2014

Kingsway Reports Third Quarter Results

TORONTO, Nov. 14, 2011 /PRNewswire/ - (TSX: KFS) (NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its financial results for the third quarter and nine months ended September 30, 2011. All amounts are in U.S. dollars unless indicated otherwise.

The Company reported third quarter net income of $6.2 million (loss of $17.1 million year to date) or income of $0.12 (loss per share of $0.33 year to date) per share diluted. The book value has decreased from $2.78 per share at December 31, 2010 to $2.42 per share at September 30, 2011.  The Company also carries a valuation allowance, in the amount of $4.69 per share at September 30, 2011, against the deferred tax asset primarily related to its loss carryforwards.

The following are the highlights of the third quarter of 2011:

Operational results

  • Net loss of $8.2 million was recorded in the Underwriting segment for the third quarter ($25.6 million year to date).

  • Net income of $0.5 million was recorded in the Agency and Non-underwriting segment for the third quarter ($1.2 million year to date).

  • Net income of $13.9 million was recorded in the Corporate and Other segment for the third quarter ($8.6 million year to date).

  • Included in the Corporate and Other segment net income for the third quarter (net loss year to date) above is an unrealized gain on fair value of debt of $17.2 million ($25.8 million year to date).

  • The Company recognized no loss on disposal of discontinued operations for the third quarter (after-tax loss of $1.3 million year to date).

Dividend

The Board of Directors has decided a quarterly dividend will not be declared for the third quarter of 2011.

Subsequent Event

Subsequent to the third quarter, on October 17, 2011, the Company closed its previously announced acquisition of a minority position in a newly formed holding company which acquired 100% of the common stock of Walshire Assurance Company ("Walshire"), the sole shareholder of Lincoln General Insurance Company ("Lincoln").  Kingsway also reached a settlement and release ending all legal disputes with the Pennsylvania Insurance Department and obtained releases from Walshire and Lincoln.

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)

                     
(unaudited) Three months ended
September 30,
Nine months ended
September 30,
    2011   2010   2011   2010
Gross premiums written $ 33,206 $ 51,906 $ 107,607 $ 166,917
Net premiums written $ 30,943 $ 49,500 $ 100,726 $ 159,510
Revenue:                
  Net premiums earned $ 36,614 $ 52,269 $ 124,825 $ 170,370
  Commission income   5,807   4,246   18,124   8,544
  Investment income   999   825   3,228   6,232
  Net realized gain   110   6,029   128   6,501
  Unrealized gain (loss) on fair value of debt   17,189   (7,351)   25,821   (89,008)
  Share of loss of associate   84   -   (584)   -
  Miscellaneous income (loss)   3,469   (822)   1,422   5,792
    64,272   55,196   172,964   108,431
Expenses:                
  Claims incurred $ 33,329 $ 47,432 $ 109,349 $ 144,382
  Commissions and premium taxes   5,405   7,289   19,684   28,180
  General and administrative expenses   14,826   23,854   51,393   65,943
  Restructuring costs   -   -   -   4,898
  Interest expense   1,874   2,738   5,610   11,393
  Amortization of intangibles   211   1,743   979   5,114
    55,645   83,056   187,015   259,910
Income (loss) before unusual item and income taxes   8,627   (27,860)   (14,051)   (151,479)
Gain (loss) on buy-back of debt   1   (3,159)   534   (139)
Income (loss) from continuing operations before income taxes   8,628   (31,019)   (13,517)   (151,618)
Income tax expense (benefit)   2,433   (1,540)        2,292   (4,552)
Income (loss) from continuing operations $ 6,195 $ (29,479) $ (15,809) $ (147,066)
Loss from discontinued operations, net of tax   -   (1,651)   -   (3,938)
(Loss) income on disposal of discontinued operations, net of taxes   -   -   (1,293)   6,093
Net Income (loss) $ 6,195 $ (31,130) $ (17,102) $ (144,911)
Attributable to:                
    Shareholders of Kingsway   7,155   (10,445)   (13,419)   (127,148)
    Non-controlling interests   (960)   (20,685)   (3,683)   (17,763)
Total $ 6,195 $ (31,130) $ (17,102) $ (144,911)
Earnings (loss) per share - continuing operations                
    Basic: $ 0.12 $ (0.57) $ (0.30) $ (2.82)
    Diluted: $ 0.12 $ (0.57) $ (0.30) $ (2.82)
Earnings (loss) per share - net income (loss)                
    Basic: $ 0.12 $ (0.60) $ (0.33) $ (2.78)
    Diluted: $ 0.12 $ (0.60) $ (0.33) $ (2.78)
Weighted average shares outstanding (in 000's)                
    Basic:   52,346   52,096   52,283   52,090
    Diluted:   52,346   52,096   52,283   52,090

