240        (551)    268,806
              - Corporate        186,502       4,135      (1,094)    189,543
              - Commercial
                 Mortgage
                 backed           14,141           -        (189)     13,952
              - Other asset
                 backed            7,573         185         (66)      7,692
    -------------------------------------------------------------------------
    Sub-total                 $  497,332  $    8,567  $   (1,900) $  503,999
    Preferred
     shares   - Canadian*        9,014           -        (893)      8,121
              - U.S.                  92           -         (15)         77
    -------------------------------------------------------------------------
                              $  506,438  $    8,567  $   (2,808) $  512,197
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    * Canadian Preferred shares are the units of Kingsway Linked Return of
        Capital Trust purchased by the Company

    The following tables highlight the aggregate unrealized loss position, by
    security type, of holdings in an unrealized loss position. The tables
    segregate the holdings based on the period of time the securities have
    been continuously held in an unrealized loss position.

    -------------------------------------------------------------------------
                                                              March 31, 2010
    -------------------------------------------------------------------------
                                    0 - 12 months          Over 12 months
    -------------------------------------------------------------------------
                                    Fair  Unrealized        Fair  Unrealized
    Bonds:                         value        loss       value        loss
    -------------------------------------------------------------------------
    U.S.      - Government    $   24,181  $     (103) $        -  $        -
              - Corporate         36,641        (376)        972         (44)
              - Commercial
                 Mortgage
                 backed            1,520         (18)          -           -
              - Other asset
                 backed                -           -         490         (36)
    Sub-total                 $   62,342  $     (497) $    1,462  $      (80)
    Preferred
     shares   - U.S.                   -           -          82         (10)
    -------------------------------------------------------------------------
                              $   62,342  $     (497) $    1,544  $      (90)
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                                                           December 31, 2009
    -------------------------------------------------------------------------
                                    0 - 12 months          Over 12 months
    -------------------------------------------------------------------------
                                    Fair  Unrealized        Fair  Unrealized
    Bonds:                         value        loss       value        loss
    -------------------------------------------------------------------------
    U.S.      - Government    $  161,535  $     (551) $        -  $        -
              - Corporate         91,989        (956)      1,878        (138)
              - Commercial
                 Mortgage
                 backed           13,952        (189)          -           -
              - Other asset
                 backed            1,805         (11)        996         (55)
    Sub-total                 $  269,281  $   (1,707) $    2,874  $     (193)
    Preferred
     shares   - Canadian           8,121        (893)          -           -
              - U.S.                   -           -          77         (15)
    -------------------------------------------------------------------------
                              $  277,402  $   (2,600) $    2,951  $     (208)
    -------------------------------------------------------------------------

    Fair values of term deposits, bonds and common and preferred shares are
    considered to approximate quoted market values based on the latest bid
    prices in active markets. Fair value of securities for which no active
    market exists are derived from quoted market prices of similar securities
    or third party evidence.

    Management performs a quarterly analysis of the Company's investment
    holdings to determine if declines in market value are other than
    temporary. The analysis includes some or all of the following procedures
    as deemed appropriate by management:

    -   identifying all security holdings in unrealized loss positions that
        have existed for at least six months or other circumstances that
        management believes may impact the recoverability of the security;
    -   obtaining a valuation analysis from third party investment managers
        regarding the intrinsic value of these holdings based on their
        knowledge, experience and other market based valuation techniques;
    -   reviewing the trading range of certain securities over the preceding
        calendar period;
    -   assessing if declines in market value are other than temporary for
        debt security holdings based on their investment grade credit ratings
        from third party security rating agencies;
    -   assessing if declines in market value are other than temporary for
        any debt security holding with non-investment grade credit rating
        based on the continuity of its debt service record;
    -   determining the necessary provision for declines in market value that
        are considered other than temporary based on the analyses performed;
    -   assessing the Company's ability and intent to hold these securities
        at least until the investment impairment is recovered. The risks and
        uncertainties inherent in the assessment methodology utilized to
        determine declines in market value that are other than temporary
        include, but may not be limited to, the following:
        -  the opinion of professional investment managers could be
           incorrect;
        -  the past trading patterns of individual securities may not reflect
           future valuation trends;
        -  the credit ratings assigned by independent credit rating agencies
           may be incorrect due to unforeseen or unknown facts related to a
           Company's financial situation; and
    -   the debt service pattern of non-investment grade securities may not
        reflect future debt service capabilities and may not reflect the
        Company's unknown underlying financial problems.

    As a result of the above analysis performed by management to determine
    declines in market value that are other than temporary, there were nil
    write downs for other-than-temporary impairments for the quarter ended
    March 31, 2010 compared to $0.2 million for the same period last year.

    Management has reviewed currently available information regarding other
    securities whose estimated fair values are less than their carrying
    amounts and believes that these unrealized losses are not other than
    temporary and are primarily due to temporary market and sector related
    factors rather than to issuer-specific factors. The Company does not
    intend to sell those securities and it is not more likely than not that
    it will be required to sell those securities before recovery of its
    amortized cost.

    Net investment income for the quarter ended March 31 is comprised as
    follows:

    -------------------------------------------------------------------------
                                                Three months ended March 31:
    -------------------------------------------------------------------------
                                                         2010           2009
    Investment income
      Interest                                     $    3,955     $    8,314
      Dividends                                           621            185
      Premium Finance                                    (131)          (136)
      Other                                            (2,842)           152
    -------------------------------------------------------------------------
    Gross Investment Income                        $    1,603    $     8,515
      Investment Expenses                                 182            264
    Net Investment Income                          $    1,421          8,251
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The decrease in interest income on short term securities for the quarter
    and year to date is primarily due to a significant reduction in short
    term interest rates in the U.S. in the current year compared to the same
    periods last year. The decrease in interest on bonds for the three months
    March 31, 2010 compared to the same periods last year is partially due to
    a reduction in short-term yields described above. A smaller fixed income
    securities portfolio as a result of a reduction in premiums written has
    also contributed to the lower interest income on bonds in the quarter and
    year to date in the U.S.

    Dividend income has declined for the three month March 31, 2010 compared
    to the same periods last year due to the disposition of the common share
    equity portfolio in the first quarter of 2009.

    For the three months ended March 31, 2010, Other income includes a loss
    of $3.9 million on the revaluation of Canadian dollar denominated debt
    held by the Company due to the impact of the strengthening of the
    Canadian dollar.

    Net realized gains for the quarter ended March 31, 2010 were $0.5 million
    compared to a net realized loss of $2.2 million for the quarter ended
    March 31, 2009.

    NOTE 7 Financial Instruments
    -------------------------------------------------------------------------

    Risk Management

    The Company's risk management policies and practices are described on
    pages 9 to 10, 36 to 44 and 68 to 72 of the Company's 2009 Annual Report.
    There has been no significant change in the risk management framework.

