Basis of presentation and measurement

The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the accompanying interim condensed consolidated financial statements contain all normal and recurring adjustments necessary to fairly present the consolidated financial position of Till Capital Ltd. ("Till") and its subsidiaries at September 30, 2017 and December 31, 2016, the results of operations for the three and nine months ended September 30, 2017 and 2016, and cash flows for the nine months ended September 30, 2017 and 2016. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and notes thereto. Actual results could differ from those estimates.

The interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in Till's latest annual report on Form 10-K for the year ended December 31, 2016.

The exchange rate comparison at December 31, 2016 was US$1 = CDN$1.3427.

Basic and diluted income (loss) per restricted voting share is calculated on Till's income (loss) attributed to Till's shareholders divided by the weighted average number of Till shares outstanding during the period.

During the third quarter of 2017, Till initiated a plan to sell its wholly-owned subsidiary Omega Insurance Holdings, Inc. ("OIHI") including its subsidiaries Omega General Insurance Company ("Omega") and Focus Group, Inc. ("Focus") (collectively, "Holdings"), all of which are based in Canada. As a result of that decision, pursuant to GAAP, Holdings is required to be classified as held for sale and is also required to be considered a discontinued operation. However, during the potential sale process, OIHI, Omega, and Focus each continues to operate as a normal operation of Till.

Holdings was acquired by Till in May 2015. Till's management and board of directors believe that the sale of Holdings will allow Till to focus on increasing shareholder value and its original business strategy. Till has engaged an investment adviser to facilitate the sale of Holdings. There can be no assurance that the process will result in any transaction. As of November 14, 2017, Till has received various offers from qualified potential purchasers and is evaluating those offers. If a definitive agreement is negotiated, approved, and accepted by the board of directors, the completion of any sale is, subject to Canada regulatory approval requirements, expected to be completed within nine months of signing the definitive agreement.

There have been no changes during 2017 to Till's significant accounting policies described in Till's annual report on Form 10-K for the year ended December 31, 2016.

Accounting pronouncements

The recent accounting pronouncements described below have had or may have a significant effect on Till's condensed consolidated financial statements or on its disclosures on future adoption. Till does not discuss recent pronouncements that (i) are not anticipated to have an impact on Till or (ii) are unrelated to Till's financial condition, results of operations, or related disclosures.

In May 2014, the Financial Accounting and Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). Topic 606 provides guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that represents the consideration that the entity expects to be entitled to in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Topic 606 is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Till is continuing to evaluate the impact of the new guidance on its consolidated financial statements and believes the new guidance will not have a significant impact on its financial statements.

In May 2015, the FASB issued ASU No. 2015-09, Financial Services - Insurance (Topic 944), that requires additional disclosures for short-duration insurance contracts. Till adopted those disclosures as of December 31, 2016, and has included, in Note 6, disclosures that provide more information about initial claim estimates and subsequent adjustments to those estimates, the methodologies and judgments used to estimate claims, and, if available, the timing, frequency, and severity of claims. This guidance requires a change in disclosure only and adoption of this guidance did not have any effect on Till's financial condition or results of operations.

In September 2015, the FASB issued ASU Topic 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, that allows an entity to recognize adjustments to provisional amounts in a business combination in the reporting period in which the adjustment amounts are determined. Topic 805 is effective for fiscal year 2017. Till adopted this guidance beginning in the first quarter of 2017

In January 2016, the FASB issued ASU Topic 2016-01, Financial Statements - Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, that requires equity investments to be measured at fair value with changes in fair value recognized in income, use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes, separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements, present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument- specific credit risk, and eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. Topic 825-10 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted for certain requirements. Till is assessing the impact of adopting this accounting standard on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU Topic 2016-02, Leases, that provides guidance that affects the recognition, measurement, presentation and disclosure of leases. This guidance requires substantially all leases to be reported on the balance sheet as right-to-use assets and lease liabilities, as well as additional disclosures. The standard is effective as of January 1, 2019, and early adoption is permitted. While Till has limited leasing activities, Till is in the early stages of evaluating the impact of the new guidance on its consolidated financial statements, but does not expect this accounting standard to have a significant effect on its financial statements or related disclosures.

In March 2016, the FASB issued ASU Topic 2016-09, Compensation-Stock Compensation (Topic718), that requires recognition of the excess tax benefits or deficiencies of share-based awards through net income rather than through additional paid in capital. Additionally, the guidance allows for an election to account for forfeitures related to share-based payments either as they occur or through an estimation method. Till adopted this guidance beginning in the first quarter of 2017 and it is not expected to have a significant impact on its consolidated financial statements.

