o | Registration Statement Pursuant to Section 12 of the Securities Exchange Act of 1934 | |
or | ||
x | Annual Report Pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 | |
For the fiscal year ended: December 31, 2007 Commission File Number: 1-15212 |
Ontario | 6331 | Not Applicable |
(Province or Other Jurisdiction
of Incorporation or Organization) |
(Primary Standard
Industrial Classification Code Number) |
(I.R.S. Employer
Identification
Number, if applicable) |
Title of each
class
|
Name of each exchange on which
registered
|
|
Common
Shares,
no par value |
New York Stock
Exchange, Inc.
|
x Annual information form | x Audited annual financial statements |
Yes _______ | 82- _______ | No x |
Yes x | No ______ |
Item
|
Description
|
Sequential
Page Number
|
1.
|
Annual
Information Form dated March 28, 2008 for the year ended December 31,
2007.
|
1
|
2.
|
Audited
Consolidated Financial Statements of the Registrant for the fiscal years
ended December 31, 2007 and 2006, including a reconciliation of U.S. and
Canadian generally accepted accounting principles.
|
20
|
3.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
49
|
1.
|
INCORPORATION
|
3
|
2.
|
INTER-CORPORATE
RELATIONSHIPS
|
3
|
3.
|
GENERAL
DEVELOPMENT OF THE BUSINESS
|
3
|
4.
|
NARRATIVE
DESCRIPTION OF THE BUSINESS
|
4
|
5.
|
RISK
FACTORS
|
6
|
6.
|
DIVIDEND
POLICY
|
6
|
7.
|
DESCRIPTION
OF CAPITAL STRUCTURE
|
6
|
8.
|
MARKET
FOR SECURITIES
|
8
|
9.
|
DIRECTORS
AND OFFICERS
|
9
|
10.
|
LEGAL
PROCEEDINGS
|
11
|
11.
|
INTEREST
OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
|
11
|
12.
|
AUDIT
COMMITTEE INFORMATION
|
12
|
13.
|
TRANSFER
AGENT AND REGISTRAR
|
13
|
14.
|
INTERESTS
OF EXPERTS
|
13
|
15.
|
ADDITIONAL
INFORMATION
|
14
|
APPENDIX I | 15 |
1.
|
INCORPORATION
|
2.
|
INTER-CORPORATE
RELATIONSHIPS
|
3.
|
GENERAL
DEVELOPMENT OF THE BUSINESS
|
|
(a)
|
the
completion in July 2005 of the public offering of C$78 million of 5.00%
Kingsway Linked Return of Capital Preferred Units ("LROC Preferred Units")
due June 30, 2015, the net proceeds of which were used for a series of
investments that included the purchase of an approximately C$74.1 million
7.12% senior notes due June 30, 2015 issued by an affiliate of
KFSI;
|
|
(b)
|
the
closing in October 2005 of the acquisition of HI Holdings, Inc. ("HI") for $24.6 million,
which included HI's wholly owned subsidiary,
Zephyr;
|
|
(c)
|
the
completion in November 2005 of a program management agreement between
Lincoln and The Robert Plan Corporation ("RPC"), which provided
that Lincoln would assume the risk relating to assigned risk obligations
acquired from other insurers, and in 2006 and early 2007, the subsequent
purchase of the renewal rights of the RPC's assigned risk business for
approximately $35.0 million;
|
|
(d)
|
the
entering into in June 2006 of a new $175 million unsecured credit facility
which matures in June 2009 to replace a C$150 million 364 day revolving
credit facility originally entered into in March
2004;
|
|
(e)
|
the
closing in April 2007 of the acquisition of Mendota. The purchase of
approximately $51.1 million was financed through a combination of internal
sources and KFSI's existing credit
facilities;
|
|
(f)
|
the
closing in July 2007 by Kingsway 2007 General Partnership ("Kingsway GP"), a
wholly-owned subsidiary of KFSI, of a public offering of C$100,000,000
principal amount of 6% senior unsecured debentures of Kingsway GP for net
proceeds of approximately $99,188,000. The debentures are
jointly and severally guaranteed by KFSI and Kingsway America Inc. ("Kingsway
America"). The guarantee of Kingsway America is an
unsecured senior obligation of Kingsway America and ranks equally with all
of Kingsway America's other unsecured senior indebtedness and ranks senior
to all existing and future subordinated indebtedness of Kingsway
America;
|
|
(g)
|
the
redemption in December 2007 of the previously issued C$78 million of 8.25%
unsecured senior debentures which had a maturity date of December 31,
2007; and
|
|
(h)
|
the
entering into in December 2007 of a 365 day C$70 million credit facility
agreement, which supplements the existing $175 million that matures in
June 2009.
|
4.
|
NARRATIVE
DESCRIPTION OF THE BUSINESS
|
5.
|
RISK
FACTORS
|
6.
|
DIVIDEND
POLICY
|
7.
|
DESCRIPTION
OF CAPITAL STRUCTURE
|
|
(a)
|
Common
Shares
|
|
(b)
|
Debt
Securities
|
|
(c)
|
Ratings
|
8.
|
MARKET
FOR SECURITIES
|
|
(a)
|
Trading
Price and Volume
|
Month
|
High
|
Low
|
Volume
|
January
2007
|
25.45
|
23.43
|
2,797,000
|
February
2007
|
26.07
|
21.56
|
7,317,000
|
March
2007
|
22.65
|
20.21
|
5,112,800
|
April
2007
|
24.37
|
21.44
|
3,130,000
|
May
2007
|
23.15
|
19.62
|
5,513,300
|
June
2007
|
20.72
|
19.69
|
3,567,800
|
July
2007
|
20.15
|
18.72
|
2,485,000
|
August
2007
|
20.75
|
17.75
|
3,614,300
|
September
2007
|
19.65
|
18.27
|
2,167,400
|
October
2007
|
19.80
|
17.56
|
3,876,900
|
November
2007
|
19.87
|
15.53
|
4,242,000
|
December
2007
|
16.15
|
10.77
|
5,908,700
|
|
(b)
|
Prior
Sales
|
9.
|
DIRECTORS
AND OFFICERS
|
|
(a)
|
Name,
Occupation and Security Holding
|
Name
and
Municipality
of
Residence
|
Position
with the
Company
|
Common
Shares of the
Company
beneficially
owned,
directly or
indirectly,
or controlled or
directed
|
Number
of Options
Held
|
W.
Shaun Jackson, Oakville, ON(1)
|
President
and
Chief Executive Officer,
KFSI
|
106,637
|
421,000
|
Shelly
Gobin
Mississauga,
ON(2)
|
Vice
President and Chief
Financial Officer, KFSI
|
75,061
|
52,500
|
Frank
Amodeo
Toronto,
ON
|
Vice
President, KFSI
|
9,204
|
47,500
|
Denis
Cloutier
Newmarket,
ON
|
Vice
President and Chief
Actuary - Canadian
Operations, KFSI
|
1,772
|
32,500
|
Dennis
Fielding
Pickering,
ON
|
Vice
President, KFSI
|
6,180
|
50,500
|
Anastassia
Plitman
Maple,
ON
|
Vice
President, Internal Audit,
KFSI
|
230
|
4,500
|
Tom
Mallozzi
Brampton,
ON
|
Vice
President, Underwriting,
KFSI
|
794
|
19,500
|
Claude
Smith
Cambridge,
ON
|
Vice
President and Chief
Information Officer,
KFSI
|
4,148
|
48,500
|
Andrew
Wright
Toronto,
ON
|
Vice
President, Reinsurance
and Risk Management,
KFSI
|
1,407
|
20,500
|
Kathleen
Howie
Oakville,
ON
|
Assistance
Vice President and Chief Legal Counsel, KFSI
|
Nil
|
Nil
|
(1)
|
William
G. Star retired as President and Chief Executive Officer of KFSI effective
December 31, 2007. Mr. Jackson was appointed as President and
Chief Executive Officer of KFSI effective January 1,
2008.
|
(2)
|
W.
Shaun Jackson was KFSI's Executive Vice President and Chief Financial
Officer until December 31, 2007, when he was appointed as KFSI's President
and Chief Executive Officer. Ms. Gobin was appointed as Vice
President and Chief Financial Officer effective January 11,
2008.
|
|
(b)
|
Cease
Trade Order
|
|
(c)
|
Conflicts
of Interest
|
10.
|
LEGAL
PROCEEDINGS
|
11.
|
INTEREST
OF MANAGEMENT AND OTHERS IN MATERIAL
TRANSACTIONS
|
12.
|
AUDIT
COMMITTEE INFORMATION
|
|
(a)
|
Composition
of the Audit Committee
|
|
(b)
|
Shareholders'
Auditors' Service Fees
|
(in
Canadian dollars)
|
2007
Fee Amount
|
2006
Fee Amount
|
||||||
Audit
Fees
|
$ | 4,586,000 | $ | 4,237,000 | ||||
Audit-related
Fees
|
$ | 74,000 | $ | 190,000 | ||||
Tax
Fees
|
$ | 208,000 | $ | 162,000 | ||||
All Other Fees
|
$ | 2,000 | $ | 2,000 | ||||
Total:
|
$ | 4,870,000 | $ | 4,591,000 |
13.
|
TRANSFER
AGENT AND REGISTRAR
|
14.
|
INTERESTS
OF EXPERTS
|
|
(a)
|
Names
of Experts
|
|
(b)
|
Interests
of Experts
|
15.
|
ADDITIONAL
INFORMATION
|
I.
|
Purpose
|
|
i.
|
Identify
and monitor the management of the principal risks that could impact the
financial reporting of the Company.
|
|
ii.
|
Monitor
the integrity of the Company's financial reporting process and system of
internal controls regarding financial reporting and accounting
appropriateness and compliance.
|
|
iii.
|
Recommend
the appointment of and monitor the independence and performance of the
company's external auditors and the external appointed
actuary.
|
|
iv.
|
Provide
an avenue of communication among the external auditors, the external
appointed actuary, management and the Board of
Directors.
|
|
v.
|
Review
the annual audited financial statements with management and the external
auditors.
|
II.
|
Organization
|
III.
|
Structure
and Meetings
|
IV.
|
Responsibilities
and Duties
|
1.
|
Review
and reassess the adequacy of this Mandate at least annually and submit the
mandate to the Board of Directors for
approval.
|
2.
|
Review
the Company's annual audited financial statements and discuss the
Company's quarterly financial statements and related documents prior to
filing or distribution. Review should include discussion with management
and external auditors of significant issues regarding accounting
principles, practice, and significant management estimates and judgments
as well as the contents of "Management's Discussion and
Analysis".
|
3.
