KINGSWAY FINANCIAL SERVICES INC - FORM 10-Q/A

Attached files

file	filename
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 - KINGSWAY FINANCIAL SERVICES INC	certification322201810qa.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 - KINGSWAY FINANCIAL SERVICES INC	certification321201810qa.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14 (A) - KINGSWAY FINANCIAL SERVICES INC	certification312201810qa.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) - KINGSWAY FINANCIAL SERVICES INC	certification311201810qa.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q/A



(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2018
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _____ to _____

Commission File Number: 001-15204

Kingsway Financial Services Inc.

(Exact name of registrant as specified in its charter)

_________________________



Ontario, Canada (State or other jurisdiction of incorporation or organization)		Not Applicable (I.R.S. Employer Identification No.)

45 St. Clair Avenue West, Suite 400 Toronto, Ontario M4V 1K9

(Address of principal executive offices and zip code)

1-416-848-1171

(Registrant's telephone number, including area code)

_________________________

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( 232.405 of this chapter) during the preceding 12 months (or for such shorter period the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller Reporting Company x	Emerging Growth Company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The number of shares, including restricted common shares, outstanding of the registrant's common stock as of February 27, 2020 was 22,843,909.

EXPLANATORY NOTE

Kingsway Financial Services Inc. (the "Company" or "we," "our" or "us") is filing this Amendment No. 1 on Form 10Q/A ("Form 10Q/A") to amend its Quarterly Report on Form 10-Q, originally filed with the Securities and Exchange Commission on May 14, 2018 (the "Original Form 10-Q"), to restate its previously reported unaudited consolidated financial statements and related disclosures as of and for the three months ended March 31, 2018 and March 31, 2017.

Background of Restatement

On June 13, 2019, the Audit Committee of the Board of Directors of the Company concluded, after review and discussion with management, that the Company’s audited consolidated financial statements for the year ended December 31, 2017, and the Company’s unaudited consolidated financial statements for each of the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018 should no longer be relied upon. See the Company’s Current Report on Form 8-K filed with the SEC on June 19, 2019 for additional details. On February 26, 2020, the Audit Committee of the Board of Directors of the Company concluded, after further review and discussion with management following the completion of the Company’s audit for the year ended December 31, 2018, that the Company’s audited consolidated financial statements for the year ended December 31, 2017, and the Company’s unaudited consolidated financial statements for each of the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018 should be further restated as a result of additional error corrections identified subsequent to June 13, 2019.

The restatements reflect corrections of errors identified in connection with the preparation of the consolidated financial statements for the year ended December 31, 2018, and relate primarily to i) the reclassification of certain investments acquired from Mendota Insurance Company and Mendakota Casualty Company on October 18, 2018 from assets held for sale to equity investments, limited liability investments, limited liability investments, at fair value and other investments in the consolidated balance sheet ("Error 1"); ii) the consolidation of certain limited liability investments that had previously been accounted for under the equity method of accounting ("Error 2"); and the reclassification from cash and cash equivalents to restricted cash in the consolidated balance sheets ("Error 3"). For the three months ended March 31, 2018 and March 31, 2017, correcting these errors decreased the Company’s net loss by $0.5 million and $0.1 million, respectively.

Along with restating our financial statements for the three months ended March 31, 2018 and March 31, 2017 to correct the errors discussed above, the Company has recorded certain immaterial accounting adjustments related to the periods covered by this Form 10-Q/A. For the three months ended March 31, 2018 and March 31, 2017, recording these certain immaterial accounting adjustments increased the Company’s net loss by $0.7 million and decreased the Company's net loss by $0.2 million, respectively.

Our Original Form 10-Q for the three months ended March 31, 2018 appropriately did not reflect assets and liabilities held for sale and discontinued operations since a definitive agreement to sell our non-standard automobile insurance companies Mendota Insurance Company, Mendakota Insurance Company and Mendakota Casualty Company (collectively "Mendota") was not entered into until July 16, 2018. Certain balances and accounts in this Form 10-Q/A, however, have been recast to reflect Mendota as assets and liabilities held for sale and discontinued operations, as further described in Note 4, "Recast and Restatement of Previously Issued Financial Statements," to the unaudited consolidated interim financial statements of this Form 10-Q/A, because the comparative December 31, 2017 consolidated balance sheet, as reported in Exhibit 99.2 to the Company’s Form 8-K filed November 7, 2018, was previously adjusted to present Mendota as assets and liabilities held for sale. As such, Error 1 described above was not related to the originally filed Form 10-Q for the three months ended March 31, 2018.

In addition to these items, certain other amounts have been reclassified in the consolidated statements of operations and consolidated balance sheet to conform to current year presentation. Such reclassifications had no impact on previously reported net loss or total shareholders' equity.

Refer to Note 4, "Recast and Restatement of Previously Issued Financial Statements," to the unaudited consolidated interim financial statements of this Form 10-Q/A for more information regarding the impact of correcting these errors and recording certain immaterial accounting adjustments on the Company's consolidated financial statements.

Internal Control Over Financial Reporting

Our management has determined that there were deficiencies in our internal control over financial reporting that constitute material weaknesses at March 31, 2018. For a discussion of management’s consideration of our disclosure controls and procedures and the material weaknesses identified, see Part I, Item 4 included in this Form 10-Q/A.

Items Amended in the Form 10-Q/A

The following items included in the Original Form 10-Q are amended by this Form 10-Q/A:


•	Part I, Item 1 - Financial Statements;


•	Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations;


•	Part I, Item 3 - Quantitative and Qualitative Disclosures about Market Risk;


•	Part I, Item 4 - Controls and Procedures; and


•	Part II, Item 1A - Risk Factors

This report on Form 10-Q/A is presented as of the filing date of the Original Form 10-Q and does not reflect events occurring after that date, or modify or update the information contained therein other than as required to correct the errors and record the adjustments described above and to classify Mendota Insurance Company, Mendakota Insurance Company and Mendakota Casualty Company as discontinued operations. Accordingly, this Form 10-Q/A should be read in conjunction with the Company’s filings with the SEC subsequent to the filing of the Original Form 10-Q.

As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by the Company’s principal executive officer and principal financial officer are filed as exhibits 31.1, 31.2, 32.1 and 32.2 to this Form 10-Q/A.



KINGSWAY FINANCIAL SERVICES INC.



Table Of Contents
PART I - FINANCIAL INFORMATION		3
ITEM 1. FINANCIAL STATEMENTS		3
Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 (unaudited)		3
Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017 (unaudited)		4
Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2018 and 2017 (unaudited)		5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (unaudited)		6
Notes to Consolidated Financial Statements (unaudited)		7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		44
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		58
ITEM 4. CONTROLS AND PROCEDURES		60
PART II - OTHER INFORMATION		61
ITEM 1. LEGAL PROCEEDINGS		61
ITEM 1A. RISK FACTORS		62
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		62
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		62
ITEM 4. MINE SAFETY DISCLOSURES		62
ITEM 5. OTHER INFORMATION		62
ITEM 6. EXHIBITS		63
SIGNATURES		64



	2



KINGSWAY FINANCIAL SERVICES INC.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets

(in thousands, except share data)

(Unaudited)



	March 31, 2018			December 31, 2017
	(restated)			(restated)
Assets
Investments:
Fixed maturities, at fair value (amortized cost of $12,930 and $14,707, respectively)	$	12,687		$	14,541
Equity investments, at fair value (cost of $2,349 and $4,868, respectively)	2,855			4,589
Limited liability investments	9,095			9,094
Limited liability investments, at fair value	31,508			32,211
Investments in private companies, at adjusted cost	4,829			4,870
Real estate investments, at fair value (cost $10,225 and $10,225, respectively)	10,662			10,662
Other investments, at cost which approximates fair value	3,316			3,721
Short-term investments, at cost which approximates fair value	151			151
Total investments	75,103			79,839
Cash and cash equivalents	11,863			5,377
Restricted cash	12,471			14,985
Investment in investee	5,331			5,230
Accrued investment income	346			507
Service fee receivable, net of allowance for doubtful accounts of $422 and $318, respectively	5,766			4,431
Other receivables, net of allowance for doubtful accounts of zero and zero, respectively	8,489			7,247
Deferred acquisition costs, net	6,428			6,325
Property and equipment, net of accumulated depreciation of $12,767 and $11,683, respectively	106,975			108,008
Goodwill	80,843			80,843
Intangible assets, net of accumulated amortization of $8,473 and $8,218, respectively	79,191			79,446
Other assets	4,330			4,302
Assets held for sale	118,880			110,145
Total Assets	$	516,016		$	506,685
Liabilities and Shareholders' Equity
Liabilities:
Accrued expenses and other liabilities	10,778			10,359
Income taxes payable	2,876			2,644
Deferred service fees	43,582			41,113
Unpaid loss and loss adjustment expenses	1,423			1,329
Bank loan	4,667			4,917
Notes payable	202,608			203,648
Subordinated debt, at fair value	53,458			52,105
Net deferred income tax liabilities	28,786			28,763
Liabilities held for sale	114,888			105,900
Total Liabilities	463,066			450,778

Redeemable Class A preferred stock, no par value; unlimited number authorized; 222,876 and 222,876 issued and outstanding at March 31, 2018 and December 31, 2017, respectively; redemption amount of $7,311 and $7,182 at March 31, 2018 and December 31, 2017, respectively	5,433			5,180

Shareholders' Equity:
Common stock, no par value; unlimited number authorized; 21,708,190 and 21,708,190 issued and outstanding at March 31, 2018 and December 31, 2017, respectively	—			—
Additional paid-in capital	356,211			356,171
Accumulated deficit	(354,669		)	(310,953		)
Accumulated other comprehensive income (loss)	35,844			(3,852		)
Shareholders' equity attributable to common shareholders	37,386			41,366
Noncontrolling interests in consolidated subsidiaries	10,131			9,361
Total Shareholders' Equity	47,517			50,727
Total Liabilities, Class A preferred stock and Shareholders' Equity	$	516,016		$	506,685

See accompanying notes to unaudited consolidated financial statements.



	3



KINGSWAY FINANCIAL SERVICES INC.

Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)



		Three months ended March 31,
		2018			2017
		(restated)			(restated)
Revenues:
Service fee and commission income		9,651			6,655
Rental income		3,348			3,347
Other income		213			297
Total revenues		13,212			10,299
Operating expenses:
Claims authorized on vehicle service agreements		1,372			1,361
Loss and loss adjustment expenses		346			—
Commissions		913			795
Cost of services sold		2,252			1,304
General and administrative expenses		7,476			5,986
Leased real estate segment interest expense		1,552			1,574
Total operating expenses		13,911			11,020
Operating loss		(699		)	(721		)
Other revenues (expenses), net:
Net investment income		638			1,168
Net realized gains	13	265			—
Gain on change in fair value of equity investments	1,176	1,165			—
(Loss) gain on change in fair value of limited liability investments, at fair value		(936		)	54
Net change in unrealized gain on private company investments		—			247
Non-operating other income		7			13
Interest expense not allocated to segments		(1,717		)	(1,499		)
Amortization of intangible assets		(255		)	(274		)
Loss on change in fair value of debt		(919		)	(1,889		)
Equity in net income of investee		101			2,385
Total other (expenses) revenues, net		(1,651		)	205
Loss from continuing operations before income tax expense		(2,350		)	(516		)
Income tax expense		254			269
Loss from continuing operations		(2,604		)	(785		)
Income (loss) from discontinued operations, net of taxes		386			(455		)
Net loss		(2,218		)	(1,240		)
Less: net income attributable to noncontrolling interests in consolidated subsidiaries		359			199
Less: dividends on preferred stock, net of tax		253			302
Net loss attributable to common shareholders		$	(2,830	)	$	(1,741	)
Loss per share - continuing operations:
Basic:		$	(0.15	)	$	(0.06	)
Diluted:		$	(0.15	)	$	(0.06	)
Earnings (loss) per share - discontinued operations:
Basic:		$	0.02		$	(0.02	)
Diluted:		$	0.02		$	(0.02	)
Loss per share – net loss attributable to common shareholders:
Basic:		$	(0.13	)	$	(0.08	)
Diluted:		$	(0.13	)	$	(0.08	)
Weighted-average shares outstanding (in ‘000s):
Basic:		21,708			21,458
Diluted:		21,708			21,458

See accompanying notes to unaudited consolidated financial statements.



	4



KINGSWAY FINANCIAL SERVICES INC.

Consolidated Statements of Comprehensive Loss

(in thousands)

(Unaudited)



	Three months ended March 31,
	2018			2017
	(restated)			(restated)

Net loss	$	(2,218	)	$	(1,240	)
Other comprehensive loss, net of taxes⁽¹⁾:
Unrealized losses on available-for-sale investments:
Unrealized losses arising during the period	(365		)	(163		)
Reclassification adjustment for amounts included in net loss	(7		)	(507		)
Change in fair value of debt attributable to instrument-specific credit risk	(434		)	—
Other comprehensive loss	(806		)	(670		)
Comprehensive loss	(3,024		)	(1,910		)
Less: comprehensive income attributable to noncontrolling interests in consolidated subsidiaries	353			201
Comprehensive loss attributable to common shareholders	$	(3,377	)	$	(2,111	)
(1) Net of income tax expense of $0 and $0 for the three months ended March 31, 2018 and March 31, 2017, respectively.

See accompanying notes to unaudited consolidated financial statements



	5



KINGSWAY FINANCIAL SERVICES INC.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



	Three months ended March 31,
	2018			2017
	(restated)			(restated)
Cash provided by (used in):
Operating activities:
Net loss	$	(2,218	)	$	(1,240	)
Adjustments to reconcile net loss to net cash used in operating activities:
(Income) loss from discontinued operations, net of taxes	(386		)	455
Equity in net income of investee	(101		)	(2,385		)
Equity in net loss (income) of limited liability investments	8			(235		)
Depreciation and amortization expense	1,341			1,393
Stock-based compensation expense, net of forfeitures	292			292
Net realized gains	(265		)	—
Gain on change in fair value of equity investments	(1,165		)	—
Loss (gain) on change in fair value of limited liability investments, at fair value	936			(54		)
Net change in unrealized gain on private company investments	—			(247		)
Loss on change in fair value of debt	919			1,889
Deferred income taxes	23			(49		)
Amortization of fixed maturities premiums and discounts	17			22
Amortization of note payable premium	(237		)	(242		)
Changes in operating assets and liabilities:
Service fee receivable, net	(1,335		)	(239		)
Other receivables, net	(1,242		)	(1,235		)
Deferred acquisition costs, net	(103		)	(41		)
Unpaid loss and loss adjustment expenses	94			(288		)
Deferred service fees	2,469			149
Other, net	1,182			(879		)
Cash provided by (used in) operating activities - continuing operations	229			(2,934		)
Cash used in operating activities - discontinued operations	(1,821		)	(4,923		)
Net cash used in operating activities	(1,592		)	(7,857		)
Investing activities:
Proceeds from sales and maturities of fixed maturities	3,658			68
Proceeds from sales of equity investments	3,633			—
Purchases of fixed maturities	(1,885		)	(192		)
Purchases of equity investments	(744		)	(670		)
Net acquisitions of limited liability investments	(8		)	—
Net purchases of limited liability investments, at fair value	(251		)	(69		)
Net proceeds from (purchases of) investments in private companies	41			(150		)
Net proceeds from other investments	405			600
Net proceeds from short-term investments	—			250
Net purchases of property and equipment	(53		)	(6		)
Cash provided by (used in) investing activities - continuing operations	4,796			(169		)
Cash provided by investing activities - discontinued operations	1,299			5,763
Net cash provided by investing activities	6,095			5,594
Financing activities:
Principal payments on bank loan	(250		)	—
Principal payments on note payable	(803		)	(715		)
Cash used in financing activities - continuing operations	(1,053		)	(715		)
Cash used in financing activities - discontinued operations	—			—
Net cash used in financing activities	(1,053		)	(715		)
Net increase (decrease) in cash and cash equivalents and restricted cash from continuing operations	3,972			(3,818		)
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	$	24,334		$	27,663

See accompanying notes to unaudited consolidated financial statements.



	6



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

NOTE 1 BUSINESS

Kingsway Financial Services Inc. (the "Company" or "Kingsway") was incorporated under the Business Corporations Act (Ontario) on September 19, 1989. Kingsway is a Canadian holding company with operating subsidiaries located in the United States. The Company operates as a merchant bank with a focus on long-term value-creation. The Company owns or controls subsidiaries primarily in the insurance, extended warranty, asset management and real estate industries and pursues non-control investments and other opportunities acting as an advisor, an investor and a financier.

NOTE 2 BASIS OF PRESENTATION

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements of the Company. In the opinion of management, all adjustments necessary for a fair presentation have been included and are of a normal recurring nature. Interim results are not necessarily indicative of the results that may be expected for the year.

As further discussed in Note 6, "Acquisition and Discontinued Operations," on October 18, 2018, the Company completed the previously announced sale of its non-standard automobile insurance companies Mendota Insurance Company, Mendakota Insurance Company and Mendakota Casualty Company (collectively "Mendota"). As a result, Mendota has been classified as discontinued operations and the results of their operations are reported separately for all periods presented.

Certain prior year amounts have been reclassified to conform to current year presentation. Such reclassifications had no impact on previously reported net loss or total shareholders' equity.

The accompanying unaudited consolidated interim financial statements and footnotes should be read in conjunction with the audited consolidated financial statements and footnotes included within our Annual Report on Form 10-K ("2017 Annual Report") for the year ended December 31, 2017, as well as our 2018 Form 10-K ("2018 Annual Report") for the year ended December 31, 2018.

The unaudited consolidated interim financial statements include the accounts of the Company and its subsidiaries, as well as certain variable interest entities as further described in Note 7, "Variable Interest Entities, to the consolidated financial statements in the 2018 Annual Report. All material intercompany transactions and balances have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Estimates and their underlying assumptions are reviewed on an ongoing basis. Changes in estimates are recorded in the accounting period in which they are determined. The critical accounting estimates and assumptions in the accompanying unaudited consolidated interim financial statements include the provision for unpaid loss and loss adjustment expenses; valuation of fixed maturities and equity investments; impairment assessment of investments; valuation of limited liability investments, at fair value; valuation of real estate investments; valuation of deferred income taxes; valuation of mandatorily redeemable preferred stock; valuation and impairment assessment of intangible assets; goodwill recoverability; deferred acquisition costs; fair value assumptions for performance shares; fair value assumptions for subordinated debt obligations; and revenue recognition.

The fair values of the Company's investments in fixed maturities and equity investments, limited liability investments, at fair value, real estate investments, performance shares and subordinated debt are estimated using a fair value hierarchy to categorize the inputs it uses in valuation techniques. The fair value of the Company's investment in investee is based on quoted market prices. Fair values for other investments approximate their unpaid principal balance. The carrying amounts reported in the consolidated balance sheets approximate fair values for cash and cash equivalents, restricted cash, short-term investments and certain other assets and other liabilities because of their short-term nature.

The Company's financial results contained herein are reported in U.S. dollars unless otherwise indicated.

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes to our significant accounting policies as reported in our 2017 Annual Report.



	7



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

NOTE 4 RECAST AND RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company has restated its previously reported unaudited consolidated financial statements for the three months ended March 31, 2018 and March 31, 2017. The restatements reflect corrections of errors identified in connection with the preparation of the consolidated financial statements for the year ended December 31, 2018, and relate primarily to i) the reclassification of certain investments acquired from Mendota Insurance Company and Mendakota Casualty Company on October 18, 2018 from assets held for sale to equity investments, limited liability investments, limited liability investments, at fair value and other investments in the consolidated balance sheet ("Error 1"); ii) the consolidation of certain limited liability investments that had previously been accounted for under the equity method of accounting ("Error 2"); and the reclassification from cash and cash equivalents to restricted cash in the consolidated balance sheets ("Error 3"). For the three months ended March 31, 2018 and March 31, 2017, correcting these errors decreased the Company’s net loss by $0.5 million and $0.1 million, respectively.

Our Original Form 10-Q for the three months ended March 31, 2018 appropriately did not reflect assets and liabilities held for sale and discontinued operations since a definitive agreement to sell our non-standard automobile insurance companies Mendota was not entered into until July 16, 2018. Certain balances and accounts in this Form 10-Q/A, however, have been recast to reflect Mendota as assets and liabilities held for sale and discontinued operations, as further shown in the tables below, because the comparative December 31, 2017 consolidated balance sheet, as reported in Exhibit 99.2 to the Company’s Form 8-K filed November 7, 2018, was previously adjusted to present Mendota as assets and liabilities held for sale. As such, Error 1 described above was not related to the originally filed Form 10-Q for the three months ended March 31, 2018.



