(Mark One)
|
|
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For Quarterly Period Ended
September 30, 2018 |
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or
|
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Ontario, Canada
(State or other jurisdiction of
incorporation or organization)
|
|
Not Applicable (I.R.S. Employer
Identification No.)
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45 St. Clair Avenue West, Suite 400 Toronto, Ontario M4V 1K9
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(Address of principal executive offices and zip code)
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1-416-848-1171
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(Registrant's telephone number, including area code)
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
Smaller Reporting Company
x
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Emerging Growth Company
o
|
|
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KINGSWAY FINANCIAL SERVICES INC.
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Table Of Contents
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||
PART I - FINANCIAL INFORMATION
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|
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ITEM 1. FINANCIAL STATEMENTS
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|
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Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017
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|
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Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2018 and 2017 (unaudited)
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Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2018 and 2017 (unaudited)
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Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 (unaudited)
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Notes to Consolidated Financial Statements (unaudited)
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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ITEM 4. CONTROLS AND PROCEDURES
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PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
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ITEM 1A. RISK FACTORS
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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ITEM 4. MINE SAFETY DISCLOSURES
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ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
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SIGNATURES
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2
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KINGSWAY FINANCIAL SERVICES INC.
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September 30, 2018
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December 31, 2017
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||
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(unaudited)
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|||
Assets
|
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||||
Investments:
|
|
|
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||||
Fixed maturities, at fair value (amortized cost of $11,316 and $14,707, respectively)
|
|
$
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11,076
|
|
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$
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14,541
|
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Equity investments, at fair value (cost of $2,038 and $4,854, respectively)
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1,334
|
|
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4,476
|
|
||
Limited liability investments
|
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6,230
|
|
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4,922
|
|
||
Limited liability investment, at fair value
|
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4,529
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|
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5,771
|
|
||
Other investments, at cost which approximates fair value
|
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1,917
|
|
|
2,321
|
|
||
Short-term investments, at cost which approximates fair value
|
|
151
|
|
|
151
|
|
||
Total investments
|
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25,237
|
|
|
32,182
|
|
||
Cash and cash equivalents
|
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23,591
|
|
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20,774
|
|
||
Investment in investee
|
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2,827
|
|
|
5,230
|
|
||
Accrued investment income
|
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194
|
|
|
331
|
|
||
Service fee receivable, net of allowance for doubtful accounts of $331 and $318, respectively
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6,747
|
|
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4,286
|
|
||
Other receivables, net of allowance for doubtful accounts of zero and zero, respectively
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7,877
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|
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6,536
|
|
||
Deferred acquisition costs, net
|
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6,899
|
|
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6,325
|
|
||
Property and equipment, net of accumulated depreciation of $14,875 and $11,683, respectively
|
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104,196
|
|
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108,008
|
|
||
Goodwill
|
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73,928
|
|
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80,112
|
|
||
Intangible assets, net of accumulated amortization of $10,232 and $8,333, respectively
|
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84,359
|
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80,062
|
|
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Other assets
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2,560
|
|
|
4,302
|
|
||
Assets held for sale
|
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133,365
|
|
|
136,452
|
|
||
Total Assets
|
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$
|
471,780
|
|
|
$
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484,600
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Liabilities and Shareholders' Equity
|
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||||
Liabilities:
|
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|
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||||
Property and casualty unpaid loss and loss adjustment expenses
|
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$
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2,292
|
|
|
$
|
1,329
|
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Note payable
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183,561
|
|
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186,469
|
|
||
Bank loan
|
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4,167
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|
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4,917
|
|
||
Subordinated debt, at fair value
|
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53,614
|
|
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52,105
|
|
||
Net deferred income tax liabilities
|
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28,472
|
|
|
28,745
|
|
||
Deferred service fees
|
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46,275
|
|
|
42,257
|
|
||
Income taxes payable
|
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2,501
|
|
|
2,644
|
|
||
Accrued expenses and other liabilities
|
|
11,492
|
|
|
10,924
|
|
||
Liabilities held for sale
|
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107,076
|
|
|
105,900
|
|
||
Total Liabilities
|
|
439,450
|
|
|
435,290
|
|
||
|
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|
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|
||||
Class A preferred stock, no par value; unlimited number authorized; 222,876 and 222,876 issued and outstanding at September 30, 2018 and December 31, 2017, respectively; redemption amount of $5,572
|
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5,486
|
|
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5,461
|
|
||
|
|
|
|
|
||||
Shareholders' Equity:
|
|
|
|
|
||||
Common stock, no par value; unlimited number authorized; 21,708,190 and 21,708,190 issued and outstanding at September 30, 2018 and December 31, 2017, respectively
|
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—
|
|
|
—
|
|
||
Additional paid-in capital
|
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354,141
|
|
|
356,021
|
|
||
Accumulated deficit
|
|
(369,771
|
)
|
|
(313,487
|
)
|
||
Accumulated other comprehensive income (loss)
|
|
36,961
|
|
|
(3,852
|
)
|
||
Shareholders' equity attributable to common shareholders
|
|
21,331
|
|
|
38,682
|
|
||
Noncontrolling interests in consolidated subsidiaries
|
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5,513
|
|
|
5,167
|
|
||
Total Shareholders' Equity
|
|
26,844
|
|
|
43,849
|
|
||
Total Liabilities, Class A preferred stock and Shareholders' Equity
|
|
$
|
471,780
|
|
|
$
|
484,600
|
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3
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KINGSWAY FINANCIAL SERVICES INC.