    In addition, the Company has provided herein the disclosures required
    under the Canadian Institute of Chartered Accountants (CICA) handbook
    section 3862, "Financial Instruments - Disclosures" related to the nature
    and extent of risks arising from financial instruments. These disclosures
    form an integral part of the interim consolidated financial statements.

    Credit risk:

    The Company is exposed to credit risk principally through its investment
    securities and balances receivable from policyholders and reinsurers. The
    Company monitors concentration and credit quality risk through policies
    to limit and monitor its exposure to individual issuers or related groups
    (with the exception of U.S. and Canadian government bonds) as well as
    through ongoing review of the credit ratings of issuers held in the
    securities portfolio. The Company's credit exposure to any one individual
    policyholder is not material. The Company's policies, however, are
    distributed by agents, program managers or brokers who manage cash
    collection on its behalf. The Company has policies to evaluate the
    financial condition of its reinsurers and monitors concentrations of
    credit risk arising from similar geographic regions, activities, or
    economic characteristics of the reinsurers to minimize its exposure to
    significant losses from reinsurer's insolvency.

    The table below summarizes the credit exposure of the Company from its
    investments in fixed income securities and term deposits by rating:

    -------------------------------------------------------------------------
                                   March 31, 2010        December 31, 2009
    -------------------------------------------------------------------------
    AAA/Aaa                   $  282,596       61.9%  $  314,780       62.4%
    AA/Aa                         43,975         9.6      71,587        14.2
    A/A                          115,794        25.5     106,174        21.1
    BBB/Baa                       12,470         2.7       8,936         1.8
    CCC/Caa or lower,
     or not rated                  1,643         0.3       2,522         0.5
    -------------------------------------------------------------------------
    Total                     $  456,478      100.0%  $  503,999      100.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at March 31, 2010, 97.0% of the fixed income portfolio is rated 'A' or
    better. Changes in this balance period over period are primarily due to
    timing of investment maturities and reinvestment.

    Market risk:

    The market risk exposure of the Company consists mainly of changes in
    interest rates and equity prices and to a smaller extent, to foreign
    currency exchange rates. Market risk is subject to risk management. The
    Investment Committee of the Board and senior management of the Company
    monitor the Company's market risk exposures and activities that give rise
    to these exposures.

    Interest rate risk:

    The Company is exposed to changes in the value of its fixed income
    securities to the extent that market interest rates change. The Company
    actively manages its interest rate exposure with the objective of
    enhancing net interest income within established risk tolerances and
    Board approved investment policies. Because most of the securities
    portfolio is comprised of fixed income securities that are usually held
    to maturity, periodic changes in interest rate levels generally impact
    the financial results to the extent that reinvestment yields are
    different than the original yields on maturing securities. Also, during
    periods of rising interest rates, the market value of the existing fixed
    income securities will generally decrease and realized gains on fixed
    income securities will likely be reduced. The reverse is true during
    periods of declining interest rates.

    Duration is a measure used to estimate the extent market values of fixed
    income instruments change with changes in interest rates. Using this
    measure, it is estimated that an immediate hypothetical 100 basis point
    or 1 percent parallel increase in interest rates would decrease the
    market value of the fixed income securities by $14.8 million at March 31,
    2010, representing 3.1% of the $468.2 million fair value fixed income
    securities portfolio.

    Computation of the prospective effect of hypothetical interest rate
    changes are based on numerous assumptions, including maintenance of the
    existing levels and composition of fixed income security assets at the
    indicated date and should not be relied on as indicative of future
    results. The analysis is done on the following assumptions:

    (a) the securities in the Company's portfolio are not impaired;
    (b) credit and liquidity risks have not been considered;
    (c) interest rates and equity prices move independently; and
    (d) shifts in the yield curve are parallel.

    Available-for-sale securities in an unrealized loss position as reflected
    in Accumulated Other Comprehensive Income, may at some point in the
    future be realized through a sale or impairment.

    Foreign currency risk:

    The Company is exposed to changes in the U.S. to Canadian dollar foreign
    currency exchange rate, primarily through Canadian dollar indebtedness.
    It does not hedge any of this foreign currency exposure. Its U.S.
    operations generally hold their investments in U.S. dollar denominated
    securities, and the Canadian operations in Canadian dollar denominated
    securities. A one cent appreciation in the value of the Canadian dollar
    relative to the U.S. dollar decreases net income before income taxes by
    approximately $0.9 million.

    Liquidity and cash flow risk:

    Liquidity risk is the risk of having insufficient cash resources to meet
    current financial obligations without raising funds at unfavorable rates
    or selling assets on a forced basis. Liquidity risk arises from general
    business activities and in the course of managing the assets and
    liabilities. There is the risk of loss to the extent that the sale of a
    security prior to its maturity is required to provide liquidity to
    satisfy policyholder and other cash outflows. Cash flow risk arises from
    risk that future inflation of policyholder cash flow exceeds returns on
    long-dated investment securities. The purpose of liquidity and cash flow
    management is to ensure that there is sufficient cash to meet all
    financial commitments and obligations as they fall due. The liquidity and
    cash flow requirements of the Company's business have been met primarily
    by funds generated from operations, asset maturities and income and other
    returns received on securities as well as the sale of certain operations.
    Cash provided from these sources is used primarily for claims and claim
    adjustment expense payments and operating expenses. The timing and amount
    of catastrophe claims are inherently unpredictable and may create
    increased liquidity requirements. To meet these cash requirements, the
    Company has policies to limit and monitor its exposure to individual
    issuers or related groups and to ensure that assets and liabilities are
    broadly matched in terms of their duration and currency. The Company
    believes that it has the flexibility to obtain, from internal sources the
    funds needed to fulfill the cash requirements during the current
    financial year and also to satisfy regulatory capital requirements.

    The Company holds $230.3 million in cash and high grade short-term
    assets, representing approximately 34% of invested assets. The majority
    of the other fixed income securities are also liquid.

    The following table summarizes carrying amounts of financial instruments
    by contractual maturity or expected cash flow dates (the actual repricing
    dates may differ from contractual maturity because certain securities and
    debentures have the right to call or prepay obligations with or without
    call or prepayment penalties):

