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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