|
Delaware
|
|
98-0475673
|
|
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(State or other jurisdiction of incorporation or organization)
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|
(I.R.S. Employer Identification No.)
|
|
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150 E. Pierce Road
Itasca, IL
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|
60143
|
|
|
(Address of principal executive offices)
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(Zip Code)
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, no par value
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New York Stock Exchange
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Large accelerated filer o
|
Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller Reporting Companyx
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Emerging Growth Company o
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KINGSWAY FINANCIAL SERVICES INC.
|
Table Of Contents
|
||
Caution Regarding Forward-Looking Statements
|
|
|
PART I
|
|
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Item 1. Business
|
|
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Item 1A. Risk Factors
|
|
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Item 1B. Unresolved Staff Comments
|
|
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Item 2. Properties
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Item 3. Legal Proceedings
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|
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Item 4. Mine Safety Disclosures
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PART II
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Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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Item 6. Selected Financial Data
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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Item 8. Financial Statements and Supplementary Data
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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Item 9A. Controls and Procedures
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Item 9B. Other Information
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PART III
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Item 10. Directors, Executive Officers, and Corporate Governance
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Item 11. Executive Compensation
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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Item 13. Certain Relationships and Related Transactions, and Director Independence
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Item 14. Principal Accounting Fees and Services
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PART IV
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Item 15. Exhibits, Financial Statement Schedules
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Item 16. Form 10-K Summary
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SIGNATURES
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EXHIBIT INDEX
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|
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2
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
•
|
its results of operations and financial condition (including, among other things, net and operating income, investment income and performance, return on equity and expected current returns);
|
•
|
changes in facts and circumstances affecting assumptions used in determining its provision for unpaid loss and loss adjustment expenses;
|
•
|
changes in facts and circumstances affecting assumptions used in evaluating its legal proceedings;
|
•
|
changes in industry trends and significant industry developments;
|
•
|
the impact of certain guarantees and indemnifications made by the Company;
|
•
|
its ability to complete and integrate current or future acquisitions successfully; and
|
•
|
its ability to implement its restructuring activities and execute its strategic initiatives successfully.
|
|
3
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
4
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
5
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
6
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
7
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
8
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
9
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
•
|
our ability to engage in acquisitions without raising additional equity or obtaining additional debt financing could be limited;
|
•
|
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;
|
•
|
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;
|
•
|
we are exposed to the risk of increased interest rates because our outstanding subordinated debt, representing $90.5 million of principal value, and our acquisition financing of $10.0 million bear interest directly related to the London interbank offered interest rate for three-month U.S. dollar deposits or any equivalent replacement benchmark as defined in the underlying loan documents ("LIBOR");
|
•
|
it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and acceleration of, such debt;
|
•
|
we may be more vulnerable to general adverse economic and industry conditions;
|
•
|
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;
|
•
|
our ability to refinance debt may be limited or the associated costs may increase;
|
•
|
our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited; and
|
•
|
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.
|
|
10
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
11
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
12
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
13
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
14
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
•
|
difficulties in the integration of the acquired business;
|
•
|
assumption of unknown material liabilities, including deficient provisions for unpaid loss and loss adjustment expenses;
|
•
|
diversion of management's attention from other business concerns;
|
•
|
failure to achieve financial or operating objectives; and
|
•
|
potential loss of customers or key employees of acquired companies.
|
|
15
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
•
|
identification of appropriate management to run the new business;
|
•
|
understanding the strategic, competitive and marketplace dynamics of the new business and, perhaps, industry;
|
•
|
establishment of proper financial and operational controls;
|
•
|
diversion of management's attention from other business concerns; and
|
•
|
failure to achieve financial or operating objectives.
|
•
|
actuarial projections of the cost of settlement and administration of claims reflecting facts and circumstances then known;
|
•
|
estimates of future trends in claims severity and frequency;
|
•
|
legal theories of liability;
|
•
|
variability in claims-handling procedures;
|
|
16
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
•
|
economic factors such as inflation;
|
•
|
judicial and legislative trends, actions such as class action lawsuits, and judicial interpretation of coverages or policy exclusions; and
|
•
|
the level of insurance fraud.
|
|
17
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
•
|
the availability of reliable data and our ability to properly analyze available data;
|
•
|
the uncertainties that inherently characterize estimates and assumptions;
|
•
|
our selection and application of appropriate pricing techniques; and
|
•
|
changes in applicable legal liability standards and in the civil litigation system generally.
|
|
18
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|
KINGSWAY FINANCIAL SERVICES INC.
|
|
19
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|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
NYSE
|
||||||
|
|
High - US$
|
|
|
Low - US$
|
|
||
2018
|
|
|
|
|
||||
Quarter 4
|
|
$
|
2.87
|
|
|
$
|
1.87
|
|
Quarter 3
|
|
3.30
|
|
|
2.40
|
|
||
Quarter 2
|
|
4.65
|
|
|
2.75
|
|
||
Quarter 1
|
|
5.85
|
|
|
3.65
|
|
||
2017
|
|
|
|
|
||||
Quarter 4
|
|
6.05
|
|
|
4.95
|
|
||
Quarter 3
|
|
6.20
|
|
|
5.45
|
|
||
Quarter 2
|
|
6.30
|
|
|
5.35
|
|
||
Quarter 1
|
|
6.50
|
|
|
5.40
|
|
|
20
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|
KINGSWAY FINANCIAL SERVICES INC.
|
|
Years ended December 31,
|
|
||||||||||||||||
Company/Index
|
2013
|
2014
|
2015
|
2016
|
2017
|
2018
|
||||||||||||
Kingsway
|
$
|
100
|
|
$
|
142
|
|
$
|
117
|
|
$
|
160
|
|
$
|
129
|
|
$
|
74
|
|
Russell MicroCap
|
$
|
100
|
|
$
|
104
|
|
$
|
98
|
|
$
|
118
|
|
$
|
134
|
|
$
|
116
|
|
SNL Micro Cap U.S. Financial Services
|
$
|
100
|
|
$
|
99
|
|
$
|
73
|
|
$
|
72
|
|
$
|
97
|
|
$
|
86
|
|
|
21
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
22
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
23
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
24
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
•
|
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.
|
|
25
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
26
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
•
|
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;
|
•
|
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.
|
•
|
the opinions of external investment and portfolio managers;
|
•
|
the financial condition and prospects of the investee;
|
•
|
recent operating trends and forecasted performance of the investee;
|
•
|
current market conditions in the geographic area or industry in which the investee operates;
|
•
|
changes in credit ratings; and
|
•
|
changes in the regulatory environment.
|
|
27
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
28
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
29
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
30
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
2018
|
|
2017
|
|
Change
|
|
Segment operating income
|
|
|
|
|||
Extended Warranty
|
4,215
|
|
3,680
|
|
535
|
|
Leased Real Estate
|
2,485
|
|
3,099
|
|
(614
|
)
|
Total segment operating income
|
6,700
|
|
6,779
|
|
(79
|
)
|
Net investment income
|
2,957
|
|
7,087
|
|
(4,130
|
)
|
Net realized (losses) gains
|
(17
|
)
|
306
|
|
(323
|
)
|
Gain on change in fair value of equity investments
|
381
|
|
—
|
|
381
|
|
Loss on change in fair value of limited liability investments, at fair value
|
(7,393
|
)
|
(1,832
|
)
|
(5,561
|
)
|
Net change in unrealized loss on private company investments
|
(1,629
|
)
|
(758
|
)
|
(871
|
)
|
Interest expense not allocated to segments
|
(7,407
|
)
|
(6,348
|
)
|
(1,059
|
)
|
Other income and expenses not allocated to segments, net
|
(8,963
|
)
|
(10,503
|
)
|
1,540
|
|
Amortization of intangible assets
|
(2,376
|
)
|
(1,085
|
)
|
(1,291
|
)
|
Contingent consideration benefit
|
—
|
|
212
|
|
(212
|
)
|
Loss on change in fair value of debt
|
(1,720
|
)
|
(8,487
|
)
|
6,767
|
|
Gain on disposal of subsidiary
|
17
|
|
—
|
|
17
|
|
Equity in net (loss) income of investee
|
(2,499
|
)
|
2,115
|
|
(4,614
|
)
|
Loss from continuing operations before income tax expense (benefit)
|
(21,949
|
)
|
(12,514
|
)
|
(9,435
|
)
|
Income tax expense (benefit)
|
315
|
|
(16,688
|
)
|
17,003
|
|
(Loss) income from continuing operations
|
(22,264
|
)
|
4,174
|
|
(26,438
|
)
|
Loss on liquidation of subsidiary, net of taxes
|
—
|
|
(494
|
)
|
494
|
|
Income (loss) from discontinued operations, net of taxes
|
1,064
|
|
(16,306
|
)
|
17,370
|
|
(Loss) gain on disposal of discontinued operations, net of taxes
|
(7,136
|
)
|
1,017
|
|
(8,153
|
)
|
Net loss
|
(28,336
|
)
|
(11,609
|
)
|
(16,727
|
)
|
|
31
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
32
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
33
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
34
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
35
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
36
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
Type of investment
|
|
2018
|
|
|
% of Total
|
|
|
2017
|
|
|
% of Total
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
||||
U.S. government, government agencies and authorities
|
|
5,547
|
|
|
6.1
|
%
|
|
5,612
|
|
|
5.6
|
%
|
States, municipalities and political subdivisions
|
|
607
|
|
|
0.6
|
%
|
|
626
|
|
|
0.6
|
%
|
Mortgage-backed
|
|
3,186
|
|
|
3.5
|
%
|
|
2,876
|
|
|
2.9
|
%
|
Corporate
|
|
2,920
|
|
|
3.2
|
%
|
|
5,427
|
|
|
5.4
|
%
|
Total fixed maturities
|
|
12,260
|
|
|
13.4
|
%
|
|
14,541
|
|
|
14.5
|
%
|
Equity investments:
|
|
|
|
|
|
|
|
|
||||
Common stock
|
|
801
|
|
|
0.9
|
%
|
|
3,570
|
|
|
3.6
|
%
|
Warrants
|
|
55
|
|
|
—
|
%
|
|
1,019
|
|
|
1.0
|
%
|
Total equity investments
|
|
856
|
|
|
0.9
|
%
|
|
4,589
|
|
|
4.6
|
%
|
Limited liability investments
|
|
4,790
|
|
|
5.2
|
%
|
|
9,094
|
|
|
9.1
|
%
|
Limited liability investments, at fair value
|
|
26,015
|
|
|
28.4
|
%
|
|
32,211
|
|
|
32.1
|
%
|
Investments in private companies
|
|
3,090
|
|
|
3.4
|
%
|
|
4,870
|
|
|
4.9
|
%
|
Real estate investments
|
|
10,662
|
|
|
11.7
|
%
|
|
10,662
|
|
|
10.6
|
%
|
Other investments
|
|
2,079
|
|
|
2.3
|
%
|
|
3,721
|
|
|
3.7
|
%
|
Short-term investments
|
|
152
|
|
|
0.2
|
%
|
|
151
|
|
|
0.2
|
%
|
Total investments
|
|
59,904
|
|
|
65.5
|
%
|
|
79,839
|
|
|
79.7
|
%
|
Cash and cash equivalents
|
|
14,619
|
|
|
16.0
|
%
|
|
5,377
|
|
|
5.4
|
%
|
Restricted cash
|
|
16,959
|
|
|
18.5
|
%
|
|
14,985
|
|
|
14.9
|
%
|
Total
|
|
91,482
|
|
|
100.0
|
%
|
|
100,201
|
|
|
100.0
|
%
|
|
37
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
38
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
Line of Business
|
2018
|
|
2017
|
|
Non-standard automobile
|
686
|
|
572
|
|
Commercial automobile
|
794
|
|
580
|
|
Other
|
593
|
|
177
|
|
Total
|
2,073
|
|
1,329
|
|
Line of Business
|
2018
|
|
2017
|
|
Non-standard automobile
|
686
|
|
508
|
|
Commercial automobile
|
794
|
|
572
|
|
Other
|
593
|
|
177
|
|
Total
|
2,073
|
|
1,257
|
|
|
39
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
2018
|
|
2017
|
|
Unfavorable change in provision for loss and loss adjustment expenses for prior accident years
|
1,631
|
|
401
|
|
|
40
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
41
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
42
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
43
|
|
KINGSWAY FINANCIAL SERVICES INC.
Management's Discussion and Analysis
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
Total
|
|
Bank loan
|
1,000
|
|
1,000
|
|
1,000
|
|
917
|
|
—
|
|
—
|
|
3,917
|
|
Notes payable
|
3,768
|
|
13,164
|
|
4,582
|
|
5,023
|
|
5,489
|
|
157,897
|
|
189,923
|
|
Subordinated debt
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
90,500
|
|
90,500
|
|
Interest payments on outstanding debt
|
8,449
|
|
8,158
|
|
7,080
|
|
6,831
|
|
46,473
|
|
110,851
|
|
187,842
|
|
Unpaid loss and loss adjustment expenses
|
1,272
|
|
372
|
|
285
|
|
96
|
|
38
|
|
10
|
|
2,073
|
|
Future minimum lease payments
|
976
|
|
380
|
|
390
|
|
398
|
|
421
|
|
883
|
|
3,448
|
|
Total
|
15,465
|
|
23,074
|
|
13,337
|
|
13,265
|
|
52,421
|
|
360,141
|
|
477,703
|
|
|
44
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
2018
|
|
|
% of Total
|
|
|
2017
|
|
|
% of Total
|
|
Due in less than one year
|
|
5,445
|
|
|
44.4
|
%
|
|
3,605
|
|
|
24.8
|
%
|
Due in one through five years
|
|
5,233
|
|
|
42.7
|
%
|
|
9,310
|
|
|
64.0
|
%
|
Due after five through ten years
|
|
210
|
|
|
1.7
|
%
|
|
345
|
|
|
2.4
|
%
|
Due after ten years
|
|
1,372
|
|
|
11.2
|
%
|
|
1,281
|
|
|
8.8
|
%
|
Total
|
|
12,260
|
|
|
100.0
|
%
|
|
14,541
|
|
|
100.0
|
%
|
|
|
100 Basis Point Decrease in Interest Rates
|
|
No Change
|
|
100 Basis Point Increase in Interest Rates
|
||||||
As of December 31, 2018
|
|
|
|
|
|
|
||||||
Estimated fair value
|
|
$
|
12,436
|
|
|
$
|
12,260
|
|
|
$
|
12,084
|
|
Estimated increase (decrease) in fair value
|
|
$
|
176
|
|
|
$
|
—
|
|
|
$
|
(176
|
)
|
|
|
|
|
|
|
|
||||||
As of December 31, 2017
|
|
|
|
|
|
|
||||||
Estimated fair value
|
|
$
|
