Kingsway Corporation · NYSE:KWY
Kingsway — Kingsway Financial Services — Investor Day (November 2016)
41 slides from Kingsway's investor day presentation, Nov 30, 2016
Slide 1: Kingsway Financial Services Inc. Investor Day Presentation
KINGSWAY FINANCIAL SERVICES INC. INVESTOR DAY PRESENTATION NOVEMBER 30, 2016
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation 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
Slide 3: Kingsway Representatives and Agenda
Kingsway Representatives and Agenda Kingsway Representatives Agenda Larry G. Swets, Jr., President, CEO and Board Member (9:30 am – 12pm CT / lunch to follow) John T. Fitzgerald, Executive Vice President and Board Opening Remarks Member Operating Businesses William A. Hickey, Jr., Executive Vice Pre
Slide 4: Kingsway Opening Remarks
I< Kingsway Opening Remarks
Slide 5: Understanding Kingsway's History
Understanding Kingsway’s History Previous management and board are replaced 2009 Kingsway embarks on plan to reduce outstanding debt; total principal at 12/31/2008: $341.0 million Larry Swets joins Kingsway in January and is named CEO in June JBA Associates is acquired in June and combined w
Slide 6: Kingsway History – New Management
Kingsway History – New Management June 30, 2015 September 16, March 31, 2014 Kingsway Retires November 17, 2016 December 31, 2010 2013 Kingsway CEO Its KLROC Debt; Kingsway Announces Atlas Completes Kingsway Believes the $250.5 Million of $10.5 Million Initial IPO Announces Closing Company Has Total
Slide 7: Value Building Philosophy
Value Building Philosophy Kingsway focuses on building long‐term value by compounding capital with investments/acquisitions/financings that offer asymmetric risk/reward potential with a margin of safety supported by private market values using a merchant banking approach We aspire to compound our bo
Slide 8: How We Think About Building Value
How We Think About Building Value Compounding Capital Utilization of insurance company investment portfolios and available net operating loss tax attributes to compound and leverage investment results Focus on a 15-30 year perspective when creating/building value, while recognizing A Long-term Persp
Slide 9: Kingsway is a Merchant Bank
Kingsway is a Merchant Bank Kingsway At-A-Glance (as of 11-29-2016) Ticker KFS (NYSE), KFS.TO (TSX) • Kingsway is a merchant bank with a focus on long-term value creation Stock Price $5.90 • Insurance company investment portfolios provide financial foundation enabling Shares Outstanding * 21,458,190
Slide 10: How We Are Organized
How We Are Organized • Home office focus on merchant banking activities • Merchant bank makes capital allocation and buy/sell decisions – Passive Investments – Owned Businesses – Business decisions are made at operating business unit level – Our operating businesses are decentralized and run by the
Slide 11: Kingsway Operating Businesses
Kingsway Operating Businesses 11
Slide 12: John T. Fitzgerald
John T. Fitzgerald Executive Vice President and Board Member • Joined Kingsway as Executive Vice President in April 2016 following Kingsway’s acquisition of Argo Management Group, a private equity investment partnership focused on search-fund investments • JT has oversight of Kingsway’s operating bu
Slide 13: Trinity Warranty Solutions and IWS
Trinity Warranty Solutions (“TWS”) • Kingsway acquired in May 2013 • Provides warranty products and maintenance support to consumers and businesses in the heating, ventilation, air-conditioning (HVAC), standby generator, commercial LED lighting and refrigeration industries IWS Acquisition Corporatio
Slide 14: Why We Like the Warranty Industry
Why We Like the Warranty Industry Desired Attributes Extended Service Contract Industry Large Industry The service contract industry is huge and growing in the U.S. A market worth over $40 billion this year Growing The US Extended Warranty Market has been growing strongly since 2009. VSC sales h
Slide 15: 2016 Improvement Priorities
2016 Improvement Priorities 1. Get Trinity to positive Operating Profit by year-end while focusing resources on growing the higher margin ESA (Warranty) component of the business and improving margins on Facilities Management (TNA) 2. Improve IWS Operating Margins and profit by focusing on reduction
Slide 16: Trinity Performance
Trinity Performance Operating Expenses $350,000 $300,000 $250,000 $200,000 2015 $150,000 2016 $100,000 $50,000 $- JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC See reconciliation table at the end of this presentation. 16
