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TORONTO, Nov. 9, 2012 /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, 2012. All amounts are in U.S. dollars unless indicated otherwise.
The Company reported a third quarter net loss of $20.0 million ($40.3
million year to date), or a loss of $1.52 ($3.07 year to date) per
diluted share. The book value has decreased from $8.90 per share at
December 31, 2011 to $5.88 per share at September 30, 2012. The Company
also carries a valuation allowance, in the amount of $20.48 per share
at September 30, 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 third quarter of 2012:
Operational results
Net operating loss of $16.8 million was recorded in the Insurance
Underwriting segment for the third quarter ($23.8 million year to
date). This third quarter 2012 result reflects $13.4 million of
charges, including $11.4 million added to the Company's provision for
unpaid loss and loss adjustment expenses; $1.3 million for abandoned
leases; and $0.7 million of the total $2.0 million estimated for
severance expense, described in the Company's September 17, 2012 press
release.
Net operating income of $0.4 million was recorded in the Insurance
Services segment for the third quarter ($2.9 million year to date).
Net investment income and realized gains of $1.9 million were recorded
for the third quarter ($3.8 million year to date).
The Company recorded no other-than-temporary impairment loss for the
third quarter ($0.5 million year to date).
Net loss of $5.5 million not allocated to any segment was recorded in
the third quarter ($22.7 million year to date). This includes loss on
change in fair value of debt of $3.2 million ($9.9 million year to
date); equity in net income of investee of $0.1 million (loss of $2.1
million year to date); and interest expense of $1.1 million ($3.3
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 third quarter and nine months ended
September 30, 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
property and casualty insurance business operations. Specific to
Insurance Underwriting, during the third quarter the Company began
taking actions to significantly reduce the amount of commercial lines
business written at Kingsway Amigo Insurance Company ("Amigo") and to
update Amigo's personal lines product offering. As part of the
restructuring, the Company will reduce staffing levels to be consistent
with decreased premium volume at its Amigo business.
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) (Unaudited)
Three months ended September 30,
Nine months ended September 30,
2012
2011
2012
2011
Revenue:
Net premiums earned
$
26,501
$
36,614
$
86,753
$
124,825
Service fee and commission income
7,648
7,687
25,315
24,465
Net investment income
782
999
2,414
3,228
Net realized gains
1,109
104
1,359
102
Other-than-temporary impairment loss
—
—
(488
)
—
(Loss) gain on change in fair value of debt
(3,177
)
17,189
(9,926
)
25,821
Other income
1,940
5,587
5,767
8,809
Total revenues
34,803
68,180
111,194
187,250
Expenses:
Loss and loss adjustment expenses
33,348
34,304
78,739
112,895
Commissions and premiums taxes
2,458
5,421
11,624
19,707
General and administrative expenses
16,819
17,986
52,774
62,367
Restructuring expense
1,972
—
1,972
—
Interest expense
1,887
1,874
5,652
5,610
Amortization of other intangible assets
—
18
—
54
Total expenses
56,484
59,603
150,761
200,633
(Loss) income before gain on buy-back of debt,
equity in net income (loss) of investee and income
tax (benefit) expense
(21,681
)
8,577
(39,567
)
(13,383
)
Gain on buy-back of debt
500
3
500
556
Equity in net income (loss) of investee
93
145
(2,085
)
(384
)
(Loss) income from continuing operations before income tax (benefit)
expense
(21,088
)
8,725
(41,152
)
(13,211
)
Income tax (benefit) expense
(1,054
)
2,433
(879
)
2,292
(Loss) income from continuing operations
(20,034
)
6,292
(40,273
)
(15,503
)
Loss on disposal of discontinued operations, net of
taxes
—
—
—
(1,293
)
Net (loss) income
(20,034
)
6,292
(40,273
)
(16,796
)
Less: net loss attributable to noncontrolling
interests in consolidated subsidiaries
(1,165
)
(960
)
(1,888
)
(3,684
)
Net (loss) income attributable to common
shareholders
$
(18,869
)
$
7,252
$
(38,385
)
$
(13,112
)
(Loss) income per share - continuing operations:
Basic:
$
(1.52
)
$
0.48
$
(3.07
)
$
(1.19
)
Diluted:
(1.52
)
0.48
(3.07
)
(1.19
)
(Loss) income per share - net (loss) income:
Basic:
$
(1.52
)
$
0.48
$
(3.07
)
$
(1.28
)
Diluted:
(1.52
)
0.48
(3.07
)
(1.28
)
Weighted average shares outstanding (in '000s):
Basic:
13,149
13,086
13,133
13,071
Diluted:
13,149
13,086
13,133
13,071
(Loss) Income from Continuing Operations, Net (Loss) Income and Diluted
(Loss) Income Per Share
In the third quarter of 2012, we incurred a loss from continuing
operations of $20.0 million ($1.52 per diluted share) compared to
income of $6.3 million (income of $0.48 per diluted share) in the third
quarter of 2011. For the nine months ended September 30, 2012, we
incurred a loss from continuing operations of $40.3 million ($3.07 per
diluted share) compared to $15.5 million ($1.19 per diluted share) for
the same period in 2011. The loss from continuing operations for the
three and nine months ended September 30, 2012 is attributable to
operating losses in Insurance Underwriting, corporate general expenses,
interest expense and loss on the change in fair value of debt. The
income from continuing operations for the three months ended September
30, 2011 is due to gain on the change in fair value of debt, offset by
Insurance Underwriting operating losses, corporate general expenses and
interest expense. The loss from continuing operations for the nine
months ended September 30, 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.
