Kingsway Reports First Quarter Results

TORONTO, May 14, 2012 /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, 2012. All amounts are in U.S. dollars unless indicated otherwise.

The Company reported a first quarter net loss of $12.5 million, or a loss of $0.24 per diluted share.  The book value has decreased from $2.22 per share at December 31, 2011 to $2.01 per share at March 31, 2012. The Company also carries a valuation allowance, in the amount of $5.05 per share at March 31, 2012, against the deferred tax asset, primarily related to its loss carryforwards.

The following are the highlights of the first quarter of 2012:

Operational results

• Net operating loss of $3.2 million was recorded in the Insurance Underwriting segment for the first quarter.
  
  
• Net operating income of $1.7 million was recorded in the Insurance Services segment for the first quarter.
  
  
• Net investment income and realized gains of $1.1 million were recorded for the first quarter.
  
  
• Net loss of $12.1 million not allocated to any segment was recorded in the first quarter. This includes loss on change in fair value of debt of $4.3 million; equity in net loss of investees of $2.3 million; and interest expense of $1.1 million related to the Company's subordinated debt and currently being deferred.  None of these three items impacted the Company's cash flows during the first quarter.

Dividend

The Board of Directors declared no dividend for the first quarter of 2012.

Subsequent Events

Effective April 2, 2012, the Company and United Insurance Holdings Corp. ("United") mutually agreed to terminate their management services agreement which had been entered into between the Company and United in August of 2011.

During April of 2012, Larry G. Swets, Jr., the Company's President and Chief Executive Officer, adopted an automatic stock purchase plan in accordance with Canadian securities regulations and the guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934.

About the Company

Kingsway is a holding company functioning as a merchant bank with a focus on long-term value-creation.  The Company owns or controls stakes in several insurance industry assets and utilizes its subsidiaries, 1347 Advisors LLC and 1347 Capital LLC, to pursue opportunities acting as an advisor, an investor and a financier. The common shares of Kingsway are listed on the Toronto Stock Exchange and the New York Stock Exchange under the trading symbol "KFS."

Consolidated Statements of Operations (in thousands, except per share data) (unaudited)
					Three months ended March 31,
						2012				2011
Revenue:
	Net premiums earned				$	29,267			$	45,636
	Service fee and commission income					9,529				8,972
	Net investment income					830				1,077
	Net realized gains					273				1
	Loss on change in fair value of debt					(4,331)				(2,605)
	Other income					1,083				1,911
Total revenues						36,651				54,992
Expenses:
	Loss and loss adjustment expenses					21,775				41,577
	Commissions and premiums taxes					4,419				7,378
	General and administrative expenses					18,801				21,571
	Interest expense					1,849				1,903
	Amortization of other intangible assets					—				18
Total expenses						46,844				72,447
Loss before equity in net loss of investees and income tax expense (benefit)						(10,193)				(17,455)
Equity in net loss of investees						(2,270)				—
Loss from continuing operations before income tax expense (benefit)						(12,463)				(17,455)
Income tax expense (benefit)						59				(408)
Loss from continuing operations						(12,522)				(17,047)
Loss on disposal of discontinued operations, net of taxes						—				(1,293)
Net loss						(12,522)				(18,340)
	Less: net loss attributable to noncontrolling interests in consolidated subsidiaries					(1,514)				(534)
	Net loss attributable to common shareholders				$	(11,008)			$	(17,806)
Loss per share -  continuing operations:
	Basic and diluted:				$	(0.24)			$	(0.33)
Loss per share - net loss:
	Basic and diluted:				$	(0.24)			$	(0.35)
Weighted average shares outstanding (in '000s):
	Basic and diluted:					52,406				52,156

Loss from Continuing Operations and Loss Per Share - Continuing Operations

In the first quarter of 2012, the Company reported a loss from continuing operations of $12.5 million compared to a loss from continuing operations of $17.0 million in the first quarter of last year. Diluted loss per share was $0.24 for the quarter compared to diluted loss per share of $0.33 for the first quarter of 2011. The current quarter's loss is primarily due to operating losses generated in our Insurance Underwriting segment, corporate general expenses, interest expense, loss on change in fair value of debt, and equity in net loss of investees.