|
In
consultation with management, external auditors, and external appointed
actuary, consider the integrity of the Company's financial reporting
processes and internal controls. Discuss significant financial risk
exposures and the steps management has taken to monitor, control, and
report such exposures. Review significant findings prepared by the
external auditors together with management's
responses.
|
4.
|
Review
the effectiveness of the overall process for identifying the principal
risks affecting financial reporting and provide the Committee's view to
the Board of Directors.
|
5.
|
Review
by the Board of Directors of the Company's quarterly financial results and
related documents prior to the release of earnings and/or the company's
quarterly financial statements prior to filing or
distribution.
|
6.
|
Review
financial statements and other related documents to be included in any
prospectus or other offering document of the
Company.
|
7.
|
Discuss
the Company's earnings press releases as well as financial information and
earnings guidance provided to analysts and rating
agencies.
|
8.
|
The
external auditors are accountable to the Audit Committee and the Board of
Directors, as representatives of the shareholders. The Audit Committee
shall review the independence and performance of the auditors and annually
recommend to the Board of Directors the appointment of the external
auditors or approve any discharge of auditors when circumstances
warrant.
|
9.
|
Recommend
the appointment and approve the appointment, compensation and work carried
out by the external auditors, including the provision of both audit
related and non-audit related
services.
|
10.
|
On
not less than an annual basis, the Committee should review and discuss
with the external auditors all significant relationships they have with
the Company that could impair the auditors'
independence.
|
11.
|
Review
the external auditors' audit plan and in particular, discuss and approve
audit scope, staffing, locations, reliance upon management and general
audit approach.
|
12.
|
On
not less than an annual basis review with the external
auditors:
|
|
i.
|
all
critical accounting policies and practices to be used in connection with
the auditor's report.
|
|
ii.
|
all
alternative treatments within GAAP for policies and practices related to
material items that have been discussed with management, including
ramifications of the use of such alternative disclosures and treatments;
and the treatment preferred by the auditor;
and
|
|
iii.
|
other
material written communications between the auditor and the management of
the Company, such as any management representation letter, schedule of
unadjusted differences, reports on observations and recommendations on
internal control, engagement letter and independence
letter.
|
13.
|
Prior
to releasing the year-end earnings, discuss the results of the audit with
the external auditors. Discuss certain matters required to be communicated
to audit committees in accordance with the standards established by the
Canadian Institute of Chartered
Accountants.
|
14.
|
Consider
the external auditors' judgments about the quality and appropriateness of
the Company's accounting principles as applied in the Company's financial
reporting.
|
15.
|
Set
clear hiring policies for employees or former employees of the external
auditors.
|
16.
|
Consider
the external appointed actuary's judgment about the appropriateness of
management's selection of assumptions of methods to determine the unpaid
claims liabilities included in the company's year-end financial
statements.
|
17.
|
Discuss
policies with respect to risk assessment and risk
management.
|
18.
|
On
not less than an annual basis, obtain and review a report by the external
auditor describing the Company's internal quality-control procedures and
any material issues raised by the most recent internal quality-control
review, or peer review of the
Company.
|
19.
|
Review
significant internal audit reports together with management's response and
follow-up to these reports.
|
20.
|
Meet
separately, periodically, with management, with internal auditors and with
external auditors.
|
21.
|
Review
formal whistleblower procedures that address the receipt, retention and
treatment of complaints regarding accounting, internal controls and
auditing matters and the confidential anonymous submission by employees of
any concerns regarding questionable accounting or auditing
matters.
|
22.
|
On
at least an annual basis, review with the Company's counsel any legal
matters that could have a significant impact on the organization's
financial statements, the Company's compliance with applicable laws and
regulations, and inquiries received from regulators or governmental
agencies.
|
23.
|
Develop
and recommend to the full Board a set of corporate governance principles,
review such principles annually and recommend any modifications
thereto.
|
24.
|
Consider
corporate governance issues that may arise from time to time and make
recommendations to the Board with respect
thereto.
|
25.
|
Confer,
as appropriate, with the General Counsel on matters of corporate
governance.
|
26.
|
Annually
assess the effectiveness of the committee against this Mandate and report
the results of the assessment to the
Board
|
27.
|
Perform
any other activities consistent with this Mandate, the Company's by-laws
and governing law, as the Committee or the Board deems necessary or
appropriate.
|
28.
|
Maintain
minutes of meetings and periodically report to the Board of Directors on
significant results of the foregoing
activities.
|
29.
|
Establish,
review, and update periodically a Code of Ethics for the CEO and other
Senior Financial Officers and Code of Business Conduct and Ethics for
others and ensure that management has established a system to enforce
these Codes.
|
30.
|
The
Audit Committee will annually review a summary of director and officers'
related party transactions and potential conflicts of
interest.
|
W. Shaun
Jackson
President & Chief Executive
Officer
March 28,
2008
|
Shelly Gobin
Vice President & Chief
Financial Officer
|
W. Shaun
Jackson
|
Shelly
Gobin
|
President & Chief Executive
Officer
|
Vice President & Chief
Financial Officer
|
March 28,
2008
|
As at December
31
|
||||||||
2007
|
2006
|
|||||||
Assets
|
||||||||
Cash and cash
equivalents
|
$ | 161,635 | $ | 129,706 | ||||
Securities
(Note 4)
|
3,256,365 | 2,861,562 | ||||||
Accrued
investment income
|
33,186 | 28,365 | ||||||
Financed
premiums
|
91,851 | 67,528 | ||||||
Accounts
receivable and other assets
|
365,410 | 318,332 | ||||||
Due from
reinsurers and other insurers (Note 10)
|
207,137 | 208,090 | ||||||
Deferred policy
acquisition costs
|
176,202 | 158,527 | ||||||
Income taxes
recoverable
|
1,348 | 2,017 | ||||||
Future income
taxes (Note 11)
|
114,066 | 75,212 | ||||||
Capital assets
(Note 6)
|
133,431 | 108,149 | ||||||
Goodwill and
intangible assets (Notes 2(e), 13(a), (b) &
(c))
|
116,774 | 90,850 | ||||||
$ | 4,657,405 | $ | 4,048,338 | |||||
Liabilities and
Shareholders’ Equity
|
||||||||
Liabilities:
|
||||||||
Bank
indebtedness (Note 15(a))
|
$ | 172,436 | $ | 52,149 | ||||
Loans payable
(Note 15(d))
|
66,222 | 66,222 | ||||||
Accounts
payable and accrued liabilities
|
144,940 | 124,760 | ||||||
Unearned
premiums
|
758,490 | 682,452 | ||||||
Unpaid claims
(Note 12)
|
2,267,082 | 1,939,363 | ||||||
Senior
unsecured debentures (Note 15(b))
|
220,080 | 191,930 | ||||||
Subordinated
indebtedness (Note 15(c))
|
87,354 | 90,500 | ||||||
$ | 3,716,604 | $ | 3,147,376 | |||||
Shareholders’
equity:
|
||||||||
Share capital
(Note 7)
|
326,151 | 328,473 | ||||||
Contributed
surplus
|
7,619 | 5,352 | ||||||
Retained
earnings
|
521,165 | 560,126 | ||||||
Accumulated
other comprehensive income (Notes 1 and 2(c))
|
85,866 | 7,011 | ||||||
940,801 | 900,962 | |||||||
Contingent liabilities (Note
17)
|
||||||||
$ | 4,657,405 | $ | 4,048,338 |
F. Michael
Walsh
|
David H.
Atkins
|
Director
|
Director
|
Years ended December
31
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Gross premiums
written
|
$ | 1,962,740 | $ | 1,932,750 | $ | 1,894,660 | ||||||
Net premiums
written
|
$ | 1,818,902 | $ | 1,803,382 | $ | 1,824,393 | ||||||
Revenue:
|
||||||||||||
Net premiums earned (Note
10)
|
$ | 1,842,118 | $ | 1,766,497 | $ | 1,791,943 | ||||||
Net investment income (Note
4)
|
141,456 | 120,871 | 93,035 | |||||||||
Net realized gains (Note
4)
|
52,111 | 28,987 | 38,239 | |||||||||
2,035,685 | 1,916,355 | 1,923,217 | ||||||||||
Expenses:
|
||||||||||||
Claims incurred
(Notes 10 and 12)
|
1,436,340 | 1,234,525 | 1,224,506 | |||||||||
Commissions and
premium taxes (Note 10)
|
334,800 | 328,443 | 361,875 | |||||||||
General and
administrative expenses
|
243,082 | 182,256 | 155,773 | |||||||||
Interest
expense
|
38,867 | 30,247 | 25,921 | |||||||||
Amortization of
intangible assets
|
4,007 | 1,030 | 795 | |||||||||
2,057,096 | 1,776,501 | 1,768,870 | ||||||||||
Income (loss) before income
taxes
|
(21,411 | ) | 139,854 | 154,347 | ||||||||
Income taxes (recovery) (Note
11):
|
||||||||||||
Current
|
34,587 | 33,160 | 28,208 | |||||||||
Future
|
(37,472 | ) | (16,615 | ) | (8,869 | ) | ||||||
(2,885 | ) | 16,545 | 19,339 | |||||||||
Net income
(loss)
|
$ | (18,526 | ) | $ | 123,309 | $ | 135,008 | |||||
(Loss) earnings per share (in dollars) (Note 7): | ||||||||||||
