UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| (Mark One) | |||||
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
| For Quarterly Period Ended | |||||
| or | |||||
| | 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:
Kingsway Financial Services Inc.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | ||
| (Address of principal executive offices and zip code) | ||
| 1- | ||
| (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 that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | | Smaller Reporting Company | Emerging Growth Company |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The number of shares, including restricted common shares, outstanding of the registrant's common stock as of May 9, 2023 was
| Table Of Contents |
|
| PART I - FINANCIAL INFORMATION |
|
| ITEM 1. FINANCIAL STATEMENTS |
|
| Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022 |
|
| Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 (unaudited) |
|
| Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2023 and 2022 (unaudited) |
|
| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (unaudited) |
|
| Notes to Consolidated Financial Statements (unaudited) |
|
| ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
|
| ITEM 4. CONTROLS AND PROCEDURES |
|
| PART II - OTHER INFORMATION |
|
| ITEM 1. LEGAL PROCEEDINGS |
|
| ITEM 1A. RISK FACTORS |
|
| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
|
| ITEM 3. DEFAULTS UPON SENIOR SECURITIES |
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| ITEM 4. MINE SAFETY DISCLOSURES |
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| ITEM 5. OTHER INFORMATION |
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| ITEM 6. EXHIBITS |
|
| SIGNATURES |
|
| KINGSWAY FINANCIAL SERVICES INC. |
(in thousands, except share data)
| March 31, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investments: | ||||||||
| Fixed maturities, at fair value (amortized cost of $ and $, respectively) | $ | $ | ||||||
| Equity investments, at fair value (cost of $ and $, respectively) | ||||||||
| Limited liability investments | ||||||||
| Limited liability investments, at fair value | ||||||||
| Investments in private companies, at adjusted cost | ||||||||
| Other investments, at cost which approximates fair value | ||||||||
| Short-term investments, at cost which approximates fair value | ||||||||
| Total investments | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash | ||||||||
| Accrued investment income | ||||||||
| Service fee receivable, net of allowance for credit losses of $ and $, respectively | ||||||||
| Other receivables, net of allowance of $ and $, respectively | ||||||||
| Deferred contract costs | ||||||||
| Property and equipment, net of accumulated depreciation of $ and $, respectively | ||||||||
| Right-of-use asset | ||||||||
| Goodwill | ||||||||
| Intangible assets, net of accumulated amortization of $ and $, respectively | ||||||||
| Other assets | ||||||||
| Assets held for sale | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Shareholders' Equity | ||||||||
| Liabilities: | ||||||||
| Accrued expenses and other liabilities | $ | $ | ||||||
| Income taxes payable | ||||||||
| Deferred service fees | ||||||||
| Bank loans | ||||||||
| Subordinated debt, at fair value | ||||||||
| Lease liability | ||||||||
| Net deferred income tax liabilities | ||||||||
| Liabilities held for sale | ||||||||
| Total Liabilities | ||||||||
| Redeemable Class A preferred stock, par value; authorized; and issued and outstanding at March 31, 2023 and December 31, 2022, respectively; redemption amount of $ and $ at March 31, 2023 and December 31, 2022, respectively | ||||||||
| Shareholders' Equity: | ||||||||
| Common stock, par value; authorized; and issued at March 31, 2023 and December 31, 2022, respectively; and and outstanding at March 31, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost; and outstanding at March 31, 2023 and December 31, 2022, respectively | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive (loss) income | ( | ) | ||||||
| Shareholders' equity attributable to common shareholders | ||||||||
| Noncontrolling interests in consolidated subsidiaries | ( | ) | ||||||
| Total Shareholders' Equity | ||||||||
| Total Liabilities, Class A preferred stock and Shareholders' Equity | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
| Three months ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Revenues: |
||||||||
| Service fee and commission revenue |
$ | $ | ||||||
| Total revenues |
||||||||
| Operating expenses: |
||||||||
| Claims authorized on vehicle service agreements |
||||||||
| Commissions |
||||||||
| Cost of services sold |
||||||||
| General and administrative expenses |
||||||||
| Total operating expenses |
||||||||
| Operating income (loss) |
( |
) | ||||||
| Other revenues (expenses), net: |
||||||||
| Net investment income |
||||||||
| Net realized gains |
||||||||
| Gain (loss) on change in fair value of equity investment |
( |
) | ||||||
| (Loss) gain on change in fair value of limited liability investments, at fair value |
( |
) | ||||||
| Loss on change in fair value of derivative asset option contracts |
( |
) | ||||||
| Non-operating other (expense) revenue |
( |
) | ||||||
| Interest expense |
( |
) | ( |
) | ||||
| Amortization of intangible assets |
( |
) | ( |
) | ||||
| Gain (loss) on change in fair value of debt |
( |
) | ||||||
| Gain on extinguishment of debt |
||||||||
| Total other revenue (expenses), net |
( |
) | ||||||
| Income (loss) from continuing operations before income tax expense (benefit) |
( |
) | ||||||
| Income tax expense (benefit) |
( |
) | ||||||
| Income (loss) from continuing operations |
( |
) | ||||||
| Income from discontinued operations, net of taxes |
||||||||
| Net income (loss) |
( |
) | ||||||
| Less: Net loss from continuing operations attributable to noncontrolling interests in consolidated subsidiaries |
( |
) | ( |
) | ||||
| Less: Net income from discontinued operations attributable to noncontrolling interests in consolidated subsidiaries |
||||||||
| Less: Dividends on preferred stock |
||||||||
| Net income (loss) attributable to common shareholders |
$ | $ | ( |
) | ||||
| Net income (loss) from continuing operations attributable to common shareholders |
$ | $ | ( |
) | ||||
| Net income from discontinued operations attributable to common shareholders |
||||||||
| Net income (loss) attributable to common shareholders |
$ | $ | ( |
) | ||||
| Basic earnings (loss) per share attributable to common shareholders: |
||||||||
| Continuing operations |
$ | $ | ( |
) | ||||
| Discontinued operations |
$ | $ | ||||||
| Basic earnings (loss) per share - net income (loss) attributable to common shareholders |
$ | $ | ( |
) | ||||
| Diluted earnings (loss) per share attributable to common shareholders: |
||||||||
| Continuing operations |
$ | $ | ( |
) | ||||
| Discontinued operations |
$ | $ | ||||||
| Diluted earnings (loss) per share - net income (loss) attributable to common shareholders |
$ | $ | ( |
) | ||||
| Weighted-average shares outstanding (in ‘000s): |
||||||||
| Basic: |
||||||||
| Diluted: |
||||||||
See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(Unaudited)
| Three months ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Net income (loss) |
$ | $ | ( |
) | ||||
| Other comprehensive loss, net of taxes(1): |
||||||||
| Unrealized gains (losses) on available-for-sale investments: |
||||||||
| Unrealized gains (losses) arising during the period |
( |
) | ||||||
| Reclassification adjustment for amounts included in net income (loss) |
( |
) | ||||||
| Change in fair value of debt attributable to instrument-specific credit risk: |
||||||||
| Unrealized (losses) gains arising during the period |
( |
) | ||||||
| Reclassification adjustment for amounts included in net income (loss) |
( |
) | ||||||
| Other comprehensive loss, net of taxes(1): |
( |
) | ( |
) | ||||
| Comprehensive income (loss) |
( |
) | ||||||
| Less: comprehensive income attributable to noncontrolling interests in consolidated subsidiaries |
||||||||
| Comprehensive income (loss) attributable to common shareholders |
$ | $ | ( |
) | ||||
(1) Net of income tax expense (benefit) of $0 for the three months ended March 31, 2023 and March 31, 2022.
See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Shareholders' Equity
(in thousands, except share data)
| Three Months Ended March 31, 2023 |
||||||||||||||||||||||||||||||||||||
| Common Stock |
Additional Paid-in Capital |
Treasury Stock |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Shareholder's Equity Attributable to Common Shareholders |
Noncontrolling Interests in Consolidated Subsidiaries |
Total shareholder's Equity |
|||||||||||||||||||||||||||||
| Shares |
Amount |
|||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||||
| Conversion of redeemable Class A preferred stock to common stock |
||||||||||||||||||||||||||||||||||||
| Exercise of Series B warrants |
||||||||||||||||||||||||||||||||||||
| Net income (loss) |
— | ( |
) | |||||||||||||||||||||||||||||||||
| Preferred stock dividends |
— | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Distributions to noncontrolling interest holders |
— | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
| Other comprehensive (loss) income |
— | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||||||||
| Three Months Ended March 31, 2022 |
||||||||||||||||||||||||||||||||||||
| Common Stock |
Additional Paid-in Capital |
Treasury Stock |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Shareholder's Equity Attributable to Common Shareholders |
Noncontrolling Interests in Consolidated Subsidiaries |
Total shareholder's Equity |
|||||||||||||||||||||||||||||
| Shares |
Amount |
|||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||
| Net (loss) income |
— | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Preferred stock dividends |
— | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Distributions to noncontrolling interest holders |
— | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
| Other comprehensive loss |
— | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Three months ended March 31, |
||||||
| 2023 |
2022 |
|||||
| Cash provided by (used in): |
||||||
| Operating activities: |
||||||
| Net income (loss) |
$ | $ | ( |
) | ||
| Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |
||||||
| Income from discontinued operations, net of taxes |
( |
) | ( |
) | ||
| Equity in net loss (income) of limited liability investments |
( |
) | ||||
| Depreciation and amortization expense |
||||||
| Stock-based compensation expense |
||||||
| Net realized gains |
( |
) | ( |
) | ||
| (Gain) loss on change in fair value of equity investments |
( |
) | ||||
| Loss (gain) on change in fair value of limited liability investments, at fair value |
( |
) | ||||
| Gain (loss) on change in fair value of debt |
( |
) | ||||
| Loss (gain) on change in fair value of derivatives |
( |
) | ||||
| Loss on change in fair value of contingent consideration |
||||||
| Deferred income taxes |
( |
) | ||||
| Amortization of fixed maturities premiums and discounts |
||||||
| Gain on extinguishment of debt |
( |
) | ||||
| Changes in operating assets and liabilities: |
||||||
| Service fee receivable, net |
( |
) | ( |
) | ||
| Other receivables, net |
||||||
| Deferred contract costs |
( |
) | ( |
) | ||
| Other assets |
||||||
| Deferred service fees |
( |
) | ||||
| Other, net |
( |
) | ||||
| Cash (used in) provided by operating activities - continuing operations |
( |
) | ||||
| Cash provided by operating activities - discontinued operations |
||||||
| Net cash (used in) provided by operating activities |
( |
) | ||||
| Investing activities: |
||||||
| Proceeds from sales and maturities of fixed maturities |
||||||
| Purchases of fixed maturities |
( |
) | ( |
) | ||
| Net proceeds from limited liability investments |
||||||
| Net proceeds from limited liability investments, at fair value |
||||||
| Net proceeds from investments in private companies |
||||||
| Net proceeds from other investments and short-term investments |
||||||
| Acquisition of business, net of cash acquired |
( |
) | ||||
| Net purchases of property and equipment |
( |
) | ( |
) | ||
| Cash provided by (used in) investing activities - continuing operations |
( |
) | ||||
| Cash provided by investing activities - discontinued operations |
||||||
| Net cash provided by (used in) investing activities |
( |
) | ||||
| Financing activities: |
||||||
| Proceeds from exercise of warrants |
||||||
| Distributions to noncontrolling interest holders |
( |
) | ( |
) | ||
| Principal payments on bank loans |
( |
) | ( |
) | ||
| Purchase of subordinated debt |
( |
) | ||||
| Payment of debt issuance costs |
( |
) | ||||
| Principal payments on notes payable |
( |
) | ||||
| Cash used in financing activities - continuing operations |
( |
) | ( |
) | ||
| Cash used in financing activities - discontinued operations |
( |
) | ( |
) | ||
| Net cash used in financing activities |
( |
) | ( |
) | ||
| Net decrease in cash and cash equivalents and restricted cash from continuing operations |
( |
) | ( |
) | ||
| Cash and cash equivalents and restricted cash at beginning of period |
||||||
| Less: cash and cash equivalents and restricted cash of discontinued operations |
||||||
| Cash and cash equivalents and restricted cash of continuing operations at beginning of period |
||||||
| Cash and cash equivalents and restricted cash of continuing operations at end of period |
$ | $ | ||||
See accompanying notes to unaudited consolidated financial statements.
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
NOTE 1 BUSINESS
Kingsway Financial Services Inc. (the "Company" or "Kingsway") was incorporated under the Business Corporations Act (Ontario) on September 19, 1989. Effective December 31, 2018, the Company changed its jurisdiction of incorporation from the province of Ontario, Canada, to the State of Delaware. Kingsway is a holding company with operating subsidiaries located in the United States. The Company owns or controls subsidiaries primarily in the extended warranty and business services industries.
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.
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 ("2022 Annual Report") for the year ended December 31, 2022.
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 6, "Variable Interest Entities," to the consolidated financial statements in the 2022 Annual Report. All material intercompany transactions and balances have been eliminated in consolidation.
The preparation of consolidated financial statements in accordance 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, but are not limited to, revenue recognition; valuation of fixed maturities and equity investments; impairment assessment of investments; valuation of limited liability investments, at fair value; valuation of deferred income taxes; accounting for business combinations and asset acquisitions; valuation and impairment assessment of intangible assets; goodwill recoverability; deferred contract costs; fair value assumptions for subordinated debt obligations; fair value assumptions for subsidiary stock-based compensation awards; fair value assumptions for derivative financial instruments; and contingent consideration.
The fair values of the Company's investments in fixed maturities and equity investments, limited liability investments, at fair value, subordinated debt, derivative financial instruments and contingent consideration are estimated using a fair value hierarchy to categorize the inputs it uses in valuation techniques. 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.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Except as noted below, there have been no material changes to our significant accounting policies as reported in our 2022 Annual Report.
The following two accounting policies, Investments and Service Fee Receivables, have been updated effective January 1, 2023 to include additional disclosure as a result of the Company's adoption of Accounting Standards Update ("ASU") 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as further described in Note 4, "Recently Issued Accounting Standards".
Investments - Impairments
When an available-for-sale fixed maturity investment is impaired, it is evaluated to determine whether there is an intent to sell the investment before recovery of amortized cost or whether a credit loss exists.
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
For fixed maturity investments that the Company intends to sell or for which it is more likely than not that the Company will be required to sell before an anticipated recovery of value, the full amount of the impairment is recognized as an impairment loss in the consolidated statements of operations. The investment’s amortized cost is written down to its fair value and is not adjusted for any subsequent recoveries.
For fixed maturity investments that the Company does not intend to sell or for which it is more likely than not that the Company will not be required to sell before an anticipated recovery of value, the Company evaluates whether a decline in fair value below the amortized cost basis has occurred from a credit loss or other non-credit related factors.
Considerations in the credit loss assessment include (1) extent to which the fair value has been less than amortized cost, (2) conditions related to the investment, an industry, or a geographic area, (3) payment structure of the investment and the likelihood of the issuer's ability to make contractual cash flows, (4) defaults or other collectability concerns related to the issuer, (5) changes in the ratings assigned by a rating agency and (6) other credit enhancements that affect the investment’s expected performance.
If a credit loss exists, an allowance is established, which is equal to the difference between the present value of cash flows expected to be collected and the amortized cost basis. The expected allowance for credit losses is limited by the amount that the fair value is less than the amortized cost basis and is adjusted in subsequent periods for any additional expected credit losses or subsequent recoveries. Changes in the allowance are reported as an impairment loss in the consolidated statements of operations. The amortized cost basis of the investment is not adjusted for the expected allowance for credit loss. The impairment related to other non-credit related factors is reported in other comprehensive loss.
The Company reports accrued investment income separately for available-for-sale fixed maturity investments and has made a policy election to not to measure an allowance for credit losses on accrued investment income. Accrued investment income is written off against net investment income at the time the issuer of the bond defaults or is expected to default on interest payments.
Service Fee Receivables
Service fee receivable includes balances due and uncollected from customers. Service fee receivable is reported net of an estimated allowance for credit losses. The Company recognizes credit losses based on a forward-looking current expected credit losses. The Company estimates expected credit losses based upon its assessment of various factors, including historical collection experience, the age of service fee receivable balances, credit quality of its customers, current economic conditions, management’s experience, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers. Expected credit losses are recorded as general and administrative expenses in the consolidated statements of operations. Amounts are written off against the allowance when determined to be uncollectible. Write-offs are applied as a reduction to the allowance for credit losses and any recoveries of previous write-offs are netted against bad debt expense in the period recovered.
Holding Company Liquidity
The Company's Extended Warranty and Kingsway Search Xcelerator subsidiaries fund their obligations primarily through service fee and commission revenue.
The liquidity of the holding company is managed separately from its subsidiaries. The obligations of the holding company primarily consist of holding company operating expenses; transaction-related expenses; investments; certain debt and associated interest; and any other extraordinary demands on the holding company.
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 $
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
The Company notes there are outstanding warrants that expire in September 2023 and, if all outstanding warrants were exercised, the Company would receive an additional $
Based on the Company’s current business plan and revenue prospects, existing cash, cash equivalents, investment balances and anticipated cash flows from operations are expected to be sufficient to meet the Company’s working capital and operating expenditure requirements for the next twelve months. However, the Company’s assessment could also be affected by various risks and uncertainties, including, but not limited to, the developing macro-economic environment.
NOTE 4 RECENTLY ISSUED ACCOUNTING STANDARDS
(a) Adoption of New Accounting Standards:
Effective January 1, 2023, the Company adopted 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 requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net income (loss). For available-for-sale fixed maturities carried at fair value, estimated credit losses will continue to be measured at the present value of expected cash flows, however, the other than temporary impairment concept has been eliminated. Under the previous guidance, estimated credit impairments resulted in a write down of amortized cost. Under the new guidance, estimated credit losses are recognized through an allowance and reversals of the allowance are permitted if the estimate of credit losses declines. For available-for-sale fixed maturities where there is an intent to sell, impairment will continue to result in a write down of amortized cost.
The Company adopted ASU 2016-13 using a modified retrospective method for service fee receivable and other receivables. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. A prospective transition approach is required for available-for-sale fixed maturity investments that have recognized an other-than-temporary impairment write down prior to the effective date. The adoption of ASU 2016-13 resulted in no cumulative-effect adjustment to accumulated deficit at January 1, 2023.
(b) Accounting Standards Not Yet Adopted:
In March 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-02 Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted in any interim period. The Company does not expect the adoption of ASU 2023-02 to have an impact on its consolidated financials statements.
NOTE 5 ACQUISITIONS, DISPOSAL AND DISCONTINUED OPERATIONS
| (a) | Business Combinations |
CSuite Financial Partners, LLC
The Company acquired CSuite for aggregate cash consideration of approximately $
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
This acquisition was accounted for as a business combination using the acquisition method of accounting. The purchase price was provisionally allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition and were subject to adjustment during a measurement period subsequent to the acquisition date, not to exceed one-year as permitted under U.S. GAAP. During the first quarter of 2023, the Company finalized its fair value analysis of the assets acquired and liabilities assumed with the assistance of a third party. No measurement period adjustments were recorded as a result of finalizing the fair value analysis.
Secure Nursing Service, Inc.
On November 18, 2022, the Company acquired substantially all of the assets and assumed certain specified liabilities of Secure Nursing Service, Inc. ("SNS") for aggregate cash consideration of $
This acquisition was accounted for as a business combination using the acquisition method of accounting. The purchase price was provisionally allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition and were subject to adjustment during a measurement period subsequent to the acquisition date, not to exceed one-year as permitted under U.S. GAAP. During the first quarter of 2023, the Company finalized its fair value analysis of the assets acquired and liabilities assumed with the assistance of a third party. No measurement period adjustments were recorded as a result of finalizing the fair value analysis.
| (b) | Disposal |
On July 29, 2022, Professional Warranty Services LLC ("PWS LLC"), a subsidiary of the Company entered into an Equity Purchase Agreement (the "Agreement") with Professional Warranty Service Corporation ("PWSC"), an
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
| (c) | Discontinued Operations |
Leased Real Estate Segment
The Company’s subsidiaries, VA Lafayette, LLC ("VA Lafayette") and CMC Industries Inc. ("CMC"), which includes CMC’s subsidiaries Texas Rail Terminal LLC and TRT Leaseco, LLC ("TRT"), comprised the Company's entire Leased Real Estate segment prior to the fourth quarter of 2022. Each of CMC, through indirect wholly owned subsidiary, TRT, and VA Lafayette own a single asset, which is real estate property. As further described below, on December 29, 2022, TRT sold its assets and at December 31, 2022, VA Lafayette was classified as held for sale.
In accordance with ASU No. 2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal is categorized as a discontinued operation if the disposal group is a component of an entity or group of components that meets the held for sale criteria, is disposed of by sale, or is disposed of other than by sale, and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.
Leased Real Estate is a component of Kingsway since its operations and cash flows can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the reporting entity. A component of an entity may consist of multiple disposal groups and does not need to be disposed of in a single transaction. The disposal of the Leased Real Estate segment represents a strategic shift that will have a major effect on the Company's operations and financial results, as the disposal of the Leased Real Estate assets was in excess of 20% of the entity's total assets. As a result, the assets, liabilities, operating results and cash flows related to Leased Real Estate have been classified as discontinued operations in the consolidated financial statements for all periods presented.
Sale of CMC Real Property
CMC owned, through its indirect wholly owned subsidiary, TRT, a parcel of real property consisting of approximately
On December 22, 2022, TRT entered into a Purchase and Sale Agreement (the "CMC Agreement") with BNSF Dayton LLC ("Purchaser"), pursuant to which TRT agreed to sell to the Purchaser the Real Property. TRT was also the landlord and an affiliate of the Purchaser was the current tenant under the long-term triple net lease over the Real Property. Under the terms of the CMC Agreement, at the closing on December 29, 2022, TRT assigned, and the Purchaser assumed, the rights and obligations of the landlord under the existing long-term triple net lease.
As discussed above, CMC and TRT are part of the Leased Real Estate disposal group. The sale of the Leased Real Estate's assets represents a strategic shift that will have a major effect on the Company's operations and financial results. As a result, CMC and its subsidiaries, have been classified as a discontinued operation and the results of their operations are reported separately for all periods presented.
VA Lafayette
During the fourth quarter of 2022, the Company began executing a plan to sell its subsidiary, VA Lafayette. VA Lafayette owns the LA Real Property, that is subject to a long-term lease and the LA Mortgage.
As discussed above, VA Lafayette is part of the Leased Real Estate disposal group. In conjunction with the sale of the CMC Real Property, the sale of the Leased Real Estate's assets represents a strategic shift that will have a major effect on the Company's operations and financial results. As a result, VA Lafayette has been classified as a discontinued operation and the results of its operations are reported separately for all periods presented. The assets and liabilities of VA Lafayette are presented as held for sale in the consolidated balance sheets at March 31, 2023 and December 31, 2022.
Summary financial information for Leased Real Estate included in income from discontinued operations, net of taxes in the unaudited consolidated statements of operations for the three months ended March 31, 2023 and March 31, 2022 is presented below:
| (in thousands) | Three months ended March 31, | |||||||
| 2023 | 2022 | |||||||
| Income from discontinued operations, net of taxes: | ||||||||
| Revenues: | ||||||||
| Rental revenue | $ | $ | ||||||
| Total revenues | ||||||||
| Expenses: | ||||||||
| Cost of services sold | ||||||||
| General and administrative expenses | ||||||||
| Leased real estate segment interest expense | ||||||||
| Non-operating other (revenue) | ( | ) | ( | ) | ||||
| Amortization of intangible assets | ||||||||
| Total expenses | ||||||||
| Income from discontinued operations before income tax expense | ||||||||
| Income tax expense | ||||||||
| Income from discontinued operations, net of taxes | $ | $ | ||||||
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
For the three months ended March 31, 2023 and March 31, 2022, pre-tax income from discontinued operations of $
The carrying amounts of the major classes of assets and liabilities of Leased Real Estate presented as held for sale at March 31, 2023 and December 31, 2022 are as follows:
| (in thousands) | March 31, 2023 | December 31, 2022 | ||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Assets held for sale | $ | $ | ||||||
| Liabilities | ||||||||
| Accrued expenses and other liabilities | $ | $ | ||||||
| Notes payable | ||||||||
| Liabilities held for sale | $ | $ | ||||||
NOTE 6 INVESTMENTS
The amortized cost, gross unrealized gains and losses included in accumulated other comprehensive (loss) income, and estimated fair value of the Company's available-for-sale investments at March 31, 2023 and December 31, 2022 are summarized in the tables shown below:
| (in thousands) | March 31, 2023 | |||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| Fixed maturities: | ||||||||||||||||
| U.S. government, government agencies and authorities | $ | $ | $ | $ | ||||||||||||
| States, municipalities and political subdivisions | ||||||||||||||||
| Mortgage-backed | ||||||||||||||||
| Asset-backed | ||||||||||||||||
| Corporate | ||||||||||||||||
| Total fixed maturities | $ | $ | $ | $ | ||||||||||||
| (in thousands) | December 31, 2022 | |||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| Fixed maturities: | ||||||||||||||||
| U.S. government, government agencies and authorities | $ | $ | $ | $ | ||||||||||||
| States, municipalities and political subdivisions | ||||||||||||||||
| Mortgage-backed | ||||||||||||||||
| Asset-backed | ||||||||||||||||
| Corporate | ||||||||||||||||
| Total fixed maturities | $ | $ | $ | $ | ||||||||||||
The table below summarizes the Company's fixed maturities at March 31, 2023 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, 2023 | |||||||
| Amortized Cost | Estimated Fair Value | |||||||
| Due in one year or less | $ | $ | ||||||
| Due after one year through five years | ||||||||
| Due after five years through ten years | ||||||||
| Due after ten years | ||||||||
| Total | $ | $ | ||||||
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
The following tables highlight the aggregate unrealized loss position, by security type, of available-for-sale investments in unrealized loss positions where no credit loss allowance had been established as of March 31, 2023 and December 31, 2022. 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, 2023 | |||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| States, municipalities and political subdivisions | ||||||||||||||||||||||||
| Mortgage-backed | ||||||||||||||||||||||||
| Asset-backed | ||||||||||||||||||||||||
| Corporate | ||||||||||||||||||||||||
| Total fixed maturities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (in thousands) | December 31, 2022 | |||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| States, municipalities and political subdivisions | ||||||||||||||||||||||||
| Mortgage-backed | ||||||||||||||||||||||||
| Asset-backed | ||||||||||||||||||||||||
| Corporate | ||||||||||||||||||||||||
| Total fixed maturities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
At March 31, 2023, there are approximately
At December 31, 2022, there are approximately
The Company did not record any write-downs for impairment related to investments for the three months ended March 31, 2023 and March 31, 2022.
The Company does not have any exposure to subprime mortgage-backed investments.
Limited liability investments include investments in limited liability companies and limited partnerships. 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, 2023 and December 31, 2022, the carrying value of limited liability investments totaled $
Limited liability investments, at fair value represents 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, 2023 and December 31, 2022, the carrying value of the Company's limited liability investments, at fair value was $
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
The Company consolidates the financial statements of Net Lease on a three-month lag. Net Lease owns investments in limited liability companies that hold investment properties. During the fourth quarter of 2022, one of Net Lease's limited liability companies refinanced their existing debt. A portion of the debt proceeds were distributed to Net Lease, which decreased Net Lease's investment in the limited liability company. During the first quarter of 2023, Net Lease sold its final investment property for $
Investments in private companies consist of convertible preferred stocks and notes 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. The Company has elected to record investments in private companies at cost, adjusted for observable price changes and impairments. As of March 31, 2023 and December 31, 2022, the carrying value of the Company's investments in private companies totaled $
The Company performs a quarterly impairment analysis of its investments in private companies. As a result of the analysis performed, the Company did record any impairments related to investments in private companies for the three months ended March 31, 2023 and March 31, 2022.
Net investment income for the three months ended March 31, 2023 and March 31, 2022 is comprised as follows:
| (in thousands) | Three months ended March 31, | |||||||
| 2023 | 2022 | |||||||
| Investment income: | ||||||||
| Interest from fixed maturities | $ | $ | ||||||
| Dividends | ||||||||
| (Loss) income from limited liability investments | ( | ) | ||||||
| Income from real estate investments | ||||||||
| Other | ||||||||
| Gross investment income | ||||||||
| Investment expenses | ( | ) | ( | ) | ||||
| Net investment income | $ | $ | ||||||
Gross realized gains and losses on available-for-sale investments, limited liability investments, limited liability investments, at fair value and investments in private companies for the three months ended March 31, 2023 and March 31, 2022 are comprised as follows:
| (in thousands) | Three months ended March 31, | |||||||
| 2023 | 2022 | |||||||
| Gross realized gains | $ | $ | ||||||
| Gross realized losses | ( | ) | ||||||
| Net realized gains | $ | $ | ||||||
Gain (loss) on change in fair value of equity investments for the three months ended March 31, 2023 and March 31, 2022 is comprised as follows:
| (in thousands) | Three months ended March 31, | |||||||
| 2023 | 2022 | |||||||
| Net gains recognized on equity investments sold during the period | $ | $ | ||||||
| Change in unrealized gains (losses) on equity investments held at end of the period | ( | ) | ||||||
| Gain (loss) on change in fair value of equity investments | $ | $ | ( | ) | ||||
The Company holds warrants in Limbach Holdings, Inc. ("Limbach"). During the first quarter of 2023, the underlying common stock price of Limbach increased, resulting in an increase in the fair value of the warrants held as of March 31, 2023.
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
NOTE 7 GOODWILL
The following table summarizes the goodwill activity for the three months ended March 31, 2023:
| (in thousands) | Extended Warranty | Kingsway Search Xcelerator | Corporate | Total | ||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ||||||||||||
| Measurement period adjustment | ( | ) | ( | ) | ||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ||||||||||||
As further discussed in Note 5, "Acquisitions, Disposal and Discontinued Operations," during the first quarter of 2023 the Company settled the working capital true-up, related to the acquisition of CSuite, that decreased goodwill by less than $
Goodwill is assessed for impairment annually as of November 30, or more frequently if events or circumstances indicate that the carrying value may not be recoverable. Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting units, the amount of the goodwill impairment charge, or both.