14,840
|
|
|
$
|
14,541
|
|
|
$
|
14,242
|
|
Estimated increase (decrease) in fair value
|
|
$
|
299
|
|
|
$
|
—
|
|
|
$
|
(299
|
)
|
|
45
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
Rating (S&P/Moody's)
|
2018
|
|
2017
|
|
AAA/Aaa
|
72.0
|
%
|
59.6
|
%
|
AA/Aa
|
16.1
|
|
8.8
|
|
A/A
|
10.9
|
|
10.9
|
|
Percentage rated A/A2 or better
|
99.0
|
%
|
79.3
|
%
|
BBB/Baa
|
1.0
|
|
—
|
|
BB/Ba
|
—
|
|
—
|
|
Not rated
|
—
|
|
20.7
|
|
Total
|
100.0
|
%
|
100.0
|
%
|
|
46
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
Reports of Independent Registered Public Accounting Firms
|
|
|
Consolidated Balance Sheets at December 31, 2018 and 2017
|
|
|
Consolidated Statements of Operations for the Years Ended December 31, 2018 and 2017
|
|
|
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2018 and 2017
|
|
|
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2018 and 2017
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017
|
|
|
Notes to the Consolidated Financial Statements
|
|
|
Note 1-Business
|
|
|
Note 2-Summary of Significant Accounting Policies
|
|
|
Note 3-Restatement of Previously Issued Financial Statements
|
|
|
Note 4-Recently Issued Accounting Standards
|
|
|
Note 5-Acquisition
|
|
|
Note 6-Disposal, Discontinued Operations and Liquidation
|
|
|
Note 7-Variable Interest Entities
|
|
|
Note 8-Investments
|
|
|
Note 9-Investment in Investee
|
|
|
Note 10-Reinsurance
|
|
|
Note 11-Deferred Acquisition Costs
|
|
|
Note 12-Goodwill
|
|
|
Note 13-Intangible Assets
|
|
|
Note 14-Property and Equipment
|
|
|
Note 15-Vehicle Service Agreement Liability
|
|
|
Note 16-Unpaid Loss and Loss Adjustment Expenses
|
|
|
Note 17-Debt
|
|
|
Note 18-Finance Lease Obligation Liability
|
|
|
Note 19-Leases
|
|
|
Note 20-Revenue from Contracts with Customers
|
|
|
Note 21-Income Taxes
|
|
|
Note 22-Loss from Continuing Operations per Share
|
|
|
Note 23-Stock-Based Compensation
|
|
|
Note 24-Employee Benefit Plan
|
|
|
Note 25-Redeemable Class A Preferred Stock
|
|
|
Note 26-Shareholders' Equity
|
|
|
Note 27-Accumulated Other Comprehensive Income (Loss)
|
|
|
Note 28-Segmented Information
|
|
|
Note 29-Fair Value of Financial Instruments
|
|
|
Note 30-Related Parties
|
|
|
Note 31-Commitments and Contingent Liabilities
|
|
|
Note 32-Regulatory Capital Requirements and Ratios
|
|
|
Note 33-Statutory Information and Policies
|
|
|
Note 34-Subsequent Event
|
|
|
47
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
48
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
49
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
||
|
|
|
|
(restated)
|
|
|||
Assets
|
|
|
|
|
||||
Investments:
|
|
|
|
|
||||
Fixed maturities, at fair value (amortized cost of $12,432 and $14,707, respectively)
|
|
$
|
12,260
|
|
|
$
|
14,541
|
|
Equity investments, at fair value (cost of $2,274 and $4,868, respectively)
|
|
856
|
|
|
4,589
|
|
||
Limited liability investments
|
|
4,790
|
|
|
9,094
|
|
||
Limited liability investments, at fair value
|
|
26,015
|
|
|
32,211
|
|
||
Investments in private companies, at adjusted cost
|
|
3,090
|
|
|
4,870
|
|
||
Real estate investments, at fair value (cost of $10,225 and 10,225, respectively)
|
|
10,662
|
|
|
10,662
|
|
||
Other investments, at cost which approximates fair value
|
|
2,079
|
|
|
3,721
|
|
||
Short-term investments, at cost which approximates fair value
|
|
152
|
|
|
151
|
|
||
Total investments
|
|
59,904
|
|
|
79,839
|
|
||
Cash and cash equivalents
|
|
14,619
|
|
|
5,377
|
|
||
Restricted cash
|
|
16,959
|
|
|
14,985
|
|
||
Investment in investee
|
|
951
|
|
|
5,230
|
|
||
Accrued investment income
|
|
420
|
|
|
507
|
|
||
Service fee receivable, net of allowance for doubtful accounts of $191 and $318, respectively
|
|
3,434
|
|
|
4,431
|
|
||
Other receivables, net of allowance for doubtful accounts of $184 and zero, respectively
|
|
9,523
|
|
|
7,247
|
|
||
Deferred acquisition costs, net
|
|
6,904
|
|
|
6,325
|
|
||
Property and equipment, net of accumulated depreciation of $15,958 and $11,683, respectively
|
|
103,142
|
|
|
108,008
|
|
||
Goodwill
|
|
74,659
|
|
|
80,843
|
|
||
Intangible assets, net of accumulated amortization of $10,594 and $8,218, respectively
|
|
83,266
|
|
|
79,446
|
|
||
Other assets
|
|
4,459
|
|
|
4,302
|
|
||
Assets held for sale
|
|
—
|
|
|
110,145
|
|
||
Total Assets
|
|
$
|
378,240
|
|
|
$
|
506,685
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
||||
|
|
|
|
|
||||
Liabilities:
|
|
|
|
|
||||
Accrued expenses and other liabilities
|
|
$
|
14,786
|
|
|
$
|
10,359
|
|
Income taxes payable
|
|
2,400
|
|
|
2,644
|
|
||
Deferred service fees
|
|
47,130
|
|
|
41,113
|
|
||
Unpaid loss and loss adjustment expenses
|
|
2,073
|
|
|
1,329
|
|
||
Bank loan
|
|
3,917
|
|
|
4,917
|
|
||
Notes payable
|
|
199,316
|
|
|
203,648
|
|
||
Subordinated debt, at fair value
|
|
50,023
|
|
|
52,105
|
|
||
Net deferred income tax liabilities
|
|
28,537
|
|
|
28,763
|
|
||
Liabilities held for sale
|
|
—
|
|
|
105,900
|
|
||
Total Liabilities
|
|
348,182
|
|
|
450,778
|
|
||
|
|
|
|
|
||||
Redeemable Class A preferred stock, no par value; 1,000,000 and unlimited number authorized at December 31, 2018 and December 31, 2017, respectively; 222,876 and 222,876 issued and outstanding at December 31, 2018 and December 31, 2017, respectively; redemption amount of $7,278 and $7,182 at December 31, 2018 and December 31, 2017, respectively
|
|
5,800
|
|
|
5,180
|
|
||
|
|
|
|
|
||||
Shareholders' Equity:
|
|
|
|
|
||||
Common stock, no par value; 50,000,000 and unlimited number authorized at December 31, 2018 and December 31, 2017, respectively; 21,787,728 and 21,708,190 issued and outstanding at December 31, 2018 and December 31, 2017, respectively
|
|
—
|
|
|
—
|
|
||
Additional paid-in capital
|
|
353,890
|
|
|
356,171
|
|
||
Accumulated deficit
|
|
(382,196
|
)
|
|
(310,953
|
)
|
||
Accumulated other comprehensive income (loss)
|
|
40,768
|
|
|
(3,852
|
)
|
||
Shareholders' equity attributable to common shareholders
|
|
12,462
|
|
|
41,366
|
|
||
Noncontrolling interests in consolidated subsidiaries
|
|
11,796
|
|
|
9,361
|
|
||
Total Shareholders' Equity
|
|
24,258
|
|
|
50,727
|
|
||
Total Liabilities, Class A preferred stock and Shareholders' Equity
|
|
$
|
378,240
|
|
|
$
|
506,685
|
|
|
50
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
|
|
|
|
(restated)
|
|
|||
Revenues:
|
|
|
|
|
||||
Service fee and commission income
|
|
$
|
38,286
|
|
|
$
|
30,530
|
|
Rental income
|
|
13,376
|
|
|
13,384
|
|
||
Other income
|
|
416
|
|
|
684
|
|
||
Total revenues
|
|
52,078
|
|
|
44,598
|
|
||
Operating expenses:
|
|
|
|
|
||||
Claims authorized on vehicle service agreements
|
|
5,711
|
|
|
5,327
|
|
||
Loss and loss adjustment expenses
|
|
1,631
|
|
|
404
|
|
||
Commissions
|
|
3,756
|
|
|
3,086
|
|
||
Cost of services sold
|
|
7,370
|
|
|
6,535
|
|
||
General and administrative expenses
|
|
29,732
|
|
|
27,311
|
|
||
Leased real estate segment interest expense
|
|
6,171
|
|
|
6,264
|
|
||
Total operating expenses
|
|
54,371
|
|
|
48,927
|
|
||
Operating loss
|
|
(2,293
|
)
|
|
(4,329
|
)
|
||
Other revenues (expenses), net:
|
|
|
|
|
|
|
||
Net investment income
|
|
2,957
|
|
|
7,087
|
|
||
Net realized (losses) gains
|
|
(17
|
)
|
|
306
|
|
||
Gain on change in fair value of equity investments
|
|
381
|
|
|
—
|
|
||
Loss on change in fair value of limited liability investments, at fair value
|
|
(7,393
|
)
|
|
(1,832
|
)
|
||
Net change in unrealized loss on private company investments
|
|
(1,629
|
)
|
|
(758
|
)
|
||
Non-operating other income
|
|
30
|
|
|
605
|
|
||
Interest expense not allocated to segments
|
|
(7,407
|
)
|
|
(6,348
|
)
|
||
Amortization of intangible assets
|
|
(2,376
|
)
|
|
(1,085
|
)
|
||
Contingent consideration benefit
|
|
—
|
|
|
212
|
|
||
Loss on change in fair value of debt
|
|
(1,720
|
)
|
|
(8,487
|
)
|
||
Gain on disposal of subsidiary
|
|
17
|
|
|
—
|
|
||
Equity in net (loss) income of investee
|
|
(2,499
|
)
|
|
2,115
|
|
||
Total other revenues (expenses), net
|
|
(19,656
|
)
|
|
(8,185
|
)
|
||
Loss from continuing operations before income tax expense (benefit)
|
|
(21,949
|
)
|
|
(12,514
|
)
|
||
Income tax expense (benefit)
|
|
315
|
|
|
(16,688
|
)
|
||
(Loss) income from continuing operations
|
|
(22,264
|
)
|
|
4,174
|
|
||
Loss on liquidation of subsidiary, net of taxes
|
|
—
|
|
|
(494
|
)
|
||
Income (loss) from discontinued operations, net of taxes
|
|
1,064
|
|
|
(16,306
|
)
|
||
(Loss) gain on disposal of discontinued operations, net of taxes
|
|
(7,136
|
)
|
|
1,017
|
|
||
Net loss
|
|
(28,336
|
)
|
|
(11,609
|
)
|
||
Less: net income attributable to noncontrolling interests in consolidated subsidiaries
|
|
1,765
|
|
|
4,085
|
|
||
Less: dividends on preferred stock, net of tax
|
|
620
|
|
|
1,248
|
|
||
Net loss attributable to common shareholders
|
|
$
|
(30,721
|
)
|
|
$
|
(16,942
|
)
|
Loss per share - continuing operations:
|
|
|
|
|
||||
Basic:
|
|
$
|
(1.13
|
)
|
|
$
|
(0.05
|
)
|
Diluted:
|
|
$
|
(1.13
|
)
|
|
$
|
(0.05
|
)
|
Loss per share - discontinued operations:
|
|
|
|
|
||||
Basic:
|
|
$
|
(0.28
|
)
|
|
$
|
(0.73
|
)
|
Diluted:
|
|
$
|
(0.28
|
)
|
|
$
|
(0.73
|
)
|
Loss per share – net loss attributable to common shareholders:
|
|
|
|
|
||||
Basic:
|
|
$
|
(1.41
|
)
|
|
$
|
(0.79
|
)
|
Diluted:
|
|
$
|
(1.41
|
)
|
|
$
|
(0.79
|
)
|
Weighted average shares outstanding (in ‘000s):
|
|
|
|
|
||||
Basic:
|
|
21,728
|
|
|
21,547
|
|
||
Diluted:
|
|
21,728
|
|
|
21,547
|
|
|
51
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
|
|
|
|
(restated)
|
|
|||
Net loss
|
|
$
|
(28,336
|
)
|
|
$
|
(11,609
|
)
|
Other comprehensive income (loss), net of taxes(1):
|
|
|
|
|
||||
Unrealized gains (losses) on available-for-sale investments:
|
|
|
|
|
||||
Unrealized gains (losses) arising during the period
|
|
12
|
|
|
(5,213
|
)
|
||
Reclassification adjustment for amounts included in net loss
|
|
(18
|
)
|
|
1,076
|
|
||
Unrealized gains removed due to disposal of discontinued operations
|
|
371
|
|
|
—
|
|
||
Change in fair value of debt attributable to instrument-specific credit risk
|
|
3,804
|
|
|
—
|
|
||
Equity in other comprehensive loss of limited liability investment
|
|
(45
|
)
|
|
—
|
|
||
Recognition of currency translation loss on liquidation of subsidiary
|
|
—
|
|
|
494
|
|
||
Other comprehensive income (loss)
|
|
4,124
|
|
|
(3,643
|
)
|
||
Comprehensive loss
|
|
$
|
(24,212
|
)
|
|
$
|
(15,252
|
)
|
Less: comprehensive income attributable to noncontrolling interests in consolidated subsidiaries
|
|
1,764
|
|
|
4,085
|
|
||
Comprehensive loss attributable to common shareholders
|
|
$
|
(25,976
|
)
|
|
$
|
(19,337
|
)
|
(1) Net of income tax expense (benefit) of $0 and $0 in 2018 and 2017, respectively
|
|
|
|
52
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Shareholders' Equity Attributable to Common Shareholders
|
|
Noncontrolling Interests in Consolidated Subsidiaries
|
|
Total Shareholders' Equity
|
|||||||||||||||||
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, January 1, 2017, as reported
|
|
21,458,190
|
|
|
$
|
—
|
|
|
$
|
353,882
|
|
|
$
|
(297,668
|
)
|
|
$
|
(208
|
)
|
|
$
|
56,006
|
|
|
$
|
829
|
|
|
$
|
56,835
|
|
Correction of prior period errors
|
|
—
|
|
|
—
|
|
|
1,398
|
|
|
2,409
|
|
|
—
|
|
|
3,807
|
|
|
4,107
|
|
|
7,914
|
|
|||||||
Balance, January 1, 2017 as restated
|
|
21,458,190
|
|
|
—
|
|
|
355,280
|
|
|
(295,259
|
)
|
|
(208
|
)
|
|
59,813
|
|
|
4,936
|
|
|
64,749
|
|
|||||||
Common stock issuance expenses
|
|
—
|
|
|
—
|
|
|
(47
|
)
|
|
—
|
|
|
—
|
|
|
(47
|
)
|
|
—
|
|
|
(47
|
)
|
|||||||
Conversion of Class A preferred stock to common stock
|
|
250,000
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
1,000
|
|
|||||||
Net (loss) income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,694
|
)
|
|
—
|
|
|
(15,694
|
)
|
|
4,085
|
|
|
(11,609
|
)
|
|||||||
Contributions from noncontrolling interest holders
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
339
|
|
|
339
|
|
|||||||
Preferred stock dividends, net of tax
|
|
—
|
|
|
—
|
|
|
(1,248
|
)
|
|
—
|
|
|
—
|
|
|
(1,248
|
)
|
|
—
|
|
|
(1,248
|
)
|
|||||||
Other comprehensive (loss) income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,644
|
)
|
|
(3,644
|
)
|
|
1
|
|
|
(3,643
|
)
|
|||||||
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
1,186
|
|
|
—
|
|
|
—
|
|
|
1,186
|
|
|
—
|
|
|
1,186
|
|
|||||||
Balance, December 31, 2017
|
|
21,708,190
|
|
|
$
|
—
|
|
|
$
|
356,171
|
|
|
$
|
(310,953
|
)
|
|
$
|
(3,852
|
)
|
|
$
|
41,366
|
|
|
$
|
9,361
|
|
|
$
|
50,727
|
|
Cumulative effect of adoption of ASU 2014-09
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(647
|
)
|
|
—
|
|
|
(647
|
)
|
|
(7
|
)
|
|
(654
|
)
|
|||||||
Cumulative effect of adoption of ASU 2016-01
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40,495
|
)
|
|
40,495
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Balance at January 1, 2018, as adjusted
|
|
21,708,190
|
|
|
$
|
—
|
|
|
$
|
356,171
|
|
|
$
|
(352,095
|
)
|
|
$
|
36,643
|
|
|
$
|
40,719
|
|
|
$
|
9,354
|
|
|
$
|
50,073
|
|
Vesting of restricted stock awards, net of share settlements for tax withholdings
|
|
79,538
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Net (loss) income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30,101
|
)
|
|
—
|
|
|
(30,101
|
)
|
|
1,765
|
|
|
(28,336
|
)
|
|||||||
Contributions from noncontrolling interest holders
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
678
|
|
|
678
|
|
|||||||
Preferred stock dividends, net of tax
|
|
—
|
|
|
—
|
|
|
(620
|
)
|
|
—
|
|
|
—
|
|
|
(620
|
)
|
|
—
|
|
|
(620
|
)
|
|||||||
Other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,125
|
|
|
4,125
|
|
|
(1
|
)
|
|
4,124
|
|
|||||||
Stock-based compensation, net of forfeitures
|
|
—
|
|
|
—
|
|
|
(1,661
|
)
|
|
—
|
|
|
—
|
|
|
(1,661
|
)
|
|
—
|
|
|
(1,661
|
)
|
|||||||
Balance, December 31, 2018
|
|
21,787,728
|
|
|
$
|
—
|
|
|
$
|
353,890
|
|
|
$
|
(382,196
|
)
|
|
$
|
40,768
|
|
|
$
|
12,462
|
|
|
$
|
11,796
|
|
|
$
|
24,258
|
|
|
53
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
Years ended December 31,
|
|
||||||
|
|
2018
|
|
|
2017
|
|
|||
|
|
|
|
(restated)
|
|
||||
Cash provided by (used in):
|
|
|
|
|
|||||
Operating activities:
|
|
|
|
|
|||||
Net loss
|
|
$
|
(28,336
|
)
|
|
$
|
(11,609
|
)
|
|
Adjustments to reconcile net loss income to net cash used in operating activities:
|
|
|
|
|
|||||
(Income) loss from discontinued operations, net of taxes
|
|
(1,064
|
)
|
|
16,306
|
|
|||
Loss (gain) on disposal of discontinued operations, net of taxes
|
|
7,136
|
|
|
(1,017
|
)
|
|||
Equity in net loss (income) of investee
|
|
2,499
|
|
|
(2,115
|
)
|
|||
Dividend received from investee
|
|
780
|
|
|
—
|
|
|||
Equity in net income of limited liability investments
|
|
(241
|
)
|
|
(1,551
|
)
|
|||
Depreciation and amortization expense
|
|
6,711
|
|
|
5,390
|
|
|||
Contingent consideration benefit
|
|
—
|
|
|
(212
|
)
|
|||
Stock-based compensation (benefit) expense, net of forfeitures
|
|
(1,661
|
)
|
|
1,186
|
|
|||
Net realized losses (gains)
|
|
17
|
|
|
(306
|
)
|
|||
Gain on change in fair value of equity investments
|
|
(381
|
)
|
|
—
|
|
|||
Loss on change in fair value of limited liability investments, at fair value
|
|
7,393
|
|
|
1,832
|
|
|||
Net change in unrealized loss on private company investments
|
|
1,629
|
|
|
758
|
|
|||
Loss on change in fair value of debt
|
|
1,720
|
|
|
8,487
|
|
|||
Deferred income taxes
|
|
(226
|
)
|
|
(17,316
|
)
|
|||
Amortization of fixed maturities premiums and discounts
|
|
57
|
|
|
95
|
|
|||
Amortization of note payable premium
|
|
(939
|
)
|
|
(960
|
)
|
|||
Gain on disposal of subsidiary
|
|
(17
|
)
|
|
—
|
|
|||
Loss on liquidation of subsidiary
|
|
—
|
|
|
494
|
|
|||
Changes in operating assets and liabilities:
|
|
|
|
|
|||||
Service fee receivable, net
|
|
997
|
|
|
(1,689
|
)
|
|||
Other receivables, net
|
|
(2,276
|
)
|
|
(3,099
|
)
|
|||
Deferred acquisition costs, net
|
|
(579
|
)
|
|
(498
|
)
|
|||
Unpaid loss and loss adjustment expenses
|
|
744
|
|
|
(873
|
)
|
|||
Deferred service fees
|