In January 2017, the FASB issued ASU Topic 2017-04, Intangibles-Goodwill and Other, that provides updated guidance on goodwill impairment testing requiring entities to calculate the implied fair value of goodwill through a hypothetical purchase price allocation. Under the updated guidance, impairment will have to be recognized as the amount by which a reporting unit’s carrying value exceeds its fair value. The standard is effective for Till in the first quarter of 2020 on a prospective basis with early adoption permitted. Till is evaluating the impact of this guidance.

No other new accounting pronouncement issued or effective during 2017 had or is expected to have a material impact on Till's consolidated financial statements or disclosures.

Omega Insurance Holdings, Inc.

Based on the planned sale of Holdings, as described in Note 1, as of September 30, 2017, Holdings is classified as assets and liabilities held for sale and is measured at the lower of its carrying amount or fair value less costs to sell. As such, as of September 30, 2017, Holdings assets and liabilities were valued at $57,361,587 and $50,275,556, respectively, which resulted in a valuation loss of $971,757 for the three and nine months ended September 30, 2017. The comparative assets and liabilities as of September 30, 2017 and December 31, 2016 were as follows:

Springer Mining Company and the Taylor Mill

In the second quarter of 2015, Till's controlled subsidiary, Silver Predator Corp. ("SPD"), of which Till, through its wholly-owned subsidiary, Resource Re Ltd. ("RRL"), owns 64% of the outstanding shares, announced its intention to realize value from some of its assets by initiating a process to sell all, or part, of the tangible and mineral property assets at some of its properties in Nevada. SPD’s Board of Directors and management committed to a plan to sell Springer Mining Company ("SMC") and the Taylor Mill. Since initiating that process, active negotiations have been held related to those assets. However, there can be no assurance that the process will result in any transaction.

In January 2017, SPD, in exchange for the release of a related party debt owed to RRL, gave 100% of its full ownership of SMC to RRL. Ownership of SMC was, in turn, transferred to Till's wholly-owned subsidiary, Golden Predator US Holding Corp. ("GPUS"). The approximately $1.4 million impact of that transaction is included within the decrease in non-controlling interests. Till's Board of Directors and management are committed to a plan to sell SMC. Assets and liabilities held for sale as of September 30, 2017 and December 31, 2016 are as follows:

SPD's Taylor Mill assets had a book value of $nil at September 30, 2017 and December 31, 2016.

Total assets and liabilities held for sale

Till held a promissory note receivable from Golden Predator Mining Corp. ("GPY") with an original face amount of CDN$3,753,332 (US$2,570,950). That promissory note bore interest at 6% per annum to June 1, 2016, 8% per annum to June 1, 2017, 10% per annum to June 1, 2018, and 12% thereafter.

The first installment of CDN$717,450 (US$546,545) was received on May 25, 2016, the second installment of CDN$1,216,373 (US$913,879) was received on March 31, 2017, and the final payment of CDN$2,230,016 (US$1,651,374) was received on June 2, 2017.

That promissory note was initially recognized at fair value, and was subsequently carried at amortized cost using the effective interest rate method.

The following tables summarize the differences between cost or amortized cost and fair value, by major investment category, at September 30, 2017 and December 31, 2016:

Investments

Held for trading investments

Available for sale investments

Total Investments

Investments included in assets held for sale

Held for trading investments

Available for sale investments

Total investments included in assets held for sale

Realized gain (loss) on investments, net

Till calculates the gain or loss realized on the sale of investments by comparing the sales price (fair value) to the cost or amortized cost of the security sold. Till determines the cost or amortized cost of the bonds sold using the specific-identification method and all other securities sold using the average cost method.

Held for trading investments

The net gain (loss) from held for trading investments was $(211,662) and $912,161 for the three months ended September 30, 2017 and 2016, respectively. The net gain (loss) from held for trading investments was $(305,972) and $1,035,758 for the nine months ended September 30, 2017 and 2016, respectively.

Available for sale investments

Available for sale investments included in assets held for sale

The following tables summarize Till's fixed maturities by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturity of those obligations.

Net change in unrealized gain (loss) on investments

Available for sale investments (including available for sale investments included in assets held for sale)

Net interest and dividends

Investment income (loss), net

Fair value

The following table presents information about Till’s investments measured at fair value on a recurring basis.

The following table presents information about Till’s investments included in assets held for sale measured at fair value on a recurring basis.