Basic
|
$ | (0.33 | ) | $ | 2.19 | $ | 2.39 | |||||
Diluted
|
$ | (0.33 | ) | $ | 2.17 | $ | 2.37 | |||||
Dividends declared per common
share (in dollars)
|
C$ | 0.30 | C$ | 0.26 | C$ | 0.20 |
Years ended December
31
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Share
capital
|
||||||||||||
Balance at beginning of
year
|
$ | 328,473 | $ | 331,470 | $ | 328,544 | ||||||
Issued during the
year
|
1,082 | 3,004 | 2,926 | |||||||||
Repurchased for
cancellation
|
(3,404 | ) | (6,001 | ) | - | |||||||
Balance at end of
year
|
326,151 | 328,473 | 331,470 | |||||||||
Contributed
surplus
|
||||||||||||
Balance at beginning of
year
|
$ | 5,352 | $ | 3,237 | $ | 1,769 | ||||||
Stock option
expense
|
2,267 | 2,115 | 1,468 | |||||||||
Balance at end of
year
|
7,619 | 5,352 | 3,237 | |||||||||
Retained
earnings
|
||||||||||||
Balance at beginning of
year
|
$ | 560,126 | $ | 460,050 | $ | 334,468 | ||||||
Net income (loss) for the
year
|
(18,526 | ) | 123,309 | 135,008 | ||||||||
Common share
dividends
|
(15,710 | ) | (12,988 | ) | (9,426 | ) | ||||||
Repurchase of shares for
cancellation
|
(4,725 | ) | (10,245 | ) | - | |||||||
Balance at end of
year
|
521,165 | 560,126 | 460,050 | |||||||||
Accumulated other comprehensive
income
|
||||||||||||
Balance at beginning of
year
|
$ | 7,011 | $ | 9,958 | $ | 1,720 | ||||||
Cumulative effect of adopting new
accounting policies (Note 1)
|
17,672 | - | - | |||||||||
Other comprehensive income (loss)
(Notes 1 and 2(c))
|
61,183 | (2,947 | ) | 8,238 | ||||||||
Balance at end of
year
|
85,866 | 7,011 | 9,958 | |||||||||
Total shareholders’ equity at end
of year
|
$ | 940,801 | $ | 900,962 | $ | 804,715 |
Years ended December
31
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Comprehensive
income
|
||||||||||||
Net income
(loss)
|
$ | (18,526 | ) | $ | 123,309 | $ | 135,008 | |||||
Other comprehensive income (loss),
net of taxes:
|
||||||||||||
• Change in unrealized
gains on available-for-sale securities:
|
||||||||||||
Unrealized
gains arising during the year, net of income taxes1
|
19,885 | - | - | |||||||||
Reclassification
to net income (loss) of realized gains, net of income taxes 2
|
(13,312 | ) | - | - | ||||||||
• Unrealized gains
(losses) on translating financial statement
|
||||||||||||
of self-sustaining foreign
operations
|
54,610 | (2,947 | ) | 8,238 | ||||||||
Other comprehensive income
(loss)
|
61,183 | (2,947 | ) | 8,238 | ||||||||
Comprehensive
income
|
$ | 42,657 | $ | 120,362 | $ | 143,246 |
Years ended December
31
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Cash provided by (used
in):
|
||||||||||||
Operating
activities:
|
||||||||||||
Net income
(loss)
|
$ | (18,526 | ) | $ | 123,309 | $ | 135,008 | |||||
Items not affecting
cash:
|
||||||||||||
Amortization of
intangibles
|
4,007 | 1,030 | 795 | |||||||||
Amortization of
capital assets and deferred charges
|
11,535 | 6,598 | 6,884 | |||||||||
Future income
taxes
|
(36,271 | ) | (17,362 | ) | (6,924 | ) | ||||||
Net realized
gains
|
(52,111 | ) | (28,987 | ) | (38,239 | ) | ||||||
Amortization of
bond premiums and discounts
|
(7,951 | ) | (2,667 | ) | 10,825 | |||||||
(99,317 | ) | 81,921 | 108,349 | |||||||||
Change in non-cash
balances:
|
||||||||||||
Deferred policy
acquisition costs
|
(17,307 | ) | (9,801 | ) | (2,868 | ) | ||||||
Due from
reinsurers and other insurers
|
(177,024 | ) | 29,266 | 34,713 | ||||||||
Decrease in
funds withheld payable to reinsurer
|
- | - | (78,691 | ) | ||||||||
Unearned
premiums
|
35,918 | 34,037 | (10,386 | ) | ||||||||
Unpaid
claims
|
291,254 | 95,036 | 149,891 | |||||||||
Increase in
contributed surplus
|
2,267 | 2,115 | 1,468 | |||||||||
Net change in
other non-cash balances
|
31,295 | (65,345 | ) | 71,271 | ||||||||
67,086 | 167,229 | 273,747 | ||||||||||
Financing
activities:
|
||||||||||||
Increase in
share capital, net
|
1,082 | 3,004 | 2,926 | |||||||||
Repurchase of
common shares for cancellation
|
(8,129 | ) | (16,246 | ) | - | |||||||
Common share
dividend
|
(15,710 | ) | (12,988 | ) | (9,426 | ) | ||||||
Increase in
bank indebtedness and loans payable
|
111,776 | 40,845 | 17,378 | |||||||||
Increase in
senior unsecured debentures
|
17,274 | - | - | |||||||||
106,293 | 14,615 | 10,878 | ||||||||||
Investing
activities:
|
||||||||||||
Purchase of
securities
|
(4,135,457 | ) | (3,279,985 | ) | (2,590,018 | ) | ||||||
Proceeds from
sale of securities
|
4,074,167 | 3,164,215 | 2,356,581 | |||||||||
Financed
premiums receivable, net
|
(14,440 | ) | 18,369 | 3,973 | ||||||||
Acquisitions
(Note 13)
|
(44,721 | ) | (22,415 | ) | (11,892 | ) | ||||||
Additions to
capital assets
|
(20,999 | ) | (43,356 | ) | (19,338 | ) | ||||||
(141,450 | ) | (163,172 | ) | (260,694 | ) | |||||||
Increase in cash position during
the year
|
31,929 | 18,672 | 23,931 | |||||||||
Cash and cash equivalents,
beginning of year
|
129,706 | 111,034 | 87,103 | |||||||||
Cash and cash equivalents, end of
year
|
$ | 161,635 | $ | 129,706 | $ | 111,034 | ||||||
Supplementary disclosure of cash
information:
|
||||||||||||
Represented
by:
|
||||||||||||
Cash on hand
and balances with banks
|
147,478 | 126,887 | 100,290 | |||||||||
Investments
with maturities less than 30 days
|
14,157 | 2,819 | 10,744 | |||||||||
Cash and cash equivalents, end of
year
|
$ | 161,635 | $ | 129,706 | $ | 111,034 | ||||||
Cash paid
for:
|
||||||||||||
Interest
|
$ | 36,242 | $ | 30,170 | $ | 25,474 | ||||||
Income
taxes
|
38,894 | 45,659 | 13,141 |
31
|
NOTE
1
|
CHANGE IN ACCOUNTING
POLICY
|
32
|
NOTE
2
|
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
33
|
NOTE
3
|
FUTURE CHANGE IN ACCOUNTING POLICY
AND
DISCLOSURE
|
34
|
NOTE
4
|
SECURITIES
|
35
|
NOTE
5
|
FINANCIAL
INSTRUMENTS
|
36
|
NOTE
6
|
CAPITAL
ASSETS
|
37
|
NOTE
7
|
SHARE
CAPITAL
|
37
|
NOTE
8
|
STOCK-BASED
COMPENSATION
|
38
|
NOTE
9
|
PENSION
BENEFITS
|
39
|
NOTE
10
|
UNDERWRITING POLICY AND
REINSURANCE CEDED
|
39
|
NOTE
11
|
INCOME
TAXES
|
40
|
NOTE
12
|
UNPAID
CLAIMS
|
41
|
NOTE 13
|
ACQUISITIONS
|
41
|
NOTE 14
|
SEGMENTED
INFORMATION
|
43
|
NOTE 15
|
INDEBTEDNESS
|
43
|
NOTE 16
|
VARIABLE INTEREST
ENTITIES
|
44
|
NOTE 17
|
COMMITMENTS AND CONTINGENT
LIABILITIES
|
44
|
NOTE 18
|
SECURITIZATION
TRANSACTION
|
44
|
NOTE 19
|
RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING
PRINCIPLES
|
45
|
NOTE 20
|
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL
INFORMATION
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
Balance sheet
category
|
January 1, 2007
increase
|
|||
Available-for-sale
securities1
|
$ | 26,470 | ||
Income taxes2
|
8,798 | |||
Accumulated other comprehensive
income (after-tax impact)3
|
17,672 |
Accumulated other comprehensive
income (loss)
|
||||||||||||||||||||
Opening
balance
|
Transition
|
Net
change
|
Ending
balance
|
Ending
balance
|
||||||||||||||||
December 31,
2006
|
January 1,
2007
|
December 31,
2007
|
December 31,
2006
|
|||||||||||||||||
Unrealized gains (losses) on
translating financial statement of self-sustaining
foreign operation
|
7,011 | - | 54,610 | 61,621 | 7,011 | |||||||||||||||
Unrealized gains, net of income
taxes
|
- | 17,672 | 19,885 | 37,557 | - | |||||||||||||||
Reclassification to net income
(loss) of realized gains, net of income taxes
|
- | - | (13,312 | ) | (13,312 | ) | - | |||||||||||||
Accumulated other comprehensive
income (loss)
|
7,011 | 17,672 | 61,183 | 85,866 | 7,011 |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
December 31,
2007
|
|||||||||||||||||
Gross
|
Gross
|
||||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
||||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||||
Term
deposits
|
$ | 393,788 | $ | 836 | $ | 69 | $ | 394,555 | |||||||||
Bonds:
|
|||||||||||||||||
Canadian
|
- Government | 260,309 | 4,164 | 115 | 264,358 | ||||||||||||
|
- Corporate | 368,243 | 1,834 | 6,464 | 363,613 | ||||||||||||
U.S.
|
- Government | 90,305 | 2,270 | 13 | 92,562 | ||||||||||||
|
- Corporate
|
1,461,177 | 23,153 | 8,657 | 1,475,673 | ||||||||||||
Other
|
- Government | 15,492 | - | 106 | 15,386 | ||||||||||||
|
- Corporate
|
204,876 | 4,381 | 812 | 208,445 | ||||||||||||
Sub-total
|
$ | 2,794,190 | $ | 36,638 | $ | 16,236 | $ | 2,814,592 | |||||||||
Common shares
|
- Canadian | 224,086 | 25,624 | 12,786 | 236,924 | ||||||||||||
|
- U.S. | 194,545 | 16,045 | 12,847 | 197,743 | ||||||||||||
Preferred shares
|
- Canadian | 8,211 | - | 1,828 | 6,383 | ||||||||||||
|
- U.S.
|
780 | - | 57 | 723 | ||||||||||||
$ | 3,221,812 | $ | 78,307 | $ | 43,754 | $ | 3,256,365 |
December 31,
2006
|
|||||||||||||||||
Gross
|
Gross
|
||||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
||||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||||
Term
deposits
|
$ | 379,574 | $ | 45 | $ | 491 | $ | 379,128 | |||||||||
Bonds:
|
|||||||||||||||||
Canadian
|
- Government | 221,458 | 2,585 | 294 | 223,749 | ||||||||||||
|
- Corporate
|
293,849 | 5,068 | 689 | 298,228 | ||||||||||||
U.S.
|
- Government | 70,275 | 334 | 1,077 | 69,532 | ||||||||||||
|
- Corporate
|
1,304,110 | 3,906 | 18,873 | 1,289,143 | ||||||||||||
Other
|
- Government | 40,326 | 348 | 724 | 39,950 | ||||||||||||
|
- Corporate
|
185,268 | 1,592 | 2,751 | 184,109 | ||||||||||||
Sub-total
|
$ | 2,494,860 | $ | 13,878 | $ | 24,899 | $ | 2,483,839 | |||||||||
Common
shares
|
- Canadian | 182,326 | 28,927 | 11,888 | 199,365 | ||||||||||||
|
- U.S.