|
6,017
|
|
|
1,830
|
|
|||
Other, net
|
|
(2,745
|
)
|
|
(5,133
|
)
|
|||
Cash used in operating activities - continuing operations
|
|
(2,765
|
)
|
|
(10,000
|
)
|
|||
Cash used in operating activities - discontinued operations
|
|
(7,378
|
)
|
|
(4,404
|
)
|
|||
Net cash used in operating activities
|
|
(10,143
|
)
|
—
|
|
(14,404
|
)
|
||
Investing activities:
|
|
|
|
|
|
||||
Proceeds from sales and maturities of fixed maturities
|
|
7,019
|
|
|
1,756
|
|
|||
Proceeds from sales of equity investments
|
|
5,094
|
|
|
3,754
|
|
|||
Purchases of fixed maturities
|
|
(4,790
|
)
|
|
(192
|
)
|
|||
Purchases of equity investments
|
|
(1,211
|
)
|
|
(338
|
)
|
|||
Net proceeds from (acquisitions of) limited liability investments
|
|
3,470
|
|
|
(7,789
|
)
|
|||
Purchases of limited liability investments, at fair value
|
|
(1,580
|
)
|
|
(664
|
)
|
|||
Purchases of investments in private companies
|
|
—
|
|
|
(171
|
)
|
|||
Net proceeds from other investments
|
|
1,642
|
|
|
2,272
|
|
|||
Net (purchases of) proceeds from short-term investments
|
|
(1
|
)
|
|
250
|
|
|||
Proceeds from sale of investee
|
|
1,001
|
|
|
—
|
|
|||
Proceeds from disposal of subsidiary
|
|
565
|
|
|
—
|
|
|||
Net proceeds from sale of discontinued operations
|
|
6,343
|
|
|
1,017
|
|
|||
Acquisition of business, net of cash acquired
|
|
—
|
|
|
(7,929
|
)
|
|||
Net disposals of property and equipment and intangible assets
|
|
519
|
|
|
4,743
|
|
|||
Cash provided by (used in) investing activities - continuing operations
|
|
18,071
|
|
|
(3,291
|
)
|
|||
Cash provided by investing activities - discontinued operations
|
|
1,977
|
|
|
23,392
|
|
|||
Net cash provided by investing activities
|
|
20,048
|
|
|
20,101
|
|
|||
Financing activities:
|
|
|
|
|
|||||
Proceeds from issuance of common stock, net
|
|
—
|
|
|
(47
|
)
|
|||
Contributions from noncontrolling interest holders
|
|
678
|
|
|
339
|
|
|||
Taxes paid related to net share settlements of restricted stock awards
|
|
(376
|
)
|
|
—
|
|
|||
Principal (payments on) proceeds from bank loan
|
|
(1,000
|
)
|
|
4,917
|
|
|||
Principal payments on note payable
|
|
(3,392
|
)
|
|
(3,037
|
)
|
|||
Cash (used in) provided by financing activities - continuing operations
|
|
(4,090
|
)
|
|
2,172
|
|
|||
Cash provided by financing activities - discontinued operations
|
|
—
|
|
|
—
|
|
|||
Net cash (used in) provided by financing activities
|
|
(4,090
|
)
|
|
2,172
|
|
|||
Net increase (decrease) in cash and cash equivalents and restricted cash from continuing operations
|
|
11,216
|
|
|
(11,119
|
)
|
|
54
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
Cash and cash equivalents and restricted cash at beginning of period
|
|
43,874
|
|
|
36,005
|
|
|||
Less: cash and cash equivalents and restricted cash of discontinued operations at beginning of period
|
|
23,512
|
|
|
4,524
|
|
|||
Cash and cash equivalents and restricted cash of continuing operations at beginning of period
|
|
20,362
|
|
|
31,481
|
|
|||
Cash and cash equivalents and restricted cash of continuing operations at end of period
|
|
$
|
31,578
|
|
|
$
|
20,362
|
|
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Supplemental disclosures of cash flows information:
|
|
|
|
|
||||
Cash paid during the year for:
|
|
|
|
|
||||
Interest
|
|
$
|
11,369
|
|
|
$
|
12,134
|
|
Income taxes
|
|
$
|
381
|
|
|
$
|
37
|
|
Non-cash investing and financing activities:
|
|
|
|
|
||||
Conversion of Class A preferred stock to common stock
|
|
$
|
—
|
|
|
$
|
1,000
|
|
Accrued dividends on Class A preferred stock issued
|
|
$
|
620
|
|
|
$
|
1,248
|
|
|
55
|
|
(a)
|
Principles of consolidation:
|
|
56
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(b)
|
Use of estimates:
|
(d)
|
Business combinations:
|
(e)
|
Investments:
|
|
57
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(f)
|
Cash and cash equivalents and restricted cash:
|
(g)
|
Investment in investee:
|
|
58
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(h)
|
Service fee receivable:
|
(i)
|
Reinsurance:
|
(j)
|
Deferred acquisition costs, net:
|
(k)
|
Property and equipment:
|
(l)
|
Goodwill and intangible assets:
|
|
59
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(m)
|
Unpaid loss and loss adjustment expenses:
|
(n)
|
Debt:
|
(o)
|
Contingent consideration:
|
(p)
|
Income taxes:
|
|
60
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(q)
|
Leases:
|
(r)
|
Revenue recognition:
|
|
61
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(s)
|
Cost of services sold:
|
(t)
|
Stock-based compensation:
|
(u)
|
Fair value of financial instruments:
|
|
62
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
63
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|||||||||||||
|
|
As Previously
Reported in Exhibit 99.2 to the Form 8-K filed November 7, 2018
|
|
Correction of Error 1
|
|
Correction of Error 2
|
|
Correction of Error 3
|
|
Immaterial Accounting Adjustments and Reclassifications
|
|
As Restated
|
||||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Fixed maturities, at fair value
|
|
$
|
14,541
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,541
|
|
Equity investments, at fair value
|
|
4,476
|
|
|
113
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,589
|
|
||||||
Limited liability investments
|
|
4,922
|
|
|
6,113
|
|
|
(1,091
|
)
|
|
—
|
|
|
(850
|
)
|
(a)
|
9,094
|
|
||||||
Limited liability investments, at fair value
|
|
5,771
|
|
|
4,545
|
|
|
21,895
|
|
|
—
|
|
|
—
|
|
|
32,211
|
|
||||||
Investments in private companies, at adjusted cost
|
|
—
|
|
|
—
|
|
|
4,020
|
|
|
—
|
|
|
850
|
|
(a)
|
4,870
|
|
||||||
Real estate investments, at fair value
|
|
—
|
|
|
—
|
|
|
10,662
|
|
|
—
|
|
|
—
|
|
|
10,662
|
|
||||||
Other investments, at cost which approximates fair value
|
|
2,321
|
|
|
1,400
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,721
|
|
||||||
Short-term investments, at cost which approximates fair value
|
|
151
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
151
|
|
||||||
Total investments
|
|
32,182
|
|
|
12,171
|
|
|
35,486
|
|
|
—
|
|
|
—
|
|
|
79,839
|
|
||||||
Cash and cash equivalents
|
|
20,774
|
|
|
—
|
|
|
310
|
|
|
(14,985
|
)
|
|
(722
|
)
|
(b)
|
5,377
|
|
||||||
Restricted cash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,985
|
|
|
—
|
|
|
14,985
|
|
||||||
Investment in investee
|
|
5,230
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,230
|
|
||||||
Accrued investment income
|
|
331
|
|
|
—
|
|
|
176
|
|
|
—
|
|
|
—
|
|
|
507
|
|
||||||
Service fee receivable
|
|
4,286
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
145
|
|
(c)
|
4,431
|
|
||||||
Other receivables
|
|
6,536
|
|
|
—
|
|
|
(48
|
)
|
|
—
|
|
|
759
|
|
(b)
|
7,247
|
|
||||||
Deferred acquisition costs, net
|
|
6,325
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,325
|
|
||||||
Property and equipment
|
|
108,008
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
108,008
|
|
||||||
Goodwill
|
|
80,112
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
731
|
|
(d)
|
80,843
|
|
||||||
Intangible assets
|
|
80,062
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(616
|
)
|
(d)
|
79,446
|
|
||||||
Other assets
|
|
4,302
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,302
|
|
||||||
Assets held for sale
|
|
136,452
|
|
|
(12,171
|
)
|
|
(14,136
|
)
|
|
—
|
|
|
—
|
|
|
110,145
|
|
||||||
Total Assets
|
|
$
|
484,600
|
|
|
$
|
—
|
|
|
$
|
21,788
|
|
|
$
|
—
|
|
|
$
|
297
|
|
|
$
|
506,685
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Accrued expenses and other liabilities
|
|
$
|
10,924
|
|
|
$
|
—
|
|
|
$
|
432
|
|
|
$
|
—
|
|
|
$
|
(997
|
)
|
(b), (c), (e), (f)
|
$
|
10,359
|
|
Income taxes payable
|
|
2,644
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,644
|
|
||||||
Deferred service fees
|
|
42,257
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,144
|
)
|
(b), (g)
|
41,113
|
|
||||||
Unpaid loss and loss adjustment expenses
|
|
1,329
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,329
|
|
||||||
Bank loan
|
|
4,917
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,917
|
|
||||||
Notes payable
|
|
186,469
|
|
|
—
|
|
|
17,179
|
|
|
—
|
|
|
—
|
|
|
203,648
|
|
||||||
Subordinated debt, at fair value
|
|
52,105
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,105
|
|
||||||
Net deferred income tax liabilities
|
|
28,745
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18
|
|
(d)
|
28,763
|
|
||||||
Liabilities held for sale
|
|
105,900
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
105,900
|
|
||||||
Total Liabilities
|
|
435,290
|
|
|
—
|
|
|
17,611
|
|
|
—
|
|
|
(2,123
|
)
|
|
450,778
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Redeemable Class A preferred stock
|
|
5,461
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(281
|
)
|
(e)
|
5,180
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Common stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Additional paid-in capital
|
|
356,021
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
150
|
|
(e)
|
356,171
|
|
||||||
Accumulated deficit
|
|
(313,487
|
)
|
|
—
|
|
|
(51
|
)
|
|
—
|
|
|
2,585
|
|
(c), (d), (e), (f), (g)
|
(310,953
|
)
|
||||||
Accumulated other comprehensive loss
|
|
(3,852
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,852
|
)
|
||||||
Shareholders' equity attributable to common shareholders
|
|
38,682
|
|
|
—
|
|
|
(51
|
)
|
|
—
|
|
|
2,735
|
|
|
41,366
|
|
|
64
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
Noncontrolling interests in consolidated subsidiaries
|
|
5,167
|
|
|
—
|
|
|
4,228
|
|
|
—
|
|
|
(34
|
)
|
(c), (g)
|
9,361
|
|
||||||
Total Shareholders' Equity
|
|
43,849
|
|
|
—
|
|
|
4,177
|
|
|
—
|
|
|
2,701
|
|
|
50,727
|
|
||||||
Total Liabilities, Class A preferred stock and Shareholders' Equity
|
|
$
|
484,600
|
|
|
$
|
—
|
|
|
$
|
21,788
|
|
|
$
|
—
|
|
|
$
|
297
|
|
|
$
|
506,685
|
|
|
65
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
December 31, 2017
|
|
||||||||||||||||||||
|
|
As Previously
Reported in Exhibit 99.2 to the Form 8-K filed November 7, 2018
|
|
Correction of Error 1
|
|
Correction of Error 2
|
|
Correction of Error 3
|
Immaterial Accounting Adjustments and Reclassifications
|
|
As Restated
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Service fee and commission income
|
|
$
|
30,807
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
(277
|
)
|
(c), (g)
|
$
|
30,530
|
|
Rental income
|
|
13,384
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
13,384
|
|
||||||
Other income
|
|
684
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
684
|
|
||||||
Total revenues
|
|
44,875
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(277
|
)
|
|
44,598
|
|
||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Claims authorized on vehicle service agreements
|
|
5,327
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
5,327
|
|
||||||
Loss and loss adjustment expenses
|
|
404
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
404
|
|
||||||
Commissions
|
|
3,086
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
3,086
|
|
||||||
Cost of services sold
|
|
6,535
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
6,535
|
|
||||||
General and administrative expenses
|
|
27,038
|
|
|
—
|
|
|
305
|
|
|
—
|
|
(32
|
)
|
(e)
|
27,311
|
|
||||||
Leased real estate segment interest expense
|
|
6,264
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
6,264
|
|
||||||
Total operating expenses
|
|
48,654
|
|
|
—
|
|
|
305
|
|
|
—
|
|
(32
|
)
|
|
48,927
|
|
||||||
Operating loss
|
|
(3,779
|
)
|
|
—
|
|
|
(305
|
)
|
|
—
|
|
(245
|
)
|
|
(4,329
|
)
|
||||||
Other revenues (expenses), net:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net investment income
|
|
968
|
|
|
1,249
|
|
|
4,529
|
|
|
—
|
|
341
|
|
(a)
|
7,087
|
|
||||||
Net realized gains
|
|
306
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
306
|
|
||||||
Gain on change in fair value of limited liability investments, at fair value
|
|
—
|
|
|
(45
|
)
|
|
(1,446
|
)
|
|
—
|
|
(341
|
)
|
(a)
|
(1,832
|
)
|
||||||
Net change in unrealized loss on private company investments
|
|
—
|
|
|
—
|
|
|
(758
|
)
|
|
—
|
|
—
|
|
|
(758
|
)
|
||||||
Non-operating other income
|
|
697
|
|
|
—
|
|
|
(69
|
)
|
|
—
|
|
(23
|
)
|
(f)
|
605
|
|
||||||
Interest expense not allocated to segments
|
|
(4,977
|
)
|
|
—
|
|
|
(1,371
|
)
|
|
—
|
|
—
|
|
|
(6,348
|
)
|
||||||
Amortization of intangible assets
|
|
(1,152
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
67
|
|
(d)
|
(1,085
|
)
|
||||||
Contingent consideration benefit
|
|
212
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
212
|
|
||||||
Loss on change in fair value of debt
|
|
(8,487
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
(8,487
|
)
|
||||||
Equity in net income of investee
|
|
2,115
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
2,115
|
|
||||||
Total other revenues (expenses), net
|
|
(10,318
|
)
|
|
1,204
|
|
|
885
|
|
|
—
|
|
44
|
|
|
(8,185
|
)
|
||||||
(Loss) income from continuing operations before income tax (benefit) expense
|
|
(14,097
|
)
|
|
1,204
|
|
|
580
|
|
|
—
|
|
(201
|
)
|
|
(12,514
|
)
|
||||||
Income tax (benefit) expense
|
|
(16,694
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
6
|
|
(d)
|
(16,688
|
)
|
||||||
Income (loss) from continuing operations
|
|
2,597
|
|
|
1,204
|
|
|
580
|
|
|
—
|
|
(207
|
)
|
|
4,174
|
|
||||||
Loss on liquidation of subsidiary, net of taxes
|
|
(494
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
(494
|
)
|
||||||
Loss from discontinued operations, net of taxes
|
|
(14,252
|
)
|
|
(1,204
|
)
|
|
(850
|
)
|
|
—
|
|
—
|
|
|
(16,306
|
)
|
||||||
Gain on disposal of discontinued operations, net of taxes
|
|
1,017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
1,017
|
|
||||||
Net loss
|
|
(11,132
|
)
|
|
—
|
|
|
(270
|
)
|
|
—
|
|
(207
|
)
|
|
(11,609
|
)
|
||||||
Less: net income (loss) attributable to noncontrolling interests in consolidated subsidiaries
|
|
4,337
|
|
|
—
|
|
|
(219
|
)
|
|
—
|
|
(33
|
)
|
(c), (g)
|
4,085
|
|
||||||
Less: dividends on preferred stock, net of tax
|
|
350
|
|
|
—
|
|
|
—
|
|
|
—
|
|
898
|
|
(e)
|
1,248
|
|
||||||
Net (loss) income attributable to common shareholders
|
|
$
|
(15,819
|
)
|
|
$
|
—
|
|
|
$
|
(51
|
)
|
|
—
|
|
$
|
(1,072
|
)
|
|
$
|
(16,942
|
)
|
|
(Loss) earnings per share - continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Basic:
|
|
$
|
(0.10
|
)
|
|
$
|
0.06
|
|
|
$
|
0.04
|
|
|
$
|
—
|
|
$
|
(0.05
|
)
|
|
$
|
(0.05
|
)
|
Diluted:
|
|
$
|
(0.10
|
)
|
|
$
|
0.06
|
|
|
$
|
0.04
|
|
|
$
|
—
|
|
$
|
(0.05
|
)
|
|
$
|
(0.05
|
)
|
Loss per share - discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Basic:
|
|
$
|
(0.64
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
(0.77
|
)
|
Diluted:
|
|
$
|
(0.64
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
(0.77
|
)
|
Loss per share – net loss attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Basic:
|
|
$
|
(0.73
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
(0.05
|
)
|
|
$
|
(0.79
|
)
|
Diluted:
|
|
$
|
(0.73
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
(0.05
|
)
|
|
$
|
(0.79
|
)
|
|
66
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
Weighted average shares outstanding (in ‘000s):
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Basic:
|
|
21,547
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
21,547
|
|
||||||
Diluted:
|
|
21,547
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
21,547
|
|
|
67
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
Year ended December 31, 2017
|
|
|||||||||||||||||||||
|
|
As Previously
Reported in Exhibit 99.2 to the Form 8-K filed November 7, 2018
|
|
Correction of Error 1
|
|
Correction of Error 2
|
|
Correction of Error 3
|
|
Immaterial Accounting Adjustments and Reclassifications
|
|
As Restated
|
||||||||||||
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net loss
|
|
$
|
(11,132
|
)
|
|
$
|
—
|
|
|
$
|
(270
|
)
|
|
$
|
—
|
|
|
$
|
(207
|
)
|
(c), (d), (g), (f), (g)
|
$
|
(11,609
|
)
|
Adjustments to reconcile net loss income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