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Three months ended September 30,
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Nine months ended September 30,
|
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||||||||||
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2018
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2017
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2018
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2017
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|
||||
Revenues:
|
|
|
|
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|
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||||||||
Service fee and commission income
|
|
$
|
9,104
|
|
|
$
|
7,670
|
|
|
$
|
28,938
|
|
|
$
|
20,738
|
|
Rental income
|
|
3,341
|
|
|
3,345
|
|
|
10,033
|
|
|
10,041
|
|
||||
Net investment (loss) income
|
|
(84
|
)
|
|
1,289
|
|
|
(697
|
)
|
|
126
|
|
||||
Net realized losses
|
|
(414
|
)
|
|
—
|
|
|
(405
|
)
|
|
(1
|
)
|
||||
Gain on change in fair value of equity investments
|
|
337
|
|
|
—
|
|
|
951
|
|
|
—
|
|
||||
Other income
|
|
15
|
|
|
692
|
|
|
1,323
|
|
|
1,261
|
|
||||
Total revenues
|
|
12,299
|
|
|
12,996
|
|
|
40,143
|
|
|
32,165
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
|
||||||||
Claims authorized on vehicle service agreements
|
|
1,442
|
|
|
1,387
|
|
|
4,206
|
|
|
4,066
|
|
||||
Loss and loss adjustment expenses
|
|
(19
|
)
|
|
266
|
|
|
1,628
|
|
|
266
|
|
||||
Commissions
|
|
971
|
|
|
525
|
|
|
2,843
|
|
|
2,154
|
|
||||
Cost of services sold
|
|
2,033
|
|
|
1,951
|
|
|
5,749
|
|
|
4,546
|
|
||||
General and administrative expenses
|
|
5,410
|
|
|
6,515
|
|
|
20,078
|
|
|
18,740
|
|
||||
Leased real estate segment interest expense
|
|
1,540
|
|
|
1,563
|
|
|
4,638
|
|
|
4,706
|
|
||||
Total operating expenses
|
|
11,377
|
|
|
12,207
|
|
|
39,142
|
|
|
34,478
|
|
||||
Operating income (loss)
|
|
922
|
|
|
789
|
|
|
1,001
|
|
|
(2,313
|
)
|
||||
Other expenses (revenues), net:
|
|
|
|
|
|
|
|
|
||||||||
Interest expense not allocated to segments
|
|
1,571
|
|
|
1,261
|
|
|
4,476
|
|
|
3,636
|
|
||||
Amortization of intangible assets
|
|
1,356
|
|
|
286
|
|
|
1,899
|
|
|
866
|
|
||||
Contingent consideration benefit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(212
|
)
|
||||
Loss on change in fair value of debt
|
|
1,450
|
|
|
1,178
|
|
|
2,511
|
|
|
5,769
|
|
||||
Gain on disposal of subsidiary
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
||||
Equity in net loss (income) of investee
|
|
339
|
|
|
897
|
|
|
623
|
|
|
(1,343
|
)
|
||||
Total other expenses, net
|
|
4,716
|
|
|
3,622
|
|
|
9,492
|
|
|
8,716
|
|
||||
Loss from continuing operations before income tax (benefit) expense
|
|
(3,794
|
)
|
|
(2,833
|
)
|
|
(8,491
|
)
|
|
(11,029
|
)
|
||||
Income tax (benefit) expense
|
|
(147
|
)
|
|
120
|
|
|
291
|
|
|
1,636
|
|
||||
Loss from continuing operations
|
|
(3,647
|
)
|
|
(2,953
|
)
|
|
(8,782
|
)
|
|
(12,665
|
)
|
||||
Income from discontinued operations, net of taxes
|
|
740
|
|
|
1,391
|
|
|
2,069
|
|
|
960
|
|
||||
(Loss) gain on disposal of discontinued operations, net of taxes
|
|
(1,172
|
)
|
|
—
|
|
|
(7,800
|
)
|
|
1,017
|
|
||||
Net loss
|
|
(4,079
|
)
|
|
(1,562
|
)
|
|
(14,513
|
)
|
|
(10,688
|
)
|
||||
Less: net income attributable to noncontrolling interests in consolidated subsidiaries
|
|
110
|
|
|
79
|
|
|
353
|
|
|
284
|
|
||||
Less: dividends on preferred stock, net of tax
|
|
132
|
|
|
(115
|
)
|
|
391
|
|
|
213
|
|
||||
Net loss attributable to common shareholders
|
|
$
|
(4,321
|
)
|
|
$
|
(1,526
|
)
|
|
$
|
(15,257
|
)
|
|
$
|
(11,185
|
)
|
Loss per share - continuing operations:
|
|
|
|
|
|
|
|
|
||||||||
Basic:
|
|
$
|
(0.18
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.61
|
)
|
Diluted:
|
|
$
|
(0.18
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.61
|
)
|
(Loss) earnings per share - discontinued operations:
|
|
|
|
|
|
|
|
|
||||||||
Basic:
|
|
$
|
(0.02
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.26
|
)
|
|
$
|
0.09
|
|
Diluted:
|
|
$
|
(0.02
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.26
|
)
|
|
$
|
0.09
|
|
Loss per share – net loss attributable to common shareholders:
|
|
|
|
|
|
|
|
|
||||||||
Basic:
|
|
$
|
(0.20
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
(0.52
|
)
|
Diluted:
|
|
$
|
(0.20
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
(0.52
|
)
|
Weighted-average shares outstanding (in ‘000s):
|
|
|
|
|
|
|
|
|
||||||||
Basic:
|
|
21,708
|
|
|
21,559
|
|
|
21,708
|
|
|
21,492
|
|
||||
Diluted:
|
|
21,708
|
|
|
21,559
|
|
|
21,708
|
|
|
21,492
|
|
|
4
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
||||||||||
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Net loss
|
|
$
|
(4,079
|
)
|
|
$
|
(1,562
|
)
|
|
$
|
(14,513
|
)
|
|
$
|
(10,688
|
)
|
Other comprehensive income (loss), net of taxes
(1)
:
|
|
|
|
|
|
|
|
|
||||||||
Unrealized (losses) gains on available-for-sale investments:
|
|
|
|
|
|
|
|
|
||||||||
Unrealized losses arising during the period
|
|
(44
|
)
|
|
(3,262
|
)
|
|
(481
|
)
|
|
(4,489
|
)
|
||||
Reclassification adjustment for amounts included in net loss
|
|
6
|
|
|
764
|
|
|
(5
|
)
|
|
735
|
|
||||
Change in fair value of debt attributable to instrument-specific credit risk
|
|
658
|
|
|
—
|
|
|
1,002
|
|
|
—
|
|
||||
Equity in other comprehensive income (loss) of limited liability investment
|
|
19
|
|
|
—
|
|
|
(205
|
)
|
|
—
|
|
||||
Other comprehensive income (loss)
|
|
639
|
|
|
(2,498
|
)
|
|
311
|
|
|
(3,754
|
)
|
||||
Comprehensive loss
|
|
(3,440
|
)
|
|
(4,060
|
)
|
|
(14,202
|
)
|
|
(14,442
|
)
|
||||
Less: comprehensive income attributable to noncontrolling interests in consolidated subsidiaries
|
|
109
|
|
|
79
|
|
|
346
|
|
|
287
|
|
||||
Comprehensive loss attributable to common shareholders
|
|
$
|
(3,549
|
)
|
|
$
|
(4,139
|
)
|
|
$
|
(14,548
|
)
|
|
$
|
(14,729
|
)
|
(1) Net of income tax (benefit) expense of $0 and $0 for the three and nine months ended September 30, 2018 and September 30, 2017, respectively.
|
|
5
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
Nine months ended September 30,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Cash provided by (used in):
|
|
|
|
|
||||
Operating activities:
|
|
|
|
|
||||
Net loss
|
|
$
|
(14,513
|
)
|
|
$
|
(10,688
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
||||
Income from discontinued operations, net of taxes
|
|
(2,069
|
)
|
|
(960
|
)
|
||
Loss (gain) on disposal of discontinued operations, net of taxes
|
|
7,800
|
|
|
(1,017
|
)
|
||
Equity in net loss (income) of investee
|
|
623
|
|
|
(1,343
|
)
|
||
Dividend received from investee
|
|
780
|
|
|
—
|
|
||
Equity in net (income) loss of limited liability investments
|
|
(275
|
)
|
|
258
|
|
||
Loss on change in fair value of limited liability investment
|
|
1,492
|
|
|
372
|
|
||
Depreciation and amortization expense
|
|
5,149
|
|
|
4,089
|
|
||
Contingent consideration benefit
|
|
—
|
|
|
(212
|
)
|
||
Stock-based compensation (benefit) expense, net of forfeitures
|
|
(1,881
|
)
|
|
887
|
|
||
Net realized losses
|
|
405
|
|
|
1
|
|
||
Gain on change in fair value of equity investments
|
|
(951
|
)
|
|
—
|
|
||
Loss on change in fair value of debt
|
|
2,511
|
|
|
5,769
|
|
||
Deferred income taxes
|
|
(273
|
)
|
|
1,123
|
|
||
Amortization of fixed maturities premiums and discounts
|
|
47
|
|
|
72
|
|
||
Amortization of note payable premium
|
|
(707
|
)
|
|
(722
|
)
|
||
Gain on disposal of subsidiary
|
|
17
|
|
|
—
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
|
||||
Service fee receivable, net
|
|
(2,461
|
)
|
|
(1,311
|
)
|
||
Other receivables, net
|
|
(1,341
|
)
|
|
(2,663
|
)
|
||
Deferred acquisition costs, net
|
|
(574
|
)
|
|
(414
|
)
|
||
Unpaid loss and loss adjustment expenses
|
|
963
|
|
|
(708
|
)
|
||
Deferred service fees
|
|
4,018
|
|
|
1,603
|
|
||
Other, net
|
|
(2,617
|
)
|
|
3,623
|
|
||
Cash used in operating activities - continuing operations
|
|
(3,857
|
)
|
|
(2,241
|
)
|
||
Cash used in operating activities - discontinued operations
|
|
(12,670
|
)
|
|
(11,283
|
)
|
||
Net cash used in operating activities
|
|
(16,527
|
)
|
|
(13,524
|
)
|
||
Investing activities:
|
|
|
|
|
||||
Proceeds from sales and maturities of fixed maturities
|
|
5,241
|
|
|
982
|
|
||
Proceeds from sales of equity investments
|
|
4,966
|
|
|
—
|
|
||
Purchases of fixed maturities
|
|
(1,885
|
)
|
|
(192
|
)
|
||
Purchases of equity investments
|
|
(857
|
)
|
|
(4,654
|
)
|
||
Net acquisitions of limited liability investments
|
|
(1,489
|
)
|
|
(1,650
|
)
|
||
Net proceeds from other investments
|
|
404
|
|
|
3
|
|
||
Net proceeds from short-term investments
|
|
—
|
|
|
250
|
|
||
Proceeds from sale of investee
|
|
1,001
|
|
|
—
|
|
||
Proceeds from disposal of subsidiary
|
|
565
|
|
|
—
|
|
||
Net proceeds from sale of discontinued operations
|
|
1,129
|
|
|
860
|
|
||
Net disposals of property and equipment
|
|
550
|
|
|
34
|
|
||
Cash provided by (used in) investing activities - continuing operations
|
|
9,625
|
|
|
(4,367
|
)
|
||
Cash provided by investing activities - discontinued operations
|
|
7,270
|
|
|
13,981
|
|
||
Net cash provided by investing activities
|
|
16,895
|
|
|
9,614
|
|
||
Financing activities:
|
|
|
|
|
||||
Principal payments on bank loan
|
|
(750
|
)
|
|
—
|
|
||
Principal payments on note payable
|
|
(2,201
|
)
|
|
(1,951
|
)
|
||
Cash used in financing activities - continuing operations
|
|
(2,951
|
)
|
|
(1,951
|
)
|
||
Cash used in financing activities - discontinued operations
|
|
—
|
|
|
—
|
|
||
Net cash used in financing activities
