Kingsway Reports First Quarter Results
TORONTO, June 14, 2011 /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, 2011. All amounts are in U.S. dollars unless indicated otherwise.
The Company reported a first quarter net loss of $18.4 million or loss of $0.35 per share diluted. The book value has decreased from $2.78 per share at December 31, 2010 to $2.47 per share at March 31, 2011. The Company also carries a valuation allowance, in the amount of $4.67 per share at March 31, 2011, against the deferred tax asset primarily related to its loss carryforwards.
The following are the highlights of the first quarter of 2011:
Major events
- Kingsway adopted International Financial Reporting Standards ("IFRS")
commencing with the presentation of its unaudited consolidated
financial statements as at and for the three months ended March 31,
2011. Comparative results for 2010 have been restated to comply with
IFRS.
- On March 30, 2011, the Company closed the sale of its wholly owned
subsidiary Hamilton Risk Management Company and its subsidiaries,
including Kingsway Amigo Insurance Company, to Acadia Acquisition
Partners, L.P. Kingsway will act as the general partner and hold a
limited partnership investment.
Operational results
- Net loss of $8.4 million was recorded in the Underwriting segment for
the first quarter.
- Net income of $1.0 million was recorded in the Agency and Non-
underwriting segment for the first quarter.
- Net loss of $9.7 million was recorded in the Corporate and Other
segment for the first quarter.
- An after-tax loss of $1.9 million (pre-tax loss of $2.3 million) was
recorded on early settlement of a C$20.0 million receivable
pertaining to the sale of wholly owned subsidiary Jevco Insurance
Company ("Jevco") in March 2010.
- A gain of $0.6 million was recorded upon finalizing the accounting
for the sale of American Service Insurance Company, Inc. ("American
Service") and American Country Insurance Company ("American
Country"), which closed on December 31, 2010.
Dividend
The Board of Directors has decided that a quarterly dividend will not be declared for the first quarter of 2011.
Subsequent to the first quarter, the Company purchased and cancelled C$10.6 million par value of its senior unsecured debentures due 2012. As a result, only C$1.9 million par value of the 2012 debentures remain outstanding. This amount represents the Company's only outstanding debt obligations maturing prior to 2014.
About the Company
Kingsway focuses on non-standard automobile insurance in the United States of America. The Company's primary businesses are the insuring of automobile risks for drivers who do not meet the criteria for coverage by standard automobile insurers. The common shares of the Company are listed on the Toronto Stock Exchange and the New York Stock Exchange under the trading symbol "KFS".
Statement of Operations
(In thousands of U.S. dollars, except per share amounts)
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Three months ended
(unaudited) March 31,
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2011 2010
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Gross premiums written $ 42,415 $ 64,804
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Net premiums written $ 40,193 $ 62,380
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Revenue:
Net premiums earned $ 45,636 $ 61,081
Commission income 6,413 2,444
Investment income 1,077 2,753
Net realized gain 1 301
Unrealized loss on fair value of debt (2,605) (68,424)
Miscellaneous loss (973) (2,468)
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49,549 (4,313)
Expenses:
Claims incurred 40,027 53,207
Commissions and premium taxes 7,371 12,880
General and administrative expenses 17,151 20,804
Restructuring costs - 3,690
Interest expense 1,903 4,975
Amortization of intangibles 585 1,510
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67,037 97,066
Loss before unusual item and income taxes (17,488) (101,379)
Gain on buy-back of debt - 3,324
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Loss from continuing operations before
income taxes (17,488) (98,055)
Income tax benefit (408) (2,689)
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Loss from continuing operations $ (17,080) $ (95,366)
Income from discontinued operations, net of tax - 6,887
Income (loss) on disposal of discontinued
operations, net of taxes (1,293) 8,272
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Net Loss $ (18,373) $ (80,207)
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Attributable to:
Shareholders of Kingsway (17,839) (68,991)
Non-controlling interests (534) (11,216)
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Total $ (18,373) $ (80,207)
Loss per share - continuing operations
Basic: $ (0.33) $ (1.83)
Diluted: $ (0.33) $ (1.83)
Loss per share - net income
Basic: $ (0.35) $ (1.54)
Diluted: $ (0.35) $ (1.54)
Weighted average shares outstanding (in 000's)
Basic: 52,156 52,062
Diluted: 52,156 52,062
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Loss from Continuing Operations and Loss Per Share - Continuing Operations
In the first quarter, the Company reported a loss from continuing operations of $17.1 million, compared to a loss from continuing operations of $95.4 million in the first quarter of last year. Diluted loss per share was $0.33 for the quarter, compared to diluted loss per share of $1.83 for the first quarter of 2010. As noted above, the current quarter's loss is primarily due to underwriting losses, unrealized loss on fair value of debt, and corporate expenses offset by investment income.