||||||||||
Loss from discontinued operations, net of taxes
|
|
14,252
|
|
|
1,204
|
|
|
850
|
|
|
—
|
|
|
—
|
|
|
16,306
|
|
||||||
Gain on disposal of discontinued operations, net of taxes
|
|
(1,017
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,017
|
)
|
||||||
Equity in net income of investee
|
|
(2,115
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,115
|
)
|
||||||
Equity in net income of limited liability investments
|
|
(685
|
)
|
|
(1,249
|
)
|
|
383
|
|
|
—
|
|
|
—
|
|
|
(1,551
|
)
|
||||||
Loss on change in fair value of limited liability investment
|
|
632
|
|
|
45
|
|
|
—
|
|
|
—
|
|
|
(677
|
)
|
(a)
|
—
|
|
||||||
Depreciation and amortization expense
|
|
5,457
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(67
|
)
|
(d)
|
5,390
|
|
||||||
Contingent consideration benefit
|
|
(212
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(212
|
)
|
||||||
Stock-based compensation expense, net of forfeitures
|
|
1,186
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,186
|
|
||||||
Net realized gains
|
|
(306
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(306
|
)
|
||||||
Loss on change in fair value of limited liability investments, at fair value
|
|
—
|
|
|
—
|
|
|
1,446
|
|
|
—
|
|
|
386
|
|
(a)
|
1,832
|
|
||||||
Net change in unrealized loss on private company investments
|
|
—
|
|
|
—
|
|
|
758
|
|
|
—
|
|
|
—
|
|
|
758
|
|
||||||
Loss on change in fair value of debt
|
|
8,487
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,487
|
|
||||||
Deferred income taxes
|
|
(17,322
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
(d)
|
(17,316
|
)
|
||||||
Amortization of fixed maturities premiums and discounts
|
|
95
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
95
|
|
||||||
Amortization of note payable premium
|
|
(960
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(960
|
)
|
||||||
Loss on liquidation of subsidiary
|
|
494
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
494
|
|
||||||
Changes in operating assets and liabilities:
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|||||||||
Service fee receivable, net
|
|
(1,544
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(145
|
)
|
(c)
|
(1,689
|
)
|
||||||
Other receivables, net
|
|
(3,187
|
)
|
|
—
|
|
|
20
|
|
|
—
|
|
|
68
|
|
(b)
|
(3,099
|
)
|
||||||
Deferred acquisition costs, net
|
|
(498
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(498
|
)
|
||||||
Unpaid loss and loss adjustment expenses
|
|
(873
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(873
|
)
|
||||||
Deferred service fees
|
|
1,754
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
76
|
|
(b), (g)
|
1,830
|
|
||||||
Other, net
|
|
(2,331
|
)
|
|
—
|
|
|
(3,434
|
)
|
|
—
|
|
|
632
|
|
(b), (c), (e), (f), (a)
|
(5,133
|
)
|
||||||
Cash (used in) provided by operating activities - continuing operations
|
|
(9,825
|
)
|
|
—
|
|
|
(247
|
)
|
|
—
|
|
|
72
|
|
|
(10,000
|
)
|
||||||
Cash (used in) provided by operating activities - discontinued operations
|
|
(9,152
|
)
|
|
4,748
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,404
|
)
|
||||||
Net cash (used in) provided by operating activities
|
|
(18,977
|
)
|
|
4,748
|
|
|
(247
|
)
|
|
—
|
|
|
72
|
|
|
(14,404
|
)
|
||||||
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Proceeds from sales and maturities of fixed maturities
|
|
1,756
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,756
|
|
||||||
Proceeds from sales of equity investments
|
|
3,754
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,754
|
|
||||||
Purchases of fixed maturities
|
|
(192
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(192
|
)
|
||||||
Purchases of equity investments
|
|
(338
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(338
|
)
|
||||||
Net acquisitions of limited liability investments
|
|
(8,910
|
)
|
|
—
|
|
|
1,121
|
|
|
—
|
|
|
—
|
|
|
(7,789
|
)
|
||||||
Purchases of limited liability investments, at fair value
|
|
—
|
|
|
—
|
|
|
(664
|
)
|
|
—
|
|
|
—
|
|
|
(664
|
)
|
||||||
Purchases of investments in private companies
|
|
—
|
|
|
—
|
|
|
(171
|
)
|
|
—
|
|
|
—
|
|
|
(171
|
)
|
||||||
Net proceeds from other investments
|
|
2,272
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,272
|
|
||||||
Net proceeds from short-term investments
|
|
250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250
|
|
||||||
Net proceeds from sale of discontinued operations
|
|
1,017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,017
|
|
||||||
Acquisition of business, net of cash acquired
|
|
(7,929
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,929
|
)
|
||||||
Net disposals of property and equipment and intangible assets
|
|
4,743
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,743
|
|
|
68
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
Cash (used in) provided by investing activities - continuing operations
|
|
(3,577
|
)
|
|
—
|
|
|
286
|
|
|
—
|
|
|
—
|
|
|
(3,291
|
)
|
||||||
Cash provided by (used in) investing activities - discontinued operations
|
|
28,140
|
|
|
(4,748
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,392
|
|
||||||
Net cash provided by (used in) investing activities
|
|
24,563
|
|
|
(4,748
|
)
|
|
286
|
|
|
—
|
|
|
—
|
|
|
20,101
|
|
||||||
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Proceeds from issuance of common stock, net
|
|
(47
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(47
|
)
|
||||||
Contributions from noncontrolling interest holders
|
|
—
|
|
|
—
|
|
|
339
|
|
|
—
|
|
|
—
|
|
|
339
|
|
||||||
Principal proceeds from bank loan
|
|
4,917
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,917
|
|
||||||
Principal payments on note payable
|
|
(2,645
|
)
|
|
—
|
|
|
(392
|
)
|
|
—
|
|
|
—
|
|
|
(3,037
|
)
|
||||||
Cash provided by (used in) financing activities - continuing operations
|
|
2,225
|
|
|
—
|
|
|
(53
|
)
|
|
—
|
|
|
—
|
|
|
2,172
|
|
||||||
Cash provided by financing activities - discontinued operations
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Net cash provided by (used in) financing activities
|
|
2,225
|
|
|
—
|
|
|
(53
|
)
|
|
—
|
|
|
—
|
|
|
2,172
|
|
||||||
Net (decrease) increase in cash and cash equivalents and restricted stock from continuing operations
|
|
(11,177
|
)
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
72
|
|
|
(11,119
|
)
|
||||||
Cash and cash equivalents and restricted stock at beginning of period
|
|
36,475
|
|
|
—
|
|
|
325
|
|
|
—
|
|
|
(795
|
)
|
(b)
|
36,005
|
|
||||||
Less: cash and cash equivalents and restricted stock of discontinued operations at beginning of period
|
|
4,524
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,524
|
|
||||||
Cash and cash equivalents and restricted stock of continuing operations at beginning of period
|
|
31,951
|
|
|
—
|
|
|
325
|
|
|
—
|
|
|
(795
|
)
|
(b)
|
31,481
|
|
||||||
Cash and cash equivalents and restricted stock of continuing operations at end of period
|
|
$
|
20,774
|
|
|
$
|
—
|
|
|
$
|
311
|
|
|
$
|
—
|
|
|
$
|
(723
|
)
|
|
$
|
20,362
|
|
(a)
|
Reclassifications to conform to current presentation. Such reclassifications have no impact on previously reported net loss or total shareholders' equity.
|
(b)
|
Reclassifications as a result of misclassifications of amounts in a previous filing. Such reclassifications have no impact on previously reported net loss or total shareholders' equity.
|
(c)
|
Adjustments to Extended Warranty segment service fee receivable and accrued expenses and other liabilities, with offsetting adjustments to accrued expenses and other liabilities and service fee and commission income.
|
(d)
|
Adjustment to increase goodwill, with offsetting decreases to intangible assets, amortization of intangible assets and accumulated deficit, related to the Company's acquisition of Argo Management in 2016. Also includes the related tax impact of these adjustments, resulting in an increase to net deferred income tax liabilities, with offsetting decreases to income tax benefit and accumulated deficit.
|
(e)
|
Adjustment to decrease redeemable Class A preferred stock, with an offsetting increase to additional paid-in capital and an offsetting decrease to general and administrative expenses related to the Company’s issuance of Class A preferred stock and Class C Warrants on February 3, 2014. Also includes the related reclassifications of accrued dividends on equity-classified warrants from accrued expenses and other liabilities to redeemable Class A preferred stock and dividend expense from accumulated deficit to additional paid-in-capital.
|
(f)
|
Adjustments to accrued expenses and other liabilities, with offsetting adjustments to non-operating other income and accumulated deficit, related to escheat liability.
|
(g)
|
Adjustment to decrease Extended Warranty deferred service fees, with an offsetting increase to service fee and commission income.
|
|
69
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
70
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
71
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
72
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Income (loss) from discontinued operations, net of taxes:
|
|
|
|
|
||||
Revenues:
|
|
|
|
|
||||
Net premiums earned
|
|
$
|
71,182
|
|
|
$
|
130,443
|
|
Net investment income (loss)
|
|
733
|
|
|
(353
|
)
|
||
Net realized (losses) gains
|
|
(5
|
)
|
|
3,465
|
|
||
Other-than temporary impairment loss
|
|
—
|
|
|
(316
|
)
|
||
Gain on change in fair value of equity investments
|
|
28
|
|
|
—
|
|
||
Other income
|
|
7,486
|
|
|
9,938
|
|
||
Total revenues
|
|
79,424
|
|
|
143,177
|
|
||
Expenses:
|
|
|
|
|
||||
Loss and loss adjustment expenses
|
|
58,706
|
|
|
120,387
|
|
||
Commissions and premium taxes
|
|
7,172
|
|
|
20,682
|
|
||
General and administrative expenses
|
|
12,482
|
|
|
19,231
|
|
||
Impairment of intangible assets
|
|
—
|
|
|
250
|
|
||
Total expenses
|
|
78,360
|
|
|
160,550
|
|
||
Income (loss) from discontinued operations before income tax benefit
|
|
1,064
|
|
|
(17,373
|
)
|
||
Income tax benefit
|
|
—
|
|
|
(1,067
|
)
|
||
Income (loss) from discontinued operations, net of taxes
|
|
1,064
|
|
|
(16,306
|
)
|
||
(Loss) gain on disposal of discontinued operations before income tax expense
|
|
(7,136
|
)
|
|
1,017
|
|
||
Income tax expense
|
|
—
|
|
|
—
|
|
||
(Loss) gain on disposal of discontinued operations, net of taxes
|
|
(7,136
|
)
|
|
1,017
|
|
||
Total loss from discontinued operations, net of taxes
|
|
$
|
(6,072
|
)
|
|
$
|
(15,289
|
)
|
|
73
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
December 31, 2017
|
||
Assets
|
|
|
||
Investments:
|
|
|
||
Fixed maturities, at fair value
|
|
$
|
38,673
|
|
Equity investments, at fair value
|
|
4,405
|
||
Total investments
|
|
43,078
|
||
Cash and cash equivalents
|
|
23,512
|
||
Accrued investment income
|
|
195
|
|
|
Premiums receivable, net
|
|
27,855
|
|
|
Other receivables
|
|
603
|
|
|
Deferred acquisition costs, net
|
|
6,720
|
|
|
Property and equipment, net
|
|
222
|
|
|
Intangible assets, net
|
|
7,553
|
|
|
Other assets
|
|
407
|
|
|
Assets held for sale
|
|
$
|
110,145
|
|
Liabilities
|
|
|
||
Unpaid loss and loss adjustment expenses
|
|
$
|
62,323
|
|
Unearned premiums
|
|
36,686
|
|
|
Net deferred income tax liabilities
|
|
1,586
|
|
|
Accrued expenses and other liabilities
|
|
5,305
|
|
|
Liabilities held for sale
|
|
$
|
105,900
|
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Liquidation:
|
|
|
|
|
||||
Loss on liquidation before income taxes
|
|
$
|
—
|
|
|
$
|
(494
|
)
|
Income tax benefit
|
|
—
|
|
|
$
|
—
|
|
|
Loss on liquidation of subsidiary, net of taxes
|
|
$
|
—
|
|
|
$
|
(494
|
)
|
|
74
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
75
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Assets
|
|
|
|
|
||||
Limited liability investments, at fair value
|
|
$
|
25,809
|
|
|
$
|
21,895
|
|
Investments in private companies, at adjusted cost
|
|
750
|
|
|
750
|
|
||
Cash and cash equivalents
|
|
351
|
|
|
220
|
|
||
Accrued investment income
|
|
217
|
|
|
107
|
|
||
Other receivable
|
|
48
|
|
|
—
|
|
||
Total Assets
|
|
27,175
|
|
|
22,972
|
|
||
Liabilities
|
|
|
|
|
||||
Accrued expenses and other liabilities
|
|
252
|
|
|
97
|
|
||
Notes payable
|
|
9,000
|
|
|
9,000
|
|
||
Total Liabilities
|
|
$
|
9,252
|
|
|
$
|
9,097
|
|
(in thousands)
|
|
December 31,
|
|
|||||||||||||
|
|
2018
|
|
2017
|
||||||||||||
|
|
Carrying Value
|
|
Maximum Loss Exposure
|
|
Carrying Value
|
|
Maximum Loss Exposure
|
||||||||
Investments in non-consolidated VIEs
|
|
$
|
4,664
|
|
|
$
|
4,664
|
|
|
$
|
15,363
|
|
|
$
|
15,363
|
|
|
76
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
December 31,
|
|
|||||||||||
|
|
2018
|
|
2017
|
||||||||||
|
|
Carrying Value
|
|
Percent of total
|
|
Carrying Value
|
|
Percent of total
|
||||||
Investments in non-consolidated VIEs:
|
|
|
|
|
|
|
|
|
||||||
Real estate related
|
|
1,710
|
|
|
36.7
|
%
|
|
1,726
|
|
|
11.2
|
%
|
||
Non-real estate related
|
|
2,954
|
|
|
63.3
|
%
|
|
13,637
|
|
|
88.8
|
%
|
||
Total investments in non-consolidated VIEs
|
|
$
|
4,664
|
|
|
100.0
|
%
|
|
$
|
15,363
|
|
|
100.0
|
%
|
(in thousands)
|
|
December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Assets
|
|
$
|
363,516
|
|
|
$
|
332,181
|
|
Liabilities
|
|
296,521
|
|
|
238,819
|
|
||
Equity
|
|
66,995
|
|
|
93,362
|
|
(in thousands)
|
|
December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Net (loss) income
|
|
$
|
(29,619
|
)
|
|
$
|
(4,294
|
)
|
(in thousands)
|
|
December 31, 2018
|
|
|||||||||||||
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Estimated Fair Value
|
|
||||
Fixed maturities:
|
|
|
|
|
|
|
|
|
||||||||
U.S. government, government agencies and authorities
|
|
$
|
5,594
|
|
|
$
|
1
|
|
|
$
|
48
|
|
|
$
|
5,547
|
|
States, municipalities and political subdivisions
|
|
621
|
|
|
—
|
|
|
14
|
|
|
607
|
|
||||
Mortgage-backed
|
|
3,256
|
|
|
—
|
|
|
70
|
|
|
3,186
|
|
||||
Corporate
|
|
2,961
|
|
|
—
|
|
|
41
|
|
|
2,920
|
|
||||
Total fixed maturities
|
|
12,432
|
|
|
1
|
|
|
173
|
|
|
12,260
|
|
|
77
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(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
|
|
25
|
|
|
146
|
|
|
—
|
|
|
171
|
|
||||
Warrants - not publicly traded
|
|
960
|
|
|
173
|
|
|
285
|
|
|
848
|
|
||||
Total equity investments
|
|
4,868
|
|
|
319
|
|
|
598
|
|
|
4,589
|
|
||||
Total fixed maturities and equity investments
|
|
$
|
19,575
|
|
|
$
|
319
|
|
|
$
|
764
|
|
|
$
|
19,130
|
|
(in thousands)
|
|
December 31, 2018
|
|
|||||
|
|
Amortized Cost
|
|
|
Estimated Fair Value
|
|
||
Due in one year or less
|
|
$
|
5,462
|
|
|
$
|
5,445
|
|
Due after one year through five years
|
|
5,342
|
|
|
5,233
|
|
||
Due after five years through ten years
|
|
217
|
|
|
210
|
|
||
Due after ten years
|
|
1,411
|
|
|
1,372
|
|
||
Total
|
|
$
|
12,432
|
|
|
$
|
12,260
|
|
|
78
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
|
|
|
|
|
|
|
December 31, 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
|
$
|
1,497
|
|
|
$
|
1
|
|
|
$
|
2,609
|
|
|
$
|
47
|
|
|
$
|
4,106
|
|
|
$
|
48
|
|
States, municipalities and political subdivisions
|
—
|
|
|
—
|
|
|
606
|
|
|
14
|
|
|
606
|
|
|
14
|
|
||||||
Mortgage-backed
|
800
|
|
|
1
|
|
|
2,134
|
|
|
69
|
|
|
2,934
|
|
|
70
|
|
||||||
Corporate
|
595
|
|
|
1
|
|
|
2,151
|
|
|
40
|
|
|
2,746
|
|
|
41
|
|
||||||
Total fixed maturities
|
2,892
|
|
|
3
|
|
|
7,500
|
|
|
170
|
|
|
10,392
|
|
|
173
|
|
(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;
|
•
|
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;
|
|
79
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
•
|
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.
|
•
|
the opinions of external investment and portfolio managers;
|
•
|
the financial condition and prospects of the investee;
|
•
|
recent operating trends and forecasted performance of the investee;
|
•
|
current market conditions in the geographic area or industry in which the investee operates;
|
•
|
changes in credit ratings; and
|
•
|
changes in the regulatory environment.