|
184,376 | 23,942 | 3,490 | 204,828 | ||||||||||||
$ | 2,861,562 | $ | 66,747 | $ | 40,277 | $ | 2,888,032 |
December
31,2007
|
||||||||||||||||
Over
|
||||||||||||||||
0-6
months
|
6-12
months
|
12
months
|
Total
|
|||||||||||||
Common and Preferred
Shares
|
||||||||||||||||
Number of
positions
|
154 | 32 | 7 | 193 | ||||||||||||
Fair
value
|
$ | 176,701 | $ | 26,630 | $ | 1,662 | $ | 204,993 | ||||||||
Carrying
Value
|
196,584 | 33,725 | 2,202 | 232,511 | ||||||||||||
Unrealized
Loss
|
(19,883 | ) | (7,095 | ) | (540 | ) | (27,518 | ) | ||||||||
Term Deposits and
Bonds
|
||||||||||||||||
Number of
positions
|
141 | 91 | 216 | 448 | ||||||||||||
Fair
value
|
$ | 297,337 | $ | 174,687 | $ | 543,268 | $ | 1,015,292 | ||||||||
Carrying
value
|
301,917 | 179,921 | 549,690 | 1,031,528 | ||||||||||||
Unrealized
loss
|
(4,580 | ) | (5,234 | ) | (6,422 | ) | (16,236 | ) | ||||||||
Total
|
||||||||||||||||
Number of
positions
|
295 | 123 | 223 | 641 | ||||||||||||
Fair
value
|
$ | 474,038 | $ | 201,317 | $ | 544,930 | $ | 1,220,285 | ||||||||
Carrying
value
|
498,501 | 213,646 | 551,892 | 1,264,039 | ||||||||||||
Unrealized
loss
|
(24,463 | ) | (12,329 | ) | (6,962 | ) | (43,754 | ) |
December 31,
2006
|
||||||||||||||||
Over
|
||||||||||||||||
0-6
months
|
6-12
months
|
12
months
|
Total
|
|||||||||||||
Common
Shares
|
||||||||||||||||
Number of
positions
|
117 | 7 | 11 | 135 | ||||||||||||
Fair
Value
|
$ | 95,247 | $ | 24,447 | $ | 3,892 | $ | 123,586 | ||||||||
Carrying
Value
|
106,904 | 27,516 | 4,544 | 138,964 | ||||||||||||
Unrealized
loss
|
(11,657 | ) | (3,069 | ) | (652 | ) | (15,378 | ) | ||||||||
Term Deposits and
Bonds
|
||||||||||||||||
Number of
positions
|
163 | 41 | 365 | 569 | ||||||||||||
Fair
value
|
$ | 454,889 | $ | 255,388 | $ | 903,409 | $ | 1,613,686 | ||||||||
Carrying
Value
|
456,673 | 256,391 | 925,521 | 1,638,585 | ||||||||||||
Unrealized
loss
|
(1,784 | ) | (1,003 | ) | (22,112 | ) | (24,899 | ) | ||||||||
Total
|
||||||||||||||||
Number of
positions
|
280 | 48 | 376 | 704 | ||||||||||||
Fair
Value
|
$ | 550,136 | $ | 279,835 | $ | 907,301 | $ | 1,737,272 | ||||||||
Carrying
Value
|
563,577 | 283,907 | 930,065 | 1,777,549 | ||||||||||||
Unrealized
loss
|
(13,441 | ) | (4,072 | ) | (22,764 | ) | (40,277 | ) | ||||||||
•
|
identifying
all security holdings in unrealized loss positions that have existed for
at least six months or other circumstances that management believes may
impact the recoverability of the
security;
|
•
|
obtaining
a valuation analysis from third party investment managers regarding the
intrinsic value of these holdings based on their knowledge, experience and
other market based valuation
techniques;
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
•
|
reviewing
the trading range of certain securities over the preceding calendar
period;
|
•
|
assessing
if declines in market value are other than temporary for debt security
holdings based on their investment grade credit ratings from third party
security rating agencies;
|
•
|
assessing
if declines in market value are other than temporary for any debt security
holding with non-investment grade credit rating based on the continuity of
its debt service record; and
|
•
|
determining
the necessary provision for declines in market value that are considered
other than temporary based on the analyses
performed.
|
• | the opinion of professional investment managers could be incorrect; |
•
|
the
past trading patterns of individual securities may not reflect future
valuation trends;
|
•
|
the
credit ratings assigned by independent credit rating agencies may be
incorrect due to unforeseen or unknown facts related to a company’s
financial situation; and
|
•
|
the
debt service pattern of
non-investment grade securities may not reflect future debt service
capabilities and may not reflect the company’s unknown underlying
financial problems.
|
2007
|
2006
|
2005
|
||||||||||
Investment
income:
|
||||||||||||
Interest on
short-term investments
|
$ | 21,437 | $ | 17,547 | $ | 9,881 | ||||||
Interest on
bonds
|
108,612 | 90,826 | 73,615 | |||||||||
Dividends
|
12,536 | 12,026 | 8,939 | |||||||||
Premium
finance
|
4,951 | 5,836 | 7,059 | |||||||||
Other
|
2,057 | 2,258 | 1,447 | |||||||||
Gross investment
income
|
149,593 | 128,493 | 100,941 | |||||||||
Investment
expenses
|
8,137 | 7622 | 7906 | |||||||||
Net investment
income
|
$ | 141,456 | $ | 120,871 | $ | 93,035 |
•
|
Changes
in the value of its fixed income securities to the extent that market
interest rates change;
|
•
|
Foreign
currency risks with respect to securities, receivables and policies
denominated in foreign
currencies;
|
•
|
Changes
in the value of equity and fixed income securities as a result of market
conditions
|
•
|
The
risk of losses to the extent that the sale of a security prior to its
maturity is required to provide liquidity to satisfy policyholder and
other cash outflows; and
|
•
|
The
risk that future inflation of policyholder cash flows exceeds returns on
long-dated investment
securities.
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
As at December
31
|
Total
Fair
Value*
|
Total
Carrying
Value
|
2007
Favourable/
(Unfavourable)
|
|||||||||
Loans
Payable
|
$ | 54,493 | $ | 66,222 | $ | 11,729 | ||||||
Senior unsecured
debentures
|
221,517 | 220,080 | (1,437 | ) | ||||||||
Subordinated
indebtedness
|
90,500 | 87,354 | (3,146 | ) | ||||||||
Total
Fair
Value*
|
Total
Carrying
Value
|
2006
Favourable/
(Unfavourable)
|
||||||||||
Loans
Payable
|
$ | 68,485 | $ | 66,222 | $ | (2,263 | ) | |||||
Senior unsecured
debentures
|
197,238 | 191,930 | (5,308 | ) | ||||||||
Subordinated
indebtedness
|
90,500 | 90,500 | - |
As at December
31
|
||||||||||||||||||||||||
One
year
or
less
|
One
to
five
years
|
Five
to
ten
years
|
More
than
ten
years
|
No
specific
date
|
Total
|
|||||||||||||||||||
Assets:
|
||||||||||||||||||||||||
Cash and cash
equivalents
|
$ | 161,635 | $ | - | $ | - | $ | - | $ | - | $ | 161,635 | ||||||||||||
Securities
|
714,339 | 1,242,667 | 720,464 | 137,122 | 441,773 | 3,256,365 | ||||||||||||||||||
Accrued investment
income
|
33,186 | - | - | - | - | 33,186 | ||||||||||||||||||
Finance
premiums
|
91,851 | - | - | - | - | 91,851 | ||||||||||||||||||
Accounts receivable and other
assets
|
365,410 | - | - | - | - | 365,410 | ||||||||||||||||||
Due from reinsurers and other
insurers
|
(5,999 | ) | 181,135 | 27,676 | 4,325 | - | 207,137 | |||||||||||||||||
Liabilities:
|
||||||||||||||||||||||||
Bank
indebtedness
|
172,436 | - | - | - | - | 172,436 | ||||||||||||||||||
Loans
payable
|
- | - | 66,222 | - | - | 66,222 | ||||||||||||||||||
Accounts payable and accrued
liabilities
|
144,940 | - | - | - | - | 144,940 | ||||||||||||||||||
Unpaid
claims
|
735,534 | 1,284,106 | 213,264 | 34,178 | - | 2,267,082 | ||||||||||||||||||
Senior unsecured debentures
|
- | 99,680 | 120,400 | - | - | 220,080 | ||||||||||||||||||
Subordinated
indebtedness
|
- | - | - | 87,354 | - | 87,354 |
2007
|
2006
|
|||||||||||||||
AAA/Aaa
|
$ | 1,516,064 | 53.9 | % | $ | 1,341,230 | 54.0 | % | ||||||||
AA/Aa2
|
661,891 | 23.5 | 599,719 | 24.1 | ||||||||||||
A/A2 | 470,909 | 16.7 | 441,553 | 17.8 | ||||||||||||
BBB/Baa2
|
96,076 | 3.4 | 69,298 | 2.8 | ||||||||||||
BB/Ba2
|
8,081 | 0.3 | 9,725 | 0.4 | ||||||||||||
B/B2 | 12,629 | 0.4 | 15,578 | 0.6 | ||||||||||||
CCC/Caa or lower,
or
not rated
|
48,942 | 1.8 | 6,736 | 0.3 | ||||||||||||
Total
|
$ | 2,814,592 | 100.0 | % | $ | 2,483,839 | 100.0 | % |
2007
|
||||||||||||
Accumulated
|
Carrying
|
|||||||||||
Cost
|
Amortization
|
Value
|
||||||||||
Land
|
$ | 11,462 | $ | - | $ | 11,462 | ||||||
Buildings
|
89,687 | 7,304 | 82,383 | |||||||||
Leasehold
improvements
|
13,077 | 3,694 | 9,383 | |||||||||
Furniture and
equipment
|
14,941 | 7,605 | 7,336 | |||||||||
Computers and
software
|
45,595 | 23,308 | 22,287 | |||||||||
Automobiles
|
2,069 | 1,489 | 580 | |||||||||
Total
|
$ | 176,831 | $ | 43,400 | $ | 133,431 |
2006
|
||||||||||||
Accumulated
|
Carrying
|
|||||||||||
Cost
|
Amortization
|
Value
|
||||||||||
Land
|
$ | 10,439 | $ | - | $ | 10,439 | ||||||
Buildings
|
77,746 | 5,319 | 72,427 | |||||||||
Leasehold
improvements
|
13,627 | 3,276 | 10,351 | |||||||||
Furniture and
equipment
|
11,929 | 6,756 | 5,173 | |||||||||
Computers and
software
|
31,863 | 22,890 | 8,973 | |||||||||
Automobiles
|
2,008 | 1,222 | 786 | |||||||||
Total
|
$ | 147,612 | $ | 39,463 | $ | 108,149 |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
Authorized:
|
||||||||||||||||
Unlimited number of common
shares
|
||||||||||||||||
Share transactions consist of the
following:
|
||||||||||||||||
Shares Issued
|
Stock Options
|
Weighted-Average Exercise Price*
|
Amount
|
|||||||||||||
Balance as at December 31,
2004
|
56,210,250 | 1,731,510 | $ | 13.73 | $ | 328,544 | ||||||||||
Stock
options:
|
||||||||||||||||
Granted in
year
|
552,576 | 19.70 | ||||||||||||||
Exercised in
year
|
270,203 | (270,203 | ) | 11.48 | 2,511 | |||||||||||
Forfeited in
year
|
(46,368 | ) | 17.91 | |||||||||||||
Stock-based
compensation expense
|
415 | |||||||||||||||
Balance as at December 31,
2005
|
56,480,453 | 1,967,515 | $ | 15.66 | $ | 331,470 | ||||||||||
Stock
options:
|
||||||||||||||||
Granted in
year
|
611,350 | 24.55 | ||||||||||||||
Exercised in
year
|
209,072 | (209,072 | ) | 14.12 | 2,604 | |||||||||||
Forfeited in
year
|
(24,917 | ) | 19.50 | |||||||||||||
Stock-based
compensation expense
|
400 | |||||||||||||||
Normal course issuer bid
Note
7(f)
|
(805,000 | ) | - | - | (6,001 | ) | ||||||||||
Balance as at December 31,
2006
|
55,884,525 | 2,344,876 | $ | 18.07 | $ | 328,473 | ||||||||||
Stock
options:
|
||||||||||||||||
Granted in
year
|
571,000 | 23.00 | ||||||||||||||
Granted in
year
|
25,000 | 12.08 | ||||||||||||||
Exercised in
year
|
76,303 | (76,303 | ) | 12.98 | 880 | |||||||||||
Forfeited in
year
|
(91,750 | ) | 22.30 | |||||||||||||
Stock-based
compensation expense
|
202 | |||||||||||||||
Normal
course issuer bid Note 7(g)
|
(445,100 | ) | (3,404 | ) | ||||||||||||
Balance as at December 31,
2007
|
55,515,728 | 2,772,823 | $ | 19.03 | $ | 326,151 |
(a)
|
During the year ended December 31,
2007, options to acquire 76,303 shares (2006 - 209,072; 2005 -
270,203 shares) were exercised at prices from C$4.30 to C$19.70 per share
(2006 - C$4.30 to C$19.70 per share; 2005 - C$4.30 to C$19.66
per share).