Income (Loss) from Discontinued Operations
In the first quarter of 2011, the Company reported income of nil from discontinued operations, compared to $6.9 in the first quarter of 2010.
On January 25, 2010, the Company entered into a definitive purchase agreement with The Westaim Corporation ("Westaim") to sell all of the issued and outstanding shares of Jevco to Westaim. On March 29, 2010, after receipt of all required regulatory approvals, the sale was completed for a purchase price of C$263.3 million. This was based on 94.5% of the difference between the book value of Jevco as at December 31, 2009 and a dividend of C$10.8 million, an investment portfolio adjustment relating to the change in market value at the closing date and is subject to certain future contingent adjustments. The contingent adjustments include up to C$20.0 million decrease in the purchase price relating to specific future adverse claims development to be determined at the end of 2012. On March 31, 2011 the Company settled the C$20.0 million contingent adjustments related to the Jevco transaction for C$17.8 million, recording a pre-tax loss of $2.3 million. As a result of the disposal of Jevco, the Company realized an after-tax loss of $1.9 million in the first quarter of 2011 and after-tax gain of $8.3 million in the first quarter of 2010.
As a result of the disposal of American Country and American Service, the Company realized an after-tax gain of $0.6 million in the first quarter of 2011.
Net Loss and Loss Per Share - Net Loss
In the first quarter, the Company reported net loss of $18.4 million, compared to net loss of $80.2 million in the first quarter of last year. Diluted loss per share was $0.35 for the quarter compared to loss per share of $1.54 for the first quarter of 2010.
Consolidated Balance Sheets
(In thousands of U.S. dollars, except share amounts)
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March 31, December January 1,
(unaudited) 2011 31, 2010 2010
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ASSETS
Cash and cash equivalents $ 99,246 $ 140,567 $ 65,562
Investment in securities 175,695 146,684 506,080
Investment in associate 49,711 49,079 -
Accrued investment income 1,950 1,957 3,942
Financed premiums 10,321 13,572 15,237
Accounts receivable 48,058 46,394 85,765
Funds held in escrow 2,150 22,259 -
Due from reinsurers and
other insurers 913 7,651 4,938
Deferred policy acquisition costs 13,068 13,952 29,088
Income tax recoverable 16,841 17,991 16,138
Deferred income taxes 496 503 9,481
Property and equipment 12,162 12,469 30,308
Goodwill and intangible assets 43,809 43,959 37,573
Other assets 1,838 2,544 4,786
Assets held for sale - - 1,145,481
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TOTAL ASSETS $ 476,258 $ 519,581 $1,954,379
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Loan payable $ 2,250 $ - $ -
Accounts payable and accrued
expenses 36,718 42,385 60,910
Unearned premiums 61,436 66,879 120,657
Unpaid claims 153,463 174,708 368,501
LROC preferred units 13,299 13,076 22,388
Senior unsecured debentures 39,695 37,177 103,512
Subordinated indebtedness 40,343 40,480 23,966
Liabilities held for sale - - 907,416
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TOTAL LIABILITIES $ 347,204 $ 374,705 $1,607,350
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SHAREHOLDERS' EQUITY
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Share capital $ 296,489 $ 296,139 $ 295,291
Issued and outstanding number
of common shares
52,345,828 - March 31, 2011
52,095,828 - December 31, 2010
51,595,828 - January 1, 2010
Contributed surplus 15,684 15,894 20,549
Retained earnings (deficit) (210,506) (192,667) (19,520)
Accumulated other comprehensive
income 27,373 25,016 32,468
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Shareholders' equity attributable
to shareholders of Kingsway 129,040 144,382 328,788
Non-controlling interests 14 494 18,241
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TOTAL EQUITY 129,054 144,876 347,029
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TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY $ 476,258 $ 519,581 $1,954,379
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Forward Looking Statements
This press release includes "forward looking statements" that are subject to risks and uncertainties. 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. 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 2010 Annual Report under the heading Risk Factors in the Management's Discussion and Analysis section. The securities filings can be accessed on the Canadian Securities Administrators' website at www.sedar.com, and 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. 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-IFRS Financial Measures
This news release contains certain non-IFRS financial measures. Please refer to the section entitled "Non-IFRS Financial Measures" in the Company's first quarter 2011 Management's Discussion and Analysis.
Additional Information
Additional information about Kingsway, including a copy of its Quarterly Report for the quarter ended March 31, 2011, can be accessed on the Canadian Securities Administrators' website at www.sedar.com, and 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
SOURCE Kingsway Financial Services Inc.
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