|
|
80
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
|
|
|
|
(restated)
|
|
|||
Investment income
|
|
|
|
|
||||
Interest from fixed maturities
|
|
$
|
236
|
|
|
$
|
190
|
|
Dividends
|
|
359
|
|
|
501
|
|
||
Income from limited liability investments
|
|
241
|
|
|
1,551
|
|
||
Income from limited liability investments, at fair value
|
|
1,174
|
|
|
3,973
|
|
||
Loss on change in fair value of warrants - not publicly traded
|
|
—
|
|
|
(292
|
)
|
||
Income from real estate investments
|
|
800
|
|
|
800
|
|
||
Other
|
|
230
|
|
|
386
|
|
||
Gross investment income
|
|
3,040
|
|
|
7,109
|
|
||
Investment expenses
|
|
(83
|
)
|
|
(22
|
)
|
||
Net investment income
|
|
$
|
2,957
|
|
|
$
|
7,087
|
|
|
81
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
|
|
|
|
(restated)
|
|
|||
Gross realized gains
|
|
$
|
398
|
|
|
$
|
309
|
|
Gross realized losses
|
|
(415
|
)
|
|
(3
|
)
|
||
Net realized (losses) gains
|
|
$
|
(17
|
)
|
|
$
|
306
|
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Net gains recognized on equity investments sold during the period
|
|
$
|
1,464
|
|
|
$
|
—
|
|
Change in unrealized losses on equity investments held at end of the period
|
|
(1,083
|
)
|
|
—
|
|
||
Gain on change in fair value of equity investments
|
|
$
|
381
|
|
|
$
|
—
|
|
(in thousands, except for percentages)
|
|
|
|
|
||||||||||||||||||
|
|
December 31, 2018
|
|
December 31, 2017
|
||||||||||||||||||
|
|
Equity Percentage
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Equity Percentage
|
|
Estimated Fair Value
|
|
Carrying Value
|
||||||||||
ICL
|
|
22.9
|
%
|
|
$
|
951
|
|
|
$
|
951
|
|
|
31.2
|
%
|
|
$
|
3,816
|
|
|
$
|
5,230
|
|
|
82
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Ceded loss and loss adjustment expenses
|
|
$
|
105
|
|
|
$
|
(226
|
)
|
Ceded unpaid loss and loss adjustment expenses
|
|
—
|
|
|
72
|
|
||
Ceding commissions
|
|
(105
|
)
|
|
226
|
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Balance at January 1, net
|
|
$
|
6,325
|
|
|
$
|
5,827
|
|
Additions
|
|
3,825
|
|
|
3,484
|
|
||
Amortization
|
|
(3,246
|
)
|
|
(2,986
|
)
|
||
Balance at December 31, net
|
|
$
|
6,904
|
|
|
$
|
6,325
|
|
|
83
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
|
December 31, 2018
|
|
||||||||
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
||||||
Intangible assets subject to amortization
|
|
|
|
|
|
|
||||||
Database
|
|
$
|
4,918
|
|
|
$
|
3,013
|
|
|
$
|
1,905
|
|
Vehicle service agreements in-force
|
|
3,680
|
|
|
3,671
|
|
|
9
|
|
|||
Customer relationships
|
|
8,914
|
|
|
3,691
|
|
|
5,223
|
|
|||
In-place lease
|
|
1,125
|
|
|
155
|
|
|
970
|
|
|||
Non-compete
|
|
266
|
|
|
64
|
|
|
202
|
|
|||
Intangible assets not subject to amortization
|
|
|
|
|
|
|
||||||
Tenant relationship
|
|
73,667
|
|
|
—
|
|
|
73,667
|
|
|||
Trade names
|
|
1,290
|
|
|
—
|
|
|
1,290
|
|
|||
Total
|
|
$
|
93,860
|
|
|
$
|
10,594
|
|
|
$
|
83,266
|
|
(in thousands) (restated)
|
|
|
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
|
|
|||
Intangible assets not subject to amortization
|
|
|
|
|
|
|
||||||
Tenant relationship
|
|
73,667
|
|
|
—
|
|
|
73,667
|
|
|||
Trade name
|
|
663
|
|
|
—
|
|
|
663
|
|
|||
Total
|
|
$
|
87,664
|
|
|
$
|
8,218
|
|
|
$
|
79,446
|
|
|
84
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
|
December 31, 2018
|
|
||||||||
|
|
Cost
|
|
Accumulated Depreciation
|
|
Carrying Value
|
||||||
Land
|
|
$
|
21,120
|
|
|
$
|
—
|
|
|
$
|
21,120
|
|
Site improvements
|
|
91,308
|
|
|
10,161
|
|
|
81,147
|
|
|||
Buildings
|
|
580
|
|
|
36
|
|
|
544
|
|
|||
Leasehold improvements
|
|
104
|
|
|
102
|
|
|
2
|
|
|||
Furniture and equipment
|
|
993
|
|
|
901
|
|
|
92
|
|
|||
Computer hardware
|
|
4,995
|
|
|
4,758
|
|
|
237
|
|
|||
Total
|
|
$
|
119,100
|
|
|
$
|
15,958
|
|
|
$
|
103,142
|
|
(in thousands)
|
|
|
|
|
December 31, 2017
|
|
||||||
|
|
Cost
|
|
Accumulated Depreciation
|
|
Carrying Value
|
||||||
Land
|
|
$
|
21,371
|
|
|
$
|
—
|
|
|
$
|
21,371
|
|
Site improvements
|
|
91,308
|
|
|
6,028
|
|
|
85,280
|
|
|||
Buildings
|
|
968
|
|
|
53
|
|
|
915
|
|
|||
Leasehold improvements
|
|
190
|
|
|
117
|
|
|
73
|
|
|||
Furniture and equipment
|
|
1,072
|
|
|
973
|
|
|
99
|
|
|||
Computer hardware
|
|
4,782
|
|
|
4,512
|
|
|
270
|
|
|||
Total
|
|
$
|
119,691
|
|
|
$
|
11,683
|
|
|
$
|
108,008
|
|
|
85
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
|
|
December 31,
|
|
|||
|
|
2018
|
|
|
2017
|
|
||
Deferred service fees
|
|
$
|
43,495
|
|
|
$
|
40,531
|
|
Accrued expenses and other liabilities
|
|
239
|
|
|
263
|
|
||
Balance at December 31, net
|
|
$
|
43,734
|
|
|
$
|
40,794
|
|
(in thousands)
|
|
|
|
December 31,
|
|
|||
|
|
2018
|
|
|
2017
|
|
||
Balance at beginning of period, gross
|
|
$
|
1,329
|
|
|
$
|
2,202
|
|
Less reinsurance recoverable related to unpaid loss and loss adjustment expenses
|
|
72
|
|
|
354
|
|
||
Balance at beginning of period, net
|
|
1,257
|
|
|
1,848
|
|
||
Incurred related to:
|
|
|
|
|
|
|||
Current year
|
|
—
|
|
|
3
|
|
||
Prior years
|
|
1,631
|
|
|
401
|
|
||
Paid related to:
|
|
|
|
|
|
|||
Current year
|
|
—
|
|
|
—
|
|
||
Prior years
|
|
(815
|
)
|
|
(995
|
)
|
||
Balance at end of period, net
|
|
2,073
|
|
|
1,257
|
|
||
Plus reinsurance recoverable related to unpaid loss and loss adjustment expenses
|
|
—
|
|
|
72
|
|
||
Balance at end of period, gross
|
|
$
|
2,073
|
|
|
$
|
1,329
|
|
|
86
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
87
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
Non-standard automobile insurance - Private passenger auto liability
|
|
|
|
|
|
||||||||||||||||
(in thousands)
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
|
|||||||||||||||||||
|
|
For the Years Ended December 31,
|
|||||||||||||||||||
Accident Year
|
|
2009 Unaudited
|
|
2010 Unaudited
|
|
2011 Unaudited
|
|
2012 Unaudited
|
|
2013 Unaudited
|
|
2014 Unaudited
|
|
2015 Unaudited
|
|
2016 Unaudited
|
|
2017 Unaudited
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
2009
|
|
18,742
|
|
32,436
|
|
36,390
|
|
38,796
|
|
39,600
|
|
40,072
|
|
40,089
|
|
40,087
|
|
40,085
|
|
40,085
|
|
2010
|
|
|
25,659
|
|
46,356
|
|
50,591
|
|
51,944
|
|
52,889
|
|
53,451
|
|
53,484
|
|
53,518
|
|
53,570
|
|
|
2011
|
|
|
|
18,456
|
|
25,296
|
|
26,599
|
|
27,023
|
|
27,378
|
|
27,431
|
|
27,479
|
|
27,677
|
|
||
2012
|
|
|
|
|
7,060
|
|
11,724
|
|
12,284
|
|
12,530
|
|
12,618
|
|
12,635
|
|
12,738
|
|
|||
2013
|
|
|
|
|
|
3,575
|
|
4,277
|
|
4,437
|
|
4,496
|
|
4,562
|
|
4,571
|
|
||||
2014
|
|
|
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
2015
|
|
|
|
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||
2016
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
—
|
|
|||||||
2017
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
||||||||
2018
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
Total
|
138,641
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities for non-standard automobile-private passenger auto liability unpaid loss and allocated loss adjustment expenses prior to 2009, net of reinsurance
|
5
|
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total liabilities for non-standard automobile-private passenger auto liability unpaid loss and allocated loss adjustment expenses, net of reinsurance
|
680
|
|
Non-standard automobile insurance - Auto physical damage
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
|
|
|
|
|
|||||||||||||||||||||
|
|
For the Years Ended December 31,
|
|
As of December 31, 2018
|
|||||||||||||||||||||||
Accident Year
|
|
2009 Unaudited
|
|
2010 Unaudited
|
|
2011 Unaudited
|
|
2012 Unaudited
|
|
2013 Unaudited
|
|
2014 Unaudited
|
|
2015 Unaudited
|
|
2016 Unaudited
|
|
2017 Unaudited
|
|
2018
|
|
|
Total of IBNR Plus Expected Development on Reported Losses
|
|
|
Cumulative Number of Reported Claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
2009
|
|
9,829
|
|
7,343
|
|
6,857
|
|
6,451
|
|
6,458
|
|
6,476
|
|
6,482
|
|
6,480
|
|
6,482
|
|
6,482
|
|
|
—
|
|
|
—
|
|
2010
|
|
|
7,977
|
|
6,192
|
|
5,499
|
|
5,487
|
|
5,518
|
|
5,532
|
|
5,535
|
|
5,538
|
|
5,538
|
|
|
—
|
|
|
—
|
|
|
2011
|
|
|
|
4,366
|
|
3,247
|
|
3,241
|
|
3,263
|
|
3,262
|
|
3,260
|
|
3,269
|
|
3,261
|
|
|
—
|
|
|
—
|
|
||
2012
|
|
|
|
|
1,755
|
|
1,920
|
|
1,990
|
|
2,015
|
|
2,007
|
|
2,018
|
|
1,908
|
|
|
—
|
|
|
—
|
|
|||
2013
|
|
|
|
|
|
1,085
|
|
996
|
|
1,001
|
|
999
|
|
1,003
|
|
988
|
|
|
—
|
|
|
—
|
|
||||
2014
|
|
|
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
2015
|
|
|
|
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
2016
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
2017
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
2018
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total
|
|
|
|
|
|
|
|
|
|
|
18,177
|
|
|
|
|
|
|
88
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
Non-standard automobile insurance - Auto physical damage
|
|
|
|
|
|
|
|||||||||||||||
(in thousands)
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
|
|||||||||||||||||||
|
|
For the Years Ended December 31,
|
|||||||||||||||||||
Accident Year
|
|
2009 Unaudited
|
|
2010 Unaudited
|
|
2011 Unaudited
|
|
2012 Unaudited
|
|
2013 Unaudited
|
|
2014 Unaudited
|
|
2015 Unaudited
|
|
2016 Unaudited
|
|
2017 Unaudited
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
2009
|
|
6,221
|
|
6,463
|
|
6,505
|
|
6,499
|
|
6,489
|
|
6,487
|
|
6,480
|
|
6,481
|
|
6,482
|
|
6,482
|
|
2010
|
|
|
5,155
|
|
5,583
|
|
5,548
|
|
5,526
|
|
5,537
|
|
5,537
|
|
5,537
|
|
5,538
|
|
5,538
|
|
|
2011
|
|
|
|
2,971
|
|
3,268
|
|
3,270
|
|
3,270
|
|
3,266
|
|
3,267
|
|
3,269
|
|
3,261
|
|
||
2012
|
|
|
|
|
1,783
|
|
1,951
|
|
2,006
|
|
2,016
|
|
2,017
|
|
2,018
|
|
1,908
|
|
|||
2013
|
|
|
|
|
|
1,050
|
|
1,015
|
|
1,001
|
|
1,002
|
|
1,002
|
|
988
|
|
||||
2014
|
|
|
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
2015
|
|
|
|
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||
2016
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
—
|
|
|||||||
2017
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
||||||||
2018
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
Total
|
18,177
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities for non-standard automobile-auto physical damage unpaid loss and allocated loss adjustment expenses prior to 2009, net of reinsurance
|
—
|
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total liabilities for non-standard automobile-auto physical damage unpaid loss and allocated loss adjustment expenses, net of reinsurance
|
—
|
|
|
89
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
||
Liabilities for loss and allocated loss adjustment expenses, net of reinsurance
|
|
|
|
|
||
Non-standard automobile - private passenger auto liability
|
|
680
|
|
|
479
|
|
Non-standard automobile - auto physical damage
|
|
—
|
|
|
2
|
|
Commercial automobile
|
|
756
|
|
|
521
|
|
Other short-duration insurance lines
|
|
592
|
|
|
176
|
|
Liabilities for unpaid loss and allocated loss adjustment expenses, net of reinsurance
|
|
2,028
|
|
|
1,178
|
|
|
|
|
|
|
||
Reinsurance recoverable on unpaid loss and loss adjustment expenses
|
|
|
|
|
||
Non-standard automobile - private passenger auto liability
|
|
—
|
|
|
64
|
|
Commercial automobile
|
|
—
|
|
|
8
|
|
Total reinsurance recoverable on unpaid loss and loss adjustment expenses
|
|
—
|
|
|
72
|
|
|
|
|
|
|
||
Unallocated loss adjustment expenses
|
|
45
|
|
|
79
|
|
|
|
|
|
|
||
Total gross liability for unpaid loss and loss adjustment expenses
|
|
2,073
|
|
|
1,329
|
|
|
90
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance (Unaudited)
|
||||||||||||||||||||
|
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
Year 6
|
Year 7
|
Year 8
|
Year 9
|
Year 10
|
|
|||||||||
Non-standard automobile -private passenger auto liability
|
|
59.6
|
%
|
22.1
|
%
|
10.7
|
%
|
5.2
|
%
|
2.0
|
%
|
0.4
|
%
|
—
|
%
|
—
|
%
|
—
|
%
|
—
|
%
|
Commercial automobile
|
|
70.3
|
%
|
9.7
|
%
|
8.9
|
%
|
7.4
|
%
|
3.0
|
%
|
0.7
|
%
|
—
|
%
|
—
|
%
|
—
|
%
|
—
|
%
|
(in thousands)
|
|
December 31, 2018
|
|
December 31, 2017
|
||||||||||||||||||||
|
|
Principal
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Principal
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
||||||
Bank loan
|
|
$
|
3,917
|
|
|
$
|
3,917
|
|
|
$
|
3,829
|
|
|
$
|
4,917
|
|
|
$
|
4,917
|
|
|
$
|
4,864
|
|
Notes payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Mortgage
|
|
173,155
|
|
|
182,548
|
|
|
174,265
|
|
|
176,136
|
|
|
186,469
|
|
|
168,477
|
|
||||||
Flower Note
|
|
7,768
|
|
|
7,768
|
|
|
8,565
|
|
|
8,179
|
|
|
8,179
|
|
|
8,825
|
|
||||||
Net Lease Note
|
|
9,000
|
|
|
9,000
|
|
|
9,409
|
|
|
9,000
|
|
|
9,000
|
|
|
9,870
|
|
||||||
Total notes payable
|
|
189,923
|
|
|
199,316
|
|
|
192,239
|
|
|
193,315
|
|
|
203,648
|
|
|
187,172
|
|
||||||
Subordinated debt
|
|
90,500
|
|
|
50,023
|
|
|
50,023
|
|
|
90,500
|
|
|
52,105
|
|
|
52,105
|
|
||||||
Total
|
|
$
|
284,340
|
|
|
$
|
253,256
|
|
|
$
|
246,091
|
|
|
$
|
288,732
|
|
|
$
|
260,670
|
|
|
$
|
244,141
|
|
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
|
|
91
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
92
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
As of December 31,
|
||
|
|
2018
|
||
Land
|
|
$
|
21,120
|
|
Site improvements
|
|
91,308
|
|
|
Buildings
|
|
580
|
|
|
Gross property and equipment leased
|
|
113,008
|
|
|
Accumulation depreciation
|
|
(10,197
|
)
|
|
Net property and equipment leased
|
|
$
|
102,811
|
|
(in thousands)
|
|
Lease Commitments
|
|
Lease Receipts
|
||||
2019
|
|
$
|
943
|
|
|
$
|
11,572
|
|
2020
|
|
405
|
|
|
11,832
|
|
||
2021
|
|
404
|
|
|
12,099
|
|
||
2022
|
|
401
|
|
|
12,371
|
|
||
2023
|
|
401
|
|
|
12,649
|
|
||
Thereafter
|
|
817
|
|
|
149,896
|
|
|
93
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
|
|
|
|
|
||||
Vehicle service agreement fees - IWS
|
|
$
|
17,796
|
|
|
$
|
16,791
|
|
GAP commissions - IWS
|
|
748
|
|
|
679
|
|
||
Maintenance support service fees - Trinity
|
|
9,911
|
|
|
8,763
|
|
||
Warranty product commissions - Trinity
|
|
2,526
|
|
|
1,810
|
|
||
Homebuilder warranty service fees - PWSC
|
|
6,332
|
|
|
2,133
|
|
||
Homebuilder warranty commissions - PWSC
|
|
973
|
|
|
354
|
|
||
Service fee and commission income
|
|
$
|
38,286
|
|
|
$
|
30,530
|
|
|
94
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
95
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
|
|
|
|
|
||||
Current income tax expense
|
|
$
|
423
|
|
|
$
|
628
|
|
Deferred income tax benefit
|
|
(108
|
)
|
|
(17,316
|
)
|
||
Income tax expense (benefit)
|
|
$
|
315
|
|
|
$
|
(16,688
|
)
|
|
96
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Income tax benefit at U.S. statutory income tax rate
|
|
$
|
(4,609
|
)
|
|
$
|
(4,255
|
)
|
Tax Act adjustment
|
|
(82
|
)
|
|
(18,052
|
)
|
||
Valuation allowance
|
|
4,562
|
|
|
3,169
|
|
||
Indefinite life intangibles
|
|
92
|
|
|
1,173
|
|
||
Change in unrecognized tax benefits
|
|
233
|
|
|
490
|
|
||
Compensation
|
|
(470
|
)
|
|
403
|
|
||
Investment income
|
|
747
|
|
|
—
|
|
||
Other
|
|
(158
|
)
|
|
384
|
|
||
Income tax expense (benefit) for continuing operations
|
|
$
|
315
|
|
|
$
|
(16,688
|
)
|
(in thousands)
|
|
December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Deferred income tax assets:
|
|
|
|
|
||||
Losses carried forward
|
|
$
|
180,012
|
|
|
$
|
185,574
|
|
Unpaid loss and loss adjustment expenses and unearned premiums
|
|
1,670
|
|
|
1,513
|
|
||
Intangible assets
|
|
2,538
|
|
|
2,484
|
|
||
Debt issuance costs
|
|
1,017
|
|
|
988
|
|
||
Investments
|
|
841
|
|
|
758
|
|
||
Deferred rent
|
|
727
|
|
|
807
|
|
||
Deferred revenue
|
|
783
|
|
|
183
|
|
||
Other
|
|
693
|
|
|
21
|
|
||
Valuation allowance
|
|
(171,456
|
)
|
|
(173,965
|
)
|
||
Deferred income tax assets
|
|
$
|
16,825
|
|
|
$
|
18,363
|
|
Deferred income tax liabilities:
|
|
|
|
|
||||
Indefinite life intangibles
|
|
$
|
(16,660
|
)
|
|
$
|
(16,436
|
)
|
Depreciation and amortization
|
|
(16,121
|
)
|
|
(16,971
|
)
|
||
Fair value of debt
|
|
(6,528
|
)
|
|
(5,894
|
)
|
||
Land
|
|
(4,435
|
)
|
|
(4,435
|
)
|
||
Investments
|
|
(168
|
)
|
|
(1,853
|
)
|
||
Deferred acquisition costs
|
|
(1,450
|
)
|
|
(1,328
|
)
|
||
Other
|
|
—
|
|
|
(209
|
)
|
||
Deferred income tax liabilities
|
|
$
|
(45,362
|
)
|
|
$
|
(47,126
|
)
|
Net deferred income tax liabilities
|
|
$
|
(28,537
|
)
|
|
$
|
(28,763
|
)
|
|
97
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
Year of net operating loss
|
|
Expiration date
|
|
Net operating loss
(in thousands)
|
|
2007
|
|
2027
|
|
53,909
|
|
2008
|
|
2028
|
|
53,696
|
|
2009
|
|
2029
|
|
506,552
|
|
2010
|
|
2030
|
|
85,215
|
|
2011
|
|
2031
|
|
42,189
|
|
2012
|
|
2032
|
|
32,152
|
|
2013
|
|
2033
|
|
29,913
|
|
2014
|
|
2034
|
|
