Kingsway Reports First Quarter Results

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Kingsway Financial Services Inc.

May 10, 2013, 04:37 ET

TORONTO, May 10, 2013 /PRNewswire/ - Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its financial results for the first quarter ended March 31, 2013. All amounts are in U.S. dollars unless indicated otherwise.

The Company reported a net loss of $17.3 million, or a loss of $1.32 per diluted share, for the first quarter.  The book value has decreased from $4.97 per share at December 31, 2012 to $3.63 per share at March 31, 2013. The Company also carries a valuation allowance, in the amount of $20.75 per share at March 31, 2013, against the deferred tax asset, primarily related to its loss carryforwards.

The following are the highlights of the first quarter of 2013:

Operational results

  • Net operating loss of $4.5 million was recorded in the Insurance Underwriting segment for the first quarter.
  • Net operating income of $1.3 million was recorded in the Insurance Services segment for the first quarter.
  • Net investment income of $0.6 million was recorded for the first quarter.
  • Net realized losses of $1.4 million, inclusive of the $1.7 million loss recorded on the Company's sale of Atlas Financial Holdings Inc. ("Atlas") common stock as more fully described below, were recorded for the first quarter.
  • Net loss of $13.3 million not allocated to any segment was recorded in the first quarter. This includes loss on change in fair value of debt of $9.0 million; equity in net income of investee of $0.3 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 ended March 31, 2013.

On February 12, 2013, the Company executed an underwriting agreement to sell 2,625,000 shares of Atlas common stock.  The shares were being offered as part of Atlas' United States initial public offering at a price per share of $5.85.  The Company received net proceeds of $13.6 million and recognized a loss of $1.7 million, resulting from commissions and other expenses incurred as part of the sale, during the first quarter.

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)

     
    Three months ended March 31,
    2013   2012
Revenue:        
    Net premiums earned   $ 28,068     $ 29,267  
    Service fee and commission income   13,124     9,529  
    Net investment income   580     826  
    Net realized (losses) gains   (1,409)     273  
    Loss on change in fair value of debt   (8,951)     (4,331)  
    Other income   2,218     1,083  
Total revenues   33,630     36,647  
Expenses:        
    Loss and loss adjustment expenses   21,831     21,775  
    Commissions and premium taxes   6,712     4,419  
    General and administrative expenses   19,759     18,801  
    Restructuring expense   780     —  
    Interest expense   1,833     1,849  
    Amortization of intangible assets   558     —  
Total expenses   51,473     46,844  
Loss before loss on buy-back of debt, equity in net income (loss) of investee and income tax (benefit) expense   (17,843)     (10,197)  
Loss on buy-back of debt   (24)     —  
Equity in net income (loss) of investee   255     (2,266)  
Loss before income tax (benefit) expense   (17,612)     (12,463)  
Income tax (benefit) expense   (276)     59  
Net loss   (17,336)     (12,522)  
    Less: net loss attributable to noncontrolling interests in consolidated subsidiaries   95     (1,514)  
    Net loss attributable to common shareholders   $ (17,431)     $ (11,008)  
Loss per share - net loss:        
  Basic:   $ (1.32)     $ (0.96)  
Diluted:   (1.32)     (0.96)  
Weighted average shares outstanding (in '000s):        
  Basic:   13,149     13,102  
  Diluted:   13,149     13,102  

Net Loss and Diluted Loss Per Share

In the first quarter of 2013, the Company reported a net loss of $17.3 million ($1.32 per diluted share) compared to $12.5 million ($0.96 per diluted share) in the first quarter of 2012. The net loss for the three months ended March 31, 2013 is attributable to operating losses in Insurance Underwriting, corporate general expenses, interest expense and loss on the change in fair value of debt. The net loss for the three months ended March 31, 2012 is due to operating losses in Insurance Underwriting, corporate general expenses, interest expense, loss on the change in fair value of debt and equity in net loss of investee.

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

                   
    March 31, 2013   December 31, 2012
    (unaudited)    
ASSETS        
Investments:        
  Fixed maturities, at fair value (amortized cost of $69,626 and $77,858, respectively)   $ 71,010     $ 79,534  
  Equity investments, at fair value (cost of $2,024 and $2,305, respectively)   3,304     3,548  
  Limited liability investments   1,476     2,333  
  Other investments, at cost which approximates fair value   2,000     2,000  
  Short-term investments, at cost which approximates fair value   586     585  
Total investments   78,376     88,000  
Cash and cash equivalents   90,821     80,813  
Investment in investee   26,526     41,733  
Accrued investment income   1,356     2,263  
Premiums receivable, net of allowance for doubtful accounts of $3,880 and $4,040, respectively   39,968     35,598  
Service fee receivable   16,889     15,173  
Other receivables, net of allowance for doubtful accounts of $1,002 and $1,002, respectively   4,435     4,750  
Reinsurance recoverable   14,665     8,557  
Prepaid reinsurance premiums   10,238     7,316  
Deferred acquisition costs, net   12,685     14,102  
Property and equipment, net of accumulated depreciation of $23,332 and $22,887, respectively   2,448     2,709  
Goodwill   9,105     8,421  
Intangible assets, net of amortization of $19,821 and $19,263, respectively   50,025     50,583  
Other assets   3,974     4,045  
Asset held for sale   8,737     8,737  
TOTAL ASSETS   $ 370,248     $ 372,800  
LIABILITIES AND EQUITY        
         
LIABILITIES        
Unpaid loss and loss adjustment expenses:        
  Property and casualty   $ 97,923     $ 103,116  
  Vehicle service agreements   3,281     3,448  
Total unpaid loss and loss adjustment expenses   101,204     106,564  
Unearned premiums   52,116     45,047  
Reinsurance payable   10,637     4,956  
LROC preferred units   14,903     13,655  
Senior unsecured debentures   25,888     23,730  
Subordinated debt   28,781     23,774  
Deferred income tax liability   3,322     3,054  
Deferred service fees   48,813     48,987  
Income taxes payable   2,827     2,879  
Accrued expenses and other liabilities   34,038     34,740  
TOTAL LIABILITIES   $ 322,529     $ 307,386  
EQUITY        
Common stock, no par value; unlimited number authorized; 13,148,971 issued and outstanding at March 31, 2013 and December 31, 2012   $ 296,621     $ 296,621  
Additional paid-in capital   15,757     15,757  
Accumulated deficit   (279,501)     (262,069)  
Accumulated other comprehensive income   14,433     14,762  
Shareholders' equity attributable to common shareholders   47,310     65,071  
Noncontrolling interests in consolidated subsidiaries   409     343  
TOTAL EQUITY   47,719     65,414  
TOTAL LIABILITIES AND EQUITY   $ 370,248     $ 372,800  

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, see Kingsway's securities filings, including its Annual Report on Form 10-K for the year ended December 31, 2012 ("2012 Annual Report") and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.  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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2013. 

 

 

SOURCE Kingsway Financial Services Inc.