|
(b)
|
The weighted average number of
shares outstanding for the years ended December 31, 2007, 2006 and 2005
were 55,656,913, 56,233,964 and 56,423,207, respectively. On a
diluted basis, the weighted average number of shares outstanding for the
years ended December 31, 2007, 2006 and 2005 were 55,944,060, 56,868,785
and 56,962,868,
respectively.
|
(c)
|
During 2007, the Company declared
dividends payable in Canadian dollars of C$0.075 per share
payable for each quarter. Total dividends declared in 2007 were C$0.30 per
common share. Dividends paid to common shareholders during 2007 were
C$16,685,633 and C$14,749,872 in
2006.
|
(d)
|
Options exercised during the year
resulted in an increase in share capital from contributed surplus of
$202,000 for the year ended December 31, 2007 and $400,000 for the year
ended December 31,
2006.
|
(e)
|
On November 8, 2005 the Company
obtained approval from the Toronto Stock Exchange to make a normal
course issuer bid for its common shares. For the twelve month period
ending November 7, 2006 the Company repurchased 562,800 of its common
shares at an average price of
$19.66.
|
(f)
|
On November 9, 2006 the Company
obtained approval from the Toronto Stock Exchange to make a normal
course issuer bid for its common shares. For the twelve month period ending
November 8, 2007 the Company may repurchase up to 2,800,000 of its
common shares in total representing approximately 5% of the outstanding
common shares. For the period of November 9, 2006 to December 31, 2006,
the Company had repurchased 242,200 of its common shares at an
average price of $21.16. For the year ended December 31, 2006 the
Company had repurchased a total of 805,000 of its common shares at an
average price of $20.11.
|
(g) | On November 9, 2007 the Company obtained approval from the Toronto Stock Exchange to make a normal course issuer bid for its common shares. For the twelve month period commencing November 13, 2007 and ending November 12, 2008, the Company may repurchase up to 2,780,000 of its common shares representing less than 5% of the outstanding common shares. For the period of November 13, 2007 to December 31, 2007, the Company had repurchased 123,700 of its common shares at an average price of $16.68. For the year ended December 31, 2007 the company had repurchased a total of 445,100 of its common shares at an average price of $18.20. |
(a)
|
The Company has established a
stock option incentive plan for directors, officers and key employees of the
Company and its subsidiaries. At December 31, 2007, the maximum
number of common shares that may be issued under the plan is
4,800,000 (2006 - 4,800,000) common shares. The maximum number of
common shares available for issuance to any one person under the stock
option plan is 5% of the common shares outstanding at the time of
the grant.
The exercise price is based on the
market value of the shares at the time the option is granted. In
general, the options vest evenly over a three year period and are exercisable
for periods not exceeding 10 years.
The intrinsic value of a stock
option grant is the difference between the current market price for the
Company’s common shares and the exercise price of the option. The
aggregate intrinsic values for the stock options outstanding at December
31, 2007, 2006 and 2005 were nil, C$14.6 million and C$15.4 million,
respectively. The aggregate intrinsic values for stock options
exercisable at December 31, 2007, 2006 and 2005 were nil, C$11.9 million
and C$9.5 million, respectively.
The following tables summarize
information about stock options outstanding as at December 31,
2007, December 31, 2006 and December 31, 2005:
Exercise prices are stated in
Canadian dollars as per the terms of the option.
|
December 31, 2007 | ||||||
Exercise
Price |
Date of
Grant |
Expiry
Date |
Remaining
Contractual Life (Years) |
Number
Outstanding |
Number
Exercisable |
|
C$
|
12.08 | 31-Dec-07 | 31-Dec-10 | 3.0 | 25,000 |
25,000
|
C$
|
23.00
|
12-Feb-07
|
12-Feb-12
|
4.1
|
552,750
|
-
|
C$
|
24.55
|
13-Feb-06
|
13-Feb-11
|
3.1
|
558,600
|
186,200
|
C$
|
19.70
|
14-Feb-05
|
14-Feb-10
|
2.1
|
478,700
|
316,033
|
C$
|
15.19
|
12-Feb-04
|
12-Feb-09
|
1.1
|
342,736
|
342,736
|
C$
|
13.53
|
10-Feb-03
|
10-Feb-13
|
5.1
|
319,334
|
319,334
|
C$
|
19.66
|
21-Feb-02
|
21-Feb-12
|
4.2
|
295,000
|
295,000
|
C$
|
7.80
|
22-Feb-01
|
22-Feb-11
|
3.2
|
122,002
|
122,002
|
C$
|
4.30
|
24-Feb-00
|
14-Feb-10
|
2.2
|
78,701
|
78,701
|
Total
|
3.2
|
2,772,823
|
1,685,006
|
Exercise
Price |
Date
of
Grant |
Expiry
Date |
Remaining
Contractual Life (Years) |
Number
Outstanding |
Number
Exercisable |
||||||
C$ | 24.55 |
13-Feb-06
|
13-Feb-11
|
4.1 | 603,850 | - | |||||
C$
|
19.70 |
14-Feb-05
|
14-Feb-10
|
3.1 | 512,951 | 162,784 | |||||
C$
|
15.19 |
12-Feb-04
|
12-Feb-09
|
2.1 | 365,737 | 224,237 | |||||
C$
|
13.53 |
10-Feb-03
|
10-Feb-13
|
6.1 | 329,335 | 329,335 | |||||
C$
|
19.66 |
21-Feb-02
|
21-Feb-12
|
5.2 | 306,000 | 306,000 | |||||
C$
|
7.80 |
22-Feb-01
|
22-Feb-11
|
4.2 | 127,002 | 127,002 | |||||
C$
|
4.30 |
24-Feb-00
|
14-Feb-10
|
3.2 | 100,001 | 100,001 | |||||
Total
|
4.0
|
2,344,876 | 1,249,359 |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
December
31, 2005
|
||||||
Exercise
Price |
Date of
Grant |
Expiry
Date |
Remaining
Contractual Life (Years) |
Number
Outstanding |
Number
Exercisable |
|
C$
|
19.70
|
14-Feb-05
|
14-Feb-10
|
4.1
|
542,500
|
-
|
C$
|
15.19
|
12-Feb-04
|
12-Feb-09
|
3.1
|
424,004
|
130,337
|
C$
|
13.53
|
10-Feb-03
|
10-Feb-13
|
7.1
|
394,505
|
248,672
|
C$
|
19.66
|
21-Feb-02
|
21-Feb-12
|
6.2
|
340,000
|
340,000
|
C$
|
7.80
|
22-Feb-01
|
22-Feb-11
|
5.2
|
146,170
|
146,170
|
C$
|
4.30
|
24-Feb-00
|
24-Feb-10
|
4.2
|
120,336
|
120,336
|
Total
|
4.9
|
1,967,515
|
985,515
|
2007
|
2006
|
2005
|
||||||||||
Stock option expense included
in
|
||||||||||||
employee compensation
expense
|
$ | 2,468 | $ | 2,515 | $ | 1,883 | ||||||
Net income, as
reported
|
$ | (18,526 | ) | $ | 123,309 | $ | 135,008 | |||||
Additional expense that would
have been recorded
if
all outstanding stock
options granted before January 1, 2003 had been expensed |
-
|
- | 68 | |||||||||
Pro forma net
income
|
$ | (18,526 | ) | $ | 123,309 | $ | 134,940 | |||||
Basic earnings per
share
|
||||||||||||
As
reported
|
$ | (0.33 | ) | $ | 2.19 | $ | 2.39 | |||||
Pro
forma
|
(0.33 | ) | 2.19 | 2.39 | ||||||||
Diluted earnings per
share
|
||||||||||||
As
reported
|
$ | (0.33 | ) | $ | 2.17 | $ | 2.37 | |||||
Pro
forma
|
(0.33 | ) | 2.17 | 2.37 |
Dec1
2007 |
Feb
2007 |
2006
|
2005
|
|||||||||||||
Risk-free interest
rate
|
3.82 | % | 4.11 | % | 4.02 | % | 3.53 | % | ||||||||
Dividend
yield
|
2.5 | % | 1.3 | % | 1.02 | % | 0.9 | % | ||||||||
Volatility of the expected market
price of the
Company’s common shares
|
28.8 | % | 25.2 | % | 31.4 | % | 22.5 | % | ||||||||
Expected option life (in
years)
|
3.0 | 4.0 | 3.5 | 3.9 |
(b)
|
The Company has an employee share
purchase plan where qualifying employees can choose each year to have up
to 5% of their annual base earnings withheld to purchase the Company’s
common shares. The Company matches one half of the employee contribution
amount, and its contributions vest immediately. All contributions are used
by the plan
administrator to purchase common shares in the open market. The
Company’s
contribution is expensed as paid and for the years ended December 31,
2007, 2006 and 2005 totalled $885,000, $727,000 and $553,000,
respectively.