NOTE 8 INTANGIBLE ASSETS
Intangible assets at March 31, 2023 and December 31, 2022 are comprised as follows:
| (in thousands) | March 31, 2023 | |||||||||||
| Gross Carrying Value | Accumulated Amortization | Net Carrying Value | ||||||||||
| Intangible assets subject to amortization: | ||||||||||||
| Database | $ | $ | $ | |||||||||
| Vehicle service agreements in-force | ||||||||||||
| Customer relationships | ||||||||||||
| Intangible assets not subject to amortization: | ||||||||||||
| Trade names | — | |||||||||||
| Total | $ | $ | $ | |||||||||
| (in thousands) | December 31, 2022 | |||||||||||
| Gross Carrying Value | Accumulated Amortization | Net Carrying Value | ||||||||||
| Intangible assets subject to amortization: | ||||||||||||
| Database | $ | $ | $ | |||||||||
| Vehicle service agreements in-force | ||||||||||||
| Customer relationships | ||||||||||||
| Intangible assets not subject to amortization: | ||||||||||||
| Trade names | — | |||||||||||
| Total | $ | $ | $ | |||||||||
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
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
The trade names intangible assets have indefinite useful lives and are not amortized.
Indefinite-lived intangible assets consist of trade names, which are assessed for impairment annually as of November 30, or more frequently if events or circumstances indicate that the carrying value may not be recoverable. The Company may perform its impairment test for any indefinite-lived intangible asset through a qualitative assessment or elect to proceed directly to a quantitative impairment test, however, the Company may resume a qualitative assessment in any subsequent period if facts and circumstances permit.
As of November 30, 2022, the Company conducted its annual qualitative assessment. As a result, the Company determined that certain trade names should be further examined under a quantitative approach. Based on the results of the quantitative approach, the estimated fair values of the trade names exceeded their respective carrying values; therefore, the Company did not record any impairment. However, the Company notes that certain of its indefinite-lived intangible assets are sensitive to changes in interest rates and a continued increase in rates could cause certain assets to become impaired.
NOTE 9 PROPERTY AND EQUIPMENT
| (in thousands) | March 31, 2023 | |||||||||||
| Cost | Accumulated Depreciation | Carrying Value | ||||||||||
| Leasehold improvements | ||||||||||||
| Furniture and equipment | ||||||||||||
| Computer hardware | ||||||||||||
| Total | $ | $ | $ | |||||||||
| (in thousands) | December 31, 2022 | |||||||||||
| Cost | Accumulated Depreciation | Carrying Value | ||||||||||
| Leasehold improvements | ||||||||||||
| Furniture and equipment | ||||||||||||
| Computer hardware | ||||||||||||
| Total | $ | $ | $ | |||||||||
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
NOTE 10 DERIVATIVES
| (a) | Interest rate swap |
On April 1, 2021, the Company entered into an interest rate swap agreement with CIBC Bank USA to convert the variable London interbank offered interest rate for three-month U.S. dollar deposits ("LIBOR") interest rate on a portion of its 2020 KWH Loan (as defined below in Note 11, "Debt,") to a fixed interest rate of
The purpose of this interest rate swap, which is not designated as a cash flow hedge, is to reduce the Company's exposure to variability in cash flows from interest payments attributable to fluctuations in the variable interest rate associated with the 2020 KWH Loan. The Company has not elected hedge accounting for the interest rate swap. The interest rate swap is recorded in the consolidated balance sheets at fair value with changes in fair value recorded in the consolidated statements of operations.
The notional amount of the interest rate swap contract is $
| (b) | Trust preferred debt repurchase options |
On August 2, 2022, the Company entered into an agreement with a holder of four of the trust preferred debt instruments ("TruPs") that gives the Company the option to repurchase up to
Until the earlier of (i) the date that all four of the preferred debt instruments have been repurchased and (ii) the nine month anniversary of the agreement ( "May Termination Date"), all interest on the four preferred debt instruments will continue to accrue. However, with respect to TruPs that are repurchased prior to the May Termination Date, the amount of interest accrued during the term of the agreement will be treated as an offset and reduce the repurchase price for such TruPs. The Company had no obligation to pay any such accrued interest with respect to any of the TruPs that are repurchased prior to the May Termination Date.
The Company paid approximately $
On September 20, 2022, the Company entered into an additional agreement with the same party to the August 2, 2022 agreement that gives the Company the option to repurchase up to
On September 26, 2022, the Company entered into an agreement with a holder of a portion of one of the TruPs that gives the Company the option to repurchase up to
Until the earlier of (i) the date that all of the preferred debt instrument has been repurchased and (ii) the May Termination Date, all interest on the preferred debt instrument will continue to accrue. However, with respect to TruPs that are repurchased prior to the May Termination Date, the amount of interest accrued during the term of the agreement will be treated as an offset and reduce the repurchase price for such TruPs. The Company had no obligation to pay any such accrued interest with respect to the TruPs that are repurchased prior to the May Termination Date.
The Company paid approximately $
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
In February 2023, the Company entered into amendments to the repurchase agreements described above that would give the Company an additional discount on the total repurchase price if the Company effected a 100% repurchase on or before March 15, 2023. On March 2, 2023, the Company gave notice to the holders of its intent to exercise its options to repurchase 100% of the principal. On March 22, 2023, the Company completed the repurchases. See Note 11, "Debt," for further discussion.
The August Option, September 20 Option and September 26 Options (collectively "the TruPs Options") are derivative contracts. The Company's accounting policies do not apply hedge accounting treatment to derivative instruments. The TruPs options are recorded in the consolidated balance sheet at December 31, 2022 at fair value with changes in fair value recorded in the unaudited consolidated statements of operations. See Note 21, "Fair Value of Financial Instruments," for further discussion.
At December 31, 2022, the fair value of the TruPs Options contracts was $
NOTE 11 DEBT
Debt consists of the following instruments at March 31, 2023 and December 31, 2022:
| (in thousands) | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Principal | Carrying Value | Fair Value | Principal | Carrying Value | Fair Value | |||||||||||||||||||
| Bank loan: | ||||||||||||||||||||||||
| 2021 Ravix Loan | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 2022 Ravix Loan | ||||||||||||||||||||||||
| SNS Loan | ||||||||||||||||||||||||
| 2020 KWH Loan | ||||||||||||||||||||||||
| Total bank loans | ||||||||||||||||||||||||
| Subordinated debt | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Subordinated debt mentioned above consists of the following trust preferred debt instruments at March 31, 2023:
| Issuer | Principal (in thousands) | Issue date | Interest | Redemption date | ||||
| Kingsway DE Statutory Trust III |
| 5/22/2003 |
| 5/22/2033 |
Subordinated debt mentioned above consists of the following trust preferred debt instruments at December 31, 2022:
| Issuer | Principal (in thousands) | Issue date | Interest | Redemption date | |||
| Kingsway CT Statutory Trust I | $ | 12/4/2002 |
| 12/4/2032 | |||
| Kingsway CT Statutory Trust II | $ | 5/15/2003 |
| 5/15/2033 | |||
| Kingsway CT Statutory Trust III | $ | 10/29/2003 |
| 10/29/2033 | |||
| Kingsway DE Statutory Trust III | $ | 5/22/2003 |
| 5/22/2033 | |||
| Kingsway DE Statutory Trust IV | $ | 9/30/2003 |
| 9/30/2033 | |||
| Kingsway DE Statutory Trust VI | $ | 12/16/2003 |
| 1/8/2034 | |||
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
Subsequent to the acquisition of CSuite on November 1, 2022, CSuite became a wholly owned subsidiary of Ravix LLC. As a result of the acquisition of CSuite, on November 16, 2022, the 2021 Ravix Loan was amended to (1) include CSuite as a borrower; (2) borrow an additional principal amount of $
The Company also recorded as a discount to the carrying value of the 2022 Ravix Loan issuance costs of $
The 2022 Ravix Loan and the 2021 Ravix Loan were not deemed to be substantially different; therefore, the 2022 Ravix Loan is accounted for as a modification of the 2021 Ravix Loan and a new effective interest rate was determined based on the carrying amount of the 2021 Ravix Loan. The issuance costs related to the 2022 Ravix Loan, along with the existing unamortized issuance costs from the 2021 Ravix Loan, are being amortized over the remaining term of the 2022 Ravix Loan using the effective interest rate.
The fair values of the 2021 Ravix Loan and the 2022 Ravix Loan disclosed in the table above is derived from quoted market prices of B and BB minus rated industrial bonds with similar maturities and is categorized within Level 2 of the fair value hierarchy. The 2021 Ravix Loan and the 2022 Ravix Loan are secured by certain of the equity interests and assets of Ravix and CSuite.
The 2021 Ravix Loan and the 2022 Ravix Loan contains a number of covenants, including, but not limited to, a leverage ratio and a fixed charge ratio, all of which are as defined in and calculated pursuant to the 2021 Ravix Loan and 2022 Ravix Loan that, among other things, restrict Ravix and CSuite’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.
SNS
As part of the asset acquisition of SNS on November 18, 2022, the Company formed Secure Nursing Service LLC, who became a wholly owned subsidiary of Pegasus Acquirer Holdings LLC ("Pegasus LLC"), and together they borrowed from a bank a principal amount of $
The Company also recorded as a discount to the carrying value of the SNS Loan issuance costs of $
The SNS Loan contains a number of covenants, including, but not limited to, a leverage ratio and a fixed charge ratio and limits on annual capital expenditures, all of which are as defined in and calculated pursuant to the SNS Loan that, among other things, restrict SNS’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.
KWH
In 2019, the Company formed Kingsway Warranty Holdings LLC ("KWH"), whose subsidiaries include IWS Acquisition Corporation ("IWS"), Geminus Holdings Company, Inc. ("Geminus") and Trinity Warranty Solutions LLC ("Trinity"). As part of the acquisition of PWI on December 1, 2020, PWI became a wholly owned subsidiary of KWH, which borrowed a principal amount of $
The 2020 KWH Loan had an annual interest rate equal to LIBOR, having a floor of
The Company also recorded as a discount to the carrying value of the 2020 KWH Loan issuance costs of $
The 2020 KWH Loan contains a number of covenants, including, but not limited to, a leverage ratio, a fixed charge ratio and limits on annual capital expenditures, all of which are as defined in and calculated pursuant to the 2020 KWH Loan that, among other things, restrict KWH’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
On February 28, 2023, KWH entered into a second amendment to the 2020 KWH Loan (the “KWH DDTL”) that provides for an additional delayed draw term loan in the principal amount of up to $
(b) Subordinated debt:
Between December 4, 2002 and December 16, 2003, six subsidiary trusts of the Company issued $
The subordinated debt, or TruPs, is carried in the consolidated balance sheets at fair value. See Note 21, "Fair Value of Financial Instruments," for further discussion of the subordinated debt. The portion of the change in fair value of subordinated debt related to the instrument-specific credit risk is recognized in other comprehensive loss.
In February 2023, the Company entered into amendments to the trust preferred option repurchase agreements described in Note 10, "Derivatives," that would give the Company an additional discount on the total repurchase price of the TruPs if the Company effected a 100% repurchase on or before March 15, 2023. On March 2, 2023, the Company gave notice to the holders of five of its TruPs that it intended to exercise its options to repurchase 100% of the principal no later than March 15, 2023. On March 22, 2023, the Company completed the repurchases of the five TruPs using available funds from working capital to fund the repurchases. The total amount paid for the five TruPs was $
| • | A decrease of $ |
| • | A decrease of $ |
| • | An increase of $ |
Of the $
The unaudited consolidated statements of comprehensive income (loss) for the three months ended March 31, 2023 also includes a reclassification adjustment of $
During the third quarter of 2018, the Company gave notice to its Trust Preferred trustees of its intention to exercise its voluntary right to defer interest payments for up to 20 quarters, pursuant to the contractual terms of its outstanding Trust Preferred indentures, which permit interest deferral. This action does not constitute a default under the Company's Trust Preferred indentures or any of its other debt indentures. In order to execute the TruPs repurchases described above, on March 13, 2023, the Company paid $
The agreement governing the remaining subordinated debt contains a number of covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, make dividends and distributions, and make certain payments in respect of the Company’s outstanding securities.
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
NOTE 12 LEASES
The Company has operating leases for office space that include fixed base rent payments, as well as variable rent payments to reimburse the landlord for operating expenses and taxes. The Company’s variable lease payments do not depend on a published index or rate, and therefore, are expensed as incurred. The Company includes only fixed payments for lease components in the measurement of the right-of-use asset and lease liability. There are no residual value guarantees.
Operating lease costs and variable lease costs included in general and administrative expenses for the three months ended March 31, 2023 were $
The annual maturities of lease liabilities as of March 31, 2023 were as follows:
| (in thousands) | Lease Commitments | |||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 and thereafter | ||||
| Total undiscounted lease payments | ||||
| Imputed interest | ||||
| Total lease liabilities | $ | |||
The weighted-average remaining lease term for our operating leases was
NOTE 13 REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue from contracts with customers relates to the Extended Warranty and Kingsway Search Xcelerator segments and includes: vehicle service agreement fees, guaranteed asset protection products ("GAP") commissions, maintenance support service fees, warranty product commissions, homebuilder warranty service fees, homebuilder warranty commissions and business services consulting revenue. Revenue is based on terms of various agreements with credit unions, consumers, businesses and homebuilders. Customers either pay in full at the inception of a warranty contract, commission product sale, or when consulting services are billed, or on terms subject to the Company’s customary credit reviews.
The following table disaggregates revenues from contracts with customers by revenue type:
| (in thousands) | Three months ended March 31, | ||||||||
| 2023 | 2022 | ||||||||
| Vehicle service agreement fees and GAP commissions | IWS, Geminus and PWI | $ | $ | ||||||
| Maintenance support service fees | Trinity | ||||||||
| Warranty product commissions | Trinity | ||||||||
| Homebuilder warranty service fees | PWSC (a) | ||||||||
| Homebuilder warranty commissions | PWSC (a) | ||||||||
| Business services consulting fees | Ravix, Csuite and SNS | ||||||||
| Service fee and commission revenue | $ | $ | |||||||
| (a) | The Company disposed of PWSC on July 29, 2022 |
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
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 earned over the duration of the vehicle service agreement contracts as the single performance obligation is satisfied. Vehicle service agreement fees are initially recorded as deferred service fees with revenues recognized over the term of the contract based on the proportion of expected claims to total overall claims to be incurred over the life of the contract. The Company believes this reasonably represents the transfer of services to the vehicle service contract holder over the warranty term. 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 if the deferred service fees balance is less than expected future claims costs.
In certain jurisdictions the Company is required to refund to a customer a pro-rata share of the vehicle service agreement fees if a customer cancels the agreement prior to the end of the term. Depending on the jurisdiction, the Company may be entitled to deduct from the refund a cancellation fee and/or amounts for claims incurred prior to cancellation. While refunds vary depending on the term and type of product offered, historically refunds have averaged
Maintenance support service fees include the service fees collected to administer equipment breakdown and maintenance support services and are earned as services are rendered.
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 commercial refrigeration equipment. The Company acts as an agent on behalf of the third-party insurance companies that underwrite and guaranty these warranty contracts. The Company does not guaranty the performance underlying the warranty contracts it sells. Warranty product commissions are earned at the time of the warranty product sales.
Homebuilder warranty service fees in 2022 include fees collected from the sale of warranties issued by new homebuilders. The Company received a single warranty service fee as its transaction price at the time it entered into a written contract with each of its builder customers. Each contract contained 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.
Homebuilder warranty commissions in 2022 include commissions from the sale of warranty contracts for those builders who have requested and receive insurance backing of their warranty obligations. The Company acted as an agent on behalf of the third-party insurance company that underwrites and guaranties these warranty contracts. Homebuilder warranty commissions were 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 earned fees to manage remediation or repair services related to claims on insurance-backed warranty obligations, which were earned when the claims are closed.
Kingsway Search Xcelerator consulting revenue includes the revenue from providing outsourced finance and human resources consulting services, as well as healthcare professional staffing services. The Company invoices for services revenue based on contracted rates. Revenue is earned as services are provided.
The Company's revenue recognition policies are further described in Note 2(p), "Summary of Significant Accounting Policies - Revenue recognition," to the consolidated financial statements in the 2022 Annual Report.
During the first quarter of 2022, IWS recorded a net charge of $
Service fee receivables
Receivables from contracts with customers are reported as service fee receivable, net in the consolidated balance sheets and at March 31, 2023 and December 31, 2022 were $
Service fee receivable is reported net of an estimated allowance for credit losses. During the three months ended March 31, 2023, the Company recorded an increase to its allowance for credit losses of less than $
Deferred service fees
The Company records deferred service fees resulting from contracts with customers when payment is received in advance of satisfying the performance obligations. Changes in deferred service fees for the three months ended March 31, 2023 were as follows:
| (in thousands) | Three Months Ended March 31, 2023 | |||
| Balance, December 31, 2022 | $ | |||
| Deferral of revenue | ||||
| Recognition of deferred service fees | ( | ) | ||
| Balance, March 31, 2023 | $ | |||
The decrease in deferred service fees between December 31, 2022 and March 31, 2023 is primarily due to deferred service fees recognized in excess of additions to deferred service fees during the three months ended March 31, 2023.
The Company expects to recognize within one year as service fee and commission revenue approximately
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
Deferred contract costs
Deferred contract costs represent the deferral of incremental costs to obtain or fulfill a contract with a customer. Incremental costs to obtain a contract with a customer primarily include sales commissions. The Company capitalizes costs incurred to fulfill a contract if the costs are identifiable, generate or enhance resources used to satisfy future performance obligations and are expected to be recovered. Costs to fulfill a contract include labor costs for set-up activities directly related to the acquisition of vehicle service agreements. Contract costs are deferred and amortized over the expected customer relationship period consistent with the pattern in which the related revenues are earned. Amortization of incremental costs to obtain a contract and costs to fulfill a contract with a customer are recorded in commissions and general and administrative expenses, respectively, in the unaudited consolidated statements of operations.
The deferred contract costs balances and related amortization expense for the three months ended March 31, 2023 and March 31, 2022 are comprised as follows:
| (in thousands) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | ||||||||||||||||||||||
| Costs to Obtain a Contract | Costs to Fulfill a Contract | Total | Costs to Obtain a Contract | Costs to Fulfill a Contract | Total | |||||||||||||||||||
| Balance at December 31, net | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Additions | ||||||||||||||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Balance at March 31, net | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
NOTE 14 INCOME TAXES
Income tax expense (benefit) for the three months ended March 31, 2023 and March 31, 2022 varies from the amount that would result by applying the applicable U.S. federal corporate income tax rate of
| (in thousands) | Three months ended March 31, | |||||||
| 2023 | 2022 | |||||||
| Income tax expense (benefit) at U. S. statutory income tax rate | $ | $ | ( | ) | ||||
| Valuation allowance | ( | ) | ||||||
| Non-deductible compensation | ||||||||
| Investment income | ( | ) | ||||||
| State income tax | ||||||||
| Indefinite life intangibles | ||||||||
| Contingent consideration | ||||||||
| Other | ||||||||
| Income tax expense (benefit) | $ | $ | ( | ) | ||||
The Company maintains a valuation allowance for its gross deferred tax assets at March 31, 2023 and December 31, 2022. 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, 2023 and December 31, 2022 net deferred tax asset, excluding the deferred income tax asset and liability amounts set forth in the paragraph below. For the three months ended March 31, 2023 and March 31, 2022, the Company released into income and $
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
The Company carries net deferred income tax liabilities of $
| • | $ | |
| • | $ |
As of March 31, 2023 and December 31, 2022, the Company carried a liability for unrecognized tax benefits of zero. 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 and less than $
NOTE 15 EARNINGS (LOSS) PER SHARE
The following table sets forth the reconciliation of numerators and denominators for the basic and diluted earnings (loss) per share computation for the three months ended March 31, 2023 and March 31, 2022:
| (in thousands, except per share data) | Three months ended March 31, | |||||||
| 2023 | 2022 | |||||||
| Numerator: | ||||||||
| Income (loss) from continuing operations | $ | $ | ( | ) | ||||
| Plus: net loss from continuing operations attributable to noncontrolling interests | ||||||||
| Less: dividends on preferred stock | ( | ) | ( | ) | ||||
| Numerator used in calculating basic earnings (loss) per share from continuing operations attributable to common shareholders | $ | $ | ( | ) | ||||
| Adjustment to add-back dividends on preferred stock | ||||||||
| Adjustment for proportionate interest in Ravix and SNS's earnings attributable to common stock | ( | ) | ||||||
| Numerator used in calculating diluted earnings (loss) per share from continuing operations attributable to common shareholders | $ | $ | ( | ) | ||||
| Income from discontinued operations | ||||||||
| Less: net income from discontinued operations attributable to noncontrolling interests | ( | ) | ||||||
| Numerator used in calculating diluted earnings (loss) per share - net income (loss) attributable to common shareholders | $ | $ | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average basic shares | ||||||||
| Weighted average common shares outstanding | ||||||||
| Weighted average diluted shares | ||||||||
| Weighted average common shares outstanding | ||||||||
| Effect of potentially dilutive securities (a) | ||||||||
| Unvested restricted stock awards | ||||||||
| Warrants | ||||||||
| Convertible preferred stock | ||||||||
| Total weighted average diluted shares | ||||||||
| Basic earnings (loss) attributable to common shareholders: | ||||||||
| Continuing operations | $ | $ | ( | ) | ||||
| Discontinued operations | $ | $ | ||||||
| Basic earnings (loss) per share - net income (loss) attributable to common shareholders: | $ | $ | ( | ) | ||||
| Diluted earnings (loss) attributable to common shareholders: | ||||||||
| Continuing operations | $ | $ | ( | ) | ||||
| Discontinued operations | $ | $ | ||||||
| Diluted earnings (loss) per share - net income (loss) attributable to common shareholders | $ | $ | ( | ) | ||||
| (a) | Potentially dilutive securities consist of unvested restricted stock awards and warrants, calculated using the treasury stock method, and convertible preferred stock, using the if-converted method. Because the Company is reporting a loss from continuing operations attributable to common shareholders for the three months ended March 31, 2022, 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. |
Basic earnings (loss) per share excludes dilution and is computed by dividing income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) 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 are excluded from the diluted earnings (loss) per share computation in loss periods and when the applicable exercise price is greater than the market price on the period end date as their effect would be anti-dilutive.
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Unvested restricted stock awards | ||||||||
| Warrants | ||||||||
| Convertible preferred stock | ||||||||
| Total | ||||||||
NOTE 16 STOCK-BASED COMPENSATION
(a) Restricted Stock Awards of the Company
Under the 2013 Equity Incentive Plan, the Company granted
Under the 2020 Equity Incentive Plan, the Company has granted restricted common stock awards to certain officers of the Company (the "2020 Plan Restricted Stock Awards"). The 2020 Plan Restricted Stock Awards vest according to a graded vesting schedule and shall become fully vested subject to the officers' continued employment through the applicable vesting dates. The 2020 Plan Restricted Stock Awards are amortized on a straight-line basis over the requisite service periods. The grant-date fair values of the 2020 Plan Restricted Stock Awards were determined using the closing price of Kingsway common stock on the date of grant. During the three months ended March 31, 2023, no shares of the 2020 Plan Restricted Stock Awards became fully vested. Total unamortized compensation expense related to unvested 2020 Plan Restricted Stock Awards at March 31, 2023 was $
The following table summarizes the activity related to unvested 2020 Plan Restricted Stock Awards and 2018 Restricted Stock Award (collectively "Restricted Stock Awards") for the three months ended March 31, 2023:
| Number of | Weighted-Average | |||||||
| Restricted | Grant Date Fair | |||||||
| Stock Awards | Value (per Share) | |||||||
| Unvested at December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Cancelled for Tax Withholding | ||||||||
| Unvested at March 31, 2023 | $ | |||||||
The unvested balance at March 31, 2023 in the table above is comprised of
Stock-based compensation expense related to the Restricted Stock Awards $
(b) Restricted Stock Awards of PWSC
PWSC granted
PWSC granted
As discussed in Note 5, "Acquisitions, Disposal and Discontinued Operations," the Company sold PWSC on July 29, 2022; therefore, there are
The service condition for the Modified PWSC RSA and the 2020 PWSC RSA vested according to a graded vesting schedule. The performance condition was based on the internal rate of return of PWSC. The grant-date fair value of the Modified PWSC RSA and the 2020 PWSC RSA were estimated using an internal valuation model.
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
On February 20, 2022, both the service condition and performance condition of the Modified PWSC RSA and 2020 PWSC RSA became fully vested. At March 31, 2023 and December 31, 2022, there were unvested shares of both the Modified PWSC RSA and 2020 PWSC RSA.
Stock-based compensation expense related to the Restricted Stock Awards of PWSC was $
(c) Restricted Common Unit Awards of Ravix
Ravix LLC granted
The grant-date fair value of the 2021 Ravix RUA was estimated using the Black-Scholes option pricing model, using the following assumptions: expected term of years, expected volatility of
On October 1, 2021,
On November 1, 2022, the Company modified the inputs related to the IRR portion of the 2021 Ravix RUA to be based on the combined internal rate of return of Ravix and CSuite. The modified portion of the awards was probable of vesting both immediately before and after the modification. As a result, the fair value of the award that is subject to the IRR was measured at the modification date and compared to the fair value of the modified portion of the award immediately prior to the modification, with the difference resulting in incremental compensation expense of less than $
During the three months ended March 31, 2023,
Stock-based compensation expense related to the 2021 Ravix RUA was less than $
(d) Restricted Common Unit Awards of SNS
Pegasus LLC granted
The grant-date fair value of the SNS RUA was estimated using the Monte Carlo simulation model, using the following assumptions: expected term of years, expected volatility of
On November 18, 2022,
During the three months ended March 31, 2023,
Stock-based compensation expense related to the SNS RUA was less than $
NOTE 17 Redeemable Class A Preferred Stock
On March 1, 2023, the Company notified the holders of its outstanding Class A Preferred Shares ("Preferred Shares") of its intention to redeem all the outstanding Preferred Shares on March 15, 2023 (the “Anticipated Redemption Date”). The Preferred Shares are convertible into shares of the Company’s common stock at the discretion of the holders. Prior to the Anticipated Redemption Date, the Company had received notice from all of the holders of the Preferred Shares of their intention to convert their shares.
There were
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
NOTE 18 Shareholders' Equity
As described in Note 17, "Redeemable Class A Preferred Stock", during the three months ended March 31, 2023,
At March 31, 2023, the Company has
On March 21, 2023, the Company's Board of Directors approved a share repurchase program under which the Company is authorized to repurchase up to $
NOTE 19 ACCUMULATED OTHER COMPREHENSIVE INCOME
The tables below detail the change in the balance of each component of accumulated other comprehensive (loss) income, net of tax, for the three months ended March 31, 2023 and March 31, 2022 as relates to shareholders' equity attributable to common shareholders on the consolidated balance sheets.
| (in thousands) | Three months ended March 31, 2023 | |||||||||||||||
| Unrealized Gains | Foreign | Change in Fair Value | Total | |||||||||||||
| (Losses) on | Currency | of Debt Attributable | Accumulated Other | |||||||||||||
| Available-for-Sale | Translation | to Instrument-Specific | Comprehensive | |||||||||||||
| Investments | Adjustments | Credit Risk | Income (Loss) | |||||||||||||
| Balance at December 31, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Other comprehensive income (loss) arising during the period | ( | ) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net current-period other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Balance at March 31, 2023 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| (in thousands) | Three months ended March 31, 2022 | |||||||||||||||
| Unrealized Gains | Foreign | Change in Fair Value | Total | |||||||||||||
| (Losses) on | Currency | of Debt Attributable | Accumulated Other | |||||||||||||
| Available-for-Sale | Translation | to Instrument-Specific | Comprehensive | |||||||||||||
| Investments | Adjustments | Credit Risk | Income | |||||||||||||
| Balance at December 31, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Other comprehensive (loss) income arising during the period | ( | ) | ( | ) | ||||||||||||
| Amounts reclassified from accumulated other comprehensive income | ||||||||||||||||
| Net current-period other comprehensive (loss) income | ( | ) | ( | ) | ||||||||||||
| Balance at March 31, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
It should be noted that the unaudited consolidated statements of comprehensive income (loss) present the components of other comprehensive loss, net of tax, only for the three months ended March 31, 2023 and March 31, 2022 and inclusive of the components attributable to noncontrolling interests in consolidated subsidiaries.
Components of accumulated other comprehensive (loss) income were reclassified to the following lines of the unaudited consolidated statements of operations for the three months ended March 31, 2023 and March 31, 2022:
| (in thousands) | Three months ended March 31, | |||||||
| 2023 | 2022 | |||||||
| Reclassification of accumulated other comprehensive income from unrealized gains (losses) on available-for-sale investments to: | ||||||||
| Net realized gains | $ | $ | ( | ) | ||||
| Reclassification of accumulated other comprehensive income from change in fair value of debt attributable to instrument-specific credit risk to: | ||||||||
| Gain on extinguishment of debt | ||||||||
| Income (loss) from continuing operations before income tax expense (benefit) | ||||||||
| Income tax expense (benefit) | ||||||||
| Income (loss) from continuing operations, net of taxes | ||||||||
| Income from discontinued operations, net of taxes | ||||||||
| Net income (loss) | $ | $ | ||||||
As further discussed in Note 11, "Debt," during the first quarter of 2023, the Company completed the repurchases of five TruPs. The unaudited consolidated statements of comprehensive income (loss) for the three months ended March 31, 2023 includes a reclassification adjustment of $
NOTE 20 SEGMENTED INFORMATION
The Company reports segment information based on the "management" approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as a source of the Company’s reportable operating segments. The Company conducts its business through the following reportable segments: Extended Warranty and Kingsway Search Xcelerator.