|
|
(2,951
|
)
|
|
(1,951
|
)
|
||
Net increase (decrease) in cash and cash equivalents from continuing operations
|
|
2,817
|
|
|
(8,559
|
)
|
||
Cash and cash equivalents at beginning of period
|
|
44,286
|
|
|
36,475
|
|
||
Less: cash and cash equivalents of discontinued operations at begininng of period
|
|
23,512
|
|
|
4,524
|
|
||
Cash and cash equivalents of continuing operations at beginning of period
|
|
20,774
|
|
|
31,951
|
|
||
Cash and cash equivalents of continuing operations at end of period
|
|
$
|
23,591
|
|
|
$
|
23,392
|
|
|
6
|
|
|
7
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
|
8
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
|
9
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
|
10
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
||||||||||
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
||||
Income (loss) from discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
||||||||
Revenues:
|
|
|
|
|
|
|
|
|
||||||||
Net premiums earned
|
|
$
|
16,727
|
|
|
$
|
32,556
|
|
|
$
|
68,319
|
|
|
$
|
98,996
|
|
Net investment income
|
|
563
|
|
|
1,652
|
|
|
1,082
|
|
|
1,174
|
|
||||
Net realized gains
|
|
130
|
|
|
1,976
|
|
|
132
|
|
|
3,109
|
|
||||
(Loss) gain on change in fair value of equity investments
|
|
(122
|
)
|
|
—
|
|
|
115
|
|
|
—
|
|
||||
Other income
|
|
2,184
|
|
|
2,467
|
|
|
7,060
|
|
|
7,490
|
|
||||
Total revenues
|
|
19,482
|
|
|
38,651
|
|
|
76,708
|
|
|
110,769
|
|
||||
Expenses:
|
|
|
|
|
|
|
|
|
||||||||
Loss and loss adjustment expenses
|
|
14,104
|
|
|
27,732
|
|
|
55,832
|
|
|
79,053
|
|
||||
Commissions and premium taxes
|
|
713
|
|
|
5,128
|
|
|
7,102
|
|
|
15,762
|
|
||||
General and administrative expenses
|
|
3,925
|
|
|
4,400
|
|
|
11,705
|
|
|
14,829
|
|
||||
Impairment of intangible assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250
|
|
||||
Total expenses
|
|
18,742
|
|
|
37,260
|
|
|
74,639
|
|
|
109,894
|
|
||||
Income from discontinued operations before income tax benefit
|
|
740
|
|
|
1,391
|
|
|
2,069
|
|
|
875
|
|
||||
Income tax benefit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(85
|
)
|
||||
Income from discontinued operations, net of taxes
|
|
740
|
|
|
1,391
|
|
|
2,069
|
|
|
960
|
|
||||
(Loss) gain on disposal of discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
||||||||
(Loss) gain on disposal of discontinued operations before income tax expense
|
|
(1,172
|
)
|
|
—
|
|
|
(7,800
|
)
|
|
1,017
|
|
||||
Income tax expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
(Loss) gain on disposal of discontinued operations, net of taxes
|
|
(1,172
|
)
|
|
—
|
|
|
(7,800
|
)
|
|
1,017
|
|
||||
Total (loss) income from discontinued operations, net of taxes
|
|
$
|
(432
|
)
|
|
$
|
1,391
|
|
|
$
|
(5,731
|
)
|
|
$
|
1,977
|
|
|
11
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
September 30, 2018
|
|
December 31, 2017
|
||||
Assets
|
|
|
|
|
||||
Investments:
|
|
|
|
|
||||
Fixed maturities, at fair value
|
|
$
|
40,910
|
|
|
$
|
38,673
|
|
Equity investments, at fair value
|
|
242
|
|
4,518
|
||||
Limited liability investments
|
|
16,236
|
|
20,251
|
||||
Limited liability investment, at fair value
|
|
3,453
|
|
4,543
|
||||
Other investments, at cost which approximates fair value
|
|
1,400
|
|
1,400
|
||||
Total investments
|
|
62,241
|
|
69,385
|
||||
Cash and cash equivalents
|
|
18,112
|
|
23,512
|
||||
Accrued investment income
|
|
247
|
|
|
195
|
|
||
Premiums receivable, net
|
|
25,243
|
|
|
27,855
|
|
||
Other receivables
|
|
1
|
|
|
603
|
|
||
Deferred acquisition costs, net
|
|
1,130
|
|
|
6,720
|
|
||
Property and equipment, net
|
|
138
|
|
|
222
|
|
||
Intangible assets, net
|
|
—
|
|
|
7,553
|
|
||
Other assets
|
|
26,253
|
|
|
407
|
|
||
Assets held for sale
|
|
$
|
133,365
|
|
|
$
|
136,452
|
|
Liabilities
|
|
|
|
|
||||
Property and casualty unpaid loss and loss adjustment expenses
|
|
$
|
56,332
|
|
|
$
|
62,323
|
|
Unearned premiums
|
|
31,159
|
|
|
36,686
|
|
||
Net deferred income tax liabilities
|
|
—
|
|
|
1,586
|
|
||
Accrued expenses and other liabilities
|
|
19,585
|
|
|
5,305
|
|
||
Liabilities held for sale
|
|
$
|
107,076
|
|
|
$
|
105,900
|
|
(in thousands)
|
|
September 30, 2018
|
|
|||||||||||||
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Estimated Fair Value
|
|
||||
Fixed maturities:
|
|
|
|
|
|
|
|
|
||||||||
U.S. government, government agencies and authorities
|
|
$
|
5,504
|
|
|
$
|
—
|
|
|
$
|
75
|
|
|
$
|
5,429
|
|
States, municipalities and political subdivisions
|
|
622
|
|
|
—
|
|
|
21
|
|
|
601
|
|
||||
Mortgage-backed
|
|
2,618
|
|
|
—
|
|
|
92
|
|
|
2,526
|
|
||||
Corporate
|
|
2,572
|
|
|
—
|
|
|
52
|
|
|
2,520
|
|
||||
Total fixed maturities
|
|
$
|
11,316
|
|
|
$
|
—
|
|
|
$
|
240
|
|
|
$
|
11,076
|
|
|
12
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
December 31, 2017
|
|
|||||||||||||
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Estimated Fair Value
|
|
||||
Fixed maturities:
|
|
|
|
|
|
|
|
|
||||||||
U.S. government, government agencies and authorities
|
|
$
|
5,671
|
|
|
$
|
—
|
|
|
$
|
59
|
|
|
$
|
5,612
|
|
States, municipalities and political subdivisions
|
|
639
|
|
|
—
|
|
|
13
|
|
|
626
|
|
||||
Mortgage-backed
|
|
2,933
|
|
|
—
|
|
|
57
|
|
|
2,876
|
|
||||
Corporate
|
|
5,464
|
|
|
—
|
|
|
37
|
|
|
5,427
|
|
||||
Total fixed maturities
|
|
14,707
|
|
|
—
|
|
|
166
|
|
|
14,541
|
|
||||
Equity investments:
|
|
|
|
|
|
|
|
|
||||||||
Common stock
|
|
3,883
|
|
|
—
|
|
|
313
|
|
|
3,570
|
|
||||
Warrants - publicly traded
|
|
11
|
|
|
47
|
|
|
—
|
|
|
58
|
|
||||
Warrants - not publicly traded
|
|
960
|
|
|
173
|
|
|
285
|
|
|
848
|
|
||||
Total equity investments
|
|
4,854
|
|
|
220
|
|
|
598
|
|
|
4,476
|
|
||||
Total fixed maturities and equity investments
|
|
$
|
19,561
|
|
|
$
|
220
|
|
|
$
|
764
|
|
|
$
|
19,017
|
|
(in thousands)
|
|
September 30, 2018
|
|
|||||
|
|
Amortized Cost
|
|
|
Estimated Fair Value
|
|
||
Due in one year or less
|
|
$
|
5,138
|
|
|
$
|
5,117
|
|
Due after one year through five years
|
|
4,937
|
|
|
4,781
|
|
||
Due after five years through ten years
|
|
125
|
|
|
117
|
|
||
Due after ten years
|
|
1,116
|
|
|
1,061
|
|
||
Total
|
|
$
|
11,316
|
|
|
$
|
11,076
|
|
|
13
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|||||||||||||
|
Less than 12 Months
|
|
Greater than 12 Months
|
|
Total
|
||||||||||||||||||
|
Estimated Fair Value
|
|
Unrealized Loss
|
|
Estimated Fair Value
|
|
Unrealized Loss
|
|
Estimated Fair Value
|
|
Unrealized Loss
|
||||||||||||
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. government, government agencies and authorities
|
$
|
2,342
|
|
|
$
|
3
|
|
|
$
|
3,087
|
|
|
$
|
72
|
|
|
$
|
5,429
|
|
|
$
|
75
|
|
States, municipalities and political subdivisions
|
—
|
|
|
—
|
|
|
602
|
|
|
21
|
|
|
602
|
|
|
21
|
|
||||||
Mortgage-backed
|
369
|
|
|
9
|
|
|
2,157
|
|
|
83
|
|
|
2,526
|
|
|
92
|
|
||||||
Corporate
|
368
|
|
|
2
|
|
|
2,152
|
|
|
50
|
|
|
2,520
|
|
|
52
|
|
||||||
Total fixed maturities
|
$
|
3,079
|
|
|
$
|
14
|
|
|
$
|
7,998
|
|
|
$
|
226
|
|
|
$
|
11,077
|
|
|
$
|
240
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|||||||||||||
|
Less than 12 Months
|
|
Greater than 12 Months
|
|
Total
|
||||||||||||||||||
|
Estimated Fair Value
|
|
Unrealized Loss
|
|
Estimated Fair Value
|
|
Unrealized Loss
|
|
Estimated Fair Value
|
|
Unrealized Loss
|
||||||||||||
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. government, government agencies and authorities
|
$
|
4,067
|
|
|
$
|
50
|
|
|
$
|
1,545
|
|
|
$
|
9
|
|
|
$
|
5,612
|
|
|
$
|
59
|
|
States, municipalities and political subdivisions
|
626
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
626
|
|
|
13
|
|
||||||
Mortgage-backed
|
2,876
|
|
|
57
|
|
|
—
|
|
|
—
|
|
|
2,876
|
|
|
57
|
|
||||||
Corporate
|
2,427
|
|
|
37
|
|
|
—
|
|
|
—
|
|
|
2,427
|
|
|
37
|
|
||||||
Total fixed maturities
|
9,996
|
|
|
157
|
|
|
1,545
|
|
|
9
|
|
|
11,541
|
|
|
166
|
|
||||||
Equity investments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Common stock
|
3,570
|
|
|
313
|
|
|
—
|
|
|
—
|
|
|
3,570
|
|
|
313
|
|
||||||
Warrants
|
675
|
|
|
285
|
|
|
—
|
|
|
—
|
|
|
675
|
|
|
285
|
|
||||||
Total equity investments
|
4,245
|
|
|
598
|
|
|
—
|
|
|
—
|
|
|
4,245
|
|
|
598
|
|
||||||
Total
|
$
|
14,241
|
|
|
$
|
755
|
|
|
$
|
1,545
|
|
|
$
|
9
|
|
|
$
|
15,786
|
|
|
$
|
764
|
|
•
|
identifying all unrealized loss positions that have existed for at least six months;
|
•
|
identifying other circumstances management believes may affect the recoverability of the unrealized loss positions;
|
•
|
obtaining a valuation analysis from third-party investment managers regarding the intrinsic value of these investments based on their knowledge and experience together with market-based valuation techniques;
|
•
|
reviewing the trading range of certain investments over the preceding calendar period;
|
|
14
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
•
|
assessing if declines in market value are other-than-temporary for debt instruments based on the investment grade credit ratings from third-party rating agencies;
|
•
|
assessing if declines in market value are other-than-temporary for any debt instrument with a non-investment grade credit rating based on the continuity of its debt service record;
|
•
|
determining the necessary provision for declines in market value that are considered other-than-temporary based on the analyses performed; and
|
•
|
assessing the Company's ability and intent to hold these investments at least until the investment impairment is recovered.