	8



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

The following table presents the recast of Mendota to discontinued operations and the effects of the error corrections, immaterial accounting adjustments and reclassifications on the Company’s consolidated balance sheet at March 31, 2018:



(in thousands)																March 31, 2018
	As Previously Reported on Form 10-Q filed May 14, 2018			Recasting of Mendota to Discontinued Operations			As Recast			Correction of Error 2			Correction of Error 3			Immaterial Accounting Adjustments and Reclassifications				As Restated
Assets:
Investments:
Fixed maturities, at fair value	$	50,499		$	(37,812	)	$	12,687		$	—		$	—		$	—			$	12,687
Equity investments, at fair value	6,472			(3,617		)	2,855			—			—			—				2,855
Limited liability investments	25,749			—			25,749			(15,837		)	—			(817		)	(a), (b)	9,095
Limited liability investments, at fair value	8,925			—			8,925			22,583			—			—				31,508
Investments in private companies, at fair value	—			—			—			4,020			—			809			(a)	4,829
Real estate investments, at fair value	—			—			—			10,662			—			—				10,662
Other investments, at cost which approximates fair value	3,316			—			3,316			—			—			—				3,316
Short-term investments, at cost which approximates fair value	151			—			151			—			—			—				151
Total investments	95,112			(41,429		)	53,683			21,428			—			(8		)		75,103
Cash and cash equivalents	47,197			(22,990		)	24,207			1,061			(12,471		)	(934		)	(c)	11,863
Restricted cash	—			—			—			—			12,471			—				12,471
Investment in investee	5,331			—			5,331			—			—			—				5,331
Accrued investment income	358			(198		)	160			186			—			—				346
Premium receivable	31,428			(31,428		)	—			—			—			—				—
Service fee receivable	5,707			—			5,707			—			—			59			(d)	5,766
Other receivables	7,398			(1		)	7,397			(50		)	—			1,142			(c)	8,489
Deferred acquisition costs, net	10,646			(4,218		)	6,428			—			—			—				6,428
Property and equipment	107,166			(191		)	106,975			—			—			—				106,975
Goodwill	80,112			—			80,112			—			—			731			(e)	80,843
Intangible assets	87,343			(7,553		)	79,790			—			—			(599		)	(e)	79,191
Other assets	15,202			(10,872		)	4,330			—			—			—				4,330
Assets held for sale	—			118,880			118,880			—			—			—				118,880
Total Assets	$	493,000		$	—		$	493,000		$	22,625		$	—		$	391			$	516,016
Liabilities and Shareholders' Equity

Liabilities:
Accrued expenses and other liabilities	$	24,135		$	(13,146	)	$	10,989		$	436		$	—		$	(647	)	(a), (c), (d), (f), (g)	$	10,778
Income taxes payable	2,876			—			2,876			—			—			—				2,876
Deferred service fees	41,072			—			41,072			—			—			2,510			(a), (c), (h)	43,582
Unpaid loss and loss adjustment expenses	64,341			(60,235		)	4,106			—			—			(2,683		)	(a)	1,423
Unearned premiums	39,921			(39,921		)	—			—			—			—				—
Bank loan	4,667			—			4,667			—			—			—				4,667
Notes payable	185,530			—			185,530			17,078			—			—				202,608
Subordinated debt, at fair value	53,458			—			53,458			—			—			—				53,458
Net deferred income tax liabilities	30,352			(1,586		)	28,766			—			—			20			(e)	28,786
Liabilities held for sale	—			114,888			114,888			—			—			—				114,888
Total Liabilities	446,352			—			446,352			17,514			—			(800		)		463,066

Redeemable Class A preferred stock	5,469			—			5,469			—			—			(36		)	(f)	5,433

Shareholders' Equity:
Common stock	—			—			—			—			—			—				—
Additional paid-in capital	356,313			—			356,313			—			—			(102		)	(f)	356,211
Accumulated deficit	(356,273		)	—			(356,273		)	230			—			1,374			(b), (d), (e), (f), (g), (h)	(354,669		)



	9



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018



Accumulated other comprehensive income (loss)	35,844		—		35,844		—		—		—				35,844
Shareholders' equity attributable to common shareholders	35,884		—		35,884		230		—		1,272				37,386
Noncontrolling interests in consolidated subsidiaries	5,295		—		5,295		4,881		—		(45		)	(d), (h)	10,131
Total Shareholders' Equity	41,179		—		41,179		5,111		—		1,227				47,517
Total Liabilities, Class A preferred stock and Shareholders' Equity	$	493,000	$	—	$	493,000	$	22,625	$	—	$	391			$	516,016



	10



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

The following table presents the effects of the error corrections, immaterial accounting adjustments and reclassifications on the Company’s consolidated balance sheet at December 31, 2017:



(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		)	(c)	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			(d)	4,431
Other receivables	6,536			—			(48		)	—			759			(c)	7,247
Deferred acquisition costs, net	6,325			—			—			—			—				6,325
Property and equipment	108,008			—			—			—			—				108,008
Goodwill	80,112			—			—			—			731			(e)	80,843
Intangible assets	80,062			—			—			—			(616		)	(e)	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	)	(c), (d), (f), (g)	$	10,359
Income taxes payable	2,644			—			—			—			—				2,644
Deferred service fees	42,257			—			—			—			(1,144		)	(c), (h)	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			(e)	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		)	(f)	5,180

Shareholders' Equity:
Common stock	—			—			—			—			—				—
Additional paid-in capital	356,021			—			—			—			150			(f)	356,171
Accumulated deficit	(313,487		)	—			(51		)	—			2,585			(d), (e), (f), (g), (h)	(310,953		)
Accumulated other comprehensive loss	(3,852		)	—			—			—			—				(3,852		)
Shareholders' equity attributable to common shareholders	38,682			—			(51		)	—			2,735				41,366
Noncontrolling interests in consolidated subsidiaries	5,167			—			4,228			—			(34		)	(d), (h)	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



	11



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

The following table presents the the recast of Mendota to discontinued operations and the effects of the error corrections, immaterial accounting adjustments and reclassifications on the Company’s consolidated statement of operations for the three months ended March 31, 2018:



(in thousands)													Three months ended March 31, 2018
	As Previously Reported on Form 10-Q filed May 14, 2018			Recasting of Mendota to Discontinued Operations			As Recast			Correction of Error 2			Correction of Error 3		Immaterial Accounting Adjustments and Reclassifications				As Restated

Revenues:
Net premiums earned	$	28,636		$	(28,636	)	$	—		$	—		$	—	$	—			$	—
Service fee and commission income	10,557			—			10,557			—			—		(906		)	(a),(c), (h)	9,651
Rental income	3,348			—			3,348			—			—		—				3,348
Other income	213			—			213			—			—		—				213
Total revenues	42,754			(28,636		)	14,118			—			—		(906		)		13,212
Operating expenses:
Claims authorized on vehicle service agreements	—			—			—			—			—		1,372			(a)	1,372
Loss and loss adjustment expenses	24,422			(22,801		)	1,621			—			—		(1,275		)	(a)	346
Commissions and premium taxes	5,443			(4,163		)	1,280			—			—		(367		)	(c)	913
Cost of services sold	2,252			—			2,252			—			—		—				2,252
General and administrative expenses	11,337			(3,954		)	7,383			12			—		81			(d), (f)	7,476
Leased real estate segment interest expense	1,552			—			1,552			—			—		—				1,552
Total operating expenses	45,006			(30,918		)	14,088			12			—		(189		)		13,911
Operating loss	(2,252		)	2,282			30			(12		)	—		(717		)		(699		)
Other revenues (expenses), net:
Net investment (loss) income	(682		)	(226		)	(908		)	166			—		1,380			(a),(b)	638
Net realized gains	13			—			13			252			—		—				265
Gain on change in fair value of equity investments	1,176			(11		)	1,165			—			—		—				1,165
Gain (loss) on change in fair value of limited liability investments, at fair value	—			—			—			453			—		(1,389		)	(a)	(936		)
Non-operating other income	2,445			(2,431		)	14			(17		)	—		10			(g)	7
Interest expense not allocated to segments	(1,386		)	—			(1,386		)	(331		)	—		—				(1,717		)
Amortization of intangible assets	(272		)	—			(272		)	—			—		17			(e)	(255		)
Loss on change in fair value of debt	(919		)	—			(919		)	—			—		—				(919		)
Equity in net income of investee	101			—			101			—			—		—				101
Total other revenues (expenses), net	476			(2,668		)	(2,192		)	523			—		18				(1,651		)
(Loss) income from continuing operations before income tax expense	(1,776		)	(386		)	(2,162		)	511			—		(699		)		(2,350		)
Income tax expense	251			—			251			—			—		3			(e)	254
(Loss) income from continuing operations	(2,027		)	(386		)	(2,413		)	511			—		(702		)		(2,604		)
Income from discontinued operations, net of taxes	—			386			386			—			—		—				386
Net (loss) income	(2,027		)	—			(2,027		)	511			—		(702		)		(2,218		)
Less: net income (loss) attributable to noncontrolling interests in consolidated subsidiaries	135			—			135			230			—		(6		)	(h)	359
Less: dividends on preferred stock, net of tax	129			—			129			—			—		124			(f)	253
Net (loss) income attributable to common shareholders	$	(2,291	)	$	—		$	(2,291	)	$	281		$	—	$	(820	)		$	(2,830	)
(Loss) earnings per share - continuing operations:
Basic:	$	(0.11	)	$	(0.01	)	$	(0.12	)	$	0.01		$	—	$	(0.04	)		$	(0.15	)
Diluted:	$	(0.11	)	$	(0.01	)	$	(0.12	)	$	0.01		$	—	$	(0.04	)		$	(0.15	)
Earnings per share - discontinued operations:
Basic:	$	—		$	0.02		$	0.02		$	—		$	—	$	—			$	0.02
Diluted:	$	—		$	0.02		$	0.02		$	—		$	—	$	—			$	0.02
(Loss) earnings per share – net (loss) income attributable to common shareholders:
Basic:	$	(0.11	)	$	—		$	(0.11	)	$	0.01		$	—	$	(0.03	)		$	(0.13	)
Diluted:	$	(0.11	)	$	—		$	(0.11	)	$	0.01		$	—	$	(0.03	)		$	(0.13	)
Weighted average shares outstanding (in ‘000s):
Basic:	21,708			—			21,708			—			—		—				21,708
Diluted:	21,708			—			21,708			—			—		—				21,708



	12



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018



(in thousands)															Three months ended March 31, 2017
	As Previously Reported on Form 10-Q filed May 14, 2018			Recasting of Mendota to Discontinued Operations			As Recast					Correction of Error 2			Correction of Error 3		Immaterial Accounting Adjustments and Reclassifications				As Restated

Revenues:
Net premiums earned	$	32,922		$	(32,922	)	$	—				$	—		$	—	$	—			$	—
Service fee and commission income	6,562			—			6,562					—			—		93			(a), (c), (h)	6,655
Rental income	3,347			—			3,347					—			—		—				3,347
Other income	297			—			297					—			—		—				297
Total revenues	43,128			(32,922		)	10,206					—			—		93				10,299
Operating expenses:
Claims authorized on vehicle service agreements	—			—			—					—			—		1,361			(a)	1,361
Loss and loss adjustment expenses	26,410			(25,191		)	1,219					—			—		(1,219		)	(a)	—
Commissions and premium taxes	6,278			(5,283		)	995					—			—		(200		)	(c)	795
Cost of services sold	1,304			—			1,304					—			—		—				1,304
General and administrative expenses	11,272			(5,545		)	5,727					267			—		(8		)	(f)	5,986
Leased real estate segment interest expense	1,574			—			1,574					—			—		—				1,574
Impairment of intangible assets	250			(250		)	—					—			—		—				—
Total operating expenses	47,088			(36,269		)	10,819					267			—		(66		)		11,020
Operating loss	(3,960		)	3,347			(613		)			(267		)	—		159				(721		)
Other revenues (expenses), net:
Net investment income	714			58			772					29			—		367			(a)	1,168
Net realized gains	398			(398		)	—					—			—		—				—
Gain (loss) on change in fair value of limited liability investments, at fair value	—			—			—					421			—		(367		)	(a)	54
Net change in unrealized loss on private company investments	—			—			—					247			—		—				247
Non-operating other income	2,497			(2,466		)	31					(18		)	—		—				13
Interest expense not allocated to segments	(1,159		)	—			(1,159		)			(340		)	—		—				(1,499		)
Amortization of intangible assets	(291		)	—			(291		)			—			—		17			(e)	(274		)
Loss on change in fair value of debt	(1,889		)	—			(1,889		)			—			—		—				(1,889		)
Equity in net income of investee	2,385			—			2,385					—			—		—				2,385
Total other revenues (expenses), net	2,655			(2,806		)	(151		)			339			—		17				205
(Loss) income from continuing operations before income tax expense	(1,305		)	541			(764		)			72			—		176				(516		)
Income tax expense	179			86			265					—			—		4			(e)	269
(Loss) income from continuing operations	(1,484		)	455			(1,029		)			72			—		172				(785		)
Income from discontinued operations, net of taxes	—			(455		)	(455		)			—			—		—				(455		)
Net (loss) income	(1,484		)	—			(1,484		)			72			—		172				(1,240		)
Less: net income (loss) attributable to noncontrolling interests in consolidated subsidiaries	105			—			105					77			—		17			(h)	199
Less: dividends on preferred stock, net of tax	174			—			174					—			—		128			(f)	302
Net (loss) income attributable to common shareholders	$	(1,763	)	$	—		$	(1,763	)	$	—	$	(5	)	$	—	$	27			$	(1,741	)
(Loss) earnings per share - continuing operations:
Basic:	$	(0.08	)	$	0.02		$	(0.06	)			$	—		$	—	$	—			$	(0.06	)
Diluted:	$	(0.08	)	$	0.02		$	(0.06	)			$	—		$	—	$	—			$	(0.06	)
Earnings per share - discontinued operations:
Basic:	$	—		$	(0.02	)	$	(0.02	)			$	—		$	—	$	—			$	(0.02	)
Diluted:	$	—		$	(0.02	)	$	(0.02	)			$	—		$	—	$	—			$	(0.02	)
(Loss) earnings per share – net (loss) income attributable to common shareholders:
Basic:	$	(0.08	)	$	—		$	(0.08	)			$	—		$	—	$	—			$	(0.08	)
Diluted:	$	(0.08	)	$	—		$	(0.08	)			$	—		$	—	$	—			$	(0.08	)
Weighted average shares outstanding (in ‘000s):
Basic:	21,458			—			21,458					—			—		—				21,458
Diluted:	21,458			—			21,458					—			—		—				21,458



	13



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018



	Three months ended March 31, 2018
	As Previously Reported			Recasting of Mendota to Discontinued Operations			As Recast			Correction of Error 2			Correction of Error 3		Immaterial Accounting Adjustments and Reclassifications				As Restated
Cash provided by (used in):
Operating activities:
Net (loss) income	$	(2,027	)	$	—		$	(2,027	)	$	511		$	—	$	(702	)	(b), (d), (e), (f), (g), (h)	$	(2,218	)
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Income from discontinued operations, net of taxes	—			(386		)	(386		)	—			—		—				(386		)
Equity in net income of investee	(101		)	—			(101		)	—			—		—				(101		)
Equity in net (income) loss of limited liability investments	(283		)	—			(283		)	282			—		9			(b)	8
Loss on change in fair value of limited liability investment	1,389			—			1,389			—			—		(1,389		)	(a)	—
Depreciation and amortization expense	1,388			(30		)	1,358			—			—		(17		)	(e)	1,341
Stock-based compensation expense, net of forfeitures	292			—			292			—			—		—				292
Net realized gains	(13		)	—			(13		)	(252		)	—		—				(265		)
Gain on change in fair value of equity investments	(1,176		)	11			(1,165		)	—			—		—				(1,165		)
Loss on change in fair value of limited liability investments, at fair value	—			—			—			(453		)	—		1,389			(a)	936
Loss on change in fair value of debt	919			—			919			—			—		—				919
Deferred income taxes	21			(1		)	20			—			—		3			(e)	23
Amortization of fixed maturities premiums and discounts	45			(28		)	17			—			—		—				17
Amortization of note payable premium	(237		)	—			(237		)	—			—		—				(237		)
Changes in operating assets and liabilities:
Premiums and service fee receivable, net	(4,994		)	3,573			(1,421		)	—			—		86			(d)	(1,335		)
Other receivables, net	(259		)	(602		)	(861		)	2			—		(383		)	(c)	(1,242		)
Deferred acquisition costs, net	2,399			(2,502		)	(103		)	—			—		—				(103		)
Unpaid loss and loss adjustment expenses	(2,090		)	2,088			(2		)	—			—		96			(a)	94
Unearned premiums	3,235			(3,235		)	—			—			—		—				—
Deferred service fees	1,331			—			1,331			—			—		1,138			(a), (c) (h)	2,469
Other, net	(1,441		)	2,933			1,492			686			—		(996		)	(a), (c), (d), (f), (g)	1,182
Cash (used in) provided by operating activities - continuing operations	(1,602		)	1,821			219			776			—		(766		)		229
Cash used in operating activities - discontinued operations	—			(1,821		)	(1,821		)	—			—		—				(1,821		)
Net cash used in operating activities	(1,602		)	—			(1,602		)	776			—		(766		)		(1,592		)
Investing activities:
Proceeds from sales and maturities of fixed maturities	1,608			(950		)	658			—			—		3,000			(c)	3,658
Proceeds from sales of equity investments	6,840			(762		)	6,078			—			—		(2,445		)	(a), (c)	3,633
Purchases of fixed maturities	(2,299		)	414			(1,885		)	—			—		—				(1,885		)
Purchases of equity investments	(744		)	—			(744		)	—			—		—				(744		)
Net acquisitions of limited liability investments	(293		)	—			(293		)	285			—		—				(8		)
Net purchases of limited liability investments, at fair value	—			—			—			(251		)	—		—				(251		)
Net proceeds from investments in private companies	—			—			—			41			—		—				41
Net proceeds from other investments	405			—			405			—			—		—				405



	14



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018



Net purchases of property and equipment	(52	)	(1	)	(53	)	—		—	—			(53	)
Cash provided by investing activities - continuing operations	5,465		(1,299	)	4,166		75		—	555			4,796
Cash provided by investing activities - discontinued operations	—		1,299		1,299		—		—	—			1,299
Net cash provided by investing activities	5,465		—		5,465		75		—	555			6,095
Financing activities:
Principal payments on bank loan	(250	)	—		(250	)	—		—	—			(250	)
Principal payments on note payable	(702	)	—		(702	)	(101	)	—	—			(803	)
Cash used in financing activities - continuing operations	(952	)	—		(952	)	(101	)	—	—			(1,053	)
Cash used in financing activities - discontinued operations	—		—		—		—		—	—			—
Net cash used in financing activities	(952	)	—		(952	)	(101	)	—	—			(1,053	)
Net increase (decrease) in cash and cash equivalents and restricted cash from continuing operations	2,911		522		3,433		750		—	(211	)		3,972
Cash and cash equivalents and restricted cash at beginning of period	44,286		—		44,286		311		—	(723	)	(c)	43,874
Less: cash and cash equivalents and restricted cash of discontinued operations at beginning of period	—		23,512		23,512		—		—	—			23,512
Cash and cash equivalents and restricted cash of continuing operations at beginning of period	44,286		(23,512	)	20,774		311		—	(723	)		20,362
Cash and cash equivalents and restricted cash of continuing operations at end of period	47,197		(22,990	)	24,207		1,061		—	(934	)		24,334



	15



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018



													Three months ended March 31, 2017
	As Previously Reported			Recasting of Mendota to Discontinued Operations			As Recast			Correction of Error 2			Correction of Error 3		Immaterial Accounting Adjustments and Reclassifications				As Restated
Cash provided by (used in):
Operating activities:
Net (loss) income	$	(1,484	)	$	—		$	(1,484	)	$	72		$	—	$	172		(e), (f), (h)	$	(1,240	)
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Loss from discontinued operations, net of taxes	—			455			455			—			—		—				455
Equity in net income of investee	(2,385		)	—			(2,385		)	—			—		—				(2,385		)
Equity in net income of limited liability investments	(300		)	—			(300		)	65			—		—				(235		)
Loss on change in fair value of limited liability investment	367			—			367			—			—		(367		)	(a)	—
Depreciation and amortization expense	1,440			(30		)	1,410			—			—		(17		)	(e)	1,393
Stock-based compensation expense, net of forfeitures	292			—			292			—			—		—				292
Net realized gains	(398		)	398			—			—			—		—				—
Gain on change in fair value of limited liability investments, at fair value	—			—			—			(421		)	—		367			(a)	(54		)
Net change in unrealized gain on private company investments	—			—			—			(247		)	—		—				(247		)
Loss on change in fair value of debt	1,889			—			1,889			—			—		—				1,889
Deferred income taxes	(53		)	—			(53		)	—			—		4			(e)	(49		)
Intangible asset impairment	250			(250		)	—			—			—		—				—
Amortization of fixed maturities premiums and discounts	58			(36		)	22			—			—		—				22
Amortization of note payable premium	(242		)	—			(242		)	—			—		—				(242		)
Changes in operating assets and liabilities:
Premiums and service fee receivable, net	(2,236		)	1,997			(239		)	—			—		—				(239		)
Other receivables, net	(2,322		)	1,250			(1,072		)	8			—		(171		)	(c)	(1,235		)
Deferred acquisition costs, net	(504		)	463			(41		)	—			—		—				(41		)
Unpaid loss and loss adjustment expenses	(5,736		)	5,306			(430		)	—			—		142			(a)	(288		)
Unearned premiums	3,865			(3,865		)	—			—			—		—				—
Deferred service fees	130			—			130			—			—		19			(a), (c) (h)	149
Other, net	(463		)	(765		)	(1,228		)	590			—		(241		)	(a), (c), (f), (g), (h)	(879		)
Cash used in operating activities - continuing operations	(7,832		)	4,923			(2,909		)	67			—		(92		)		(2,934		)
Cash used in operating activities - discontinued operations	—			(4,923		)	(4,923		)	—			—		—				(4,923		)
Net cash used in operating activities	(7,832		)	—			(7,832		)	67			—		(92		)		(7,857		)
Investing activities:
Proceeds from sales and maturities of fixed maturities	5,898			(5,830		)	68			—			—		—				68
Proceeds from sales of equity investments	2,488			(2,488		)	—			—			—		—				—
Purchases of fixed maturities	(2,731		)	2,539			(192		)	—			—		—				(192		)
Purchases of equity investments	(675		)	5			(670		)	—			—		—				(670		)
Net acquisitions of limited liability investments	(150		)	—			(150		)	150			—		—				—
Net purchases of limited liability investments, at fair value	—			—			—			(69		)	—		—				(69		)
Net purchases of investments in private companies	—			—			—			(150		)	—		—				(150		)
Net proceeds from other investments	626			(26		)	600			—			—		—				600
Net proceeds from short-term investments	250			—			250			—			—		—				250
Net purchases of property and equipment	(43		)	37			(6		)	—			—		—				(6		)