Prior to the fourth quarter of 2022, the Company conducted its business through a reportable segment, Leased Real Estate. Leased Real Estate included the following subsidiaries of the Company: CMC and VA Lafayette. As further discussed in Note 5, "Acquisitions, Disposal and Discontinued Operations," both CMC and VA Lafayette have been classified as discontinued operations and the results of their operations are reported separately for all periods presented. As such, the Leased Real Estate segment no longer exists and all segmented information has been restated to exclude the Leased Real Estate segment for all periods presented.
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2023
Geminus primarily sells vehicle service agreements to used car buyers across the United States, through its subsidiaries, Penn and Prime. Penn and Prime distribute these products in
PWI markets, sells and administers vehicle service agreements to used car buyers in all fifty states via independent used car and franchise network of approved automobile and motorcycle dealer partners. PWI’s business model is supported by an internal sales and operations team and partners with American Auto Shield in three states with a "white label" agreement. PWI also has a "white label" agreement with a third-party that sells and administers a GAP product in certain states.
PWSC sells new home warranty products and provides administration services to home builders 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.
Trinity sells HVAC, standby generator, commercial LED lighting and commercial 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 commercial 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.
Kingsway Search Xcelerator Segment
Kingsway Search Xcelerator includes the Company's subsidiaries CSuite, Ravix and SNS.
CSuite provides financial executive services, for project and interim-staffing engagements, and search services for full-time placements for customers throughout the United States.
Ravix provides outsourced financial services and human resources consulting for short or long duration engagements for customers in several states.
SNS provides healthcare staffing services to acute healthcare facilities on a contract or per diem basis in the United States, primarily in California.
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, 2023 and March 31, 2022 were:
| (in thousands) | Three months ended March 31, | |||||||
| 2023 | 2022 | |||||||
| Revenues: | ||||||||
| Service fee and commission revenue - Extended Warranty | $ | $ | ||||||
| Service fee and commission revenue - Kingsway Search Xcelerator | ||||||||
| Total revenues | $ | $ | ||||||
KINGSWAY FINANCIAL SERVICES INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2023
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 income (loss) from continuing operations for the three months ended March 31, 2023 and March 31, 2022 were:
| (in thousands) | Three months ended March 31, | |||||||
| 2023 | 2022 | |||||||
| Segment operating income: | ||||||||
| Extended Warranty | $ | $ | ||||||
| Kingsway Search Xcelerator | ||||||||
| Total segment operating income | ||||||||
| Net investment income | ||||||||
| Net realized gains | ||||||||
| Gain (loss) on change in fair value of equity investment | ( | ) | ||||||
| (Loss) gain on change in fair value of limited liability investments, at fair value | ( | ) | ||||||
| Loss on change in fair value of derivative asset option contracts | ( | ) | ||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other revenue and expenses not allocated to segments, net | ( | ) | ( | ) | ||||
| Amortization of intangible assets | ( | ) | ( | ) | ||||
| Gain (loss) on change in fair value of debt | ( | ) | ||||||
| Gain on extinguishment of debt | ||||||||
| Income (loss) from continuing operations before income tax expense (benefit) | ( | ) | ||||||
| Income tax expense (benefit) | ( | ) | ||||||
| Income (loss) from continuing operations | $ | $ | ( | ) | ||||
NOTE 21 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, subordinated debt, derivative contracts (interest rate swap and trust preferred debt repurchase options) and contingent consideration 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.
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
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 and asset-backed securities are generally priced using the market approach. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets, expected prepayments, expected credit default rates, delinquencies and issue specific information including, but not limited to, collateral type, seniority and vintage. |
| • | Corporate securities are generally priced using the market approach using pricing vendors. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets, issuer rating, benchmark yields, maturity and credit spreads. |
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, at fair value include the underlying investments of Net Lease and Argo Holdings. 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 Net Lease's investments in limited liability companies is based upon the net asset values of the underlying investments in 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. |
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.
Derivative contract - interest rate swap - As described in Note 10, "Derivatives," the Company entered into an interest rate swap agreement effective April 1, 2021 to convert the variable interest rate on a portion of the 2020 KWH Loan to a fixed interest rate. The interest rate swap contract is measured and reported at fair value and is included in other receivables in the consolidated balance sheets at March 31, 2023 and December 31, 2022. The fair value of the interest rate swap contract is estimated using inputs which the Company obtains from the counterparty and is determined using a discounted cash flow analysis on the expected cash flows of the derivative. The discounted cash flow valuation technique reflects the contractual term of the derivative contract, including the period to maturity, and uses observable market based inputs, including quoted mid-market prices or third-party consensus pricing, interest rate curves and implied volatilities. The interest rate swap contract is categorized in Level 2 of the fair value hierarchy.
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
Derivative contracts - trust preferred debt repurchase options - As described in Note 10, "Derivatives," the Company entered into
Contingent consideration - The consideration for the Company's acquisitions of Ravix and CSuite includes future payments to the former owners that are contingent upon the achievement of certain targets over future reporting periods. Liabilities for contingent consideration are measured and reported at fair value and are included in accrued expenses and other liabilities in the consolidated balance sheets. Contingent consideration liabilities are revalued each reporting period. Changes in the fair value of contingent consideration liabilities can result from changes to one or multiple inputs, including adjustments to the discount rates or changes in the assumed achievement or timing of any targets. Any changes in fair value are reported in the consolidated statements of operations as non-operating other (expense) revenue. The contingent consideration liabilities are categorized in Level 3 of the fair value hierarchy.
| • | The fair value of Ravix's contingent consideration liability is estimated by applying the Monte Carlo simulation method to forecast achievement of gross profit which may result in up to $ | |
| • | The fair value of CSuite's contingent consideration liability is estimated by applying the Monte Carlo simulation method to forecast achievement of gross revenue which may result in up to $ |
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, 2023 and December 31, 2022 are 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, 2023 | |||||||||||||||||||
| Fair Value Measurements at the End of the Reporting Period Using | ||||||||||||||||||||
| Quoted Prices in | Significant | Significant | ||||||||||||||||||
| Active Markets for | Other Observable | Unobservable | ||||||||||||||||||
| Identical Assets | Inputs | Inputs | Measured at | |||||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | Net Asset Value | ||||||||||||||||
| Recurring fair value measurements: | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Fixed maturities: | ||||||||||||||||||||
| U.S. government, government agencies and authorities | $ | $ | $ | $ | $ | |||||||||||||||
| States, municipalities and political subdivisions | ||||||||||||||||||||
| Mortgage-backed | ||||||||||||||||||||
| Asset-backed | ||||||||||||||||||||
| Corporate | ||||||||||||||||||||
| Total fixed maturities | ||||||||||||||||||||
| Equity investments: | ||||||||||||||||||||
| Common stock | ||||||||||||||||||||
| Warrants | ||||||||||||||||||||
| Total equity investments | ||||||||||||||||||||
| Limited liability investments, at fair value | ||||||||||||||||||||
| Derivative contract - interest rate swap | ||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | |||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Subordinated debt | $ | $ | $ | $ | $ | |||||||||||||||
| Contingent consideration | ||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | $ | |||||||||||||||
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
| (in thousands) | December 31, 2022 | |||||||||||||||||||
| Fair Value Measurements at the End of the Reporting Period Using | ||||||||||||||||||||
| Quoted Prices in | Significant | Significant | ||||||||||||||||||
| Active Markets for | Other Observable | Unobservable | ||||||||||||||||||
| Identical Assets | Inputs | Inputs | Measured at | |||||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | Net Asset Value | ||||||||||||||||
| Recurring fair value measurements: | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Fixed maturities: | ||||||||||||||||||||
| U.S. government, government agencies and authorities | $ | $ | $ | $ | $ | |||||||||||||||
| States municipalities and political subdivisions | ||||||||||||||||||||
| Mortgage-backed | ||||||||||||||||||||
| Asset-backed | ||||||||||||||||||||
| Corporate | ||||||||||||||||||||
| Total fixed maturities | ||||||||||||||||||||
| Equity investments: | ||||||||||||||||||||
| Common stock | ||||||||||||||||||||
| Total equity investments | ||||||||||||||||||||
| Limited liability investments, at fair value | ||||||||||||||||||||
| Derivative contract - interest rate swap | ||||||||||||||||||||
| Derivative contract - trust preferred debt repurchase options | ||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | |||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Subordinated debt | $ | $ | $ | $ | $ | |||||||||||||||
| Contingent consideration | ||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | $ | |||||||||||||||
The following table provides a reconciliation of the fair value of recurring Level 3 fair value measurements for the three months ended March 31, 2023 and March 31, 2022:
| (in thousands) | Three months ended March 31, | |||||||
| 2023 | 2022 | |||||||
| Assets: | ||||||||
| Limited liability investments, at fair value: | ||||||||
| Beginning balance | $ | $ | ||||||
| Contributions | ||||||||
| Distributions received | ( | ) | ( | ) | ||||
| Realized gains included in net income (loss) | ||||||||
| Change in fair value of limited liability investments, at fair value included in net income (loss) | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
| Unrealized losses (gains) on limited liability investments, at fair value held at end of period: | ||||||||
| Included in net income (loss) | $ | $ | ( | ) | ||||
| Included in other comprehensive loss | $ | $ | ||||||
| Derivative - trust preferred debt repurchase options: | ||||||||
| Beginning balance | $ | $ | ||||||
| Exercise of options included in net income (loss) | ( | ) | ||||||
| Change in fair value of derivative assets included in net income (loss) | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
| Unrealized gains recognized on derivative assets held at end of period: | ||||||||
| Included in net income (loss) | $ | ( | ) | $ | ||||
| Included in other comprehensive loss | ||||||||
| Ending balance - assets | $ | $ | ||||||
| Liabilities: | ||||||||
| Contingent consideration: | ||||||||
| Beginning balance | $ | $ | ||||||
| Change in fair value of contingent consideration included in net income (loss) | ||||||||
| Ending balance | $ | $ | ||||||
| Unrealized gains recognized on contingent consideration liability held at end of period: | ||||||||
| Included in net income (loss) | $ | $ | ||||||
| Included in other comprehensive loss | $ | $ | ||||||
| Ending balance - liabilities | $ | $ | ||||||
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
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, 2023:
| Categories | Fair Value | Valuation Techniques | Unobservable Inputs | Input Value(s) | ||||||
| Limited liability investments, at fair value | $ | Market approach |
| 1.0x - 9.0x | ||||||
| Contingent consideration | $ | Option-based income approach | Discount rate | % | ||||||
| Risk-free rate | % | |||||||||
| Expected volatility | % | |||||||||
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 December 31, 2022:
| Categories | Fair Value | Valuation Techniques | Unobservable Inputs | Input Value(s) | ||||||
| Limited liability investments, at fair value | $ | Market approach |
|
| ||||||
| Derivative - trust preferred debt repurchase options | $ | Binomial lattice option approach | Credit spread | % | ||||||
| Interest rate volatility | % | |||||||||
| Debt coupon interest rate | ||||||||||
| Time to maturity (in years) | ||||||||||
| Contingent consideration | $ | Option-based income approach | Discount rate | % | ||||||
| Risk-free rate | % | |||||||||
| Expected volatility | % | |||||||||
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, 2023:
| Fair Value | Redemption | |||||||||||
| Category | (in thousands) | Unfunded Commitments | Redemption Frequency | Notice Period | ||||||||
| Limited liability investments, at fair value | $ | n/a | n/a | n/a | ||||||||
The following table summarizes investments for which fair value is measured using the net asset value per share practical expedient at December 31, 2022:
| Fair Value | Redemption | |||||||||||
| Category | (in thousands) | Unfunded Commitments | Redemption Frequency | Notice Period | ||||||||
| Limited liability investments, at fair value | $ | n/a | n/a | n/a | ||||||||
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis, including assets that are adjusted for observable price changes or written down to fair value as a result of an impairment. For the three months ended March 31, 2023 and March 31, 2022, the Company did not record any adjustments to the fair value of its investments in private companies for observable price changes. The Company did record any impairments related to investments in private companies for the three months ended March 31, 2023 and March 31, 2022. To determine the fair value of investments in these private companies, the Company considered rounds of financing and third-party transactions, discounted cash flow analyses and market-based information, including comparable transactions, trading multiples and changes in market outlook, among other factors. The Company has classified the fair value measurements of these investments in private companies as Level 3 because they involve significant unobservable inputs.
NOTE 22 RELATED PARTIES
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. Except where disclosed elsewhere in these unaudited consolidated interim financial statements, the following is a summary of related party relationships and transactions.
Argo Management Group, LLC
The Company acquired Argo Management Group, LLC ("Argo Management") in April 2016. Argo Management's primary business is to act as Managing Member of Argo Holdings. At March 31, 2023 and December 31, 2022, each of the Company, John T. Fitzgerald ("Fitzgerald"), the Company's Chief Executive Officer and President, and certain of Fitzgerald’s immediate family members owns equity interests in Argo Holdings, all of which interests were acquired prior to the Company’s acquisition of Argo Management. Subject to certain limitations, Argo Holdings' governing documents require all individuals and entities owning an equity interest in Argo Holdings to fund upon request his/her/its pro rata share of any funding requirements of Argo Holdings up to an aggregate maximum amount equal to his/her/its total capital commitment (each request for funds being referred to as a "Capital Call"). Argo Holdings made no Capital Calls during the three months ended March 31, 2023 and the year ended December 31, 2022.
| KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023 |
NOTE 23 COMMITMENTS AND CONTINGENCIES
(a) Legal proceedings:
In May 2016, Aegis Security Insurance Company ("Aegis") filed a complaint for breach of contract and declaratory relief against the Company in the Eastern District of Pennsylvania alleging, among other things, that the Company breached a contractual obligation to indemnify Aegis for certain customs bond losses incurred by Aegis under the indemnity and hold harmless agreements provided by the Company to Aegis for certain customs bonds reinsured by Lincoln General Insurance Company ("Lincoln General") during the period of time that Lincoln General was a subsidiary of the Company. Lincoln General was placed into liquidation in November 2015 and Aegis subsequently invoked its rights to indemnity under the indemnity and hold harmless agreements. Effective January 20, 2020, Aegis and the Company entered into a Settlement Agreement with respect to such litigation pursuant to which the Company agreed to pay Aegis a one-time settlement amount of $
(b) Guarantees:
Mendota
As part of the October 18, 2018 transaction to sell Mendota, the Company will indemnify the buyer for any loss and loss adjustment expenses with respect to open claims in excess of Mendota's carried unpaid loss and loss adjustment expenses at June 30, 2018 related to the open claims. The maximum obligation to the Company with respect to the open claims is $
During the third quarter of 2021, the purchasers of Mendota and the Company agreed to release the Company's equity interest in Net Lease as collateral and allow Net Lease to make distributions to the Company. In exchange, the Company agreed to deposit $
During the third quarter of 2022, the buyer provided to the Company an analysis of the claims development that indicated that the Company's potential exposure with respect to the open claims was at the maximum obligation amount. Previous communications from the buyer noted no such development and the buyer was not obligated to provide development information to the Company until the first quarter of 2023. As a result of the newly provided information, the Company recorded a liability of $
VA Lafayette
The LA Mortgage is nonrecourse indebtedness with respect to the assets of VA Lafayette, and the LA Mortgage is not, nor will it be, guaranteed by Kingsway or its affiliates unless VA Lafayette acts in bad-faith or commits intentional acts with respect to the LA Mortgage. The LA Mortgage is secured in part by a guaranty of recourse liabilities, whereby KAI, as guarantor, would become liable for the recourse liabilities if VA Lafayette, as borrower, violates certain terms of the loan agreement. Under the guarantee, the lender can recover losses from the guarantor for certain bad-faith or other intentional acts of the borrower, such as rents retained by the borrower in violation of the loan documents, fraud or intentional misrepresentation, changes to the lease without the lender's consent, willful misconduct, criminal acts and environmental losses sustained by lender. In addition, the guarantee provides that the LA Mortgage will be the full personal recourse obligation of the guarantor, for certain actions, such as prohibited transfers of the collateral or bankruptcy of the borrower.
(c) Collateral pledged and restricted cash:
Short-term investments with an estimated fair value of $
The Company also has restricted cash of $
| • | $ |
| • | $ |
| • | million and $ |
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. 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. 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, 2022 ("2022 Annual Report"). The Company's securities filings can be accessed on the EDGAR section of the U.S. Securities and Exchange Commission’s website at www.sec.gov, on the Canadian Securities Administrators’ website at www.sedar.com 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.
OVERVIEW
Kingsway is a Delaware holding company with operating subsidiaries located in the United States. The Company owns or controls subsidiaries primarily in the extended warranty and business services industries. Kingsway conducts its business through two reportable segments: Extended Warranty and Kingsway Search Xcelerator.
Prior to the fourth quarter of 2022, the Company conducted its business through a third reportable segment, Leased Real Estate. Leased Real Estate included the following subsidiaries of the Company: CMC Industries, Inc. ("CMC") and VA Lafayette, LLC ("VA Lafayette").
| • |
CMC owned, 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 two mortgages. On December 22, 2022, the Company announced a definitive agreement for the sale of the Real Property, for gross cash proceeds of $44.5 million and the assumption of the mortgages. On December 29, 2022, the sale was completed. |
| • |
VA Lafayette owns real property consisting of approximately 6.5 acres and a 29,224 square foot single-tenant medical office building located in the State of Louisiana (the "LA Real Property"). The LA Real Property serves as a medical and dental clinic for the Department of Veteran Affairs and is subject to a long-term lease. The LA Real Property is also subject to a mortgage (the "LA Mortgage"). During the fourth quarter, the Company began executing a plan to sell VA Lafayette, and as a result, VA Lafayette is reported as held for sale at March 31, 2023 and December 31, 2022. |
| • |
Both CMC and VA Lafayette have been classified as discontinued operations and the results of their operations are reported separately for all periods presented. See Note 5, "Acquisitions, Disposal and Discontinued Operations," to the unaudited consolidated interim financial statements for further discussion. All segmented information has been restated to exclude the Leased Real Estate segment for all periods presented. |
Extended Warranty includes the following subsidiaries of the Company: IWS Acquisition Corporation ("IWS"), Geminus Holding Company, Inc. ("Geminus"), PWI Holdings, Inc. ("PWI"), Professional Warranty Service Corporation ("PWSC") and Trinity Warranty Solutions LLC ("Trinity"). As discussed in Note 5, "Acquisitions, Disposal and Discontinued Operations," to the unaudited consolidated interim financial statements, the Company disposed of PWSC on July 29, 2022. The earnings of PWSC are included in the unaudited interim consolidated statements of operations and the segment disclosures through the disposal date. Throughout Management's Discussion and Analysis, the term "Extended Warranty" is used to refer to this segment.
IWS is a licensed motor vehicle service agreement company and is a provider of after-market vehicle protection services distributed by credit unions in25 states and the District of Columbia to their members, with customers in all fifty states.
Geminus primarily sells vehicle service agreements to used car buyers across the United States, through its subsidiaries, The Penn Warranty Corporation ("Penn") and Prime Auto Care, Inc. ("Prime"). Penn and Prime distribute these products in 39 and 40 states, respectively, via independent used car dealerships and franchised car dealerships.
PWI markets, sells and administers vehicle service agreements to used car buyers in all fifty states via independent used car and franchise network of approved automobile and motorcycle dealer partners. PWI’s business model is supported by an internal sales and operations team and partners with American Auto Shield in three states with a white label agreement. PWI also has a "white label" agreement with Classic to sell a guaranteed asset protection product ("GAP") in states that Classic is approved in.
PWSC sold home warranty products and provided administration services to homebuilders and homeowners across the United States. PWSC distributed its products and services through an in-house sales team and through insurance brokers and insurance carriers throughout all states except Alaska and Louisiana.
Trinity sells heating, ventilation, air conditioning ("HVAC"), standby generator, commercial LED lighting and commercial 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 commercial 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.
| KINGSWAY FINANCIAL SERVICES INC. |
Kingsway Search Xcelerator includes the Company's subsidiaries, CSuite Financial Partners, LLC ("CSuite"), Ravix Financial, Inc. ("Ravix") and Secure Nursing Service LLC ("SNS"). Throughout Management's Discussion and Analysis, the term the term "Kingsway Search Xcelerator" is used to refer to this segment.
CSuite provides financial executive services, for project and interim-staffing engagements, and search services for full-time placements for customers throughout the United States.
Ravix provides outsourced financial services and human resources consulting for short or long duration engagements for customers in several states.
SNS provides healthcare staffing services to acute healthcare facilities on a contract or per diem basis in the United States, primarily in California.
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 presentationof net income (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 segmentin Note 20, "Segmented Information," to the unaudited consolidated interim financial statements, regarding reportable segment information. The nearest comparable U.S. GAAP measure to total segment operating income is income (loss) from continuing operations before income tax expense (benefit) that, in addition to segment operating income, includes net investment income, net realized gains, gain (loss) on change in fair value of equity investments, (loss) gain on change in fair value of limited liability investments, at fair value, loss on change in fair value of derivative asset option contracts, interest expense, other revenue and expenses not allocated to segments, net, amortization of intangible assets, gain (loss) on change in fair value of debt and gain on extinguishment of debt. A reconciliation of total segment operating income to income (loss) from continuing operations before income tax expense (benefit) for the three months ended March 31, 2023 and March 31, 2022 is presented below in Table 1 of the "Results of Continuing Operations" section of Management's Discussion and Analysis.
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ESTIMATES
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 Company’s most critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations, and that require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. The critical accounting policies and judgments in the accompanying unaudited consolidated interim financial statements include revenue recognition; valuation of fixed maturities and equity investments; impairment assessment of investments; valuation of limited liability investments, at fair value; valuation of deferred income taxes; accounting for business combinations and asset acquisitions; valuation and impairment assessment of intangible assets; goodwill recoverability; deferred contract costs; fair value assumptions for subordinated debt obligations; fair value assumptions for subsidiary stock-based compensation awards; fair value assumptions for derivative financial instruments; and contingent consideration. Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made, and therefore, actual results may differ from these estimates under different assumptions or conditions.
The Company’s significant accounting policies and critical estimates are described in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2022 Annual Report. There has been no material change subsequent to December 31, 2022 to the information previously disclosed in the 2022 Annual Report with respect to these significant accounting policies and critical estimates.
| KINGSWAY FINANCIAL SERVICES INC. |
RESULTS OF CONTINUING OPERATIONS
A reconciliation of total segment operating income to net income (loss) for the three months ended March 31, 2023 and March 31, 2022 is presented in Table 1 below:
Table 1 Segment Operating Income
(in thousands of dollars)
| For the three months ended March 31, |
||||||||||||
| 2023 |
2022 |
Change |
||||||||||
| Segment operating income: |
||||||||||||
| Extended Warranty |
$ | 1,432 | $ | 1,723 | $ | (291 | ) | |||||
| Kingsway Search Xcelerator |
1,577 | 806 | 771 | |||||||||
| Total segment operating income |
3,009 | 2,529 | 480 | |||||||||
| Net investment income |
738 | 619 | 119 | |||||||||
| Net realized gains |
210 | 54 | 156 | |||||||||
| Gain (loss) on change in fair value of equity investment |
1,075 | (10 | ) | 1,085 | ||||||||
| (Loss) gain on change in fair value of limited liability investments, at fair value |
(130 | ) | 127 | (257 | ) | |||||||
| Loss on change in fair value of derivative asset option contracts |
(1,366 | ) | — | (1,366 | ) | |||||||
| Interest expense |
(2,972 | ) | (1,364 | ) | (1,608 | ) | ||||||
| Other revenue and expenses not allocated to segments, net |
(2,640 | ) | (3,066 | ) | 426 | |||||||
| Amortization of intangible assets |
(1,418 | ) | (1,442 | ) | 24 | |||||||
| Gain (loss) on change in fair value of debt |
309 | (1,868 | ) | 2,177 | ||||||||
| Gain on extinguishment of debt |
31,616 | — | 31,616 | |||||||||
| Income (loss) from continuing operations before income tax expense (benefit) |
28,431 | (4,421 | ) | 32,852 | ||||||||
| Income tax expense (benefit) |
699 | (422 | ) | 1,121 | ||||||||
| Income (loss) from continuing operations |
27,732 | (3,999 | ) | 31,731 | ||||||||
| Loss on disposal of discontinued operations, net of taxes |
107 | 1,495 | (1,388 | ) | ||||||||
| Net income (loss) |
$ | 27,839 | $ | (2,504 | ) | $ | 30,343 | |||||
Segment Operating Income, Income (Loss) from Continuing Operations and Net Income (Loss)
In the first quarter of 2023, we reported segment operating income of $3.0 million, an increase of $0.5 million from the same period in 2022. The increase for the three months ended March 31, 2023 is primarily due to the following items:
| • | Increased operating income from Kingsway Search Xcelerator, primarily due to including CSuite and SNS for the first quarter of 2023 (both were acquired in November 2022), which was partially offset by | |
| • | The disposal of PWSC as of July 29, 2022, which had segment operating income of $0.3 million in the first quarter of 2022. |
In the first quarter of 2023, we reported income from continuing operations of $27.7 million compared to a loss from continuing operations of $4.0 million in the first quarter of 2022. The income from continuing operations for the three months ended March 31, 2023is primarily due to:
| • | A gain on extinguishment debt of $31.6 million, related to the repurchase of the trust preferred debt; which was partially offset by | |
| • | Loss on change in fair value of derivative asset option contracts of $1.4 million, related to the trust preferred debt repurchase options; and | |
| • | Other revenue and expenses not allocated to segments, net. |
See Note 11, "Debt" and Note 10, "Derivatives," to the unaudited consolidated interim financial statements, for further discussion of the repurchase of the trust preferred debt and trust preferred debt repurchase options.
The loss from continuing operations for the three months ended March 31, 2022 is primarily due to interest expense, other revenue and expenses not allocated to segments, net, amortization of intangible assets and loss on change in fair value of debt, partially offset by segment operating income.
| KINGSWAY FINANCIAL SERVICES INC. |
In the first quarter of 2023, we reported net income of $27.8 million compared to net loss of $2.5 million in the first quarter of 2022. In addition to the items described above impacting income from continuing operations, the net income (loss) includes income from discontinued operations, net of taxes of $0.1 million and $1.5 million for the three months ended March 31, 2023 and March 31, 2022, respectively. The income from discontinued operations is related to the operations of CMC (first quarter of 2022 only) and VA Lafayette. See Note 5, "Acquisitions, Disposal and Discontinued Operations," to the unaudited consolidated interim financial statements, for further discussion.
Extended Warranty
The Extended Warranty service fee and commission revenue decreased 8.7% (or $1.6 million) to $16.7 million for the three months ended March 31, 2023 compared with $18.3 million for the three months ended March 31, 2022. Service fee and commission revenue was impacted by the following for the three months ended March 31, 2023:
| • |
A $2.1 million decrease at PWSC, due to the sale of PWSC on July 29, 2022;
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| • |
A $1.1 million decrease at Trinity
, primarily driven by a $0.8 million decrease in its equipment breakdown and maintenance support services due to mild weather conditions, which results in fewer service calls, as well as issues with parts availability
;
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•
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A
$1.1 million increase at IWS. During the first quarter of 2022, there was a change in estimate of IWS' deferred revenue associated with vehicle service contract fees, which resulted in a reduction to IWS revenue of $1.2 million. IWS sells a substantial amount of VSAs for new automobiles but, more importantly, its products are distributed through credit unions at the point of vehicle financing, which has been less impacted by the recent macro-economic conditions; and
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•
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A $0.3 million increase at PWI. In the second half of 2022, there was a restructuring of leadership at PWI that has resulted in a higher focus on salesforce production.
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The Extended Warranty operating income was $1.4 million for the three months ended March 31, 2023 compared with $1.7 million for the three months ended March 31, 2022. Operating income was primarily impacted by the following:
| • |
A $0.3 million decrease at PWSC due to the sale of PWSC on July 29, 2022; |
| • |
A $0.3 million decrease at Trinity to $0.1 million for the three months ended March 31, 2023, primarily due to a decrease in revenue that was partially offset by a decrease in cost of services sold; |
| • | A $0.1 million decrease at PWI to $0.4 million for the three months ended March 31, 2023. The operating income for the three months ended March 31, 2023 was impacted by higher commission expense compared with the same period in 2022, which offset the benefits from higher revenue and lower general and administrative expenses; and |
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• |
A $0.4 million increase at IWS to $0.7 million for the three months ended March 31, 2023, primarily due to increased revenue. During the first quarter of 2022, there was a change in estimate of IWS' deferred revenue and deferred contract costs associated with vehicle service contract fees, which resulted in a reduction to IWS operating income of $0.9 million for the three months ended March 31, 2022. For the quarter, IWS had an increase in commission expense and claims authorized on vehicle service agreements increased, as a decrease in the number of claims was slightly more than offset by an increase in the average cost of a claim. |
Kingsway Search Xcelerator
The Kingsway Search Xcelerator revenue increased to $9.7 million for the three months ended March 31, 2023 compared to $4.2 million for the three months ended March 31, 2022. Kingsway Search Xcelerator operating income was $1.6 million for the three months ended March 31, 2023 compared to $0.8 million for the three months ended March 31, 2022. The increase in revenue and operating income is primarily due to the inclusion of CSuite and SNS for the first quarter of 2023 following their acquisitions effective November 1, 2022 and November 18, 2022, respectively.
Net Investment Income
Net investment income was $0.7 million in the first quarter of 2023 compared to $0.6 million in the first quarter of 2022. The increase in net investment income for the three months ended March 31, 2023 relates to higher investment income from fixed maturities and cash equivalents as a result of general changes in market conditions, partially offset by decreases in investment income from the Company's limited liability investments and real estate investments. Income from limited liability investments is recognized based on the Company's share of the earnings of the limited liability entities.