|
•
|
the opinions of professional investment managers could be incorrect;
|
•
|
the past trading patterns of individual investments may not reflect future valuation trends;
|
•
|
the credit ratings assigned by independent credit rating agencies may be incorrect due to unforeseen or unknown facts related to a company's financial situation; and
|
•
|
the debt service pattern of non-investment grade instruments may not reflect future debt service capabilities and may not reflect a company's unknown underlying financial problems.
|
|
15
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
||||||||||
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
||||
Investment (loss) income:
|
|
|
|
|
|
|
|
|
||||||||
Interest from fixed maturities
|
|
$
|
73
|
|
|
$
|
51
|
|
|
$
|
163
|
|
|
$
|
134
|
|
Dividends
|
|
54
|
|
|
98
|
|
|
162
|
|
|
294
|
|
||||
Income (loss) from limited liability investments
|
|
111
|
|
|
(92
|
)
|
|
275
|
|
|
(258
|
)
|
||||
(Loss) gain on change in fair value of limited liability investment, at fair value
|
|
(340
|
)
|
|
1,126
|
|
|
(1,492
|
)
|
|
(394
|
)
|
||||
(Loss) gain on change in fair value of warrants - not publicly traded
|
|
—
|
|
|
(25
|
)
|
|
—
|
|
|
22
|
|
||||
Other
|
|
22
|
|
|
135
|
|
|
216
|
|
|
347
|
|
||||
Gross investment (loss) income
|
|
(80
|
)
|
|
1,293
|
|
|
(676
|
)
|
|
145
|
|
||||
Investment expenses
|
|
(4
|
)
|
|
(4
|
)
|
|
(21
|
)
|
|
(19
|
)
|
||||
Net investment (loss) income
|
|
$
|
(84
|
)
|
|
$
|
1,289
|
|
|
$
|
(697
|
)
|
|
$
|
126
|
|
(in thousands)
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
||||||||||
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
||||
Gross realized gains
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
—
|
|
Gross realized losses
|
|
(414
|
)
|
|
—
|
|
|
(415
|
)
|
|
(1
|
)
|
||||
Net realized losses
|
|
$
|
(414
|
)
|
|
$
|
—
|
|
|
$
|
(405
|
)
|
|
$
|
(1
|
)
|
(in thousands)
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
||||||||||
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
||||
Net gains recognized on equity investments sold during the period
|
|
$
|
905
|
|
|
$
|
—
|
|
|
$
|
1,450
|
|
|
$
|
—
|
|
Change in unrealized losses on equity investments held at end of the period
|
|
(568
|
)
|
|
—
|
|
|
(499
|
)
|
|
—
|
|
||||
Gain on change in fair value of equity investments
|
|
$
|
337
|
|
|
$
|
—
|
|
|
$
|
951
|
|
|
$
|
—
|
|
|
16
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands, except for percentages)
|
|
|
|
|
||||||||||||||||||
|
|
September 30, 2018
|
|
December 31, 2017
|
||||||||||||||||||
|
|
Equity Percentage
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Equity Percentage
|
|
Estimated Fair Value
|
|
Carrying Value
|
||||||||||
ICL
|
|
22.9
|
%
|
|
$
|
2,389
|
|
|
$
|
2,827
|
|
|
31.2
|
%
|
|
$
|
3,816
|
|
|
$
|
5,230
|
|
(in thousands)
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
||||||||||
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
||||
Beginning balance, net
|
|
$
|
6,662
|
|
|
$
|
6,054
|
|
|
$
|
6,325
|
|
|
$
|
5,827
|
|
Additions
|
|
1,047
|
|
|
1,255
|
|
|
3,545
|
|
|
3,572
|
|
||||
Amortization
|
|
(810
|
)
|
|
(1,068
|
)
|
|
(2,971
|
)
|
|
(3,158
|
)
|
||||
Balance at September 30, net
|
|
$
|
6,899
|
|
|
$
|
6,241
|
|
|
$
|
6,899
|
|
|
$
|
6,241
|
|
|
17
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
|
September 30, 2018
|
|
||||||||
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
||||||
Intangible assets subject to amortization:
|
|
|
|
|
|
|
||||||
Database
|
|
$
|
4,918
|
|
|
$
|
2,890
|
|
|
$
|
2,028
|
|
Vehicle service agreements in-force
|
|
3,680
|
|
|
3,663
|
|
|
17
|
|
|||
Customer relationships
|
|
8,914
|
|
|
3,327
|
|
|
5,587
|
|
|||
In-place lease
|
|
1,125
|
|
|
139
|
|
|
986
|
|
|||
Contract-based revenues
|
|
731
|
|
|
162
|
|
|
569
|
|
|||
Non-compete
|
|
266
|
|
|
51
|
|
|
215
|
|
|||
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
||||||
Tenant relationship
|
|
73,667
|
|
|
—
|
|
|
73,667
|
|
|||
Trade names
|
|
1,290
|
|
|
—
|
|
|
1,290
|
|
|||
Total
|
|
$
|
94,591
|
|
|
$
|
10,232
|
|
|
$
|
84,359
|
|
(in thousands)
|
|
|
December 31, 2017
|
|
||||||||
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
||||||
Intangible assets subject to amortization:
|
|
|
|
|
|
|
||||||
Database
|
|
$
|
4,918
|
|
|
$
|
2,521
|
|
|
$
|
2,397
|
|
Vehicle service agreements in-force
|
|
3,680
|
|
|
3,640
|
|
|
40
|
|
|||
Customer relationships
|
|
3,611
|
|
|
1,965
|
|
|
1,646
|
|
|||
In-place lease
|
|
1,125
|
|
|
92
|
|
|
1,033
|
|
|||
Contract-based revenues
|
|
731
|
|
|
115
|
|
|
616
|
|
|||
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
||||||
Tenant relationship
|
|
73,667
|
|
|
—
|
|
|
73,667
|
|
|||
Trade name
|
|
663
|
|
|
—
|
|
|
663
|
|
|||
Total
|
|
$
|
88,395
|
|
|
$
|
8,333
|
|
|
$
|
80,062
|
|
|
18
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
||
Balance at beginning of period, gross
|
|
$
|
1,329
|
|
|
$
|
2,201
|
|
Less reinsurance recoverable related to property and casualty unpaid loss and loss adjustment expenses
|
|
72
|
|
|
354
|
|
||
Balance at beginning of period, net
|
|
1,257
|
|
|
1,847
|
|
||
Incurred related to:
|
|
|
|
|
|
|||
Current year
|
|
—
|
|
|
—
|
|
||
Prior years
|
|
1,628
|
|
|
266
|
|
||
Paid related to:
|
|
|
|
|
|
|||
Current year
|
|
—
|
|
|
—
|
|
||
Prior years
|
|
(672
|
)
|
|
(675
|
)
|
||
Balance at end of period, net
|
|
2,213
|
|
|
1,438
|
|
||
Plus reinsurance recoverable related to property and casualty unpaid loss and loss adjustment expenses
|
|
79
|
|
|
55
|
|
||
Balance at end of period, gross
|
|
$
|
2,292
|
|
|
$
|
1,493
|
|
(in thousands)
|
|
September 30, 2018
|
|
December 31, 2017
|
||||||||||||||||||||
|
|
Principal
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Principal
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
||||||
Note payable
|
|
$
|
173,935
|
|
|
$
|
183,561
|
|
|
$
|
172,159
|
|
|
$
|
176,136
|
|
|
$
|
186,469
|
|
|
$
|
168,477
|
|
Bank loan
|
|
4,167
|
|
|
4,167
|
|
|
3,770
|
|
|
4,917
|
|
|
4,917
|
|
|
4,864
|
|
||||||
Subordinated debt
|
|
90,500
|
|
|
53,614
|
|
|
53,614
|
|
|
90,500
|
|
|
52,105
|
|
|
52,105
|
|
||||||
Total
|
|
$
|
268,602
|
|
|
$
|
241,342
|
|
|
$
|
229,543
|
|
|
$
|
271,553
|
|
|
$
|
243,491
|
|
|
$
|
225,446
|
|
|
19
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
Issuer
|
Principal (in thousands)
|
Issue date
|
Interest
|
Redemption date
|
||
Kingsway CT Statutory Trust I
|
$
|
15,000
|
|
12/4/2002
|
annual interest rate equal to LIBOR, plus 4.00% payable quarterly
|
12/4/2032
|
Kingsway CT Statutory Trust II
|
$
|
17,500
|
|
5/15/2003
|
annual interest rate equal to LIBOR, plus 4.10% payable quarterly
|
5/15/2033
|
Kingsway CT Statutory Trust III
|
$
|
20,000
|
|
10/29/2003
|
annual interest rate equal to LIBOR, plus 3.95% payable quarterly
|
10/29/2033
|
Kingsway DE Statutory Trust III
|
$
|
15,000
|
|
5/22/2003
|
annual interest rate equal to LIBOR, plus 4.20% payable quarterly
|
5/22/2033
|
Kingsway DE Statutory Trust IV
|
$
|
10,000
|
|
9/30/2003
|
annual interest rate equal to LIBOR, plus 3.85% payable quarterly
|
9/30/2033
|
Kingsway DE Statutory Trust VI
|
$
|
13,000
|
|
12/16/2003
|
annual interest rate equal to LIBOR, plus 4.00% payable quarterly
|
1/8/2034
|
|
20
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
September 30,
|
|
|
December 31,
|
|
||
|
|
2018
|
|
|
2017
|
|
||
Deferred service fees
|
|
$
|
42,590
|
|
|
$
|
40,029
|
|
Accrued expenses and other liabilities
|
|
331
|
|
|
263
|
|
||
Balance at end of period, net
|
|
$
|
42,921
|
|
|
$
|
40,292
|
|
|
21
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
||||||||||||
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Vehicle service agreement fees - IWS
|
|
$
|
4,766
|
|
|
$
|
4,505
|
|
|
$
|
13,954
|
|
|
$
|
13,238
|
|
Maintenance support service fees - Trinity
|
|
2,720
|
|
|
2,603
|
|
|
7,655
|
|
|
6,175
|
|
||||
Warranty product commissions - Trinity
|
|
739
|
|
|
562
|
|
|
1,971
|
|
|
1,325
|
|
||||
Homebuilder warranty service fees - PWSC
|
|
676
|
|
|
—
|
|
|
4,793
|
|
|
—
|
|
||||
Homebuilder warranty commissions - PWSC
|
|
203
|
|
|
—
|
|
|
565