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
Years
ended December 31
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Property
claims
|
||||||||||||
- Canadian
operations
|
C$ | 1,000 | C$ | 1,000 | C$ | 500 | ||||||
- U.S.
operations
|
$
|
500 |
$
|
500 |
$
|
500 | ||||||
Casualty
claims
|
||||||||||||
- Canadian
operations
|
C$ | 2,500 | C$ | 2,500 | C$ | 2,500 | ||||||
- U.S.
operations
|
$
|
1,000 |
$
|
1,000 |
$
|
1,000 |
Years
ended December 31
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Canada
|
||||||||||||
- Retained
loss
|
C$ | 5,000 | C$ | 5,000 | C$ | 5,000 | ||||||
- Maximum
coverage
|
C$ | 120,000 | C$ | 145,000 | C$ | 145,000 | ||||||
United
States
|
||||||||||||
- Retained
loss
|
$
|
5,000 | $ | 5,000 | $ | 2,000 | ||||||
- Maximum
coverage
|
$
|
35,000 | $ | 20,000 | $ | 18,000 |
2007
|
2006
|
2005
|
||||||||||
Net premiums
earned
|
$ | 139,188 | $ | 127,274 | $ | 123,715 | ||||||
Claims
incurred
|
31,007 | 39,256 | 90,506 | |||||||||
Commissions and premium
taxes
|
29,554 | 29,018 | 34,498 |
(a)
|
The Company’s provision for income
taxes, compared to statutory rates is summarized as
follows:
|
2007
|
2006
|
2005
|
||||||||||
Provision for taxes at Canadian
statutory marginal
income tax rate
|
$ | (7,734 | ) | $ | 50,515 | $ | 55,750 | |||||
Valuation
allowance
|
20,202 | - | - | |||||||||
Non-taxable investment
income
|
(799 | ) | (398 | ) | (1,812 | ) | ||||||
Foreign operations subject to
different tax rates
|
(16,860 | ) | (33,892 | ) | (34,218 | ) | ||||||
Change in tax rates and
other
|
2,306 | 320 | (381 | ) | ||||||||
Provision for income
taxes
|
$ | (2,885 | ) | $ | 16,545 | $ | 19,339 |
2007
|
2006
|
|||||||
Future income tax
assets:
|
||||||||
Losses carried
forward
|
$ | 105,222 | $ | 33,398 | ||||
Unpaid claims
and unearned premiums
|
30,123 | 32,090 | ||||||
Securities
|
2,032 | 8,526 | ||||||
Share issue
expenses
|
158 | 430 | ||||||
Profit
commission accruals
|
2,131 | 5,510 | ||||||
Other
|
9,432 | 39,631 | ||||||
Valuation
allowance
|
(20,700 | ) | (498 | ) | ||||
Future income tax
assets
|
128,398 | 119,087 | ||||||
Future income tax
liabilities:
|
||||||||
Deferred policy
acquisition costs
|
(5,104 | ) | (39,313 | ) | ||||
Securities
|
(3,958 | ) | (525 | ) | ||||
Guaranteed
payments
|
(4,931 | ) | (2,572 | ) | ||||
Other
|
(339 | ) | (1,465 | ) | ||||
Future income tax
liabilities
|
(14,332 | ) | (43,875 | ) | ||||
Net future income tax
assets
|
$ | 114,066 | $ | 75,212 |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
(c)
|
Amounts and expiration dates of
the operating loss carryforwards are as follows:
|
Year of
net
|
Expiration
|
Net
operating
|
||||
operating
loss
|
date
|
loss
|
||||
U.S.
operations:
|
1995
|
2010
|
$ | 546 | ||
1997
|
2012
|
1,284 | ||||
2000
|
2020
|
507 | ||||
2001
|
2021
|
14,936 | ||||
2002
|
2022
|
4,405 | ||||
2003
|
2023
|
308 | ||||
2004
|
2024
|
207 | ||||
2005
|
2025
|
282 | ||||
2006
|
2026
|
75,729 | ||||
2007
|
2027
|
211,273 |
(d)
|
The Company established valuation
allowances of $20,700,000 and $498,000 for its gross future tax
assets at December 31, 2007 and 2006, respectively. Based on the Company’s
expectations of taxable income, its ability to change its
investment strategy, as well as reversing gross future tax liabilities,
management believes it is more likely than not that the Company will fully
realize the gross future tax assets, with the exception of a portion of its
net operating losses. The valuation allowances are as a result of the
potential inability to utilize a portion of its net operating losses in the
U.S. that do not expire for up to 20 years. The uncertainty over the
Company’s ability to utilize a portion of these losses over the short term
has led to the Company recording valuation allowances.
|
2007
|
2006
|
2005
|
||||||||||
Unpaid claims - beginning of year
- net
|
$ | 1,762,932 | $ | 1,662,551 | $ | 1,463,280 | ||||||
Net unpaid claims of subsidiaries
acquired
|
65,332 | - | - | |||||||||
Provision for claims
occurring:
|
||||||||||||
In the current
year
|
1,279,668 | 1,193,288 | 1,217,952 | |||||||||
In prior
years
|
180,395 | 64,329 | 24,233 | |||||||||
Claims paid during the year
relating to:
|
||||||||||||
The current
year
|
(520,557 | ) | (409,236 | ) | (424,997 | ) | ||||||
The prior
years
|
(801,887 | ) | (745,286 | ) | (674,373 | ) | ||||||
ClClaims
transferred on expiry of quota share agreement
|
- | - | 33,788 | |||||||||
Currency translation
adjustment
|
123,528 | (2,714 | ) | 22,668 | ||||||||
Unpaid claims - end of year -
net
|
2,089,411 | 1,762,932 | 1,662,551 | |||||||||
RReinsurers’
and other insurers’ share of unpaid claims
|
177,671 | 176,431 | 181660 | |||||||||
Unpaid claims - end of
year
|
$ | 2,267,082 | $ | 1,939,363 | $ | 1,844,211 |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
As of December 31,
2007
|
Low
|
High
|
Point Estimate
|
Carried
|
||||||||||||
U.S.
Operations
|
$ | 1,201,228 | $ | 1,490,712 | $ | 1,332,360 | $ | 1,342,990 | ||||||||
Canadian
Operations
|
813,030 | 1,039,611 | 921,607 | 924,092 | ||||||||||||
Total
|
$ | 2,014,258 | $ | 2,530,323 | $ | 2,253,967 | $ | 2,267,082 | ||||||||
As of December
31, 2006
|
Low
|
High
|
Point
Estimate
|
Carried
|
||||||||||||
U.S.