Net realized gains were $0.2 million in the first quarter of 2023 compared to $0.1 million in the first quarter of 2022. The net realized gains for the three months ended March 31, 2023 primarily relate to realized gains recognized by Argo Holdings Fund I, LLC ("Argo Holdings") and net realized gains on sales of limited liability investments. The net realized gains for the three months ended March 31, 2022 primarily relate to distributions received from one of the Company’s investments in private companies in which its carrying value previously had been written down to zero as a result of prior distributions.
Loss on change in fair value of limited liability investments, at fair value was $0.1 million in the first quarter of 2023 compared to a gain of $0.1 million in the first quarter of 2022. The loss for the three months ended March 31, 2023 represents a decrease in fair value of $0.3 million related to Net Lease Investment Grade Portfolio LLC ("Net Lease"), partially offset by an increase in fair value of $0.2 million related to Argo Holdings. The gain for the three months ended March 31, 2022 represents an increase in fair value of $0.4 million related to Net Lease, partially offset by a decrease in fair value of $0.3 million related to Argo Holdings.
Refer to Note 10, "Derivatives," to the unaudited consolidated interim financial statements, for further information on the option agreements.
Interest Expense
Interest expense for the first quarter of 2023 was $3.0 million compared to $1.4 million in the first quarter of 2022. The increase for the three months ended March 31, 2023 is primarily attributable to:
| • |
An increase of $1.1 million on the Company’s subordinated debt, which resulted from generally higher London interbank offered interest rates ("LIBOR") for three-month U.S. dollar deposits during the first quarter of 2023 compared to the same period in 2022. The Company's subordinated debt bears interest at the rate of LIBOR, plus spreads ranging from 3.85% to 4.20%; |
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| • | An increase of $0.3 million, related to the 2020 KWH Loan, as a result of a decrease in fair value of the interest rate swap related to the 2020 KWH bank loan; | |
| • | An increase of $0.1 million related to the $6.5 million SNS Loan, which was effective November 18, 2022 and has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 5.00% (current rate of 8.50%); | |
| • | An increase of $0.1 million related to the $6.0 million 2022 Ravix Loan, which was effective November 16, 2022 and has an annual interest rate equal to the Prime Rate plus 0.75% (current rate of 8.50%); | |
| • | An increase of $0.1 million related to the 2021 Ravix Loan, which was effective October 1, 2021, and has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 3.75% (current rate of 8.25%); and | |
| • | A decrease of $0.1 million related to notes payable held by the Company’s consolidated subsidiary, Flower Portfolio 001, LLC ("Flower"). The Flower debt was repaid in the third quarter of 2022. |
See "Debt" section below for further details.
Other Revenue and Expenses not Allocated to Segments, Net
Other revenue and expenses not allocated to segments, net was a net expense of $2.6 million in the first quarter of 2023 compared to $3.1 million in the first quarter of 2022. Included are revenue and expenses associated with our various other investments that are accounted for on a consolidated basis, our insurance company that has been in run-off since 2012, and expenses associated with our corporate holding company.
The decrease in net expense for the three months ended March 31, 2023 is primarily attributable to a decrease in stock-based compensation expense related to previously-granted awards to PWSC employees (PWSC was sold in July 2022), partially offset by a management fee paid to the manager of Flower during the three months ended March 31, 2023 compared to same period in 2022.
Gain (Loss) on Change in Fair Value of Debt
Gain on change in fair value of debt was $0.3 million in the first quarter of 2023 compared to a loss of $1.9 million in the first quarter of 2022. During the first quarter of 2023, the Company repurchased TruPs debt having a principal amount of $75.5 million. The change in fair value related to the repurchased TruPs debt was $0.3 million and the change in fair value related to the remaining TruPs debt instrument was less than $0.1 million during the three months ended March 31, 2023.
The gain (loss) for three months ended March 31, 2023 and March 31, 2022 reflects changes in the fair value of the subordinated debt resulting primarily from changes in interest rates used (not related to instrument-specific credit risk). The following summarizes the impacts:
| Impact of Rate Change on Fair Value |
Three months ended March 31, 2023 |
Three months ended March 31, 2022 |
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| Result |
Result |
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| LIBOR: |
||||
| increase causes fair value to increase; decrease causes fair value to decrease |
Decrease to fair value |
Increase to fair value |
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| Risk free rate: |
||||
| increase causes fair value to decrease; decrease causes fair value to increase |
Increase to fair value |
Decrease to fair value |
See "Debt" section below for further information.
| KINGSWAY FINANCIAL SERVICES INC. |
Gain on Extinguishment of Debt
For the three months ended March 31, 2022, gain on extinguishment of debt consists of a $31.6 million gain related to the repurchase of TruPs debt having a principal amount of $75.5 million. The gain on extinguishment of debt results from removing the fair value of the debt, trust preferred debt repurchase options, deferred interest payable and accumulated other comprehensive income related to the repurchased TruPs from the Company's consolidated balance sheet at the repurchase date. See Note 11 "Debt," to the unaudited consolidated interim financial statements, for further discussion.
Income Tax Expense (Benefit)
Income tax expense for the first quarter of 2023 was $0.7 million compared to income tax benefit of $0.4 million in the first quarter of 2022. For the three months ended March 31, 2023, the Company reported income tax expense primarily due to the state tax expense. For the three months ended March 31, 2022, the Company reported a tax benefit primarily due to the release of its valuation allowance associated with indefinite life business interest expense carryforwards. See Note 14, "Income Taxes," to the unaudited consolidated interim financial statements, for additional detail of the income tax expense (benefit) recorded for the three months ended March 31, 2023 and March 31, 2022.
INVESTMENTS
Portfolio Composition
See Note 2(d), "Summary of Significant Accounting Policies - Investments," to the consolidated financial statements in the 2022 Annual Report for an overview of how we account for our various investments.
At March 31, 2023, we held cash and cash equivalents, restricted cash and investments with a carrying value of $72.0 million. Our U.S. operations typically invest in U.S. dollar-denominated instruments to mitigate their exposure to currency rate fluctuations.
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, 2023 |
% of Total |
December 31, 2022 |
% of Total |
||||||||||||
| Fixed maturities: |
||||||||||||||||
| U.S. government, government agencies and authorities |
14,516 | 20.2 | % | 15,080 | 11.2 | % | ||||||||||
| States, municipalities and political subdivisions |
3,120 | 4.3 | % | 2,232 | 1.7 | % | ||||||||||
| Mortgage-backed |
7,986 | 11.1 | % | 8,412 | 6.3 | % | ||||||||||
| Asset-backed |
1,388 | 1.9 | % | 1,610 | 1.2 | % | ||||||||||
| Corporate |
10,147 | 14.1 | % | 10,257 | 7.6 | % | ||||||||||
| Total fixed maturities |
37,157 | 51.6 | % | 37,591 | 28.1 | % | ||||||||||
| Equity investments: |
||||||||||||||||
| Common stock |
196 | 0.3 | % | 153 | 0.1 | % | ||||||||||
| Warrants |
1,032 | 1.4 | % | — | — | % | ||||||||||
| Total equity investments |
1,228 | 1.7 | % | 153 | 0.1 | % | ||||||||||
| Limited liability investments |
949 | 1.3 | % | 983 | 0.7 | % | ||||||||||
| Limited liability investments, at fair value |
11,733 | 16.3 | % | 17,059 | 12.7 | % | ||||||||||
| Investments in private companies |
790 | 1.1 | % | 790 | 0.6 | % | ||||||||||
| Other investments |
196 | 0.3 | % | 201 | 0.2 | % | ||||||||||
| Short-term investments |
158 | 0.2 | % | 157 | 0.1 | % | ||||||||||
| Total investments |
52,211 | 72.6 | % | 56,934 | 42.4 | % | ||||||||||
| Cash and cash equivalents |
8,291 | 11.5 | % | 64,168 | 47.9 | % | ||||||||||
| Restricted cash |
11,461 | 16.0 | % | 13,064 | 9.7 | % | ||||||||||
| Total |
71,963 | 100.0 | % | 134,166 | 100.0 | % | ||||||||||
Investment Impairment
The Company's fixed maturities are subject to declines in fair value below amortized cost that may result in the recognition of impairment losses in net income (loss). Factors considered in the determination of whether or not an impairment loss is recognized in net income (loss) include a current intention or need to sell the security or an indication that a credit loss exists.
Effective January 1, 2023, as a result of the adoption of ASU 2016-13, if the decline in fair value is due to credit factors and the Company does not expect to receive cash flows sufficient to support the entire amortized cost basis, the credit loss is reported in the consolidated statements of operations in the period that the declines are evaluated. Significant judgment is required in the determination of whether a credit loss has occurred for a security. The Company considers all available evidence when determining whether a security requires a credit allowance to be recorded, including the financial condition and expected near-term and long term prospects of the issuer, whether the issuer is current with interest and principal payments, credit ratings on the security or changes in ratings over time, general market conditions, industry, sector or other specific factors and whether the Company expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company performs a quarterly analysis of its available-for-sale fixed maturity investments to determine if an impairment loss has occurred. There were no impairment losses recorded related to investments during the three months ended March 31, 2023.
| KINGSWAY FINANCIAL SERVICES INC. |
Prior to the adoption of ASU 2016-13, the Company performed a quarterly analysis of its available-for-sale fixed maturity investments to determine if declines in market value were other-than-temporary. See the "Significant Accounting Policies and Critical Estimates" section of Management's Discussion and Analysis of Financial Condition included in the 2022 Annual Report for further information regarding the Company's detailed analysis and factors considered in establishing an other-than-temporary impairment on an investment. As a result of the analysis performed, there were no write downs for other-than-temporary impairment related to investments for the three months ended March 31, 2022.
At March 31, 2023 and December 31, 2022, the gross unrealized losses for fixed maturities amounted to $2.1 million and $2.5 million, respectively, and there were no unrealized losses attributable to non-investment grade fixed maturities.
DEBT
See Note 11, "Debt," to the unaudited consolidated interim financial statements for further details to those provided below.
Bank Loans
In 2019, the Company formed Kingsway Warranty Holdings LLC ("KWH"), whose subsidiaries at the time included IWS, Geminus and Trinity. As part of the acquisition of PWI on December 1, 2020, PWI became a wholly owned subsidiary of KWH, which borrowed a principal amount of $25.7 million from a bank to partially finance its acquisition of PWI and to fully repay the prior outstanding loan at KWH (the "2020 KWH Loan"). The 2020 KWH Loan had an annual interest rate equal to LIBOR, having a floor of 0.75%, plus 2.75%. During the second quarter of 2022, the 2020 KWH Loan was amended to change the annual interest rate to be equal to the Secured Overnight Financing Rate ("SOFR"), having a floor of 0.75%, plus spreads ranging from 2.62% to 3.12%. At March 31, 2023, the interest rate was 7.49%. The 2020 KWH Loan is carried in the consolidated balance sheets at its amortized cost, which reflects the quarterly pay-down of principal as well as the amortization of the debt discount and issuance costs using the effective interest rate method. The 2020 KWH Loan matures on December 1, 2025.
The 2020 KWH Loan contains a number of covenants, including, but not limited to, a leverage ratio, a fixed charge ratio and limits on annual capital expenditures, all of which are as defined in and calculated pursuant to the 2020 KWH Loan that, among other things, restrict KWH’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.
On February 28, 2023, KWH entered into a second amendment to the 2020 KWH Loan (the “KWH DDTL”) that provides for an additional delayed draw term loan in the principal amount of up to $10.0 million, with a maturity date of December 1, 2025. All or any portion of the KWH DDTL, subject to a $2 million minimum draw amount, may be requested at any time through February 27, 2024. The proceeds are evidenced by an intercompany loan and guarantee between KAI and KWH. Proceeds from certain assets dispositions, as defined, may be required to be used to repay outstanding draws under the DDTL. The principal amount shall be repaid in quarterly installments in an amount equal to 3.75% of the original amount of the drawn DDTL. The KWH DDTL also increases the senior cash flow leverage ratio maximum permissible for certain periods. The Company did not draw down on the KWH DDTL during the three months ended March 31, 2023.
As part of the acquisition of Ravix on October 1, 2021, Ravix became a wholly owned subsidiary of Ravix Acquisition LLC ("Ravix LLC"), and together they borrowed from a bank a principal amount of $6.0 million in the form of a term loan, and established a $1.0 million revolver to finance the acquisition of Ravix (together, the "2021 Ravix Loan"). The 2021 Ravix Loan has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 3.75% (current rate of 8.25%) and 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 debt discount and issuance costs using the effective interest rate method. The term loan matures on October 1, 2027.
Subsequent to the acquisition of CSuite on November 1, 2022, CSuite became a wholly owned subsidiary of Ravix LLC. As a result of the acquisition of CSuite, on November 16, 2022, the 2021 Ravix Loan was amended to (1) include CSuite as a borrower; (2) borrow an additional principal amount of $6.0 million in the form of a supplemental term loan (the "2022 Ravix Loan"); and (3) amend the maturity date and interest rate of the $1.0 million revolver (the "2022 Revolver"). The 2022 Ravix Loan matures on November 16, 2028 and has an annual interest rate equal to the Prime Rate plus 0.75% (current rate of 8.50%) and is carried in the consolidated balance sheets at its unpaid principal balance. The 2022 Revolver matures on November 16, 2024 and has an annual interest rate equal to the Prime Rate plus 0.50%.
The 2021 Ravix Loan and 2022 Ravix Loan contain a number of covenants, including, but not limited to, a leverage ratio and a fixed charge ratio, all of which are as defined in and calculated pursuant to the 2021 Ravix Loan and 2022 Ravix Loan that, among other things, restrict Ravix and CSuite’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.
As part of the asset acquisition of SNS on November 18, 2022, the Company formed Secure Nursing Service LLC, who became a wholly owned subsidiary of Pegasus Acquirer Holdings LLC ("Pegasus LLC"), and together they borrowed from a bank a principal amount of $6.5 million in the form of a term loan, and established a $1.0 million revolver to finance the acquisition of SNS (together, the "SNS Loan"). The SNS Loan has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 5.00% (current rate of 8.50%) and is carried in the consolidated balance sheets at its amortized cost, which reflects the monthly amortization of the debt discount and issuance costs using the effective interest rate method. The term loan matures on November 18, 2028 and revolver matures on November 18, 2023.
The SNS Loan contains a number of covenants, including, but not limited to, a leverage ratio and a fixed charge ratio and limits on annual capital expenditures, all of which are as defined in and calculated pursuant to the SNS Loan that, among other things, restrict SNS’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.
| KINGSWAY FINANCIAL SERVICES INC. |
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.
On August 2, 2022, the Company entered into an agreement with a holder of four of the trust preferred debt instruments ("TruPs") that gives the Company the option to repurchase up to 100% of the holder’s principal and deferred interest for a purchase price equal to 63% of the outstanding principal and deferred interest. Originally, the agreement called for a repurchase at 63%, which escalated to 63.75% once the September 26, 2022 agreement (described below) was signed. The Company agreed that any repurchase made would be for no less than 50% of the TruPs held by the holder.
Until the earlier of (i) the date that all four of the preferred debt instruments have been repurchased and (ii) the nine month anniversary of the agreement ("May Termination Date"), all interest on the four preferred debt instruments will continue to accrue. However, with respect to TruPs that are repurchased prior to the May Termination Date, the amount of interest accrued during the term of the agreement will be treated as an offset and reduce the repurchase price for such TruPs. The Company had no obligation to pay any such accrued interest with respect to any of the TruPs that are repurchased prior to the May Termination Date.
The Company paid approximately $2.0 million to the holder for this option and the Company had until the May Termination Date to execute the repurchases. If the Company repurchased an amount equal to or greater than $30.0 million, then the $2.0 million paid would be applied to such repurchases.
On September 20, 2022, the Company entered into an additional agreement with the same party to the August 2, 2022 agreement that gives the Company the option to repurchase up to 100% of the holder’s principal and deferred interest for 63.75% of the outstanding principal and deferred interest relating to a portion of a fifth TruPs held. The September 20, 2020 agreement is subject to the same terms and conditions as the August 2, 2022 and no additional consideration was paid.
On September 26, 2022, the Company entered into an agreement with a holder of a portion of one of the TruPs that gives the Company the option to repurchase up to 100% of the holder’s principal and deferred interest for a purchase price equal to 63% of the outstanding principal and deferred interest.
Until the earlier of (i) the date that all of the preferred debt instrument has been repurchased and (ii) the May Termination Date, all interest on the preferred debt instrument continued to accrue. However, with respect to TruPs that are repurchased prior to the May Termination Date, the amount of interest accrued during the term of the agreement will be treated as an offset and reduce the repurchase price for such TruPs. The Company had no obligation to pay any such accrued interest with respect to the TruPs that are repurchased prior to the May Termination Date.
The Company paid approximately $0.3 million to the holder for this option and the Company had until the May Termination Date to execute the repurchase. If the Company repurchased any of the TruPs, then the $0.3 million paid would be applied to any repurchases.
In February 2023, the Company entered into amendments to the repurchase agreements described above that would give the Company an additional discount on the total repurchase price if the Company effected a 100% repurchase on or before March 15, 2023. On March 2, 2023, the Company gave notice to the holders that it intended to exercise its options to repurchase 100% of the principal. On March 22, 2023, the Company completed the repurchases using currently available funds from working capital to fund the repurchases. The total amount paid was $56.5 million, which included a credit for the $2.3 million that the Company previously paid at the time of entering into the repurchase agreements. As a result, the Company has repurchased $75.5 million of principal and $23.0 million of deferred interest payable. The Company recognized a gain of $31.6 million, which is included in gain on extinguishment of debt in the unaudited consolidated statement of operations for the three months ended March 31, 2023. The gain on extinguishment of debt results from removing the fair value of the debt, trust preferred debt repurchase options, deferred interest payable and accumulated other comprehensive income related to the repurchased TruPs from the Company's consolidated balance sheet at the repurchase date. At March 31, 2023, the Company has $15.0 million of principal outstanding related to remaining trust preferred debt instrument.
During the third quarter of 2018, the Company gave notice to its Trust Preferred trustees of its intention to exercise its voluntary right to defer interest payments for up to 20 quarters, pursuant to the contractual terms of its outstanding Trust Preferred indentures, which permit interest deferral. This action does not constitute a default under the Company's Trust Preferred indentures or any of its other debt indentures. In order to execute the repurchases described above, on March 13, 2023, the Company paid $5.0 million to the remaining Trust Preferred trustee to be used by the trustee to pay the interest which the Company had been deferring since the third quarter of 2018. At March 31, 2023 and December 31, 2022, deferred interest payable of zero and $25.5 million, respectively, is included in accrued expenses and other liabilities in the consolidated balance sheets.
| KINGSWAY FINANCIAL SERVICES INC. |
The agreements governing our subordinated debt contain a number of covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, make dividends and distributions, and make certain payments in respect of the Company’s outstanding securities.
The Company's subordinated debt is measured and reported at fair value. At March 31, 2023, the carrying value of the subordinated debt is $11.8 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 21, "Fair Value of Financial Instruments," to the unaudited consolidated interim financial statements.
During the three months ended March 31, 2023, 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 subordinated debt while an increase in the risk-free swap rates has the effect of decreasing the fair value. The increase in the credit spread assumption has the effect of decreasing the fair value of the Company's subordinated debt while a decrease in the credit spread assumption has the effect of increasing 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, 2023, along with the passage of time, contributed to a $0.1 million increase in fair value of the Company’s subordinated debt between December 31, 2022 and March 31, 2023.
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 does not 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 totaling $15.0 million of the subordinated debt by the time of the stated redemption date of the remaining trust, which matures on May 22, 2033.
The $56.0 million decrease in the Company’s subordinated debt between December 31, 2022 and March 31, 2023 is attributed to the following:
| • | A decrease of $56.1 million as a result of the repurchase of trust preferred debt during the first quarter of 2023; |
| • | A decrease of $0.3 million related to the change in fair value of the repurchased trust preferred debt instruments between December 31, 2022 and the repurchase dates; and |
| • | An increase of $0.4 million related to the change in fair value of the remaining trust preferred debt instrument between December 31, 2022 and and March 31, 2023. |
Of the $0.1 million increase in fair value of the Company’s subordinated debt between December 31, 2022 and March 31, 2023, $0.4 million is reported as increase in fair value of debt attributable to instrument-specific credit risk in the Company's unaudited consolidated statements of comprehensive income (loss) and $0.3 million is reported as gain on change in fair value of debt in the Company’s unaudited consolidated statements of operations.
The unaudited consolidated statements of comprehensive income (loss) for the three months ended March 31, 2023 also includes an increase of $27.2 million as a result of removing the accumulated other comprehensive income related to the repurchased TruPs from the Company's consolidated balance sheet at the repurchase date.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 4, "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 subsidiaries, investment maturities and investment income, and other returns received on investments and from the sale of investments.
A significant portion of the cash provided by our Extended Warranty companies is required to be placed into restricted trust accounts, as determined by the insurers who back-up our service contracts, in order to fund future expected claims. On a periodic basis (quarterly or annually), we may be required to contribute more into the restricted accounts or we may be permitted to draw additional funds from the restricted accounts, dependent upon actuarial analyses performed by the insurers regarding sufficiency of funds to cover future expected claims. A substantial portion of the restricted trust accounts are invested in fixed maturities and other instruments that have durations similar to the expected future claim projections.
Cash provided from these sources is used primarily for warranty expenses, business service expenses, debt servicing, acquisitions and operating expenses of the holding company.
The Company's Extended Warranty and Kingsway Search Xcelerator subsidiaries fund their obligations primarily through service fee and commission revenue.
| KINGSWAY FINANCIAL SERVICES INC. |
Cash Flows
During the three months ended March 31, 2023, the Company reported $6.7 million of net cash used in operating activities from continuing operations, primarily due to an outflow related to the payment of deferred interest on the remaining trust preferred debt instrument ($5.0 million), partially offset by operating income from the Extended Warranty and Kingsway Search Xcelerator segments. During the three months ended March 31, 2022, the Company reported $2.4 million of net cash provided by operating activities from continuing operations, primarily due to operating income from the segments, partially offset by the increase in service fee receivable.
During the three months ended March 31, 2023, the net cash provided by investing activities from continuing operations was $6.3 million. This source of cash is primarily attributed to a distribution received by Net Lease from one of its limited liability investment companies of $5.2 million, as well as proceeds from sales and maturities of fixed maturities in excess of purchases of fixed maturities. During the three months ended March 31, 2022, the net cash used in investing activities from continuing operations was $0.2 million. This use of cash was primarily attributed to purchases of fixed maturities and property and equipment in excess of proceeds from limited liability investments and from sales and maturities of fixed maturities.
During the three months ended March 31, 2023, the net cash used in financing activities from continuing operations was $57.0 million. This use of cash was primarily attributed to the repurchase of five of the TruPs for $56.5 million, principal repayment on bank loans of $3.3 million and distributions to noncontrolling interest holders of $3.6 million, partially offset by cash proceeds from the exercise of warrants of $6.3 million. During the three months ended March 31, 2022, the net cash used in financing activities from continuing operations was $2.4 million. This use of cash was attributed to principal repayment on bank loans of $1.8 million, principal repayments on the notes payable of $0.1 million and distributions to noncontrolling interest holders of $0.5 million.
Holding Company Liquidity
The liquidity of the holding company is managed separately from its subsidiaries. The obligations of the holding company primarily consist of holding company operating expenses; transaction-related expenses; investments; and any other extraordinary demands on the holding company.
Pursuant to satisfying the covenants under the 2020 KWH Loan, distributions to the holding company in an aggregate amount not to exceed $1.5 million in any 12-month period are permitted. Also, beginning in 2022, the holding company is permitted to receive a portion of the excess cash flow (as defined in the 2020 KWH Loan document) generated by the KWH Subs in the previous year. In 2022, the Company was entitled to 50% of the excess cash flow with the other 50% used to pay down the 2020 KWH Loan. The Company anticipates that in 2023 it will be entitled to receive 75% of the 2022 excess cash flow. During the first quarter of 2023, the Company received $1.1 million and in March 2023 paid down the KWH 2020 Loan by $1.1 million. During 2022, the Company received $1.7 million and in March 2022 paid down the KWH 2020 Loan by $1.7 million.
The amount of excess cash flow the Company is entitled to retain is dependent upon the leverage ratio (as defined in the 2020 KWH Loan document):
| Percent of excess cash flow |
||
| If leverage ratio is |
retained by the Company |
|
| Greater than 1.75:1.00 |
50% |
|
| Less than 1.75:1.00 but greater than 0.75:1.00 |
75% |
|
| Less than 0.75:1.0 |
100% |
On October 1, 2021, the Company closed on the acquisition of Ravix. Related to the Ravix acquisition, the Company secured the 2021 Ravix Loan with Ravix and Ravix LLC as borrowers under the 2021 Ravix Loan. On November 1, 2022, the Company closed on the acquisition of CSuite. Related to the CSuite acquisition, the Company secured the 2022 Ravix Loan with CSuite, Ravix and Ravix LLC as borrowers under the 2022 Ravix Loan. Pursuant to the covenants under the 2021 Ravix Loan and the 2022 Ravix Loan, Ravix and CSuite are permitted to make distributions to the holding company so long as doing such would not cause non-compliance with the various covenants outlined within the 2021 Ravix Loan and 2022 Ravix Loan.
On November 18, 2022, the Company closed on the acquisition of SNS. Related to the SNS acquisition, the Company secured the SNS Loan with SNS and Pegasus LLC as borrowers under the SNS Loan. Pursuant to the covenants under the SNS Loan, SNS is not permitted to make distributions to the holding company without the consent of the lender.
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 part of the transaction, the Company will indemnify the buyer for any loss and loss adjustment expenses with respect to open claims in excess of Mendota's carried unpaid loss and loss adjustment expenses at June 30, 2018 related to the open claims. The maximum obligation to the Company with respect to the open claims is $2.5 million. Per the purchase agreement, a security interest on the Company’s equity interest in its consolidated subsidiary, Net Lease, as well as any distributions to the Company from Net Lease, was to be collateral for the Company’s payment of obligations with respect to the open claims.
During the third quarter of 2021, the purchasers of Mendota and the Company agreed to release the Company's equity interest in Net Lease as collateral and allow Net Lease to make distributions to the Company. In exchange, the Company agreed to deposit $2.0 million into an escrow account and advance $0.5 million to the purchaser of Mendota to satisfy the Company's payment obligation with respect to the open claims.
During the third quarter of 2022, the buyer provided to the Company an analysis of the claims development that indicated that the Company's potential exposure with respect to the open claims was at the maximum obligation amount. Previous communications from the buyer noted no such development. As a result of the newly provided information, the Company recorded a liability of $2.5 million, which is included in accrued expenses and other liabilities in the unaudited consolidated balance sheet at December 31, 2022. During the three months ended March 31, 2023, the $2.0 million that had been previously deposited into an escrow account was released and remitted to the buyer to satisfy the Company's payment with respect to the open claims.
| KINGSWAY FINANCIAL SERVICES INC. |
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 $8.0 millionand $48.9 million at March 31, 2023 and December 31, 2022, respectively, which excludes future actions available to the holding company that could be taken to generate liquidity. The holding company cash amounts are reflected in the cash and cash equivalents of $8.3 million and $64.2 million reported at March 31, 2023 and December 31, 2022, respectively, on the Company’s consolidated balance sheets. The significant decrease is primarily due to the repurchase of the trust preferred debt during the first quarter of 2023.
Based on the Company’s current business plan and revenue prospects, existing cash, cash equivalents, investment balances and anticipated cash flows from operations are expected to be sufficient to meet the Company’s working capital and operating expenditure requirements, for the next twelve months. However, the Company’s assessment could also be affected by various risks and uncertainties, including, but not limited to, the developing macro-economic environment.
Regulatory Capital
Kingsway Reinsurance Corporation ("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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); therefore, pursuant to Regulation S-K, we are not required to make disclosures under this Item.
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 Exchange Act as of March 31, 2023.
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.
Based on the evaluation of our disclosure controls and procedures, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2023, the Company’s disclosure controls and procedures were not effective as a result of one unremediated material weakness in the Company's internal control over financial reporting that was discovered during the course of the 2018 external audit of the accounts, relating to the accounting for and disclosure of certain complex and nonrecurring transactions as it specifically pertains to the adoption and application of ASU 2014-09, Revenue from Contracts with Customers. Not all material weaknesses necessarily present the same risks from period to period as a result of differing events and transactions which have occurred or may occur in current and future periods.
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 inadequate design accounting for and operation of internal 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 adoption and application of ASU 2014-09. This matter was discovered during the course of the 2018 external audit of the accounts and was reviewed with the Company's Audit Committee.
As a result of this material weakness, 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 weakness described above, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, believes that the unaudited consolidated financial statements contained in this Form 10-Q for the three months ended March 31, 2023 and March 31, 2022 fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
| KINGSWAY FINANCIAL SERVICES INC. |
Remediation Process
In 2022, the Company directed its internal audit department to conduct a thorough review of the material revenue processes. The review is in its final stages, which has preliminarily indicated no material issues. The Company expects to use the final results of this review in 2023 to implement a remediation plan for this final material weakness.
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.
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, 2023, and ending March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Information concerning pending legal proceedings is incorporated herein by reference to Note 23, "Commitments and Contingent Liabilities," to the unaudited consolidated interim financial statements in Part I of this Form 10-Q.
There have been no material changes with respect to those risk factors previously disclosed in our 2022 Annual Report.
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.