	16



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018



Cash provided by (used in) investing activities - continuing operations	5,663		(5,763	)	(100	)	(69	)	—	—			(169	)
Cash provided by investing activities - discontinued operations	—		5,763		5,763		—		—	—			5,763
Net cash provided by investing activities	5,663		—		5,663		(69	)	—	—			5,594
Financing activities:
Principal payments on note payable	(619	)	—		(619	)	(96	)	—	—			(715	)
Cash used in financing activities - continuing operations	(619	)	—		(619	)	(96	)	—	—			(715	)
Cash used in financing activities - discontinued operations	—		—		—		—		—	—			—
Net cash used in financing activities	(619	)	—		(619	)	(96	)	—	—			(715	)
Net (decrease) increase in cash and cash equivalents and restricted cash from continuing operations	(2,788	)	(840	)	(3,628	)	(98	)	—	(92	)		(3,818	)
Cash and cash equivalents and restricted cash at beginning of period	36,475		—		36,475		325		—	(795	)	(c)	36,005
Less: cash and cash equivalents and restricted cash of discontinued operations at beginning of period	—		4,524		4,524		—		—	—			4,524
Cash and cash equivalents and restricted cash of continuing operations at beginning of period	36,475		(4,524	)	31,951		325		—	(795	)		31,481
Cash and cash equivalents and restricted cash of continuing operations at end of period	33,687		(5,364	)	28,323		227		—	(887	)		27,663


(a)	Reclassifications to conform to current presentation. Such reclassifications have no impact on previously reported net loss or total shareholders' equity.


(b)	Adjustment to record equity-pick up loss related to a limited liability investment, with a corresponding decrease to net investment income.


(c)	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.


(d)	Adjustments to Extended Warranty segment service fee receivable and accrued expenses and other liabilities, with offsetting adjustments to accrued expenses and other liabilities, general and administrative expenses and accumulated deficit.

(e)

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.

(f)

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.


(g)	Adjustment to decrease accrued expenses and other liabilities with an offsetting decrease to accumulated deficit and an offsetting increase to other income, related to escheat liability.


(h)	Adjustment to Extended Warranty deferred service fees, with an offsetting adjustment to service fee and commission income and accumulated deficit, related to revenue recognition.

NOTE 5 RECENTLY ISSUED ACCOUNTING STANDARDS

(a) Adoption of New Accounting Standards:

Effective January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), and the related amendments, utilizing the modified retrospective approach, which created a new comprehensive revenue recognition standard that serves as the single source of revenue guidance for all contracts with customers to transfer goods or services or contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Insurance contracts, lease contracts and investments are not within the scope of ASU 2014-09. ASU 2014-09 is applicable to the Company's service fee and commission income. Service fee and commission income represents vehicle service agreement fees, GAP commissions, maintenance support service fees, warranty product commissions, homebuilder warranty service fees and homebuilder warranty commissions based on terms of various agreements with credit unions, consumers, businesses and homebuilders. With the exception of GAP commissions and homebuilder warranty service fees, the adoption of ASU 2014-09



	17



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

did not change the way the Company recognized revenue for the three months ended March 31, 2018. As a result of the adoption of ASU 2014-09, the Company also recorded a cumulative effect adjustment to increase accumulated deficit by $0.6 million and increase deferred service fees by $0.6 million. Refer to Note 14, "Revenue from Contracts with Customers," for further details.

Effective January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). The amendments in ASU 2016-01 address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most significantly, ASU 2016-01 requires (1) equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of an investee) to be measured at fair value with changes in fair value recognized in net income (loss); and (2) an entity to present separately in other comprehensive income (loss) the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Previously, the Company recorded its equity investments at fair value with net unrealized gains or losses reported in accumulated other comprehensive income (loss) and recorded its subordinated debt at fair value with the total change in fair value reported in net income (loss). As a result of the adoption of ASU 2016-01, cumulative net unrealized losses on equity investments of $0.0 million were reclassified from accumulated other comprehensive income (loss) into accumulated deficit and a cumulative $40.5 million change in fair value of subordinated debt attributable to instrument-specific credit risk was reclassified from accumulated deficit to accumulated other comprehensive income (loss). Prior periods have not been restated to conform to the current presentation.

Effective January 1, 2018, the Company adopted ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). The objective of ASU 2016-15 is to reduce diversity in the classification of cash receipts and payments for specific cash flow issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination and proceeds from the settlement of insurance claims. The adoption of the standard did not affect the Company's consolidated statements of cash flows.

Effective January 1, 2018, the Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash ("ASU 2016-18"). The objective of ASU 2016-18 is to explain the change during the period in the total cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and cash equivalents should be included with the cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. As a result of the adoption of the standard, the change in restricted cash is included in the consolidated statements of cash flows.

(b) Accounting Standards Not Yet Adopted:

In February 2016, the Financial Accounting Standards Board ("FASB") FASB issued ASU 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 was issued to improve the financial reporting of leasing transactions. Under current guidance for lessees, leases are only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, are met. This update will require the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. The accounting treatment for lessors will remain relatively unchanged. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the potential effect of the adoption of ASU 2016-02 on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 replaces the current incurred loss model used to measure impairment losses with an expected loss model for trade, reinsurance, and other receivables as well as financial instruments measured at amortized cost. ASU 2016-13 will require a financial asset measured at amortized cost, including reinsurance balances recoverable, to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net loss. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses. However, the amendments would limit the amount of the allowance to the amount by which fair value is below amortized cost. The measurement of credit losses on available-for-sale investments is similar under current GAAP, but the update requires the use of the allowance account through which amounts can be reversed, rather than through an irreversible write-down. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods with early adoption



	18



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

permitted for fiscal years beginning after December 31, 2018 and interim periods within such year. The Company is currently evaluating ASU 2016-13 to determine the potential impact that adopting this standard will have on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 was issued to simplify the subsequent measurement of goodwill. This update changes the impairment test by requiring an entity to compare the fair value of a reporting unit with its carrying amount as opposed to comparing the carrying amount of goodwill with its implied fair value. ASU 2017-04 is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company does not believe the adoption of ASU 2017-04 will have a material effect on its consolidated financial statements.

NOTE 6 ACQUISITION AND DISCONTINUED OPERATIONS

(a) Acquisition

On October 12, 2017, the Company acquired 100% of the outstanding shares of Professional Warranty Service Corporation ("PWSC") for estimated cash consideration of approximately $9.9 million. The final purchase price is subject to a true-up that will be finalized in 2018. As further discussed in Note 19, "Segmented Information," PWSC is included in the Extended Warranty segment. PWSC is based in Virginia and is a leading provider of new home warranty products and administration services to the largest tier of domestic residential construction firms in the United States. This acquisition allows the Company to grow its portfolio of warranty companies and expand into the home warranty business.

The Company intends to finalize during 2018 its fair value analysis of the assets acquired and liabilities assumed. The assets acquired and liabilities assumed are recorded in the consolidated financial statements at their estimated fair market values. These estimates, allocations and calculations are subject to change as we obtain further information; therefore, the final fair market values of the assets acquired and liabilities assumed may not agree with the estimates included in the consolidated financial statements.

The following table summarizes the estimated allocation of the assets acquired and liabilities assumed at the date of acquisition:



(in thousands)
	October 12, 2017
Cash and cash equivalents	$	2,071
Other receivables	50
Service fee receivable	1,422
Property and equipment	238
Other assets	205
Goodwill	$	9,051
Total assets	$	13,037

Deferred service fees	$	800
Accrued expenses and other liabilities	2,368
Total liabilities	$	3,168

Purchase price	$	9,869



	19



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

(b) Discontinued Operations

On July 16, 2018, the Company announced it had entered into a definitive agreement to sell Mendota. On October 18, 2018, the Company completed the previously announced sale of Mendota. The final aggregate purchase price of $28.6 million was redeployed primarily to acquire equity investments, limited liability investments, limited liability investment, at fair value and other investments, which were owned by Mendota at the time of the closing, and to fund $5.0 million into an escrow account to be used to satisfy potential indemnity obligations under the definitive stock purchase agreement. As part of the transaction, the Company will indemnify the buyer for any loss and loss adjustment expenses with respect to open claims and certain specified claims in excess of Mendota's carried unpaid loss and loss adjustment expenses at June 30, 2018. The maximum obligation to the Company with respect to the open claims is $2.5 million. There is no maximum obligation to the Company with respect to the specified claims.

As a result of this announcement, Mendota, previously disclosed as part of the Insurance Underwriting segment, has been classified as a discontinued operation and the results of their operations are reported separately for all periods presented. The assets and liabilities of Mendota are presented as held for sale in the consolidated balance sheets at March 31, 2018 and December 31, 2017.

Summary financial information for Mendota included in income (loss) from discontinued operations, net of taxes in the consolidated statements of operations for the three months ended March 31, 2018 and March 31, 2017 is presented below:



(in thousands)	Three months ended March 31,
	2018			2017
Income (loss) from discontinued operations, net of taxes:
Revenues:
Net premiums earned	$	28,636		$	32,922
Total revenues	28,636			32,922
Other revenues (expenses):
Loss and loss adjustment expenses	(22,801		)	(25,191		)
Commissions and premium taxes	(4,163		)	(5,283		)
General and administrative expenses	(3,954		)	(5,545		)
Impairment of intangible assets	—			(250		)
Net investment income (loss)	226			(58		)
Net realized gains	—			398
Gain on change in fair value of equity investments	11			—
Other income	2,431			2,466
Total other revenues (expenses)	(28,250		)	(33,463		)
Income (loss) from discontinued operations before income tax benefit	386			(541		)
Income tax benefit	—			(86		)
Total income (loss) from discontinued operations, net of taxes	$	386		$	(455	)



	20



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

The assets and liabilities of Mendota are presented as held for sale in the consolidated balance sheets. The carrying amounts of the major classes of assets and liabilities of Mendota at March 31, 2018 and December 31, 2017 are as follows:



(in thousands)	March 31, 2018		December 31, 2017
Assets
Investments:
Fixed maturities, at fair value	$	37,812	$	38,673
Equity investments, at fair value	3,617		4,405
Total investments	41,429		43,078
Cash and cash equivalents	22,990		23,512
Accrued investment income	198		195
Premiums receivable, net	31,428		27,855
Other receivables	1		603
Deferred acquisition costs, net	4,218		6,720
Property and equipment, net	191		222
Intangible assets, net	7,553		7,553
Other assets	10,872		407
Assets held for sale	$	118,880	$	110,145
Liabilities
Unpaid loss and loss adjustment expenses	$	60,235	$	62,323
Unearned premiums	39,921		36,686
Net deferred income tax liabilities	1,586		1,586
Accrued expenses and other liabilities	13,146		5,305
Liabilities held for sale	$	114,888	$	105,900

NOTE 7 INVESTMENTS

The amortized cost, gross unrealized gains and losses, and estimated fair value of the Company's available-for-sale investments at March 31, 2018 and December 31, 2017 are summarized in the tables shown below:



(in thousands)	March 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. government, government agencies and authorities	$	6,454	$	—	$	76	$	6,378
States, municipalities and political subdivisions	638		—		18		620
Mortgage-backed	3,131		—		90		3,041
Corporate	2,707		—		59		2,648
Total fixed maturities	$	12,930	$	—	$	243	$	12,687



(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

Net unrealized gains and losses in the tables above are reported as other comprehensive loss with the exception of net unrealized losses of $0.1 million, at December 31, 2017, related to warrants - not publicly traded, which are reported in the consolidated statements of operations.

The table below summarizes the Company's fixed maturities at March 31, 2018 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 these obligations.



(in thousands)	March 31, 2018
	Amortized Cost		Estimated Fair Value
Due in one year or less	$	5,309	$	5,285
Due after one year through five years	6,219		6,056
Due after five years through ten years	140		134
Due after ten years	1,262		1,212
Total	$	12,930	$	12,687



	21



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

The following tables highlight the aggregate unrealized loss position, by security type, of available-for-sale investments in unrealized loss positions as of March 31, 2018 and December 31, 2017. The tables segregate the holdings based on the period of time the investments have been continuously held in unrealized loss positions.



(in thousands)									March 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	$	2,655	$	27	$	3,723	$	49	$	6,378	$	76
States, municipalities and political subdivisions	99		2		521		16		620		18
Mortgage-backed	808		13		2,233		77		3,041		90
Corporate	410		4		2,238		55		2,648		59
Total fixed maturities	$	3,972	$	46	$	8,715	$	197	$	12,687	$	243



(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

There are approximately 67 and 68 individual available-for-sale investments that were in unrealized loss positions as of March 31, 2018 and December 31, 2017, respectively.

The establishment of an other-than-temporary impairment on an investment requires a number of judgments and estimates. The Company performs a quarterly analysis of the individual investments to determine if declines in market value are other-than-temporary. The analysis includes some or all of the following procedures as deemed appropriate by the Company:


•	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;



	22



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018


•	assessing if declines in market value are other-than-temporary for debt instruments based on the investment grade credit ratings from third-party rating agencies;


•	assessing if declines in market value are other-than-temporary for any debt instrument with a non-investment grade credit rating based on the continuity of its debt service record;


•	determining the necessary provision for declines in market value that are considered other-than-temporary based on the analyses performed; and


•	assessing the Company's ability and intent to hold these investments at least until the investment impairment is recovered.

The risks and uncertainties inherent in the assessment methodology used to determine declines in market value that are other-than-temporary include, but may not be limited to, the following:


•	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 Company has reviewed currently available information regarding investments with estimated fair values less than their carrying amounts and believes these unrealized losses are not other-than-temporary and are primarily due to temporary market and sector-related factors rather than to issuer-specific factors. The Company does not intend to sell those investments, and it is not likely it will be required to sell those investments before recovery of its amortized cost.

The Company does not have any exposure to subprime mortgage-backed investments.

Limited liability investments include investments in limited liability companies and limited partnerships that primarily invest in income-producing real estate or real estate related investments. The Company's interests in these investments are not deemed minor and, therefore, are accounted for under the equity method of accounting. The most recently available financial statements are used in applying the equity method. The difference between the end of the reporting period of the limited liability entities and that of the Company is no more than three months. As of March 31, 2018 and December 31, 2017, the carrying value of limited liability investments totaled $9.1 million and $9.1 million, respectively. At March 31, 2018, the Company has unfunded commitments totaling $0.2 million to fund limited liability investments. Income or loss from limited liability investments is recognized based on the Company's share of the earnings of the limited liability entities and is included in net investment income.

Limited liability investments, at fair value represent the Company's investment in 26.7% of the outstanding units of 1347 Investors LLC ("1347 Investors") as well as the underlying investments of the Company’s consolidated entities Net Lease Investment Grade Portfolio LLC ("Net Lease") and Argo Holdings Fund I, LLC ("Argo Holdings"). As of March 31, 2018 and December 31, 2017, the carrying value of the Company's limited liability investments, at fair value was $31.5 million and $32.2 million, respectively. The Company recorded impairments related to limited liability investments, at fair value of $0.0 million and zero for the three months ended March 31, 2018 and March 31, 2017, respectively, which are included in (loss) gain on change in fair value of limited liability investments, at fair value in the consolidated statements of operations. At March 31, 2018, the Company has unfunded commitments totaling $0.8 million to fund limited liability investments, at fair value.

Investments in private companies consist of common stock, preferred stock, notes receivable and derivative contracts in privately owned companies and investments in limited liability companies in which the Company’s interests are deemed minor. The Company's investments in private companies do not have readily determinable fair values. As further discussed in Note 5, "Recently Issued Accounting Standards," effective January 1, 2018, the Company adopted ASU 2016-01. As a result of the adoption, the Company has elected to record investments in private companies at cost, adjusted for observable price changes and impairments. There were no adjustments for observable price changes related to investments in private companies during the three months ended March 31, 2018.

The Company performs a quarterly impairment analysis of its investments in private companies. The analysis includes some or all of the following procedures as deemed appropriate by the Company:


•	the opinions of external investment and portfolio managers;


•	the financial condition and prospects of the investee;



	23



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018


•	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.

As a result of the analysis performed, the Company recorded no write-downs for other-than-temporary impairments related to investments in private companies for the three months ended March 31, 2018 and March 31, 2017.

As of March 31, 2018 and December 31, 2017, the carrying value of the Company's investments in private companies totaled $4.8 million and $4.9 million, respectively.

Real estate investments are reported at fair value. As of March 31, 2018 and December 31, 2017, the carrying value of the Company's real estate investments totaled $10.7 million and $10.7 million, respectively.

Other investments include collateral loans and are reported at their unpaid principal balance. As of March 31, 2018 and December 31, 2017, the carrying value of other investments totaled $3.3 million and $3.7 million, respectively.

The Company had previously entered into two separate performance share grant agreements with 1347 Property Insurance Holdings, Inc. ("PIH"), whereby the Company will be entitled to receive up to an aggregate of 475,000 shares of PIH common stock upon achievement of certain milestones for PIH’s stock price. Pursuant to the performance share grant agreements, if at any time the last sales price of PIH’s common stock equals or exceeds: (i) $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period, the Company will receive 100,000 shares of PIH common stock; (ii) $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period, the Company will receive 125,000 shares of PIH common stock (in addition to the 100,000 shares of common stock earned pursuant to clause (i) herein); (iii) $15.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period, the Company will receive 125,000 shares of PIH common stock (in addition to the 225,000 shares of common stock earned pursuant to clauses (i) and (ii) herein); and (iv) $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period, the Company will receive 125,000 shares of PIH common stock (in addition to the 350,000 shares of common stock earned pursuant to clauses (i), (ii) and (iii) herein). To the extent shares of PIH common stock are granted to the Company under either of the performance share grant agreements, they will be recorded at the time the shares are granted and will have a valuation equal to the last sales price of PIH common stock on the day prior to such grant. During the first quarter of 2018, the Company entered into an agreement with PIH to cancel the $10.00 per share Performance Shares Grant Agreement in exchange for cash consideration of $0.3 million. For the three months ended March 31, 2018, the Company recorded a gain of $0.3 million related to this transaction which is included in gain on change in fair value of equity investments in the consolidated statements of operations. No shares were received by the Company under either of the performance share grant agreements as of March 31, 2018. Refer to Note 20, "Fair Value of Financial Instruments," for further details regarding the performance shares.

Net investment income for the three months ended March 31, 2018 and March 31, 2017 is comprised as follows:



(in thousands)	Three months ended March 31,
	2018			2017
Investment income:
Interest from fixed maturities	$	33		$	34
Dividends	74			105
(Loss) income from limited liability investments	(8		)	235
Income from limited liability investments, at fair value	219			234
Gain on change in fair value of warrants - not publicly traded	—			245
Income from real estate investments	200			200
Other	128			122
Gross investment income	646			1,175
Investment expenses	(8		)	(7		)
Net investment income	$	638		$	1,168



	24



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

Gross realized gains and losses on available-for-sale investments and limited liability investments for the three months ended March 31, 2018 and March 31, 2017 are comprised as follows:



(in thousands)	Three months ended March 31,
	2018		2017
Gross realized gains	$	265	$	—
Gross realized losses	—		—
Net realized gains	$	265	$	—

Gain on change in fair value of equity investments for the three months ended March 31, 2018 and March 31, 2017 is comprised as follows:



(in thousands)	Three months ended March 31,
	2018		2017
Net gains recognized on equity investments sold during the period	$	255	$	—
Change in unrealized gains on equity investments held at end of the period	910		—
Gain on change in fair value of equity investments	$	1,165	$	—

Short-term investments and fixed maturities with an estimated fair value of $0.2 million and $0.2 million at March 31, 2018 and December 31, 2017, respectively, were on deposit with state and provincial regulatory authorities. The Company also has restricted cash of $12.5 million and $15.0 million at March 31, 2018 and December 31, 2017, respectively. Included in restricted cash are (i) $9.7 million and $12.2 million at March 31, 2018 and December 31, 2017, respectively, held as deposits by IWS Acquisition Corporation ("IWS") and PWSC; (ii) $1.9 million and $1.9 million at March 31, 2018 and December 31, 2017, respectively, on deposit with state and provincial regulatory authorities; and (iii) $0.9 million and $0.9 million at March 31, 2018 and December 31, 2017, respectively, pledged to third-parties as deposits or to collateralize liabilities. Collateral pledging transactions are conducted under terms that are common and customary to standard collateral pledging and are subject to the Company's standard risk management controls.