6,932
|
|
2016
|
|
2036
|
|
15,517
|
|
2017
|
|
2037
|
|
19,628
|
|
(in thousands)
|
|
December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Unrecognized tax benefits - beginning of year
|
|
$
|
1,367
|
|
|
$
|
1,274
|
|
Gross additions - current year tax positions
|
|
—
|
|
|
—
|
|
||
Gross additions - prior year tax positions
|
|
14
|
|
|
93
|
|
||
Gross reductions - prior year tax positions
|
|
—
|
|
|
—
|
|
||
Gross reductions - settlements with taxing authorities
|
|
—
|
|
|
—
|
|
||
Impact due to expiration of statute of limitations
|
|
—
|
|
|
—
|
|
||
Unrecognized tax benefits - end of year
|
|
$
|
1,381
|
|
|
$
|
1,367
|
|
|
98
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands, except per share data)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
|
|
|
|
(restated)
|
|
|||
Numerator:
|
|
|
|
|
||||
(Loss) income from continuing operations
|
|
$
|
(22,264
|
)
|
|
$
|
4,174
|
|
Less: net income attributable to noncontrolling interests
|
|
(1,765
|
)
|
|
(4,085
|
)
|
||
Less: dividends on preferred stock, net of tax
|
|
(620
|
)
|
|
(1,248
|
)
|
||
Loss from continuing operations attributable to common shareholders
|
|
$
|
(24,649
|
)
|
|
$
|
(1,159
|
)
|
Denominator:
|
|
|
|
|
||||
Weighted average basic shares
|
|
|
|
|
||||
Weighted average common shares outstanding
|
|
21,728
|
|
|
21,547
|
|
||
Weighted average diluted shares
|
|
|
|
|
||||
Weighted average common shares outstanding
|
|
21,728
|
|
|
21,547
|
|
||
Effect of potentially dilutive securities
|
|
—
|
|
|
—
|
|
||
Total weighted average diluted shares
|
|
21,728
|
|
|
21,547
|
|
||
Basic loss from continuing operations per share
|
|
$
|
(1.13
|
)
|
|
$
|
(0.05
|
)
|
Diluted loss from continuing operations per share
|
|
$
|
(1.13
|
)
|
|
$
|
(0.05
|
)
|
|
99
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|||||||
|
|
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
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
||
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
||
Expired
|
|
(611,875
|
)
|
|
4.50
|
|
|
|
|
|
|
|
||
Outstanding at December 31, 2018
|
|
40,000
|
|
|
$
|
4.67
|
|
|
1.3
|
|
|
$
|
—
|
|
Exercisable at December 31, 2018
|
|
40,000
|
|
|
$
|
4.67
|
|
|
1.3
|
|
|
$
|
—
|
|
|
100
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|||
|
|
Number of Restricted Stock Awards
|
|
Weighted-Average Grant Date Fair Value (per Share)
|
|||
Unvested at December 31, 2017
|
|
1,952,665
|
|
|
$
|
4.14
|
|
Granted
|
|
850,000
|
|
|
4.42
|
|
|
Vested
|
|
(79,538
|
)
|
|
2.95
|
|
|
Cancelled for Tax Withholding
|
|
(135,512
|
)
|
|
2.65
|
|
|
Forfeited
|
|
(1,495,165
|
)
|
|
4.14
|
|
|
Unvested at December 31, 2018
|
|
1,092,450
|
|
|
$
|
4.51
|
|
|
101
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|||
|
|
Number of Restricted Stock Units
|
|
Weighted-Average Grant Date Fair Value (per Share)
|
|||
Unvested at December 31, 2017
|
|
500,000
|
|
|
$
|
5.73
|
|
Granted
|
|
—
|
|
|
—
|
|
|
Vested
|
|
—
|
|
|
—
|
|
|
Cancelled
|
|
(500,000
|
)
|
|
5.73
|
|
|
Unvested at December 31, 2018
|
|
—
|
|
|
$
|
—
|
|
|
102
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
103
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
December 31, 2018
|
|
||||||||||
|
Exercise Price
|
|
Date of Issue
|
|
Expiry Date
|
|
Remaining Contractual Life (in years)
|
|
Number Outstanding
|
|||
|
$
|
5.00
|
|
|
16-Sep-13
|
|
15-Sep-23
|
|
4.7
|
|
3,280,790
|
|
|
$
|
5.00
|
|
|
3-Feb-14
|
|
15-Sep-23
|
|
4.7
|
|
1,392,975
|
|
|
|
|
|
Total:
|
|
4.7
|
|
4,673,765
|
|
|
104
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
|
|
|
||||||||||||||||
|
|
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 Loss of Limited Liability Investment
|
|
Total Accumulated Other Comprehensive Income (Loss)
|
||||||||||
Balance, January 1, 2017
|
|
$
|
3,572
|
|
|
$
|
(3,780
|
)
|
|
—
|
|
|
$
|
—
|
|
|
$
|
(208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Other comprehensive loss arising during the period
|
|
(5,214
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,214
|
)
|
|||||
Amounts reclassified from accumulated other comprehensive loss
|
|
1,076
|
|
|
494
|
|
|
—
|
|
|
—
|
|
|
1,570
|
|
|||||
Net current-period other comprehensive (loss) income
|
|
(4,138
|
)
|
|
494
|
|
|
—
|
|
|
—
|
|
|
(3,644
|
)
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Balance, December 31, 2017
|
|
$
|
(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
|
|
13
|
|
|
—
|
|
|
3,804
|
|
|
(45
|
)
|
|
3,772
|
|
|||||
Amounts reclassified from accumulated other comprehensive income
|
|
(18
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18
|
)
|
|||||
Amounts removed from accumulated other comprehensive income due to disposal of discontinued operations
|
|
371
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
371
|
|
|||||
Net current-period other comprehensive income (loss)
|
|
$
|
366
|
|
|
$
|
—
|
|
|
$
|
3,804
|
|
|
$
|
(45
|
)
|
|
$
|
4,125
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Balance, December 31, 2018
|
|
$
|
(160
|
)
|
|
$
|
(3,286
|
)
|
|
44,259
|
|
|
$
|
(45
|
)
|
|
$
|
40,768
|
|
|
105
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Reclassification of accumulated other comprehensive income (loss) from unrealized gains (losses) on available-for-sale investments to:
|
|
|
|
|
||||
Net realized (losses) gains
|
|
$
|
18
|
|
|
$
|
(2
|
)
|
Other-than-temporary impairment loss
|
|
—
|
|
|
—
|
|
||
Loss from continuing operations before income tax expense (benefit)
|
|
18
|
|
|
(2
|
)
|
||
Income tax expense (benefit)
|
|
—
|
|
|
—
|
|
||
Income (loss) from discontinued operations, net of taxes
|
|
—
|
|
|
(1,074
|
)
|
||
Net income (loss)
|
|
18
|
|
|
(1,076
|
)
|
||
|
|
|
|
|
||||
Reclassification of accumulated other comprehensive income (loss) from foreign currency translation adjustments to:
|
|
|
|
|
||||
Loss on liquidation of subsidiary, net of taxes
|
|
—
|
|
|
(494
|
)
|
||
Income tax expense (benefit)
|
|
—
|
|
|
—
|
|
||
Net loss
|
|
—
|
|
|
(494
|
)
|
||
Total reclassification from accumulated other comprehensive income (loss) to net loss
|
|
$
|
18
|
|
|
$
|
(1,570
|
)
|
|
106
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
|
|
|
|
(restated)
|
|
|||
Revenues:
|
|
|
|
|
||||
Extended Warranty:
|
|
|
|
|
||||
Service fee and commission income
|
|
$
|
38,286
|
|
|
$
|
30,530
|
|
Other income
|
|
171
|
|
|
191
|
|
||
Total Extended Warranty
|
|
38,457
|
|
|
30,721
|
|
||
Leased Real Estate:
|
|
|
|
|
||||
Rental income
|
|
13,366
|
|
|
13,364
|
|
||
Other income
|
|
245
|
|
|
493
|
|
||
Total Leased Real Estate
|
|
13,611
|
|
|
13,857
|
|
||
Total segment revenues
|
|
52,068
|
|
|
44,578
|
|
||
Rental income not allocated to segments
|
|
10
|
|
|
20
|
|
||
Total revenues
|
|
$
|
52,078
|
|
|
$
|
44,598
|
|
|
107
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
|
|
|
|
(restated)
|
|
|||
Segment operating income
|
|
|
|
|
||||
Extended Warranty
|
|
$
|
4,215
|
|
|
$
|
3,680
|
|
Leased Real Estate
|
|
2,485
|
|
|
3,099
|
|
||
Total segment operating income
|
|
6,700
|
|
|
6,779
|
|
||
Net investment income
|
|
2,957
|
|
|
7,087
|
|
||
Net realized (losses) gains
|
|
(17
|
)
|
|
306
|
|
||
Gain on change in fair value of equity investments
|
|
381
|
|
|
—
|
|
||
Loss on change in fair value of limited liability investments, at fair value
|
|
(7,393
|
)
|
|
(1,832
|
)
|
||
Net change in unrealized loss on private company investments
|
|
(1,629
|
)
|
|
(758
|
)
|
||
Interest expense not allocated to segments
|
|
(7,407
|
)
|
|
(6,348
|
)
|
||
Other income and expenses not allocated to segments, net
|
|
(8,963
|
)
|
|
(10,503
|
)
|
||
Amortization of intangible assets
|
|
(2,376
|
)
|
|
(1,085
|
)
|
||
Contingent consideration benefit
|
|
—
|
|
|
212
|
|
||
Loss on change in fair value of debt
|
|
(1,720
|
)
|
|
(8,487
|
)
|
||
Gain on disposal of subsidiary
|
|
17
|
|
|
—
|
|
||
Equity in net (loss) income of investee
|
|
(2,499
|
)
|
|
2,115
|
|
||
Loss from continuing operations before income tax expense (benefit)
|
|
(21,949
|
)
|
|
(12,514
|
)
|
||
Income tax expense (benefit)
|
|
315
|
|
|
(16,688
|
)
|
||
(Loss) income from continuing operations
|
|
$
|
(22,264
|
)
|
|
$
|
4,174
|
|
•
|
Level 1 – Quoted prices for identical instruments in active markets.
|
|
108
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
•
|
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.
|
•
|
The fair value of the Company's investment in 1347 Investors is calculated based on a model that distributes the net equity of 1347 Investors to all classes of membership interests. The model uses quoted market prices and significant market observable inputs. This investment is categorized in Level 2 of the fair value hierarchy.
|
•
|
The fair value of Net Lease's investments in limited liability companies is based upon the net asset values of the underlying investments companies as a practical expedient to estimate fair value. The Company applies the net asset value practical expedient to Net Lease's limited liability investments on an investment-by-investment basis unless it is probable that the Company will sell a portion of an investment at an amount different from the net asset value of the investment. Investments that are measured at fair value using the net asset value practical expedient are not required to be classified using the fair value hierarchy.
|
|
109
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
•
|
The fair value of Argo Holdings' limited liability investments that hold investments in search funds is based on the initial investment in the search funds. The fair value of Argo Holdings' limited liability investments that hold investments in private operating companies is valued using a market approach including valuation multiples applied to corresponding performance metrics, such as earnings before interest, tax, depreciation and amortization; revenue; or net earnings. The selected valuation multiples were estimated using multiples provided by the investees and review of those multiples in light of investor updates, performance reports, financial statements and other relevant information. These investments are categorized in Level 3 of the fair value hierarchy.
|
|
110
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
|
|
|
|
December 31, 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)
|
|
|
Measured at Net Asset Value
|
|
||||||
Recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
U.S. government, government agencies and authorities
|
|
$
|
5,547
|
|
|
$
|
—
|
|
|
$
|
5,547
|
|
|
$
|
—
|
|
|
$
|
—
|
|
States, municipalities and political subdivisions
|
|
607
|
|
|
—
|
|
|
607
|
|
|
—
|
|
|
—
|
|
|||||
Mortgage-backed
|
|
3,186
|
|
|
—
|
|
|
3,186
|
|
|
—
|
|
|
—
|
|
|||||
Corporate
|
|
2,920
|
|
|
—
|
|
|
2,920
|
|
|
—
|
|
|
—
|
|
|||||
Total fixed maturities
|
|
12,260
|
|
|
—
|
|
|
12,260
|
|
|
—
|
|
|
—
|
|
|||||
Equity investments:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Common stock
|
|
801
|
|
|
801
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Warrants
|
|
55
|
|
|
19
|
|
|
36
|
|
|
—
|
|
|
—
|
|
|||||
Total equity investments
|
|
856
|
|
|
820
|
|
|
36
|
|
|
—
|
|
|
—
|
|
|||||
Limited liability investments, at fair value
|
|
26,015
|
|
|
—
|
|
|
206
|
|
|
4,124
|
|
|
21,685
|
|
|||||
Real estate investments
|
|
10,662
|
|
|
—
|
|
|
—
|
|
|
10,662
|
|
|
|
||||||
Other investments
|
|
2,079
|
|
|
—
|
|
|
2,079
|
|
|
—
|
|
|
|
||||||
Short-term investments
|
|
152
|
|
|
—
|
|
|
152
|
|
|
—
|
|
|
|
||||||
Total assets
|
|
$
|
52,024
|
|
|
$
|
820
|
|
|
$
|
14,733
|
|
|
$
|
14,786
|
|
|
$
|
21,685
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Subordinated debt
|
|
$
|
50,023
|
|
|
$
|
—
|
|
|
$
|
50,023
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total liabilities
|
|
$
|
50,023
|
|
|
$
|
—
|
|
|
$
|
50,023
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
111
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands) (restated)
|
|
|
|
|
|
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)
|
|
|
Measured at Net Asset Value
|
|
||||||
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
|
|
1,019
|
|
|
171
|
|
|
848
|
|
|
—
|
|
|
—
|
|
|||||
Total equity investments
|
|
4,589
|
|
|
3,741
|
|
|
848
|
|
|
—
|
|
|
—
|
|
|||||
Limited liability investments, at fair value
|
|
32,211
|
|
|
—
|
|
|
10,314
|
|
|
1,397
|
|
|
20,500
|
|
|||||
Real estate investments
|
|
10,662
|
|
|
—
|
|
|
—
|
|
|
10,662
|
|
|
—
|
|
|||||
Other investments
|
|
3,721
|
|
|
—
|
|
|
3,721
|
|
|
—
|
|
|
—
|
|
|||||
Short-term investments
|
|
151
|
|
|
—
|
|
|
151
|
|
|
—
|
|
|
—
|
|
|||||
Total assets
|
|
$
|
65,875
|
|
|
$
|
3,741
|
|
|
$
|
29,575
|
|
|
$
|
12,059
|
|
|
$
|
20,500
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Subordinated debt
|
|
$
|
52,105
|
|
|
$
|
—
|
|
|
$
|
52,105
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total liabilities
|
|
$
|
52,105
|
|
|
$
|
—
|
|
|
$
|
52,105
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
112
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
Years ended December 31,
|
|
||||||
|
|
2018
|
|
|
2017
|
|
|||
Assets:
|
|
|
|
|
|||||
Limited liability investments, at fair value:
|
|
|
|
|
|||||
Beginning balance
|
|
$
|
1,397
|
|
|
$
|
939
|
|
|
Purchases
|
|
1,580
|
|
|
664
|
|
|||
Distributions received
|
|
(386
|
)
|
|
(86
|
)
|
|||
Change in fair value of limited liability investments, at fair value included in net loss
|
|
1,533
|
|
|
(120
|
)
|
|||
Ending balance
|
|
4,124
|
|
|
1,397
|
|
|||
Real estate investments:
|
|
|
|
|
|||||
Beginning balance
|
|
10,662
|
|
|
10,662
|
|
|||
Change in fair value of real estate investments included in net loss
|
|
—
|
|
|
—
|
|
|||
Ending balance
|
|
10,662
|
|
—
|
|
10,662
|
|
||
Ending balance - assets
|
|
$
|
14,786
|
|
|
$
|
12,059
|
|
|
Liabilities:
|
|
|
|
|
|||||
Contingent consideration:
|
|
|
|
|
|||||
Beginning balance
|
|
$
|
—
|
|
|
$
|
325
|
|
|
Settlements of contingent consideration liabilities
|
|
—
|
|
|
(113
|
)
|
|||
Change in fair value of contingent consideration included in net loss
|
|
—
|
|
|
(212
|
)
|
|||
Ending balance - liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total
|
|
$
|
14,786
|
|
|
$
|
12,059
|
|
Categories
|
|
Fair Value (in thousands)
|
|
Valuation Techniques
|
|
Unobservable Inputs
|
|
Input Value(s)
|
|||
Limited liability investments, at fair value
|
|
$
|
4,124
|
|
|
Market approach
|
|
Valuation multiples
|
|
5.0x - 8.8x
|
|
Real estate investments
|
|
$
|
10,662
|
|
|
Market and income approach
|
|
Cap rates
|
|
7.5
|
%
|
Categories
|
|
Fair Value (in thousands)
|
|
Valuation Techniques
|
|
Unobservable Inputs
|
|
Input Value(s)
|
|||
Limited liability investments, at fair value
|
|
$
|
1,397
|
|
|
Market approach
|
|
Valuation multiples
|
|
5.0x - 7.0x
|
|
Real estate investments
|
|
$
|
10,662
|
|
|
Market and income approach
|
|
Cap rates
|
|
7.5
|
%
|
|
113
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
December 31, 2018
|
|
Fair Value (in thousands)
|
|
Unfunded Commitments (in thousands)
|
|
Redemption Frequency
|
|
Redemption Notice Period
|
||
Limited liability investments, at fair value
|
|
$
|
21,685
|
|
|
n/a
|
|
n/a
|
|
n/a
|
December 31, 2017
|
|
Fair Value (in thousands)
|
|
Unfunded Commitments (in thousands)
|
|
Redemption Frequency
|
|
Redemption Notice Period
|
||
Limited liability investments, at fair value
|
|
$
|
20,500
|
|
|
n/a
|
|
n/a
|
|
n/a
|
|
114
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
115
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
116
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
117
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
118
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
119
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
(in thousands)
|
|
December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Net loss, statutory basis
|
|
$
|
(1,506
|
)
|
|
$
|
(1,357
|
)
|
Capital and surplus, statutory basis
|
|
$
|
2,662
|
|
|
$
|
4,168
|
|
|
120
|
|
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements
|
|
121
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
•
|
the reclassification of investment income, related to equity method investments, from loss from discontinued operations, net of taxes to net investment income in the consolidated statement of operations;
|
•
|
the identification, accounting and disclosure of investments demonstrating characteristics of variable interest entities, including the consolidation of certain investments;
|
•
|
the adoption and application of ASU 2014-09;
|
•
|
identification, disclosure and accounting for equity-classified warrants; and
|
•
|
purchase accounting, as it relates to the identification and valuation of intangible assets and goodwill.