None
| KINGSWAY FINANCIAL SERVICES INC. |
| Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
||
| Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 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. |
||
| 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 |
Inline XBRL Instance Document |
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| 101.SCH |
Inline XBRL Taxonomy Extension Schema |
|
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase |
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| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase |
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| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase |
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| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase |
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| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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: |
May 9, 2023 | By: |
/s/ John T. Fitzgerald |
||||||||
| John T. Fitzgerald, President, Chief Executive Officer and Director |
|||||||||||
| (principal executive officer) |
|||||||||||
| Date: |
May 9, 2023 | By: |
/s/ Kent A. Hansen |
||||||||
| Kent A. Hansen, Chief Financial Officer and Executive Vice President |
|||||||||||
| (principal financial officer) |
|||||||||||
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John T. Fitzgerald, certify that:
1. I have reviewed this report on Form 10-Q of Kingsway Financial Services Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: May 9, 2023 |
| By /s/ John T. Fitzgerald |
| John T. Fitzgerald, President and Chief Executive Officer |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Kent A. Hansen, certify that:
1. I have reviewed this Form 10-Q of Kingsway Financial Services Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: May 9, 2023 |
| By /s/ Kent A. Hansen |
| Kent A. Hansen, Chief Financial Officer and Executive Vice President |
| (Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Kingsway Financial Services Inc. (the “Company”) for the period ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned John T. Fitzgerald, the President and Chief Executive Officer and Principal Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of the undersigned's knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: May 9, 2023 |
| By /s/ John T. Fitzgerald |
| John T. Fitzgerald, President and Chief Executive Officer |
| (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Kingsway Financial Services Inc. (the “Company”) for the period ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned Kent A. Hansen, the Chief Financial Officer and Principal Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of the undersigned's knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: May 9, 2023 |
| By /s/ Kent A. Hansen |
| Kent A. Hansen, Chief Financial Officer and Executive Vice President |
| (Principal Financial Officer) |
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|||
| Net income (loss) | $ 27,839 | $ (2,504) | ||
| Other comprehensive loss, net of taxes(1): | ||||
| Unrealized gains (losses) arising during the period | 442 | (1,167) | ||
| Reclassification adjustment for amounts included in net income (loss) | (22) | 1 | ||
| Change in fair value of debt attributable to instrument-specific credit risk: | ||||
| Unrealized (losses) gains arising during the period | (427) | 959 | ||
| Reclassification adjustment for amounts included in net income (loss) | (27,177) | 0 | ||
| Other comprehensive loss, net of taxes(1): | [1] | (27,184) | (207) | |
| Comprehensive income (loss) | 655 | (2,711) | ||
| Less: comprehensive income attributable to noncontrolling interests in consolidated subsidiaries | 12 | 107 | ||
| Comprehensive income (loss) attributable to common shareholders | $ 643 | $ (2,818) | ||
| ||||
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (Parentheticals) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Other comprehensive (loss) income, tax | $ 0 | $ 0 |
Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) $ in Thousands |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Treasury Stock, Common [Member] |
Retained Earnings [Member] |
AOCI Attributable to Parent [Member] |
Parent [Member] |
Noncontrolling Interest [Member] |
Total |
|||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance (in shares) at Dec. 31, 2021 | 22,882,614 | ||||||||||
| Balance at Dec. 31, 2021 | $ 0 | $ 359,138 | $ (492) | $ (395,149) | $ 30,779 | $ (5,724) | $ 13,981 | $ 8,257 | |||
| Net income (loss) | 0 | 0 | 0 | (2,653) | 0 | (2,653) | 149 | (2,504) | |||
| Preferred stock dividends | 0 | (78) | 0 | 0 | 0 | (78) | 0 | (78) | |||
| Distributions to noncontrolling interest holders | 0 | 0 | 0 | 0 | 0 | 0 | (453) | (453) | |||
| Other comprehensive (loss) income | 0 | 0 | 0 | 0 | (165) | (165) | (42) | (207) | [1] | ||
| Stock-based compensation | $ 0 | 286 | 0 | 0 | 0 | 286 | 0 | 286 | |||
| Balance (in shares) at Mar. 31, 2022 | 22,882,614 | ||||||||||
| Balance at Mar. 31, 2022 | $ 0 | 359,346 | (492) | (397,802) | 30,614 | (8,334) | 13,635 | $ 5,301 | |||
| Balance (in shares) at Dec. 31, 2022 | 23,190,080 | 23,437,530 | |||||||||
| Balance at Dec. 31, 2022 | $ 0 | 359,985 | (492) | (370,427) | 26,605 | 15,671 | 437 | $ 16,108 | |||
| Conversion of redeemable Class A preferred stock to common stock (in shares) | 748,331 | ||||||||||
| Conversion of redeemable Class A preferred stock to common stock | $ 0 | 4,863 | 0 | 0 | 0 | 4,863 | 0 | 4,863 | |||
| Exercise of Series B warrants (in shares) | 1,258,840 | ||||||||||
| Exercise of Series B warrants | $ 0 | 6,294 | 0 | 0 | 0 | 6,294 | 0 | 6,294 | |||
| Net income (loss) | 0 | 0 | 0 | 27,842 | 0 | 27,842 | (3) | 27,839 | |||
| Preferred stock dividends | 0 | (69) | 0 | 0 | 0 | (69) | 0 | (69) | |||
| Distributions to noncontrolling interest holders | 0 | 0 | 0 | 0 | 0 | 0 | (3,584) | (3,584) | |||
| Other comprehensive (loss) income | 0 | 0 | 0 | 0 | (27,199) | (27,199) | 15 | (27,184) | [1] | ||
| Stock-based compensation | $ 0 | 283 | 0 | 0 | 0 | 283 | 0 | $ 283 | |||
| Balance (in shares) at Mar. 31, 2023 | 25,197,251 | 25,444,701 | |||||||||
| Balance at Mar. 31, 2023 | $ 0 | $ 371,356 | $ (492) | $ (342,585) | $ (594) | $ 27,685 | $ (3,135) | $ 24,550 | |||
| |||||||||||
Note 1 - Business |
3 Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||
| Notes to Financial Statements | ||||||||||
| Nature of Operations [Text Block] |
NOTE 1 BUSINESS
Kingsway Financial Services Inc. (the "Company" or "Kingsway") was incorporated under the Business Corporations Act (Ontario) on September 19, 1989. Effective December 31, 2018, the Company changed its jurisdiction of incorporation from the province of Ontario, Canada, to the State of Delaware. Kingsway is a holding company with operating subsidiaries located in the United States. The Company owns or controls subsidiaries primarily in the extended warranty and business services industries.
|
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Note 2 - Basis of Presentation |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Basis of Accounting [Text Block] |
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.
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 ("2022 Annual Report") for the year ended December 31, 2022.
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 6, "Variable Interest Entities," to the consolidated financial statements in the 2022 Annual Report. All material intercompany transactions and balances have been eliminated in consolidation.
The preparation of consolidated financial statements in accordance 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, but are not limited to, revenue recognition; valuation of fixed maturities and equity investments; impairment assessment of investments; valuation of limited liability investments, at fair value; valuation of deferred income taxes; accounting for business combinations and asset acquisitions; valuation and impairment assessment of intangible assets; goodwill recoverability; deferred contract costs; fair value assumptions for subordinated debt obligations; fair value assumptions for subsidiary stock-based compensation awards; fair value assumptions for derivative financial instruments; and contingent consideration.
The fair values of the Company's investments in fixed maturities and equity investments, limited liability investments, at fair value, subordinated debt, derivative financial instruments and contingent consideration are estimated using a fair value hierarchy to categorize the inputs it uses in valuation techniques. 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.
|
Note 3 - Summary of Significant Accounting Policies |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Significant Accounting Policies [Text Block] |
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Except as noted below, there have been no material changes to our significant accounting policies as reported in our 2022 Annual Report.
The following two accounting policies, Investments and Service Fee Receivables, have been updated effective January 1, 2023 to include additional disclosure as a result of the Company's adoption of Accounting Standards Update ("ASU") 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as further described in Note 4, "Recently Issued Accounting Standards".
Investments - Impairments
When an available-for-sale fixed maturity investment is impaired, it is evaluated to determine whether there is an intent to sell the investment before recovery of amortized cost or whether a credit loss exists.
For fixed maturity investments that the Company intends to sell or for which it is more likely than not that the Company will be required to sell before an anticipated recovery of value, the full amount of the impairment is recognized as an impairment loss in the consolidated statements of operations. The investment’s amortized cost is written down to its fair value and is not adjusted for any subsequent recoveries.
For fixed maturity investments that the Company does not intend to sell or for which it is more likely than not that the Company will not be required to sell before an anticipated recovery of value, the Company evaluates whether a decline in fair value below the amortized cost basis has occurred from a credit loss or other non-credit related factors.
Considerations in the credit loss assessment include (1) extent to which the fair value has been less than amortized cost, (2) conditions related to the investment, an industry, or a geographic area, (3) payment structure of the investment and the likelihood of the issuer's ability to make contractual cash flows, (4) defaults or other collectability concerns related to the issuer, (5) changes in the ratings assigned by a rating agency and (6) other credit enhancements that affect the investment’s expected performance.
If a credit loss exists, an allowance is established, which is equal to the difference between the present value of cash flows expected to be collected and the amortized cost basis. The expected allowance for credit losses is limited by the amount that the fair value is less than the amortized cost basis and is adjusted in subsequent periods for any additional expected credit losses or subsequent recoveries. Changes in the allowance are reported as an impairment loss in the consolidated statements of operations. The amortized cost basis of the investment is not adjusted for the expected allowance for credit loss. The impairment related to other non-credit related factors is reported in other comprehensive loss.
The Company reports accrued investment income separately for available-for-sale fixed maturity investments and has made a policy election to not to measure an allowance for credit losses on accrued investment income. Accrued investment income is written off against net investment income at the time the issuer of the bond defaults or is expected to default on interest payments.
Service Fee Receivables
Service fee receivable includes balances due and uncollected from customers. Service fee receivable is reported net of an estimated allowance for credit losses. The Company recognizes credit losses based on a forward-looking current expected credit losses. The Company estimates expected credit losses based upon its assessment of various factors, including historical collection experience, the age of service fee receivable balances, credit quality of its customers, current economic conditions, management’s experience, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers. Expected credit losses are recorded as general and administrative expenses in the consolidated statements of operations. Amounts are written off against the allowance when determined to be uncollectible. Write-offs are applied as a reduction to the allowance for credit losses and any recoveries of previous write-offs are netted against bad debt expense in the period recovered.
Holding Company Liquidity
The Company's Extended Warranty and Kingsway Search Xcelerator subsidiaries fund their obligations primarily through service fee and commission revenue. The liquidity of the holding company is managed separately from its subsidiaries. The obligations of the holding company primarily consist of holding company operating expenses; transaction-related expenses; investments; certain debt and associated interest; and any other extraordinary demands on the holding company. 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 $8.0 million and $48.9 million at March 31, 2023 and December 31, 2022. The holding company cash amounts are reflected in the cash and cash equivalents of $8.3 million and $64.2 million reported at March 31, 2023 and December 31, 2022, respectively, on the Company’s consolidated balance sheets.
The Company notes there are outstanding warrants that expire in September 2023 and, if all outstanding warrants were exercised, the Company would receive an additional $16.0 million of exercise proceeds. The Company also notes that it has an additional $10.0 million available from the second amendment to the 2020 KWH Loan (see Note 11, "Debt"), that is available to be drawn.
Based on the Company’s current business plan and revenue prospects, existing cash, cash equivalents, investment balances and anticipated cash flows from operations are expected to be sufficient to meet the Company’s working capital and operating expenditure requirements for the next twelve months. However, the Company’s assessment could also be affected by various risks and uncertainties, including, but not limited to, the developing macro-economic environment.
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Note 4 - Recently Issued Accounting Standards |
3 Months Ended |
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| Notes to Financial Statements | |
| Accounting Standards Update and Change in Accounting Principle [Text Block] |
NOTE 4 RECENTLY ISSUED ACCOUNTING STANDARDS
(a) Adoption of New Accounting Standards:
Effective January 1, 2023, the Company adopted 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 requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net income (loss). For available-for-sale fixed maturities carried at fair value, estimated credit losses will continue to be measured at the present value of expected cash flows, however, the other than temporary impairment concept has been eliminated. Under the previous guidance, estimated credit impairments resulted in a write down of amortized cost. Under the new guidance, estimated credit losses are recognized through an allowance and reversals of the allowance are permitted if the estimate of credit losses declines. For available-for-sale fixed maturities where there is an intent to sell, impairment will continue to result in a write down of amortized cost.
The Company adopted ASU 2016-13 using a modified retrospective method for service fee receivable and other receivables. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance. A prospective transition approach is required for available-for-sale fixed maturity investments that have recognized an other-than-temporary impairment write down prior to the effective date. The adoption of ASU 2016-13 resulted in no cumulative-effect adjustment to accumulated deficit at January 1, 2023.
(b) Accounting Standards Not Yet Adopted:
In March 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-02 Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted in any interim period. The Company does not expect the adoption of ASU 2023-02 to have an impact on its consolidated financials statements.
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Note 5 - Acquisitions, Disposal and Discontinued Operations |
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| Business Combination, Disposal and Discontinued Operations Disclosure [Text Block] |
NOTE 5 ACQUISITIONS, DISPOSAL AND DISCONTINUED OPERATIONS
CSuite Financial Partners, LLC
On
November
1,
2022, the Company acquired
100% of the outstanding equity interests of CSuite Financial Partners, LLC ("CSuite"). CSuite, based in Manhattan Beach, California, is a national financial executive services firm providing financial management leadership to companies in every industry, regardless of size, throughout the United States. As further discussed in
Note 20
, "Segmented Information
,"
CSuite is included in the Kingsway Search Xcelerator segment. This acquisition was the Company’s
second acquisition under its novel CEO Accelerator program and further expands the Company’s portfolio of businesses with recurring revenue and low capital intensity.
The Company acquired CSuite for aggregate cash consideration of approximately $8.5 million, less certain escrowed amounts for purposes of indemnification claims. The final purchase price was subject to a working capital true-up of less than $0.1 million that was settled during the first quarter of 2023. The Company will also pay additional contingent consideration, only to the extent earned, in an aggregate amount of up to $3.6 million, which is subject to certain conditions, including the successful achievement of certain financial metrics for CSuite during the three-year period commencing on the first full calendar month following the acquisition date. The estimated fair value of the contingent consideration obligation at March 31, 2023 and December 31, 2022 was zero.
This acquisition was accounted for as a business combination using the acquisition method of accounting. The purchase price was provisionally allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition and were subject to adjustment during a measurement period subsequent to the acquisition date, not to exceed one-year as permitted under U.S. GAAP. During the first quarter of 2023, the Company finalized its fair value analysis of the assets acquired and liabilities assumed with the assistance of a third party. No measurement period adjustments were recorded as a result of finalizing the fair value analysis.
Secure Nursing Service, Inc.
On November 18, 2022, the Company acquired substantially all of the assets and assumed certain specified liabilities of Secure Nursing Service, Inc. ("SNS") for aggregate cash consideration of $11.5 million, less certain escrowed amounts for purposes of indemnification claims and working capital adjustments. SNS, based in Los Angeles, California, employs highly skilled and professional per diem and travel Registered Nurses, Licensed Vocational Nurses, Certified Nurse Assistants and Allied Healthcare Professionals with multiple years of acute care hospital experience. SNS places these healthcare professionals in both per diem assignments, and in short-term and long-term travel assignments in a variety of hospitals in southern California. As further discussed in Note 20, "Segmented Information," SNS is included in the Kingsway Search Xcelerator segment. This acquisition was the Company’s third acquisition under its novel CEO Accelerator program and further expands the Company’s portfolio of businesses with recurring revenue and low capital intensity.
This acquisition was accounted for as a business combination using the acquisition method of accounting. The purchase price was provisionally allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition and were subject to adjustment during a measurement period subsequent to the acquisition date, not to exceed one-year as permitted under U.S. GAAP. During the first quarter of 2023, the Company finalized its fair value analysis of the assets acquired and liabilities assumed with the assistance of a third party. No measurement period adjustments were recorded as a result of finalizing the fair value analysis.
Professional Warranty Service Corporation
On July 29, 2022, Professional Warranty Services LLC ("PWS LLC"), a subsidiary of the Company entered into an Equity Purchase Agreement (the "Agreement") with Professional Warranty Service Corporation ("PWSC"), an 80% majority-owned, indirect subsidiary of the Company, Tyler Gordy, the president of PWSC and a 20% owner of PWSC ("Gordy") and PCF Insurance Services of the West, LLC ("Buyer"), pursuant to which PWS LLC and Gordy sold PWSC to Buyer.
To the extent the EBITDA of PWSC (as defined in the Agreement) for the
one-year period following the sale transaction exceeds
103% of the EBITDA at the closing of the sale transaction (the "Closing EBITDA"), PWS LLC and Gordy will also be entitled to receive an earnout payment in an amount equal to
times the EBITDA in excess of
103% of Closing EBITDA. The Company does
not have access to the information needed to reasonably estimate the potential earnout payment and accordingly any gain related to the earnout payment will be recorded in the period the consideration is determined to be realizable.
The sale of PWSC did
not represent a strategic shift that would have a major effect on the Company's operations or financial results; therefore, PWSC is
not presented as a discontinued operation. The earnings of PWSC, which was included in the Extended Warranty segment, are included in the unaudited interim consolidated statements of operations for the
three months ended
March 31, 2022. The assets, liabilities and equity (including the non-controlling interest) of PWSC were deconsolidated effective
July 29, 2022.
The sale of PWSC represents the disposal of a significant subsidiary of the Company, which had contributions to Extended Warranty service fee and commission revenue of
$2.1 million for the
three months ended
March 31, 2022. Additionally, PWSC had pre-tax loss of
$0.7 million for the
three months ended
March 31, 2022. For the
three months ended
March 31, 2022, pre-tax loss of
$0.6 million was attributable to the controlling interest.
Leased Real Estate Segment
The Company’s subsidiaries, VA Lafayette, LLC ("VA Lafayette") and CMC Industries Inc. ("CMC"), which includes CMC’s subsidiaries Texas Rail Terminal LLC and TRT Leaseco, LLC ("TRT"), comprised the Company's entire Leased Real Estate segment prior to the fourth quarter of 2022. Each of CMC, through indirect wholly owned subsidiary, TRT, and VA Lafayette own a single asset, which is real estate property. As further described below, on December 29, 2022, TRT sold its assets and at December 31, 2022, VA Lafayette was classified as held for sale.
In accordance with ASU No. 2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal is categorized as a discontinued operation if the disposal group is a component of an entity or group of components that meets the held for sale criteria, is disposed of by sale, or is disposed of other than by sale, and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.
Leased Real Estate is a component of Kingsway since its operations and cash flows can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the reporting entity. A component of an entity may consist of multiple disposal groups and does not need to be disposed of in a single transaction. The disposal of the Leased Real Estate segment represents a strategic shift that will have a major effect on the Company's operations and financial results, as the disposal of the Leased Real Estate assets was in excess of 20% of the entity's total assets. As a result, the assets, liabilities, operating results and cash flows related to Leased Real Estate have been classified as discontinued operations in the consolidated financial statements for all periods presented.
Sale of CMC Real Property
CMC owned, through its indirect wholly owned subsidiary, TRT, a parcel of real property consisting of approximately 192 acres located in the State of Texas (the "Real Property"), which was subject to a long-term triple net lease agreement. The Real Property was also subject to two mortgages (the "Mortgages").
On December 22, 2022, TRT entered into a Purchase and Sale Agreement (the "CMC Agreement") with BNSF Dayton LLC ("Purchaser"), pursuant to which TRT agreed to sell to the Purchaser the Real Property. TRT was also the landlord and an affiliate of the Purchaser was the current tenant under the long-term triple net lease over the Real Property. Under the terms of the CMC Agreement, at the closing on December 29, 2022, TRT assigned, and the Purchaser assumed, the rights and obligations of the landlord under the existing long-term triple net lease.
As discussed above, CMC and TRT are part of the Leased Real Estate disposal group. The sale of the Leased Real Estate's assets represents a strategic shift that will have a major effect on the Company's operations and financial results. As a result, CMC and its subsidiaries, have been classified as a discontinued operation and the results of their operations are reported separately for all periods presented.
VA Lafayette
During the fourth quarter of 2022, the Company began executing a plan to sell its subsidiary, VA Lafayette. VA Lafayette owns the LA Real Property, that is subject to a long-term lease and the LA Mortgage.
As discussed above, VA Lafayette is part of the Leased Real Estate disposal group. In conjunction with the sale of the CMC Real Property, the sale of the Leased Real Estate's assets represents a strategic shift that will have a major effect on the Company's operations and financial results. As a result, VA Lafayette has been classified as a discontinued operation and the results of its operations are reported separately for all periods presented. The assets and liabilities of VA Lafayette are presented as held for sale in the consolidated balance sheets at March 31, 2023 and December 31, 2022.
Summary financial information for Leased Real Estate included in income from discontinued operations, net of taxes in the unaudited consolidated statements of operations for the three months ended March 31, 2023 and March 31, 2022 is presented below:
For the three months ended March 31, 2023 and March 31, 2022, pre-tax income from discontinued operations of $0.1 million and $1.2 million was attributable to the controlling interest, respectively.
The carrying amounts of the major classes of assets and liabilities of Leased Real Estate presented as held for sale at March 31, 2023 and December 31, 2022 are as follows:
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| Investment [Text Block] |
NOTE 6 INVESTMENTS
The amortized cost, gross unrealized gains and losses included in accumulated other comprehensive (loss) income, and estimated fair value of the Company's available-for-sale investments at March 31, 2023 and December 31, 2022 are summarized in the tables shown below:
The table below summarizes the Company's fixed maturities at March 31, 2023 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.
The following tables highlight the aggregate unrealized loss position, by security type, of available-for-sale investments in unrealized loss positions where no credit loss allowance had been established as of March 31, 2023 and December 31, 2022. The tables segregate the holdings based on the period of time the investments have been continuously held in unrealized loss positions.
At March 31, 2023, there are approximately 196 individual available-for-sale investments that were in unrealized loss positions, for which an allowance for credit losses had not been recorded. The Company did not have the intent to sell these investments, and it was not more likely than not that the Company would be required to sell these investments before recovery of its amortized cost. The Company evaluated these investments for credit losses at March 31, 2023. The Company considers many factors in evaluating whether the unrealized losses were credit related including, but not limited to, the extent to which the fair value has been less than amortized cost, conditions related to the security, industry, or geographic area, payment structure of the investment and the likelihood of the issuer’s ability to make contractual cashflows, defaults or other collectability concerns related to the issuer, changes in the ratings assigned by a rating agency, and other credit enhancements that affect the investment’s expected performance. The Company determined that the unrealized losses on the fixed maturity investments were due to non-credit related factors at March 31, 2023.
At December 31, 2022, there are approximately 208 individual available-for-sale investments that were in unrealized loss positions. Prior to the adoption of ASU 2016-13, the Company performed an analysis of the individual investments to determine if declines in market value were other-than-temporary. See the "Significant Accounting Policies and Critical Estimates" section of Management's Discussion and Analysis of Financial Condition included in the 2022 Annual Report for further information regarding the Company's detailed analysis and factors considered in establishing an other-than-temporary impairment on an investment. The Company 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 did not have the intent to sell these investments, and it was not more likely than not that the Company would be required to sell those investments before recovery of its amortized cost.
The Company did not record any write-downs for impairment related to investments for the three months ended March 31, 2023 and March 31, 2022.
The Company does not have any exposure to subprime mortgage-backed investments.
Limited liability investments include investments in limited liability companies and limited partnerships. 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, 2023 and December 31, 2022, the carrying value of limited liability investments totaled $0.9 million and $1.0 million, respectively. 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 in the consolidated statements of operations. At March 31, 2023, the Company had no unfunded commitments related to limited liability investments.
Limited liability investments, at fair value represents 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, 2023 and December 31, 2022, the carrying value of the Company's limited liability investments, at fair value was $11.7 million and $17.1 million, respectively. The Company recorded no impairments related to limited liability investments, at fair value during the three months ended March 31, 2023 and March 31, 2022. At March 31, 2023, the Company had no unfunded commitments to fund limited liability investments, at fair value.
The Company consolidates the financial statements of Net Lease on a three-month lag. Net Lease owns investments in limited liability companies that hold investment properties. During the fourth quarter of 2022, one of Net Lease's limited liability companies refinanced their existing debt. A portion of the debt proceeds were distributed to Net Lease, which decreased Net Lease's investment in the limited liability company. During the first quarter of 2023, Net Lease sold its final investment property for $15.8 million. As a result of the three-month lag, the Company will record this transaction in its second quarter 2023 financial statements.
Investments in private companies consist of convertible preferred stocks and notes 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. The Company has elected to record investments in private companies at cost, adjusted for observable price changes and impairments. As of March 31, 2023 and December 31, 2022, the carrying value of the Company's investments in private companies totaled $0.8 million. For the three months ended March 31, 2023 and March 31, 2022, the Company did record any adjustments to the fair value of its investments in private companies for observable price changes.
The Company performs a quarterly impairment analysis of its investments in private companies. As a result of the analysis performed, the Company did record any impairments related to investments in private companies for the three months ended March 31, 2023 and March 31, 2022.
Net investment income for the three months ended March 31, 2023 and March 31, 2022 is comprised as follows:
Gross realized gains and losses on available-for-sale investments, limited liability investments, limited liability investments, at fair value and investments in private companies for the three months ended March 31, 2023 and March 31, 2022 are comprised as follows:
Gain (loss) on change in fair value of equity investments for the three months ended March 31, 2023 and March 31, 2022 is comprised as follows:
The Company holds warrants in Limbach Holdings, Inc. ("Limbach"). During the first quarter of 2023, the underlying common stock price of Limbach increased, resulting in an increase in the fair value of the warrants held as of March 31, 2023.
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Note 7 - Goodwill |
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| Goodwill and Intangible Assets Disclosure [Text Block] |
NOTE 7 GOODWILL
The following table summarizes the goodwill activity for the three months ended March 31, 2023:
As further discussed in Note 5, "Acquisitions, Disposal and Discontinued Operations," during the first quarter of 2023 the Company settled the working capital true-up, related to the acquisition of CSuite, that decreased goodwill by less than $0.1 million.
Goodwill is assessed for impairment annually as of November 30, or more frequently if events or circumstances indicate that the carrying value may not be recoverable. Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting units, the amount of the goodwill impairment charge, or both. No impairment charges were recorded during the three months ended March 31, 2023 and March 31, 2022.
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Note 8 - Intangible Assets |
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| Intangible Assets Disclosure [Text Block] |
NOTE 8 INTANGIBLE ASSETS
Intangible assets at March 31, 2023 and December 31, 2022 are comprised as follows:
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 7 to 15 years. Amortization of intangible assets was $1.4 million and $1.4 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
The trade names intangible assets have indefinite useful lives and are not amortized. No impairment charges were recorded during the three months ended March 31, 2023 and March 31, 2022.
Indefinite-lived intangible assets consist of trade names, which are assessed for impairment annually as of November 30, or more frequently if events or circumstances indicate that the carrying value may not be recoverable. The Company may perform its impairment test for any indefinite-lived intangible asset through a qualitative assessment or elect to proceed directly to a quantitative impairment test, however, the Company may resume a qualitative assessment in any subsequent period if facts and circumstances permit.
As of November 30, 2022, the Company conducted its annual qualitative assessment. As a result, the Company determined that certain trade names should be further examined under a quantitative approach. Based on the results of the quantitative approach, the estimated fair values of the trade names exceeded their respective carrying values; therefore, the Company did not record any impairment. However, the Company notes that certain of its indefinite-lived intangible assets are sensitive to changes in interest rates and a continued increase in rates could cause certain assets to become impaired.
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Note 9 - Property and Equipment |
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| Property, Plant and Equipment Disclosure [Text Block] |
NOTE 9 PROPERTY AND EQUIPMENT
Property and equipment at
March 31, 2023 and
December 31, 2022 are comprised as follows:
For the
three months ended
March 31, 2023 and
March 31, 2022, depreciation expense on property and equipment o
f
$0.1
million and
$0.1
million, respectively
, is included in general and administrative expenses in the unaudited consolidated statements of operations.
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Note 10 - Derivatives |
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| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
NOTE 10 DERIVATIVES
On April 1, 2021, the Company entered into an interest rate swap agreement with CIBC Bank USA to convert the variable London interbank offered interest rate for three-month U.S. dollar deposits ("LIBOR") interest rate on a portion of its 2020 KWH Loan (as defined below in Note 11, "Debt,") to a fixed interest rate of 1.18%. On September 15, 2022, the interest rate swap agreement was amended to convert from a variable Secured Overnight Financing Rate ("SOFR") to a fixed interest rate of 1.103%. The interest rate swap had an initial notional amount of $11.9 million and matures on February 29, 2024.
The purpose of this interest rate swap, which is not designated as a cash flow hedge, is to reduce the Company's exposure to variability in cash flows from interest payments attributable to fluctuations in the variable interest rate associated with the 2020 KWH Loan. The Company has not elected hedge accounting for the interest rate swap. The interest rate swap is recorded in the consolidated balance sheets at fair value with changes in fair value recorded in the consolidated statements of operations.
The notional amount of the interest rate swap contract is $8.2 million at March 31, 2023. At March 31, 2023 and December 31, 2022, the fair value of the interest rate swap contract was an asset of $0.2 million and $0.3 million, respectively, which is included in other receivables in the consolidated balance sheets. During the three months ended March 31, 2023 and March 31, 2022, the Company recognized a loss of $0.1 million and a gain of $0.2 million, respectively, related to the change in fair value of the interest rate swap, which is included in interest expense in the unaudited consolidated statements of operations and within cash flows from operating activities in the unaudited consolidated statements of cash flows. Net cash receipts of $0.1 million were made to the Company during the three months ended March 31, 2023 and net cash payments of less than $0.1 million were made by the Company during the three months ended March 31, 2022, to settle a portion of the liabilities related to the interest rate swap agreement. These cash receipts and payments are reflected as cash inflows or outflows in the unaudited consolidated statements of cash flows within net cash (used in) provided by operating activities.
On August 2, 2022, the Company entered into an agreement with a holder of four of the trust preferred debt instruments ("TruPs") that gives the Company the option to repurchase up to 100% of the holder’s principal and deferred interest for a purchase price equal to 63.75% of the outstanding principal and deferred interest ( "August Option"). Originally, the agreement called for a repurchase at 63%, which escalated to 63.75% once the September 26, 2022 agreement (described below) was signed. The Company agreed that any repurchase made will be for no less than 50% of the TruPs held by the holder.