    -------------------------------------------------------------------------
    As at                     One to      Five      More        No
     March 31,    One year      five    to ten  than ten  Specific
     2010          or less     years     years     years      date     Total
    -------------------------------------------------------------------------
    Assets:
    Cash and cash
     equivalents  $204,009  $      -  $      -  $      -  $      -  $204,009
    Securities      35,426   290,274    85,300    57,180        82   468,262
    Accrued
     investment
     income          4,038         -         -         -         -     4,038
    Financed
     premiums       17,876         -         -         -         -    17,876
    Accounts
     receivable
     and other
     assets         98,274         -         -         -         -    98,274
    Funds held
     in escrow       7,383    19,689         -         -         -    27,072
    Due from
     reinsurers
     and other
     insurers        2,738     3,120       377        18         -     6,253
    -------------------------------------------------------------------------
    Total:        $369,744  $313,083  $ 85,677  $ 57,198  $     82  $825,784
    -------------------------------------------------------------------------
    Liabilities:
    Loans payable $      -  $ 66,222  $      -  $      -   $     -  $ 66,222
    Accounts
     payable and
     accrued
     liabilities    58,187         -         -         -         -    58,187
    Unpaid claims  152,143   173,314    20,962       983         -   347,402
    Senior
     unsecured
     debentures          -    95,381         -         -         -    95,381
    Subordinated
     indebtedness        -         -         -    87,423         -    87,423
    -------------------------------------------------------------------------
    Total:        $210,330  $334,917  $ 20,962  $ 88,406  $      -  $654,615
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
    As at                     One to      Five      More        No
     December     One year      five    to ten  than ten  Specific
     31, 2009      or less     years     years     years      date     Total
    -------------------------------------------------------------------------
    Assets:
    Cash and cash
     equivalents  $ 58,726  $      -  $      -  $      -  $      -  $ 58,726
    Securities      68,138   293,868    94,675    55,439        77   512,197
    Accrued
     investment
     income          4,158         -         -         -         -     4,158
    Finance
     premiums       15,237         -         -         -         -    15,237
    Accounts
     receivable
     and other
     assets         94,285         -         -         -         -    94,285
    Due from
     reinsurers
     and other
     insurers        2,387     2,260       280        11         -     4,938
    -------------------------------------------------------------------------
    Total:        $242,931  $296,128  $ 94,955  $ 55,450  $     77  $689,541
    -------------------------------------------------------------------------
    Liabilities:
    Loans payable $      -  $      -  $ 66,222  $      -  $      -  $ 66,222
    Accounts
     payable and
     accrued
     liabilities    61,041         -         -         -         -    61,041
    Unpaid claims  181,302   165,836    20,553       810         -   368,501
    Senior
     unsecured
     debentures          -   176,764         -         -         -   176,764
    Subordinated
     indebtedness        -         -         -    87,415         -    87,415
    -------------------------------------------------------------------------
    Total:        $242,343  $342,600  $ 86,775  $ 88,225  $      -  $759,943
    -------------------------------------------------------------------------

    Collateral pledged: As at March 31, 2010, bonds and term deposits with an
    estimated fair value of $31.2 million were on deposit with state and
    provincial regulatory authorities. Also, from time to time, the Company
    pledges securities to third parties to collateralize liabilities incurred
    under its policies of insurance. At March 31, 2010, the amount of such
    pledged securities was $5.7 million. Collateral pledging transactions are
    conducted under terms that are common and customary to standard
    collateral pledging and are subject to the Company's standard risk
    management controls.

    The Company uses fair value hierarchy to categorize the inputs used in
    valuation techniques to measure fair value. The extent of the Company's
    use of quoted market prices (Level 1), internal models using observable
    market information as inputs (Level 2) and internal models without
    observable market information (Level 3) in the valuation of securities as
    at March 31, 2010 was as follows:

    -------------------------------------------------------------------------
                                               Available for sale securities
    -------------------------------------------------------------------------
                                                                       Fixed
    Description                                        Equity         Income

    Fair value                                     $   11,784     $  456,478
    Based on:
    Quoted market prices (level 1)                     100.0%
    Valuation techniques - Significant market
     observable inputs (level 2)                                      100.0%
    Valuation techniques - Significant unobservable
     market inputs (level 3)
    -------------------------------------------------------------------------


    NOTE 8 Capital Management
    -------------------------------------------------------------------------

    As a holding company, the Company derives cash from its subsidiaries
    generally in the form of dividends and management fees to meet its
    obligations, which primarily consist of interest payments. The Company's
    insurance subsidiaries fund their obligations primarily through the
    premium and investment income and maturities in the securities portfolio.
    The operating insurance subsidiaries require regulatory approval for the
    return of capital and, in certain circumstances, prior to the payment of
    dividends. In the event that dividends and management fees available to
    the holding company are inadequate to service its obligations, the
    Company would need to raise capital, sell assets or restructure its debt
    obligations.

    The Company did not pay any dividends on common shares in the first
    quarter of 2010 as compared to $0.9 million for the same period last
    year. The Company suspended its dividends in the second quarter of 2009.

    The Company has continued to experience losses. The reduction in
    shareholders' equity as a result of these ongoing losses has reduced the
    Company's capital flexibility by triggering negative covenants in its
    trust indentures and limiting the dividend capacity of the operating
    subsidiaries. Certain debentures issued by the Company contain negative
    covenants in their trust indentures, placing limitations and restrictions
    over certain actions without the prior written consent of the indenture
    trustees. Included in the negative covenants is the limitation on the
    incurrence of additional debt in the event that the total debt to total
    capital ratio or the senior debt to total capital ratio exceed 50% and
    35%, respectively. The total debt is calculated on a pro-forma basis
    taking into account the issuance of additional debt. The debentures also
    include covenants limiting the issuance and sale of voting stock of
    restricted subsidiaries, the payment of dividends or any other payment in
    respect of capital stock of the Company, or the retirement of debt
    subordinate to the debentures covered by the trust indentures if, after
    giving effect to such payments as described in the trust indentures, the
    total debt to total capital ratio exceeds 50%.

    As at March 31, 2010 the Company's total debt to capital and senior debt
    to capital ratios were 59.7% and 38.8% respectively. As a result, the
    limitations and restrictions described above are currently applicable.
    The Company continues to explore opportunities to buy back debt in the
    market in order to reduce the debt to capital ratios below the level at
    which these operating restrictions apply, while ensuring that the debt
    covenants are fully complied with. Pursuant to the debt buyback
    initiative the Company commenced in 2009 a take-over bid and a modified
    "Dutch Auction" tender offer for a portion of its outstanding Kingsway
    Linked Return of Capital Trust units and Unsecured 6% Debentures due
    July 11, 2012 respectively. Both the tenders were paid for using
    available cash. During 2009 the Company also bought back its common
    shares pursuant to an amended normal course issuer bid that terminated on
    December 1, 2009. Under this normal course issuer bid, 3,472,700 shares
    were repurchased at an average price of C$3.77, none of which were
    repurchased in first quarter of 2009. Currently, there is no existing
    normal course issuer bid in place and no common stock repurchases have
    been made in the first quarter of 2010. As at March 31, 2010, the Company
    had 52,095,828 common shares outstanding compared with 55,068,528 common
    shares outstanding at March 31, 2009.

    Early in 2010 the Company announced that it had entered into a definitive
    agreement for the sale of Jevco. On March 29, 2010, after receipt of all
    required regulatory approvals, the sale of Jevco was completed for a
    purchase price of C$264.2 million. Due to covenant restrictions
    associated with the sale of restricted subsidiaries under the Kingsway
    America Inc., 7.50% senior notes and the Kingsway 2007 General
    Partnership, 6.00% senior unsecured debentures, the Company was required
    to lower its applicable ratios to a level where the restrictions would no
    longer apply. The Company entered into a series of contingent trades
    which were completed on March 30, 2010, whereby the Company repurchased
    US$47.9 million and C$37.5 million of outstanding par value of the
    Company's debt maturing in 2014 and 2012 respectively resulting in a gain
    of $9.2 million and $5.9 million respectively. The Company used
    $69.1 million to make these repurchases. These buybacks have positively
    impacted the Company's debt ratios. Further details of the Jevco
    disposition have been noted under Note 3 to the consolidated financial
    statements pertaining to discontinued operations.