Slide 17: IWS Performance
IWS Performance In-force Contracts 44,500 44,000 43,500 43,000 42,500 42,000 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2015 2016 17
Slide 18: Insurance Services Segment Operating Income (Loss)
Insurance Services Segment Operating Income (Loss) $600 $558 $500 $400 $300 $200 $161 * 2015 Q1 Q2 Q3 Q4 2016 $100 $- $- $(100) $(102) $(156) $(155) $(200) $(186) $(185) $(300) Segment operating (loss) income is a non-U.S. GAAP measure. Refer to the section entitled "Non-U.S. GAAP Financial Measures
Slide 19: Business Development
Business Development Focus on a proprietary, direct outreach (non-intermediated) process to acquire solid businesses at private company values Sam Duprey joined Kingsway in the spring of 2016 as a Principal focused on business development. Sam brings many years of experience across all facets of a t
Slide 20: Mendota Insurance
Mendota INSURANCE
Slide 21: Management Background
Management Background Steve Harrison – President of Mendota Insurance. Steve has over 42 years of experience in the insurance industry. Mr. Harrison has been the President of Mendota Insurance Company since June of 2016. Steve was previously over the Personal Lines for Qeo Insurance from 2015 to 201
Slide 22: Non-standard Automobile (NSA) market: definition
Non-standard Automobile (“NSA”) market: definition • Drivers with certain risk factors that make it difficult or impossible for them to obtain insurance in a standard or preferred market • Drivers with credit problems • New or young drivers • Drivers with multiple losses or moving violations • Drive
Slide 23: Why We Like the NSA Business
Why We Like the NSA Business Required Industry Attributes Non-standard Auto Insurance Industry Industry estimates calculate the market at around $36 to $44 billion in annual premium. Large Industry Large markets in states with growing populations (Texas, Florida, California, Arizona) Growing dri
Slide 24: Repositioned the business
Repositioned the business Previous NSA View Kingsway wrote total NSA premium of $350 million in 33 states at its “peak” Established goals based solely on growth targets Today’s NSA Guiding Principles Focused solely on writing profitable premiums – not volume or market share – which means somet
Slide 25: Gross Premium Written / State Allocation
Gross Premium Written (“GPW”) / State Allocation GPW by State for the Nine Month Period ended September 30, 2016 $30,000,000 $27,859,368 $25,000,000 $20,000,000 $18,658,167 $15,000,000 $13,765,101 $11,363,770 $10,262,221 $10,000,000 $8,568,375 $4,878,834 $5,000,000 $3,769,054 $1,368,871 $758,467 $45
Slide 26: New Organizational Chart
New Organizational Chart Steve Harrison President, TN Julie Roettger Richard Slater Patrick Pribyl Scott Walker Walter Dix Sandra Pappas Assistant Vice Sr. Vice President and Assistant Vice Vice President, Claims- Vice President, Claims- Vice President Finance- President, Human Chief Operating Presi
Slide 27: 2017 Improvement Priorities
2017 Improvement Priorities Process reorganization and software implementation Bad debt reduction Policy fee income Claims reorganization Streamline workflows Outsource first notice of loss function Outsource of Subrogation Loss severity reduction Additional rate taking in a hard market Reconfigure
Slide 28: Kingsway Case Studies of Merchant Banking Execution
Kingsway Case Studies of Merchant Banking Execution 28
Slide 29: Case Study: Sale of Assigned Risk Solutions
Case Study: Sale of Assigned Risk Solutions • Assigned Risk Solutions (“ARS”) was created from the combination of Northeast Alliance Insurance Agency (“NEA”), a legacy Kingsway business, and JBA Associates (“JBA”), a competitor acquired by Kingsway in June 2010 • ARS partnered in 2011 with Berkshire
Slide 30: Case Study: Atlas Financial Holdings
Case Study: Atlas Financial Holdings • Atlas Financial Holdings, Inc. (“Atlas” or “AFH”) started as a combination of former Kingsway units American Country Insurance Company and American Service Insurance Company, Inc. • Commercial auto insurance in the U.S. • Niche markets of taxi/limo/para-transit
Slide 31: Case Study: 1347 Property Insurance Holdings
Case Study: 1347 Property Insurance Holdings • 1347 Property Insurance Holdings, Inc. (“PIH”) is comprised primarily of Maison Insurance Company (“Maison”), a de novo homeowners insurance start-up by Kingsway • PIH completed an IPO effective March 31, 2014 at which time Kingsway entered into a manag
Slide 32: Case Study: Itasca Capital Ltd.