Income (Loss) from Continuing Operations and Earnings (Loss) Per Share - Continuing Operations

In the third quarter of 2011, the Company reported income from continuing operations of $6.2 million (loss of $15.8 million year to date), compared to a loss from continuing operations of $29.5 million in the third quarter of last year ($147.1 million prior year to date). Diluted income per share was $0.12 for the quarter (loss per share of $0.30 year to date), compared to diluted loss per share of $0.57 for the third quarter of 2010 ($2.82 prior year to date). As noted above, the current quarter's income is primarily due to unrealized gain on fair value of debt and investment income, offset by underwriting losses and corporate expenses.

Income (Loss) from Discontinued Operations

For the third quarter and year to date ended September 30, 2011, the Company reported no income from discontinued operations, compared to a loss of $1.7 million in the third quarter of 2010 ($3.9 million prior year to date).

As a result of the disposal of Jevco Insurance Company on March 29, 2010, the Company realized an after-tax loss of nil in the third quarter of 2011 ($1.9 million year to date) and an after-tax loss of nil in the third quarter of 2010 (after-tax gain of $6.1 million prior year to date).

As a result of the disposal of American Country Insurance Company and American Service Insurance Company, Inc. on December 31, 2010, the Company realized an after-tax gain of nil in the third quarter of 2011 ($0.6 million year to date).

Net Income (Loss) and Earnings (Loss) Per Share - Net Income (Loss)

In the third quarter of 2011, the Company reported net income of $6.2 million (loss of $17.1 million year to date), compared to net loss of $31.1 million in the third quarter of last year ($144.9 million prior year to date). Diluted income per share was $0.12 for the quarter (loss per share of $0.33 year to date) compared to diluted loss per share of $0.60 for the third quarter of 2010 ($2.78 prior year to date).

Consolidated Balance Sheets
(in thousands of U.S. dollars, except share amounts)

               
(unaudited)   September 30,
2011
  December 31,
2010
  January 1,
2010
ASSETS            
  Cash and cash equivalents $ 82,462 $ 140,567 $ 65,562
  Investment in securities   139,596   146,684   506,080
  Investment in associate   48,554   49,079   -
  Accrued investment income   1,660   1,957   3,942
  Financed premiums   5,714   13,572   15,237
  Accounts receivable   44,047   46,394   85,765
  Funds held in escrow   -   22,259   -
  Due from reinsurers and other insurers   555   7,651   4,938
  Deferred policy acquisition costs   9,339   13,952   29,088
  Income taxes recoverable   12,389   17,991   16,138
  Deferred income taxes   -   503   9,481
  Property and equipment   11,656   12,469   30,308
  Goodwill and intangible assets   43,862   43,959   37,573
  Other assets   1,152   2,544   4,786
  Assets held for sale   -   -   1,145,481
  TOTAL ASSETS $ 400,986 $ 519,581 $ 1,954,379
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
LIABILITIES            
  Loans payable $ 2,418 $ - $ -
  Accounts payable and accrued expenses   40,755   42,385   60,910
  Unearned premiums   42,780   66,879   120,657
  Unpaid claims   132,200   174,708   368,501
  Deferred tax liability   2,653   -   -
  LROC preferred units   8,829   13,076   22,388
  Senior unsecured debentures   27,622   37,177   103,512
  Subordinated indebtedness   17,218   40,480   23,966
  Liabilities held for sale   -   -   907,416
  TOTAL LIABILITIES $ 274,475 $ 374,705 $ 1,607,350
SHAREHOLDERS' EQUITY            
  Share capital $ 296,489 $ 296,139 $ 295,291
      Issued and outstanding number of common shares            
             52,345,828 - September 30, 2011            
             52,095,828 - December 31, 2010            
             51,595,828 - January 1, 2010            
  Contributed surplus   15,835   15,894   20,549
  Retained deficit   (204,336)   (190,918)   (19,520)
  Accumulated other comprehensive income   22,012   23,804   32,468
  Shareholders' equity attributable to shareholders of Kingsway   130,000   144,919   328,788
  Non-controlling interests   (3,489)   (43)   18,241
  TOTAL SHAREHOLDERS' EQUITY   126,511   144,876   347,029
  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 400,986 $ 519,581 $ 1,954,379

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 third quarter 2011 Management's Discussion and Analysis.

Additional Information

Additional information about Kingsway, including a copy of its Quarterly Report for the quarter ended September 30, 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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