    As at March 31, 2010 the Company was adequately capitalized to support
    the premium volume of the insurance subsidiaries.

    In the United States, a risk based capital (RBC) formula is used by the
    National Association of Insurance Commissioners (NAIC) to identify
    property and casualty insurance companies that may not be adequately
    capitalized. The NAIC requires that capital and surplus not fall below
    200% of the authorized control level. As at March 31, 2010, all U.S.
    subsidiaries are estimated to be above the required RBC levels, with RBC
    ratios estimates ranging between 428% and 601% and have estimated
    aggregate capital of approximately $80.4 million in excess of the 200%
    level. Effective January 1, 2010, the Company expanded its utilization of
    an existing intercompany pooling arrangement to incorporate additional
    affiliated insurance entities. Under this agreement, premiums, losses,
    acquisition costs and underwriting expenses are pooled and then allocated
    to the members of the pool based upon predetermined participation
    percentages. The current members of the pool along with their
    corresponding participation percentage are as follows: Mendota Insurance
    Company (30%), Mendakota Insurance Company (5%), American Service
    Insurance Company (30%), American Country Insurance Company (15%), and
    Universal Casualty Company (20%).

    The Company commuted all related party reinsurance treaties in 2009. As
    at March 31, 2010, the regulatory capital remaining in Kingsway
    Reinsurance Corporation following the commutation of all related party
    reinsurance treaties is below the amount required under the Insurance Act
    of Barbados where Kingsway Reinsurance is domiciled. The Company
    considers this situation to be temporary as the calculation of the
    minimum capital required is based upon the premiums of the previous
    calendar year when the level of underwriting activity was significantly
    greater than those of the ongoing Barbados operation. This situation has
    been communicated to the Office of the Supervisor of Insurance in
    Barbados which has accepted the Company's commitment to resolve the
    shortfall in 2010.

    As at March 31, 2010, the capital maintained by Kingsway Reinsurance
    (Bermuda) Limited was approximately $0.5 million in excess of the
    regulatory capital requirements in Bermuda.

    NOTE 9 Hedges
    -------------------------------------------------------------------------

    On June 2, 2009, the Company discontinued the swap transaction which was
    designated as a cash flow hedge. When the hedge is discontinued, any
    cumulative adjustment to the hedging instrument through other
    comprehensive income is recognized in income over the remaining term of
    the hedged item, or when the hedged item is derecognized. The amount of
    loss recorded in other comprehensive income at the time of the
    discontinuance of the cash flow hedge was $6.2 million before tax of
    which $2.1 million was reclassified to net income in 2009 and
    $0.5 million has been reclassified to net income for the quarter ended
    March 31, 2010.

    NOTE 10 Restructuring charges
    -------------------------------------------------------------------------

    In February 2009, the Company announced a corporate restructuring plan to
    concentrate on its core lines of business and to improve the Company's
    financial stability. The Company has consolidated operations in the U.S.
    and Canada, simplified the management structure, reduced costs through
    synergies and operational efficiencies and positioned the Company to
    seize competitive advantage. As the Company exited businesses and
    streamlined operations, a significant number of employees have been
    removed from the total workforce. Restructuring costs were expected to be
    approximately $20.0 million, to be incurred over fiscal 2009 and 2010.
    This targeted amount included costs related to discontinued operations.
    In 2009, the Company has expensed $14.8 million of restructuring costs.
    Due to the disposition of Walshire and the sale of Jevco, as described in
    Note 3, some of the planned restructuring costs were incurred in
    discontinued operations.

    During the first three months of 2010, restructuring costs were
    $3.7 million which was primarily severance costs for senior management in
    Canada. The restructuring plan has concluded.

    Restructuring charges for the three months ended March 31, 2010 were as
    follows:

    -------------------------------------------------------------------------
                                                Restructuring charges
    -------------------------------------------------------------------------
                                           Severance  Consulting
                                        and benefits     expense       Total
    -------------------------------------------------------------------------
    Provision balance at
     January 1, 2010                      $    3,523  $        -  $    3,523
      Expense                                  3,664          26       3,690
      Payments                                 1,060          26       1,086
    Provision balance at March 31, 2010   $    6,127  $        -  $    6,127
    -------------------------------------------------------------------------

    The following table summarizes the total restructuring charges incurred
    by segment during the three months ended March 31:

    -------------------------------------------------------------------------
                                     U.S.    Run-off   Corporate       Total
    -------------------------------------------------------------------------
    2010                      $      668  $       95  $    2,927  $    3,690
    2009                      $       77  $        -  $    1,252  $    1,329
    -------------------------------------------------------------------------

    The following table summarizes the total amount of costs expected to be
    incurred for each reporting segment over the entire span of the
    restructuring plan:

    -------------------------------------------------------------------------
                                     U.S.    Run-off   Corporate       Total
    -------------------------------------------------------------------------
    Total expected costs
     for restructuring plan   $    4,500  $      500  $   13,000  $   18,000
    -------------------------------------------------------------------------

    The following table summarizes the total restructuring costs incurred by
    segment for the entire fourteen month period ended March 31, 2010:

    -------------------------------------------------------------------------
                                     U.S.    Run-off   Corporate       Total
    -------------------------------------------------------------------------
    Total continuing
     restructuring costs
     incurred                 $    2,905  $      493  $   15,075  $   18,473
    -------------------------------------------------------------------------

    NOTE 11 Acquisitions
    -------------------------------------------------------------------------

    On January 4, 2010, the Company and its subsidiary Kingsway America Inc.
    acquired certain assets of Itasca Financial, LLC, a property and casualty
    insurance industry advisory firm, owned and controlled by Mr. Larry
    Swets, a former director of the Company. The consideration for the assets
    purchased is equal to $1.5 million cash and one million restricted common
    shares of the Company, payable in three annual installments. Please refer
    to Note 13 - Related Party Transactions.

    NOTE 12 Buy-Back of Senior Notes
    -------------------------------------------------------------------------

    As described in note 3, due to covenant restrictions associated with the
    sale of restricted subsidiaries under the KAI, 7.50% senior notes and the
    Kingsway 2007 General Partnership, 6.00% senior unsecured debentures, the
    Company was required to lower its applicable ratios to a level where the
    restrictions would no longer apply. The Company entered into a series of
    contingent trades which closed on March 30, 2010, whereby the Company
    repurchased $47.9 million of par value of the KAI senior notes. The
    repurchase resulted in a gain of $9.2 million. The Company also
    repurchased $36.9 million (C$37.5 million) of par value of the Kingsway
    2007 General Partnership senior notes. The repurchase resulted in a gain
    of $5.9 million.