Unrealized investment losses on available for sale investments

The following table presents an aging of Till’s unrealized investment losses on available for sale investments by investment class as of September 30, 2017 and December 31, 2016.

Unrealized investment losses on available for sale investments included in assets held for sale

The following table presents an aging of Till’s unrealized investment losses on available for sale investments included in assets held for sale by investment class as of September 30, 2017 and December 31, 2016.

Equity Investment in Limited Liability Company

Till, through RRL, has an investment in IG Copper LLC (“IGC”) that is accounted for under the equity method of accounting that is summarized as follows:

On December 17, 2016, Till, through RRL, entered into an unsecured loan agreement with IGC. Under that loan agreement, the principal amount loaned by RRL was $400,000, the annual interest rate was 15%, and the loan and accrued interest were due in August 2017. In September 2017, $40,000 in interest was received from IGC. As of September 30, 2017 and December 31, 2016, the loan and accrued interest totaled $400,000 and $401,973, respectively, and is included in other assets.

In October 2017, the loan was repaid with $300,000 cash and $100,000 converted to IGC shares and warrants increasing Till's ownership percentage to 3.69%.

The following table is a summary of changes in outstanding losses and loss adjustment expenses ("LAE") and amounts ceded included in assets and liabilities held for sale (Note 3).

The following table presents premiums written, change in unearned premiums, and premiums earned included in income (loss) from discontinued operations (Note 11).

The following table is a summary of changes in unearned premiums and unearned premiums ceded included in assets and liabilities held for sale (Note 3).

A summary of the changes in deferred policy acquisition costs included in assets held for sale (Note 3) is as follows:

The following tables are a summary of royalty and mineral interests:

Sale of mineral interest

On April 10, 2017, GPUS, Till's wholly-owned subsidiary, completed an option agreement with an unrelated party whereby a mineral interest located in Nevada, USA was sold.  The final payment of $1,156,090 was received by GPUS and a gain of $1,055,835 was recorded on the sale of that mineral interest.

Taylor property option

In April 2017, SPD, Till’s 64% owned subsidiary, entered into an option agreement (the “Taylor Agreement”) with Montego Resource Inc. (“Montego”) pursuant to which Montego has the right to acquire from SPD certain mining claims located in Nevada, USA commonly referred to as the Taylor Silver Property (the “Taylor Property”).

Under the terms of the Taylor Agreement, Montego can acquire the Taylor Property in consideration for the completion of a series of cash payments totaling $1,200,000, issuing 2,500,000 common shares to SPD, and incurring expenditures of at least $700,000 on the Taylor Property. Upon completion of the payments, share issuances, and expenditures, Montego will hold a 100% interest in the Taylor Property, subject to a 2% net smelter returns royalty ("NSR") and a 1% net profit royalty that will be retained by SPD.

The payments, share issuances, and expenditures must be completed in accordance with the following schedule:

The closing occurred on April 20, 2017 on which date SPD had received $200,000 cash and 500,000 common shares of Montego initially valued at $156,309.

Carlin Vanadium property option

In June 2017, GPUS, Till’s wholly-owned subsidiary, entered into an option agreement (the “Carlin Vanadium Agreement”) with a privately-held unrelated company (“Optionee”) pursuant to which Optionee has the right to acquire from GPUS certain mining claims located in Idaho, USA commonly referred to as the Carlin Vanadium/Black Kettle Property (the “Carlin Vanadium Property”).

Under the terms of the Carlin Vanadium Agreement, Optionee can acquire the Carlin Vanadium Property in consideration for the completion of a series of cash payments totaling $2,000,000, incurring expenditures of at least $475,000 on the Carlin Vanadium Property, and granting a 2% NSR to GPUS on the Carlin Vanadium Property. Upon completion of the payments, expenditures, and issuance of 2% NSR, Optionee will hold a 100% interest in the Carlin Vanadium Property.  The Optionee has the right to purchase all or half of the NSR for $4 million for the entire 2% NSR or $2 million for 1% (half the NSR).  That right expires at the end of the option period.

The payments, expenditures, and NSR grant must be completed in accordance with the following schedule:

The closing occurred on June 14, 2017 by which date GPUS had received $15,000.

Till uses the treasury stock method to calculate diluted income (loss) per share. Following the treasury stock method, the numerator for Till’s diluted income (loss) per share calculation remains unchanged from the basic income (loss) per share calculation, as the assumed exercise of Till’s stock options and warrants does not result in an adjustment to net income or loss.