NOTE 8 INVESTMENT IN INVESTEE

Investment in investee includes the Company's investment in the common stock of Itasca Capital Ltd. ("ICL") and is accounted for under the equity method. The Company's investment in ICL is recorded on a three-month lag basis. The carrying value, estimated fair value and approximate equity percentage for the Company's investment in investee at March 31, 2018 and December 31, 2017 were as follows:



(in thousands, except for percentages)
	March 31, 2018						December 31, 2017
	Equity Percentage		Estimated Fair Value		Carrying Value		Equity Percentage		Estimated Fair Value		Carrying Value
ICL	31.2	%	$	3,354	$	5,331	31.2	%	$	3,816	$	5,230

The estimated fair value of the Company's investment in ICL at March 31, 2018 in the table above is calculated based on the published closing price of ICL at December 31, 2017 to be consistent with the three-month lag in reporting its carrying value under the equity method. The estimated fair value of the Company's investment in ICL based on the published closing price of ICL at March 31, 2018 is $3.5 million.

For the three months ended March 31, 2018 and March 31, 2017, equity in net income of investee was $0.1 million and $2.4 million, respectively.

NOTE 9 DEFERRED ACQUISITION COSTS

Policy acquisition costs consist primarily of commissions and agency expenses incurred related to successful efforts to acquire vehicle service agreements. Acquisition costs deferred on vehicle service agreements are amortized over the period in which the related revenues are earned.



	25



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

The components of deferred acquisition costs and the related amortization expense as of and for the three months ended March 31, 2018 and March 31, 2017 are comprised as follows:



(in thousands)	Three months ended March 31,
	2018			2017
Beginning balance, net	$	6,325		$	5,827
Additions	1,242			986
Amortization	(1,139		)	(946		)
Balance at March 31, net	$	6,428		$	5,867

NOTE 10 INTANGIBLE ASSETS

Intangible assets at March 31, 2018 and December 31, 2017 are comprised as follows:



(in thousands)			March 31, 2018
	Gross Carrying Value			Accumulated Amortization		Net Carrying Value
Intangible assets subject to amortization:
Database	$	4,918		$	2,644	$	2,274
Vehicle service agreements in-force	3,680			3,647		33
Customer relationships	3,611			2,074		1,537
In-place lease	1,125			108		1,017
Intangible assets not subject to amortization:
Tenant relationship	73,667			—		73,667
Trade name	663			—		663
Total	$	87,664		$	8,473	$	79,191



(in thousands)			December 31, 2017
	Gross Carrying Value			Accumulated Amortization		Net Carrying Value
Intangible assets subject to amortization:
Database	$	4,918		$	2,521	$	2,397
Vehicle service agreements in-force	3,680			3,640		40
Customer relationships	3,611			1,965		1,646
In-place lease	1,125			92		1,033
Intangible assets not subject to amortization:
Tenant relationship	73,667			—		73,667
Trade name	663			—		663
Total	$	87,664		$	8,218	$	79,446

The Company's intangible assets with definite useful lives are amortized either based on the patterns in which the economic benefits of the intangible assets are expected to be consumed or using the straight-line method over their estimated useful lives, which range from seven to eighteen years. Amortization of intangible assets was $0.3 million and $0.3 million for the three months ended March 31, 2018 and March 31, 2017, respectively.

The tenant relationship and trade name intangible assets have indefinite useful lives and are not amortized. No impairment charges were taken on intangible assets during the three months ended March 31, 2018 and March 31, 2017.



	26



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

NOTE 11 VEHICLE SERVICE AGREEMENT LIABILITY

Vehicle service agreement fees include the fees collected to cover the costs of future automobile mechanical breakdown claims and the associated administration of those claims. Vehicle service agreement fees are initially recorded as deferred service fees. On a quarterly basis, the Company compares the remaining deferred service fees balance to the estimated amount of expected future claims under the vehicle service agreement contracts and records an additional accrual when the deferred service fees balance is less than expected future claims costs.

A reconciliation of the changes in the vehicle service agreement liability, including deferred service fees related to vehicle service agreements, as of March 31, 2018 and December 31, 2017, were as follows:



(in thousands)	March 31, 2018			March 31, 2017
Balance at January 1, net	$	40,794		$	38,713
Deferred service fees for vehicle service agreements sold	5,169			4,641
Recognition of deferred service fees on vehicle service agreements	(4,773		)	(4,461		)
Liability for claims authorized on vehicle service agreements	1,372			1,361
Payments of claims authorized on vehicle service agreements	(1,544		)	(1,411		)
Re-estimation of deferred service fees	(96		)	(142		)
Balance at March 31, net	$	40,922		$	38,701

The vehicle service agreement liability is presented as components of deferred services fees and accrued expenses and other liabilities in the consolidated balance sheets as follows:



(in thousands)	March 31,		December 31,
	2018		2017
Deferred service fees	$	40,659	$	40,531
Accrued expenses and other liabilities	263		263
Balance at March 31, net	$	40,922	$	40,794

NOTE 12 UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES

The establishment of the provision for unpaid loss and loss adjustment expenses is based on known facts and interpretation of circumstances and is, therefore, a complex and dynamic process influenced by a large variety of factors. These factors include the Company's experience with similar cases and historical trends involving loss payment patterns, pending levels of unpaid loss and loss adjustment expenses, product mix or concentration, loss severity and loss frequency patterns.

Other factors include the continually evolving and changing regulatory and legal environment; actuarial studies; professional experience and expertise of the Company's claims departments' personnel and independent adjusters retained to handle individual claims; the quality of the data used for projection purposes; existing claims management practices including claims-handling and settlement practices; the effect of inflationary trends on future loss settlement costs; court decisions; economic conditions; and public attitudes.

Consequently, the process of determining the provision for unpaid loss and loss adjustment expenses necessarily involves risks that the actual loss and loss adjustment expenses incurred by the Company will deviate, perhaps materially, from the estimates recorded.

The Company's evaluation of the adequacy of unpaid loss and loss adjustment expenses includes a re-estimation of the liability for unpaid loss and loss adjustment expenses relating to each preceding financial year compared to the liability that was previously established.



	27



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

The results of this comparison and the changes in the provision for unpaid loss and loss adjustment expenses, net of amounts recoverable from reinsurers, as of March 31, 2018 and March 31, 2017 were as follows:



(in thousands)	March 31, 2018			March 31, 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	—			—
Prior years	346			—
Paid related to:
Current year	—			—
Prior years	(255		)	(279		)
Balance at end of period, net	1,348			1,569
Plus reinsurance recoverable related to unpaid loss and loss adjustment expenses	75			346
Balance at end of period, gross	$	1,423		$	1,915

The Company reported unfavorable development on unpaid loss and loss adjustment expenses of $0.3 million and $0.0 million for the three months ended March 31, 2018 and March 31, 2017, respectively. The unfavorable development for the three months ended March 31, 2018 was primarily related to an increase in loss adjustment expenses at Kingsway Amigo Insurance Company ("Amigo").

NOTE 13 DEBT

Debt consists of the following instruments at March 31, 2018 and December 31, 2017:



(in thousands)	March 31, 2018						December 31, 2017
	Principal		Carrying Value		Fair Value		Principal		Carrying Value		Fair Value
Bank loan	$	4,667	$	4,667	$	4,635	$	4,917	$	4,917	$	4,864
Note payable:
Mortgage	175,435		185,530		165,813		176,136		186,469		168,477
Flower Note	8,078		8,078		8,106		8,179		8,179		8,825
Net Lease Note	9,000		9,000		9,810		9,000		9,000		9,870
Total notes payable	192,513		202,608		183,729		193,315		203,648		187,172
Subordinated debt	90,500		53,458		53,458		90,500		52,105		52,105
Total	$	287,680	$	260,733	$	241,822	$	288,732	$	260,670	$	244,141

(a) Bank loan:

On October 12, 2017, the Company borrowed a principal amount of $5.0 million from a bank at a fixed interest rate of 5.0%. The bank loan matures on October 12, 2022. The carrying value of the bank loan represents its unpaid principal balance. The fair value of the bank loan disclosed in the table above is derived from quoted market prices of B and B minus rated industrial bonds with similar maturities.

(b) Notes payable:

As part of the acquisition of CMC Industries, Inc. ("CMC") in July 2016, the Company assumed a mortgage, which is recorded as note payable in the consolidated balance sheets ("the Mortgage"). The Mortgage is nonrecourse indebtedness with respect to CMC and its subsidiaries, and the Mortgage is not, nor will it be, guaranteed by Kingsway or its affiliates. The Mortgage was recorded at its estimated fair value of $191.7 million, which included the unpaid principal amount of $180.0 million as of the date



	28



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

of acquisition plus a premium of $11.7 million. The Mortgage matures on May 15, 2034 and has a fixed interest rate of 4.07%. The Mortgage is carried in the consolidated balance sheets at its amortized cost, which reflects the monthly pay-down of principal as well as the amortization of the premium using the effective interest rate method. The fair value of the Mortgage disclosed in the table above is derived from quoted market prices of A-rated industrial bonds with similar maturities.

On January 5, 2015, Flower assumed a $9.2 million mortgage in conjunction with the purchase of investment real estate properties, which is recorded as note payable in the consolidated balance sheets ("the Flower Note"). The Flower Note requires monthly payments of principal and interest and is secured by certain investments of Flower. The Flower Note matures on December 10, 2031 and has a fixed interest rate of 4.81%. The carrying value of the Flower Note at March 31, 2018 of $8.1 million represents its unpaid principal balance. The fair value of the Flower Note disclosed in the table above is derived from quoted market prices of A and B rated industrial bonds with similar maturities.

On October 15, 2015, Net Lease assumed a $9.0 million mezzanine debt in conjunction with the purchase of investment real estate properties, which is recorded as note payable in the consolidated balance sheets ("the Net Lease Note"). The Net Lease Note requires monthly payments of interest and is secured by certain investments of Net Lease. The Net Lease Note matures on November 1, 2020 and has a fixed interest rate of 10.25%. The carrying value of the Net Lease Note at March 31, 2018 of $9.0 million represents its unpaid principal balance. The fair value of the Net Lease Note disclosed in the table above is derived from quoted market prices of B and B minus rated industrial bonds with similar maturities.

The subordinated debt is carried in the consolidated balance sheets at fair value. See Note 20, "Fair Value of Financial Instruments," for further discussion of the subordinated debt. As further discussed in Note 5, "Recently Issued Accounting Standards," effective January 1, 2018, the Company adopted ASU 2016-01. As a result, the portion of the change in fair value of subordinated debt related to the instrument-specific credit risk is now recognized in other comprehensive income (loss), whereas for 2017, the total change in fair value of subordinated debt was recorded in net income (loss). Of the $1.4 million increase in fair value of the Company’s subordinated debt between December 31, 2017 and March 31, 2018, $0.4 million is reported as change in fair value of debt attributable to instrument-specific credit risk in the Company's consolidated statements of comprehensive loss and $0.9 million is reported as loss on change in fair value of debt in the Company’s consolidated statements of operations.

Subordinated debt consists of the following trust preferred debt instruments:



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

NOTE 14 REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue from contracts with customers relates to Extended Warranty segment service fee and commission income. Service fee and commission income represents vehicle service agreement fees, GAP commissions, maintenance support service fees, warranty product commissions, homebuilder warranty service fees and homebuilder warranty commissions based on terms of various agreements with credit unions, consumers, businesses and homebuilders.



	29



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

The following table disaggregates revenues from contracts with customers by revenue type:



(in thousands)	Three months ended March 31,
	2018

Vehicle service agreement fees - IWS	$	4,389
GAP commissions - IWS	192
Maintenance support service fees - Trinity	2,973
Warranty product commissions - Trinity	496
Homebuilder warranty service fees and commissions - PWSC	1,601
Service fee and commission income	$	9,651

IWS' vehicle service agreement fees include the fees collected to cover the costs of future automobile mechanical breakdown claims and the associated administration of those claims. Vehicle service agreement contract fees are earned over the duration of the vehicle service agreement contracts as the single performance obligation is satisfied.

IWS' GAP commissions include fees collected from the sale of GAP contracts. IWS acts as an agent on behalf of the third-party insurance company that underwrites and guaranties these GAP contracts. IWS does not assume any insurance risk from the sale of GAP contracts. IWS receives a single commission fee as its transaction price at the time it sells a GAP contract to a customer. Each GAP contract contains two separate performance obligations - sale of a GAP contract and GAP claims administration. The first performance obligation is related to the sale of a GAP contract and is satisfied upon closing the sale. The second performance obligation is related to the administration of claims during the GAP contract period, generally four years.

Standalone selling prices are not directly observable in the GAP contract for each of the separate performance obligations. As a result, IWS has applied the expected cost plus a margin approach to develop models to estimate the standalone selling price for each of its performance obligations in order to allocate the transaction price to the two separate performance obligations identified.

For the model related to the sale of a GAP contract performance obligation, IWS makes judgments about which of its actual costs are associated with selling activities. For the model related to the GAP claims administration performance obligation, IWS makes judgments about which of its actual costs are associated with claim-handling activities, which are performed over the life of the GAP contract period. The relative percentage of expected costs plus a margin associated with the sale of a GAP contract performance obligation is applied to the transaction price to determine the estimated standalone selling price of the sale of a GAP contract performance obligation, which IWS recognizes as earned at the time of the GAP contract sale. The relative percentage of expected costs plus a margin associated with the GAP claims administration performance obligation is applied to the transaction price to determine the estimated standalone selling price of the GAP claims administration performance obligation, which IWS recognizes as earned as services are performed over the GAP contract period.

For the GAP claims administration performance obligation, IWS applies an input method of measurement, based on the expected costs plus a margin of providing services, to determine the transfer of its services over the GAP contract period. IWS uses historical data regarding the number of claims it receives and activities performed, in addition to the number of GAP contracts sold, to estimate the number of claims to be received by year until coverage expires, which allows IWS to develop a revenue recognition pattern that it believes provides a faithful depiction of the transfer of services over time for the GAP claims administration performance obligation.

Trinity Warranty Solutions LLC's ("Trinity") maintenance support service fees include the service fees collected to administer equipment breakdown and maintenance support services and are earned as services are rendered.

Trinity’s warranty product commissions include the commissions from the sale of warranty contracts for certain new and used heating, ventilation, air conditioning ("HVAC"), standby generator, commercial LED lighting and refrigeration equipment. Trinity acts as an agent on behalf of the third-party insurance companies that underwrite and guaranty these warranty contracts. Trinity does not guaranty the performance underlying the warranty contracts it sells. Warranty product commissions are earned at the time of the warranty product sales.



	30



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

PWSC’s homebuilder warranty service fees include fees collected from the sale of warranties issued by new homebuilders. PWSC receives a single warranty service fee as its transaction price at the time it enters into a written contract with each of its builder customers. Each contract contains two separate performance obligations - warranty administrative services and other warranty services. Warranty administrative services include enrolling each home sold by the builder into the program and the warranty administrative system and delivering the warranty product. Other warranty services include answering builder or homeowner questions regarding the home warranty and dispute resolution services.

Standalone selling prices are not directly observable in the contract for each of the separate performance obligations. As a result, PWSC has applied the expected cost plus a margin approach to develop models to estimate the standalone selling price for each of its performance obligations in order to allocate the transaction price to the two separate performance obligations identified.

For the model related to the warranty administrative services performance obligation, PWSC makes judgments about which of its actual costs are associated with enrolling each home sold by the builder into the program and the warranty administrative system and delivering the warranty product. For the model related to the other warranty services performance obligation, PWSC makes judgments about which of its actual costs are associated with activities, such as answering builder or homeowner questions regarding the home warranty and dispute resolution services, which are performed over the life of the warranty coverage period. The relative percentage of expected costs plus a margin associated with the warranty administrative services performance obligation is applied to the transaction price to determine the estimated standalone selling price of the warranty administrative services performance obligation, which PWSC recognizes as earned at the time the home is enrolled and the warranty product is delivered. The relative percentage of expected costs plus a margin associated with the other warranty services performance obligation is applied to the transaction price to determine the estimated standalone selling price of the other warranty services performance obligation, which PWSC recognizes as earned as services are performed over the warranty coverage period.

For the other warranty services performance obligation, PWSC applies an input method of measurement, based on the expected costs plus a margin of providing services, to determine the transfer of its services over the warranty coverage period. PWSC uses historical data regarding the number of calls it receives and activities performed, in addition to the number of homes enrolled, to estimate the number of complaints and dispute resolution requests to be received by year until coverage expires, which allows PWSC to develop a revenue recognition pattern that it believes provides a faithful depiction of the transfer of services over time for the other warranty services performance obligation.

PWSC’s homebuilder warranty commissions include commissions from the sale of warranty contracts for those builders who have requested and receive insurance backing of their warranty obligations. PWSC acts as an agent on behalf of the third-party insurance company that underwrites and guaranties these warranty contracts. Homebuilder warranty commissions are earned on the certification date, which is typically the date of the closing of the sale of the home to the buyer. The Company also earns fees to manage remediation or repair services related to claims on insurance-backed warranty obligations, which are earned when the claims are closed, and a profit-sharing bonus on eligible warranties, which is determined based on expected ultimate loss ratio targets and is earned at the time the profit-sharing bonus is received.

Receivables from contracts with customers are reported as service fee receivable, net in the consolidated balance sheets and at March 31, 2018 and December 31, 2017 were $5.8 million and $4.4 million, respectively.

The Company records deferred service fees resulting from contracts with customers when payment is received in advance of satisfying the performance obligations. The Company expects to recognize within one year as service fee and commission income approximately 36.9% of the deferred service fees as of March 31, 2018. Approximately $6.1 million of service fee and commission income recognized during the three months ended March 31, 2018 was included in deferred service fees as of December 31, 2017.

NOTE 15 INCOME TAXES

The Tax Cuts and Jobs Act (the "Tax Act") was enacted on December 22, 2017. The Tax Act makes broad and complex changes to the U.S. tax code, including a permanent reduction in the U.S. federal corporate income tax rate to 21% starting in 2018. Previously, the Company was subject to a 34% U.S. federal corporate income tax rate.



	31



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

Income tax expense for the three months ended March 31, 2018 and March 31, 2017 varies from the amount that would result by applying the applicable U.S. federal corporate income tax rate of 21% and 34% , respectively, to loss before income tax expense. The following table summarizes the differences:



(in thousands)	Three months ended March 31,
	2018			2017
Income tax benefit at U.S. statutory income tax rate	$	(494	)	$	(175	)
Valuation allowance	533			356
Change in unrecognized tax benefits⁽¹⁾	70			212
State income tax	66			13
Non-deductible compensation	61			99
Indefinite life intangibles	23			36
Foreign operations subject to different tax rates	(15		)	(139		)
Other	10			(133		)
Income tax expense	$	254		$	269
(1) Includes interest and penalty expense related to unrecognized tax benefits.

The Company maintains a valuation allowance for its gross deferred tax assets at March 31, 2018 and December 31, 2017. The Company's operations have generated substantial operating losses in prior years. These losses can be available to reduce income taxes that might otherwise be incurred on future taxable income; however, it is uncertain whether the Company will generate the taxable income necessary to utilize these losses or other reversing temporary differences. This uncertainty has caused management to place a full valuation allowance on its March 31, 2018 and December 31, 2017 net deferred tax asset, excluding the deferred income tax asset and liability amounts set forth in the paragraph below.

The Company carries net deferred income tax liabilities of $28.8 million and $28.8 million at March 31, 2018 and December 31, 2017, respectively. At March 31, 2018, $8.0 million relates to deferred income tax liabilities scheduled to reverse in periods after the expiration of the Company's consolidated U.S. net operating loss carryforwards, $20.9 million relates to deferred income tax liabilities associated with land and indefinite lived intangible assets and $0.1 million relates to deferred income tax assets associated with alternative minimum tax credits. At December 31, 2017, $8.0 million relates to deferred income tax liabilities scheduled to reverse in periods after the expiration of the Company's consolidated U.S. net operating loss carryforwards, $20.9 million relates to deferred income tax liabilities associated with land and indefinite lived intangible assets and $0.1 million relates to deferred income tax assets associated with alternative minimum tax credits. The Company considered a tax planning strategy in arriving at its March 31, 2018 and December 31, 2017 net deferred income tax liabilities.