    NOTE 13 Related Party Transaction
    -------------------------------------------------------------------------

    Related-party transactions, including services provided to or received by
    the Company's subsidiaries, are carried out in the normal course of
    operations and are measured at the amount of consideration paid or
    received as established and agreed by the parties. Management believes
    that consideration paid for such services approximate fair value.

    On January 4, 2010, the Company and its subsidiary Kingsway America Inc.
    acquired certain assets of Itasca Financial, LLC, a property and
    casualty insurance industry advisory firm, owned and controlled by Mr.
    Larry Swets, a former director of the Company. The consideration for the
    assets purchased is equal to $1.5 million cash and one million restricted
    common shares of the Company, payable in three annual installments as per
    the table below:

    -------------------------------------------------------------------------
                                          1 business  1 business
                                                 day         day
                                           following   following
                                             the 1st     the 2nd
                                         anniversary anniversary
                                          after date  after date
                                             of this     of this
                                           agreement   agreement
                                           or change   or change
                              On Closing  of control  of control       Total
    -------------------------------------------------------------------------
    Cash (in 000's)           $      750  $      375  $      375  $    1,500
    -------------------------------------------------------------------------
    Restricted Shares            500,000     250,000     250,000   1,000,000
    -------------------------------------------------------------------------

    The value of the consideration paid was approximately $2.5 million at the
    time of close.

    Subsequent to the transaction, certain employees of Itasca are now
    employees within the KAI group, including Mr. Swets.

    In March 2009, the Company obtained a $20 million financing facility from
    American Physicians Assurance Corporation ("AP Assurance") to allow for
    specific capital initiatives. Two of the members of the Company's Board
    of Directors also sit on the board of AP Assurance making it a related
    party. The facility was at fair market terms and conditions. No funds
    were ever drawn on this facility and it has expired. In the fourth
    quarter of 2009, a new $20 million facility was obtained from AP
    Assurance. This new facility was at fair market terms and conditions. No
    funds were ever drawn on this facility and it was terminated on
    February 25, 2010.

    In March 2010, the Company signed an agreement with AP Assurance to
    provide investment management and investment accounting services to the
    Company, commencing April 1, 2010. This agreement is at fair market terms
    and conditions.

    In 2009, in addition to a previously agreed annual retainer of
    C$0.1 million, the Board of Directors had agreed to additional retainer
    payments of $0.4 million and C$0.1 million to the Chairman of the Board.
    Of these additional amounts, in 2009, the Company had paid $0.2 million
    and C$0.1 million. In 2010, the Company paid the remaining $0.2 million
    owed.

    In the first quarter of 2010, in addition to a previously agreed annual
    retainer of $0.2 million, the Board of Directors has decided to pay an
    additional retainer of $0.1 million to the Chairman of the Board. This
    additional payment was made subsequent to the quarter end.

    NOTE 14 Contractual Obligations and Related Contingencies
    -------------------------------------------------------------------------

    On June 29, 2009, Kingsway and Lincoln entered into an agreement with
    Rockwall Financial. Pursuant to that agreement (the "Run-off Management
    Agreement"), Rockwall Financial was to serve as the run-off manager for
    Lincoln. In addition to base compensation of $1.3 million annually, the
    agreement provides for a minimum of $2.5 million to be paid to Rockwall
    Financial no later than March 1, 2014, provided the contract is not
    terminated by Kingsway or Lincoln for cause. As a result of the
    October 19, 2009 disposition of Lincoln, in 2009, the Company had accrued
    $3.2 million for the base compensation and the additional $2.5 million
    compensation for a total compensation of $5.7 million as at March 31,
    2010.

    In March 2010, Rockwall Financial stopped providing its services as the
    manager of the Lincoln run-off. Rockwall Financial notified Kingsway that
    it was terminating the Run-off Management Agreement, because, it claimed,
    Kingsway had not made certain payments to Rockwall Financial and had
    otherwise breached the Run-off Management Agreement. Shortly before
    Rockwall Financial's unilateral decision to stop providing services to
    support Lincoln, Rockwall Financial had entered into a settlement
    agreement to dispose of pending litigation between Rockwall Financial and
    Lincoln in which Rockwall Financial received payments and a release. In
    that litigation, Lincoln had alleged, among other things, that Rockwall
    Financial had engaged in self-dealing and other misconduct while serving
    as the Lincoln run-off manager.

    Rockwall Financial then served upon Kingsway a demand for arbitration,
    claiming that Kingsway had breached the Run-off Management Agreement, and
    sought damages in excess of $26 million. Kingsway intends to defend the
    arbitration vigorously. As part of its defense of the matter, Kingsway
    intends to show that Rockwall Financial did not meet its obligations
    under the Run-off Management Agreement, abandoning the Lincoln run-off
    without cause. Kingsway may argue that Rockwall Financial breached the
    Run-off Management Agreement and, as a result, is not entitled to the
    sums it demands.

    The Company is also the defendant in two separate breach of contract
    suits filed by two former employees.

    NOTE 15 Comparative Figures
    -------------------------------------------------------------------------

    Certain comparative figures have been re-classified to conform to the
    financial statement presentation adopted in the current period.

    NOTE 16 Supplemental Condensed Consolidating Financial Information
    -------------------------------------------------------------------------

    On July 10, 2007, the Kingsway 2007 General Partnership issued
    C$100 million of 6% senior unsecured debentures unconditionally
    guaranteed by the Company ("KFSI") and Kingsway America Inc. ("KAI"), a
    wholly-owned subsidiary of the Company. The following is the condensed
    consolidating financial information for the Company as of March 31, 2010
    and December 31, 2009, and for the period ended March 31, 2010 and 2009,
    with a separate column for each Guarantor, the issuer and the other
    businesses of the Company combined ("Non-Guarantor subsidiaries").