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Service fee and commission income
|
|
$
|
9,104
|
|
|
$
|
7,670
|
|
|
$
|
28,938
|
|
|
$
|
20,738
|
|
|
22
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
|
23
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands, except per share data)
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|||||||||||
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
2017
|
||||||
Numerator:
|
|
|
|
|
|
|
|
|
||||||||
Loss from continuing operations
|
|
$
|
(3,647
|
)
|
|
$
|
(2,953
|
)
|
|
$
|
(8,782
|
)
|
|
$
|
(12,665
|
)
|
Less: net income attributable to noncontrolling interests
|
|
(110
|
)
|
|
(79
|
)
|
|
(353
|
)
|
|
(284
|
)
|
||||
(Less) plus: dividends on preferred stock, net of tax
|
|
(132
|
)
|
|
115
|
|
|
(391
|
)
|
|
(213
|
)
|
||||
Loss from continuing operations attributable to common shareholders
|
|
$
|
(3,889
|
)
|
|
$
|
(2,917
|
)
|
|
$
|
(9,526
|
)
|
|
$
|
(13,162
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
||||||||
Weighted average basic shares
|
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding
|
|
21,708
|
|
|
21,559
|
|
|
21,708
|
|
|
21,492
|
|
||||
Weighted average diluted shares
|
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding
|
|
21,708
|
|
|
21,559
|
|
|
21,708
|
|
|
21,492
|
|
||||
Effect of potentially dilutive securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Total weighted average diluted shares
|
|
21,708
|
|
|
21,559
|
|
|
21,708
|
|
|
21,492
|
|
||||
Basic loss from continuing operations per share
|
|
$
|
(0.18
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.61
|
)
|
Diluted loss from continuing operations per share
|
|
$
|
(0.18
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.61
|
)
|
|
24
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
|
|
|
|
|
|
|
|
|||||||
|
|
Number of Options Outstanding
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Term (in Years)
|
|
Aggregate Intrinsic Value (in Thousands)
|
||||||
Outstanding at December 31, 2017
|
|
651,875
|
|
|
$
|
4.51
|
|
|
0.4
|
|
|
$
|
352
|
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
|
||||
Expired
|
|
(611,875
|
)
|
|
4.50
|
|
|
|
|
|
||||
Outstanding at September 30, 2018
|
|
40,000
|
|
|
$
|
4.67
|
|
|
1.6
|
|
|
$
|
—
|
|
Exercisable at September 30, 2018
|
|
40,000
|
|
|
$
|
4.67
|
|
|
1.6
|
|
|
$
|
—
|
|
|
25
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
|
|
|
|
|
|||
|
|
Number of Restricted Stock Awards
|
|
Weighted-Average Grant Date Fair Value (per Share)
|
|||
Unvested at December 31, 2017
|
|
1,952,665
|
|
|
$
|
4.14
|
|
Granted
|
|
350,000
|
|
|
2.55
|
|
|
Vested
|
|
(79,538
|
)
|
|
2.95
|
|
|
Cancelled for Tax Withholding
|
|
(135,512
|
)
|
|
2.65
|
|
|
Forfeited
|
|
(1,495,165
|
)
|
|
4.14
|
|
|
Unvested at September 30, 2018
|
|
592,450
|
|
|
$
|
3.48
|
|
|
26
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
|
|
|
|
|
|||
|
|
Number of Restricted Stock Units
|
|
Weighted-Average Grant Date Fair Value (per Share)
|
|||
Unvested at December 31, 2017
|
|
500,000
|
|
|
$
|
5.73
|
|
Granted
|
|
—
|
|
|
—
|
|
|
Vested
|
|
—
|
|
|
—
|
|
|
Forfeited
|
|
—
|
|
|
—
|
|
|
Unvested at September 30, 2018
|
|
500,000
|
|
|
$
|
5.73
|
|
|
27
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
|
|
Three months ended September 30, 2018
|
|
|||||||||||||||
|
|
Unrealized Gains (Losses) on Available-for-Sale Investments
|
|
Foreign Currency Translation Adjustments
|
|
Change in Fair Value of Debt Attributable to Instrument-Specific Credit Risk
|
|
Equity in Other Comprehensive Income (Loss) of Limited Liability Investment
|
|
Total Accumulated Other Comprehensive Income (Loss)
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Balance at July 1, 2018
|
|
$
|
(967
|
)
|
|
$
|
(3,286
|
)
|
|
$
|
40,799
|
|
|
$
|
(224
|
)
|
|
$
|
36,322
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Other comprehensive income (loss) arising during the period
|
|
(44
|
)
|
|
—
|
|
|
658
|
|
|
19
|
|
|
633
|
|
|||||
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|||||
Net current-period other comprehensive income (loss)
|
|
(38
|
)
|
|
—
|
|
|
658
|
|
|
19
|
|
|
639
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Balance at September 30, 2018
|
|
$
|
(1,005
|
)
|
|
$
|
(3,286
|
)
|
|
$
|
41,457
|
|
|
$
|
(205
|
)
|
|
$
|
36,961
|
|
(in thousands)
|
|
|
|
Three months ended September 30, 2017
|
|
|||||||
|
|
Unrealized Gains (Losses) on Available-for-Sale Investments
|
|
Foreign Currency Translation Adjustments
|
|
Total Accumulated Other Comprehensive Loss
|
||||||
|
|
|
|
|
|
|
||||||
Balance at July 1, 2017
|
|
$
|
2,313
|
|
|
$
|
(3,780
|
)
|
|
$
|
(1,467
|
)
|
|
|
|
|
|
|
|
||||||
Other comprehensive loss arising during the period
|
|
(3,263
|
)
|
|
—
|
|
|
(3,263
|
)
|
|||
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
764
|
|
|
—
|
|
|
764
|
|
|||
Net current-period other comprehensive loss
|
|
(2,499
|
)
|
|
—
|
|
|
(2,499
|
)
|
|||
|
|
|
|
|
|
|
||||||
Balance at September 30, 2017
|
|
$
|
(186
|
)
|
|
$
|
(3,780
|
)
|
|
$
|
(3,966
|
)
|
|
28
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
|
|
Nine months ended September 30, 2018
|
|
|||||||||||||||
|
|
Unrealized Gains (Losses) on Available-for-Sale Investments
|
|
Foreign Currency Translation Adjustments
|
|
Change in Fair Value of Debt Attributable to Instrument-Specific Credit Risk
|
|
Equity in Other Comprehensive Income (Loss) of Limited Liability Investment
|
|
Total Accumulated Other Comprehensive Income (Loss)
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Balance at January 1, 2018
|
|
$
|
(566
|
)
|
|
$
|
(3,286
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3,852
|
)
|
Cumulative effect of adoption of ASU 2016-01
|
|
40
|
|
|
—
|
|
|
40,455
|
|
|
—
|
|
|
40,495
|
|
|||||
Balance at January 1, 2018, as adjusted
|
|
(526
|
)
|
|
(3,286
|
)
|
|
40,455
|
|
|
—
|
|
|
36,643
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Other comprehensive income (loss) arising during the period
|
|
(474
|
)
|
|
—
|
|
|
1,002
|
|
|
(205
|
)
|
|
323
|
|
|||||
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|||||
Net current-period other comprehensive income (loss)
|
|
(479
|
)
|
|
—
|
|
|
1,002
|
|
|
(205
|
)
|
|
318
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Balance at September 30, 2018
|
|
$
|
(1,005
|
)
|
|
$
|
(3,286
|
)
|
|
$
|
41,457
|
|
|
$
|
(205
|
)
|
|
$
|
36,961
|
|
(in thousands)
|
|
|
|
Nine months ended September 30, 2017
|
|
|||||||
|
|
Unrealized Gains (Losses) on Available-for-Sale Investments
|
|
Foreign Currency Translation Adjustments
|
|
Total Accumulated Other Comprehensive Loss
|
||||||
|
|
|
|
|
|
|
||||||
Balance at January 1, 2017
|
|
$
|
3,572
|
|
|
$
|
(3,780
|
)
|
|
$
|
(208
|
)
|
|
|
|
|
|
|
|
||||||
Other comprehensive loss arising during the period
|
|
(4,493
|
)
|
|
—
|
|
|
(4,493
|
)
|
|||
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
735
|
|
|
—
|
|
|
735
|
|
|||
Net current-period other comprehensive loss
|
|
(3,758
|
)
|
|
—
|
|
|
(3,758
|
)
|
|||
|
|
|
|
|
|
|
||||||
Balance at September 30, 2017
|
|
$
|
(186
|
)
|
|
$
|
(3,780
|
)
|
|
$
|
(3,966
|
)
|
(in thousands)
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
||||||||||
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
||||
Reclassification of accumulated other comprehensive income (loss) from unrealized gains (losses) on available-for-sale investments to:
|
|
|
|
|
|
|
|
|
||||||||
Net realized losses
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
11
|
|
|
$
|
4
|
|
Other-than-temporary impairment loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Loss from continuing operations before income tax (benefit) expense
|
|
3
|
|
|
2
|
|
|
11
|
|
|
4
|
|
||||
Income tax (benefit) expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Loss from continuing operations
|
|
3
|
|
|
2
|
|
|
11
|
|
|
4
|
|
||||
Income from discontinued operations, net of taxes
|
|
(9
|
)
|
|
(766
|
)
|
|
(6
|
)
|
|
(739
|
)
|
||||
Net loss
|
|
$
|
(6
|
)
|
|
$
|
(764
|
)
|
|
$
|
5
|
|
|
$
|
(735
|
)
|
|
29
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
|
30
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