As of March 31, 2018 and December 31, 2017, the Company carried a liability for unrecognized tax benefits of $1.4 million and $1.4 million, respectively, that is included in income taxes payable in the consolidated balance sheets. The Company classifies interest and penalty accruals, if any, related to unrecognized tax benefits as income tax expense. The Company recorded income tax expense of $0.1 million and $0.2 million related to interest and penalty accruals for the three months ended March 31, 2018 and March 31, 2017, respectively. At March 31, 2018 and December 31, 2017, the Company carried an accrual for the payment of interest and penalties of $0.9 million and $0.9 million, respectively, included in income taxes payable in the consolidated balance sheets.



	32



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

NOTE 16 LOSS FROM CONTINUING OPERATIONS PER SHARE

The following table sets forth the reconciliation of numerators and denominators for the basic and diluted loss from continuing operations per share computation for the three months ended March 31, 2018 and March 31, 2017:



(in thousands, except per share data)	Three months ended March 31,
	2018			2017
Numerator:
Loss from continuing operations	$	(2,604	)	$	(785	)
Less: net income attributable to noncontrolling interests	(359		)	(199		)
Less: dividends on preferred stock, net of tax	(253		)	(302		)
Loss from continuing operations attributable to common shareholders	$	(3,216	)	$	(1,286	)
Denominator:
Weighted average basic shares
Weighted average common shares outstanding	21,708			21,458
Weighted average diluted shares
Weighted average common shares outstanding	21,708			21,458
Effect of potentially dilutive securities	—			—
Total weighted average diluted shares	21,708			21,458
Basic loss from continuing operations per share	$	(0.15	)	$	(0.06	)
Diluted loss from continuing operations per share	$	(0.15	)	$	(0.06	)

Basic loss from continuing operations per share is calculated using weighted-average common shares outstanding. Diluted loss from continuing operations per share is calculated using weighted-average diluted shares. Weighted-average diluted shares is calculated by adding the effect of potentially dilutive securities to weighted-average common shares outstanding. Potentially dilutive securities consist of stock options, unvested restricted stock awards, unvested restricted stock units, warrants and convertible preferred stock. Because the Company is reporting a loss from continuing operations attributable to common shareholders for the three months ended March 31, 2018 and March 31, 2017, all potentially dilutive securities outstanding were excluded from the calculation of diluted loss from continuing operations per share since their inclusion would have been anti-dilutive.

NOTE 17 STOCK-BASED COMPENSATION

(a) Stock Options

The following table summarizes the stock option activity during the three months ended March 31, 2018:




	Number of Options Outstanding	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (in Thousands)
Outstanding at December 31, 2017	651,875	$	4.51	0.4	$	352
Granted	—	—
Expired	—	—
Outstanding at March 31, 2018	651,875	$	4.51	0.1	$	—
Exercisable at March 31, 2018	651,875	$	4.51	0.1	$	—

The aggregate intrinsic value of stock options outstanding and exercisable is the difference between the March 31, 2018 market price for the Company's common shares and the exercise price of the options, multiplied by the number of options where the fair value exceeds the exercise price.



	33



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

The Company uses the Black-Scholes option pricing model to estimate the fair value of each option on the date of grant. No options were granted during the three months ended March 31, 2018.

(b) Restricted Stock Awards

Under the 2013 Equity Incentive Plan, the Company made grants of restricted common stock awards ("Restricted Stock Awards") to certain officers of the Company on March 28, 2014. The Restricted Stock Awards shall become fully vested and the restriction period shall lapse as of March 28, 2024 subject to the officers' continued employment through the vesting date. The Restricted Stock Awards are amortized on a straight-line basis over the ten-year requisite service period. Total unamortized compensation expense related to unvested Restricted Stock Awards at March 31, 2018 was $4.8 million. The grant-date fair value of the Restricted Stock Awards was determined using the closing price of Kingsway common stock on the date of grant. The following table summarizes the activity related to unvested Restricted Stock Awards for the three months ended March 31, 2018:




	Number of Restricted Stock Awards	Weighted-Average Grant Date Fair Value (per Share)
Unvested at December 31, 2017	1,952,665	$	4.14
Granted	—	—
Forfeited	—	—
Unvested at March 31,2018	1,952,665	$	4.14

The Company granted restricted common stock units ("Restricted Stock Units") to an officer of the Company pursuant to a Restricted Stock Unit Agreement dated August 24, 2016. Each Restricted Stock Unit represents a right to receive one common share on the vesting date. The Restricted Stock Units shall become fully vested and the restriction period shall lapse as of March 28, 2024 subject to the officer's continued employment through the vesting date. The Restricted Stock Units are amortized on a straight-line basis over the requisite service period. Total unamortized compensation expense related to unvested Restricted Stock Units at March 31, 2018 was $2.3 million. The grant-date fair value of the Restricted Stock Units was determined using the closing price of Kingsway common stock on the date of grant. The following table summarizes the activity related to unvested Restricted Stock Units for the three months ended March 31, 2018:




	Number of Restricted Stock Units	Weighted-Average Grant Date Fair Value (per Share)
Unvested at December 31, 2017	500,000	$	5.73
Granted	—	—
Vested	—	—
Forfeited	—	—
Unvested at March 31, 2018	500,000	$	5.73

Total stock-based compensation expense, net of forfeitures, was $0.3 million and $0.3 million for the three months ended March 31, 2018 and March 31, 2017, respectively.

NOTE 18 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The tables below detail the changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2018 and March 31, 2017 as relates to shareholders' equity attributable to common shareholders on the consolidated balance sheets. On the other hand, the unaudited consolidated statements of comprehensive loss present the components of other comprehensive loss, net of tax, only for the three months ended March 31, 2018 and March 31, 2017 and inclusive of the components attributable to noncontrolling interests in consolidated subsidiaries.



	34



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

As further discussed in Note 5, "Recently Issued Accounting Standards," effective January 1, 2018, the Company adopted ASU 2016-01. As a result of the adoption, equity investments are no longer classified as available-for-sale with unrealized gains and losses recognized in other comprehensive income (loss); rather, changes in the fair value of equity investments are now recognized in net income (loss). Also as a result of the adoption, the portion of the total change in the fair value of our subordinated debt resulting from the change in instrument-specific credit risk is no longer recognized in net income (loss) and is now presented in other comprehensive income (loss). Prior periods have not been restated to conform to the current presentation.



(in thousands)				Three months ended March 31, 2018
	Unrealized Gains (Losses) on Available-for-Sale Investments			Foreign Currency Translation Adjustments			Change in Fair Value of Debt Attributable to Instrument-Specific Credit Risk			Total Accumulated Other Comprehensive Income (Loss)

Balance at January 1, 2018	$	(566	)	$	(3,286	)	$	—		$	(3,852	)
Cumulative effect of adoption of ASU 2016-01	40			—			40,455			40,495
Balance at January 1, 2018, as adjusted	(526		)	(3,286		)	40,455			36,643

Other comprehensive loss arising during the period	(358		)	—			(434		)	(792		)
Amounts reclassified from accumulated other comprehensive income (loss)	(7		)	—			—			(7		)
Net current-period other comprehensive loss	(365		)	—			(434		)	(799		)

Balance at March 31, 2018	$	(891	)	$	(3,286	)	$	40,021		$	35,844



(in thousands)				Three months ended March 31, 2017
	Unrealized Gains (Losses) on Available-for-Sale Investments			Foreign Currency Translation Adjustments			Total Accumulated Other Comprehensive Loss

Balance at January 1, 2017	$	3,572		$	(3,780	)	$	(208	)

Other comprehensive loss arising during the period	(164		)	—			(164		)
Amounts reclassified from accumulated other comprehensive income (loss)	(507		)	—			(507		)
Net current-period other comprehensive loss	(671		)	—			(671		)

Balance at March 31, 2017	$	2,901		$	(3,780	)	$	(879	)



	35



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

Components of accumulated other comprehensive income (loss) were reclassified to the following lines of the unaudited consolidated statements of operations for the three months ended March 31, 2018 and March 31, 2017:



(in thousands)	Three months ended March 31,
	2018		2017
Reclassification of accumulated other comprehensive income (loss) from unrealized gains (losses) on available-for-sale investments to:
Net realized gains	$	7	$	507
Other-than-temporary impairment loss	—		—
Loss before income tax expense	7		507
Income tax expense	—		—
Net loss	$	7	$	507

NOTE 19 SEGMENTED INFORMATION

The Company conducts its business through the following two reportable segments: Extended Warranty and Leased Real Estate.

The Company previously conducted its business through a third reportable segment, Insurance Underwriting. Insurance Underwriting included the following subsidiaries of the Company: Mendota, Amigo and Kingsway Reinsurance Corporation ("Kingsway Re"). As further discussed in Note 6, "Acquisition and Discontinued Operations," on October 18, 2018, the Company announced that it had completed the sale of Mendota. As a result, Mendota has been classified as discontinued operations and the results of their operations are reported separately for all periods presented. As a result of classifying Mendota as discontinued operations, the composition of the Insurance Underwriting segment has changed such that it no longer meets the criteria of a reportable segment. As such, all segmented information has been restated to exclude the Insurance Underwriting segment for all periods presented.

Extended Warranty Segment

Extended Warranty includes the following subsidiaries of the Company: IWS, Trinity and PWSC (collectively, "Extended Warranty").

IWS is a licensed motor vehicle service agreement company and is a provider of after-market vehicle protection services distributed by credit unions in 23 states and the District of Columbia to their members.

Trinity sells HVAC, standby generator, commercial LED lighting and refrigeration warranty products and provides equipment breakdown and maintenance support services to companies across the United States. As a seller of warranty products, Trinity markets and administers product warranty contracts for certain new and used products in the HVAC, standby generator, commercial LED lighting and refrigeration industries throughout the United States. Trinity acts as an agent on behalf of the third-party insurance companies that underwrite and guaranty these warranty contracts. Trinity does not guaranty the performance underlying the warranty contracts it sells. As a provider of equipment breakdown and maintenance support services, Trinity acts as a single point of contact to its clients for both certain equipment breakdowns and scheduled maintenance of equipment. Trinity will provide such repair and breakdown services by contracting with certain HVAC providers.

PWSC sells new home warranty products and provides administration services to homebuilders and homeowners across the United States. PWSC distributes its products and services through an in house sales team and through insurance brokers and insurance carriers throughout all states except Alaska and Louisiana.

Leased Real Estate Segment

Leased Real Estate includes the Company's subsidiary, CMC, which was acquired on July 14, 2016. CMC owns a parcel of real property consisting of approximately 192 acres located in the State of Texas (the "Real Property") that is leased to a third party pursuant to a long-term triple net lease. The Real Property is also subject to the Mortgage. When assessing and measuring the operational and financial performance of the Leased Real Estate segment, interest expense related to the Mortgage is included in Leased Real Estate's segment operating income.



	36



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

Revenues and Operating Income by Reportable Segment

Results for the Company's reportable segments are based on the Company's internal financial reporting systems and are consistent with those followed in the preparation of the unaudited consolidated interim financial statements. The following tables provide financial data used by management. Segment assets are not allocated for management use and, therefore, are not included in the segment disclosures below.

Revenues by reportable segment reconciled to consolidated revenues for the three months ended March 31, 2018 and March 31, 2017 were:



(in thousands)	Three months ended March 31,
	2018		2017
Revenues:
Extended Warranty:
Service fee and commission income	9,651		6,655
Other income	66		85
Total Extended Warranty	9,717		6,740
Leased Real Estate:
Rental income	3,342		3,341
Other income	147		212
Total Leased Real Estate	3,489		3,553
Total segment revenues	13,206		10,293
Rental income not allocated to segments	6		6
Total revenues	$	13,212	$	10,299

The operating income by reportable segment in the following table is before income taxes and includes revenues and direct segment costs. Total segment operating income reconciled to the consolidated loss from continuing operations for the three months ended March 31, 2018 and March 31, 2017 were:



(in thousands)	Three months ended March 31,
	2018			2017
Segment operating income:
Extended Warranty	$	846		$	737
Leased Real Estate	874			918
Total segment operating income	1,720			1,655
Net investment income	638			1,168
Net realized gains	265			—
Gain on change in fair value of equity investments	1,165			—
(Loss) gain on change in fair value of limited liability investments, at fair value	(936		)	54
Net change in unrealized gain on private company investments	—			247
Interest expense not allocated to segments	(1,717		)	(1,499		)
Other income and expenses not allocated to segments, net	(2,412		)	(2,363		)
Amortization of intangible assets	(255		)	(274		)
Loss on change in fair value of debt	(919		)	(1,889		)
Equity in net income of investee	101			2,385
Loss from continuing operations before income tax expense	(2,350		)	(516		)
Income tax expense	254			269
Loss from continuing operations	$	(2,604	)	$	(785	)



	37



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

NOTE 20 FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best evidenced by quoted bid or ask price, as appropriate, in an active market. Where bid or ask prices are not available, such as in an illiquid or inactive market, the closing price of the most recent transaction of that instrument subject to appropriate adjustments as required is used. Where quoted market prices are not available, the quoted prices of similar financial instruments or valuation models with observable market-based inputs are used to estimate the fair value. These valuation models may use multiple observable market inputs, including observable interest rates, foreign exchange rates, index levels, credit spreads, equity prices, counterparty credit quality, corresponding market volatility levels and option volatilities. Minimal management judgment is required for fair values calculated using quoted market prices or observable market inputs for models. Greater subjectivity is required when making valuation adjustments for financial instruments in inactive markets or when using models where observable parameters do not exist. Also, the calculation of estimated fair value is based on market conditions at a specific point in time and may not be reflective of future fair values. For the Company's financial instruments carried at cost or amortized cost, the book value is not adjusted to reflect increases or decreases in fair value due to market fluctuations, including those due to interest rate changes, as it is the Company's intention to hold them until there is a recovery of fair value, which may be to maturity.

The Company employs a fair value hierarchy to categorize the inputs it uses in valuation techniques to measure the fair value. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1:


•	Level 1 – Quoted prices for identical instruments in active markets.


•	Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.


•	Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are not observable.

The Company classifies its investments in fixed maturities as available-for-sale and reports these investments at fair value. The Company's equity investments, limited liability investments, at fair value, real estate investments and subordinated debt are measured and reported at fair value.

Fixed maturities - Fair values of fixed maturities for which no active market exists are derived from quoted market prices of similar instruments or other third-party evidence. All classes of the Company’s fixed maturities, primarily consisting of investments in US. Treasury bills and government bonds; obligations of states, municipalities and political subdivisions; mortgage-backed securities; and corporate securities, are classified as Level 2. Level 2 is applied to valuations based upon quoted prices for similar assets in active markets; quoted prices for identical or similar assets in markets that are inactive; or valuations based on models where the significant inputs are observable or can be corroborated by observable market data.

The Company engages a third-party vendor who utilizes third-party pricing sources and primarily employs a market approach to determine the fair values of our fixed maturities. The market approach includes primarily obtaining prices from independent third-party pricing services as well as, to a lesser extent, quotes from broker-dealers. Our third-party vendor also monitors market indicators, as well as industry and economic events, to ensure pricing is appropriate. All classes of our fixed maturities are valued using this technique. The Company has obtained an understanding of our third-party vendor’s valuation methodologies and inputs. Fair values obtained from our third-party vendor are not adjusted by the Company.

The following is a description of the significant inputs, by asset class, used by the third-party pricing services to determine the fair values of our fixed maturities included in Level 2:


•	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.



	38



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018


•	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.

Equity investments - Fair values of equity investments, including warrants, reflect quoted market values based on latest bid prices, where active markets exist, or models based on significant market observable inputs, where no active markets exist.

Limited liability investments, at fair value - Limited liability investments, as fair value include the Company's investment in 1347 Investors as well as the underlying investments of Net Lease and Argo Holdings. 1347 Investors owns common stock in Limbach Holdings, Inc., a publicly traded company. Net Lease owns investments in limited liability companies that hold investment properties. Argo Holdings makes investments in limited liability companies and limited partnerships that hold investments in search funds and private operating companies.


•	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.

•

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.

Real estate investments - The fair value of real estate investments involves a combination of the market and income valuation techniques. Under this approach, a market-based capitalization rate is derived from comparable transactions, adjusted for any unique characteristics of each asset, and applied to the asset under consideration. The cap rates used during underwriting and subsequent valuation incorporate the consideration of risks of vacancy and collection loss, administrative costs of owning net leased assets and possible capital expenditures that could be determined a landlord expense. These investments are categorized in Level 3 of the fair value hierarchy.

Performance shares - The performance shares, for which no active market exists, are required to be valued at fair value as determined in good faith by the Company. Such determination of fair value would require the Company to develop a model based upon relevant observable market inputs as well as significant unobservable inputs, including developing a sufficiently reliable estimate for an appropriate discount to reflect the illiquidity and unique structure of the security. The Company determined its model for the performance shares was not sufficiently reliable. As a result, the Company has assigned a fair value of zero to the performance shares. Refer to Note 7, "Investments," for further details regarding the performance shares.

Subordinated debt - The fair value of the subordinated debt is calculated using a model based on significant market observable inputs and inputs developed by a third party. These inputs include credit spread assumptions developed by a third party and market observable swap rates. The subordinated debt is categorized in Level 2 of the fair value hierarchy.



	39



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The balances of the Company's financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2018 and December 31, 2017 was as follows. Certain investments in limited liability companies that are measured at fair value using the net asset value practical expedient are not required to be classified using the fair value hierarchy, but are presented in the following tables to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets:



(in thousands)					March 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	$	6,378	$	—	$	6,378	$	—	$	—
States, municipalities and political subdivisions	620		—		620		—		—
Mortgage-backed	3,041		—		3,041		—		—
Corporate	2,648		—		2,648		—		—
Total fixed maturities	12,687		—		12,687		—		—
Equity investments:
Common stock	1,484		1,484		—		—		—
Warrants	1,371		172		1,199		—		—
Total equity investments	2,855		1,656		1,199		—		—
Limited liability investment, at fair value	31,508		—		8,925		1,634		20,949
Real estate investments	10,662		—		—		10,662		—
Other investments	3,316		—		3,316		—		—
Short-term investments	151		—		151		—		—
Total assets	$	61,179	$	1,656	$	26,278	$	12,296	$	20,949

Liabilities:
Subordinated debt	$	53,458	$	—	$	53,458	$	—	$	—
Total liabilities	$	53,458	$	—	$	53,458	$	—	$	—



	40



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018



(in thousands)					December 31, 2017
			Fair Value Measurements at the End of the Reporting Period Using

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		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	$	—	$	—



	41



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

The following table provides a reconciliation of the fair value of recurring Level 3 fair value measurements for the three months ended March 31, 2018 and March 31, 2017:



(in thousands)	Three months ended March 31,
	2018				2017
Assets:
Limited liability investments, at fair value:
Beginning balance	$	1,397			$	939
Purchases	474				69
Distributions received	(241		)		—
Change in fair value of limited liability investments, at fair value included in net loss	4				—
Ending balance	1,634				1,008
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
Total	$	12,296			$	11,670

The following table summarizes the valuation techniques and significant unobservable inputs utilized in determining fair values for the Company's investments that are categorized as Level 3 at March 31, 2018:



Categories	Fair Value (in thousands)		Valuation Techniques	Unobservable Inputs	Input Value(s)
Limited liability investments, at fair value	$	1,634	Market approach	Valuation multiples	5.0x-7.0x
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	%

All transfers are recognized by the Company at the beginning of each reporting period. Transfers between Levels 2 and 3 generally relate to whether significant unobservable inputs are used for the fair value measurements. There were no transfers between levels in 2018 or 2017.

Investments Measured Using the Net Asset Value per Share Practical Expedient

The following table summarizes investments for which fair value is measured using the net asset value per share practical expedient at March 31, 2018:



Category	Fair Value (in thousands)		Unfunded Commitments	Redemption Frequency	Redemption Notice Period
Limited liability investments, at fair value	$	20,949	n/a	n/a	n/a



	42



KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2018

The following table summarizes investments for which fair value is measured using the net asset value per share practical expedient at December 31, 2017:



Category	Fair Value (in thousands)		Unfunded Commitments	Redemption Frequency	Redemption Notice Period
Limited liability investments, at fair value	$	20,500	n/a	n/a	n/a

NOTE 21 RELATED PARTY TRANSACTIONS

Related party transactions, including services provided to or received by the Company's subsidiaries, are measured in part by the amount of consideration paid or received as established and agreed by the parties. Management believes consideration paid for such services in each case approximates fair value. Except where disclosed elsewhere in these unaudited consolidated interim financial statements, the following is a summary of related party transactions.

On October 25, 2017, the Company executed an agreement to sell 900,000 shares of PIH common stock, at a price of $7.85 per share, to Fundamental Global Investors ("FGI") in two separate transactions for cash proceeds totaling $7.1 million. On November 1, 2017, the Company sold 475,428 of the 900,000 shares of PIH common stock to FGI for cash proceeds totaling $3.7 million. The second transaction, for the sale of the remaining 424,572 shares of PIH common stock for cash proceeds totaling $3.4 million, closed on March 15, 2018 following FGI having obtained the necessary regulatory approvals. FGI is a greater than 5% shareholder of the Company.