    Condensed Consolidating Statement of Operations
    -------------------------------------------------------------------------
    For the three months
     ended March 31, 2010                   KFSI           KAI       K2007GP
    -------------------------------------------------------------------------
                                                   (an "Issuer"
                                         (a           and a
                                     "Guarantor")  "Guarantor") (an "Issuer")
    -------------------------------------------------------------------------
    Revenue:
      Net premiums earned            $         -   $         -   $         -
      Investment related income
       (loss)                             (2,778)        3,132        (1,049)
      Management fees                          -           782             -
    -------------------------------------------------------------------------
                                          (2,778)        3,914        (1,049)
    Expenses:
      Claims incurred                          -             -             -
      Commissions and premium taxes            -             -             -
      Other expenses                       6,346         3,483            66
      Interest expense                         -         6,315         1,217
    -------------------------------------------------------------------------
                                           6,346         9,798         1,283
    Loss before unusual items and
     income taxes                         (9,124)       (5,884)       (2,332)
    Gain on buy back of senior notes           -         9,172         5,931
    Income (loss) before income taxes     (9,124)        3,288         3,599
    Income taxes (recovery)               (1,905)            -         1,224
    -------------------------------------------------------------------------
    Equity in undistributed net
     income of subsidiaries               (9,577)      (14,965)            -
    Income (loss) from continuing
     operations                          (16,796)      (11,677)        2,375
    Gain from discontinued
     operations, net of taxes              8,359             -             -
    Gain on disposal of discontinued
     operations, net of taxes             32,533             -             -
    -------------------------------------------------------------------------
    Net income (loss)                $    24,096   $   (11,677)  $     2,375
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    For the three months                   Other Consolidation
     ended March 31, 2010           subsidiaries   adjustments         Total
    -------------------------------------------------------------------------
                                      (the "Non-
                                      Guarantor
                                    subsidiaries")
    -------------------------------------------------------------------------
    Revenue:
      Net premiums earned            $    81,475   $         -   $    81,475
      Investment related income
       (loss)                              2,633             -         1,938
      Management fees                          -          (782)            -
    -------------------------------------------------------------------------
                                          84,108          (782)       83,413
    Expenses:
      Claims incurred                     67,284             -        67,284
      Commissions and premium taxes       15,384             -        15,384
      Other expenses                      20,680          (782)       29,793
      Interest expense                    (2,024)            -         5,508
    -------------------------------------------------------------------------
                                         101,324          (782)      117,969
    Loss before unusual items and
     income taxes                        (17,216)            -       (34,556)
    Gain on buy back of senior notes           -             -        15,103
    Income (loss) before income taxes    (17,216)            -       (19,453)
    Income taxes (recovery)               (1,976)            -        (2,657)
    -------------------------------------------------------------------------
    Equity in undistributed net
     income of subsidiaries                    -        24,542             -
    Income (loss) from continuing
     operations                          (15,240)       24,542       (16,796)
    Gain from discontinued
     operations, net of taxes                  -             -         8,359
    Gain on disposal of discontinued
     operations, net of taxes                  -             -        32,533
    -------------------------------------------------------------------------
    Net income (loss)                $   (15,240)  $    24,542   $    24,096
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Condensed Consolidating Statement of Operations
    -------------------------------------------------------------------------
    For the three months
     ended March 31, 2009                   KFSI           KAI       K2007GP
    -------------------------------------------------------------------------
                                                   (an "Issuer"
                                         (a           and a
                                     "Guarantor")  "Guarantor") (an "Issuer")
    -------------------------------------------------------------------------
    Revenue:
      Net premiums earned            $         -   $         -   $         -
      Investment related income
       (loss)                              2,772           940         1,401
      Management fees                     11,454         6,822             -
    -------------------------------------------------------------------------
                                          14,226         7,762         1,401
    Expenses:
      Claims incurred                          -             -             -
      Commissions and premium taxes            -             -             -
      Other expenses                      15,595         6,748           221
      Interest expense                         -         6,590         1,446
    -------------------------------------------------------------------------
                                          15,595        13,338         1,667
    Income (loss) before unusual
     items and income taxes               (1,369)       (5,576)         (266)
    Gain on buy back of senior notes           -             -             -
    Income (loss) before income taxes     (1,369)       (5,576)         (266)
    Income taxes (recovery)               (1,424)       (1,896)          (90)
    -------------------------------------------------------------------------
    Equity in undistributed net
     income of subsidiaries               (5,645)      (17,483)            -
    -------------------------------------------------------------------------
    Income (loss) from continuing
     operations                           (5,590)      (21,163)         (176)
    Loss from discontinued
     operations, net of taxes            (51,061)            -             -
    Loss on disposal of discontinued
     operations, net of taxes             (1,616)            -             -
    -------------------------------------------------------------------------
    Net income (loss)                $   (58,267)  $   (21,163)  $      (176)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    For the three months                   Other Consolidation
     ended March 31, 2009           subsidiaries   adjustments         Total
    -------------------------------------------------------------------------
                                      (the "Non-
                                      Guarantor
                                    subsidiaries")
    -------------------------------------------------------------------------
    Revenue:
      Net premiums earned            $   136,346   $         -   $   136,346
      Investment related income
       (loss)                                965             -         6,078
      Management fees                          -       (18,276)            -
    -------------------------------------------------------------------------
                                         137,311       (18,276)      142,424
    Expenses:
      Claims incurred                    104,651             -       104,651
      Commissions and premium taxes       20,050             -        20,050
      Other expenses                      17,815       (18,276)       22,103
      Interest expense                    (1,740)            -         6,296
    -------------------------------------------------------------------------
                                         140,776       (18,276)      153,100
    Income (loss) before unusual
     items and income taxes               (3,465)            -       (10,676)
    Gain on buy back of senior notes           -             -             -
    Income (loss) before income taxes     (3,465)            -       (10,676)
    Income taxes (recovery)               (1,676)            -        (5,086)
    -------------------------------------------------------------------------
    Equity in undistributed net
     income of subsidiaries                    -        23,128             -
    -------------------------------------------------------------------------
    Income (loss) from continuing
     operations                           (1,789)       23,128        (5,590)
    Loss from discontinued
     operations, net of taxes                  -             -       (51,061)
    Loss on disposal of discontinued
     operations, net of taxes                  -             -        (1,616)
    -------------------------------------------------------------------------
    Net income (loss)                $    (1,789)  $    23,128   $   (58,267)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Condensed Consolidating Balance Sheets
    -------------------------------------------------------------------------