||||||||||
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
||||
Revenues:
|
|
|
|
|
|
|
|
|
||||||||
Extended Warranty:
|
|
|
|
|
|
|
|
|
||||||||
Service fee and commission income
|
|
$
|
9,104
|
|
|
$
|
7,670
|
|
|
$
|
28,938
|
|
|
$
|
20,738
|
|
Other income
|
|
34
|
|
|
34
|
|
|
136
|
|
|
170
|
|
||||
Total Extended Warranty
|
|
9,138
|
|
|
7,704
|
|
|
29,074
|
|
|
20,908
|
|
||||
Leased Real Estate:
|
|
|
|
|
|
|
|
|
||||||||
Rental income
|
|
3,341
|
|
|
3,341
|
|
|
10,023
|
|
|
10,023
|
|
||||
Other income
|
|
(51
|
)
|
|
59
|
|
|
168
|
|
|
431
|
|
||||
Total Leased Real Estate
|
|
3,290
|
|
|
3,400
|
|
|
10,191
|
|
|
10,454
|
|
||||
Total segment revenues
|
|
12,428
|
|
|
11,104
|
|
|
39,265
|
|
|
31,362
|
|
||||
Rental income not allocated to segments
|
|
—
|
|
|
4
|
|
|
10
|
|
|
18
|
|
||||
Net investment (loss) income
|
|
(84
|
)
|
|
1,289
|
|
|
(697
|
)
|
|
126
|
|
||||
Net realized losses
|
|
(414
|
)
|
|
—
|
|
|
(405
|
)
|
|
(1
|
)
|
||||
Gain on change in fair value of equity investments
|
|
337
|
|
|
—
|
|
|
951
|
|
|
—
|
|
||||
Other income not allocated to segments
|
|
32
|
|
|
599
|
|
|
1,019
|
|
|
660
|
|
||||
Total revenues
|
|
$
|
12,299
|
|
|
$
|
12,996
|
|
|
$
|
40,143
|
|
|
$
|
32,165
|
|
(in thousands)
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
||||||||||
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
||||
Segment operating income:
|
|
|
|
|
|
|
|
|
||||||||
Extended Warranty
|
|
$
|
385
|
|
|
$
|
847
|
|
|
$
|
3,615
|
|
|
$
|
2,118
|
|
Leased Real Estate
|
|
473
|
|
|
525
|
|
|
1,965
|
|
|
2,315
|
|
||||
Total segment operating income
|
|
858
|
|
|
1,372
|
|
|
5,580
|
|
|
4,433
|
|
||||
Net investment (loss) income
|
|
(84
|
)
|
|
1,289
|
|
|
(697
|
)
|
|
126
|
|
||||
Net realized losses
|
|
(414
|
)
|
|
—
|
|
|
(405
|
)
|
|
(1
|
)
|
||||
Gain on change in fair value of equity investments
|
|
337
|
|
|
—
|
|
|
951
|
|
|
—
|
|
||||
Interest expense not allocated to segments
|
|
(1,571
|
)
|
|
(1,261
|
)
|
|
(4,476
|
)
|
|
(3,636
|
)
|
||||
Other income and expenses not allocated to segments, net
|
|
225
|
|
|
(1,872
|
)
|
|
(4,428
|
)
|
|
(6,871
|
)
|
||||
Amortization of intangible assets
|
|
(1,356
|
)
|
|
(286
|
)
|
|
(1,899
|
)
|
|
(866
|
)
|
||||
Contingent consideration benefit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
212
|
|
||||
Loss on change in fair value of debt
|
|
(1,450
|
)
|
|
(1,178
|
)
|
|
(2,511
|
)
|
|
(5,769
|
)
|
||||
Gain on disposal of subsidiary
|
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
||||
Equity in net (loss) income of investee
|
|
(339
|
)
|
|
(897
|
)
|
|
(623
|
)
|
|
1,343
|
|
||||
Loss from continuing operations before income tax (benefit) expense
|
|
(3,794
|
)
|
|
(2,833
|
)
|
|
(8,491
|
)
|
|
(11,029
|
)
|
||||
Income tax (benefit) expense
|
|
(147
|
)
|
|
120
|
|
|
291
|
|
|
1,636
|
|
||||
Loss from continuing operations
|
|
$
|
(3,647
|
)
|
|
$
|
(2,953
|
)
|
|
$
|
(8,782
|
)
|
|
$
|
(12,665
|
)
|
|
31
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
•
|
Level 1 – Quoted prices for identical instruments in active markets.
|
•
|
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
|
•
|
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are not observable.
|
•
|
U.S. government, government agencies and authorities are generally priced using the market approach. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets and maturity.
|
•
|
States, municipalities and political subdivisions are generally priced using the market approach. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets, new issuances and credit spreads.
|
•
|
Mortgage-backed securities are generally priced using the market approach. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets, expected prepayments, expected credit default rates, delinquencies and issue specific information including, but not limited to, collateral type, seniority and vintage.
|
•
|
Corporate securities are generally priced using the market approach using pricing vendors. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets, issuer rating, benchmark yields, maturity and credit spreads.
|
|
32
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
|
|
|
|
September 30, 2018
|
|
|||||||||
|
|
|
|
Fair Value Measurements at the End of the Reporting Period Using
|
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
Total
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
|
Significant Other Observable Inputs (Level 2)
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
||||
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Fixed maturities:
|
|
|
|
|
|
|
|
|
||||||||
U.S. government, government agencies and authorities
|
|
$
|
5,429
|
|
|
$
|
—
|
|
|
$
|
5,429
|
|
|
$
|
—
|
|
States, municipalities and political subdivisions
|
|
601
|
|
|
—
|
|
|
601
|
|
|
—
|
|
||||
Mortgage-backed
|
|
2,526
|
|
|
—
|
|
|
2,526
|
|
|
—
|
|
||||
Corporate
|
|
2,520
|
|
|
—
|
|
|
2,520
|
|
|
—
|
|
||||
Total fixed maturities
|
|
11,076
|
|
|
—
|
|
|
11,076
|
|
|
—
|
|
||||
Equity investments:
|
|
|
|
|
|
|
|
|
||||||||
Common stock
|
|
926
|
|
|
926
|
|
|
—
|
|
|
—
|
|
||||
Warrants
|
|
408
|
|
|
36
|
|
|
372
|
|
|
—
|
|
||||
Total equity investments
|
|
1,334
|
|
|
962
|
|
|
372
|
|
|
—
|
|
||||
Limited liability investment, at fair value
|
|
4,529
|
|
|
—
|
|
|
4,529
|
|
|
—
|
|
||||
Other investments
|
|
1,917
|
|
|
—
|
|
|
1,917
|
|
|
—
|
|
||||
Short-term investments
|
|
151
|
|
|
—
|
|
|
151
|
|
|
—
|
|
||||
Total assets
|
|
$
|
19,007
|
|
|
$
|
962
|
|
|
$
|
18,045
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
||||||||
Subordinated debt
|
|
$
|
53,614
|
|
|
$
|
—
|
|
|
$
|
53,614
|
|
|
$
|
—
|
|
Total liabilities
|
|
$
|
53,614
|
|
|
$
|
—
|
|
|
$
|
53,614
|
|
|
$
|
—
|
|
|
33
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
(in thousands)
|
|
|
|
|
|
December 31, 2017
|
|
|||||||||
|
|
|
|
Fair Value Measurements at the End of the Reporting Period Using
|
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
Total
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
|
Significant Other Observable Inputs (Level 2)
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
||||
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Fixed maturities:
|
|
|
|
|
|
|
|
|
||||||||
U.S. government, government agencies and authorities
|
|
$
|
5,612
|
|
|
$
|
—
|
|
|
$
|
5,612
|
|
|
$
|
—
|
|
States municipalities and political subdivisions
|
|
626
|
|
|
—
|
|
|
626
|
|
|
—
|
|
||||
Mortgage-backed
|
|
2,876
|
|
|
—
|
|
|
2,876
|
|
|
—
|
|
||||
Corporate
|
|
5,427
|
|
|
—
|
|
|
5,427
|
|
|
—
|
|
||||
Total fixed maturities
|
|
14,541
|
|
|
—
|
|
|
14,541
|
|
|
—
|
|
||||
Equity investments:
|
|
|
|
|
|
|
|
|
||||||||
Common stock
|
|
3,570
|
|
|
3,570
|
|
|
—
|
|
|
—
|
|
||||
Warrants
|
|
906
|
|
|
58
|
|
|
848
|
|
|
—
|
|
||||
Total equity investments
|
|
4,476
|
|
|
3,628
|
|
|
848
|
|
|
—
|
|
||||
Limited liability investment, at fair value
|
|
5,771
|
|
|
—
|
|
|
5,771
|
|
|
—
|
|
||||
Other investments
|
|
2,321
|
|
|
—
|
|
|
2,321
|
|
|
—
|
|
||||
Short-term investments
|
|
151
|
|
|
—
|
|
|
151
|
|
|
—
|
|
||||
Total assets
|
|
$
|
27,260
|
|
|
$
|
3,628
|
|
|
$
|
23,632
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
||||||||
Subordinated debt
|
|
$
|
52,105
|
|
|
$
|
—
|
|
|
$
|
52,105
|
|
|
$
|
—
|
|
Total liabilities
|
|
$
|
52,105
|
|
|
$
|
—
|
|
|
$
|
52,105
|
|
|
$
|
—
|
|
|
34
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
|
35
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited) September 30, 2018
|
|
36
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
37
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
38
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
•
|
Paid Loss Development - we use historical loss and loss adjustment expense payments over discrete periods of time to estimate future loss and loss adjustment expense payments. Paid development methods assume that the patterns of paid loss and loss adjustment expenses that occurred in past periods will be similar to loss and loss adjustment expense payment patterns that will occur in future periods.
