TORONTO, Aug. 12, 2011 /CNW/ - (TSX: KFS) (NYSE: KFS) Kingsway Financial
Services Inc. ("Kingsway" or the "Company") today announced its
financial results for the second quarter and six months ended June 30,
2011. All amounts are in U.S. dollars unless indicated otherwise.
The Company reported a second quarter net loss of $4.9 million ($23.3
million year to date) or loss of $0.09 ($0.45 year to date) per share
diluted. The book value has decreased from $2.78 per share at December
31, 2010 to $2.40 per share at June 30, 2011. The Company also carries
a valuation allowance, in the amount of $4.70 per share at June 30,
2011, against the deferred tax asset primarily related to its loss
carryforwards.
The following are the highlights of the second quarter of 2011:
Major event
-
In April 2011, the Company 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
Assurance Company ("Walshire"), the sole shareholder of Lincoln General
Insurance Company. In addition, the Company and the Pennsylvania
Insurance Department ("DOI") have been in settlement discussions to
resolve the litigation in conjunction with the proposed Walshire
transaction, whereby, upon approval and subsequent closing of this
transaction, the appeal filed by DOI would be withdrawn and the
litigation involving Kingsway, DOI and the charities would be
discontinued.
Operational results
-
Net loss of $9.0 million was recorded in the Underwriting segment for
the second quarter ($17.4 million year to date).
-
Net loss of $0.3 million was recorded in the Agency and Non-underwriting
segment for the second quarter (net income of $0.7 million year to
date).
-
Net income of $4.4 million was recorded in the Corporate and Other
segment for the second quarter (net loss of $5.3 million year to date).
-
Included in the Corporate and Other segment net income for the second
quarter (net loss year to date) above is an unrealized gain on fair
value of debt of $11.2 million ($8.6 million year to date).
-
The Company recognized no loss on disposal of discontinued operations
for the second quarter (after-tax loss of $1.3 million year to date).
Dividend
The Board of Directors has decided that a quarterly dividend will not be
declared for the second quarter of 2011.
NYSE Share Price Rule
On August 2, 2011, the Company received notification from the New York
Stock Exchange ("NYSE") of the Company's non-compliance with a NYSE
listing criterion requiring an average closing price of a security not
be lower than $1.00 per share over a consecutive 30 trading-day
period. Kingsway has notified the NYSE of its intention to address
this non-compliance. The Company's common stock continues to be listed
on the NYSE and trades as usual; however, the consolidated tape now
includes a ".BC" indicator, which will be removed at such time as the
Company is deemed compliant with the NYSE's continued listing
standards.
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 June 30,
|
Six months ended June 30,
|
|
|
2011
|
2010
|
| 2011 |
|
2010
|
|
Gross premiums written
|
$
| 31,986 |
$
|
50,207
|
$
| 74,401 |
$
|
115,011
|
|
Net premiums written
|
$
| 29,590 | $ |
47,630
|
$
| 69,783 |
$
|
110,010
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
$
| 42,575 | $ |
57,020
|
$
| 88,211 |
$
|
118,101
|
|
Commission income
|
| 5,904 |
|
1,854
|
| 12,317 |
|
4,298
|
|
Investment income
|
| 1,152 |
|
2,654
|
| 2,229 |
|
5,407
|
|
Net realized gain
|
| 17 |
|
171
|
| 18 |
|
472
|
|
Unrealized gain (loss) on fair value of debt
|
| 11,237 |
|
(13,233)
|
| 8,632 |
|
(81,657)
|
|
Share of loss of associates
|
| (668) |
|
-
|
| (668) |
|
-