Case Study: Itasca Capital Ltd. TSXV: ICL In C$, unless stated otherwise • Trading at a discount to NAV and substantial tax attributes • Kingsway’s current position 6.8 million shares, 31% ownership • Average cost $0.61/share, market value $0.79/share • $1.2 million unrealized gain • Stock acquired
Slide 33: Case Study: Purchase of Oilfield Assets
Case Study: Purchase of Oilfield Assets 1347 Energy Holdings, LLC • Capitalized on dislocation created by low oil price environment • Acquired mineral leases and oilfield assets of a producing oilfield at a deep discount to intrinsic value • 1347 Energy Holdings, LLC recently acquired the mineral ri
Slide 34: Case Study: 1347 Capital Corp.
Case Study: 1347 Capital Corp. (now known as Limbach Holdings Inc.) • 1347 Capital Corp. spent significant time in insurance related search, but was unable to find a reasonable risk/reward willing to consummate a transaction • Given the limited time remaining, the team evaluated targets that had a p
Slide 35: Case Study: CMC
Case Study: CMC • Acquired 81% of CMC Industries the sole asset of which is BNSF rail yard in Dayton, TX • Specific attributes of CMC include deferred tax liability and phantom income • Credit tenant NNN lease with approximately $11.9 million in annualized lease payments • Kingsway receives priority
Slide 36: Q&A
Q&A 36
Slide 37: Future Focus
Future Focus I 37
Slide 38: Growth Strategy
Growth Strategy • Enhance existing operations • Pursue potential bolt-on acquisitions to build out warranty business • Pursue additional triple-net lease real estate acquisitions with similar characteristics to CMC • Develop a strategic approach to leveraging our managerial skills over a larger capi
Slide 39: Key Takeaways
Key Takeaways • Kingsway provides an opportunity to invest in a diverse pool of insurance assets and insurance- related businesses led by experienced leadership team with a history of success • Through our merchant bank platform, we have the opportunity to capitalize on changing markets through a va
Slide 40: Contact Us
Contact Us INVESTOR RELATIONS KINGSWAY FINANCIAL SERVICES INC. Hassan Baqar Kingsway Financial Services Inc. INVESTOR DAY 1.847.700.8064 NOVEMBER, 30 2016 hbaqar@kingswayfinancial.com Adam Prior The Equity Group 1.212.836.9606 aprior@equityny.com 40
Slide 41: Trinity EBITDA Reconciliation to Insurance Services Segment Operating (Loss) Income
Trinity EBITDA Reconciliation to Insurance Services Segment Operating (Loss) Income 2015 January February March Q1 2015 April May June Q2 2015 July August September Q3 2015 October November December Q4 2015 YTD 2015 Trinity EBITDA per Investor Day slide (1) $ (131,690) $ (146,335) $ (179,573) $ (457
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