|
•
|
Incurred Loss Development - we use historical case incurred loss and loss adjustment expenses (the sum of cumulative loss and loss adjustment expense payments plus outstanding unpaid case losses) over discrete periods of time to estimate future loss and loss adjustment expenses. Incurred development methods assume that the case loss and loss adjustment expenses reserving practices are consistently applied over time.
|
•
|
Frequency and Severity - we use historical claim count development over discrete periods of time to estimate future claim counts. We divide projected ultimate claim counts by an exposure base (earned premiums or exposures), select expected claim frequencies from the results, and adjust them for trends based on internal and external information. Concurrently, we divide projected ultimate losses by the projected ultimate claim counts to select expected loss severities. We use internal and external information to trend the severities and combine them with the trended, projected frequencies to develop ultimate loss projections.
|
|
39
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
40
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
|
||||||||
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
Segment operating income:
|
|
|
|
|
|
|
||||||
Extended Warranty
|
385
|
|
847
|
|
(462
|
)
|
3,615
|
|
2,118
|
|
1,497
|
|
Leased Real Estate
|
473
|
|
525
|
|
(52
|
)
|
1,965
|
|
2,315
|
|
(350
|
)
|
Total segment operating income
|
858
|
|
1,372
|
|
(514
|
)
|
5,580
|
|
4,433
|
|
1,147
|
|
Net investment (loss) income
|
(84
|
)
|
1,289
|
|
(1,373
|
)
|
(697
|
)
|
126
|
|
(823
|
)
|
Net realized losses
|
(414
|
)
|
—
|
|
(414
|
)
|
(405
|
)
|
(1
|
)
|
(404
|
)
|
Gain on change in fair value of equity investments
|
337
|
|
—
|
|
337
|
|
951
|
|
—
|
|
951
|
|
Interest expense not allocated to segments
|
(1,571
|
)
|
(1,261
|
)
|
(310
|
)
|
(4,476
|
)
|
(3,636
|
)
|
(840
|
)
|
Other income and expenses not allocated to segments, net
|
225
|
|
(1,872
|
)
|
2,097
|
|
(4,428
|
)
|
(6,871
|
)
|
2,443
|
|
Amortization of intangible assets
|
(1,356
|
)
|
(286
|
)
|
(1,070
|
)
|
(1,899
|
)
|
(866
|
)
|
(1,033
|
)
|
Contingent consideration benefit
|
—
|
|
—
|
|
—
|
|
—
|
|
212
|
|
(212
|
)
|
Loss on change in fair value of debt
|
(1,450
|
)
|
(1,178
|
)
|
(272
|
)
|
(2,511
|
)
|
(5,769
|
)
|
3,258
|
|
Gain on disposal of subsidiary
|
—
|
|
—
|
|
—
|
|
17
|
|
—
|
|
17
|
|
Equity in net (loss) income of investee
|
(339
|
)
|
(897
|
)
|
558
|
|
(623
|
)
|
1,343
|
|
(1,966
|
)
|
Loss from continuing operations before income tax (benefit) expense
|
(3,794
|
)
|
(2,833
|
)
|
(961
|
)
|
(8,491
|
)
|
(11,029
|
)
|
2,538
|
|
Income tax (benefit) expense
|
(147
|
)
|
120
|
|
(267
|
)
|
291
|
|
1,636
|
|
(1,345
|
)
|
Loss from continuing operations
|
(3,647
|
)
|
(2,953
|
)
|
(694
|
)
|
(8,782
|
)
|
(12,665
|
)
|
3,883
|
|
Income from discontinued operations, net of taxes
|
740
|
|
1,391
|
|
(651
|
)
|
2,069
|
|
960
|
|
1,109
|
|
(Loss) gain on disposal of discontinued operations, net of taxes
|
(1,172
|
)
|
—
|
|
(1,172
|
)
|
(7,800
|
)
|
1,017
|
|
(8,817
|
)
|
Net loss
|
(4,079
|
)
|
(1,562
|
)
|
(2,517
|
)
|
(14,513
|
)
|
(10,688
|
)
|
(3,825
|
)
|
|
41
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
42
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
43
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
44
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
Type of investment
|
|
September 30, 2018
|
|
|
% of Total
|
|
|
December 31, 2017
|
|
|
% of Total
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
||||
U.S. government, government agencies and authorities
|
|
5,429
|
|
|
11.1
|
%
|
|
5,612
|
|
|
10.6
|
%
|
States, municipalities and political subdivisions
|
|
601
|
|
|
1.2
|
%
|
|
626
|
|
|
1.2
|
%
|
Mortgage-backed
|
|
2,526
|
|
|
5.2
|
%
|
|
2,876
|
|
|
5.4
|
%
|
Corporate
|
|
2,520
|
|
|
5.2
|
%
|
|
5,427
|
|
|
10.2
|
%
|
Total fixed maturities
|
|
11,076
|
|
|
22.7
|
%
|
|
14,541
|
|
|
27.4
|
%
|
Equity investments:
|
|
|
|
|
|
|
|
|
||||
Common stock
|
|
926
|
|
|
1.9
|
%
|
|
3,570
|
|
|
6.7
|
%
|
Warrants
|
|
408
|
|
|
0.8
|
%
|
|
906
|
|
|
1.7
|
%
|
Total equity investments
|
|
1,334
|
|
|
2.7
|
%
|
|
4,476
|
|
|
8.4
|
%
|
Limited liability investments
|
|
6,230
|
|
|
12.8
|
%
|
|
4,922
|
|
|
9.3
|
%
|
Limited liability investment, at fair value
|
|
4,529
|
|
|
9.3
|
%
|
|
5,771
|
|
|
10.9
|
%
|
Other investments
|
|
1,917
|
|
|
3.9
|
%
|
|
2,321
|
|
|
4.4
|
%
|
Short-term investments
|
|
151
|
|
|
0.3
|
%
|
|
151
|
|
|
0.3
|
%
|
Total investments
|
|
25,237
|
|
|
51.7
|
%
|
|
32,182
|
|
|
60.7
|
%
|
Cash and cash equivalents
|
|
23,591
|
|
|
48.3
|
%
|
|
20,774
|
|
|
39.3
|
%
|
Total
|
|
48,828
|
|
|
100.0
|
%
|
|
52,956
|
|
|
100.0
|
%
|
|
45
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
Carrying Value
|
|
|||
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Triple net lease limited liability investments
|
|
2,793
|
|
|
1,082
|
|
Other real estate related limited liability investments
|
|
—
|
|
|
110
|
|
Non-real estate limited liability investments
|
|
3,437
|
|
|
3,730
|
|
Total
|
|
6,230
|
|
|
4,922
|
|
|
46
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
||||||
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Income from triple net lease limited liability investments
|
|
104
|
|
|
47
|
|
|
139
|
|
|
47
|
|
Income from CMC operations
|
|
491
|
|
|
434
|
|
|
1,697
|
|
|
1,786
|
|
Total income included in loss from continuing operations as a result of triple net lease investments and CMC operations
|
|
595
|
|
|
481
|
|
|
1,836
|
|
|
1,833
|
|
|
47
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
Line of Business
|
September 30, 2018
|
|
December 31, 2017
|
|
Non-standard automobile
|
815
|
|
572
|
|
Commercial automobile
|
854
|
|
580
|
|
Other
|
623
|
|
177
|
|
Total
|
2,292
|
|
1,329
|
|
Line of Business
|
September 30, 2018
|
|
December 31, 2017
|
|
Non-standard automobile
|
761
|
|
508
|
|
Commercial automobile
|
829
|
|
572
|
|
Other
|
623
|
|
177
|
|
Total
|
2,213
|
|
1,257
|
|
|
48
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(Favorable) unfavorable change in provision for property and casualty loss and loss adjustment expenses for prior accident years
|
(19
|
)
|
267
|
|
1,628
|
|
266
|
|
|
49
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
50
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
51
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
52
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
September 30, 2018
|
|
|
% of Total
|
|
|
December 31, 2017
|
|
|
% of Total
|
|
Due in less than one year
|
|
5,117
|
|
|
46.2
|
%
|
|
3,605
|
|
|
24.8
|
%
|
Due in one through five years
|
|
4,781
|
|
|
43.2
|
%
|
|
9,310
|
|
|
64.0
|
%
|
Due after five through ten years
|
|
117
|
|
|
1.0
|
%
|
|
345
|
|
|
2.4
|
%
|
Due after ten years
|
|
1,061
|
|
|
9.6
|
%
|
|
1,281
|
|
|
8.8
|
%
|
Total
|
|
11,076
|
|
|
100.0
|
%
|
|
14,541
|
|
|
100.0
|
%
|
|
|
100 Basis Point Decrease in Interest Rates
|
|
No Change
|
|
100 Basis Point Increase in Interest Rates
|
||||||
As of September 30, 2018
|
|
|
|
|
|
|
||||||
Estimated fair value
|
|
$
|
11,248
|
|
|
$
|
11,076
|
|
|
$
|
10,904
|
|
Estimated increase (decrease) in fair value
|
|
$
|
172
|
|
|
$
|
—
|
|
|
$
|
(172
|
)
|
|
|
|
|
|
|
|
||||||
As of December 31, 2017
|
|
|
|
|
|
|
||||||
Estimated fair value
|
|
$
|
14,840
|
|
|
$
|
14,541
|
|
|
$
|
14,242
|
|
Estimated increase (decrease) in fair value
|
|
$
|
299
|
|
|
$
|
—
|
|
|
$
|
(299
|
)
|
|
53
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
Rating (S&P/Moody's)
|
September 30, 2018
|
|
December 31, 2017
|
|
AAA/Aaa
|
74.1
|
%
|
59.6
|
%
|
AA/Aa
|
12.8
|
|
8.8
|
|
A/A
|
13.1
|
|
10.9
|
|
Percentage rated A/A2 or better
|
100.0
|
%
|
79.3
|
%
|
Not rated
|
—
|
|
20.7
|
|
Total
|
100.0
|
%
|
100.0
|
%
|
|
54
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
55
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
56
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
•
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our ability to engage in acquisitions without raising additional equity or obtaining additional debt financing could be limited;
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•
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our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes and our ability to satisfy our obligations with respect to our debt may be impaired in the future;
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•
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a large portion of our cash flow must be dedicated to the payment of interest on our debt, thereby reducing the funds available to us for other purposes;
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•
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we are exposed to the risk of increased interest rates because our outstanding subordinated debt, representing $90.5 million of principal value, bears interest directly related to the London interbank offered interest rate for three-month U.S. dollar deposits ("LIBOR");
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•
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it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and acceleration of, such debt;
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•
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we may be more vulnerable to general adverse economic and industry conditions;
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•
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we may be at a competitive disadvantage compared to our competitors with proportionately less debt or with comparable debt on more favorable terms and, as a result, they may be better positioned to withstand economic downturns;
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•
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our ability to refinance debt may be limited or the associated costs may increase;
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•
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our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited; and
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•
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we may be prevented from carrying out capital spending that is, among other things, necessary or important to our growth strategy and efforts to improve the operating results of our businesses.