Operations
|
$ | 990,991 | $ | 1,274,850 | $ | 1,132,431 | $ | 1,138,407 | ||||||||
Canadian
Operations
|
684,189 | 915,267 | 799,944 | 800,956 | ||||||||||||
Total
|
$ | 1,675,180 | $ | 2,190,117 | $ | 1,932,375 | $ | 1,939,363 |
Cash
|
$ 30,526
|
Investments
|
87,629
|
Accounts
receivable
|
34,755
|
Other tangible
assets
|
11,793
|
Other
assets
|
|
Intangible
asset - state insurance licenses
|
7,803
|
Intangible
asset - agent relationships
|
1,765
|
Intangible
asset - technology based
|
1,101
|
Goodwill
|
970
|
Total
Assets
|
176,342
|
Insurance
liabilities
|
120,956
|
Accounts
payable
|
1,488
|
Other
liabilities
|
2,786
|
Total
liabilities
|
125,230
|
Purchase
price
|
$ 51,112
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
Corporate
|
||||||||||||||||
Canada
|
United
States
|
and
other
|
Total
|
|||||||||||||
Gross premiums
written
|
$ | 570,043 | $ | 1,392,697 | $ | - | $ | 1,962,740 | ||||||||
Net premiums
earned
|
539,637 | 1,302,481 | - | 1,842,118 | ||||||||||||
Investment income
(loss)
|
58,606 | 84,230 | (1,380 | ) | 141,456 | |||||||||||
Net realized gains
(losses)
|
26,106 | 26,014 | (9 | ) | 52,111 | |||||||||||
Interest
expense
|
- | 30,262 | 8,605 | 38,867 | ||||||||||||
Amortization of capital
assets
|
1,961 | 5,598 | 4,586 | 12,145 | ||||||||||||
Amortization of intangible
assets
|
- | 4,007 | - | 4,007 | ||||||||||||
Net income tax expense
(recovery)
|
19,390 | (36,443 | ) | 14,168 | (2,885 | ) | ||||||||||
Net income
(loss)
|
90,887 | (86,889 | ) | (22,524 | ) | (18,526 | ) | |||||||||
Capital
assets
|
$ | 62,098 | $ | 62,184 | $ | 9,149 | $ | 133,431 | ||||||||
Goodwill and intangible
assets
|
9,272 | 107,502 | - | 116,774 | ||||||||||||
Total
assets
|
1,775,063 | 2,840,912 | 41,430 | 4,657,405 |
Corporate
|
||||||||||||||||
Canada
|
United
States
|
and
other
|
Total
|
|||||||||||||
Gross premiums
written
|
$ | 590,766 | $ | 1,341,984 | $ | - | $ | 1,932,750 | ||||||||
Net premiums
earned
|
562,444 | 1,204,053 | - | 1,766,497 | ||||||||||||
Investment income
(loss)
|
53,026 | 68,448 | (603 | ) | 120,871 | |||||||||||
Net realized
gains
|
16,244 | 12,743 | - | 28,987 | ||||||||||||
Interest
expense
|
- | 23,086 | 7,161 | 30,247 | ||||||||||||
Amortization of capital
assets
|
1,289 | 3,332 | 1,625 | 6,246 | ||||||||||||
Amortization of intangible
assets
|
- | 1,030 | - | 1,030 | ||||||||||||
Net income tax expense
(recovery)
|
22,595 | (15,410 | ) | 9,360 | 16,545 | |||||||||||
Net income
(loss)
|
69,026 | 62,721 | (8,438 | ) | 123,309 | |||||||||||
Capital
assets
|
$ | 49,055 | $ | 55,915 | $ | 3,179 | $ | 108,149 | ||||||||
Goodwill and intangible
assets
|
7,887 | 82,963 | - | 90,850 | ||||||||||||
Total
assets
|
1,508,561 | 2,507,123 | 32,654 | 4,048,338 |
Corporate
|
||||||||||||||||
Canada
|
United
States
|
and
other
|
Total
|
|||||||||||||
Gross premiums
written
|
$ | 609,934 | $ | 1,284,726 | $ | - | $ | 1,894,660 | ||||||||
Net premiums
earned
|
582,491 | 1,209,452 | - | 1,791,943 | ||||||||||||
Investment income
(loss)
|
40,595 | 54,129 | (1,689 | ) | 93,035 | |||||||||||
Net realized gains
(losses)
|
23,864 | 14,406 | (31 | ) | 38,239 | |||||||||||
Interest
expense
|
- | 19,329 | 6,592 | 25,921 | ||||||||||||
Amortization of capital
assets
|
1,007 | 4,113 | 1,058 | 6,178 | ||||||||||||
Amortization of intangible
assets
|
- | 795 | - | 795 | ||||||||||||
Net income tax expense
(recovery)
|
22,389 | (5,805 | ) | 2,755 | 19,339 | |||||||||||
Net income
(loss)
|
65,579 | 81,553 | (12,124 | ) | 135,008 | |||||||||||
Capital
assets
|
$ | 21,967 | $ | 45,158 | $ | 4,483 | $ | 71,608 | ||||||||
Goodwill and intangible
assets
|
7,903 | 63,227 | - | 71,130 | ||||||||||||
Total
assets
|
1,392,469 | 2,374,081 | 28,644 | 3,795,194 |
2007
|
2006
|
2005
|
||||||||||
Business
Line
|
||||||||||||
Personal
Lines:
|
||||||||||||
Non-standard
Auto
|
31 | % | 26 | % | 29 | % | ||||||
Standard
Auto
|
5 | % | 6 | % | 7 | % | ||||||
Motorcycle
|
4 | % | 3 | % | 3 | % | ||||||
Property
(including Liability)
|
6 | % | 6 | % | 3 | % | ||||||
Other Specialty
Lines
|
2 | % | 2 | % | 2 | % | ||||||
Total Personal
Lines
|
48 | % | 43 | % | 44 | % | ||||||
Commercial
Lines:
|
||||||||||||
Trucking
|
21 | % | 33 | % | 31 | % | ||||||
Commercial
Auto
|
17 | % | 14 | % | 12 | % | ||||||
Property
(including Liability)
|
10 | % | 7 | % | 10 | % | ||||||
Other Specialty
Lines
|
4 | % | 3 | % | 3 | % | ||||||
Total
Commercial Lines
|
52 | % | 57 | % | 56 | % | ||||||
Total Gross Premiums
Written
|
100 | % | 100 | % | 100 | % |
2007
|
2006
|
2005
|
||||||||||
Geographical
Area
|
||||||||||||
United
States:
|
||||||||||||
California
|
14 | % | 14 | % | 14 | % | ||||||
Florida
|
10 | % | 9 | % | 10 | % | ||||||
Illinois
|
8 | % | 10 | % | 11 | % | ||||||
Texas
|
5 | % | 6 | % | 6 | % | ||||||
New
Jersey
|
2 | % | 3 | % | 3 | % | ||||||
New
York
|
7 | % | 4 | % | 1 | % | ||||||
Hawaii
|
4 | % | 3 | % | 1 | % | ||||||
Other
|
21 | % | 20 | % | 22 | % | ||||||
Total United
States
|
71 | % | 69 | % | 68 | % | ||||||
Canada:
|
||||||||||||
Ontario
|
19 | % | 19 | % | 20 | % | ||||||
Alberta
|
2 | % | 4 | % | 5 | % | ||||||
Québec
|
6 | % | 6 | % | 5 | % | ||||||
Other
|
2 | % | 2 | % | 2 | % | ||||||
Total
Canada
|
29 | % | 31 | % | 32 | % | ||||||
Total Gross Premiums
Written
|
100 | % | 100 | % | 100 | % |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
|
2007
|
2006
|
||||||
Bank
indebtedness
|
$ | 172,436 | $ | 52,149 | ||||
Construction
contracts
|
- | 9,595 | ||||||
Senior unsecured
debentures
|
220,080 | 191,930 | ||||||
Subordinated
indebtedness
|
87,354 | 90,550 | ||||||
Loan
payable
|
66,222 | 66,222 | ||||||
Total
|
$ | 546,092 | $ | 410,446 |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
2008
|
$ | 3,886 | ||
2009
|
2,068 | |||
2010
|
1,737 | |||
2011
|
1,596 | |||
2012
|
1,368 | |||
Thereafter
|
3,096 |
2007
|
2006
|
2005
|
||||||||||
Net income based on Canadian
GAAP
|
$ | (18,526 | ) | $ | 123,309 | $ | 135,008 | |||||
Impact on net income of U.S. GAAP
adjustments, net of
tax:
|
- | - | - | |||||||||
Net income based on U.S.
GAAP*
|
$ | (18,526 | ) | $ | 123,309 | $ | 135,008 |
2007
|
2006
|
2005
|
||||||||||
Comprehensive income based on
Canadian GAAP
|
$ | 42,657 | $ | 120,362 | $ | 143,246 | ||||||
Change in
unrealized gain on securities classified as available-for-sale
(a)
|
- | 8,271 | (43,131 | ) | ||||||||
Less: related
future income taxes
|
- | (1,194 | ) | (6,165 | ) | |||||||
Other comprehensive income
adjustments
|
- | 9,465 | (36,966 | ) | ||||||||
Total comprehensive income based
on U.S. GAAP
|
$ | 42,657 | $ | 129,827 | $ | 106,280 | ||||||
*Basic
earnings per share based on U.S. GAAP net
income
|
$ | (0.33 | ) | $ | 2.19 | $ | 2.39 | |||||
*Diluted
earnings per share based on U.S. GAAP net
income
|
$ | (0.33 | ) | $ | 2.17 | $ | 2.37 |
2007
|
2006
|
|||||||
Shareholders’ equity based on
Canadian GAAP
|
$ | 940,801 | $ | 900,962 | ||||
Other comprehensive
income
|
- | 16,080 | ||||||
Cumulative net income
impact:
|
||||||||
Other
|
(821 | ) | (821 | ) | ||||
Shareholders’ equity based on U.S.
GAAP
|
$ | 939,980 | $ | 916,221 |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
Condensed
Consolidating Statement of Operations
|
||||||||||||||||||||||||
For
the year ended December 31, 2007
|
|
|||||||||||||||||||||||
KFSI
|
KAI
|
K2007GP
|
Other
subsidiaries
|
Consolidation adjustments |
Total
|
|||||||||||||||||||
(a
“Guarantor”)
|
(an
“Issuer”
and
a “Guarantor”)
|
(an
“Issuer”)
|
(the
“Non-Guarantor subsidiaries")
|
|||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||
Net premiums
earned
|
$ | - | $ | - | $ | - | $ | 1,842,118 | $ | - | $ | 1,842,118 | ||||||||||||
Investment
related income
|
(1,390 | ) | 4,860 | 6,199 | 190,097 | (6,199 | ) | 193,567 | ||||||||||||||||
Management
fees
|
83,553 | 13,512 | - | - | (97,065 | ) | - | |||||||||||||||||
82,163 | 18,372 | 6,199 | 2,032,215 | (103,264 | ) | 2,035,685 | ||||||||||||||||||
Expenses:
|
||||||||||||||||||||||||
Claims
incurred
|
- | - | - | 1,233,000 | 203,340 | 1,436,340 | ||||||||||||||||||
Commissions and
premium taxes
|
449 | - | - | 334,351 | - | 334,800 | ||||||||||||||||||
Other
expenses
|
81,466 | 21,409 | 93 | 450,725 | (306,604 | ) | 247,089 | |||||||||||||||||
Interest
expense
|
8,605 | 26,540 | 2,994 | 728 | - | 38,867 | ||||||||||||||||||
90,520 | 47,949 | 3,087 | 2,018,804 | (103,264 | ) | 2,057,096 | ||||||||||||||||||
Income before income
taxes
|
(8,357 | ) | (29,577 | ) | 3,112 | 13,411 | - | (21,411 | ) | |||||||||||||||
Income
taxes
|
14,168 | 10,398 | 1,058 | (28,509 | ) | - | (2,885 | ) | ||||||||||||||||
Equity in undistributed net income
of subsidiaries
|
3,999 | (108,273 | ) | - | - | 104,274 | - | |||||||||||||||||