NOTE 22 COMMITMENTS AND CONTINGENCIES

(a) Legal proceedings:

In connection with its operations in the ordinary course of business, the Company and its subsidiaries are named as defendants in various actions for damages and costs allegedly sustained by the plaintiffs. While it is not possible to estimate the loss, or range of loss, if any, that would be incurred in connection with any of the various proceedings at this time, it is possible an individual action would result in a loss having a material adverse effect on the Company's business, results of operations or financial condition.

(b) Guarantees:

The Company provided indemnity and hold harmless agreements to a third party for certain customs bonds reinsured by Lincoln General Insurance Company ("Lincoln General") during a period of the time Lincoln General was a subsidiary of the Company. These agreements may require the Company to compensate the third party if Lincoln General is unable to fulfill its obligations relating to the customs bonds. The Company's potential exposure under these agreements is not determinable, and no liability has been recorded in the unaudited consolidated interim financial statements at March 31, 2018. No assurances can be given, however, the Company will not be required to perform under these agreements in a manner that would have a material adverse effect on the Company's business, results of operations or financial condition.

As further discussed in Note 6, "Acquisition and Discontinued Operations," as part of the transaction to sell Mendota, the Company will indemnify the buyer for loss and loss adjustment expenses with respect to open claims and certain specified claims in excess of Mendota's carried unpaid loss and loss adjustment expenses at June 30, 2018 related to the open claims and specified claims. The Company's potential exposure under these agreements is not determinable, and no liability has been recorded in the unaudited consolidated interim financial statements at March 31, 2018.

The Company has entered into subscription agreements to commit up to $2.7 million of capital to allow for participation in limited liability investments. At March 31, 2018, the unfunded commitment was $0.2 million.



	43



KINGSWAY FINANCIAL SERVICES INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

Management's Discussion and Analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. Words such as “expects,” “believes,” “anticipates,” “intends,” “estimates,” “seeks” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect Kingsway management’s current beliefs, based on information currently available and include statements relating to the proposed sale of our insurance subsidiaries. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements, including the failure to reach a definitive agreement with respect to the proposed sale of our insurance subsidiaries, the timing to consummate the proposed sale, the failure to obtain necessary regulatory approvals and the diversion of management time on transaction-related matters. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, see Kingsway’s securities filings, including its Annual Report on Form 10-K for the year ended December 31, 2017 ("2017 Annual Report"). The Company's securities filings can be accessed on the Canadian Securities Administrators’ website at www.sedar.com, on the EDGAR section of the U.S. Securities and Exchange Commission’s website at www.sec.gov or through the Company’s website at www.kingsway-financial.com. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements because of new information, future events or otherwise.

RESTATEMENT

As discussed in the Explanatory Note to this Form 10-Q/A and in Note 4, "Recast and Restatement of Previously Issued Financial Statements," to the unaudited consolidated interim financial statements, the Company has restated its previously reported unaudited consolidated financial statements for the three months ended March 31, 2018 and March 31, 2017. The following discussion and analysis of our financial condition and results of operations incorporates the restated amounts. For this reason, the data set forth in this Item 2 may not be comparable to the discussion and data in our previously filed quarterly report on Form 10-Q for the three months ended March 31, 2018 and March 31, 2017.

OVERVIEW

Kingsway is a Canadian holding company with operating subsidiaries located in the United States. The Company operates as a merchant bank with a focus on long-term value-creation. The Company owns or controls subsidiaries primarily in the insurance, extended warranty, asset management and real estate industries and pursues non-control investments and other opportunities acting as an advisor, an investor and a financier. Kingsway conducts its business through the following two reportable segments: Extended Warranty and Leased Real Estate.

The Company previously conducted its business through a third reportable segment, Insurance Underwriting. Insurance Underwriting included the following subsidiaries of the Company: Mendota Insurance Company, Mendakota Insurance Company, Mendakota Casualty Company, Kingsway Amigo Insurance Company ("Amigo") and Kingsway Reinsurance Corporation ("Kingsway Re"). Mendota Insurance Company, Mendakota Insurance Company and Mendakota Casualty Company are referred to collectively herein as "Mendota." On July 16, 2018, the Company announced that it had entered into a definitive agreement to sell Mendota. On October 18, 2018, the Company announced that the sale was completed. As a result, Mendota has been classified as discontinued operations and the results of their operations are reported separately for all periods presented. As a consequence of classifying Mendota as discontinued operations, the remaining composition of the Insurance Underwriting segment no longer meets the criteria of a reportable segment. As such, all segmented information has been restated to exclude the Insurance Underwriting segment for all periods presented. The operating results of Amigo and Kingsway Re, previously included in the Insurance Underwriting segment, are now included in Other income and expenses not allocated to segments, net.

Extended Warranty includes the following subsidiaries of the Company: IWS Acquisition Corporation ("IWS"), Trinity Warranty Solutions LLC ("Trinity") and Professional Warranty Service Corporation ("PWSC"). Throughout Management's Discussion and Analysis, the term "Extended Warranty" is used to refer to this segment.

Trinity sells heating, ventilation, air conditioning ("HVAC"), standby generator, commercial LED lighting and refrigeration warranty products and provides equipment breakdown and maintenance support services to companies across the United States. As a seller of warranty products, Trinity markets and administers product warranty contracts for certain new and used products in



	44



KINGSWAY FINANCIAL SERVICES INC.

the HVAC, standby generator, commercial LED lighting and refrigeration industries throughout the United States. Trinity acts as an agent on behalf of the third-party insurance companies that underwrite and guaranty these warranty contracts. Trinity does not guaranty the performance underlying the warranty contracts it sells. As a provider of equipment breakdown and maintenance support services, Trinity acts as a single point of contact to its clients for both certain equipment breakdowns and scheduled maintenance of equipment. Trinity will provide such repair and breakdown services by contracting with certain HVAC providers.

PWSC sells new home warranty products and provides administration services to homebuilders and homeowners across the United States. PWSC distributes its products and services through an in-house sales team and through insurance brokers and insurance carriers throughout all states except Alaska and Louisiana.

Leased Real Estate includes the Company's subsidiary, CMC Industries, Inc. ("CMC"). CMC owns, through an indirect wholly owned subsidiary (the "Property Owner"), a parcel of real property consisting of approximately 192 acres located in the State of Texas (the "Real Property"), which is subject to a long-term triple net lease agreement. The Real Property is also subject to a mortgage, which is recorded as note payable in the consolidated balance sheets (the "Mortgage"). Throughout Management's Discussion and Analysis, the term "Leased Real Estate" is used to refer to this segment.

NON-U.S. GAAP FINANCIAL MEASURE

Throughout this quarterly report, we present our operations in the way we believe will be most meaningful, useful and transparent to anyone using this financial information to evaluate our performance. Our unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information. In addition to the U.S. GAAP presentation of net loss, we present segment operating income as a non-U.S. GAAP financial measure, which we believe is valuable in managing our business and drawing comparisons to our peers. Below is a definition of our non-U.S. GAAP measure and its relationship to U.S. GAAP.

Segment Operating Income

Segment operating income represents one measure of the pretax profitability of our segments and is derived by subtracting direct segment expenses from direct segment revenues. Revenues and expenses are presented in the unaudited consolidated statements of operations, but are not subtotaled by segment; however, this information is available in total and by segment in Note 19, "Segmented Information," to the unaudited consolidated interim financial statements, regarding reportable segment information. The nearest comparable U.S. GAAP measure is loss from continuing operations before income tax expense that, in addition to segment operating income, includes net investment income, net realized gains, gain on change in fair value of equity investments, (loss) gain on change in fair value of limited liability investments, at fair value, net change in unrealized gain on private company investments, interest expense not allocated to segments, other income and expenses not allocated to segments, net, amortization of intangible assets, loss on change in fair value of debt and equity in net income of investee. A reconciliation of segment operating income to loss from continuing operations before income tax expense for the three months ended March 31, 2018 and 2017 is presented in Table 1 of the "Results of Operations" section of Management's Discussion and Analysis.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

The preparation of unaudited consolidated interim financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Estimates and their underlying assumptions are reviewed on an ongoing basis. Changes in estimates are recorded in the accounting period in which they are determined. The critical accounting estimates and assumptions in the accompanying unaudited consolidated interim financial statements include the provision for unpaid loss and loss adjustment expenses; valuation of fixed maturities and equity investments; impairment assessment of investments; valuation of limited liability investments, at fair value; valuation of real estate investments; valuation of deferred income taxes; valuation of mandatorily redeemable preferred stock; valuation and impairment assessment of intangible assets; goodwill recoverability; deferred acquisition costs; fair value assumptions for performance shares; fair value assumptions for subordinated debt obligations; and revenue recognition.

The Company’s critical accounting estimates and assumptions are described in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2017 Annual Report. There has been no material change subsequent to December 31, 2017 to the information previously disclosed in the 2017 Annual Report with respect to these critical accounting estimates and assumptions, except as disclosed below.



	45



KINGSWAY FINANCIAL SERVICES INC.

Provision for Unpaid Loss and Loss Adjustment Expenses

Overview

The Company records a provision for unpaid losses that have occurred as of a given evaluation date as well as for its estimated liability for loss adjustment expenses. The provision for unpaid losses includes a provision, commonly referred to as case reserves, for losses related to reported claims as well as a provision for losses related to claims incurred but not reported (“IBNR”). The provision for loss adjustment expenses represents the cost to investigate and settle claims.

The provision for unpaid loss and loss adjustment expenses does not represent an exact calculation of the liability but instead represents management's best estimate at a given accounting date, utilizing actuarial and statistical procedures, of the undiscounted estimates of the ultimate net cost of all unpaid loss and loss adjustment expenses. Management continually reviews its estimates and adjusts its provision as new information becomes available. In establishing the provision for unpaid loss and loss adjustment expenses, the Company also takes into account estimated recoveries, reinsurance, salvage and subrogation.

Any adjustments to the provision for unpaid loss and loss adjustment expenses are reflected in the consolidated statements of operations in the periods in which they become known, and the adjustments are accounted for as changes in estimates. Even after such adjustments, ultimate liability or recovery may exceed or be less than the revised provisions. An adjustment that increases the provision for unpaid loss and loss adjustment expenses is known as unfavorable development or a deficiency and will reduce net income while an adjustment that decreases the provision is known as favorable development or a redundancy and will increase net income.

Process for Establishing the Provision for Unpaid Loss and Loss Adjustment Expenses

The process for establishing the provision for unpaid loss and loss adjustment expenses reflects the uncertainties and significant judgmental factors inherent in predicting future results of both reported and IBNR claims. As such, the process is inherently complex and imprecise and estimates are constantly refined. The process of establishing the provision for unpaid loss and loss adjustment expenses relies on the judgment and opinions of a large number of individuals, including the opinions of the Company's external reserving actuaries.

Factors affecting the provision for unpaid loss and loss adjustment expenses include the continually evolving and changing regulatory and legal environment, actuarial studies, professional experience and expertise of the Company's claims department personnel and independent adjusters retained to handle individual claims, the quality of the data used for projection purposes, existing claims management practices including claim-handling and settlement practices, the effect of inflationary trends on future loss settlement costs, court decisions, economic conditions and public attitudes.

The process for establishing the provision for loss and loss adjustment expenses begins with the collection and analysis of claim data. Data on individual reported claims, both current and historical, including paid amounts and individual claim adjuster estimates, are grouped by common characteristics and evaluated by the Company’s external reserving actuaries in their analyses to estimate ultimate claim liabilities. Such data is occasionally supplemented with external data as available and when appropriate.

Our Company’s external reserving actuaries use the following generally accepted actuarial loss and loss adjustment expenses reserving methods in our analysis, for each coverage or segment that we analyze:

•

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



	46



KINGSWAY FINANCIAL SERVICES INC.

internal and external information to trend the severities and combine them with the trended, projected frequencies to develop ultimate loss projections.

The methods above all calculate an estimate of total ultimate losses. Our provision for loss and loss adjustment expenses is calculated by subtracting total paid losses from our estimate of total ultimate losses. Our estimate for IBNR is calculated by subtracting case reserves from our provision for loss and loss adjustment expenses.

Each estimation method has its own set of assumption variables and its own advantages and disadvantages, with no single estimation method being better than the others in all situations and no one set of assumptions being meaningful for all coverages or segments. For example, Paid Loss Development does not make use of case reserves, and can be more stable when there are changes to the case reserving process. Frequency and Severity, by estimating the frequency separately from severity, can assist in understanding the underlying dynamics when either frequency or severity is changing substantially.

The relative strengths and weaknesses of the particular estimation methods when applied to a particular group of claims can also change over time; therefore, the actual choice of estimation method can change with each evaluation. The estimation methods chosen are those that are believed to produce the most reliable indication at a particular evaluation date.

We monitor the actual emergence of loss and loss adjustment expenses data and compare it to the expected emergence implied by our booked estimates. Differences in these are part of our considerations for whether it is appropriate to modify our assumptions for developing the estimated provision for unpaid loss and loss adjustment expenses.

We review the adequacy of the provision for unpaid loss and loss adjustment expenses quarterly. For our year-end analysis, we re-estimate the ultimate losses for each coverage and state, by accident year. This involves performing a complete update of the historical development factors used in our analysis, incorporating the experience of the most recent calendar year. On a quarterly basis, we perform a more limited review, which can entail, for example, a comparison of the expected losses to be paid during the quarter versus actual payments, or other similar comparisons to determine the extent to which a given segment is performing as expected. In some cases, a re-estimation (similar to the year-end analysis) may be determined to be useful as part of a quarterly analysis, and we may make adjustments to ultimate losses in response to the results of this analysis. We adjust carried unpaid loss and loss adjustment expenses as we learn additional information, and reflect these adjustments in the accounting periods in which they are determined.

A basic premise in most actuarial analyses is that past patterns demonstrated in the data will repeat themselves in the future, absent a material change in the associated risk factors. Significant structural changes to the available data, product mix or organization can materially impact the provision for loss and loss adjustment expenses. Our 2016 actuarial analysis included certain assumptions regarding improved claim-handling practices that we expected to result from new claim-handling initiatives being implemented by the new claim management team hired in the fall of 2016. These assumptions led us to anticipate a significant reduction in the required provision for loss and loss adjustment expenses at December 31, 2016. These improvements did not materialize as quickly as originally anticipated, in large part due to the disruptions to claim staffing during this period. As a result, the year-end 2017 actuarial analysis removed the explicit adjustments that were made in the 2016 actuarial analysis; otherwise, the 2017 analysis was substantially reliant on historical experience. The anticipated improvements in claim-handling practices are now emerging and are expected to be recognized in future actuarial analyses once sufficient empirical evidence exists to validate the data.

Informed judgment is applied throughout the process. This includes the application of various individual experiences and expertise to multiple sets of data and analyses. In addition to actuaries, experts involved with the reserving process also include underwriting and claims personnel and lawyers, as well as other company management. As a result, management may have to consider varying individual viewpoints when establishing the provision for unpaid loss and loss adjustment expenses.

Our estimate of the provision for unpaid loss and loss adjustment expenses is proposed each quarter by our external reserving actuaries and approved by an internal management team comprised of our chief executive officer, chief operating officer and chief financial officer; the management of our non-standard automobile insurance companies, including its president, vice president of claims and treasurer; and other selected executives. We begin the process each quarter by responding to detailed information requests submitted by our external reserving actuaries. Upon completion of their estimation analysis of the provision for unpaid loss and loss adjustment expenses, the results are discussed with the internal management team. As part of this discussion, the analyses supporting the actuarial estimates of IBNR by line of business and state for each of our non-standard automobile companies, including separate analyses for our voluntary runoff companies, are reviewed. The external reserving actuaries also present explanations supporting any changes to the underlying assumptions used to calculate the indicated estimates. A review of the resulting variance between the indicated provision for unpaid loss and loss adjustment expenses and the carried provision for unpaid loss and loss adjustment expenses takes place. The internal management team engages in a discussion with the external



	47



KINGSWAY FINANCIAL SERVICES INC.

reserving actuaries and supplies supplemental information in support of assumptions it believes should be challenged. The external reserving actuaries review the supplemental information and return to the internal management team with their recommendation in regards to the provision for unpaid loss and loss adjustment expenses that should be booked to reflect their analytical assessment and view of estimation risk. After discussion of these analyses and all relevant risk factors, the internal management team determines whether the carried provision for unpaid loss and loss adjustment expenses requires adjustment.

Our external reserving actuaries also develop, as part of their annual actuarial report to the Company, an estimated range around the provision for unpaid loss and loss adjustment expenses recorded by the Company. At December 31, 2017, the Company recorded a $1.3 million provision for unpaid loss and loss adjustment expenses. The report of the Company’s external actuaries indicates that a carried provision for unpaid loss and loss adjustment expenses anywhere between $1.2 million and $1.7 million at December 31, 2017 would fall within their reasonable range of estimation. This range does not present a forecast of future redundancy or deficiency since actual development of future paid losses related to the current provision for unpaid loss and loss adjustment expenses may be affected by many variables. The provision for unpaid loss and loss adjustment expenses recorded at December 31, 2017 represents our best estimate of the ultimate amounts that will be paid.

To the extent that the ultimate paid losses are higher or lower than the provision for unpaid loss and loss adjustment expenses recorded by the Company, the differences would be recorded in the Company’s consolidated statements of operations in the accounting periods in which they are determined. There can be assurance that such differences would not be material.

Valuation of Limited Liability Investments, at Fair Value

Limited liability investments, at fair value represent the Company's investment in 1347 Investors LLC ("1347 Investors") as well as the underlying investments of the Company’s consolidated entities Net Lease Investment Grade Portfolio LLC ("Net Lease") and Argo Holdings Fund I, LLC ("Argo Holdings"), with changes in fair value reported in the consolidated statements of operations. The Company owns 26.7% of the outstanding units of 1347 Investors. The fair value of this investment 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. Net Lease owns investments in limited liability companies that hold investment properties. The fair value of Net Lease's investments is based upon the net asset values of the underlying investments companies as a practical expedient to estimate fair value. Argo Holdings makes investments in limited liability companies and limited partnerships that hold investments in search funds and private operating companies. 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. Refer to Note 20, "Fair Value of Financial Instruments," to the unaudited consolidated interim financial statements for further information.

Valuation of Real Estate Investments

The fair value of real estate investments involves a combination of the market and income valuation techniques. Under this approach, a market-based capitalization rate is derived from comparable transactions, adjusted for any unique characteristics of each asset, and applies this rate to the asset under consideration. The cap rates used during underwriting and subsequent valuation at year-end incorporate the consideration of risks of vacancy and collection loss, administrative costs of owning net leased assets and possible capital expenditures that could be determined a landlord expense.

Valuation of Mandatorily Redeemable Preferred Stock

Mandatorily redeemable preferred stock is recorded at the time of issuance based upon the gross proceeds of the offering less (i) proceeds of the offering allocated to additional paid-in capital based upon the relative fair values of equity-classified warrants issued as part of the offering and the preferred stock without the warrants; (ii) proceeds of the offering allocated to additional paid-in capital based upon the calculation of a beneficial conversion feature; and (iii) costs of the offering allocated to the preferred stock. The discount to the carrying value of the preferred stock created by the allocation of proceeds to the warrants and a beneficial conversion feature and the allocation of offering costs to the preferred stock are accreted over time as dividend expense.

Revenue Recognition

Refer to Note 14, "Revenue from Contracts with Customers," to the unaudited consolidated interim financial statements for information about our revenue recognition accounting policies.



	48



KINGSWAY FINANCIAL SERVICES INC.

RESULTS OF CONTINUING OPERATIONS

A reconciliation of total segment operating income to net loss for the three months ended March 31, 2018 and 2017 is presented in Table 1 below:

Table 1 Segment Operating Income

(in thousands of dollars)



	For the three months ended March 31,
	2018		2017		Change
Segment operating income:
Extended Warranty	846		737		109
Leased Real Estate	874		918		(44	)
Total segment operating income	1,720		1,655		65
Net investment income	638		1,168		(530	)
Net realized gains	265		—		265
Gain on change in fair value of equity investments	1,165		—		1,165
(Loss) gain on change in fair value of limited liability investments, at fair value	(936	)	54		(990	)
Net change in unrealized gain on private company investments	—		247		(247	)
Interest expense not allocated to segments	(1,717	)	(1,499	)	(218	)
Other income and expenses not allocated to segments, net	(2,412	)	(2,363	)	(49	)
Amortization of intangible assets	(255	)	(274	)	19
Loss on change in fair value of debt	(919	)	(1,889	)	970
Equity in net income of investee	101		2,385		(2,284	)
Loss from continuing operations before income tax expense	(2,350	)	(516	)	(1,834	)
Income tax expense	254		269		(15	)
Loss from continuing operations	(2,604	)	(785	)	(1,819	)
Income (loss) from discontinued operations, net of taxes	386		(455	)	841
Net loss	(2,218	)	(1,240	)	(978	)

Loss from Continuing Operations and Net Loss

In the first quarter of 2018, we reported loss from continuing operations of $2.6 million compared to $0.8 million in the first quarter of 2017. The loss from continuing operations for the three months ended March 31, 2018 is primarily due to interest expense not allocated to segments and other income and expenses not allocated to segments, partially offset by operating income in Extended Warranty and Leased Real Estate. The loss from continuing operations for the three months ended March 31, 2017 is primarily attributable to interest expense not allocated to segments, other income and expenses not allocated to segments, net and loss on change in fair value of debt, partially offset by operating income in Extended Warranty and Leased Real Estate, net investment income and equity in net income of investee.