|
|
122
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
•
|
Perform a comprehensive assessment of all existing accounting policies and revise existing policies and/or introduce new policies, as needed;
|
•
|
Enhance the formality of its review procedures with respect to its accounting for any new investments, as well as the periodic evaluation of existing investments;
|
•
|
Implement additional review procedures with respect to its accounting under ASU 2014-09 to ensure the Company’s accounting will continue to be in accordance with that standard on a go-forward basis;
|
•
|
Implement additional identification, accounting and review controls with respect to complex and nonrecurring transactions, as well as augment existing staff with outside skilled accounting resources, as appropriate, and strengthen the review process to improve the operation of financial reporting and corresponding internal controls;
|
•
|
Enhance the formality and rigor with respect to identifying and tracking all material related party transactions, as well updating its disclosures controls to enhance the focus on related party disclosure requirements; and
|
•
|
Enhance the formality and rigor of review with respect to the collectability of accounts receivable balances, other-than-temporary impairment reviews on equity method investments and the account reconciliation procedures.
|
|
123
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
124
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
Doug Levine
Age: 61
Residence:
Florida, United States of America
Director Since: May 30, 2018
Independent(2)
|
Doug Levine has been the President of Levine Management, a real estate developer, since January 2013. He graduated in 1980 from Tufts University with a Bachelor’s Degree in Economics.
|
|||||||||
Board Committee Membership:
|
Public Board Membership:
|
|||||||||
Board (since May 30, 2018)
|
None
|
|||||||||
Audit Committee (since May 30, 2018)
|
||||||||||
Investment Committee (since May 30, 2018)
|
(1)
|
All of the directors attended the 2018 annual meeting of shareholders.
|
(2)
|
“Independent” refers to the standards of independence established under section 301 of the Sarbanes-Oxley Act of 2002 (“SOX”) and the criteria for independence established by the NYSE and SEC.
|
|
125
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
Name (Age)
|
Executive Officer Since
|
Current Position
|
Previous Business Experience
|
William A. Hickey, Jr. (61)
|
August 30, 2010
|
EVP and CFO
|
Mr. Hickey has served as Executive Vice President of the Company since August 2010, as CFO since April 2011, and as Chief Operating Officer from August 2010 to March 2017. Before joining the Corporation, Mr. Hickey was a Managing Director at the Chicago office of Macquarie Capital, a corporate finance and investment firm, from 2009 to 2010. Mr. Hickey earned his Bachelor of Business Administration degree in accountancy from the University of Notre Dame in 1981 and a Master of Management degree in finance and management policy from the J.L. Kellogg School of Management at Northwestern University in 1986. He was awarded the Chartered Financial Analyst designation in 1989 and the Certified Public Accountant designation in 1981.
|
Paul R. Hogan (35)
|
May 2019
|
Secretary and General Counsel
|
Mr. Hogan joined the Company as General Counsel on May 1, 2019 and was elected Secretary later that month. Prior to joining the Corporation, Mr. Hogan was a Senior Corporate Attorney for KapStone Paper and Packaging Corporation. Mr. Hogan joined KapStone after working in private legal practice, most recently with Greenberg Traurig LLP. Mr. Hogan holds an undergraduate degree from Indiana University, with majors in mathematics, economics and political science, and a Juris Doctorate from the Indiana University Maurer School of Law - Bloomington.
|
|
126
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
127
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
Name
|
Title
|
John T. Fitzgerald
|
President & Chief Executive Officer(1)
|
William A. Hickey, Jr.
|
Executive Vice President & Chief Financial Officer
|
Larry G. Swets, Jr.
|
Former Chief Executive Officer(2)
|
Hassan R. Baqar
|
Vice President(3)
|
(1)
|
Mr. Fitzgerald has served as Chief Executive Officer of the Company since September 2018.
|
(2)
|
Mr. Swets served as Chief Executive Officer of the Company from July 2010 until September 2018.
|
(3)
|
Mr. Baqar served as Vice President of the Company from January 2014 until his resignation in January 2019.
|
|
128
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
Name and Principal Position
|
Year
|
Salary ($)
|
Bonus
($)
|
Stock Awards ($)
|
Option Awards ($)
|
All Other Compensation(1)
($)
|
Total
($) |
John T. Fitzgerald, President & Chief Executive Officer
|
2018
|
432,564
|
250,000 (2)
|
—
|
—
|
28,876
|
461,440
|
2017
|
350,000
|
—
|
—
|
—
|
20,235
|
370,235
|
|
2016
|
209,231
|
185,000 (3)
|
2,865,000 (4)
|
71,764 (5)
|
1,772
|
3,332,767
|
|
William A. Hickey, Jr.,
Executive Vice President & Chief Financial Officer
|
2018
|
360,000
|
50,000 (2)
|
—
|
—
|
25,907
|
385,907
|
2017
|
360,000
|
—
|
—
|
—
|
25,782
|
385,782
|
|
2016
|
360,000
|
30,000 (2)
|
—
|
—
|
26,340
|
416,340
|
|
Larry G. Swets, Jr., Former Chief Executive Officer
|
2018
|
364,101
|
—
|
—
|
—
|
28,513
|
392,614
|
2017
|
500,000
|
—
|
—
|
—
|
39,359
|
539,359
|
|
2016
|
500,000
|
340,000 (3)
|
—
|
—
|
32,296
|
872,296
|
|
Hassan R. Baqar, Vice President
|
2018
|
240,000
|
—
|
—
|
—
|
12,240
|
252,240
|
2017
|
205,000
|
—
|
—
|
—
|
12,177
|
217,177
|
|
2016
|
170,000
|
200,000 (3)
|
—
|
—
|
16,783
|
386,783
|
(1)
|
For each named executive officer, amounts reported in this column include employer-paid life insurance premiums and contributions to the Company’s 401(k) retirement plan and Employee Stock Purchase Plan. The Company also paid for executive wellness physicals for certain of our named executive officers.
|
(2)
|
This amount represents a discretionary cash bonus paid to Messrs. Fitzgerald and Hickey in 2019 for work performed in 2018.
|
(3)
|
This amount represents a discretionary cash bonus paid to Messrs. Swets, Hickey and Baqar in 2017 for work performed in 2016.
|
(4)
|
Amount reflects the aggregate grant date fair value of Restricted Stock Units. The amount was determined by multiplying the grant date fair value of the award by the number of Restricted Stock Units granted. This amount represents Restricted Stock Units awarded August 24, 2016, which become fully vested on March 28, 2024 if Mr. Fitzgerald remains in continuous employment with the Company through such date. The actual value that Mr. Fitzgerald may receive depends on market prices, and there can be no assurance that the amounts reflected will actually be realized.
|
(5)
|
Amount represents the aggregate grant date fair value of options. The amount does not represent the realized or unrealized earnings or value earned in the year. The actual value that the named executive officer may receive depends on market prices, and there can be no assurance that the amounts reflected will actually be realized.
|
|
129
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
Option Awards
|
Stock Awards
|
|||||
Name
|
Number of Securities Underlying Unexercised Options Exercisable (#)
|
Number of Securities Underlying Unexercised Options Unexercisable (#)
|
Option Exercise Price ($)
|
Option Expiration Date
|
Number of Unearned Shares or Units That Have Not Vested (#)
|
Market Value of Shares or Units That Have Not Vested
($)(1) |
John T. Fitzgerald
|
40,000 (2)
|
n/a
|
4.67
|
April 20, 2020
|
500,000 (3)
|
$1,435,000
|
William A. Hickey, Jr.
|
—
|
n/a
|
n/a
|
n/a
|
229,500 (4)
|
$658,665
|
Larry G. Swets, Jr.
|
—
|
n/a
|
n/a
|
n/a
|
247,450 (5)
|
$710,182
|
Hassan R. Baqar
|
—
|
n/a
|
n/a
|
n/a
|
115,500 (6)
|
$331,485
|
(1)
|
The value of the Common Shares is based on the closing price of the Common Shares on the NYSE of $2.87 as of December 31, 2018, the last trading day of the fiscal year.
|
(2)
|
This amount represents 40,000 options granted April 20, 2016, which were immediately vested and exercisable as of that date.
|
(3)
|
This amount represents Restricted Common Shares awarded September 5, 2018, which become fully vested on March 28, 2024 if Mr. Fitzgerald remains in continuous employment with the Company through such date.
|
(4)
|
This amount represents Restricted Common Shares awarded March 28, 2014, which become fully vested as of the tenth anniversary of the date of grant if the participant remains in continuous employment with the Company through such anniversary.
|
(5)
|
This amount represents Restricted Common Shares awarded September 5, 2018, which become fully vested after the satisfaction of certain performance conditions, as defined in the Amended and Restated Restricted Stock Award Agreement, dated September 5, 2018.
|
|
130
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
(1)
|
Amounts reported in this column include the annual retainer paid to each non-employee director, plus an additional fee of CAD$50,000 paid to each of Messrs. Kavanagh and Hannon for serving as Chairman of the Board and Chair of the Audit Committee, respectively. The annual retainer and the additional fees paid to Messrs. Kavanagh and Hannon were paid in the currency of each director’s country of residence and converted to U.S. dollars based on the exchange rates in effect at the time the payments were made. Messrs. Hannon and Kavanagh were paid in Canadian dollars, and Messrs. Levine, Schaevitz and Stilwell were paid in U.S. dollars.
|
(2)
|
Mr. Levine was elected to the Board on May 30, 2018. He received three payments at the CAD$100,000 annualized rate.
|
(3)
|
Mr. Schaevitz was a member of the Board through May 30, 2018. He received two payments at the CAD$100,000 annualized rate.
|
|
131
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
(i)
|
Assist the Board in discharging its responsibilities in respect of compensation of the Company’s executive officers and subsidiary Presidents;
|
(ii)
|
Provide recommendations to the Board in connection with directors' compensation;
|
(iii)
|
Provide recommendations to the Board in connection with succession planning for senior management of the Company; and
|
(iv)
|
Produce an annual report for inclusion in the Proxy Statement and Annual Report on Form 10-K.
|
Plan Category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
|
Weighted-average exercise price of outstanding options, warrants and rights
(b)
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
|
Equity compensation plans approved by security holders
|
40,000
|
$4.67
|
—
|
Equity compensation plans not approved by security holders
|
—
|
n/a
|
—
|
Total
|
40,000
|
$4.67
|
—
|
|
132
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
Beneficial Owner
|
Number of Common Shares, Including Restricted Common Shares
|
Percent of Common Shares, Including Restricted Common Shares, Outstanding (1)
|
John T. Fitzgerald
|
1,017,834(2)
|
4.45%
|
Gregory P. Hannon
|
3,096,074(3)(4)
|
13.24%
|
Terence M. Kavanagh
|
3,096,074(3)(5)
|
13.24%
|
Oakmont Capital
|
3,096,074(3)(6)
|
13.24%
|
Doug Levine
|
1,270,786(7)
|
5.56%
|
Joseph D. Stilwell
|
5,679,539(8)
|
24.77%
|
Larry G. Swets, Jr.
|
1,145,809 (9)
|
4.98%
|
William A. Hickey, Jr.
|
358,677 (10)
|
1.57%
|
Hassan R. Baqar
|
136,743 (11)
|
*
|
All Directors, Director Nominees and Executive Officers as a Group (6 persons)
|
11,422,910
|
48.13%
|
(1)
|
All percentages in this column are calculated based upon: (i) the total number of Common Shares, including Restricted Common Shares, held by the beneficial owner (or all directors and executive officers as a group); plus the number of options, Series B Warrants and Preferred Shares, held by the beneficial owner (or all directors and executive officers as a group), exercisable or convertible within sixty (60) days; divided by (ii) 22,843,909, being the total number of Common Shares, including Restricted Common Shares, outstanding as of February 27, 2020; plus the number of options, Series B Warrants and Preferred Shares, held by the beneficial owner (or all directors and executive officers as a group), exercisable or convertible within sixty (60) days. Accordingly, this calculation is not based upon maximum dilution and instead assumes that only the beneficial owner (or all directors and executive officers as a group) exercises or converts all options, Series B Warrants and Preferred Shares exercisable or convertible within sixty (60) days.
|
(2)
|
Mr. Fitzgerald owns 977,834 Common Shares, including 500,000 Restricted Common Shares, plus 40,000 options that are currently exercisable.
|
(3)
|
Number of Common Shares is reported as described in a Schedule 13D filed with the SEC on March 21, 2019 jointly on behalf of Oakmont Capital Inc., an Ontario corporation ("Oakmont"), E.J.K. Holdings Inc., an Ontario corporation ("EJK"), 1272562 Ontario Inc., an Ontario corporation ("1272562"), Gregory P. Hannon and Terence M. Kavanagh (collectively, the "Oakmont Group"). The business address of these shareholders is 45 St. Clair Avenue West, Suite 400, Toronto, Ontario, M4V 1K9 Canada.
|
(4)
|
Mr. Hannon has sole voting power and sole dispositive power with respect to 22,500 Common Shares owned directly by him or through a self-directed Retirement Savings Plan and 4,500 Common Shares owned directly by two trusts for Mr. Hannon’s children (Mr. Hannon is the sole trustee of both of these trusts). In addition, Mr. Hannon has shared voting power and shared dispositive power with respect to (i) 3,000 Common Shares owned directly by 1272562, by virtue of his ownership of all of the outstanding voting stock of 1272562; (ii) 4,000 Common Shares owned directly by Gilter Inc., an Ontario corporation of which all of the outstanding voting stock is owned by the Gregory Hannon Family Trust (Mr. Hannon is one of two trustees of this trust); (iii) 2,468,037 Common Shares owned directly by Oakmont, by virtue of his ownership of all of the capital stock of 1272562, and 1272562’s ownership of 50% of the outstanding voting stock of Oakmont and its right to nominate one of the two members of the Board of Directors of Oakmont; (iv) 82,143 Common Shares issuable upon the conversion of 13,143 shares of Preferred Shares owned by Oakmont; (v) 463,394 Common Shares currently issuable upon exercise of Series B Warrants owned by Oakmont; and (vi) 13,750 Common Shares owned directly by Mr. Hannon’s spouse. Mr. Hannon may be deemed to be a beneficial owner of the balance of the 3,096,074 Common Shares beneficially owned by the Oakmont Group, by virtue of his participation in the Oakmont Group.
|
(5)
|
Mr. Kavanagh has sole voting power and sole dispositive power with respect to 26,875 Common Shares owned through a self-directed Retirement Savings Plan, 1,750 Common Shares owned directly and 125 Common Shares owned directly by a trust for his nephew (Mr. Kavanagh is the sole trustee). Mr. Kavanagh has shared voting power and shared dispositive power with respect to (i) the 6,000 Common Shares owned directly by EJK, by virtue of Mr. Kavanagh’s ownership of all of the outstanding voting stock of EJK; (ii) the 2,468,037 Common Shares owned directly by Oakmont, by virtue of Mr. Kavanagh’s ownership of all the outstanding voting stock of EJK, and EJK’s ownership of 50% of the outstanding voting stock of Oakmont and its right to nominate one of the two members of the Board of Directors of Oakmont; (iii) 82,143 Common Shares issuable upon the conversion of 13,143 shares of Preferred Shares owned by Oakmont; and (iv) 463,394 Common Shares currently issuable upon exercise of Series B Warrants owned by Oakmont. Mr. Kavanagh may be deemed to be a beneficial owner of the balance of the 3,096,074 Common Shares beneficially owned by the Oakmont Group, by virtue of his participation in the Oakmont Group.