    As at March 31, 2010                    KFSI           KAI       K2007GP
    -------------------------------------------------------------------------
                                                   (an "Issuer"
                                         (a           and a
                                     "Guarantor")  "Guarantor") (an "Issuer")
    -------------------------------------------------------------------------
    Assets
      Investments in subsidiaries    $   (41,216)  $   298,664   $         -
      Cash and cash equivalents          170,103           743         2,472
      Investments                              -             -             -
      Goodwill and other intangible
       assets                                  -             -             -
      Other assets                        46,859       253,744        62,987
      Assets held for sale                     -             -             -
    -------------------------------------------------------------------------
                                     $   175,746   $   553,151   $    65,459
    -------------------------------------------------------------------------
    Liabilities and Shareholders'
     Equity
    Liabilities:
      Loans Payable                  $         -   $   130,714   $         -
      Other liabilities                    6,017        16,087           626
      Unearned premiums                        -             -             -
      Unpaid claims                            -             -             -
      Senior unsecured debentures              -        70,549        45,050
      Subordinated indebtedness                -        90,500             -
      Liabilities held for sale                -             -             -
    -------------------------------------------------------------------------
                                           6,017       307,850        45,676
    Shareholders' equity:
      Share capital                      296,091       610,928        14,867
      Contributed surplus                 19,205             -             -
      Retained earnings                 (169,476)     (365,627)        7,898
      Accumulated other
       comprehensive income               23,909             -        (2,982)
    -------------------------------------------------------------------------
                                         169,729       245,301        19,783
    -------------------------------------------------------------------------
                                     $   175,746   $   553,151   $    65,459
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                           Other Consolidation
    As at March 31, 2010            subsidiaries   adjustments         Total
    -------------------------------------------------------------------------
                                      (the "Non-
                                      Guarantor
                                    subsidiaries")
    -------------------------------------------------------------------------
    Assets
      Investments in subsidiaries    $(1,211,647)  $   954,199   $         -
      Cash and cash equivalents           30,691             -       204,009
      Investments                        478,325       (10,063)      468,262
      Goodwill and other intangible
       assets                             37,621             -        37,621
      Other assets                      (421,711)      292,297       234,176
      Assets held for sale                     -             -             -
    -------------------------------------------------------------------------
                                     $(1,086,721)  $ 1,236,433   $   944,068
    -------------------------------------------------------------------------
    Liabilities and Shareholders'
     Equity
    Liabilities:
      Loans Payable                  $   (81,550)  $    17,058   $    66,222
      Other liabilities                   50,718       (15,261)       58,187
      Unearned premiums                  119,724             -       119,724
      Unpaid claims                      340,837         6,565       347,402
      Senior unsecured debentures         (3,160)      (17,058)       95,381
      Subordinated indebtedness                -        (3,077)       87,423
      Liabilities held for sale                -             -             -
    -------------------------------------------------------------------------
                                         426,569       (11,773)      774,339
    Shareholders' equity:
      Share capital                    1,537,359    (2,163,154)      296,091
      Contributed surplus                      -             -        19,205
      Retained earnings               (3,081,300)    3,439,029      (169,476)
      Accumulated other
       comprehensive income               30,651       (27,669)       23,909
    -------------------------------------------------------------------------
                                      (1,513,290)    1,248,206       169,729
    -------------------------------------------------------------------------
                                     $(1,086,721)  $ 1,236,433   $   944,068
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Condensed Consolidating Balance Sheets
    -------------------------------------------------------------------------

