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Kingsway Financial Services Inc. posts net loss for both full-year, fourth quarter 2016


March 8, 2017   by Canadian Underwriter


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Several significant events during the fourth quarter of 2016 contributed to Kingsway Financial Services Inc. (KFS) reporting a net loss for both the quarter and the full year.

For all of 2016, the company posted a loss of about US$9.4 million compared to net income of about US$1.3 million in 2015, notes a KFS statement issued Wednesday.

For the quarter ended Dec. 31, 2016, the net loss amounted to US$8.6 million compared to a net loss of US$2.1 million for the fourth quarter of 2015.

Kingsway Financial Services – a holding company functioning as a merchant bank that owns or controls stakes in several insurance industry assets – cites the following significant events in 2016 Q4:

  • the insurance underwriting segment incurred net unfavourable development of US$7.6 million related to accident years 2015 and prior;
  • the increase in the fair value of KFS’s trust preferred debt resulted in a US$4.8 million loss;
  • net investment income of US$6.2 million included US$4.7 million of income related to the company’s investment in 1347 Investors LLC; and
  • completion of the fair value analysis related to KFS’s acquisition of CMC resulted in US$0.3 million of net income.

On the operating side, KFS saw an operating loss of about US$6.8 million for 2016 compared to an operating loss of about US$1.5 million for 2015.

For the fourth quarter of 2016, the operating loss amounted to US$2.6 million compared to an operating loss of approximately US$0.9 for the same quarter of 2015.

“Operating loss reflects the company’s core operating activities, including its reportable segments, passive investment portfolio, merchant banking activities and corporate operating expenses,” the statement notes.

Kingsway Financial Services reports the operating loss for the Insurance Underwriting segment was US$8.0 million for 2016 Q4 compared to US$0.8 million for 2015 Q4.

With regard to operating income, this amounted to about US$0.9 million for the Insurance Services segment in the fourth quarter of 2016 compared to an operating loss of about US$0.2 million for the same quarter of 2015.

In addition, net investment income of US$6.2 million was reported for 2016 Q4 compared to US$0.3 million for the prior-year quarter, and net realized gains of US$0.4 million were reported for 2016 Q4 compared to US$1.1 million for 2015 Q4.

And with regard to net premiums earned (NPE), KFS reports that these amounted to about US$127.6 million in 2016 compared to US$117.4 million in 2015.

For the quarter ending Dec. 31, 2016, NPE was US$33.4 million compared to US$29.0 million for the same quarter of 2015.

A number of initiatives intended to improve the operating performance of KFS’s insurance operations – particularly with respect to strengthening the management of the claims department – have been undertaken over the course of 2016, says Larry Swets, Jr., company president and CEO.

“We have been aggressively increasing premium rates throughout the second half of 2016 and into 2017,” Swets says.

KFS is also “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,” he continues.

“While we are not happy to have to report adverse development on old accident years,” Swets points out, he notes the company is optimistic about the direction insurance operations are taking “and the potential positive impact to our segment operating income from the implementation of these initiatives.”

Other results for Kingsway Financial Services include the following:

  • net loss attributable to common shareholders of $8.8 million in 2016 Q4;
  • since the combination between 1347 Capital Corp. and Limbach Holdings LLC closed in July, KFS has recorded an US$8.8 million increase in its shareholders’ equity as a result of this investment;
  • book value decreased to US$2.19 per share at Dec. 31, 2016 from US$2.22 per share at Dec. 31, 2015, and increased from US$2.15 per share at Sept. 30, 2016.

Related: Kingsway reports net income of US$1.4 million in Q3 2016, compared to net loss of US$0.9 million in Q3 2015