|
|
Miscellaneous (loss) income
|
| (1,074) |
|
9,082
|
| (2,047) |
|
6,614
|
|
|
| 59,143 |
|
57,548
|
| 108,692 |
|
53,235
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Claims incurred
|
$
| 35,993 | $ |
43,743
|
$
| 76,020 |
$
|
96,950
|
|
Commissions and premium taxes
|
| 6,908 |
|
8,011
|
| 14,279 |
|
20,891
|
|
General and administrative expenses
|
| 19,416 |
|
21,285
|
| 36,567 |
|
42,089
|
|
Restructuring costs
|
| - |
|
1,208
|
| - |
|
4,898
|
|
Interest expense
|
| 1,833 |
|
3,680
|
| 3,736 |
|
8,655
|
|
Amortization of intangibles
|
| 183 |
|
1,861
|
| 768 |
|
3,371
|
|
|
| 64,333 |
|
79,788
|
| 131,370 |
|
176,854
|
|
Loss before unusual item and income taxes
|
| (5,190) |
|
(22,240)
|
| (22,678) |
|
(123,619)
|
|
Gain (loss) on buy-back of debt
|
| 533 |
|
(304)
|
| 533 |
|
3,020
|
|
Loss from continuing operations before income taxes
|
| (4,657) |
|
(22,544)
|
| (22,145) |
|
(120,599)
|
|
Income tax expense (benefit)
|
| 267 |
|
(323)
|
| (141) |
|
(3,012)
|
|
Loss from continuing operations
|
$
| (4,924) | $ |
(22,221)
|
$
| (22,004) |
$
|
(117,587)
|
|
Loss from discontinued operations, net of tax
|
| - |
|
(9,174)
|
| - |
|
(2,287)
|
|
(Loss) income on disposal of discontinued operations, net of taxes
|
| - |
|
(2,179)
|
| (1,293) |
|
6,093
|
|
Net Loss
|
$
| (4,924) | $ |
(33,574)
|
$
| (23,297) |
$
|
(113,781)
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
Shareholders of Kingsway
|
| (2,735) |
|
(47,712)
|
| (20,574) |
|
(116,703)
|
|
|
Non-controlling interests
|
| (2,189) |
|
14,138
|
| (2,723) |
|
2,922
|
|
Total
| $ | (4,924) |
$
|
(33,574)
| $ | (23,297) |
$
|
(113,781)
|
|
Loss per share - continuing operations
|
|
|
|
|
|
|
|
|
|
|
Basic:
| $ | (0.09) |
$
|
(0.43)
| $ | (0.42) |
$
|
(2.26)
|
|
|
Diluted:
| $ | (0.09) |
$
|
(0.43)
| $ | (0.42) |
$
|
(2.26)
|
|
Loss per share - net loss
|
|
|
|
|
|
|
|
|
|
|
Basic:
| $ | (0.09) |
$
|
(0.64)
| $ | (0.45) |
$
|
(2.19)
|
|
|
Diluted:
| $ | (0.09) |
$
|
(0.64)
| $ | (0.45) |
$
|
(2.19)
|
|
Weighted average shares outstanding (in 000's)
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
| 52,346 |
|
52,062
|
| 52,219 |
|
52,062
|
|
|
Diluted:
|
| 52,346 |
|
52,062
|
| 52,219 |
|
52,062
|
Loss from Continuing Operations and Loss Per Share - Continuing
Operations
In the second quarter of 2011, the Company reported a loss from
continuing operations of $4.9 million ($22.0 million year to date),
compared to a loss from continuing operations of $22.2 million in the
second quarter of last year ($117.6 million prior year to date).
Diluted loss per share was $0.09 for the quarter ($0.42 year to date),
compared to diluted loss per share of $0.43 for the second quarter of
2010 ($2.26 prior year to date). As noted above, the current quarter's
loss is primarily due to underwriting losses and corporate expenses
offset by unrealized gain on fair value of debt and investment income.
Income (Loss) from Discontinued Operations
For the second quarter and year to date ended June 30, 2011, the Company
reported no income from discontinued operations, compared to a loss of
$9.2 million in the second quarter of 2010 ($2.3 million prior year to
date).
As a result of the disposal of Jevco, the Company realized an after-tax
loss of nil in the second quarter of 2011 ($1.9 million year to date)
and an after-tax loss of $2.2 million in the second quarter of 2010
(after-tax gain of $6.1 million prior year to date).
As a result of the disposal of American Country and American Service,
the Company realized an after-tax gain of nil in the second quarter of
2011 ($0.6 million year to date).
