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Kingsway Reports First Quarter Results

TORONTO, May 14, 2012 /PRNewswire/ - (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 sharedata)
                                          (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             (4,331)           (2,605)
      debt

      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                   18,801            21,571
      expenses

      Interest expense                              1,849             1,903

      Amortization of other intangible            --                18
      assets

    Total expenses                                 46,844            72,447

    Loss before equity in net loss of            (10,193)          (17,455)
    investees and income tax expense
    (benefit)

    Equity in net loss of investees               (2,270)           --

    Loss from continuing operations              (12,463)          (17,455)
    before income tax expense (benefit)

    Income tax expense (benefit)                       59             (408)

    Loss from continuing operations              (12,522)          (17,047)

    Loss on disposal of discontinued              --           (1,293)
    operations, net of taxes

    Net loss                                     (12,522)          (18,340)

      Less: net loss attributable to              (1,514)             (534)
      noncontrolling interests in
      consolidated subsidiaries

      Net loss attributable to common          $ (11,008)     $    (17,806)
      shareholders

    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 pershare 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                                        
    ANDEQUITY                                                              

                                                                           

    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.

 

 

SOURCE Kingsway Financial Services Inc.

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