Loss on Disposal of Discontinued Operations

For the first quarter ended March 31, 2012, the Company reported no loss on disposal of discontinued operations, compared to a loss of $1.3 million in the first quarter of 2011.

Net Loss and Loss Per Share - Net Loss

In the first quarter of 2012, the Company reported net loss of $12.5 million compared to net loss of $18.3 million in the first quarter of 2011. Diluted loss per share was $0.24 for the quarter compared to diluted loss per share of $0.35 for the first quarter of 2011.

Consolidated Balance Sheets (in thousands, except per share data)
								March 31, 2012 (unaudited)				December 31, 2011
ASSETS
Investments:
	Fixed maturities, at fair value (amortized cost of $103,107 and  $91,344, respectively)				$			105,032			$	93,651
	Equity investments, at fair value (cost of $2,689 and $2,689, respectively)							3,264				2,960
	Other investments, at cost which approximates fair value							488				488
	Short-term investments, at cost which approximates fair value							3,335				20,334
Total investments								112,119				117,433
Investment in investees								46,730				48,689
Cash and cash equivalents								72,646				85,486
Accrued investment income								1,921				1,999
Premiums receivable, net of allowance for doubtful accounts of $3,671 and $3,653, respectively								40,016				28,732
Service fee receivable								14,569				12,947
Other receivables, net of allowance for doubtful accounts of $806 and $806, respectively								5,883				6,322
Reinsurance recoverable								1,293				697
Prepaid reinsurance premiums								3,650				2,024
Deferred policy acquisition costs, net								8,403				8,116
Income taxes recoverable								7,416				8,134
Property and equipment, net of accumulated depreciation of $28,628 and $27,736								12,856				13,040
Goodwill and intangible assets								39,631				39,631
Other assets								372				831
TOTAL ASSETS					$			367,505			$	374,081
LIABILITIES AND EQUITY
LIABILITIES
Unpaid loss and loss adjustment expenses					$			106,057			$	120,258
Unearned premiums								45,641				39,423
Reinsurance payable								2,443				1,913
LROC preferred units								10,789				8,845
Senior unsecured debentures								27,982				28,337
Subordinated debt								19,174				16,432
Deferred income tax liability								2,653				2,653
Notes payable								2,418				2,418
Deferred revenue								12,331				11,128
Accrued expenses and other liabilities								32,275				26,269
TOTAL LIABILITIES					$			261,763			$	257,676
EQUITY
Common stock, no par value; unlimited number authorized; 52,595,828 and 52,345,828 issued and outstanding at March 31, 2012 and December 31, 2011, respectively					$			296,621			$	296,489
Additional paid-in capital								15,372				15,403
Accumulated deficit								(212,214)				(201,208)
Accumulated other comprehensive income								14,588				12,749
Shareholders' equity attributable to common shareholders								114,367				123,433
Noncontrolling interests in consolidated subsidiaries								(8,625)				(7,028)
TOTAL EQUITY								105,742				116,405
TOTAL LIABILITIES AND EQUITY					$			367,505			$	374,081

Forward Looking Statements

This press release includes "forward looking statements" which are subject to risks and uncertainties. Such forward looking statements relate to future events or performance, but reflect Kingsway management's current beliefs, based on information currently available. 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, including: our high level of indebtedness; our ability to service our debt and comply with debt covenants; our ability to improve our operating performance; our ability to implement our long-term growth strategies and to identify and execute on strategic initiatives; our ability to maintain share price and trading activities at acceptable levels; and our ability to comply with regulatory requirements and the requirements of stock exchanges.

For information identifying additional important factors that could cause actual results to differ materially from those anticipated in the forward looking statements, please refer to the section entitled "Risk Factors" in the Company's 2011 Annual Report on Form 10-K. Except as expressly required by applicable securities law, 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.

Non-U.S. GAAP Financial Measures

This news release contains certain non-U.S. GAAP financial measures. Please refer to the section entitled "Non-U.S. GAAP Financial Measures" in the Management's Discussion and Analysis section of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.

 

 

Additional information about Kingsway, including a copy of its Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, can be accessed on the Canadian Securities Administrators' website at www.sedar.com, 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.