Stock options to purchase 118,352 and 119,952 restricted voting shares were outstanding at September 30, 2017 and December 31, 2016, respectively. Warrants to purchase 179,500 restricted voting shares were outstanding at September 30, 2017 and December 31, 2016. Those stock options and warrants were excluded in the calculation of diluted earnings per share because the exercise prices of the options and warrants were greater than the weighted average market value of the restricted voting shares in the three and nine month periods ended September 30, 2017.

As a result of Till's decision during the third quarter of 2017 to sell Holdings, as described in Note 1, pursuant to GAAP, Holdings is required to be classified as a discontinued operation and is presented as such on Till's Statements of Income (Loss). The summary of the income and losses presented on the basis of discontinued operations is summarized as follows:

Other comprehensive income (loss) attributed to Holdings includes a change in cumulative foreign exchange translation adjustment of $148,502 and $602,242 for the three and nine months ended September 30, 2017, respectively. Other comprehensive income (loss) attributed to Holdings also includes changes in net unrealized gains and reclassification adjustment for net realized gain on available for sale investments of $(128,914) and $(329,725) for the three and nine months ended September 30, 2017, respectively.

Till operates in a single segment, that being insurance.

Till's revenue from continuing operations is attributed to the following geographical areas:

Service agreements

Till is party to service agreements with SPD whereby Till provides accounting and corporate communications services on a cost-plus recovery basis. During the three and nine month periods ended September 30, 2017 and 2016, Till charged SPD $9,000 and $27,000 for those services, respectively.

Regulatory capital

Till manages capital on an aggregate basis, as well as individually for each regulated entity. Till's insurance subsidiaries are subject to the regulatory capital requirements defined by the Bermuda Monetary Authority (“BMA”) for RRL and by the Office of Superintendent of Financial Institutions (Canada) (“OSFI”) for Omega.

Till’s objectives when managing capital consist of:

Till views capital as a scarce and strategic resource. That resource protects the financial well-being of the organization, and is also critical in enabling Till to pursue strategic business opportunities. Adequate capital also acts as a safeguard against possible unexpected losses, and as a basis for confidence in Till by shareholders, policyholders, creditors, and others. For the purpose of capital management, Till has defined capital as shareholders’ equity, excluding accumulated other comprehensive income ("AOCI"). Capital is monitored by Till's Board of Directors. Till's insurance subsidiaries are subject to minimum capital requirements that, in the case of RRL, is $1 million, and, in the case of Omega, the Minimum Capital Test ("MCT") is calculated based on guidelines established by OSFI. Those amounts are not available to satisfy liabilities of Till or other subsidiaries. Both RRL and Omega are in compliance with regulatory capital requirements.

RRL

RRL is registered under The Bermuda Insurance Act 1978 and related regulations (the “Act”) that require RRL to file a statutory financial return and maintain certain measures of solvency and liquidity. The required Minimum General Business Solvency Margin at September 30, 2017 was $1 million. The Minimum Liquidity Ratio is the ratio of the insurer’s relevant assets to its relevant liabilities. The minimum allowable ratio is 75%. RRL’s relevant assets at September 30, 2017 were $8.0 million (December 31, 2016 - $16.8 million) and 75% of its relevant liabilities as of September 30, 2017 was $141,241 (December 31, 2016 - $161,988). As of September 30, 2017, and December 31, 2016, RRL is in compliance with those requirements.

Omega

OSFI has set out expectations of a 100% MCT as the minimum and have also set out 150% MCT as the supervisory target for Canadian property and casualty insurance companies. As of September 30, 2017, Omega had total capital available of CDN$8.4 (US$6.7) million (December 31, 2016 - CDN$9.4 (US$7.0) million) and a total capital required of CDN$3.4 (US$2.7) million (December 31, 2016 - CDN$1.9 (US$1.4) million) resulting in a MCT of 252% (December 31, 2016 - 499%). As of September 30, 2017, and December 31, 2016, Omega is in compliance with OSFI's MCT requirement.

Statutory Accounting Practices for RRL and Omega.

RRL and Omega follow accounting practices prescribed or permitted by their respective regulators, Bermuda and Canada, respectively. Statutory accounting practices applicable to RRL differ from GAAP in certain areas, the most significant being that statutory accounting practices:

Till and its subsidiaries are party to various litigation-related matters in the ordinary course of our business. Till cannot estimate with certainty the ultimate legal and financial liability with respect to those pending litigation matters. However, Till believes, based on its knowledge of such matters, that Till's ultimate liability with respect to those matters will not have a material adverse effect on Till's financial position, results of operations, or cash flows.