Kingsway Reports First Quarter Results

TORONTO, May 10, 2013 /CNW/ - Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its financial results for the first quarter ended March 31, 2013. All amounts are in U.S. dollars unless indicated otherwise.

The Company reported a net loss of $17.3 million, or a loss of $1.32 per diluted share, for the first quarter.  The book value has decreased from $4.97 per share at December 31, 2012 to $3.63 per share at March 31, 2013. The Company also carries a valuation allowance, in the amount of $20.75 per share at March 31, 2013, against the deferred tax asset, primarily related to its loss carryforwards.

The following are the highlights of the first quarter of 2013:

Operational results

• Net operating loss of $4.5 million was recorded in the Insurance Underwriting segment for the first quarter.

• Net operating income of $1.3 million was recorded in the Insurance Services segment for the first quarter.

• Net investment income of $0.6 million was recorded for the first quarter.

• Net realized losses of $1.4 million, inclusive of the $1.7 million loss recorded on the Company's sale of Atlas Financial Holdings Inc. ("Atlas") common stock as more fully described below, were recorded for the first quarter.

• Net loss of $13.3 million not allocated to any segment was recorded in the first quarter. This includes loss on change in fair value of debt of $9.0 million; equity in net income of investee of $0.3 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 ended March 31, 2013.

On February 12, 2013, the Company executed an underwriting agreement to sell 2,625,000 shares of Atlas common stock.  The shares were being offered as part of Atlas' United States initial public offering at a price per share of $5.85.  The Company received net proceeds of $13.6 million and recognized a loss of $1.7 million, resulting from commissions and other expenses incurred as part of the sale, during the first quarter.

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)

				Three months ended March 31,
				2013				2012
Revenue:
		Net premiums earned		$	28,068			$	29,267
		Service fee and commission income		13,124				9,529
		Net investment income		580				826
		Net realized (losses) gains		(1,409)				273
		Loss on change in fair value of debt		(8,951)				(4,331)
		Other income		2,218				1,083
Total revenues				33,630				36,647
Expenses:
		Loss and loss adjustment expenses		21,831				21,775
		Commissions and premium taxes		6,712				4,419
		General and administrative expenses		19,759				18,801
		Restructuring expense		780				—
		Interest expense		1,833				1,849
		Amortization of intangible assets		558				—
Total expenses				51,473				46,844
Loss before loss on buy-back of debt, equity in net income (loss) of investee and income tax (benefit) expense				(17,843)				(10,197)
Loss on buy-back of debt				(24)				—
Equity in net income (loss) of investee				255				(2,266)
Loss before income tax (benefit) expense				(17,612)				(12,463)
Income tax (benefit) expense				(276)				59
Net loss				(17,336)				(12,522)
		Less: net loss attributable to noncontrolling interests in consolidated subsidiaries		95				(1,514)
		Net loss attributable to common shareholders		$	(17,431)			$	(11,008)
Loss per share - net loss:
	Basic:			$	(1.32)			$	(0.96)
Diluted:				(1.32)				(0.96)
Weighted average shares outstanding (in '000s):
	Basic:			13,149				13,102
	Diluted:			13,149				13,102

Net Loss and Diluted Loss Per Share

In the first quarter of 2013, the Company reported a net loss of $17.3 million ($1.32 per diluted share) compared to $12.5 million ($0.96 per diluted share) in the first quarter of 2012. The net loss for the three months ended March 31, 2013 is attributable to operating losses in Insurance Underwriting, corporate general expenses, interest expense and loss on the change in fair value of debt. The net loss for the three months ended March 31, 2012 is due to operating losses in Insurance Underwriting, corporate general expenses, interest expense, loss on the change in fair value of debt and equity in net loss of investee.

Consolidated Balance Sheets
(in thousands, except per share data)

			March 31, 2013				December 31, 2012
			(unaudited)
ASSETS
Investments:
	Fixed maturities, at fair value (amortized cost of $69,626 and $77,858, respectively)		$	71,010			$	79,534
	Equity investments, at fair value (cost of $2,024 and $2,305, respectively)		3,304				3,548
	Limited liability investments		1,476				2,333
	Other investments, at cost which approximates fair value		2,000				2,000
	Short-term investments, at cost which approximates fair value		586				585
Total investments			78,376				88,000
Cash and cash equivalents			90,821				80,813
Investment in investee			26,526				41,733
Accrued investment income			1,356				2,263
Premiums receivable, net of allowance for doubtful accounts of $3,880 and $4,040, respectively			39,968				35,598
Service fee receivable			16,889				15,173
Other receivables, net of allowance for doubtful accounts of $1,002 and $1,002, respectively			4,435				4,750
Reinsurance recoverable			14,665				8,557
Prepaid reinsurance premiums			10,238				7,316
Deferred acquisition costs, net			12,685				14,102
Property and equipment, net of accumulated depreciation of $23,332 and $22,887, respectively			2,448				2,709
Goodwill			9,105				8,421
Intangible assets, net of amortization of $19,821 and $19,263, respectively			50,025				50,583
Other assets			3,974				4,045
Asset held for sale			8,737				8,737
TOTAL ASSETS			$	370,248			$	372,800
LIABILITIES AND EQUITY
LIABILITIES
Unpaid loss and loss adjustment expenses:
	Property and casualty		$	97,923			$	103,116
	Vehicle service agreements		3,281				3,448
Total unpaid loss and loss adjustment expenses			101,204				106,564
Unearned premiums			52,116				45,047
Reinsurance payable			10,637				4,956
LROC preferred units			14,903				13,655
Senior unsecured debentures			25,888				23,730
Subordinated debt			28,781				23,774
Deferred income tax liability			3,322				3,054
Deferred service fees			48,813				48,987
Income taxes payable			2,827				2,879
Accrued expenses and other liabilities			34,038				34,740
TOTAL LIABILITIES			$	322,529			$	307,386
EQUITY
Common stock, no par value; unlimited number authorized; 13,148,971 issued and outstanding at March 31, 2013 and December 31, 2012			$	296,621			$	296,621
Additional paid-in capital			15,757				15,757
Accumulated deficit			(279,501)				(262,069)
Accumulated other comprehensive income			14,433				14,762
Shareholders' equity attributable to common shareholders			47,310				65,071
Noncontrolling interests in consolidated subsidiaries			409				343
TOTAL EQUITY			47,719				65,414
TOTAL LIABILITIES AND EQUITY			$	370,248			$	372,800

Forward Looking Statements

This press release includes "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. Words such as "expects", "believes", "anticipates", "intends", "estimates", "seeks" and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward looking statements relate to future events or future 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, without limitation, our potential inability to complete current or future acquisitions successfully, our inability to successfully implement our restructuring activities, and our inability to adequately estimate and provide for an appropriate level of reserving at our insurance company subsidiaries. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward looking statements, see Kingsway's securities filings, including its Annual Report on Form 10-K for the year ended December 31, 2012 ("2012 Annual Report") and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.  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 press 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, 2013. 

 

 

SOURCE: Kingsway Financial Services Inc.

Additional Information

Additional information about Kingsway, including a copy of its 2012 Annual Report and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, 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.