Until the earlier of (i) the date that all four of the preferred debt instruments have been repurchased and (ii) the nine month anniversary of the agreement ( "May Termination Date"), all interest on the four preferred debt instruments will continue to accrue. However, with respect to TruPs that are repurchased prior to the May Termination Date, the amount of interest accrued during the term of the agreement will be treated as an offset and reduce the repurchase price for such TruPs. The Company had no obligation to pay any such accrued interest with respect to any of the TruPs that are repurchased prior to the May Termination Date.
The Company paid approximately $2.0 million to the holder for this option and the Company had until the May Termination Date to execute the repurchases. If the Company repurchased an amount equal to or greater than $30.0 million, then the $2.0 million paid would be applied to such repurchases.
On September 20, 2022, the Company entered into an additional agreement with the same party to the August 2, 2022 agreement that gives the Company the option to repurchase up to 100% of the holder’s principal and deferred interest for 63.75% of the outstanding principal and deferred interest relating to a portion of a fifth TruPs held ( "September 20 Option"). The September 20, 2020 agreement is subject to the same terms and conditions as the August 2, 2022 and no additional consideration was paid.
On September 26, 2022, the Company entered into an agreement with a holder of a portion of one of the TruPs that gives the Company the option to repurchase up to 100% of the holder’s principal and deferred interest for a purchase price equal to 63% of the outstanding principal and deferred interest ( "September 26 Option").
Until the earlier of (i) the date that all of the preferred debt instrument has been repurchased and (ii) the May Termination Date, all interest on the preferred debt instrument will continue to accrue. However, with respect to TruPs that are repurchased prior to the May Termination Date, the amount of interest accrued during the term of the agreement will be treated as an offset and reduce the repurchase price for such TruPs. The Company had no obligation to pay any such accrued interest with respect to the TruPs that are repurchased prior to the May Termination Date.
The Company paid approximately $0.3 million to the holder for this option and the Company had until the May Termination Date to execute the repurchase. If the Company repurchased any of the TruPs, then the $0.3 million paid would be applied to any repurchases.
In February 2023, the Company entered into amendments to the repurchase agreements described above that would give the Company an additional discount on the total repurchase price if the Company effected a 100% repurchase on or before March 15, 2023. On March 2, 2023, the Company gave notice to the holders of its intent to exercise its options to repurchase 100% of the principal. On March 22, 2023, the Company completed the repurchases. See Note 11, "Debt," for further discussion.
The August Option, September 20 Option and September 26 Options (collectively "the TruPs Options") are derivative contracts. The Company's accounting policies do not apply hedge accounting treatment to derivative instruments. The TruPs options are recorded in the consolidated balance sheet at December 31, 2022 at fair value with changes in fair value recorded in the unaudited consolidated statements of operations. See Note 21, "Fair Value of Financial Instruments," for further discussion.
At December 31, 2022, the fair value of the TruPs Options contracts was $19.0 million, which is included in other assets in the consolidated balance sheet. During the three months ended March 31, 2023, the Company recognized a loss on change in fair value of the TruPs Options contracts of $1.4 million, which is included in gain on change in fair value of derivative asset option contracts in the unaudited consolidated statement of operations and as an adjustment to calculate cash flows (used in) provided by operating activities in the unaudited consolidated statement of cash flows. Cash payments of $56.5 million were made to repurchase the TruPs during the three months ended March 31, 2023 with respect to the TruPs Options contracts.
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Note 11 - Debt |
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| Debt Disclosure [Text Block] |
NOTE 11 DEBT
Debt consists of the following instruments at March 31, 2023 and December 31, 2022:
Subordinated debt mentioned above consists of the following trust preferred debt instruments at March 31, 2023:
Subordinated debt mentioned above consists of the following trust preferred debt instruments at December 31, 2022:
(a)
Bank loans:
Ravix
As part of the acquisition of Ravix on
October 1, 2021, Ravix became a wholly owned subsidiary of Ravix Acquisition LLC ("Ravix LLC"), and together they borrowed from a bank a principal amount of
$6.0 million in the form of a term loan, and established a
$1.0 million revolver to finance the acquisition of Ravix (together, the
"2021 Ravix Loan"). The
2021 Ravix Loan has an annual interest rate equal to the greater of the Pr
ime Rate plus 0.5%, or 3.75%. At
March 31, 2023, the
interest rate
was
8.25%. The term loan matures on
October
1,
2027 and the revolver was scheduled to mature on
October 1, 2023 (see discussion below related to the
2022 Ravix Loan). The Company also recorded as a discount to the carrying value of the
2021 Ravix Loan issuance costs of
$0.2 million specifically related to the
2021 Ravix Loan. The
2021 Ravix Loan is carried in the consolidated balance sheets at its unpaid principal balance.
Subsequent to the acquisition of CSuite on November 1, 2022, CSuite became a wholly owned subsidiary of Ravix LLC. As a result of the acquisition of CSuite, on November 16, 2022, the 2021 Ravix Loan was amended to (1) include CSuite as a borrower; (2) borrow an additional principal amount of $6.0 million in the form of a supplemental term loan (the "2022 Ravix Loan"); and (3) amend the maturity date and interest rate of the $1.0 million revolver (the "2022 Revolver"). The 2022 Ravix Loan requires monthly payments of principal and interest. The 2022 Ravix Loan matures on November 16, 2028 and has an annual interest rate equal to the Prime Rate plus 0.75%. At March 31, 2023, the interest rate was 8.50%. The 2022 Revolver matures on November 16, 2024 and has an annual interest rate equal to the Prime Rate plus 0.50%. At March 31, 2023 and December 31, 2022, the balance of the 2022 Revolver was .
The Company also recorded as a discount to the carrying value of the 2022 Ravix Loan issuance costs of $0.1 million specifically related to the 2022 Ravix Loan. The 2022 Ravix Loan 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 debt discount and issuance costs using the effective interest rate method.
The 2022 Ravix Loan and the 2021 Ravix Loan were not deemed to be substantially different; therefore, the 2022 Ravix Loan is accounted for as a modification of the 2021 Ravix Loan and a new effective interest rate was determined based on the carrying amount of the 2021 Ravix Loan. The issuance costs related to the 2022 Ravix Loan, along with the existing unamortized issuance costs from the 2021 Ravix Loan, are being amortized over the remaining term of the 2022 Ravix Loan using the effective interest rate.
The fair values of the 2021 Ravix Loan and the 2022 Ravix Loan disclosed in the table above is derived from quoted market prices of B and BB minus rated industrial bonds with similar maturities and is categorized within Level 2 of the fair value hierarchy. The 2021 Ravix Loan and the 2022 Ravix Loan are secured by certain of the equity interests and assets of Ravix and CSuite.
The 2021 Ravix Loan and the 2022 Ravix Loan contains a number of covenants, including, but not limited to, a leverage ratio and a fixed charge ratio, all of which are as defined in and calculated pursuant to the 2021 Ravix Loan and 2022 Ravix Loan that, among other things, restrict Ravix and CSuite’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.
SNS
As part of the asset acquisition of SNS on November 18, 2022, the Company formed Secure Nursing Service LLC, who became a wholly owned subsidiary of Pegasus Acquirer Holdings LLC ("Pegasus LLC"), and together they borrowed from a bank a principal amount of $6.5 million in the form of a term loan, and established a $1.0 million revolver to finance the acquisition of SNS (together, the "SNS Loan"). The SNS Loan has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 5.00%. At March 31, 2023, the interest rate was 8.50%. Monthly principal payments on the term loan begin on November 15, 2023. The revolver matures on November 18, 2023 and the term loan matures on November 18, 2028. During 2022, SNS borrowed under the revolver. The carrying values at both March 31, 2023 and December 31, 2022 for the SNS Loan includes $6.4 million related to the term loan and $0.4 million related to the revolver.
The Company also recorded as a discount to the carrying value of the SNS Loan issuance costs of $0.1 million specifically related to the SNS Loan. The SNS Loan is carried in the consolidated balance sheet at its amortized cost, which reflects the amortization of the debt discount and issuance costs using the effective interest rate method. The fair value of the SNS Loan disclosed in the table above is derived from quoted market prices of B and BB minus rated industrial bonds with similar maturities and is categorized within Level 2 of the fair value hierarchy. The SNS Loan is secured by certain of the equity interests and assets of SNS.
The SNS Loan contains a number of covenants, including, but not limited to, a leverage ratio and a fixed charge ratio and limits on annual capital expenditures, all of which are as defined in and calculated pursuant to the SNS Loan that, among other things, restrict SNS’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.
KWH
In 2019, the Company formed Kingsway Warranty Holdings LLC ("KWH"), whose subsidiaries include IWS Acquisition Corporation ("IWS"), Geminus Holdings Company, Inc. ("Geminus") and Trinity Warranty Solutions LLC ("Trinity"). As part of the acquisition of PWI on December 1, 2020, PWI became a wholly owned subsidiary of KWH, which borrowed a principal amount of $25.7 million from a bank, consisting of a $24.7 million term loan and a $1.0 million revolving credit facility (the "2020 KWH Loan"). The proceeds from the 2020 KWH Loan were used to partially fund the acquisition of PWI and to fully repay the prior outstanding loan at KWH, which occurred on December 1, 2020.
The 2020 KWH Loan had an annual interest rate equal to LIBOR, having a floor of 0.75%, plus 2.75%. During the second quarter of 2022, the 2020 KWH Loan was amended to change the annual interest rate to be equal to SOFR, having a floor of 0.75%, plus spreads ranging from 2.62% to 3.12%. At March 31, 2023, the interest rate was 7.49%. The 2020 KWH Loan matures on December 1, 2025. The carrying values at March 31, 2023 and December 31, 2022 includes $13.0 million and $16.0 million, respectively, related to the term loan and $0.5 million and $0.5 million, respectively, related to revolver.
The Company also recorded as a discount to the carrying value of the 2020 KWH Loan issuance costs of $0.4 million specifically related to the 2020 KWH Loan. The 2020 KWH Loan is carried in the consolidated balance sheets at its amortized cost, which reflects the quarterly pay-down of principal as well as the amortization of the debt discount and issuance costs using the effective interest rate method. The fair value of the 2020 KWH Loan disclosed in the table above is derived from quoted market prices of BB and BB minus rated industrial bonds with similar maturities and is categorized within Level 2 of the fair value hierarchy. The 2020 KWH Loan is secured by certain of the equity interests and assets of KWH and its subsidiaries.
The 2020 KWH Loan contains a number of covenants, including, but not limited to, a leverage ratio, a fixed charge ratio and limits on annual capital expenditures, all of which are as defined in and calculated pursuant to the 2020 KWH Loan that, among other things, restrict KWH’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.
On February 28, 2023, KWH entered into a second amendment to the 2020 KWH Loan (the “KWH DDTL”) that provides for an additional delayed draw term loan in the principal amount of up to $10.0 million, with a maturity date of December 1, 2025. All or any portion of the KWH DDTL, subject to a $2.0 million minimum draw amount, may be requested at any time through February 27, 2024. The proceeds are evidenced by an intercompany loan and guarantee between KAI and KWH. The principal amount shall be repaid in quarterly installments in an amount equal to 3.75% of the original amount of the drawn DDTL. Proceeds from certain assets dispositions, as defined, may be required to be used to repay outstanding draws under the DDTL. The KWH DDTL also increases the senior cash flow leverage ratio maximum permissible for certain periods.
(b) 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 KAI 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 subordinated debt, or TruPs, is carried in the consolidated balance sheets at fair value. See Note 21, "Fair Value of Financial Instruments," for further discussion of the subordinated debt. The portion of the change in fair value of subordinated debt related to the instrument-specific credit risk is recognized in other comprehensive loss.
In February 2023, the Company entered into amendments to the trust preferred option repurchase agreements described in Note 10, "Derivatives," that would give the Company an additional discount on the total repurchase price of the TruPs if the Company effected a 100% repurchase on or before March 15, 2023. On March 2, 2023, the Company gave notice to the holders of five of its TruPs that it intended to exercise its options to repurchase 100% of the principal no later than March 15, 2023. On March 22, 2023, the Company completed the repurchases of the five TruPs using available funds from working capital to fund the repurchases. The total amount paid for the five TruPs was $56.5 million, which included a credit for the $2.3 million that the Company previously paid at the time of entering into the trust preferred option repurchase agreements. As a result, the Company has repurchased $75.5 million of TruPs principal and $23.0 million of deferred interest payable. The Company recognized a gain of $31.6 million, which is included in gain on extinguishment of debt in the unaudited consolidated statement of operations for the three months ended March 31, 2023. At March 31, 2023, the Company has $15.0 million of principal outstanding related to remaining trust preferred debt instrument.
The
$56.0 milli
on decrease in the Company’s subordinated debt between
December 31, 2022 and
March 31, 2023 is attributed to the following:
Of the $0.1 million increase in fair value of the Company’s subordinated debt between December 31, 2022 and March 31, 2023, $0.4 million is reported as increase in fair value of debt attributable to instrument-specific credit risk in the Company's unaudited consolidated statements of comprehensive income (loss) and $0.3 million is reported as gain on change in fair value of debt in the Company’s unaudited consolidated statement of operations.
The unaudited consolidated statements of comprehensive income (loss) for the three months ended March 31, 2023 also includes a reclassification adjustment of $27.2 million from accumulated other comprehensive income to gain on extinguishment of debt related to the instrument-specific credit risk related to the repurchased TruPs.
During the third quarter of 2018, the Company gave notice to its Trust Preferred trustees of its intention to exercise its voluntary right to defer interest payments for up to 20 quarters, pursuant to the contractual terms of its outstanding Trust Preferred indentures, which permit interest deferral. This action does not constitute a default under the Company's Trust Preferred indentures or any of its other debt indentures. In order to execute the TruPs repurchases described above, on March 13, 2023, the Company paid $5.0 million to the remaining Trust Preferred trustee to be used by the trustee to pay the interest which the Company had been deferring since the third quarter of 2018. At March 31, 2023 and December 31, 2022, deferred interest payable of zero and $25.5 million, respectively, is included in accrued expenses and other liabilities in the consolidated balance sheets.
The agreement governing the remaining subordinated debt contains a number of covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, make dividends and distributions, and make certain payments in respect of the Company’s outstanding securities.
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Note 12 - Leases |
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| Leases of Lessee and Lessor Disclosure [Text Block] |
NOTE 12 LEASES
The Company has operating leases for office space that include fixed base rent payments, as well as variable rent payments to reimburse the landlord for operating expenses and taxes. The Company’s variable lease payments do not depend on a published index or rate, and therefore, are expensed as incurred. The Company includes only fixed payments for lease components in the measurement of the right-of-use asset and lease liability. There are no residual value guarantees.
Operating lease costs and variable lease costs included in general and administrative expenses for the three months ended March 31, 2023 were $0.1 million and less than $0.1 million, respectively. Operating lease costs and variable lease costs included in general and administrative expenses for the three months ended March 31, 2022 were $0.2 million and less than $0.1 million, respectively. Short-term lease costs included in general and administrative expenses for the three months ended March 31, 2023 and March 31, 2022 were less than $0.1 million and , respectively.
The annual maturities of lease liabilities as of March 31, 2023 were as follows:
The weighted-average remaining lease term for our operating leases was 3.96 years as of March 31, 2023. The weighted average discount rate of our operating leases was 5.87% as of March 31, 2023. Cash paid for amounts included in the measurement of lease liabilities was $0.1 million and $0.3 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
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Note 13 - Revenue from Contracts with Customers |
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| Revenue from Contract with Customer [Text Block] |
NOTE 13 REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue from contracts with customers relates to the Extended Warranty and Kingsway Search Xcelerator segments and includes: vehicle service agreement fees, guaranteed asset protection products ("GAP") commissions, maintenance support service fees, warranty product commissions, homebuilder warranty service fees, homebuilder warranty commissions and business services consulting revenue. Revenue is based on terms of various agreements with credit unions, consumers, businesses and homebuilders. Customers either pay in full at the inception of a warranty contract, commission product sale, or when consulting services are billed, or on terms subject to the Company’s customary credit reviews.
The following table disaggregates revenues from contracts with customers by revenue type:
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 earned over the duration of the vehicle service agreement contracts as the single performance obligation is satisfied. Vehicle service agreement fees are initially recorded as deferred service fees with revenues recognized over the term of the contract based on the proportion of expected claims to total overall claims to be incurred over the life of the contract. The Company believes this reasonably represents the transfer of services to the vehicle service contract holder over the warranty term. 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 if the deferred service fees balance is less than expected future claims costs.
In certain jurisdictions the Company is required to refund to a customer a pro-rata share of the vehicle service agreement fees if a customer cancels the agreement prior to the end of the term. Depending on the jurisdiction, the Company may be entitled to deduct from the refund a cancellation fee and/or amounts for claims incurred prior to cancellation. While refunds vary depending on the term and type of product offered, historically refunds have averaged 9% to 13% of the original amount of the vehicle service agreement fee. Revenues recorded by the Company are net of variable consideration related to refunds and the associated refund liability is included in accrued expenses and other liabilities. The Company estimates refunds based on the actual historical refund rates by warranty type taking into consideration current observable refund trends in estimating the expected amount of future customer refunds to be paid at each reporting period.
Maintenance support service fees include the service fees collected to administer equipment breakdown and maintenance support services and are earned as services are rendered.
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 commercial refrigeration equipment. The Company acts as an agent on behalf of the third-party insurance companies that underwrite and guaranty these warranty contracts. The Company does not guaranty the performance underlying the warranty contracts it sells. Warranty product commissions are earned at the time of the warranty product sales.
Homebuilder warranty service fees in 2022 include fees collected from the sale of warranties issued by new homebuilders. The Company received a single warranty service fee as its transaction price at the time it entered into a written contract with each of its builder customers. Each contract contained 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.
Homebuilder warranty commissions in 2022 include commissions from the sale of warranty contracts for those builders who have requested and receive insurance backing of their warranty obligations. The Company acted as an agent on behalf of the third-party insurance company that underwrites and guaranties these warranty contracts. Homebuilder warranty commissions were 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 earned fees to manage remediation or repair services related to claims on insurance-backed warranty obligations, which were earned when the claims are closed.
Kingsway Search Xcelerator consulting revenue includes the revenue from providing outsourced finance and human resources consulting services, as well as healthcare professional staffing services. The Company invoices for services revenue based on contracted rates. Revenue is earned as services are provided.
The Company's revenue recognition policies are further described in Note 2(p), "Summary of Significant Accounting Policies - Revenue recognition," to the consolidated financial statements in the 2022 Annual Report.
During the first quarter of 2022, IWS recorded a net charge of $0.9 million relating to a change in estimate in accounting for deferred revenue and deferred contract costs associated with vehicle service agreement fees, resulting in an increase to deferred service fees of $1.1 million and an increase in deferred contract costs of $0.2 million.
Service fee receivables
Receivables from contracts with customers are reported as service fee receivable, net in the consolidated balance sheets and at March 31, 2023 and December 31, 2022 were $10.6 million and $10.3 million, respectively. The increase in receivables from contracts with customers is primarily due to the timing difference between the Company's satisfaction of performance obligations and customer payments.
Service fee receivable is reported net of an estimated allowance for credit losses. During the three months ended March 31, 2023, the Company recorded an increase to its allowance for credit losses of less than $0.1 million. Service fee receivables that are deemed to be uncollectible are written off against the allowance for credit losses when identified. There was no material write-off of service fee receivable that was deemed to be uncollectible during the three months ended March 31, 2023.
Deferred service fees
The Company records deferred service fees resulting from contracts with customers when payment is received in advance of satisfying the performance obligations. Changes in deferred service fees for the three months ended March 31, 2023 were as follows:
The decrease in deferred service fees between December 31, 2022 and March 31, 2023 is primarily due to deferred service fees recognized in excess of additions to deferred service fees during the three months ended March 31, 2023.
The Company expects to recognize within one year as service fee and commission revenue approximately 51.7% of the deferred service fees as of March 31, 2023. Approximately $12.5 million and $13.0 million of service fee and commission revenue recognized during the three months ended March 31, 2023 and March 31, 2022 was included in deferred service fees as of December 31, 2022 and December 31, 2021, respectively.
Deferred contract costs
Deferred contract costs represent the deferral of incremental costs to obtain or fulfill a contract with a customer. Incremental costs to obtain a contract with a customer primarily include sales commissions. The Company capitalizes costs incurred to fulfill a contract if the costs are identifiable, generate or enhance resources used to satisfy future performance obligations and are expected to be recovered. Costs to fulfill a contract include labor costs for set-up activities directly related to the acquisition of vehicle service agreements. Contract costs are deferred and amortized over the expected customer relationship period consistent with the pattern in which the related revenues are earned. Amortization of incremental costs to obtain a contract and costs to fulfill a contract with a customer are recorded in commissions and general and administrative expenses, respectively, in the unaudited consolidated statements of operations. No impairment charges related to deferred contract costs were recorded during the three months ended March 31, 2023 and March 31, 2022.
The deferred contract costs balances and related amortization expense for the three months ended March 31, 2023 and March 31, 2022 are comprised as follows:
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Note 14 - Income Taxes |
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| Income Tax Disclosure [Text Block] |
NOTE 14 INCOME TAXES
Income tax expense (benefit) for the three months ended March 31, 2023 and March 31, 2022 varies from the amount that would result by applying the applicable U.S. federal corporate income tax rate of 21% to income (loss) from continuing operations before income tax expense (benefit). The following table summarizes the differences:
The Company maintains a valuation allowance for its gross deferred tax assets at March 31, 2023 and December 31, 2022. 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, 2023 and December 31, 2022 net deferred tax asset, excluding the deferred income tax asset and liability amounts set forth in the paragraph below. For the three months ended March 31, 2023 and March 31, 2022, the Company released into income and $0.5 million, respectively, of its valuation allowance associated with business interest expense carryforwards with an indefinite life.
The Company carries net deferred income tax liabilities of $4.3 million and $4.2 million at March 31, 2023 and December 31, 2022, respectively, that consists of:
As of March 31, 2023 and December 31, 2022, the Company carried a liability for unrecognized tax benefits of zero. 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 and less than $0.1 million related to interest and penalty accruals for the three months ended March 31, 2023 and March 31, 2022, respectively.
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Note 15 - Earnings (Loss) per Share |
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| Earnings Per Share [Text Block] |
NOTE 15 EARNINGS (LOSS) PER SHARE
The following table sets forth the reconciliation of numerators and denominators for the basic and diluted earnings (loss) per share computation for the three months ended March 31, 2023 and March 31, 2022:
Basic earnings (loss) per share excludes dilution and is computed by dividing income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) 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 are excluded from the diluted earnings (loss) per share computation in loss periods and when the applicable exercise price is greater than the market price on the period end date as their effect would be anti-dilutive.
The following weighted-average potentially dilutive securities are
not included in the
diluted earnings (loss) per share calculations above because they would have had an antidilutive effect on the earnings (
loss)
per share:
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Note 16 - Stock-based Compensation |
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| Share-Based Payment Arrangement [Text Block] |
NOTE 16 STOCK-BASED COMPENSATION
(a) Restricted Stock Awards of the Company
Under the 2013 Equity Incentive Plan, the Company granted 500,000 restricted common stock awards to an officer on September 5, 2018 (the "2018 Restricted Stock Award"). The 2018 Restricted Stock Award 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 2018 Restricted Stock Award is amortized on a straight-line basis over the requisite service period. The grant-date fair value of the 2018 Restricted Stock Award was determined using the closing price of Kingsway common stock on the date of grant. Total unamortized compensation expense related to unvested 2018 Restricted Stock Award at March 31, 2023 was $0.4 million.
Under the 2020 Equity Incentive Plan, the Company has granted restricted common stock awards to certain officers of the Company (the "2020 Plan Restricted Stock Awards"). The 2020 Plan Restricted Stock Awards vest according to a graded vesting schedule and shall become fully vested subject to the officers' continued employment through the applicable vesting dates. The 2020 Plan Restricted Stock Awards are amortized on a straight-line basis over the requisite service periods. The grant-date fair values of the 2020 Plan Restricted Stock Awards were determined using the closing price of Kingsway common stock on the date of grant. During the three months ended March 31, 2023, no shares of the 2020 Plan Restricted Stock Awards became fully vested. Total unamortized compensation expense related to unvested 2020 Plan Restricted Stock Awards at March 31, 2023 was $2.8 million.
The following table summarizes the activity related to unvested 2020 Plan Restricted Stock Awards and 2018 Restricted Stock Award (collectively "Restricted Stock Awards") for the three months ended March 31, 2023:
The unvested balance at March 31, 2023 in the table above is comprised of 646,947 shares of the 2021 Restricted Stock Awards and 500,000 shares of the 2018 Restricted Stock Award.
Stock-based compensation expense related to the Restricted Stock Awards $0.2 million and $0.2 millionfor the three months ended March 31, 2023 and March 31, 2022, respectively.
(b) Restricted Stock Awards of PWSC
PWSC granted 1,000 restricted Class B common stock awards ("2018 PWSC RSA") to an officer of PWSC pursuant to an agreement dated September 7, 2018. The 2018 PWSC RSA contained both a service and a performance condition that affected vesting. On December 18, 2020, the 2018 PWSC RSA was amended to modify the vesting terms related to the service and performance condition ("Modified PWSC RSA").
PWSC granted 250 restricted Class B common stock awards to an officer of PWSC pursuant to an agreement dated December 18, 2020 ("2020 PWSC RSA"). The 2020 PWSC RSA contained both a service and a performance condition that affected vesting.
As discussed in Note 5, "Acquisitions, Disposal and Discontinued Operations," the Company sold PWSC on July 29, 2022; therefore, there are no outstanding Modified PWSC RSA and 2020 PWSC RSA reported in the consolidated balance sheet at March 31, 2023 and December 31, 2022.
The service condition for the Modified PWSC RSA and the 2020 PWSC RSA vested according to a graded vesting schedule. The performance condition was based on the internal rate of return of PWSC. The grant-date fair value of the Modified PWSC RSA and the 2020 PWSC RSA were estimated using an internal valuation model.
On February 20, 2022, both the service condition and performance condition of the Modified PWSC RSA and 2020 PWSC RSA became fully vested. At March 31, 2023 and December 31, 2022, there were unvested shares of both the Modified PWSC RSA and 2020 PWSC RSA.
Stock-based compensation expense related to the Restricted Stock Awards of PWSC was $0.1 million for the three months ended March 31, 2022.
(c) Restricted Common Unit Awards of Ravix
Ravix LLC granted 199,000 restricted Class B common unit awards to an officer of Ravix pursuant to an agreement dated October 1, 2021 ("2021 Ravix RUA"). The 2021 Ravix RUA vests based on service and the achievement of criteria based on the internal rate of return ("IRR") of Ravix.
The grant-date fair value of the 2021 Ravix RUA was estimated using the Black-Scholes option pricing model, using the following assumptions: expected term of years, expected volatility of 75%, expected dividend yield of zero, and risk-free interest rate of 0.93%.
On October 1, 2021, 83,333 shares, representing one half of the service condition for the 2021 Ravix RUA, became fully vested. The remainder of the service condition vests according to a graded vesting schedule and shall become fully vested subject to the officer's continued employment through the applicable vesting dates.
On November 1, 2022, the Company modified the inputs related to the IRR portion of the 2021 Ravix RUA to be based on the combined internal rate of return of Ravix and CSuite. The modified portion of the awards was probable of vesting both immediately before and after the modification. As a result, the fair value of the award that is subject to the IRR was measured at the modification date and compared to the fair value of the modified portion of the award immediately prior to the modification, with the difference resulting in incremental compensation expense of less than $0.1 million. The incremental fair value was estimated using the Monte Carlo simulation model, using the following assumptions at the modification date: expected term of 2.92 years, expected volatility of 72% and risk-free interest rate of and the following assumptions prior to the modification: expected term of 2.92 years, expected volatility of 58% and risk-free interest rate of
During the three months ended March 31, 2023, 5,208 shares of the 2021 Ravix RUA became fully vested. At March 31, 2023 and December 31, 2022, there were 86,153 and 91,361 unvested shares of the 2021 Ravix RUA with a weighted-average grant date fair value of $3.08 per share. Total unamortized compensation expense related to unvested 2021 Ravix RUA at March 31, 2023 was $0.3 million.
Stock-based compensation expense related to the 2021 Ravix RUA was less than $0.1 million for each of the three months ended March 31, 2023 and March 31, 2022.
(d) Restricted Common Unit Awards of SNS
Pegasus LLC granted 75,000 restricted Class B common unit awards to an officer of SNS pursuant to an agreement dated November 18, 2022 ("SNS RUA"). The SNS RUA vests based on service and the achievement of criteria based on the IRR of SNS.
The grant-date fair value of the SNS RUA was estimated using the Monte Carlo simulation model, using the following assumptions: expected term of years, expected volatility of 85% and risk-free interest rate of 4.09%.
On November 18, 2022, 25,000 shares, representing one half of the service condition for the SNS RUA, became fully vested. The remainder of the service condition vests according to a graded vesting schedule and shall become fully vested subject to the officer's continued employment through the applicable vesting dates.
During the three months ended March 31, 2023, no shares of the SNS RUA vested. At March 31, 2023 and December 31, 2022 , there were 50,000 unvested shares of the SNS RUA with a weighted-average grant date fair value of $5.95 per share. Total unamortized compensation expense related to unvested SNS RUA at March 31, 2023 was$0.3 million.
Stock-based compensation expense related to the SNS RUA was less than $0.1 million and zero for the three months ended March 31, 2023 and March 31, 2022, respectively.
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Note 17 - Redeemable Class A Preferred Stock |
3 Months Ended | |
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Mar. 31, 2023 | ||
| Notes to Financial Statements | ||
| Preferred Stock [Text Block] |
NOTE 17 Redeemable Class A Preferred Stock
On March 1, 2023, the Company notified the holders of its outstanding Class A Preferred Shares ("Preferred Shares") of its intention to redeem all the outstanding Preferred Shares on March 15, 2023 (the “Anticipated Redemption Date”). The Preferred Shares are convertible into shares of the Company’s common stock at the discretion of the holders. Prior to the Anticipated Redemption Date, the Company had received notice from all of the holders of the Preferred Shares of their intention to convert their shares.
