Kingsway Announces Fourth Quarter and Year-End 2016 Results

TORONTO, March 8, 2017

The Company reported net loss attributable to common shareholders of $8.8 million, or $0.43 per diluted share, in the fourth quarter of 2016.  Significant events during the quarter included the following:

• Insurance Underwriting segment incurred net unfavorable development of $7.6 million related to accident years 2015 and prior.
• The increase in the fair value of the Company's trust preferred debt resulted in a $4.8 million loss.
• Net investment income of $6.2 million included $4.7 million of income related to the Company's investment in 1347 Investors LLC, which owns securities in Limbach Holdings, Inc.
• Completion of the fair value analysis related to the Company's acquisition of CMC resulted in $0.3 million of net income.

Management Comments
Larry G. Swets, Jr., President and Chief Executive Officer, stated, "Our fourth quarter earnings were affected meaningfully by the four significant events noted above.  One of those events related to historical performance in our non-standard automobile business unit.  We announced in July that Steve Harrison had joined our insurance management team as an executive vice president.  In August, we promoted Steve to President of our insurance operations.  Throughout the year, Steve and his team have launched a number of initiatives intended to improve the operating performance of our insurance operations, particularly with respect to strengthening the management of our Claim Department.  We have been aggressively increasing premium rates throughout the second half of 2016 and into 2017 and are actively pursuing initiatives related to increasing policy fee income, reducing bad debt expense, outsourcing the first notice of loss function, outsourcing much of the salvage and subrogation function and entering into an agreement with an outside vendor to migrate to a new policy administration and claim-handling operating platform sometime in 2017.  While we are not happy to have to report adverse development on old accident years, we are optimistic about the direction Steve is taking the insurance operations and the potential positive impact to our segment operating income from the implementation of these initiatives.  During the quarter, we recorded unfavorable development of approximately $9.1 million related to accident years 2015 and prior in our continuing operations while we recorded favorable development of approximately $1.5 million related to our continuing run-offs of Kingsway Amigo Insurance Company and Mendakota Casualty Company."

Mr. Swets continued, "We also reported a loss of $4.8 million during the quarter related to the increase in the fair value of our $90.5 million principal value of trust preferred debt, maturing from 2032 through 2034, as a result of increases in LIBOR and changes in the estimate of Kingsway's implied credit spread as developed by a third party.

"We are pleased to report another significant gain, related to our investment in 1347 Investors LLC, as a result of the previously announced business combination between 1347 Capital Corp. and Limbach Holdings LLC.  We reported $6.2 million of net investment income during the quarter, $4.7 million of which relates to our investment exposure to Limbach by virtue of our interest in 1347 Investors.  We are extremely satisfied with this investment which we initiated in July of 2014.  Since the combination between 1347 Capital Corp. and Limbach closed this past July, Kingsway has recorded an $8.8 million increase in its shareholders' equity as a result of this investment."

Mr. Swets concluded, "We have completed the fair value analysis of our acquisition of CMC for purposes of recording the assets and liabilities acquired.  The completion of the CMC exercise has resulted in some reallocation of previously reported results between Leased Real Estate segment operating earnings and amortization expense, which is reported separately from segment results.  As a result, we are reporting a loss of $0.1 million during the fourth quarter for the Leased Real Estate segment, which includes CMC, but we are separately reversing $0.4 million of amortization expense previously recorded during the third quarter.  As a result, CMC contributed $0.3 million to our net income during the fourth quarter and $0.6 million to our net income since the time of the acquisition in July.  CMC represents an opportunity to create long-term value over the next 17 years.  We encourage you to read our 2016 Form 10-K once it is filed for more information about each of these events."

Operating Results
The Company reported net loss attributable to common shareholders of $8.8 million, or $0.43 per diluted share, in the fourth quarter of 2016, compared to net loss attributable to common shareholders of $2.3 million, or $0.12 per diluted share, in the fourth quarter of 2015.