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57
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KINGSWAY FINANCIAL SERVICES INC.
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58
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KINGSWAY FINANCIAL SERVICES INC.
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59
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KINGSWAY FINANCIAL SERVICES INC.
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60
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KINGSWAY FINANCIAL SERVICES INC.
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61
|
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KINGSWAY FINANCIAL SERVICES INC.
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•
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difficulties in the integration of the acquired business;
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•
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assumption of unknown material liabilities, including deficient provisions for unpaid loss and loss adjustment expenses;
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•
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diversion of management's attention from other business concerns;
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•
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failure to achieve financial or operating objectives; and
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•
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potential loss of policyholders or key employees of acquired companies.
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•
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identification of appropriate management to run the new business;
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•
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understanding the strategic, competitive and marketplace dynamics of the new business and, perhaps, industry;
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•
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establishment of proper financial and operational controls;
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•
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diversion of management's attention from other business concerns; and
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•
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failure to achieve financial or operating objectives.
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62
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KINGSWAY FINANCIAL SERVICES INC.
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•
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actuarial projections of the cost of settlement and administration of claims reflecting facts and circumstances then known;
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•
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estimates of future trends in claims severity and frequency;
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•
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legal theories of liability;
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•
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variability in claims-handling procedures;
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•
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economic factors such as inflation;
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•
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judicial and legislative trends, actions such as class action lawsuits, and judicial interpretation of coverages or policy exclusions; and
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•
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the level of insurance fraud.
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63
|
|
KINGSWAY FINANCIAL SERVICES INC.
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|
64
|
|
KINGSWAY FINANCIAL SERVICES INC.
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•
|
the availability of reliable data and our ability to properly analyze available data;
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•
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the uncertainties that inherently characterize estimates and assumptions;
|
•
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our selection and application of appropriate pricing techniques; and
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•
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changes in applicable legal liability standards and in the civil litigation system generally.
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65
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KINGSWAY FINANCIAL SERVICES INC.
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Offer Letter, dated September 5, 2018, between the Company and John T. Fitzgerald (included as Exhibit 10.2 to Form 8-K, filed September 10, 2018, and incorporated herein by reference).
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Severance Agreement, dated September 5, 2018, between the Company and John T. Fitzgerald (included as Exhibit 10.3 to Form 8-K, filed September 10, 2018, and incorporated herein by reference).
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Restricted Stock Agreement, dated September 5, 2018, between the Company and John T. Fitzgerald (included as Exhibit 10.4 to Form 8-K, filed September 10, 2018, and incorporated herein by reference).
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Form of Indemnification Agreement for Directors and Officers (included as Exhibit 10.5 to Form 8-K, filed September 10, 2018, and incorporated herein by reference).
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Separation Agreement and Release, dated September 5, 2018, between Kingsway America Inc. and Larry G. Swets, Jr. (included as Exhibit 10.6 to Form 8-K, filed September 10, 2018, and incorporated herein by reference).
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Senior Advisor Agreement, dated September 5, 2018, between Kingsway America Inc. and Larry G. Swets, Jr. (included as Exhibit 10.7 to Form 8-K, filed September 10, 2018, and incorporated herein by reference).
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Amended and Restated Restricted Stock Agreement, dated September 5, 2018, between the Company and Larry G. Swets, Jr. (included as Exhibit 10.8 to Form 8-K, filed September 10, 2018, and incorporated herein by reference).
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Membership Interest Purchase Agreement, dated September 5, 2018, between 1347 Capital LLC and IGI Partners, LLC (included as Exhibit 10.9 to Form 8-K, filed September 10, 2018, and incorporated herein by reference).
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Letter Agreement, dated May 30, 2018, between the Company and Larry Swets
|
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Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
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|
101.INS
|
XBRL Instance Document
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase
|
|
66
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
67
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
|
|
Date:
|
November 9, 2018
|
By:
|
/s/ John T. Fitzgerald
|
|
|
|
John T. Fitzgerald, President, Chief Executive Officer and Director
|
|
|
|
(principal executive officer)
|
|
|
|
|
Date:
|
November 9, 2018
|
By:
|
/s/ William A. Hickey, Jr.
|
|
|
|
William A. Hickey, Jr., Chief Financial Officer and Executive Vice President
|
|
|
|
(principal financial officer)
|
|
|
|
|
|
68
|
|
1
|
Payments
. For so long as Swets offers his services as chairman of ILS and the Services Agreement with 1347 remains in force, he shall be entitled to receive the following fees from 1347 (on behalf of KFSI):
|
2
|
Breach of Agreement
. A breach of any term of this letter agreement by either party will immediately entitle the other party to pursue equitable remedies (including specific performance or injunctive relief) in addition to any claim for damages or any other legal remedy.
|
3
|
Representations and Warranties
. Each of the parties represents and warrants: (a) it has the power, capacity and authority to execute, deliver and carry out the terms and provisions of this letter agreement and to consummate the transactions contemplated hereby; and (b) this letter agreement has been duly authorized, executed and delivered by it and constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms.
|
4
|
Assignment
. This letter agreement, including any of the rights, duties or obligations herein, is not assignable or transferable by KFSI or Swets without the prior written consent of the other party. Any attempt to assign any of the rights, duties or obligations in this letter agreement without such written consent is void.
|
5
|
Entire Agreement
. This letter agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof. There are no restrictions, agreements, promises, representations, warranties, covenants or other undertakings other than those expressly set forth in this letter agreement. This letter agreement may be amended only by a written instrument duly executed by all of the parties or their respective successors or assigns.
|
6
|
Confidentiality
. The parties agree to keep the terms of this letter agreement confidential except as may be required to perform their respective duties or exercise its rights under this letter agreement or as may be required by applicable law.
|
7
|
Miscellaneous
. All modifications of and amendments to this letter agreement or any part hereof must be in writing signed on behalf of all parties. Waivers of any terms and provisions of this letter agreement shall be in writing signed on behalf of all parties. Time is of the essence. The parties agree to execute any such other instruments or agreements as may be required in respect of the subject matter of this letter agreement.
|
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
||
|
|
Per:
|
|
|
|
|
|
Name: Terry Kavanagh
|
|
|
|
|
Title: Chairman of the Board
|
Witness
|
Larry Swets
|