There were 30,000 and 149,733 shares of Preferred Shares outstanding at March 31, 2023 and December 31, 2022, respectively. Each Preferred Share is convertible into 6.25 common shares at a conversion price of $4.00 per common share any time at the option of the holder prior to the redemption date. During the three months ended March 31, 2023, 119,733 Preferred Shares were converted into 748,331 common shares, at the conversion price of $4.00 per common share, or $3.0 million, at the option of the holders. As of March 31, 2023, the maximum number of common shares issuable upon conversion of the Preferred Shares is 187,500 common shares. The Company expects the remaining Preferred Shares to convert in the second quarter of 2023.
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Note 18 - Shareholders' Equity |
3 Months Ended |
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Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Equity [Text Block] |
NOTE 18 Shareholders' Equity
As described in Note 17, "Redeemable Class A Preferred Stock", during the three months ended March 31, 2023, 119,733 Preferred Shares were converted into 748,331 common shares. As a result, $4.9 million was reclassified from redeemable Class A preferred stock to additional paid-in capital on the consolidated balance sheets at March 31, 2023.
At March 31, 2023, the Company has 3,205,896 warrants outstanding that expire on September 15, 2023. The warrants are recorded in shareholders' equity and entitle each subscriber to purchase one common share of Kingsway at an exercise price of $5.00 for each warrant. During the three months ended March 31, 2023, warrants to purchase 1,258,840 shares of common stock were exercised, resulting in cash proceeds of $6.3 million.
On March 21, 2023, the Company's Board of Directors approved a share repurchase program under which the Company is authorized to repurchase up to $10.0 million of its currently issued and outstanding common stock through March 21, 2024. No shares were repurchased during the three months ended March 31, 2023. The timing and amount of any share repurchases are determined based on market and economic conditions, share price and other factors, and the program may be terminated, modified or suspended at any time at the Company's discretion.
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Note 19 - Accumulated Other Comprehensive Income |
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| Comprehensive Income (Loss) Note [Text Block] |
NOTE 19 ACCUMULATED OTHER COMPREHENSIVE INCOME
The tables below detail the change in the balance of each component of accumulated other comprehensive (loss) income, net of tax, for the three months ended March 31, 2023 and March 31, 2022 as relates to shareholders' equity attributable to common shareholders on the consolidated balance sheets.
It should be noted that the unaudited consolidated statements of comprehensive income (loss) present the components of other comprehensive loss, net of tax, only for the three months ended March 31, 2023 and March 31, 2022 and inclusive of the components attributable to noncontrolling interests in consolidated subsidiaries.
Components of accumulated other comprehensive (loss) income were reclassified to the following lines of the unaudited consolidated statements of operations for the three months ended March 31, 2023 and March 31, 2022:
As further discussed in Note 11, "Debt," during the first quarter of 2023, the Company completed the repurchases of five TruPs. The unaudited consolidated statements of comprehensive income (loss) for the three months ended March 31, 2023 includes a reclassification adjustment of $27.2 million from accumulated other comprehensive income to gain on extinguishment of debt related to the instrument-specific credit risk portion of the repurchased TruPs. |
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Note 20 - Segmented Information |
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| Segment Reporting Disclosure [Text Block] |
NOTE 20 SEGMENTED INFORMATION
The Company reports segment information based on the "management" approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as a source of the Company’s reportable operating segments. The Company conducts its business through the following reportable segments: Extended Warranty and Kingsway Search Xcelerator.
Prior to the fourth quarter of 2022, the Company conducted its business through a reportable segment, Leased Real Estate. Leased Real Estate included the following subsidiaries of the Company: CMC and VA Lafayette. As further discussed in Note 5, "Acquisitions, Disposal and Discontinued Operations," both CMC and VA Lafayette have been classified as discontinued operations and the results of their operations are reported separately for all periods presented. As such, the Leased Real Estate segment no longer exists and all segmented information has been restated to exclude the Leased Real Estate segment for all periods presented.
Extended Warranty Segment
Extended Warranty includes the following subsidiaries of the Company: IWS, Geminus, PW
I, PWSC and Trinity (collectively, "Extended Warranty"). As discussed
in Note 5
, "Acquisitions, Disposal and Discontinued Operations
," the Company disposed of PWSC on July 29, 2022. The earnings of PWSC are included in the unaudited interim consolidated statements of operations and the segment disclosures through the disposal date.
IWS is a licensed motor vehicle service agreement company and is a provider of after-market vehicle protection services distributed by credit unions
in
25
states and the District of Columbia to their members, with customers in all
fifty states.
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023
Geminus primarily sells vehicle service agreements to used car buyers across the United States, through its subsidiaries, Penn and Prime. Penn and Prime distribute these products in 39 and 40 states, respectively, via independent used car dealerships and franchised car dealerships.
PWI markets, sells and administers vehicle service agreements to used car buyers in all fifty states via independent used car and franchise network of approved automobile and motorcycle dealer partners. PWI’s business model is supported by an internal sales and operations team and partners with American Auto Shield in three states with a "white label" agreement. PWI also has a "white label" agreement with a third-party that sells and administers a GAP product in certain states.
PWSC sells new home warranty products and provides administration services to home builders 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.
Trinity sells HVAC, standby generator, commercial LED lighting and commercial 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 commercial 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.
Kingsway Search Xcelerator Segment
Kingsway Search Xcelerator includes the Company's subsidiaries CSuite, Ravix and SNS.
CSuite provides financial executive services, for project and interim-staffing engagements, and search services for full-time placements for customers throughout the United States.
Ravix provides outsourced financial services and human resources consulting for short or long duration engagements for customers in several states.
SNS provides healthcare staffing services to acute healthcare facilities on a contract or per diem basis in the United States, primarily in California.
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, 2023 and March 31, 2022 were:
KINGSWAY FINANCIAL SERVICES INC. Notes to Consolidated Financial Statements (Unaudited) March 31, 2023
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 income (loss) from continuing operations for the three months ended March 31, 2023 and March 31, 2022 were:
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Note 21 - Fair Value of Financial Instruments |
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| Fair Value Disclosures [Text Block] |
NOTE 21 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:
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, subordinated debt, derivative contracts (interest rate swap and trust preferred debt repurchase options) and contingent consideration 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:
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, at fair value include the underlying investments of Net Lease and Argo Holdings. 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.
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.
Derivative contract - interest rate swap - As described in Note 10, "Derivatives," the Company entered into an interest rate swap agreement effective April 1, 2021 to convert the variable interest rate on a portion of the 2020 KWH Loan to a fixed interest rate. The interest rate swap contract is measured and reported at fair value and is included in other receivables in the consolidated balance sheets at March 31, 2023 and December 31, 2022. The fair value of the interest rate swap contract is estimated using inputs which the Company obtains from the counterparty and is determined using a discounted cash flow analysis on the expected cash flows of the derivative. The discounted cash flow valuation technique reflects the contractual term of the derivative contract, including the period to maturity, and uses observable market based inputs, including quoted mid-market prices or third-party consensus pricing, interest rate curves and implied volatilities. The interest rate swap contract is categorized in Level 2 of the fair value hierarchy.
Derivative contracts - trust preferred debt repurchase options - As described in Note 10, "Derivatives," the Company entered into three TruPs Options contracts during the third quarter of 2022. During the first quarter of 2023, the Company executed the TruPs Options contracts. The TruPs Options contracts are measured and reported at fair value and are included in other assets in the consolidated balance sheet at December 31, 2022. The fair value of the TruPs Options contracts are estimated using the binomial lattice model. Key inputs in the valuation include credit spread assumptions, interest rate volatility, debt coupon interest rate and time to maturity. The TruPs Options contracts are categorized in Level 3 of the fair value hierarchy.
Contingent consideration - The consideration for the Company's acquisitions of Ravix and CSuite includes future payments to the former owners that are contingent upon the achievement of certain targets over future reporting periods. Liabilities for contingent consideration are measured and reported at fair value and are included in accrued expenses and other liabilities in the consolidated balance sheets. Contingent consideration liabilities are revalued each reporting period. Changes in the fair value of contingent consideration liabilities can result from changes to one or multiple inputs, including adjustments to the discount rates or changes in the assumed achievement or timing of any targets. Any changes in fair value are reported in the consolidated statements of operations as non-operating other (expense) revenue. The contingent consideration liabilities are categorized in Level 3 of the fair value hierarchy.
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, 2023 and December 31, 2022 are 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:
The following table provides a reconciliation of the fair value of recurring Level 3 fair value measurements for the three months ended March 31, 2023 and March 31, 2022:
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, 2023:
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 December 31, 2022:
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, 2023:
The following table summarizes investments for which fair value is measured using the net asset value per share practical expedient at December 31, 2022:
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis, including assets that are adjusted for observable price changes or written down to fair value as a result of an impairment. For the three months ended March 31, 2023 and March 31, 2022, the Company did not record any adjustments to the fair value of its investments in private companies for observable price changes. The Company did record any impairments related to investments in private companies for the three months ended March 31, 2023 and March 31, 2022. To determine the fair value of investments in these private companies, the Company considered rounds of financing and third-party transactions, discounted cash flow analyses and market-based information, including comparable transactions, trading multiples and changes in market outlook, among other factors. The Company has classified the fair value measurements of these investments in private companies as Level 3 because they involve significant unobservable inputs.
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Note 22 - Related Parties |
3 Months Ended | |
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Mar. 31, 2023 | ||
| Notes to Financial Statements | ||
| Related Party Transactions Disclosure [Text Block] |
NOTE 22 RELATED PARTIES
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. Except where disclosed elsewhere in these unaudited consolidated interim financial statements, the following is a summary of related party relationships and transactions.
Argo Management Group, LLC
The Company acquired Argo Management Group, LLC ("Argo Management") in April 2016. Argo Management's primary business is to act as Managing Member of Argo Holdings. At March 31, 2023 and December 31, 2022, each of the Company, John T. Fitzgerald ("Fitzgerald"), the Company's Chief Executive Officer and President, and certain of Fitzgerald’s immediate family members owns equity interests in Argo Holdings, all of which interests were acquired prior to the Company’s acquisition of Argo Management. Subject to certain limitations, Argo Holdings' governing documents require all individuals and entities owning an equity interest in Argo Holdings to fund upon request his/her/its pro rata share of any funding requirements of Argo Holdings up to an aggregate maximum amount equal to his/her/its total capital commitment (each request for funds being referred to as a "Capital Call"). Argo Holdings made no Capital Calls during the three months ended March 31, 2023 and the year ended December 31, 2022.
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Note 23 - Commitments and Contingencies |
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| Notes to Financial Statements | ||||||||||
| Commitments and Contingencies Disclosure [Text Block] |
NOTE 23 COMMITMENTS AND CONTINGENCIES
(a) Legal proceedings:
In May 2016, Aegis Security Insurance Company ("Aegis") filed a complaint for breach of contract and declaratory relief against the Company in the Eastern District of Pennsylvania alleging, among other things, that the Company breached a contractual obligation to indemnify Aegis for certain customs bond losses incurred by Aegis under the indemnity and hold harmless agreements provided by the Company to Aegis for certain customs bonds reinsured by Lincoln General Insurance Company ("Lincoln General") during the period of time that Lincoln General was a subsidiary of the Company. Lincoln General was placed into liquidation in November 2015 and Aegis subsequently invoked its rights to indemnity under the indemnity and hold harmless agreements. Effective January 20, 2020, Aegis and the Company entered into a Settlement Agreement with respect to such litigation pursuant to which the Company agreed to pay Aegis a one-time settlement amount of $0.9 million, and to reimburse Aegis for 60% of future losses that Aegis may sustain in connection with such customs bonds, up to a maximum reimbursement amount of $4.8 million. From 2020 through 2022, the Company made reimbursement payments to Aegis totaling $1.0 million in connection with the Settlement Agreement. The Company’s potential exposure under these agreements was not reasonably determinable at March 31, 2023, and no liability has been recorded in the unaudited consolidated interim financial statements at March 31, 2023.
(b) Guarantees:
Mendota
As part of the October 18, 2018 transaction to sell Mendota, the Company will indemnify the buyer for any loss and loss adjustment expenses with respect to open claims in excess of Mendota's carried unpaid loss and loss adjustment expenses at June 30, 2018 related to the open claims. The maximum obligation to the Company with respect to the open claims is $2.5 million. Per the purchase agreement, a security interest on the Company’s equity interest in its consolidated subsidiary, Net Lease, as well as any distributions to the Company from Net Lease, was to be collateral for the Company’s payment of obligations with respect to the open claims.
During the third quarter of 2021, the purchasers of Mendota and the Company agreed to release the Company's equity interest in Net Lease as collateral and allow Net Lease to make distributions to the Company. In exchange, the Company agreed to deposit $2.0 million into an escrow account and advance $0.5 million to the purchaser of Mendota to satisfy the Company's payment obligation with respect to the open claims.
During the third quarter of 2022, the buyer provided to the Company an analysis of the claims development that indicated that the Company's potential exposure with respect to the open claims was at the maximum obligation amount. Previous communications from the buyer noted no such development and the buyer was not obligated to provide development information to the Company until the first quarter of 2023. As a result of the newly provided information, the Company recorded a liability of $2.5 million, which is included in accrued expenses and other liabilities in the consolidated balance sheet at December 31, 2022. During the three months ended March 31, 2023, the $2.0 million that had been previously deposited into an escrow account was released and remitted to the buyer to satisfy the Company's payment with respect to the open claims. The remaining liability is zero at March 31, 2023.
VA Lafayette
The LA Mortgage is nonrecourse indebtedness with respect to the assets of VA Lafayette, and the LA Mortgage is not, nor will it be, guaranteed by Kingsway or its affiliates unless VA Lafayette acts in bad-faith or commits intentional acts with respect to the LA Mortgage. The LA Mortgage is secured in part by a guaranty of recourse liabilities, whereby KAI, as guarantor, would become liable for the recourse liabilities if VA Lafayette, as borrower, violates certain terms of the loan agreement. Under the guarantee, the lender can recover losses from the guarantor for certain bad-faith or other intentional acts of the borrower, such as rents retained by the borrower in violation of the loan documents, fraud or intentional misrepresentation, changes to the lease without the lender's consent, willful misconduct, criminal acts and environmental losses sustained by lender. In addition, the guarantee provides that the LA Mortgage will be the full personal recourse obligation of the guarantor, for certain actions, such as prohibited transfers of the collateral or bankruptcy of the borrower.
(c) Collateral pledged and restricted cash:
Short-term investments with an estimated fair value of $0.2 million at March 31, 2023 and December 31, 2022, were on deposit with state regulatory authorities.
The Company also has restricted cash of $11.5 million and $13.1 million at March 31, 2023 and December 31, 2022, respectively. Included in restricted cash are:
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Significant Accounting Policies (Policies) |
3 Months Ended |
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Mar. 31, 2023 | |
| Accounting Policies [Abstract] | |
| Investment, Policy [Policy Text Block] | Investments - Impairments
When an available-for-sale fixed maturity investment is impaired, it is evaluated to determine whether there is an intent to sell the investment before recovery of amortized cost or whether a credit loss exists.
For fixed maturity investments that the Company intends to sell or for which it is more likely than not that the Company will be required to sell before an anticipated recovery of value, the full amount of the impairment is recognized as an impairment loss in the consolidated statements of operations. The investment’s amortized cost is written down to its fair value and is not adjusted for any subsequent recoveries.
For fixed maturity investments that the Company does not intend to sell or for which it is more likely than not that the Company will not be required to sell before an anticipated recovery of value, the Company evaluates whether a decline in fair value below the amortized cost basis has occurred from a credit loss or other non-credit related factors.
Considerations in the credit loss assessment include (1) extent to which the fair value has been less than amortized cost, (2) conditions related to the investment, an industry, or a geographic area, (3) payment structure of the investment and the likelihood of the issuer's ability to make contractual cash flows, (4) defaults or other collectability concerns related to the issuer, (5) changes in the ratings assigned by a rating agency and (6) other credit enhancements that affect the investment’s expected performance.
If a credit loss exists, an allowance is established, which is equal to the difference between the present value of cash flows expected to be collected and the amortized cost basis. The expected allowance for credit losses is limited by the amount that the fair value is less than the amortized cost basis and is adjusted in subsequent periods for any additional expected credit losses or subsequent recoveries. Changes in the allowance are reported as an impairment loss in the consolidated statements of operations. The amortized cost basis of the investment is not adjusted for the expected allowance for credit loss. The impairment related to other non-credit related factors is reported in other comprehensive loss.
The Company reports accrued investment income separately for available-for-sale fixed maturity investments and has made a policy election to not to measure an allowance for credit losses on accrued investment income. Accrued investment income is written off against net investment income at the time the issuer of the bond defaults or is expected to default on interest payments. |
| Accounts Receivable [Policy Text Block] | Service Fee Receivables
Service fee receivable includes balances due and uncollected from customers. Service fee receivable is reported net of an estimated allowance for credit losses. The Company recognizes credit losses based on a forward-looking current expected credit losses. The Company estimates expected credit losses based upon its assessment of various factors, including historical collection experience, the age of service fee receivable balances, credit quality of its customers, current economic conditions, management’s experience, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers. Expected credit losses are recorded as general and administrative expenses in the consolidated statements of operations. Amounts are written off against the allowance when determined to be uncollectible. Write-offs are applied as a reduction to the allowance for credit losses and any recoveries of previous write-offs are netted against bad debt expense in the period recovered. |
| Holding Company Liquidity, Policy [Policy Text Block] | Holding Company Liquidity
The Company's Extended Warranty and Kingsway Search Xcelerator subsidiaries fund their obligations primarily through service fee and commission revenue. The liquidity of the holding company is managed separately from its subsidiaries. The obligations of the holding company primarily consist of holding company operating expenses; transaction-related expenses; investments; certain debt and associated interest; and any other extraordinary demands on the holding company. 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 $8.0 million and $48.9 million at March 31, 2023 and December 31, 2022. The holding company cash amounts are reflected in the cash and cash equivalents of $8.3 million and $64.2 million reported at March 31, 2023 and December 31, 2022, respectively, on the Company’s consolidated balance sheets.
The Company notes there are outstanding warrants that expire in September 2023 and, if all outstanding warrants were exercised, the Company would receive an additional $16.0 million of exercise proceeds. The Company also notes that it has an additional $10.0 million available from the second amendment to the 2020 KWH Loan (see Note 11, "Debt"), that is available to be drawn.
Based on the Company’s current business plan and revenue prospects, existing cash, cash equivalents, investment balances and anticipated cash flows from operations are expected to be sufficient to meet the Company’s working capital and operating expenditure requirements for the next twelve months. However, the Company’s assessment could also be affected by various risks and uncertainties, including, but not limited to, the developing macro-economic environment. |
Note 5 - Acquisitions, Disposal and Discontinued Operations (Tables) |
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| Disposal Groups, Including Discontinued Operations [Table Text Block] |
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Note 6 - Investments (Tables) |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Available-for-Sale Securities Reconciliation [Table Text Block] |
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| Investments Classified by Contractual Maturity Date [Table Text Block] |
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| Debt Securities, Available-for-Sale, Unrealized Loss Position, Fair Value [Table Text Block] |
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| Investment Income [Table Text Block] |
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| Realized Gain (Loss) on Investments [Table Text Block] |
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| Fair Value, Measured on Recurring Basis, Gain (Loss) Included in Earnings [Table Text Block] |
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Note 7 - Goodwill (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Goodwill [Table Text Block] |
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Note 8 - Intangible Assets (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Finite-Lived Intangible Assets [Table Text Block] |
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Note 9 - Property and Equipment (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Table Text Block] |
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Note 11 - Debt (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Carrying Values and Estimated Fair Values of Debt Instruments [Table Text Block] |
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| Schedule of Subordinated Borrowing [Table Text Block] |
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Note 12 - Leases (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Lessee, Operating Lease, Liability, to be Paid, Maturity [Table Text Block] |
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Note 13 - Revenue from Contracts with Customers (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disaggregation of Revenue [Table Text Block] |
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| Contract with Customer, Contract Asset, Contract Liability, and Receivable [Table Text Block] |
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| Capitalized Contract Cost [Table Text Block] |
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Note 14 - Income Taxes (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Effective Income Tax Rate Reconciliation [Table Text Block] |
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Note 15 - Earnings (Loss) per Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
|
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| Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block] |
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Note 16 - Stock-based Compensation (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement, Restricted Stock and Restricted Stock Unit, Activity [Table Text Block] |
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Note 19 - Accumulated Other Comprehensive Income (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block] |
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| Reclassification out of Accumulated Other Comprehensive Income [Table Text Block] |
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Note 20 - Segmented Information (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Reconciliation of Revenue from Segments to Consolidated [Table Text Block] |
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| Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Table Text Block] |
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Note 21 - Fair Value of Financial Instruments (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block] |
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| Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block] |
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| Fair Value Measurement Inputs and Valuation Techniques [Table Text Block] |
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| Fair Value, Investments, Entities that Calculate Net Asset Value Per Share [Table Text Block] |
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Note 3 - Summary of Significant Accounting Policies (Details Textual) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
| Cash | $ 8,000 | $ 48,900 | ||
| Cash and Cash Equivalents, at Carrying Value | 8,291 | $ 64,168 | ||
| Proceeds from Warrant Exercises | 6,294 | $ 0 | ||
| Second Amendment to 2020 KWH Loan [Member] | ||||
| Line of Credit Facility, Remaining Borrowing Capacity | $ 10,000 | |||
| Forecast [Member] | ||||
| Proceeds from Warrant Exercises | $ 16,000 | |||
Note 6 - Investments - Fixed Maturities by Contractual Maturity Periods (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Due in one year or less | $ 6,429 | |
| Due in one year or less, estimated fair value | 6,323 | |
| Due after one year through five years | 26,924 | |
| Due after one year through five years, estimated fair value | 25,494 | |
| Due after five years through ten years | 2,274 | |
| Due after five years through ten years, estimated fair value | 2,075 | |
| Due after ten years | 3,640 | |
| Due after ten years, estimated fair value | 3,265 | |
| Total | 39,267 | $ 40,127 |
| Total, estimated fair value | $ 37,157 | $ 37,591 |
Note 6 - Investments - Net Investment Income (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Interest from fixed maturities | $ 229 | $ 93 |
| Dividends | 60 | 31 |
| (Loss) income from limited liability investments | (34) | 235 |
| Income from real estate investments | 0 | 200 |
| Other | 520 | 83 |
| Gross investment income | 775 | 642 |
| Investment expenses | (37) | (23) |
| Net investment income | $ 738 | $ 619 |
Note 6 - Investments - Gross Realized Gains and Losses on Available-for-sale Investments, Limited Liability Investment (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Gross realized gains | $ 210 | $ 59 |
| Gross realized losses | 0 | (5) |
| Net realized gains | $ 210 | $ 54 |
Note 6 - Investments - Loss on Change in Fair Value of Equity Investments (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Net gains recognized on equity investments sold during the period | $ 0 | $ 0 |
| Change in unrealized gains (losses) on equity investments held at end of the period | 1,075 | (10) |
| Gain (loss) on change in fair value of equity investments | $ 1,075 | $ (10) |
Note 7 - Goodwill (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
| Goodwill | $ 45,488 | $ 45,498 | |
| Goodwill, Impairment Loss | 0 | $ 0 | |
| CSuite Acquisition, LLC [Member] | |||
| Goodwill | $ 100 | ||
Note 7 - Goodwill - Intangible Assets, Goodwill and Other (Details) $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
USD ($)
| |
| Balance | $ 45,498 |
| Balance | 45,488 |
| Operating Segments [Member] | Extended Warranty Segment [Member] | |
| Balance | 31,153 |
| Measurement period adjustment | 0 |
| Balance | 31,153 |
| Operating Segments [Member] | Leased Real Estate Segment [Member] | |
| Balance | 13,613 |
| Measurement period adjustment | (10) |
| Balance | 13,603 |
| Operating Segments [Member] | Kingsway Search Xcelerator [Member] | |
| Balance | 732 |
| Measurement period adjustment | 0 |
| Balance | 732 |
| Corporate, Non-Segment [Member] | |
| Balance | 45,498 |
| Measurement period adjustment | (10) |
| Balance | $ 45,488 |
Note 8 - Intangible Assets (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Amortization of Intangible Assets | $ 1,418 | $ 1,442 |
| Impairment of Intangible Assets, Indefinite-lived (Excluding Goodwill) | $ 0 | $ 0 |
| Minimum [Member] | ||
| Finite-Lived Intangible Asset, Useful Life (Year) | 7 years | |
| Maximum [Member] | ||
| Finite-Lived Intangible Asset, Useful Life (Year) | 15 years | |
Note 8 - Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Intangible assets accumulated amortization | $ 23,646 | $ 22,228 |
| Intangible assets, gross | 55,327 | 55,327 |
| Intangible assets, net | 31,681 | 33,099 |
| Trade Names [Member] | ||
| Intangible assets not subject to amortization | 14,287 | 14,287 |
| Intangible assets not subject to amortization, net | 14,287 | 14,287 |
| Database Rights [Member] | ||
| Intangible assets subject to amortization | 4,918 | 4,918 |
| Intangible assets accumulated amortization | 4,918 | 4,918 |
| Intangible assets subject to amortization, net | 0 | 0 |
| Service Agreements [Member] | ||
| Intangible assets subject to amortization | 3,680 | 3,680 |
| Intangible assets accumulated amortization | 3,680 | 3,680 |
| Intangible assets subject to amortization, net | 0 | 0 |
| Customer Relationships [Member] | ||
| Intangible assets subject to amortization | 32,442 | 32,442 |
| Intangible assets accumulated amortization | 15,048 | 13,630 |
| Intangible assets subject to amortization, net | $ 17,394 | $ 18,812 |
Note 9 - Property and Equipment (Details Textual) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Depreciation | $ 0.1 | $ 0.1 |
Note 9 - Property and Equipment - Property and Equipment (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Cost | $ 1,819 | $ 1,814 |
