Kingsway Reports Fourth Quarter and Year-End Results

Fri Mar 22, 2013 5:29pm EDT

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TORONTO,  March 22, 2013  /PRNewswire/ - (TSX: KFS, NYSE: KFS) Kingsway
Financial
 Services Inc. ("Kingsway" or the "Company") today announced its
 financial results for the fourth quarter and year ended  December 31,
 2012. All amounts are in U.S. dollars unless indicated otherwise.



The Company reported a net loss of  $13.0 million, or a loss of  $0.99  per
 diluted share, for the fourth quarter and a net loss of  $53.3 million,
 or a loss of  $4.05  per diluted share, for the year.  The book value has
 decreased from  $8.90  per share at  December 31, 2011  to  $4.97  per share
 at  December 31, 2012. The Company also carries a valuation allowance,
 in the amount of  $20.20  per share at  December 31, 2012, against the
 deferred tax asset, primarily related to its loss carryforwards.  All
 per share amounts have been adjusted for all periods to reflect the
 share consolidation implemented as of  July 3, 2012, whereby every four
 of the Company's common shares that were issued and outstanding were
 automatically combined into one issued and outstanding common share,
 without any change in the par value of such shares.



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


Operational results

* 
Net operating loss of  $5.7 million  was recorded in the Insurance
 Underwriting segment for the fourth quarter ($29.5 million  year to
 date).


* 
Net operating income of  $0.6 million  was recorded in the Insurance
 Services segment for the fourth quarter ($3.5 million  year to date).


* 
Net investment income and realized gains of  $0.5 million  were recorded
 for the fourth quarter ($4.3 million  year to date).


* 
Other-than-temporary impairment loss of  $2.2 million  was recorded for
 the fourth quarter ($2.7 million  year to date).


* 
Net loss of  $6.2 million  not allocated to any segment was recorded in
 the fourth quarter ($28.9 million  year to date). This includes gain on
 change in fair value of debt of  $0.7 million  (loss of  $9.2 million  year
 to date); equity in net income of investee of  $1.1 million  (loss of
  $1.0 million  year to date); and interest expense of  $1.2 million  ($4.5
 million  year to date) related to the Company's subordinated debt and
 currently being deferred.  None of these three items impacted the
 Company's cash flows during the fourth quarter and year ended  December
 31, 2012.

On  September 17, 2012, the Company announced that it was restructuring
 its Insurance Underwriting and Insurance Services segments.  As part of
 the restructuring, the Company intends to streamline its non-standard
 automobile property and casualty insurance business operations.
 Specific to Insurance Underwriting, during the fourth quarter of 2012,
 the Company began taking steps to place all of Kingsway Amigo Insurance
 Company, one of the Company's property and casualty insurance
 subsidiaries, into voluntary run-off.  On  November 19, 2012, the
 Florida Office of Insurance Regulation ("OIR") approved Amigo's plan to
 withdraw from the business of offering commercial lines insurance in
  Florida.  On  January 30, 2013, the OIR approved Amigo's plan to
 withdraw from the business of offering personal lines insurance in
  Florida.  Kingsway has commenced discussions with the OIR to outline
 plans for Amigo's run-off.  Any comprehensive run-off plan would be
 subject to OIR approval.


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)