|
(6)
|
Oakmont has sole voting power and sole dispositive power with respect to: (i) the 2,468,037 Common Shares that it owns directly; (ii) 82,143 Common Shares issuable upon the conversion of 13,143 shares of Preferred Shares owned by Oakmont; and (iii) 463,394 Common Shares currently issuable upon exercise of Series B Warrants owned by Oakmont. Oakmont may be deemed to be a beneficial owner of the balance of the 3,096,074 Common Shares beneficially owned by the Oakmont Group, by virtue of its participation in the Oakmont Group.
|
(7)
|
Mr. Levine directly owns 991,484 Common Shares. Mr. Levine indirectly owns 90,200 Common Shares, through the holdings of family members, and 189,102 Common Shares via a trust.
|
|
133
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
(8)
|
Number of Common Shares is reported as described in a Schedule 13D filed with the SEC on March 29, 2019 on behalf of Stilwell Activist Fund, L.P., a Delaware limited partnership ("Stilwell Activist Fund"); Stilwell Activist Investments, L.P., a Delaware limited partnership ("Stilwell Activist Investments"); Stilwell Associates, L.P., a Delaware limited partnership ("Stilwell Associates"); Stilwell Value Partners VII, L.P., a Delaware limited partnership ("Stilwell Value Partners VII"); Stilwell Value LLC, a Delaware limited liability company ("Stilwell Value LLC" and, collectively with Stilwell Activist Fund, Stillwell Activist Investments, Stilwell Associates, and Stilwell Value Partners VII, the "Investment Partnership"); and Joseph D. Stilwell, a U.S. citizen. The Investment Partnerships are private investment partnerships engaged in the purchase and sale of securities for their own accounts. Stilwell Value LLC is the general partner of each of the Investment Partnerships, and Mr. Stilwell is the managing member and owner of Stilwell Value LLC. The Investment Partnerships have shared voting and shared dispositive power over 5,679,539 Common Shares, consisting of (i) 5,597,396 Common Shares owned of record, and (ii) 82,143 Common Shares issuable upon the conversion of 13,143 shares of Preferred Shares. The members of the Group also hold Series B Warrants to purchase 708,347 Common Shares currently issuable upon exercise of Series B Warrants; however, each of the Investment Partnerships has entered a Statement of Undertaking with the Company in which they undertook not to exercise the Series B Warrants until the earlier of: (i) July 15, 2020; or (ii) the execution by all of the Investment Partnerships and the Company of a written instrument that terminates the Statement of Undertaking.. The business address of this shareholder is 111 Broadway, 12th Floor, New York, NY 10006.
|
(9)
|
Mr. Swets owns 963,273 Common Shares, including 247,450 Restricted Common Shares; and 182,536 Common Shares currently issuable upon exercise of Series B Warrants.
|
(10)
|
Mr. Hickey owns 333,177 Common Shares, including 229,500 Restricted Common Shares; and 25,500 Common Shares currently issuable upon exercise of Series B Warrants.
|
(11)
|
Mr. Baqar owns 124,243 Common Shares and 12,500 Common Shares currently issuable upon exercise of Series B Warrants.
|
|
134
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
135
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
136
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
(in thousands)
|
|
December 31, 2018
|
|
|||||||||
|
|
Cost or Amortized Cost
|
|
|
Fair Value
|
|
|
Amount Shown on Consolidated Balance Sheet
|
|
|||
Fixed maturities:
|
|
|
|
|
|
|
||||||
U.S. government, government agencies and authorities
|
|
$
|
5,594
|
|
|
$
|
5,547
|
|
|
$
|
5,547
|
|
States, municipalities and political subdivisions
|
|
621
|
|
|
607
|
|
|
607
|
|
|||
Mortgage-backed
|
|
3,256
|
|
|
3,186
|
|
|
3,186
|
|
|||
Corporate
|
|
2,961
|
|
|
2,920
|
|
|
2,920
|
|
|||
Total fixed maturities
|
|
12,432
|
|
|
12,260
|
|
|
12,260
|
|
|||
Equity investments:
|
|
|
|
|
|
|
||||||
Common stock
|
|
1,286
|
|
|
801
|
|
|
801
|
|
|||
Warrants
|
|
988
|
|
|
55
|
|
|
55
|
|
|||
Total equity investments
|
|
2,274
|
|
|
856
|
|
|
856
|
|
|||
Limited liability investments (1)
|
|
4,790
|
|
|
—
|
|
|
4,790
|
|
|||
Limited liability investments, at fair value
|
|
26,015
|
|
|
26,015
|
|
|
26,015
|
|
|||
Investments in private companies
|
|
2,465
|
|
|
3,090
|
|
|
3,090
|
|
|||
Real estate investments
|
|
10,225
|
|
|
10,662
|
|
|
10,662
|
|
|||
Other investments (1)
|
|
2,079
|
|
|
—
|
|
|
2,079
|
|
|||
Short-term investments (1)
|
|
152
|
|
|
—
|
|
|
152
|
|
|||
Total investments
|
|
$
|
60,432
|
|
|
$
|
52,883
|
|
|
$
|
59,904
|
|
|
137
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
(in thousands)
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
||
|
|
|
|
|
||||
Assets
|
|
|
|
|
||||
Investments in subsidiaries
|
|
$
|
16,843
|
|
|
$
|
39,186
|
|
Equity investments
|
|
71
|
|
|
491
|
|
||
Cash and cash equivalents
|
|
759
|
|
|
688
|
|
||
Investment in investee
|
|
951
|
|
|
5,230
|
|
||
Other assets
|
|
82
|
|
|
3,134
|
|
||
Total Assets
|
|
$
|
18,706
|
|
|
$
|
48,729
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
||||
Liabilities:
|
|
|
|
|
||||
Accrued expenses and other liabilities
|
|
$
|
444
|
|
|
$
|
2,183
|
|
Total Liabilities
|
|
444
|
|
|
2,183
|
|
||
|
|
|
|
|
||||
Class A preferred stock
|
|
5,800
|
|
|
5,180
|
|
||
|
|
|
|
|
||||
Shareholders' Equity:
|
|
|
|
|
||||
Common stock
|
|
—
|
|
|
—
|
|
||
Additional paid-in capital
|
|
353,890
|
|
|
356,171
|
|
||
Accumulated deficit
|
|
(382,196
|
)
|
|
(310,953
|
)
|
||
Accumulated other comprehensive income (loss)
|
|
40,768
|
|
|
(3,852
|
)
|
||
Shareholders' equity attributable to common shareholders
|
|
12,462
|
|
|
41,366
|
|
||
Total Liabilities, Class A preferred stock and Shareholders' Equity
|
|
$
|
18,706
|
|
|
$
|
48,729
|
|
|
138
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Revenues:
|
|
|
|
|
||||
Net investment (loss) income
|
|
$
|
(2
|
)
|
|
$
|
35
|
|
Loss on change in fair value of equity investments
|
|
(211
|
)
|
|
—
|
|
||
Total revenues
|
|
(213
|
)
|
|
35
|
|
||
Expenses:
|
|
|
|
|
||||
General and administrative expenses
|
|
223
|
|
|
3,760
|
|
||
Non-operating other expense (income)
|
|
132
|
|
|
(165
|
)
|
||
Equity in net loss (income) of investee
|
|
2,499
|
|
|
(2,115
|
)
|
||
Total expenses
|
|
2,854
|
|
|
1,480
|
|
||
Loss from continuing operations before income tax expense (benefit) and equity in loss of subsidiaries
|
|
(3,067
|
)
|
|
(1,445
|
)
|
||
Income tax expense (benefit)
|
|
—
|
|
|
—
|
|
||
Equity in loss of subsidiaries
|
|
(25,269
|
)
|
|
(10,164
|
)
|
||
Net loss
|
|
$
|
(28,336
|
)
|
|
$
|
(11,609
|
)
|
|
139
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
|
|
|
|
|
||||
Net loss
|
|
$
|
(28,336
|
)
|
|
$
|
(11,609
|
)
|
Other comprehensive income (loss), net of taxes(1):
|
|
|
|
|
||||
Unrealized losses on available-for-sale investments:
|
|
|
|
|
||||
Unrealized losses arising during the period
|
|
—
|
|
|
(139
|
)
|
||
Reclassification adjustment for amounts included in net loss
|
|
—
|
|
|
—
|
|
||
Other comprehensive loss - parent only
|
|
—
|
|
|
(139
|
)
|
||
Equity in other comprehensive income (loss) of subsidiaries
|
|
4,124
|
|
|
(3,504
|
)
|
||
Other comprehensive income (loss)
|
|
4,124
|
|
|
(3,643
|
)
|
||
Comprehensive loss
|
|
$
|
(24,212
|
)
|
|
$
|
(15,252
|
)
|
(1) Net of income tax expense (benefit) of $0 and $0 in 2018 and 2017, respectively
|
|
|
|
140
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
(in thousands)
|
|
Years ended December 31,
|
|
|||||
|
|
2018
|
|
|
2017
|
|
||
Cash provided by (used in):
|
|
|
|
|
||||
Operating activities:
|
|
|
|
|
||||
Net loss
|
|
$
|
(28,336
|
)
|
|
$
|
(11,609
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
||||
Equity in net loss of subsidiaries
|
|
25,269
|
|
|
10,164
|
|
||
Equity in net loss (income) of investee
|
|
2,499
|
|
|
(2,115
|
)
|
||
Dividend received from investee
|
|
780
|
|
|
—
|
|
||
Stock-based compensation (benefit) expense, net of forfeitures
|
|
(1,661
|
)
|
|
1,186
|
|
||
Loss on change in fair value of equity investments
|
|
211
|
|
|
—
|
|
||
Other, net
|
|
138
|
|
|
(404
|
)
|
||
Net cash used in operating activities
|
|
(1,100
|
)
|
|
(2,778
|
)
|
||
Investing activities:
|
|
|
|
|
||||
Purchases of equity investments
|
|
—
|
|
|
(630
|
)
|
||
Proceeds from sale of equity investments
|
|
215
|
|
|
—
|
|
||
Proceeds from sale of investee
|
|
1,001
|
|
|
—
|
|
||
Net cash provided by (used in) investing activities
|
|
1,216
|
|
|
(630
|
)
|
||
Financing activities:
|
|
|
|
|
||||
Proceeds from issuance of common stock, net
|
|
—
|
|
|
(47
|
)
|
||
Capital contributions to subsidiaries
|
|
(45
|
)
|
|
(7,326
|
)
|
||
Net cash used in financing activities
|
|
(45
|
)
|
|
(7,373
|
)
|
||
Net increase (decrease) in cash and cash equivalents
|
|
71
|
|
|
(10,781
|
)
|
||
Cash and cash equivalents at beginning of period
|
|
688
|
|
|
11,469
|
|
||
Cash and cash equivalents at end of period
|
|
$
|
759
|
|
|
$
|
688
|
|
|
141
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
(in thousands)
|
|
|
|
|
||||||||||||||||
|
|
Balance at Beginning of Year
|
|
|
Charged to Income Tax (Benefit) Expense
|
|
|
Tax Act Rate Change
|
|
Disposals and Other
|
|
|
Balance at End of Year
|
|
||||||
Valuation Allowance for Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Year Ended December 31, 2018
|
|
$
|
173,965
|
|
|
$
|
4,562
|
|
|
$
|
—
|
|
|
$
|
(7,071
|
)
|
|
$
|
171,456
|
|
Year Ended December 31, 2017
|
|
$
|
268,418
|
|
|
$
|
3,169
|
|
|
$
|
(105,598
|
)
|
|
$
|
7,976
|
|
|
$
|
173,965
|
|
|
142
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
|
|
|
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
|
|
|
Date:
|
February 27, 2020
|
By:
|
/s/ John T. Fitzgerald
|
|
|
Name:
|
John T. Fitzgerald
|
|
|
Title:
|
Chief Executive Officer, President and Director
|
|
|
|
(Principal Executive Officer)
|
/s/ John T. Fitzgerald
John T. Fitzgerald |
Chief Executive Officer, President and Director
|
February 27, 2020
|
|
|
|
/s/ William A. Hickey, Jr.
William A. Hickey, Jr.
|
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
|
February 27, 2020
|
|
|
|
/s/ Terence Kavanagh
Terence Kavanagh
|
Chairman of the Board and Director
|
February 27, 2020
|
|
|
|
/s/ Gregory Hannon
Gregory Hannon
|
Director
|
February 27, 2020
|
|
|
|
/s/ Doug Levine
Doug Levine
|
Director
|
February 27, 2020
|
|
|
|
/s/ Joseph Stilwell
Joseph Stilwell
|
Director
|
February 27, 2020
|
|
|
|
|
143
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
Exhibit
|
Description
|
2.1
|
Stock Purchase Agreement, dated April 1, 2015, by and among National General Holdings Corp., as Buyer, and Kingsway America Inc. and Mendota Insurance Company, as Sellers (included as Exhibit 2.1 to the Form 8-K, filed April 7, 2015, and incorporated herein by reference).
|
|
|
2.2
|
Stock Purchase Agreement, dated as of May 17, 2016, by and among CMC Acquisition, LLC, CRIC TRT Acquisition LLC and BNSF-Delpres Investments Ltd. (included as Exhibit 2.1 to the Form 8-K, filed July 20, 2016, and incorporated herein by reference).
|
|
|
2.3
|
Amendment to Stock Purchase Agreement, dated as of June 17, 2016, by and among CMC Acquisition, LLC, CRIC TRT Acquisition LLC, and BNSF-Delpres Investments Ltd. (included as Exhibit 2.1 to the Form 8-K, filed June 17, 2016, and incorporated herein by reference).
|
|
|
2.4
|
Stock Purchase Agreement by and among Premier Holdings, LLC, Advantage Auto MGA, LLC, Mendota Insurance Company, Kingsway America Inc. and Kingsway Financial Services Inc., dated as of July 16, 2018 (included as Exhibit 2.1 to the Form 8-K, filed July 20, 2018, and incorporated herein by reference).
|
|
|
3.1
|
Certificate of Incorporation of Kingsway Financial Services Inc. (included as Exhibit 3.1 to the Form 8-K, filed December 31, 2018, and incorporated herein by reference).
|
|
|
3.2
|
By laws of Kingsway Financial Services Inc. (included as Exhibit 3.2 to the Form 8-K, filed December 31, 2018, and incorporated herein by reference).
|
|
|
4.1
|
Indenture dated December 4, 2002 between Kingsway America Inc. and State Street Bank and Trust Company of Connecticut, National Association (included as Exhibit 4.3 to the Form 10-K, filed March 30, 2012, and incorporated herein by reference).
|
|
|
4.2
|
Indenture dated May 15, 2003 between Kingsway America Inc. and U.S. Bank National Association (included as Exhibit 4.4 to the Form 10-K, filed March 30, 2012, and incorporated herein by reference).
|
|
|
4.3
|
Indenture dated October 29, 2003 between Kingsway America Inc. and U.S. Bank National Association (included as Exhibit 4.5 to the Form 10-K, filed March 30, 2012, and incorporated herein by reference).
|
|
|
4.4
|
Indenture dated May 22, 2003 among Kingsway America Inc., Kingsway Financial Services Inc., and Wilmington Trust Company (included as Exhibit 4.6 to the Form 10-K, filed March 30, 2012, and incorporated herein by reference).
|
|
|
4.5
|
Junior Subordinated Indenture dated September 30, 2003 between Kingsway America Inc. and J.P Morgan Chase Bank (included as Exhibit 4.7 to the Form 10-K, filed March 30, 2012, and incorporated herein by reference).
|
|
|
4.6
|
Indenture dated December 16, 2003 among Kingsway America Inc., Kingsway Financial Services Inc., and Wilmington Trust Company (included as Exhibit 4.8 to the Form 10-K, filed March 30, 2012, and incorporated herein by reference).
|
|
|
4.7
|
Amended and Restated Common Stock Series B Warrant Agreement, dated July 8, 2014 (included as Exhibit 4.1 to the Form 8-K, filed July 10, 2014, and incorporated herein by reference).
|
|
|
4.8
|
Form of Stock Certificate (included as Exhibit 4.1 to the Form 8-K, filed December 31, 2018, and incorporated herein by reference).
|
|
|
10.1
|
Kingsway Financial Services Inc. 2013 Equity Incentive Plan (included as Schedule B to the Definitive Proxy Statement on Schedule 14A filed with the SEC on April 11, 2013, and incorporated herein by reference). *
|
|
|
10.2
|
Form of Subscription Agreement (included as Exhibit 10.1 to the Form 8-K, filed December 27, 2013, and incorporated herein by reference).
|
|
|
|
144
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
|
145
|
|
KINGSWAY FINANCIAL SERVICES INC.
|
10.20
|
Severance Agreement, dated as of September 5, 2018, by and 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).
|
|
|
10.21
|
Restricted Stock Agreement, dated as of September 5, 2018, by and 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).
|
|
|
10.22
|
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).
|
|
|
10.23
|
Separation Agreement and Release, dated as of September 5, 2018, by and 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).
|
|
|
10.24
|
Senior Advisor Agreement, dated as of September 5, 2018, by and 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).
|
|
|
10.25
|
Amended and Restated Restricted Stock Agreement, dated as of September 5, 2018, by and 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).
|
|
|
10.26
|
Membership Interest Purchase Agreement, dated as of September 5, 2018, by and 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).
|
|
|
10.27
|
Letter Agreement, dated as of May 30, 2018, by and between the Company and Larry Swets (included as Exhibit 10.9 to Form 10-Q, Filed November 9, 2018, and incorporated herein by reference).
|
|
|
14
|
Kingsway Financial Services Inc. Code of Business Conduct & Ethics (included as Exhibit 14 to Form 10-K, Filed March 16, 2018, and incorporated herein by reference).
|
|
|
21
|
|
|
|
23.1
|
|
|
|
23.2
|
|
|
|
31.1
|
|
|
|
31.2
|
|
|
|
32.1
|
|
|
|
32.2
|
|
|
|
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
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
146
|
|