An anonymous director reports

KINGSWAY AND PENNSYLVANIA INSURANCE DEPARTMENT MOVE TO RESOLVE LINCOLN GENERAL ISSUES

Kingsway Financial Services Inc. has entered into a definitive agreement to purchase a minority stake in a newly formed holding company that, subject to regulatory approval, will own a majority of Walshire General Assurance Co., the sole shareholder of Lincoln General Insurance Co. The majority investor in the holding company, named LGIC Holdings LLC, will be Tawa PLC.

Until Oct. 19, 2009, the company was the indirect owner of 100 per cent of Walshire's common stock. As previously disclosed, on Oct. 19, 2009, the company disposed of its interest in Walshire and Lincoln General by donating its Walshire shares to 20 charities. On Nov. 20, 2009, the Pennsylvania Department of Insurance sued the company and the charities and sought to unwind the disposition. On April 1, 2010, the department's claims against the company, which had been filed in the Pennsylvania Commonwealth Court, were dismissed, but the department appealed to the Pennsylvania Supreme Court.

A majority of the charities which received the Walshire shares have accepted an offer to sell their stakes to LGIC Holdings LLC. The transaction involves a change of control of Lincoln General, which must be approved by the Pennsylvania Department of Insurance. In that connection, the department and Kingsway have been discussing a settlement of their dispute, whereby, if the change of control application is approved and the transaction subsequently closes, the appeal filed by the department will be withdrawn and the litigation involving the department, Kingsway and the charities will be discontinued. In anticipation of such a settlement, the parties have asked the Pennsylvania Supreme Court to postpone the oral argument of the department's appeal. If the change of control application is denied, the investment will not close and the offer to the charities will be revoked according to its terms.

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