An anonymous director reports
KINGSWAY REPORTS FIRST QUARTER RESULTS
Kingsway Financial Services Inc. has released its financial results for the first quarter ended March 31, 2011. All amounts are in U.S. dollars unless indicated otherwise.
The company reported a first quarter net loss of $18.4-million or loss of 35 cents per share diluted. The book value has decreased from $2.78 per share at Dec. 31, 2010, to $2.47 per share at March 31, 2011. The company also carries a valuation allowance, in the amount of $4.67 per share at March 31, 2011, against the deferred tax asset primarily related to its loss carryforwards.
The following are the highlights of the first quarter of 2011.
Major events:
-
Kingsway adopted international financial reporting standards
commencing with the presentation of its unaudited consolidated
financial statements as at and for the three months ended March 31,
2011. Comparative results for 2010 have been restated to comply with
IFRS.
- On March 30, 2011, the company closed the sale of its wholly owned
subsidiary, Hamilton Risk Management Company, and its subsidiaries,
including Kingsway Amigo Insurance Company, to Acadia Acquisition
Partners LP. Kingsway will act as the general partner and hold a
limited partnership investment.
Operational results:
-
Net loss of $8.4-million was recorded in the underwriting segment for
the first quarter.
-
Net income of $1.0-million was recorded in the agency and non-underwriting segment for the first quarter.
-
Net loss of $9.7-million was recorded in the corporate and other
segment for the first quarter.
- An after-tax loss of $1.9-million (pretax loss of $2.3-million) was
recorded on early settlement of a $20.0-million (Canadian) receivable
pertaining to the sale of wholly owned subsidiary Jevco Insurance
company in March, 2010.
-
A gain of $600,000 was recorded upon finalizing the accounting
for the sale of American Service Insurance Company Inc. and American Country Insurance Company, which closed on Dec. 31, 2010.
Dividend
The board of directors has decided that a quarterly dividend will not be declared for the first quarter of 2011.
Subsequent to the first quarter, the company purchased and cancelled $10.6-million (Canadian) par value of its senior unsecured debentures due 2012. As a result, only $1.9-million (Canadian) par value of the 2012 debentures remain outstanding. This amount represents the company's only outstanding debt obligations maturing prior to 2014.
STATEMENT OF OPERATIONS
(In thousands of U.S. dollars, except per share amounts)
Three months ended
March 31,
2011 2010
Gross premiums written $ 42,415 $ 64,804
--------- ---------
Net premiums written $ 40,193 $ 62,380
Revenue
Net premiums earned $ 45,636 $ 61,081
Commission income 6,413 2,444
Investment income 1,077 2,753
Net realized gain 1 301
Unrealized (loss) on fair value of debt (2,605) (68,424)
Miscellaneous (loss) (973) (2,468)
--------- ---------
49,549 (4,313)
Expenses
Claims incurred 40,027 53,207
Commissions and premium taxes 7,371 12,880
General and administrative expenses 17,151 20,804
Restructuring costs - 3,690
Interest expense 1,903 4,975
Amortization of intangibles 585 1,510
--------- ---------
67,037 97,066
(Loss) before unusual item and income taxes (17,488) (101,379)
Gain on buyback of debt - 3,324
--------- ---------
(Loss) from continuing operations before
income taxes (17,488) (98,055)
Income tax benefit (408) (2,689)
--------- ---------
(Loss) from continuing operations $ (17,080) $ (95,366)
Income from discontinued operations, net of tax - 6,887
Income (loss) on disposal of discontinued
operations, net of taxes (1,293) 8,272
--------- ---------
Net (loss) $ (18,373) $ (80,207)
========= =========
Attributable to
Shareholders of Kingsway (17,839) (68,991)
Non-controlling interests (534) (11,216)
--------- ---------
Total $ (18,373) $ (80,207)
(Loss) per share -- continuing operations
Basic $ (0.33) $ (1.83)
Diluted $ (0.33) $ (1.83)
(Loss) per share -- net income
Basic $ (0.35) $ (1.54)
Diluted $ (0.35) $ (1.54)
Loss from continuing operations and loss per share -- continuing operations
In the first quarter, the company reported a loss from continuing operations of $17.1-million, compared with a loss from continuing operations of $95.4-million in the first quarter of last year. Diluted loss per share was 33 cents for the quarter, compared with diluted loss per share of $1.83 for the first quarter of 2010. As noted above, the current quarter's loss is primarily due to underwriting losses, unrealized loss on fair value of debt and corporate expenses offset by investment income.
Income (loss) from discontinued operations
In the first quarter of 2011, the company reported income of nil from discontinued operations, compared with $6.9-million in the first quarter of 2010.
On Jan. 25, 2010, the company entered into a definitive purchase agreement with the Westaim Corp. to sell all of the issued and outstanding shares of Jevco to Westaim. On March 29, 2010, after receipt of all required regulatory approvals, the sale was completed for a purchase price of $263.3-million (Canadian). This was based on 94.5 per cent of the difference between the book value of Jevco as at Dec. 31, 2009, and a dividend of $10.8-million (Canadian), an investment portfolio adjustment relating to the change in market value at the closing date, and is subject to certain future contingent adjustments. The contingent adjustments include up to $20.0-million (Canadian) decrease in the purchase price relating to specific future adverse claims development to be determined at the end of 2012. On March 31, 2011, the company settled the $20.0-million (Canadian) contingent adjustments related to the Jevco transaction for $17.8-million (Canadian), recording a pretax loss of $2.3-million. As a result of the disposal of Jevco, the company realized an after-tax loss of $1.9-million in the first quarter of 2011 and an after-tax gain of $8.3-million in the first quarter of 2010.
As a result of the disposal of American Country and American Service, the company realized an after-tax gain of $600,000 in the first quarter of 2011.
Net loss and loss per share -- net loss
In the first quarter, the company reported net loss of $18.4-million, compared with a net loss of $80.2-million in the first quarter of last year. Diluted loss per share was 35 cents for the quarter compared with loss per share of $1.54 for the first quarter of 2010.
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 first quarter 2011 management's discussion and analysis.
Additional information
Additional information about Kingsway, including a copy of its quarterly report for the quarter ended March 31, 2011, can be accessed on the Canadian Securities Administrators' website at SEDAR, and on the EDGAR section of the U.S. Securities and Exchange Commission's website, or through the company's website.
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