In the first quarter of 2018, we reported net loss of $2.2 million compared to $1.2 million in the first quarter of 2017.

Extended Warranty

The Extended Warranty service fee and commission income increased 44.8% to $9.7 million for the three months ended March 31, 2018 compared with $6.7 million for the three months ended March 31, 2017. This increase is partially due to increased service fee and commission income at both IWS and Trinity. IWS experienced increased sales of vehicle service agreements due to higher automobile sales and improved penetration of its credit union distribution channel. Trinity experienced increased sales to existing customers of both its maintenance support and warranty products. The increase in service fee and commission income is also reflective of the inclusion of PWSC in 2018 following its acquisition effective October 12, 2017. PWSC service fee and commission income was $1.6 million for the three months ended March 31, 2018.



	49



KINGSWAY FINANCIAL SERVICES INC.

The Extended Warranty operating income was $0.8 million for the three months ended March 31, 2018 compared with $0.7 million for the three months ended March 31, 2017. The increase in operating income is primarily due to the inclusion of PWSC in 2018, as noted above. PWSC operating income was $0.1 million for the three months ended March 31, 2018.

Leased Real Estate

In the first quarter of 2018, Leased Real Estate rental income was $3.3 million compared to $3.3 million in the first quarter of 2017. The rental income is derived from CMC's long-term triple net lease. The Leased Real Estate operating income was $0.9 million for the three months ended March 31, 2018 compared with $0.9 million for the three months ended March 31, 2017. Leased Real Estate operating income includes interest expense of $1.6 million and $1.6 million for the three months ended March 31, 2018 and 2017, respectively. See "Investments" section below for further discussion.

Net Investment Income

Net investment income was $0.6 million in the first quarter of 2018 compared to net investment income of $1.2 million in the first quarter of 2017. The decrease in net investment income in the first quarter of 2018 compared to the first quarter of 2017 is primarily due to lower amounts recorded in equity pickups from limited liability investments and from changes in the fair market values of warrants not publicly traded.

Net Realized Gains

Net realized gains were $0.3 million in the first quarter of 2018 compared to zero in the first quarter of 2017. The $0.3 million of realized gains recorded in the first quarter of 2018 results from sales of limited liability investments held by Argo Holdings. Beginning in 2018, gains from equity investments are recorded as gain on change in fair value of equity investments, as further discussed below.

Gain on Change in Fair Value of Equity Investments

Gain on change in fair value of equity investments was $1.2 million in the first quarter of 2018 compared to zero in the first quarter of 2017. As further discussed in Note 5, "Recently Issued Accounting Standards," to the unaudited consolidated interim financial statements, effective January 1, 2018, the Company adopted ASU 2016-01. As a result, all changes in the fair value of equity investments are now recognized in net income (loss). The gain on change in fair value of equity investments for the three months ended March 31, 2018 includes realized gains on equity investments sold during the first quarter of 2018 of $0.3 million and unrealized gains on equity investments held as of March 31, 2018 of $0.9 million.

(Loss) Gain on Change in Fair Value of Limited Liability Investments, at Fair Value

(Loss) gain on change in fair value of limited liability investments, at fair value was loss of $0.9 million in the first quarter of 2018 compared to gain of $0.1 million in the first quarter of 2017. The decrease is primarily due to a $1.4 million decrease in fair value of 1347 Investors recorded for the three months ended March 31, 2018 compared to a $0.4 million decrease in fair value of 1347 Investors recorded for the three months ended March 31, 2017.

Net Change in Unrealized Gain on Private Company Investments

Net change in unrealized gain on private company investments was zero in the first quarter of 2018 compared to $0.2 million in the first quarter of 2017.

Interest Expense not Allocated to Segments

Interest expense not allocated to segments was $1.7 million in the first quarter of 2018 compared to $1.5 million in the first quarter of 2017. The increase for the three months ended March 31, 2018 is primarily attributable to generally higher London interbank offered interest rates for three-month U.S. dollar deposits ("LIBOR") during the three months ended March 31, 2018 compared to the same period in 2017. The Company's subordinated debt bears interest at the rate of LIBOR, plus spreads ranging from 3.85% to 4.20%. The increase is also reflective of the inclusion of interest expense on the Company’s bank loan incurred as part of its acquisition of PWSC effective October 12, 2017.

Other Income and Expenses not Allocated to Segments, Net

Other income and expenses not allocated to segments was a net expense of $2.4 million in the first quarter of 2018 compared to $2.4 million in the first quarter of 2017.



	50



KINGSWAY FINANCIAL SERVICES INC.

Amortization of Intangible Assets

The Company's intangible assets with definite useful lives are amortized over their estimated useful lives. Amortization of intangible assets was $0.3 million in the first quarter of 2018 compared to $0.3 million in the first quarter of 2017.

Loss on Change in Fair Value of Debt

Loss on change in fair value of debt amounted to $0.9 million in the first quarter of 2018 compared to $1.9 million in the first quarter of 2017. The loss for the three months ended March 31, 2018 and March 31, 2017 is due to an increase in the fair value of the subordinated debt. As further discussed in Note 5, "Recently Issued Accounting Standards," to the unaudited consolidated interim financial statements, effective January 1, 2018, the Company adopted ASU 2016-01. As a result, the portion of the change in fair value of subordinated debt related to the instrument-specific credit risk is now recognized in other comprehensive income (loss), whereas for 2017, the total change in fair value of subordinated debt was recorded in net income (loss). See "Debt" section below for further information.

Equity in Net Income of Investee

Equity in net income of investee for the first quarter of 2018 was $0.1 million compared to $2.4 million in the first quarter of 2017. Equity in net income of investee represents the Company's investment in Itasca Capital Ltd. See Note 8, "Investment in Investee," to the unaudited consolidated interim financial statements, for further discussion.

Income Tax Expense

Income tax expense for the first quarter of 2018 was $0.3 million compared to $0.3 million in the first quarter of 2017. See Note 15, "Income Taxes," to the unaudited consolidated interim financial statements, for additional detail of the income tax expense recorded for the three months ended March 31, 2018 and March 31, 2017.

INVESTMENTS

As a result of classifying Mendota as discontinued operations, the results of their operations are reported separately for all periods presented and their assets are presented as held for sale in the consolidated balance sheets at March 31, 2018 and December 31, 2017. All investment information in the section below has been restated to exclude Mendota for all periods presented.

Portfolio Composition

All of our investments in fixed maturities are classified as available-for-sale and are reported at fair value. All of our equity investments are reported at fair value. Prior to the adoption of ASU 2016-01, equity investments were considered available-for-sale. All of our limited liability investments are accounted for under the equity method of accounting. The most recently available financial statements of the limited liability investments are used in applying the equity method. The difference between the end of the reporting period of the limited liability investments and that of the Company is no more than three months. Limited liability investments, at fair value represent the Company's investment in 1347 Investors LLC as well as the underlying investments of the Company’s consolidated entities Net Lease and Argo Holdings. Investments in private companies consist of common stock, preferred stock, notes receivable and derivative contracts in privately owned companies and investments in limited liability companies in which the Company’s interests are deemed minor. These investments do not have readily determinable fair values and, therefore, are reported at cost, adjusted for observable price changes and impairments. Real estate investments are reported at fair value. Other investments include collateral loans and are reported at their unpaid principal balance. Short-term investments, which consist of investments with original maturities between three months and one year, are reported at cost, which approximates fair value.

At March 31, 2018, we held cash and cash equivalents, restricted cash and investments with a carrying value of $99.4 million.

Investments held by our insurance subsidiary, Amigo, must comply with domiciliary state regulations that prescribe the type, quality and concentration of investments. Our U.S. operations typically invest in U.S. dollar-denominated instruments to mitigate their exposure to currency rate fluctuations.



	51



KINGSWAY FINANCIAL SERVICES INC.

Table 2 below summarizes the carrying value of investments, including cash and cash equivalents and restricted cash, at the dates indicated.

TABLE 2 Carrying value of investments, including cash and cash equivalents and restricted cash

(in thousands of dollars, except for percentages)



Type of investment	March 31, 2018	% of Total		December 31, 2017	% of Total
Fixed maturities:
U.S. government, government agencies and authorities	6,378	6.4	%	5,612	5.6	%
States, municipalities and political subdivisions	620	0.6	%	626	0.6	%
Mortgage-backed	3,041	3.1	%	2,876	2.9	%
Corporate	2,648	2.7	%	5,427	5.4	%
Total fixed maturities	12,687	12.8	%	14,541	14.5	%
Equity investments:
Common stock	1,484	1.5	%	3,570	3.6	%
Warrants	1,371	1.4	%	1,019	1.0	%
Total equity investments	2,855	2.9	%	4,589	4.6	%
Limited liability investments	9,095	9.1	%	9,094	9.1	%
Limited liability investments, at fair value	31,508	31.7	%	32,211	32.1	%
Investments in private companies	4,829	4.9	%	4,870	4.9	%
Real estate investments	10,662	10.7	%	10,662	10.6	%
Other investments	3,316	3.3	%	3,721	3.7	%
Short-term investments	151	0.2	%	151	0.2	%
Total investments	75,103	75.6	%	79,839	79.7	%
Cash and cash equivalents	11,863	11.8	%	5,377	5.4	%
Restricted cash	12,471	12.5	%	14,985	14.9	%
Total	99,437	99.9	%	100,201	100.0	%

Other-Than-Temporary Impairment

The Company performs a quarterly impairment analysis of its investments classified as available-for-sale and investments in private companies. Prior to the adoption of ASU 2016-01, equity investments were considered available-for-sale and were included in the analysis of other-than-temporary impairments. Following the adoption of ASU 2016-01 beginning with the first quarter of 2018, the Company includes only its investments in fixed maturities and investments in private companies in its quarterly impairment analysis. Further information regarding our detailed analysis and factors considered in establishing an other-than-temporary impairment on an investment is discussed within Note 7, "Investments," to the unaudited consolidated interim financial statements.

As a result of the analysis performed by the Company to determine declines in market value that are other-than-temporary, there were no write-downs for other-than-temporary impairments related to investments recorded for the three months ended March 31, 2018 and March 31, 2017. As a result of the analysis performed with respect to limited liability investments, at fair value, the Company recorded impairments of $0.0 million and zero for the three months ended March 31, 2018 and March 31, 2017, respectively, which are included in (loss) gain on change in fair value of limited liability investments, at fair value in the consolidated statements of operations. As a result of the analysis performed with respect to investments in private companies, the Company recorded no write-downs for other-than-temporary impairments related to investments in private companies for the three months ended March 31, 2018 and March 31, 2017.

The length of time a fixed maturity investment may be held in an unrealized loss position may vary based on the opinion of the investment manager and their respective analyses related to valuation and to the various credit risks that may prevent us from recapturing the principal investment. In the case of a fixed maturity investment where the investment manager determines that there is little or no risk of default prior to the maturity of a holding, we would elect to hold the investment in an unrealized loss position until the price recovers or the investment matures. In situations where facts emerge that might increase the risk associated with recapture of principal, the Company may elect to sell a fixed maturity investment at a loss. Prior to the adoption of ASU



	52



KINGSWAY FINANCIAL SERVICES INC.

2016-01, the Company considered the ability and intent to hold an equity investment for a period of time sufficient to allow for anticipated recovery.

At March 31, 2018, the gross unrealized losses for fixed maturities amounted to $0.2 million, and there were no unrealized losses attributable to non-investment grade fixed maturities. At December 31, 2017, the gross unrealized losses for fixed maturities and equity investments amounted to $0.8 million, and there were no unrealized losses attributable to non-investment grade fixed maturities. At each of March 31, 2018 and December 31, 2017, all unrealized losses on individual investments were considered temporary.

UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES

As a result of classifying Mendota as discontinued operations, the results of their operations are reported separately for all periods presented and their liabilities are presented as held for sale in the consolidated balance sheets at March 31, 2018 and December 31, 2017. All unpaid loss and loss adjustment expenses information in the section below has been restated to exclude Mendota for all periods presented.

Unpaid loss and loss adjustment expenses represent the estimated liabilities for reported loss events, incurred but not reported ("IBNR") loss events and the related estimated loss adjustment expenses.

Tables 3 and 4 present distributions, by line of business, of the provision for unpaid loss and loss adjustment expenses gross and net of external reinsurance, respectively.

TABLE 3 Provision for unpaid loss and loss adjustment expenses - gross

(in thousands of dollars)



Line of Business	March 31, 2018	December 31, 2017
Non-standard automobile	594	572
Commercial automobile	642	580
Other	187	177
Total	1,423	1,329

TABLE 4 Provision for unpaid loss and loss adjustment expenses - net of reinsurance recoverable

(in thousands of dollars)



Line of Business	March 31, 2018	December 31, 2017
Non-standard automobile	535	508
Commercial automobile	626	572
Other	187	177
Total	1,348	1,257

Non-Standard Automobile

At March 31, 2018 and December 31, 2017, the gross provisions for unpaid loss and loss adjustment expenses for our non-standard automobile business were $0.6 million and $0.6 million, respectively.

Commercial Automobile

At March 31, 2018 and December 31, 2017, the gross provisions for unpaid loss and loss adjustment expenses for our commercial automobile business were $0.6 million and $0.6 million, respectively.

Other

At March 31, 2018 and December 31, 2017, the gross provisions for unpaid loss and loss adjustment expenses for our other business were $0.2 million and $0.2 million, respectively.



	53



KINGSWAY FINANCIAL SERVICES INC.

Information with respect to development of our provision for prior years' loss and loss adjustment expenses is presented in Table 5.

TABLE 5 Increase in prior years' provision for loss and loss adjustment expenses

(in thousands of dollars)



	Three months ended March 31,
	2018	2017
Unfavorable change in provision for loss and loss adjustment expenses for prior accident years	346	—

For the three months ended March 31, 2018 and March 31, 2017, the Company reported $0.3 million and $0.0 million, respectively, of unfavorable development for loss and loss adjustment expenses from prior accident years. The unfavorable development reported for the three months ended March 31, 2018 was related to an increase in loss adjustment expenses at Amigo.

See the "Critical Accounting Estimates and Assumptions" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q/A for additional information pertaining to the Company’s process of estimating the provision for unpaid loss and loss adjustment expenses.

DEBT

Bank Loan

On October 12, 2017, the Company borrowed a principal amount of $5.0 million from a bank to partially finance its acquisition of PWSC. The bank loan matures on October 12, 2022 and has a fixed interest rate of 5.0%. The bank loan is carried in the consolidated balance sheets at its unpaid principal balance.

Notes Payable

As part of the acquisition of CMC in July 2016, the Company assumed the Mortgage and recorded the Mortgage at its estimated fair value of $191.7 million, which included the unpaid principal amount of $180.0 million as of the date of acquisition plus a premium of $11.7 million. The Mortgage matures on May 15, 2034 and has a fixed interest rate of 4.07%. The Mortgage is carried in the consolidated balance sheets at its amortized cost, which reflects the monthly pay-down of principal as well as the amortization of the premium using the effective interest rate method.

On January 5, 2015, Flower Portfolio 001, LLC assumed a $9.2 million mortgage in conjunction with the purchase of investment real estate properties ("the Flower Note"). The Flower Note matures on December 10, 2031 and has a fixed interest rate of 4.81%. The Flower Note is carried in the consolidated balance sheets at its unpaid principal balance.

On October 15, 2015, Net Lease assumed a $9.0 million mezzanine debt in conjunction with the purchase of investment real estate properties ("the Net Lease Note"). The Net Lease Note matures on November 1, 2020 and has a fixed interest rate of 10.25%. The Net Lease Note is carried in the consolidated balance sheets at its unpaid principal balance.

Subordinated Debt

Between December 4, 2002 and December 16, 2003, six subsidiary trusts of the Company issued $90.5 million of 30-year capital securities to third parties in separate private transactions. In each instance, a corresponding floating rate junior subordinated deferrable interest debenture was then issued by Kingsway America Inc. to the trust in exchange for the proceeds from the private sale. The floating rate debentures bear interest at the rate of LIBOR, plus spreads ranging from 3.85% to 4.20%. The Company has the right to call each of these securities at par value any time after five years from their issuance until their maturity.

The Company's subordinated debt is measured and reported at fair value. At March 31, 2018, the carrying value of the subordinated debt is $53.5 million. The fair value of the subordinated debt is calculated using a model based on significant market observable inputs and inputs developed by a third party. For a description of the market observable inputs and inputs developed by a third party used in determining fair value of debt, see Note 20, "Fair Value of Financial Instruments," to the unaudited consolidated interim financial statements.

During the three months ended March 31, 2018, the market observable swap rates changed, and the Company experienced a decrease in the credit spread assumption developed by the third party. Changes in the market observable swap rates affect the fair value model in different ways. An increase in the LIBOR swap rates has the effect of increasing the fair value of the Company's



	54



KINGSWAY FINANCIAL SERVICES INC.

subordinated debt while an increase in the risk-free swap rates has the effect of decreasing the fair value. The decrease in the credit spread assumption has the effect of increasing the fair value of the Company's subordinated debt while an increase in the credit spread assumption has the effect of decreasing the fair value. The other primary variable affecting the fair value of debt calculation is the passage of time, which will always have the effect of increasing the fair value of debt. The changes to the credit spread and swap rate variables during the three months ended March 31, 2018, along with the passage of time, contributed to the $1.4 million increase in fair value of the Company’s subordinated debt between December 31, 2017 and March 31, 2018.

As further discussed in Note 5, "Recently Issued Accounting Standards," to the unaudited consolidated interim financial statements, effective January 1, 2018, the Company adopted ASU 2016-01. As a result, the portion of the change in fair value of subordinated debt related to the instrument-specific credit risk is now recognized in other comprehensive income (loss), whereas for 2017, the total change in fair value of subordinated debt was recorded in net income (loss). Of the $1.4 million increase in fair value of the Company’s subordinated debt between December 31, 2017 and March 31, 2018, $0.4 million is reported as change in fair value of debt attributable to instrument-specific credit risk in the Company's unaudited consolidated statements of comprehensive loss and $0.9 million is reported as loss on change in fair value of debt in the Company’s unaudited consolidated statements of operations.

Also as a result of the adoption of ASU 2016-01, a cumulative $40.5 million change in fair value of subordinated debt attributable to instrument-specific credit risk was reclassified from accumulated deficit to accumulated other comprehensive income (loss). As long as the Company repays its subordinated debt at maturity, it can be expected that this $40.5 million reclassification will reverse without being reported in the Company’s consolidated statements of operations. Though changes in the market observable swap rates will continue to introduce some volatility each quarter to the Company’s reported gain or loss on change in fair value of debt, changes in the credit spread assumption developed by the third party will no longer introduce volatility to the Company’s consolidated statements of operations. The fair value of the Company’s subordinated debt will eventually equal the principal value of the subordinated debt by the time of the stated redemption date of each trust, beginning with the trust maturing on December 4, 2032 and continuing through January 8, 2034, the redemption date of the last of the Company’s outstanding trusts; however, the remaining cumulative change in fair value of subordinated debt expected to be recorded in net income (loss) is no longer expected to be material given the anticipated accounting for the $40.5 million reclassification.

For a description of each of the Company's six subsidiary trusts, see Note 13, "Debt," to the unaudited consolidated interim financial statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 5, "Recently Issued Accounting Standards," to the unaudited consolidated interim financial statements, for discussion of certain accounting standards that may be applicable to the Company's current and future consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

The purpose of liquidity management is to ensure there is sufficient cash to meet all financial commitments and obligations as they fall due. The liquidity requirements of the Company and its subsidiaries have been met primarily by funds generated from operations, capital raising, disposal of discontinued operations, investment maturities and income and other returns received on investments or from the sale of investments. Cash provided from these sources is used primarily for making investments and for loss and loss adjustment expense payments, debt servicing and other operating expenses. The timing and amount of payments for loss and loss adjustment expenses may differ materially from our provisions for unpaid loss and loss adjustment expenses, which may create increased liquidity requirements.

Cash Flows from Continuing Operations

During the three months ended March 31, 2018, the Company reported on the unaudited consolidated statements of cash flows $0.2 million of net cash provided by operating activities from continuing operations. The reconciliation between the Company's reported net loss of $2.2 million and the $0.2 million of net cash provided by operating activities from continuing operations can be explained primarily by the $2.5 million increase in deferred service fees.