In the third quarter of 2012, we incurred a net loss of $20.0 million
($40.3 million year to date) compared to income of $6.3 million in the
third quarter of 2011 (loss of $16.8 million prior year to date). The
diluted loss per share was $1.52 for the third quarter of 2012 ($3.07
year to date) compared to a diluted income per share of $0.48 for the
third quarter of 2011 (loss of $1.28 prior year to date).
Loss on Disposal of Discontinued Operations
For the third quarter and nine months ended September 30, 2012, the
Company reported no loss on disposal of discontinued operations,
compared to a loss of zero and $1.3 million for the three and nine
months ended September 30, 2011, respectively.
Net (Loss) Income and (Loss) Income Per Share - Net (Loss) Income
In the third quarter of 2012, the Company reported net loss of $20.0
million ($40.3 million year to date) compared to net income of $6.3
million in the third quarter of 2011 (net loss of $16.8 million prior
year to date). Diluted loss per share was $1.52 for the quarter ($3.07
year to date) compared to diluted income per share of $0.48 for the
third quarter of 2011 (diluted loss per share of $1.28 prior year to
date).
Consolidated Balance Sheets (in thousands, except per share data)
September 30, 2012
December 31, 2011
(unaudited)
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost of $88,054 and $91,344,
respectively)
$
90,168
$
93,651
Equity investments, at fair value (cost of $2,303 and $2,689,
respectively)
2,350
2,960
Limited liability investments
2,413
97
Other investments, at cost which approximates fair value
—
488
Short-term investments, at cost which approximates fair value
335
20,334
Total investments
95,266
117,530
Investment in investee
47,173
48,592
Cash and cash equivalents
60,871
85,486
Accrued investment income
2,999
1,999
Premiums receivable, net of allowance for doubtful accounts of 3,665 and
3,653, respectively
33,922
28,732
Service fee receivable
15,683
12,947
Other receivables, net of allowance for doubtful accounts of $806 and
$806, respectively
5,579
6,322
Reinsurance recoverable
10,472
697
Prepaid reinsurance premiums
7,891
2,024
Deferred policy acquisition costs, net
8,039
8,116
Income taxes recoverable
—
8,134
Property and equipment, net of accumulated depreciation of $19,331 and
$27,736
3,323
13,040
Goodwill
510
510
Intangible assets
39,121
39,121
Other assets
1,923
831
Asset held for sale
8,737
—
TOTAL ASSETS
$
341,509
$
374,081
LIABILITIES AND EQUITY
LIABILITIES
Unpaid loss and loss adjustment expenses
$
104,953
$
120,258
Unearned premiums
44,070
39,423
Reinsurance payable
9,107
1,913
LROC preferred units
13,987
8,845
Senior unsecured debentures
22,921
28,337
Subordinated debt
24,942
16,432
Deferred income tax liability
2,772
2,653
Notes payable
—
2,418
Deferred revenue
14,031
11,128
Accrued expenses and other liabilities
27,432
26,269
TOTAL LIABILITIES
$
264,215
$
257,676
EQUITY
Common stock, no par value; unlimited number authorized; 13,148,971 and
13,086,471
issued and outstanding at September 30, 2012 and December 31, 2011,
respectively
$
296,621
$
296,489
Additional paid-in capital
15,631
15,403
Accumulated deficit
(248,369
)
(201,208
)
Accumulated other comprehensive income
13,752
12,749
Shareholders' equity attributable to common shareholders
77,635
123,433
Noncontrolling interests in consolidated subsidiaries
(341
)
(7,028
)
TOTAL EQUITY
77,294
116,405
TOTAL LIABILITIES AND EQUITY
$
341,509
$
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, see Kingsway's securities filings,
including its Annual Report on Form 10-K for the year ended December
31, 2011 ("2011 Annual Report") and its Quarterly Report on Form 10-Q
for the quarter ended September 30, 2012. 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 September 30,
2012.
Additional Information
Additional information about Kingsway, including a copy of its 2011
Annual Report and its Quarterly Report on Form 10-Q for the quarter
ended September 30, 2012, can be accessed on the Canadian Securities
Administrators' website at www.sedar.com, 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.
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