                                                                                                                                                                           
                                                                                                                                                   Years ended December 31, 
                                                                                                                                      2012                           2011 
 Revenue:                                                                                                                                                                 
                                      Net premiums earned                                                             $   114,937                  $   156,382       
                                      Service fee and commission income                                                     35,491                        31,607       
                                      Net investment income                                                                  3,179                         4,083       
                                      Net realized gains                                                                     1,084                         1,095       
                                      Other-than-temporary impairment loss                                                 (2,703)                             -       
                                      (Loss) gain on change in fair value of debt                                          (9,234)                        25,876       
                                      Other income                                                                           7,617                         9,504       
 Total revenues                                                                                                             150,371                       228,547       
 Expenses:                                                                                                                                                                
                                      Loss and loss adjustment expenses                                                    100,184                       143,145       
                                      Commissions and premium taxes                                                         15,422                        24,305       
                                      General and administrative expenses                                                   73,931                        77,936       
                                      Restructuring expense                                                                  1,980                             -       
                                      Interest expense                                                                       7,638                         7,478       
                                      Amortization of intangible assets                                                        959                            73       
                                      Goodwill impairment                                                                        -                         2,830       
 Total expenses                                                                                                             200,114                       255,767       
 Loss before gain on buy-back of debt, equity in net (loss) income of                                                      (49,743)                      (27,220)       
  investee and income tax expense (benefit)                                                                                                                             
 Gain on buy-back of debt                                                                                                       500                           556       
 Equity in net (loss) income of investee                                                                                    (1,018)                           417       
 Loss from continuing operations before income tax expense (benefit)                                                       (50,261)                      (26,247)       
 Income tax expense (benefit)                                                                                                 3,017                         (169)       
 Loss from continuing operations                                                                                           (53,278)                      (26,078)       
 Loss on disposal of discontinued operations, net of taxes                                                                        -                       (1,293)       
 Net loss                                                                                                              $  (53,278)                  $  (27,371)       
                                      Less: net loss attributable to noncontrolling interests in consolidated              (1,195)                       (7,233)       
                                       subsidiaries                                                                                                                    
                                      Net loss attributable to common shareholders                                    $  (52,083)                  $  (20,138)       
 Loss per share -  continuing operations:                                                                                                                                 
                                      Basic:                                                                          $    (4.05)                  $    (1.99)       
                                      Diluted:                                                                        $    (4.05)                  $    (1.99)       
 Loss per share - net loss:                                                                                                                                               
                                      Basic:                                                                          $    (4.05)                  $    (2.09)       
                                      Diluted:                                                                        $    (4.05)                  $    (2.09)       
 Weighted average shares outstanding (in '000s):                                                                                                                          
                                      Basic:                                                                                13,149                        13,086       
                                      Diluted:                                                                              13,149                        13,086       


Loss from Continuing Operations and Diluted Loss Per Share  


In the fourth quarter of 2012, the Company reported a loss from
 continuing operations of  $13.0 million  ($0.99  per diluted share)
 compared to  $10.6 million  ($0.81  per diluted share) in the fourth
 quarter of 2011.  For the year ended  December 31, 2012, the Company
 reported a loss from continuing operations of  $53.3 million  ($4.05  per
 diluted share) compared to  $26.1 million  ($1.99  per diluted share) for
 the same period in 2011.  The loss from continuing operations for the
 three months and year ended  December 31, 2012  is attributable to
 operating losses in Insurance Underwriting, corporate general expenses,
 interest expense and, specific to the year ended  December 31, 2012,
 loss on the change in fair value of debt. The loss from continuing
 operations for the three months and year ended  December 31, 2011  is due
 to operating losses in Insurance Underwriting, corporate general
 expenses and interest expense, offset by gain on the change in fair
 value of debt.


Loss on Disposal of Discontinued Operations  


For the fourth quarter and year ended  December 31, 2012, the Company
 reported no loss on disposal of discontinued operations, compared to a
 loss of zero and  $1.3 million  for the fourth quarter and year ended
  December 31, 2011, respectively.


Net Loss and Loss Per Share - Net Loss


In the fourth quarter of 2012, the Company reported a net loss of  $13.0
 million  ($0.99  per diluted share) compared to  $10.6 million  ($0.81  per
 diluted share) in the fourth quarter of 2011. For the year ended
  December 31, 2012, the Company reported a net loss of  $53.3 million
 ($4.05  per diluted share) compared to  $27.4 million  ($2.09  per diluted
 share) for the year ended  December 31, 2011.