| Property and equipment, accumulated depreciation | 1,115 | 1,041 |
| Carrying Value | 704 | 773 |
| Leasehold Improvements [Member] | ||
| Cost | 485 | 485 |
| Property and equipment, accumulated depreciation | 228 | 206 |
| Carrying Value | 257 | 279 |
| Furniture and Fixtures [Member] | ||
| Cost | 386 | 375 |
| Property and equipment, accumulated depreciation | 328 | 319 |
| Carrying Value | 58 | 56 |
| Computer Equipment [Member] | ||
| Cost | 948 | 954 |
| Property and equipment, accumulated depreciation | 559 | 516 |
| Carrying Value | $ 389 | $ 438 |
Note 12 - Leases (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Operating Lease, Weighted Average Remaining Lease Term (Year) | 3 years 11 months 15 days | |
| Operating Lease, Weighted Average Discount Rate, Percent | 5.87% | |
| Operating Lease, Payments | $ 100 | $ 300 |
| General and Administrative Expense [Member] | ||
| Operating Lease, Cost | 100 | 200 |
| Variable Lease, Cost | 100 | 100 |
| Short-Term Lease, Cost | $ 100 | $ 0 |
Note 12 - Leases - Annual Maturities of Lease Liabilities (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| 2023 | $ 447 | |
| 2024 | 442 | |
| 2025 | 283 | |
| 2026 | 220 | |
| 2027 | 162 | |
| 2028 and thereafter | 79 | |
| Total undiscounted lease payments | 1,633 | |
| Imputed interest | 300 | |
| Total lease liabilities | $ 1,333 | $ 1,217 |
Note 13 - Revenue from Contracts with Customers (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
| Increase (Decrease) in Deferred Contract Costs | $ 227 | $ 1,025 | |
| Percentage of Deferred Service Fees | 51.70% | ||
| Capitalized Contract Cost, Impairment Loss | $ 0 | 0 | |
| Service Fees [Member] | |||
| Receivables from Customers | 10,553 | $ 10,304 | |
| Accounts Receivable, Allowance for Credit Loss, Period Increase (Decrease) | 100 | ||
| Accounts Receivable, Allowance for Credit Loss, Writeoff | 0 | ||
| Contract with Customer, Liability, Revenue Recognized | $ 12,500 | 13,000 | |
| Deferred Revenues and Deferred Contract Costs Associated With Vehicle Service Agreement Fees [Member | IWS [Member] | |||
| Deferred Revenue and Deferred Contract Costs, Net Charge | 900 | ||
| Deferred Service Fees, Increase (Decrease) During Period | 1,100 | ||
| Increase (Decrease) in Deferred Contract Costs | $ 200 | ||
| Minimum [Member] | |||
| Customer Refunds Percentage | 9.00% | ||
| Maximum [Member] | |||
| Customer Refunds Percentage | 13.00% | ||
Note 13 - Revenue from Contracts with Customers - Changes in Deferred Service Fees (Details) $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
USD ($)
| |
| Balance, December 31, 2022 | $ 82,713 |
| Balance, March 31, 2023 | 82,367 |
| Service Fees [Member] | |
| Balance, December 31, 2022 | 82,713 |
| Deferral of revenue | 14,770 |
| Recognition of deferred service fees | (15,116) |
| Balance, March 31, 2023 | $ 82,367 |
Note 13 - Revenue from Contracts with Customers - Deferred Contract Costs (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Balance, net | $ 13,257 | $ 10,930 |
| Additions | 2,343 | 2,359 |
| Amortization | (2,116) | (1,334) |
| Balance, net | 13,484 | 11,955 |
| Cost to Obtain Contract [Member] | ||
| Balance, net | 13,174 | 10,850 |
| Additions | 2,336 | 2,353 |
| Amortization | (2,109) | (1,328) |
| Balance, net | 13,401 | 11,875 |
| Cost to Fulfill Contract [Member] | ||
| Balance, net | 83 | 80 |
| Additions | 7 | 6 |
| Amortization | (7) | (6) |
| Balance, net | $ 83 | $ 80 |
Note 14 - Income Taxes (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
| Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent | 21.00% | 21.00% | |
| Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount | $ 0 | $ 500 | |
| Deferred Income Tax Liabilities, Net | 4,260 | $ 4,176 | |
| Deferred Tax Liabilities, Land and Indefinite Lived Intangible Assets | 3,900 | 3,800 | |
| Deferred Tax Liabilities, State Taxes | 400 | 400 | |
| Unrecognized Tax Benefits | $ 0 | $ 100 | |
Note 14 - Income Taxes - Schedule of Effective Income Tax Rate Reconciliation (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Income tax expense (benefit) at U. S. statutory income tax rate | $ 5,981 | $ (928) |
| Valuation allowance | (5,904) | 293 |
| Non-deductible compensation | 29 | 47 |
| Investment income | 18 | (3) |
| State income tax | 489 | 45 |
| Indefinite life intangibles | 80 | 54 |
| Contingent consideration | 0 | 65 |
| Other | 6 | 5 |
| Income tax expense (benefit) | $ 699 | $ (422) |
Note 15 - Earnings (Loss) per Share - Schedule of Antidilutive Securities Excluded from Computation of Earnings per Share (Details) - shares shares in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Antidilutive securities (in shares) | 358,410 | 6,887,350 |
| Restricted Stock Units (RSUs) [Member] | ||
| Antidilutive securities (in shares) | 358,410 | 1,252,754 |
| Warrant [Member] | ||
| Antidilutive securities (in shares) | 0 | 4,573,765 |
| Convertible Debt Securities [Member] | ||
| Antidilutive securities (in shares) | 0 | 1,060,831 |
Note 16 - Stock-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Nov. 18, 2022 |
Nov. 01, 2022 |
Oct. 31, 2022 |
Oct. 01, 2021 |
Dec. 18, 2020 |
Sep. 07, 2018 |
Sep. 05, 2018 |
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
| Restricted Stock [Member] | ||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | 0 | |||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares) | 1,146,947 | 1,146,947 | ||||||||
| Share-Based Payment Arrangement, Expense | $ 200 | $ 200 | ||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Vested in Period (in shares) | (0) | |||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value, Ending Balance (in dollars per share) | $ 5.19 | $ 5.19 | ||||||||
| A2018 Restricted Stock Awards [Member] | Restricted Stock [Member] | ||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | 500,000 | |||||||||
| Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount | $ 400 | |||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares) | 500,000 | |||||||||
| Restricted Stock Awards 2021 [Member] | ||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares) | 646,947 | |||||||||
| Restricted Stock Awards 2021 [Member] | Restricted Stock [Member] | Officer [Member] | ||||||||||
| Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount | $ 2,800 | |||||||||
| A2018 PWSC Restricted Stock Awards [Member] | Restricted Stock [Member] | Officer of PWSC [Member] | ||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | 1,000 | |||||||||
| PWSC Restricted Stock Award 2020 [Member] | ||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares) | 100,000 | |||||||||
| PWSC Restricted Stock Award 2020 [Member] | Restricted Stock [Member] | Officer of PWSC [Member] | ||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | 250 | |||||||||
| A2020 Modified PWSC Restricted Stock Awards [Member] | ||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Non-Option Equity Instruments, Outstanding, Number, Ending Balance (in shares) | 0 | |||||||||
| PWSC Restricted Stock Award [Member] | ||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares) | 0 | |||||||||
| Ravix RUA 2021 [Member] | Restricted Common Unit Awards [Member] | Officer [Member] | ||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | 199,000 | |||||||||
| Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount | $ 300 | |||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares) | 86,153 | 91,361 | ||||||||
| Share-Based Payment Arrangement, Expense | $ 100 | |||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term (Year) | 2 years 11 months 1 day | 2 years 11 months 1 day | 4 years | |||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate | 72.00% | 58.00% | 75.00% | |||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate | 4.44% | 4.44% | 0.93% | |||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Vested in Period (in shares) | 83,333 | 5,208 | ||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value, Ending Balance (in dollars per share) | $ 3.08 | |||||||||
| Ravix RUA 2021 [Member] | Restricted Common Unit Awards [Member] | Officer [Member] | Maximum [Member] | ||||||||||
| Share-Based Payment Arrangement, Expense | $ 100 | |||||||||
| SNS RUA [Member] | Restricted Common Unit Awards [Member] | Officer [Member] | ||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) | 75,000 | |||||||||
| Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount | $ 300 | |||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares) | 50,000 | 50,000 | ||||||||
| Share-Based Payment Arrangement, Expense | $ 100 | $ 0 | ||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term (Year) | 4 years | |||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate | 85.00% | |||||||||
| Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate | 4.09% | |||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Vested in Period (in shares) | 25,000 | 0 | ||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value, Ending Balance (in dollars per share) | $ 5.95 | |||||||||
Note 16 - Stock-based Compensation - Restricted Stock Awards (Details) - Restricted Stock [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
$ / shares
shares
| |
| Unvested, shares (in shares) | shares | 1,146,947 |
| Unvested, Grant Date Fair Value (in dollars per share) | $ / shares | $ 5.19 |
| Granted, shares (in shares) | shares | 0 |
| Granted, Grant Date Fair Value (in dollars per share) | $ / shares | $ 0 |
| Vested, shares (in shares) | shares | 0 |
| Vested, Grant Date Fair Value (in dollars per share) | $ / shares | $ 0 |
| Cancelled for Tax Withholding (in shares) | shares | 0 |
| Cancelled for Tax Withholding (in dollars per share) | $ / shares | $ 0 |
| Unvested, shares (in shares) | shares | 1,146,947 |
| Unvested, Grant Date Fair Value (in dollars per share) | $ / shares | $ 5.19 |
Note 17 - Redeemable Class A Preferred Stock (Details Textual) $ / shares in Units, $ in Millions |
3 Months Ended | |
|---|---|---|
|
Mar. 31, 2023
USD ($)
$ / shares
shares
|
Dec. 31, 2022
shares
|
|
| Preferred Stock, Shares Outstanding (in shares) | 30,000 | 149,733 |
| Preferred Stock, Convertible, Conversion Ratio | 6.25 | |
| Preferred Stock, Convertible, Conversion Price (in dollars per share) | $ / shares | $ 4.00 | |
| Convertible Preferred Stock, Shares Issued upon Conversion (in shares) | 187,500 | |
| Preferred Stock Converted into Common Stock [Member] | ||
| Conversion of Stock, Shares Converted (in shares) | 119,733 | |
| Conversion of Stock, Shares Issued (in shares) | 748,331 | |
| Conversion of Stock, Amount Issued | $ | $ 3 |
Note 18 - Shareholders' Equity (Details Textual) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| APIC, Share-Based Payment Arrangement, Other, Increase for Cost Recognition | $ 4,900 | |
| Proceeds from Warrant Exercises | 6,294 | $ 0 |
| Stock Repurchase Program, Authorized Amount | $ 10,000 | |
| Stock Repurchased During Period, Shares (in shares) | 0 | |
| Warrants to Purchase Common Stock [Member] | ||
| Class of Warrant or Right, Outstanding (in shares) | 3,205,896 | |
| Class of Warrant or Right, Number of Securities Called by Each Warrant or Right (in shares) | 1 | |
| Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ 5.00 | |
| Stock Issued During Period, Shares, Exercise of Warrants (in shares) | 1,258,840 | |
| Proceeds from Warrant Exercises | $ 6,300 | |
| Preferred Stock Converted into Common Stock [Member] | ||
| Conversion of Stock, Shares Converted (in shares) | 119,733 | |
| Conversion of Stock, Shares Issued (in shares) | 748,331 | |
Note 19 - Accumulated Other Comprehensive Income (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Gain (Loss) on Extinguishment of Debt | $ 31,616 | $ 0 |
| Reclassification out of Accumulated Other Comprehensive Income [Member] | ||
| Gain (Loss) on Extinguishment of Debt | $ 27,177 | $ 0 |
Note 19 - Accumulated Other Comprehensive Income - Schedule of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands |
3 Months Ended | |||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|||
| Balance | $ 16,108 | $ 8,257 | ||
| Other comprehensive loss, net of taxes(1): | [1] | (27,184) | (207) | |
| Balance | 24,550 | 5,301 | ||
| AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-Sale, Parent [Member] | ||||
| Balance | (2,464) | (220) | ||
| Other comprehensive income (loss) arising during the period | 427 | (1,125) | ||
| Amounts reclassified from accumulated other comprehensive income (loss) | (22) | 1 | ||
| Other comprehensive loss, net of taxes(1): | 405 | (1,124) | ||
| Balance | (2,059) | (1,344) | ||
| Accumulated Foreign Currency Adjustment Attributable to Parent [Member] | ||||
| Balance | (3,286) | (3,286) | ||
| Other comprehensive income (loss) arising during the period | 0 | 0 | ||
| Amounts reclassified from accumulated other comprehensive income (loss) | 0 | 0 | ||
| Other comprehensive loss, net of taxes(1): | 0 | 0 | ||
| Balance | (3,286) | (3,286) | ||
| Accumulated Gain (Loss), Financial Liability, Fair Value Option, Attributable to Parent [Member] | ||||
| Balance | 32,355 | 34,285 | ||
| Other comprehensive income (loss) arising during the period | (427) | 959 | ||
| Amounts reclassified from accumulated other comprehensive income (loss) | (27,177) | 0 | ||
| Other comprehensive loss, net of taxes(1): | (27,604) | 959 | ||
| Balance | 4,751 | 35,244 | ||
| AOCI Attributable to Parent [Member] | ||||
| Balance | 26,605 | 30,779 | ||
| Other comprehensive income (loss) arising during the period | 0 | (166) | ||
| Amounts reclassified from accumulated other comprehensive income (loss) | (27,199) | 1 | ||
| Other comprehensive loss, net of taxes(1): | (27,199) | (165) | ||
| Balance | $ (594) | $ 30,614 | ||
| ||||
Note 19 - Accumulated Other Comprehensive Income - Components of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Net realized gains | $ 210 | $ 54 |
| Gain on extinguishment of debt | 31,616 | 0 |
| Income (loss) from continuing operations before income tax expense (benefit) | 28,431 | (4,421) |
| Income tax expense (benefit) | 699 | (422) |
| Income (loss) from continuing operations | 27,732 | (3,999) |
| Income from discontinued operations, net of taxes | 107 | 1,495 |
| Net income (loss) | 27,839 | (2,504) |
| Reclassification out of Accumulated Other Comprehensive Income [Member] | ||
| Gain on extinguishment of debt | 27,177 | 0 |
| Income (loss) from continuing operations before income tax expense (benefit) | 27,199 | 0 |
| Income tax expense (benefit) | 0 | 0 |
| Income (loss) from continuing operations | 27,199 | 0 |
| Income from discontinued operations, net of taxes | 0 | 0 |
| Net income (loss) | 27,199 | 0 |
| AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-Sale, Parent [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member] | ||
| Net realized gains | $ 22 | $ (1) |
Note 20 - Segmented Information (Details Textual) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
|
| Number of Reportable Segments | 2 | 3 |
| Number of States in which Entity Operates | 25 | |
| Penn Member [Member] | ||
| Number of States in which Entity Operates | 39 | |
| Prime [Member] | ||
| Number of States in which Entity Operates | 40 | |
Note 20 - Segmented Information - Reconciliation of Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Total revenues | $ 26,389 | $ 22,456 |
| Operating Segments [Member] | ||
| Total revenues | 26,389 | 22,456 |
| Operating Segments [Member] | Extended Warranty Segment [Member] | ||
| Total revenues | 16,671 | 18,286 |
| Operating Segments [Member] | Kingsway Search Xcelerator [Member] | ||
| Total revenues | $ 9,718 | $ 4,170 |
Note 20 - Segmented Information - Reconciliation of Operating Profit (Loss) (Details) - USD ($) $ in Thousands |
3 Months Ended | |||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|||
| Total segment operating income | $ 514 | $ (758) | ||
| Net investment income | 738 | 619 | ||
| Net realized gains | 210 | 54 | ||
| Gain (loss) on change in fair value of equity investments | 1,075 | (10) | ||
| (Loss) gain on change in fair value of limited liability investments, at fair value | (130) | 127 | ||
| Loss on change in fair value of derivative asset option contracts | (1,366) | 0 | ||
| Interest expense | (2,972) | (1,364) | ||
| Non-operating other (expense) revenue | (145) | 221 | ||
| Amortization of intangible assets | (1,418) | (1,442) | ||
| Gain (loss) on change in fair value of debt | 309 | (1,868) | ||
| Gain on extinguishment of debt | 31,616 | 0 | ||
| Income (loss) from continuing operations before income tax expense (benefit) | 28,431 | (4,421) | ||
| Income tax expense (benefit) | 699 | (422) | ||
| Income (loss) from continuing operations | 27,732 | (3,999) | ||
| Operating Segments [Member] | ||||
| Total segment operating income | 3,009 | 2,529 | ||
| Operating Segments [Member] | Extended Warranty Segment [Member] | ||||
| Total segment operating income | [1] | 1,432 | 1,723 | |
| Operating Segments [Member] | Kingsway Search Xcelerator [Member] | ||||
| Total segment operating income | 1,577 | 806 | ||
| Corporate, Non-Segment [Member] | ||||
| Non-operating other (expense) revenue | $ (2,640) | $ (3,066) | ||
| ||||
Note 21 - Fair Value of Financial Instruments (Details Textual) $ in Thousands |
3 Months Ended | |||
|---|---|---|---|---|
|
Mar. 31, 2023
USD ($)
|
Mar. 31, 2022
USD ($)
|
Dec. 31, 2022
USD ($)
|
Sep. 30, 2022 |
|
| Private Company Investments [Member] | ||||
| Other-than-temporary Impairment Loss, Debt Securities, Portion Recognized in Earnings | $ 0 | $ 0 | ||
| Ravix [Member] | ||||
| Business Combination, Contingent Consideration, Liability | 4,500 | |||
| Ravix [Member] | Estimate of Fair Value Measurement [Member] | ||||
| Business Combination, Contingent Consideration, Liability | 3,200 | |||
| Business Combination, Contingent Consideration, Liability, Fair Value | $ 3,200 | |||
| CSuite Acquisition, LLC [Member] | ||||
| Business Combination, Contingent Consideration Arrangements, Change in Range of Outcomes, Contingent Consideration, Liability, Value, High | 3,600 | |||
| CSuite Acquisition, LLC [Member] | Estimate of Fair Value Measurement [Member] | ||||
| Business Combination, Contingent Consideration, Liability | $ 0 | $ 0 | ||
| Trust Preferred Debt Repurchase Options Contracts [Member] | ||||
| Derivative, Number of Instruments Held, Total | 3 | |||
Note 21- Fair Value of Financial Instruments - Assets and Liabilities Measured at Fair Value (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Total, estimated fair value | $ 37,157,000 | $ 37,591,000 |
| Equity investments, at fair value (cost of $187 and $187, respectively) | 1,228,000 | 153,000 |
| Limited liability investments, at fair value | 8,291,000 | 13,863,000 |
| Subordinated debt, at fair value | 11,808,000 | 67,811,000 |
| Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options | 19,000,000.0 | |
| Fair Value, Inputs, Level 3 [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options | 19,034 | |
| Fair Value, Recurring [Member] | ||
| Total, estimated fair value | 37,157,000 | 37,591,000 |
| Equity investments, at fair value (cost of $187 and $187, respectively) | 1,228,000 | 153,000 |
| Limited liability investments, at fair value | 11,733,000 | 17,059,000 |
| Total assets | 50,364,000 | 74,163,000 |
| Subordinated debt, at fair value | 11,808,000 | 67,811,000 |
| Contingent consideration, at fair value | 3,218,000 | 3,218,000 |
| Total liabilities | 15,026,000 | 71,029,000 |
| Fair Value, Recurring [Member] | Interest Rate Swap [Member] | ||
| Derivative - trust preferred debt repurchase options | 246,000 | 326,000 |
| Fair Value, Recurring [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options | 19,034,000 | |
| Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | ||
| Total, estimated fair value | 0 | 0 |
| Equity investments, at fair value (cost of $187 and $187, respectively) | 196,000 | 153,000 |
| Limited liability investments, at fair value | 0 | 0 |
| Total assets | 196,000 | 153,000 |
| Subordinated debt, at fair value | 0 | 0 |
| Contingent consideration, at fair value | 0 | 0 |
| Total liabilities | 0 | 0 |
| Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Interest Rate Swap [Member] | ||
| Derivative - trust preferred debt repurchase options | 0 | 0 |
| Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options | ||
| Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | ||
| Total, estimated fair value | 37,157,000 | 37,591,000 |
| Equity investments, at fair value (cost of $187 and $187, respectively) | 1,032,000 | 0 |
| Limited liability investments, at fair value | 0 | 0 |
| Total assets | 38,435,000 | 37,917,000 |
| Subordinated debt, at fair value | 11,808,000 | 67,811,000 |
| Contingent consideration, at fair value | 0 | 0 |
| Total liabilities | 11,808,000 | 67,811,000 |
| Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member] | ||
| Derivative - trust preferred debt repurchase options | 246,000 | 326,000 |
| Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options | 0 | |
| Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | ||
| Total, estimated fair value | 0 | 0 |
| Equity investments, at fair value (cost of $187 and $187, respectively) | 0 | 0 |
| Limited liability investments, at fair value | 3,442,000 | 3,196,000 |
| Total assets | 3,442,000 | 22,230,000 |
| Subordinated debt, at fair value | 0 | 0 |
| Contingent consideration, at fair value | 3,218,000 | 3,218,000 |
| Total liabilities | 3,218,000 | 3,218,000 |
| Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Interest Rate Swap [Member] | ||
| Derivative - trust preferred debt repurchase options | 0 | 0 |
| Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options | 19,034,000 | |
| Fair Value, Recurring [Member] | Fair Value Measured at Net Asset Value Per Share [Member] | ||
| Total, estimated fair value | 0 | 0 |
| Equity investments, at fair value (cost of $187 and $187, respectively) | 0 | 0 |
| Limited liability investments, at fair value | 8,291,000 | 13,863,000 |
| Total assets | 8,291,000 | 13,863,000 |
| Subordinated debt, at fair value | 0 | 0 |
| Contingent consideration, at fair value | 0 | 0 |
| Total liabilities | 0 | 0 |
| Fair Value, Recurring [Member] | Fair Value Measured at Net Asset Value Per Share [Member] | Interest Rate Swap [Member] | ||
| Derivative - trust preferred debt repurchase options | 0 | 0 |
| Fair Value, Recurring [Member] | Fair Value Measured at Net Asset Value Per Share [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options | 0 | |
| US Government Agencies Debt Securities [Member] | ||
| Total, estimated fair value | 14,516,000 | 15,080,000 |
| US Government Agencies Debt Securities [Member] | Fair Value, Recurring [Member] | ||
| Total, estimated fair value | 14,516,000 | 15,080,000 |
| US Government Agencies Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | ||
| Total, estimated fair value | 0 | 0 |
| US Government Agencies Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | ||
| Total, estimated fair value | 14,516,000 | 15,080,000 |
| US Government Agencies Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | ||
| Total, estimated fair value | 0 | 0 |
| US Government Agencies Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value Measured at Net Asset Value Per Share [Member] | ||
| Total, estimated fair value | 0 | 0 |
| US States and Political Subdivisions Debt Securities [Member] | ||
| Total, estimated fair value | 3,120,000 | 2,232,000 |
| US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | ||
| Total, estimated fair value | 3,120,000 | 2,232,000 |
| US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | ||
| Total, estimated fair value | 0 | 0 |
| US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | ||
| Total, estimated fair value | 3,120,000 | 2,232,000 |
| US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | ||
| Total, estimated fair value | 0 | 0 |
| US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value Measured at Net Asset Value Per Share [Member] | ||
| Total, estimated fair value | 0 | 0 |
| Mortgage-Backed Securities, Issued by US Government Sponsored Enterprises [Member] | ||
| Total, estimated fair value | 7,986,000 | 8,412,000 |
| Mortgage-Backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Recurring [Member] | ||
| Total, estimated fair value | 7,986,000 | 8,412,000 |
| Mortgage-Backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | ||
| Total, estimated fair value | 0 | 0 |
| Mortgage-Backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | ||
| Total, estimated fair value | 7,986,000 | 8,412,000 |
| Mortgage-Backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | ||
| Total, estimated fair value | 0 | 0 |
| Mortgage-Backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Recurring [Member] | Fair Value Measured at Net Asset Value Per Share [Member] | ||
| Total, estimated fair value | 0 | 0 |
| Asset-Backed Securities [Member] | ||
| Total, estimated fair value | 1,388,000 | 1,610,000 |
| Asset-Backed Securities [Member] | Fair Value, Recurring [Member] | ||
| Total, estimated fair value | 1,388,000 | 1,610,000 |
| Asset-Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | ||
| Total, estimated fair value | 0 | 0 |
| Asset-Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | ||
| Total, estimated fair value | 1,388,000 | 1,610,000 |
| Asset-Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | ||
| Total, estimated fair value | 0 | 0 |
| Asset-Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value Measured at Net Asset Value Per Share [Member] | ||
| Total, estimated fair value | 0 | 0 |
| Corporate Debt Securities [Member] | ||
| Total, estimated fair value | 10,147,000 | 10,257,000 |
| Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | ||
| Total, estimated fair value | 10,147,000 | 10,257,000 |
| Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | ||
| Total, estimated fair value | 0 | 0 |
| Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | ||
| Total, estimated fair value | 10,147,000 | 10,257,000 |
| Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | ||
| Total, estimated fair value | 0 | 0 |
| Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value Measured at Net Asset Value Per Share [Member] | ||
| Total, estimated fair value | 0 | 0 |
| Common Stock [Member] | Fair Value, Recurring [Member] | ||
| Equity investments, at fair value (cost of $187 and $187, respectively) | 196,000 | 153,000 |
| Common Stock [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | ||
| Equity investments, at fair value (cost of $187 and $187, respectively) | 196,000 | 153,000 |
| Common Stock [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | ||
| Equity investments, at fair value (cost of $187 and $187, respectively) | 0 | 0 |
| Common Stock [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | ||
| Equity investments, at fair value (cost of $187 and $187, respectively) | 0 | 0 |
| Common Stock [Member] | Fair Value, Recurring [Member] | Fair Value Measured at Net Asset Value Per Share [Member] | ||
| Equity investments, at fair value (cost of $187 and $187, respectively) | 0 | $ 0 |
| Warrant [Member] | Fair Value, Recurring [Member] | ||
| Equity investments, at fair value (cost of $187 and $187, respectively) | 1,032,000 | |
| Warrant [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | ||
| Equity investments, at fair value (cost of $187 and $187, respectively) | 0 | |
| Warrant [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | ||
| Equity investments, at fair value (cost of $187 and $187, respectively) | 1,032,000 | |
| Warrant [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | ||
| Equity investments, at fair value (cost of $187 and $187, respectively) | 0 | |
| Warrant [Member] | Fair Value, Recurring [Member] | Fair Value Measured at Net Asset Value Per Share [Member] | ||
| Equity investments, at fair value (cost of $187 and $187, respectively) | $ 0 |
Note 21 - Fair Value of Financial Instruments - Reconciliation of the Fair Value (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Balance | $ 3,442 | $ 3,751 |
| Included in other comprehensive loss | 0 | 0 |
| Liabilities, balance | 3,218 | 2,767 |
| Contingent Consideration Liability [Member] | ||
| Change in fair value of contingent consideration included in net income (loss) | 0 | 309 |
| Share-based Compensation Liabilities [Member] | ||
| Included in other comprehensive loss | 0 | 0 |
| Equity Method Investments [Member] | Limited Liability Investments [Member] | ||
| Balance | 3,196 | 4,022 |
| Contributions | 35 | 0 |
| Distributions received | (110) | (47) |
| Balance | 3,442 | 3,751 |
| Exercise of options included in net income (loss) | 110 | 47 |
| Equity Method Investments [Member] | Limited Liability Investments [Member] | Realized Investment Gains (Losses) [Member] | ||
| Realized gains included in net income (loss) | 110 | 33 |
| Equity Method Investments [Member] | Limited Liability Investments [Member] | Gain (Loss) On Change In Fair Value Of Limited Liability Investments At Fair Value [Member] | ||
| Realized gains included in net income (loss) | 211 | (257) |
| Real Estate Investments [Member] | ||
| Balance | 19,034 | 0 |
| Realized gains included in net income (loss) | (1,366) | 0 |
| Balance | 0 | 0 |
| Derivative Financial Instruments, Assets [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Balance | 3,218 | 2,458 |
| Realized gains included in net income (loss) | 0 | 309 |
| Balance | 3,218 | 2,767 |
| Derivative Financial Instruments, Assets [Member] | Change in Fair Value of Derivative Assets [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Distributions received | 17,668 | 0 |
| Realized gains included in net income (loss) | (1,366) | 0 |
| Exercise of options included in net income (loss) | $ (17,668) | $ 0 |
Note 21 - Fair Value of Financial Instruments - Fair Value Measurement Inputs and Valuation Techniques (Details) |
Mar. 31, 2023
USD ($)
|
Dec. 31, 2022
USD ($)
|
|---|---|---|
| Limited liability investments, at fair value | $ 8,291,000 | $ 13,863,000 |
| Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options | 19,000,000.0 | |
| Limited Liability Investments [Member] | ||
| Limited liability investments, at fair value | 11,733,000 | 17,059,000 |
| Fair Value, Inputs, Level 3 [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options | 19,034 | |
| Valuation, Market Approach [Member] | Fair Value, Inputs, Level 3 [Member] | Limited Liability Investments [Member] | ||
| Limited liability investments, at fair value | $ 3,442,000 | $ 3,196,000 |
| Valuation Multiples [Member] | Fair Value, Inputs, Level 3 [Member] | Measurement Input, Cap Rate [Member] | Minimum [Member] | ||
| Limited liability investments, measurement input | 1.0 | 1.0 |
| Valuation Multiples [Member] | Fair Value, Inputs, Level 3 [Member] | Measurement Input, Cap Rate [Member] | Maximum [Member] | ||
| Limited liability investments, measurement input | 9.0 | |
| Valuation, Income Approach [Member] | Fair Value, Inputs, Level 3 [Member] | ||
| Contingent consideration, at fair value | $ 3,218,000 | $ 3,218,000 |
| Valuation, Income Approach [Member] | Fair Value, Inputs, Level 3 [Member] | Measurement Input, Discount Rate [Member] | ||
| Contingent consideration, measurement input | 8.25 | 0.0825 |
| Valuation, Income Approach [Member] | Fair Value, Inputs, Level 3 [Member] | Measurement Input, Risk Free Interest Rate [Member] | ||
| Contingent consideration, measurement input | 4.44 | 0.0444 |
| Valuation, Income Approach [Member] | Fair Value, Inputs, Level 3 [Member] | Measurement Input, Price Volatility [Member] | ||
| Contingent consideration, measurement input | 0.130 | |
| Binomial Lattice Option Approach [Member] | Fair Value, Inputs, Level 3 [Member] | Measurement Input, Credit Spread [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options, measurement input | 0.0895 | |
| Binomial Lattice Option Approach [Member] | Fair Value, Inputs, Level 3 [Member] | Measurement Input, Interest Rate Volatility [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options, measurement input | 0.023 | |
| Binomial Lattice Option Approach [Member] | Fair Value, Inputs, Level 3 [Member] | Measurement Input, Debt Coupon Interest Rate [Member] | Minimum [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options, measurement input | 0.0872 | |
| Binomial Lattice Option Approach [Member] | Fair Value, Inputs, Level 3 [Member] | Measurement Input, Debt Coupon Interest Rate [Member] | Maximum [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options, measurement input | 13.00 | 0.0887 |
| Binomial Lattice Option Approach [Member] | Fair Value, Inputs, Level 3 [Member] | Measurement Input, Expected Term [Member] | Minimum [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options, measurement input | 10.4 | |
| Binomial Lattice Option Approach [Member] | Fair Value, Inputs, Level 3 [Member] | Measurement Input, Expected Term [Member] | Maximum [Member] | Trust Preferred Debt Repurchase Options Contracts [Member] | ||
| Derivative - trust preferred debt repurchase options, measurement input | 10.59 |
Note 21 - Fair Value of Financial Instruments - Fair Value, Investments, Entities that Calculate Net Asset Value Per Share (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Limited liability investments, at fair value | $ 8,291 | $ 13,863 |
Note 23 - Commitments and Contingencies (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 36 Months Ended | ||||
|---|---|---|---|---|---|---|
Jan. 20, 2020 |
Oct. 18, 2018 |
Mar. 31, 2023 |
Dec. 31, 2022 |
Sep. 30, 2022 |
Dec. 31, 2020 |
|
| Litigation Settlement, Amount Awarded to Other Party | $ 900 | |||||
| Litigation Settlement Reimbursable Percentage of Future Losses | 60.00% | |||||
| Loss Contingency, Estimate of Possible Loss | $ 4,800 | |||||
| Payments for Legal Settlements | $ 1,000 | |||||
| Liability for Unpaid Claims and Claims Adjustment Expense, Reported Claims, Amount | $ 2,500 | |||||
| Escrow Deposit | 2,000 | |||||
| Liability for Unpaid Claims and Claims Adjustment Expense, Claims Paid, Total | $ 500 | |||||
| Release of Escrow Deposit | $ 2,000 | |||||
| Short Term Investments Fair Value Disclosure | 200 | 200 | ||||
| Restricted Cash | 11,461 | 13,064 | ||||
| IWS [Member] | ||||||
| Restricted Cash | 7,700 | 7,600 | ||||
| State and Provincial Regulatory Authorities [Member] | ||||||
| Restricted Cash | 1,900 | 1,900 | ||||
| Third Parties [Member] | ||||||
| Restricted Cash | $ 1,900 | $ 3,500 | ||||
| Accrued Expenses and Other Liabilities [Member] | ||||||
| Liability for Unpaid Claims and Claims Adjustment Expense, Reported Claims, Amount | $ 2,500 |