Net Loss and Loss Per Share - Net Loss
In the second quarter of 2011, the Company reported net loss of $4.9
million ($23.3 million year to date), compared to net loss of $33.6
million in the second quarter of last year ($113.8 million prior year
to date). Diluted loss per share was $0.09 for the quarter ($0.45 year
to date) compared to diluted loss per share of $0.64 for the second
quarter of 2010 ($2.19 prior year to date).
Consolidated Balance Sheets
(In thousands of U.S. dollars, except share amounts)
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
June 30,
2011
|
|
December 31,
2010
|
|
January 1,
2010
|
| ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
| 101,705 |
$
|
140,567
|
$
|
65,562
|
|
|
Investment in securities
|
| 142,887 |
|
146,684
|
|
506,080
|
|
|
Investment in associate
|
| 48,356 |
|
49,079
|
|
-
|
|
|
Accrued investment income
|
| 1,909 |
|
1,957
|
|
3,942
|
|
|
Financed premiums
|
| 6,688 |
|
13,572
|
|
15,237
|
|
|
Accounts receivable
|
| 46,205 |
|
46,394
|
|
85,765
|
|
|
Funds held in escrow
|
| - |
|
22,259
|
|
-
|
|
|
Due from reinsurers and other insurers
|
| 231 |
|
7,651
|
|
4,938
|
|
|
Deferred policy acquisition costs
|
| 10,389 |
|
13,952
|
|
29,088
|
|
|
Income taxes recoverable
|
| 13,166 |
|
17,991
|
|
16,138
|
|
|
Deferred income taxes
|
| 174 |
|
503
|
|
9,481
|
|
|
Property and equipment
|
| 12,321 |
|
12,469
|
|
30,308
|
|
|
Goodwill and intangible assets
|
| 43,384 |
|
43,959
|
|
37,573
|
|
|
Other assets
|
| 1,659 |
|
2,544
|
|
4,786
|
|
|
Assets held for sale
|
| - |
|
-
|
|
1,145,481
|
|
| TOTAL ASSETS |
$
| 429,074 |
$
|
519,581
|
$
|
1,954,379
|
|
|
|
|
|
|
|
|
| LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
| LIABILITIES |
|
|
|
|
|
|
|
|
Loans payable
|
$
| 2,418 |
$
|
-
|
$
|
-
|
|
|
Accounts payable and accrued expenses
|
| 38,333 |
|
42,385
|
|
60,910
|
|
|
Unearned premiums
|
| 48,451 |
|
66,879
|
|
120,657
|
|
|
Unpaid claims
|
| 143,096 |
|
174,708
|
|
368,501
|
|
|
LROC preferred units
|
| 12,579 |
|
13,076
|
|
22,388
|
|
|
Senior unsecured debentures
|
| 27,916 |
|
37,177
|
|
103,512
|
|
|
Subordinated indebtedness
|
| 30,519 |
|
40,480
|
|
23,966
|
|
|
Liabilities held for sale
|
| - |
|
-
|
|
907,416
|
|
| TOTAL LIABILITIES |
$
| 303,312 |
$
|
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 - June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
52,095,828 - December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
51,595,828 - January 1, 2010 |
|
|
|
|
|
|
|
|
Contributed surplus
|
| 15,693 |
|
15,894
|
|
20,549
|
|
|
Retained deficit
|
| (213,241) |
|
(192,667)
|
|
(19,520)
|
|
|
Accumulated other comprehensive income
|
| 28,796 |
|
25,016
|
|
32,468
|
|
|
Shareholders' equity attributable to shareholders of Kingsway
|
| 127,737 |
|
144,382
|
|
328,788
|
|
|
Non-controlling interests
|
| (1,975) |
|
494
|
|
18,241
|
|
| TOTAL SHAREHOLDERS' EQUITY |
| 125,762 |
|
144,876
|
|
347,029
|
|
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
$
| 429,074 |
$
|
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 second quarter 2011 Management's Discussion and Analysis.
Additional Information
Additional information about Kingsway, including a copy of its Quarterly
Report for the quarter ended June 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