An anonymous director reports

KINGSWAY REPORTS THIRD QUARTER RESULTS

Kingsway Financial Services Inc. today released its financial results for the third quarter and nine months ended Sept. 30, 2011. All amounts are in United States 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 12 cents (loss per share of 33 cents year to date) per share diluted. The book value has decreased from $2.78 per share at Dec. 31, 2010, to $2.42 per share at Sept. 30, 2011. The company also carries a valuation allowance, in the amount of $4.69 per share at Sept. 30, 2011, against the deferred tax asset primarily related to its loss carry forwards.

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 $500,000 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 Oct. 17, 2011, the company closed its previously announced acquisition of a minority position in a newly formed holding company which acquired 100 per cent of the common stock of Walshire Assurance Co., the sole shareholder of Lincoln General Insurance Co. Kingsway also reached a settlement and release ending all legal disputes with the Pennsylvania Insurance Department and obtained releases from Walshire and Lincoln.

                            STATEMENT OF OPERATIONS
           (in thousands of U.S. dollars, except per share amounts)

                                             Three months         Nine months
                                                    ended               ended 
                                                Sept. 30,           Sept. 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 buyback 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)

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 with 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 12 cents for the quarter (loss per share of 30 cents year to date), compared with diluted loss per share of 57 cents 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 Sept. 30, 2011, the company reported no income from discontinued operations, compared with 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 Co. 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 Co. and American Service Insurance Co. Inc. on Dec. 31, 2010, the company realized an after-tax gain of nil in the third quarter of 2011 ($600,000 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 with 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 12 cents for the quarter (loss per share of 33 cents year to date) compared with diluted loss per share of 60 cents for the third quarter of 2010 ($2.78 prior year to date).

Non-IFRS (international financial reporting standards) 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 Sept. 30, 2011, can be accessed on the Canadian Securities Administrators' website at SEDAR, on the EDGAR section of the United States Securities and Exchange Commission's website, or through the company's website.

We seek Safe Harbor.