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

                                                                                                                                                                          
                                                                                                                             December 31,2012             December 31,2011 
                                                                                                                                                                           
 ASSETS                                                                                                                                                                    
 Investments:                                                                                                                                                              
                                        Fixed maturities, at fair value (amortized cost of $77,858 and $91,344,    $                 79,534   $                  93,651 
                                         respectively)                                                                                                                  
                                        Equity investments, at fair value (cost of $2,305 and $2,689,                                  3,548                        2,960 
                                         respectively)                                                                                                                    
                                        Limited liability investments                                                                  2,333                           97 
                                        Other investments, at cost which approximates fair value                                       2,000                          488 
                                        Short-term investments, at cost which approximates fair value                                    585                       20,334 
 Total investments                                                                                                                     88,000                      117,530 
 Cash and cash equivalents                                                                                                             80,813                       85,486 
 Investment in investee                                                                                                                41,733                       48,592 
 Accrued investment income                                                                                                              2,263                        1,999 
 Premiums receivable, net of allowance for doubtful accounts of $4,040                                                                 35,598                       28,732 
  and $3,653, respectively                                                                                                                                                 
 Service fee receivable                                                                                                                15,173                       12,947 
 Other receivables, net of allowance for doubtful accounts of $1,002 and                                                                4,750                        6,322 
  $806, respectively                                                                                                                                                       
 Reinsurance recoverable                                                                                                                8,557                          697 
 Prepaid reinsurance premiums                                                                                                           7,316                        2,024 
 Deferred acquisition costs, net                                                                                                       14,102                        8,116 
 Income taxes recoverable                                                                                                                   -                        8,134 
 Property and equipment, net of accumulated depreciation of $22,887 and                                                                 2,709                       13,040 
  $27,736, respectively                                                                                                                                                    
 Goodwill                                                                                                                               8,421                          510 
 Intangible assets, net of amortization of $19,263 and $18,304,                                                                        50,583                       39,121 
  respectively                                                                                                                                                             
 Other assets                                                                                                                           4,045                          831 
 Asset held for sale                                                                                                                    8,737                            - 
 TOTAL ASSETS                                                                                                       $                372,800   $                 374,081 
 LIABILITIES AND EQUITY                                                                                                                                                    
                                                                                                                                                                           
 LIABILITIES                                                                                                                                                               
 Unpaid loss and loss adjustment expenses:                                                                                                                                 
                                        Property and casualty                                                      $                103,116   $                 120,258 
                                        Vehicle service agreements                                                                     3,448                            - 
 Total unpaid loss and loss adjustment expenses                                                                                       106,564                      120,258 
 Unearned premiums                                                                                                                     45,047                       39,423 
 Reinsurance payable                                                                                                                    4,956                        1,913 
 LROC preferred units                                                                                                                  13,655                        8,845 
 Senior unsecured debentures                                                                                                           23,730                       28,337 
 Subordinated debt                                                                                                                     23,774                       16,432 
 Deferred income tax liability                                                                                                          3,054                        2,653 
 Notes payable                                                                                                                              -                        2,418 
 Deferred service fees                                                                                                                 48,987                       11,128 
 Income taxes payable                                                                                                                   2,879                            - 
 Accrued expenses and other liabilities                                                                                                34,740                       26,269 
 TOTAL LIABILITIES                                                                                                  $                307,386   $                 257,676 
 EQUITY                                                                                                                                                                    
 Common stock, no par value; unlimited number authorized; 13,148,971 and                                            $                296,621   $                 296,489 
 
13,086,471 issued and outstanding at December 31, 2012 and December 31,                                                                                                
  2011, respectively                                                                                                                                                     
 Additional paid-in capital                                                                                                            15,757                       15,403 
 Accumulated deficit                                                                                                                (262,069)                    (201,208) 
 Accumulated other comprehensive income                                                                                                14,762                       12,749 
 Shareholders' equity attributable to common shareholders                                                                              65,071                      123,433 
 Noncontrolling interests in consolidated subsidiaries                                                                                    343                      (7,028) 
 TOTAL EQUITY                                                                                                                          65,414                      116,405 
 TOTAL LIABILITIES AND EQUITY                                                                                       $                372,800   $                 374,081 


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, please refer to the section entitled "Risk
 Factors" in the Company's 2012 Annual Report.  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
 2012 Annual Report.


SOURCE  Kingsway Financial Services Inc.

Additional Information

Additional information about Kingsway, including a copy of its 2012  Annual
Report, 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

.

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