During the three months ended March 31, 2018, the net cash provided by investing activities from continuing operations as reported on the unaudited consolidated statements of cash flows was $4.8 million. This source of cash was driven primarily by proceeds from sales and maturities of fixed maturities, equity investments and other investments in excess of purchases of fixed maturities, equity investments and limited liability investments, at fair value.

During the three months ended March 31, 2018, the net cash used in financing activities from continuing operations as reported on the unaudited consolidated statements of cash flows was $1.1 million. This use of cash is attributed to principal repayments of $0.8 million on notes payable and $0.3 million on the bank loan.



	55



KINGSWAY FINANCIAL SERVICES INC.

In summary, as reported on the unaudited consolidated statements of cash flows, the Company's net increase in cash and cash equivalents from continuing operations during the three months ended March 31, 2018 was $4.0 million. The absence of cash flows from discontinued operations, whether positive or negative, is not expected to adversely affect the Company’s future liquidity and capital resources given that the discontinued operations are comprised of insurance subsidiaries formerly reported as part of the Company’s Insurance Underwriting segment. Receipt of dividends from the Company's insurance subsidiaries has not generally been considered a source of liquidity for the holding company. The insurance subsidiaries have required regulatory approval for the return of capital and, in certain circumstances, prior to the payment of dividends. At March 31, 2018, the U.S. insurance subsidiaries of the Company were restricted from making any dividend payments to the holding company without regulatory approval pursuant to domiciliary state insurance regulations.

The Company's Extended Warranty subsidiaries fund their obligations primarily through service fee and commission income. The Company's Leased Real Estate subsidiary funds its obligations through rental income. The Company's insurance subsidiaries fund their obligations primarily through investment income and maturities in the investments portfolios.

The liquidity of the holding company is managed separately from its subsidiaries. Actions available to the holding company to raise liquidity in order to meet its obligations include the sale of passive investments; sale of subsidiaries; issuance of debt or equity securities; certain excess cash flow from the Company’s Extended Warranty subsidiaries and giving notice to its Trust Preferred trustees of its intention to exercise its voluntary right to defer interest payments for up to 20 quarters, which right the Company previously exercised during the period from the first quarter of 2011 through the fourth quarter of 2015.

Receipt of dividends from the Extended Warranty subsidiaries is limited for the holding company at this time even though excess cash generated by Trinity’s operating results is freely available for distribution to the holding company. IWS is somewhat constrained from paying dividends, given the existence of a 10% minority owner of its common equity, and PWSC is constrained from paying dividends while the bank loan incurred to partially finance the acquisition of PWSC remains outstanding.

Receipt of dividends from the Leased Real Estate segment is not generally considered a source of liquidity for the holding company. Because of the Lease Amendment, CMC may be in a position to distribute to the Company some of the cash received from the additional rental income. Any material cash flow to the Company, however, to help the Company meet its holding company obligations remains likely to occur only upon the occurrence of one of the three events described in the next paragraph that would trigger payment of service fees. There can be no assurance as to the timing of the occurrence, or the resulting outcome, from one of these events.

Pursuant to the terms of the management services agreement entered into at the closing of the acquisition of CMC, an affiliate of the seller (the "Service Provider") will provide certain services to CMC and its subsidiaries in exchange for service fees. Such services (collectively, the "Services") will include (i) causing an affiliate of the Service Provider to guaranty certain obligations of the Property Owner (pursuant to an Indemnity and Guaranty Agreement between such affiliate and the holder of the Mortgage (the "Mortgagor")), (ii) providing certain individuals to serve as members of the board of directors and/or certain executive officers of CMC and/or its subsidiaries and (iii) providing asset management services with respect to the Real Property. In exchange for the Services, the Property Owner will pay certain fees to the Service Provider. The payment of such service fees may be triggered by (i) a sale of the Real Property, (ii) a restructuring of the lease to which the Real Property is subject or (iii) a refinancing or restructuring of the Mortgage. The amount of the service fees will range from 40%-80% of the net proceeds generated by the event triggering the payment of the service fees (depending on the nature and timing of the triggering event). The Lease Amendment has not triggered the payment of service fees to the Service Provider.

The holding company’s liquidity, defined as the amount of cash in the bank accounts of Kingsway Financial Services Inc. and Kingsway America Inc., was $3.0 million and $0.6 million at March 31, 2018 and December 31, 2017, respectively. These amounts are reflected in the cash and cash equivalents of $11.9 million and $5.4 million reported at March 31, 2018 and December 31, 2017, respectively, on the Company’s consolidated balance sheets. The cash and cash equivalents and restricted cash other than the holding company’s liquidity represent restricted and unrestricted cash held by Amigo, Kingsway Re and the Company's Extended Warranty and Leased Real Estate subsidiaries and are not considered to be available to meet holding company obligations, which primarily consist of interest payments on subordinated debt; holding company operating expenses; transaction-related expenses; investments; and any other extraordinary demands on the holding company, including the purchase of certain investments from the Company’s insurance subsidiaries. See "Regulatory Capital" section below for further discussion.

The holding company’s liquidity of $3.0 million at March 31, 2018 represented approximately three months of interest payments on subordinated debt and regularly recurring operating expenses before any transaction-related expenses, any new holding company investments or any other extraordinary demands on the holding company. In addition, the holding company owns investments in publicly traded securities and has access to some of the operating cash generated by the Extended Warranty subsidiaries. While



	56



KINGSWAY FINANCIAL SERVICES INC.

these liquid sources do not represent cash of the holding company at March 31, 2018, they do represent future sources of liquidity that make it probable that the holding company will be able to meet its obligations as they become due over the next 12 months.

Regulatory Capital

In the United States, a risk-based capital ("RBC") formula is used by the National Association of Insurance Commissioners ("NAIC") to identify property and casualty insurance companies that may not be adequately capitalized. In general, insurers reporting surplus as regards policyholders below 200% of the authorized control level, as defined by the NAIC, at December 31 are subject to varying levels of regulatory action, including discontinuation of operations. As of December 31, 2017, surplus as regards policyholders reported by each of our U.S. insurance subsidiaries, with the exception of Mendota, exceeded the 200% threshold.

Kingsway Re, our reinsurance subsidiary domiciled in Barbados, is required by the regulator in Barbados to maintain minimum statutory capital of $125,000. Kingsway Re is currently operating with statutory capital near the regulatory minimum, requiring us to periodically contribute capital to fund operating expenses. Kingsway Re incurs operating expenses of approximately $0.1 million per year.

The Illinois Department of Insurance ("IDOI") completed in 2016 a financial examination of MCC for the five-year period ending December 31, 2015. No financial statement adjustments were required. The Florida Office of Insurance Regulation ("FOIR") completed in 2016 a financial examination of Amigo for the three-year period ending December 31, 2014 and completed in the first quarter of 2018 a financial examination of Amigo for the two-year period ending December 31, 2016. No financial statement adjustments were required as a result of either examination. In 2017, the MDOC began a financial examination of Mendota and Mendakota for the five-year period ending December 31, 2016. This examination is expected to be completed by June 30, 2018.

As of December 31, 2017, Mendota's RBC was 196%, which is at the company action level, as defined by the NAIC. Mendota has prepared a comprehensive RBC plan, which it filed with the Minnesota Department of Commerce ("MDOC") on March 15, 2018. The comprehensive plan is intended to outline Mendota's future plans, including the current and projected RBC level, and is subject to approval by the MDOC. Included in Mendota’s RBC plan is a proposed action to reduce the limited liability investments, limited liability investment, at fair value and other investments held by Mendota and its wholly owned subsidiaries, primarily by having the holding company purchase these investments from Mendota, MCC and Amigo at their carrying values.

Achievement of the comprehensive plan depends on future events and circumstances, the outcome of which cannot be assured. As part of the Company’s response to improve Mendota’s RBC and to reduce the risk profile of its business, Mendota entered into a 50% quota share reinsurance agreement with a highly rated reinsurer, effective February 1, 2018, for all premiums written with the exception of premium written in California. The reinsurance arrangement will reduce Mendota’s net premiums written during 2018, which will reduce the risk-based capital charge assigned to the business and should, as a result, improve Mendota’s RBC. MCC also entered into a 50% quota share reinsurance agreement with the same reinsurer, effective February 1, 2018.

On May 9, 2018, the Company received a letter of intent to acquire Mendota and its wholly owned subsidiaries MCC, Mendakota and Amigo (the "LOI") for a price equal to the statutory surplus of Mendota, which was $29.1 million at March 31, 2018. Following deliberation by the Company’s board of directors, taking into account the recent financial performance of the Insurance Underwriting segment and the time and resources required to successfully execute the RBC plan, the Company decided to execute the LOI and pursue the sale of Mendota, MCC, Mendakota and Amigo. Pursuant to the terms of the LOI, the holding company will redeploy the proceeds from the sale to assist it in acquiring the remainder of the limited liability investments, limited liability investment, at fair value and other investments that will still be owned by Mendota, Mendakota, MCC and Amigo at the time of the closing, which total $29.0 million at March 31, 2018. As the transaction is contemplated in the LOI, at the closing, none of Mendota, MCC, Mendakota or Amigo will own any limited liability investments, limited liability investment, at fair value or other investments. These investments will all be owned by the holding company following the close of the proposed transaction. This transaction is subject to the execution of definitive agreements and regulatory approvals by the MDOC, the FOIR and the IDOI. There can be no assurance that the buyer and the Company will execute definitive agreements or that all required regulatory approvals will be secured. Failing the consummation of the proposed transaction, there can be no assurance that the domiciliary regulators in general, or the MDOC in particular with respect to the continuing financial examination of Mendota and Mendakota, will not propose financial adjustments or take other actions that would be material to the Company’s business, results of operations or financial condition.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has off-balance sheet arrangements related to guarantees, which are further described in Note 22, "Commitments and Contingent Liabilities," to the unaudited consolidated interim financial statements.



	57



KINGSWAY FINANCIAL SERVICES INC.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market Risk

Market risk is the risk that we will incur losses due to adverse changes in interest or currency exchange rates and equity prices. We have exposure to market risk through our investment activities and our financing activities.

Given our U.S. operations typically invest in U.S. dollar denominated fixed maturity instruments, our primary market risk exposures in the investments portfolio are to changes in interest rates. Periodic changes in interest rate levels generally affect our financial results to the extent that the investments are recorded at market value and reinvestment yields are different than the original yields on maturing instruments. During periods of rising interest rates, the market values of the existing fixed maturities will generally decrease. The reverse is true during periods of declining interest rates.

We manage our exposure to risks associated with interest rate fluctuations through active review of our investment portfolio by our management and Board of Directors, consultation with third-party financial advisors and by managing the maturity profile of our fixed maturity portfolio. Our goal is to maximize the total after-tax return on all of our investments. An important strategy we employ to achieve this goal is to try to hold enough in cash and short-term investments in order to avoid liquidating longer-term investments to pay claims authorized on vehicle service agreements and loss adjustment expenses.

Table 6 below summarizes the fair value by contractual maturities of the fixed maturities portfolio, excluding cash and cash equivalents, at March 31, 2018 and December 31, 2017.

TABLE 6 Fair value of fixed maturities by contractual maturity date

(in thousands of dollars, except for percentages)



	March 31, 2018	% of Total		December 31, 2017	% of Total
Due in less than one year	5,285	41.7	%	3,605	24.8	%
Due in one through five years	6,056	47.7	%	9,310	64.0	%
Due after five through ten years	134	1.1	%	345	2.4	%
Due after ten years	1,212	9.5	%	1,281	8.8	%
Total	12,687	100.0	%	14,541	100.0	%

At March 31, 2018, 89.4% of fixed maturities, including treasury bills, government bonds and corporate bonds, had contractual maturities of five years or less. Actual maturities may differ from contractual maturities because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties. The Company holds cash and high-grade short-term assets that, along with fixed maturities, management believes are sufficient in amount for the payment of unpaid loss and loss adjustment expenses and other obligations on a timely basis. In the event additional cash is required to meet obligations to our policyholders and customers, we believe the high-quality investments in the portfolios provide us with sufficient liquidity.

Based upon the results of interest rate sensitivity analysis, Table 7 below shows the interest rate risk of our investments in fixed maturities, measured in terms of fair value (which is equal to the carrying value for all our fixed maturity securities), at March 31, 2018 and December 31, 2017.



	58



KINGSWAY FINANCIAL SERVICES INC.

TABLE 7 Sensitivity analysis on fixed maturities

(in thousands of dollars)



	100 Basis Point Decrease in Interest Rates		No Change		100 Basis Point Increase in Interest Rates
As of March 31, 2018
Estimated fair value	$	12,917	$	12,687	$	12,457
Estimated increase (decrease) in fair value	$	230	$	—	$	(230	)

As of December 31, 2017
Estimated fair value	$	14,840	$	14,541	$	14,242
Estimated increase (decrease) in fair value	$	299	$	—	$	(299	)

We use both fixed and variable rate debt as sources of financing. Because our subordinated debt is LIBOR-based, our primary market risk related to financing activities is to changes in LIBOR. As of March 31, 2018, each one hundred basis point increase in LIBOR would result in an approximately $0.9 million increase in our annual interest expense.

Equity Risk

Equity risk is the risk we will incur economic losses due to adverse changes in equity prices. Our exposure to changes in equity prices results from our holdings of common stock. We principally manage equity price risk through industry and issuer diversification and asset allocation techniques and by continuously evaluating market conditions.

Credit Risk

Credit risk is defined as the risk of financial loss due to failure of the other party to a financial instrument to discharge an obligation. Credit risk arises from our positions in short-term investments, corporate debt instruments and government bonds.

The Investment Committee of the Board of Directors is responsible for the oversight of key investment policies and limits. These policies and limits are subject to annual review and approval by the Investment Committee. The Investment Committee is also responsible for ensuring these policies are implemented and procedures are in place to manage and control credit risk.

Table 8 below summarizes the composition of the fair values of fixed maturities, excluding cash and cash equivalents, at March 31, 2018 and December 31, 2017, by rating as assigned by Standard and Poor's ("S&P") or Moody's Investors Service ("Moody's"). Fixed maturities consist of predominantly high-quality instruments in corporate and government bonds with approximately 100.0% of those investments rated 'A' or better at March 31, 2018. 'Not Rated' in Table 8 below at December 31, 2017 includes $3.0 million of 8% preferred stock of 1347 Property Insurance Holdings, Inc., redeemable on February 24, 2020. During the first quarter of 2018, the preferred stock was redeemed at its par value of $3.0 million.

TABLE 8 Credit ratings of fixed maturities

(ratings as a percentage of total fixed maturities)



Rating (S&P/Moody's)	March 31, 2018		December 31, 2017
AAA/Aaa	75.0	%	59.6	%
AA/Aa	11.6		8.8
A/A	13.4		10.9
Percentage rated A/A2 or better	100.0	%	79.3	%
Not rated	—		20.7
Total	100.0	%	100.0	%



	59



KINGSWAY FINANCIAL SERVICES INC.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of March 31, 2018. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports the Company files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, the Company’s management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints that require the Company’s management to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

The evaluation of our disclosure controls and procedures by the Company's Chief Executive Officer and Chief Financial Officer included a review of the restatement described in the filing of this Form 10-Q/A for the three months ended March 31, 2018 and March 31, 2017, where we restated our consolidated balance sheet, consolidated statements of operations, consolidated statements of cash flows, and notes to our consolidated financial statements. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2018, the Company’s disclosure controls and procedures were not effective as a result of material weaknesses in the Company's internal control over financial reporting related to the accounting for and disclosure of certain complex and nonrecurring transactions; the accounting for and disclosure of certain other items; monitoring the collectability of accounts receivable balances; other-than-temporary impairment on equity method investments; and certain account reconciliations. The material weaknesses were discovered during the course of the 2018 external audit of the accounts and, as such, not all material weaknesses necessarily relate to the periods covered by this Form 10-Q/A. Refer to Note 4, "Recast and Restatement of Previously Issued Financial Statements," to the unaudited consolidated interim financial statements of this Form 10-Q/A for the three months ended March 31, 2018 and March 31, 2017.

Material Weaknesses in Internal Control over Financial Reporting

A material weakness is defined as a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

With respect to the accounting for and disclosure of certain complex and nonrecurring transactions, the execution of the controls over the application of accounting literature did not operate effectively with respect to:


•	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.

Concerning the accounting for and disclosure of certain other items, the execution of the controls over the application of accounting literature did not operate effectively with respect to separating restricted cash from cash and cash equivalents on the face of the consolidated balance sheet. Additionally, the Company did not have adequate controls in place pertaining to disclosure of related parties.

Regarding the collectability of accounts receivable balances, the Company did not have adequate controls and procedures with respect to evaluating balances for collectability, including the lack of a formal policy governing the review of accounts, as well as calculating and documenting necessary reserves.



	60



KINGSWAY FINANCIAL SERVICES INC.

With respect to other-than-temporary impairment on equity method investments, the Company did not properly apply the accounting literature when performing its analysis in determining whether its investment in investee was other-than-temporarily impaired as of December 31, 2018.

Finally, with respect to the lack of adequate procedures regarding certain account reconciliations, there were errors in the reconciliation of account balances as they were not performed timely and/or at a level of precision to identify errors and incorrect balance sheet and income statement classification for certain cash, receivable, deposit, accounts payable, deferred revenue, escheat liability and investment income accounts accounts.

The matters were discovered during the course of the 2018 external audit of the accounts and were reviewed with the Company's Audit Committee. Certain of these material weaknesses resulted in the restatement described in Note 4, "Recast and Restatement of Previously Issued Financial Statements," to the unaudited consolidated interim financial statements of this Form 10-Q/A for the three months ended March 31, 2018 and March 31, 2017.

As a result of the identified material weaknesses, the Company’s management directed a comprehensive review of its consolidated financial statements to assess the possibility of further material misstatements that may remain unidentified. As a result of such review, and notwithstanding the material weaknesses described above, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, believes that the consolidated financial statements contained in this Form 10-Q/A for the three months ended March 31, 2018 and March 31, 2017 fairly present, in all material respects, our financial condition, results of operations and cash flows for the fiscal years presented in conformity with U.S. GAAP.

Remediation Process

The Company is evaluating the material weaknesses and developing a plan of remediation to strengthen the effectiveness of the design and operation of its internal control environment. The remediation plan will include the following actions:


•	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, and the account reconciliation procedures.

The actions that the Company is taking are subject to ongoing senior management review as well as Audit Committee oversight. The Company is committed to maintaining a strong internal control environment and believes that these remediation efforts will represent significant improvements in its controls. The Company has started to implement these steps; however, some of these steps will take time to be fully integrated and confirmed to be effective and sustainable. Additional controls may also be required over time. Until the remediation steps set forth above are fully implemented and tested, the material weaknesses described above will continue to exist.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company's internal control over financial reporting during the period beginning January 1, 2018, and ending March 31, 2018, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information concerning pending legal proceedings is incorporated herein by reference to Note 22, "Commitments and Contingencies," to the unaudited consolidated interim financial statements in Part I of this Form 10-Q.



	61



KINGSWAY FINANCIAL SERVICES INC.

Item 1A. Risk Factors

There are no material changes with respect to those risk factors previously disclosed in our 2017 Annual Report, except as disclosed below.

Material weaknesses in our internal control over financial reporting could result in material misstatements in our consolidated financial statements.

We are required to evaluate the effectiveness of the design and operation of our disclosure controls and procedures under the Securities Exchange Act of 1934. We have in the past concluded that our internal controls over financial reporting related to income tax accounting for non-routine transactions and the adoption of ASU 2014-09 were not effective. We have currently identified the existence of material weaknesses in internal control over financial reporting related to the accounting for and disclosure of certain complex and nonrecurring transactions; the accounting for and disclosure of certain other items; monitoring the collectability of accounts receivable balances; other-than-temporary impairment on equity method investments; and certain account reconciliations.

As discussed in Note 4, "Recast and Restatement of Previously Issued Financial Statements," to the unaudited consolidated interim financial statements of this Form 10-Q/A, we have restated our consolidated financial statements as of and for the three months ended March 31, 2018. Although we previously remediated the material weakness related to income tax accounting for non-routine transactions and are actively engaged in developing and implementing remediation plans as described Item 4, Controls and Procedures, of this Form 10-Q/A, we can provide no assurance that additional material weaknesses in our internal control over financial reporting will not be identified in the future and that such material weaknesses, if identified, will not result in material misstatements in our consolidated financial statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None



	62



KINGSWAY FINANCIAL SERVICES INC.

Item 6. Exhibits



31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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



	63



KINGSWAY FINANCIAL SERVICES INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			KINGSWAY FINANCIAL SERVICES INC.

Date:	February 27, 2020	By:	/s/ John T. Fitzgerald
			John T. Fitzgerald, Chief Executive Officer, President and Director
			(principal executive officer)

Date:	February 27, 2020	By:	/s/ William A. Hickey, Jr.
			William A. Hickey, Jr., Chief Financial Officer and Executive Vice President
			(principal financial officer)



	64

Attached files

Stock widget

Investing forum

KINGSWAY FINANCIAL SERVICES INC Reports