    As at December 31, 2009                 KFSI           KAI       K2007GP
    -------------------------------------------------------------------------
                                                   (an "Issuer"
                                         (a           and a
                                     "Guarantor")  "Guarantor") (an "Issuer")
    -------------------------------------------------------------------------
    Assets
      Investments in subsidiaries    $   149,147   $   350,903   $         -
      Cash and cash equivalents           12,467        12,545         1,376
      Investments                              -             -             -
      Goodwill and other intangible
       assets                                  -        10,601             -
      Other assets                        10,066       245,681        97,157
      Assets held for sale                     -             -             -
    -------------------------------------------------------------------------
                                     $   171,680   $   619,730   $    98,533
    -------------------------------------------------------------------------
    Liabilities and Shareholders'
     Equity
    Liabilities:
      Loans Payable                  $         -   $   215,688   $         -
      Other liabilities                    2,342        21,520         2,275
      Unearned premiums                        -             -             -
      Unpaid claims                            -             -             -
      Senior unsecured debentures              -       117,975        79,156
      Subordinated indebtedness                -        90,500             -
      Liabilities held for sale                -             -             -
    -------------------------------------------------------------------------
                                           2,342       445,683        81,431
    Shareholders' equity:
      Share capital                      295,291       541,967        14,867
      Contributed surplus                 20,549             -             -
      Retained earnings                 (193,572)     (367,920)        5,522
      Accumulated other
       comprehensive income               47,070             -        (3,287)
    -------------------------------------------------------------------------
                                         169,338       174,047        17,102
    -------------------------------------------------------------------------
                                     $   171,680   $   619,730   $    98,533
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                           Other Consolidation
    As at December 31, 2009         subsidiaries   adjustments         Total
    -------------------------------------------------------------------------
                                      (the "Non-
                                      Guarantor
                                    subsidiaries")
    -------------------------------------------------------------------------
    Assets
      Investments in subsidiaries    $(1,188,296)  $   688,246   $         -
      Cash and cash equivalents           32,338             -        58,726
      Investments                        522,773       (10,576)      512,197
      Goodwill and other intangible
       assets                             37,573             -        48,174
      Other assets                      (714,968)      554,841       192,777
      Assets held for sale             1,145,481             -     1,145,481
    -------------------------------------------------------------------------
                                     $  (165,099)  $ 1,232,511   $ 1,957,355
    -------------------------------------------------------------------------
    Liabilities and Shareholders'
     Equity
    Liabilities:
      Loans Payable                  $  (166,499)  $    17,033   $    66,222
      Other liabilities                   42,388        (7,484)       61,041
      Unearned premiums                  120,657             -       120,657
      Unpaid claims                      361,936         6,565       368,501
      Senior unsecured debentures         (3,488)      (16,879)      176,764
      Subordinated indebtedness                -        (3,085)       87,415
      Liabilities held for sale          907,416             -       907,416
    -------------------------------------------------------------------------
                                       1,262,410        (3,850)    1,788,016
    Shareholders' equity:
      Share capital                    1,515,276    (2,072,110)      295,291
      Contributed surplus                      -             -        20,549
      Retained earnings               (2,966,589)    3,328,987      (193,572)
      Accumulated other
       comprehensive income               23,804       (20,516)       47,071
    -------------------------------------------------------------------------
                                      (1,427,509)    1,236,361       169,339
    -------------------------------------------------------------------------
                                     $  (165,099)  $ 1,232,511   $ 1,957,355
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Condensed Consolidating Statement of Cash Flows
    -------------------------------------------------------------------------
    For the three months
     ended March 31, 2010                   KFSI           KAI       K2007GP
    -------------------------------------------------------------------------
                                                   (an "Issuer"
                                         (a           and a
                                     "Guarantor")  "Guarantor") (an "Issuer")
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operating activities:
      Net income (loss)              $    24,096   $   (11,677)  $     2,375
    Adjustments to reconcile net
     income to net cash used by
     operating activities:
      Loss from discontinued
       operations                        (40,892)           -              -
      Equity in undistributed
       earnings in subsidiaries            9,577        14,965             -
      Other                              (32,955)      (13,008)       32,544
    -------------------------------------------------------------------------
                                         (40,174)       (9,720)       34,919
    Financing Activities:
    Increase in share capital, net           800        68,961             -
    Repurchase of common shares for
     cancellation                              -           -               -
    Contributed surplus                   (1,344)           -              -
    Common share dividend                      -           -               -
    Increase (decrease) in bank
     indebtedness                              -       (85,013)      (33,824)
    Decrease in senior unsecured
     indebtedness                              -       (38,254)            -
                                            (544)      (54,306)      (33,824)
    Investing Activities:
      Purchase of investments                  -           -               -
      Net proceeds from sale of
       investments                             -           -               -
      Proceeds from sale of
       discontinued operations           252,661           -               -
      Acquisitions, net of cash
       acquired                          (54,290)       (3,037)            -
      Other                                  (17)       55,261             -
    -------------------------------------------------------------------------
                                         198,354        52,224             -
    Increase (decrease) in cash
     during the period                   157,636       (11,802)        1,095
    Cash and cash equivalents,
     beginning of period                  12,467        12,545         1,377
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                   $   170,103   $       743   $     2,472
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    For the three months                   Other Consolidation
     ended March 31, 2010           subsidiaries   adjustments         Total
    -------------------------------------------------------------------------
                                      (the "Non-
                                      Guarantor
                                    subsidiaries")
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operating activities:
      Net income (loss)              $   (15,240)  $    24,542   $    24,096
    Adjustments to reconcile net
     income to net cash used by
     operating activities:
      Loss from discontinued
       operations                              -             -       (40,892)
      Equity in undistributed
       earnings in subsidiaries                -       (24,542)            -
      Other                               16,502       (61,037)      (57,954)
    -------------------------------------------------------------------------
                                           1,262       (61,037)      (74,750)
    Financing Activities:
    Increase in share capital, net             -       (68,961)          800
    Repurchase of common shares for
     cancellation                              -             -             -
    Contributed surplus                        -             -        (1,344)
    Common share dividend                      -             -             -
    Increase (decrease) in bank
     indebtedness                              8       118,837             8
    Decrease in senior unsecured
     indebtedness                              -       (43,129)      (81,383)
                                               8         6,747       (81,919)
    Investing Activities:
      Purchase of investments            (33,219)            -       (33,219)
      Net proceeds from sale of
       investments                        85,116             -        85,116
      Proceeds from sale of
       discontinued operations                 -             -       252,661
      Acquisitions, net of cash
       acquired                            3,037        54,290             -
      Other                              (57,850)            -        (2,606)
    -------------------------------------------------------------------------
                                          (2,916)       54,290       301,952
    Increase (decrease) in cash
     during the period                    (1,646)            -       145,283
    Cash and cash equivalents,
     beginning of period                  32,337             -        58,726
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                   $    30,691   $         -   $   204,009
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Condensed Consolidating Statement of Cash Flows
    -------------------------------------------------------------------------
    For the three months
     ended March 31, 2009                   KFSI           KAI       K2007GP
    -------------------------------------------------------------------------
                                                   (an "Issuer"
                                         (a           and a
                                     "Guarantor")  "Guarantor") (an "Issuer")
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operating activities:
      Net income (loss)              $   (58,267)  $   (21,163)  $      (176)
    Adjustments to reconcile net
     income to net cash used by
     operating activities:
      Income from discontinued
       operations                              -             -             -
      Equity in undistributed
       earnings in subsidiaries            5,645        17,483             -
      Other                               14,144        (9,574)          219
    -------------------------------------------------------------------------
                                         (38,478)      (13,254)           43
    Financing Activities:
    Increase in share capital, net             -        31,586             -
    Contributed surplus                     (638)            -             -
    Common share dividend                   (872)            -             -
    Increase (decrease) in bank
     indebtedness                              -        39,915           248
    Decrease in senior unsecured
     indebtedness                              -             -             -
    -------------------------------------------------------------------------
                                          (1,510)       71,501           248
    Investing Activities:
      Purchase of investments                  -             -             -
      Proceeds from sale of
       investments                             -             -             -
      Proceeds from sale of
       discontinued operations            (1,941)            -             -
      Acquisitions, net of cash
       acquired                           43,371       (63,409)            -
      Other                                 (286)        3,923             -
    -------------------------------------------------------------------------
                                          41,144       (59,486)            -
    Increase (decrease) in cash
     during the period                     1,157        (1,239)          291
    Cash and cash equivalents,
     beginning of period                  21,335         5,603           543
    Less cash and cash equivalents
     of discontinued operations                -             -             -
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                   $    22,492   $     4,364   $       834
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    For the three months                   Other Consolidation
     ended March 31, 2009           subsidiaries   adjustments         Total
    -------------------------------------------------------------------------
                                      (the "Non-
                                      Guarantor
                                    subsidiaries")
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operating activities:
      Net income (loss)              $    (1,789)  $    23,128   $   (58,267)
    Adjustments to reconcile net
     income to net cash used by
     operating activities:
      Income from discontinued
       operations                         52,677             -        52,677
      Equity in undistributed
       earnings in subsidiaries                -       (23,128)            -
      Other                             (163,104)      117,553       (40,762)
    -------------------------------------------------------------------------
                                        (112,217)      117,553       (46,352)
    Financing Activities:
    Increase in share capital, net             -       (31,586)            -
    Contributed surplus                        -             -          (638)
    Common share dividend                      -             -          (872)
    Increase (decrease) in bank
     indebtedness                              7       (40,163)            7
    Decrease in senior unsecured
     indebtedness                              -        (2,433)       (2,433)
    -------------------------------------------------------------------------
                                               7       (74,182)       (3,936)
    Investing Activities:
      Purchase of investments           (178,454)            -      (178,454)
      Proceeds from sale of
       investments                       381,278             -       381,278
      Proceeds from sale of
       discontinued operations                 -             -        (1,941)
      Acquisitions, net of cash
       acquired                           63,409       (43,371)            -
      Other                                1,744             -         5,381
    -------------------------------------------------------------------------
                                         267,977       (43,371)      206,264
    Increase (decrease) in cash
     during the period                   155,767             -       155,976
    Cash and cash equivalents,
     beginning of period                  36,447             -        63,928
    Less cash and cash equivalents
     of discontinued operations           44,878             -        44,878
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                   $   147,336   $         -   $   175,026
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NOTE 17 Subsequent Events
    -------------------------------------------------------------------------

    The subsequent events have been evaluated up to May 14, 2010, the date
    the financial statements are issued. The subsequent events noted are as
    follows:

    As described in note 3, on April 1, 2010, the Commonwealth Court
    dismissed all claims against the Company in the legal action by the DOI
    challenging the disposition of Lincoln. The Commonwealth Court sustained
    the Company's objection to the action and rejected the arguments made by
    the "DOI" in its pleading filed on November 20, 2009. The Commonwealth
    Court confirmed that the disposition of Lincoln did not violate
    Pennsylvania insurance laws and did not require DOI approval.

    On April 30, 2010, the DOI filed a notice of appeal to the Pennsylvania
    Supreme Court relating to the Commonwealth Court's April 1, 2010
    decision. The Company intends to oppose this appeal.

    On April 20, 2010, the Company announced that it intends to commence a
    tender offer to acquire for cash up to a maximum of 750,000 of the
    outstanding preferred, retractable, redeemable, cumulative units ("KLROC
    Units") of Kingsway Linked Return of Capital Trust ("KLROC Trust") at a
    price per Unit of C$17.50. The offer price represents an 11% premium over
    the per Unit closing price on the TSX on April 19, 2010 and a 17% premium
    over the average trading price of the KLROC Units on the TSX during the
    20 business day period up to and including April 19, 2010. The Company
    currently beneficially owns and controls 833,715 KLROC Units,
    representing approximately 26.7% of the issued and outstanding KLROC
    Units.
    

%SEDAR: 00003152E %CIK: 0001072627

SOURCE Kingsway Financial Services Inc.


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