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Press release from PR Newswire

Kingsway Reports Fourth Quarter and Year-End Results

Friday, March 22, 2013

Kingsway Reports Fourth Quarter and Year-End Results17:29 EDT Friday, March 22, 2013 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 investee and income tax expense (benefit)   (49,743)     (27,220)   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 subsidiaries   (1,195)     (7,233)     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, respectively)   $ 79,534   $  93,651   Equity investments, at fair value (cost of $2,305 and $2,689, respectively)   3,548   2,960   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 and $3,653, respectively   35,598   28,732 Service fee receivable   15,173   12,947 Other receivables, net of allowance for doubtful accounts of $1,002 and $806, respectively   4,750   6,322 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 $27,736, respectively   2,709   13,040 Goodwill   8,421   510 Intangible assets, net of amortization of $19,263 and $18,304, respectively   50,583   39,121 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 13,086,471 issued and outstanding at December 31, 2012 and December 31, 2011, respectively   $ 296,621   $ 296,489 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.For further information: <p> </p> <p> <b>Additional Information</b> </p> <p> Additional information about Kingsway, including a copy of its 2012 Annual Report, can be accessed on the Canadian Securities Administrators' website at <a href="http://www.sedar.com">www.sedar.com</a>, on the EDGAR section of the U.S. Securities and Exchange Commission's website at <a href="http://www.sec.gov">www.sec.gov</a> or through the Company's website at <a href="http://www.kingsway-financial.com">www.kingsway-financial.com</a>. </p>