Net
income
|
$ | (18,526 | ) | $ | (148,248 | ) | $ | 2,054 | $ | 41,920 | $ | 104,274 | $ | (18,526 | ) |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
Condensed
Consolidating Statement of Operations
|
||||||||||||||||||||
For
the year ended December 31, 2006
|
KFSI
|
KAI
|
Other
subsidiaries
|
Consolidation
adjustments
|
Total
|
|||||||||||||||
(the
“Guarantor”)
|
(the
“Issuer”)
|
(the
“Non-Guarantor subsidiaries”)
|
||||||||||||||||||
Revenue:
|
||||||||||||||||||||
Net premiums
earned
|
$ | - | $ | - | $ | 1,766,497 | $ | - | $ | 1,766,497 | ||||||||||
Investment
related income
|
(603 | ) | 3,746 | 146,715 | - | 149,858 | ||||||||||||||
Management
fees
|
70,439 | 13,464 | - | (83,903 | ) | - | ||||||||||||||
69,836 | 17,210 | 1,913,212 | (83,903 | ) | 1,916,355 | |||||||||||||||
Expenses:
|
||||||||||||||||||||
Claims
incurred
|
- | - | 1,255,770 | (21,245 | ) | 1,234,525 | ||||||||||||||
Commissions and
premium taxes
|
(391 | ) | - | 328,834 | - | 328,443 | ||||||||||||||
Other
expenses
|
62,143 | 23,338 | 160,463 | (62,658 | ) | 183,286 | ||||||||||||||
Interest
expense
|
7,161 | 22,870 | 216 | - | 30,247 | |||||||||||||||
68,913 | 46,208 | 1,745,283 | (83,903 | ) | 1,776,501 | |||||||||||||||
Income before income
taxes
|
923 | (28,998 | ) | 167,929 | - | 139,854 | ||||||||||||||
Income
taxes
|
9,360 | (9,854 | ) | 17,039 | - | 16,545 | ||||||||||||||
Equity in undistributed net income
of subsidiaries
|
131,746 | (13,543 | ) | - | (118,203 | ) | - | |||||||||||||
Net
income
|
$ | 123,309 | $ | (32,687 | ) | $ | 150,890 | $ | (118,203 | ) | $ | 123,309 |
Condensed Consolidating Statement
of Operations
|
||||||||||||||||||||
For
the year ended December 31, 2005
|
|
|||||||||||||||||||
KFSI
|
KAI
|
Other
subsidiaries
|
Consolidation adjustments |
Total
|
||||||||||||||||
(the “Guarantor”) | (the “Issuer”) | (the “Non-Guarantor subsidiaries”) | ||||||||||||||||||
Revenue:
|
||||||||||||||||||||
Net premiums
earned
|
$ | - | $ | - | $ | 1,791,943 | $ | - | $ | 1,791,943 | ||||||||||
Investment
related income
|
(1,720 | ) | 4,400 | 128,594 | - | 131,274 | ||||||||||||||
Management
fees
|
56,945 | 8,988 | - | (65,933 | ) | - | ||||||||||||||
55,225 | 13,388 | 1,920,537 | (65,933 | ) | 1,923,217 | |||||||||||||||
Expenses:
|
||||||||||||||||||||
Claims
incurred
|
- | - | 1,241,202 | (16,696 | ) | 1,224,506 | ||||||||||||||
Commissions and
premium taxes
|
- | - | 361,875 | - | 361,875 | |||||||||||||||
Other
expenses
|
52,716 | 13,511 | 139,578 | (49,237 | ) | 156,568 | ||||||||||||||
Interest
expense
|
6,591 | 18,671 | 659 | - | 25,921 | |||||||||||||||
59,307 | 32,182 | 1,743,314 | (65,933 | ) | 1,768,870 | |||||||||||||||
Income before income
taxes
|
(4,082 | ) | (18,794 | ) | 177,223 | - | 154,347 | |||||||||||||
Income
taxes
|
2,755 | (6,743 | ) | 23,327 | - | 19,339 | ||||||||||||||
Equity in undistributed net income
of subsidiaries
|
141,845 | (319 | ) | - | (141,526 | ) | - | |||||||||||||
Net
income
|
$ | 135,008 | $ | (12,370 | ) | $ | 153,896 | $ | (141,526 | ) | $ | 135,008 |
Condensed Consolidating Balance
Sheets
|
||||||||||||||||||||||||
As
at December 31, 2007
|
|
|||||||||||||||||||||||
KFSI
|
KAI
|
K2007GP
|
Other
subsidiaries
|
Consolidation
adjustments |
Total
|
|||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
(a “Guarantor”) |
(an
“Issuer”
and
a “Guarantor”)
|
(an
“Issuer”)
|
(the
“Non-Guarantor subsidiaries”)
|
|||||||||||||||||||||
Assets
|
||||||||||||||||||||||||
Investments in
subsidiaries
|
$ | 964,286 | $ | 682,266 | $ | - | $ | (150,463 | ) | $ | (1,496,089 | ) | - | |||||||||||
Cash
|
13,716 | 6,960 | 566 | 140,393 | - | 161,635 | ||||||||||||||||||
Investments
|
- | - | - | 3,348,216 | - | 3,348,216 | ||||||||||||||||||
Goodwill and
other intangible assets
|
- | - | - | 116,774 | - | 116,774 | ||||||||||||||||||
Other
assets
|
34,042 | 16,302 | 113,217 | 3,181,277 | (2,314,058 | ) | 1,030,780 | |||||||||||||||||
$ | 1,012,044 | $ | 705,528 | $ | 113,783 | $ | 6,636,197 | $ | (3,810,147 | ) | $ | 4,657,405 | ||||||||||||
Liabilities and Shareholders’
Equity
|
||||||||||||||||||||||||
Liabilities:
|
||||||||||||||||||||||||
Bank
indebtedness
|
$ | 42,369 | $ | 170,175 | $ | - | $ | 130,068 | $ | (103,954 | ) | $ | 238,658 | |||||||||||
Other
liabilities
|
7,797 | 25,184 | 6,607 | 339,938 | (234,586 | ) | 144,940 | |||||||||||||||||
Unearned
premiums
|
- | - | - | 1,220,813 | (462,323 | ) | 758,490 | |||||||||||||||||
Unpaid
claims
|
- | - | - | 3,810,139 | (1,543,057 | ) | 2,267,082 | |||||||||||||||||
Senior
unsecured debentures
|
21,077 | 125,000 | 94,429 | (20,426 | ) | - | 220,080 | |||||||||||||||||
Subordinated
indebtedness
|
- | 90,500 | - | - | (3,146 | ) | 87,354 | |||||||||||||||||
71,243 | 410,859 | 101,036 | 5,480,532 | (2,347,066 | ) | 3,716,604 | ||||||||||||||||||
Shareholders’
equity:
|
||||||||||||||||||||||||
Share
capital
|
326,151 | 342,450 | 10,667 | 1,773,287 | (2,126,404 | ) | 326,151 | |||||||||||||||||
Contributed
surplus
|
7,619 | - | - | - | - | 7,619 | ||||||||||||||||||
Currency
translation adjustment
|
521,165 | (47,781 | ) | 2,053 | (713,618 | ) | 759,346 | 521,165 | ||||||||||||||||
Retained
earnings
|
85,866 | - | 27 | 95,996 | (96,023 | ) | 85,866 | |||||||||||||||||
940,801 | 294,669 | 12,747 | 1,155,665 | (1,463,081 | ) | 940,801 | ||||||||||||||||||
$ | 1,012,044 | $ | 705,528 | $ | 113,783 | $ | 6,636,197 | $ | (3,810,147 | ) | $ | 4,657,405 |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
Condensed Consolidating Balance
Sheets
|
||||||||||||||||||||
As
at December 31, 2006
|
|
|||||||||||||||||||
KFSI
|
KAI
|
Other
subsidiaries
|
Consolidation
adjustments
|
Total
|
||||||||||||||||
(the
“Guarantor”)
|
(the
“Issuer”)
|
(the
“Non-Guarantor subsidiaries”)
|
||||||||||||||||||
Assets
|
||||||||||||||||||||
Investments in
subsidiaries
|
$ | 985,924 | $ | 400,807 | $ | 118,485 | $ | (1,505,216 | ) | $ | - | |||||||||
Cash
|
3,475 | 3,204 | 123,027 | - | 129,706 | |||||||||||||||
Investments
|
99 | - | 2,928,991 | - | 2,929,090 | |||||||||||||||
Goodwill and
other intangible assets
|
- | - | 82,235 | 8,615 | 90,850 | |||||||||||||||
Other
assets
|
23,756 | 51,027 | 2,478,852 | (1,654,943 | ) | 898,692 | ||||||||||||||
$ | 1,013,254 | $ | 455,038 | $ | 5,731,590 | $ | (3,151,544 | ) | $ | 4,048,338 | ||||||||||
Liabilities and Shareholders’
Equity
|
||||||||||||||||||||
Liabilities:
|
||||||||||||||||||||
Bank
indebtedness
|
$ | 32,609 | $ | 66,222 | $ | 19,540 | $ | $ | 118,371 | |||||||||||
Other
liabilities
|
12,753 | 22,168 | 89,312 | 527 | 124,760 | |||||||||||||||
Unearned
premiums
|
- | - | 1,115,314 | (432,862 | ) | 682,452 | ||||||||||||||
Unpaid
claims
|
- | - | 3,132,423 | (1,193,060 | ) | 1,939,363 | ||||||||||||||
Senior
unsecured debentures
|
66,930 | 125,000 | - | - | 191,930 | |||||||||||||||
Subordinated
indebtedness
|
- | 90,500 | - | - | 90,500 | |||||||||||||||
112,292 | 303,890 | 4,356,589 | (1,625,395 | ) | 3,147,376 | |||||||||||||||
Shareholders’
equity:
|
||||||||||||||||||||
Share
capital
|
328,473 | 192,391 | 1,174,609 | (1,367,000 | ) | 328,473 | ||||||||||||||
Contributed
surplus
|
5,352 | - | - | - | 5,352 | |||||||||||||||
Currency
translation adjustment
|
7,011 | - | 41,935 | (41,935 | ) | 7,011 | ||||||||||||||
Retained
earnings
|
560,126 | (41,243 | ) | 158,457 | (117,214 | ) | 560,126 | |||||||||||||
900,962 | 151,148 | 1,375,001 | (1,526,149 | ) | 900,962 | |||||||||||||||
$ | 1,013,254 | $ | 455,038 | $ | 5,731,590 | $ | (3,151,544 | ) | $ | 4,048,338 |
Condensed Consolidating Statement
of Cash Flows
|
|
|||||||||||||||||||||||
For
the year ended December 31, 2007
|
|
|||||||||||||||||||||||
KFSI
|
KAI
|
K2007GP
|
Other
subsidiaries
|
Consolidation adjustments |
Total
|
|||||||||||||||||||
(a
“Guarantor”)
|
(an
“Issuer”
and
a “Guarantor”)
|
(an
“Issuer”)
|
(the “Non-Guarantor
subsidiaries”)
|
|
||||||||||||||||||||
Cash provided by (used
in):
|
||||||||||||||||||||||||
Operating
activities:
|
||||||||||||||||||||||||
Net
income
|
$ | (18,526 | ) | $ | (148,248 | ) | $ | 2,053 | $ | 66,841 | $ | 79,354 | $ | (18,526 | ) | |||||||||
Adjustments to reconcile net
income to net cash used by operating
activities:
|
||||||||||||||||||||||||
Equity in
undistributed earnings in subsidiaries
|
(3,999 | ) | 108,273 | - | - | (104,274 | ) | - | ||||||||||||||||
Other
|
(44,365 | ) | 38,807 | (106,583 | ) | 197,753 | - | 85,612 | ||||||||||||||||
(66,890 | ) | (1,168 | ) | (104,530 | ) | 264,594 | (24,920 | ) | 67,086 | |||||||||||||||
Financing
Activities:
|
||||||||||||||||||||||||
Increase in share capital,
net
|
1,082 | 150,059 | 10,667 | - | (160,726 | ) | 1,082 | |||||||||||||||||
Repurchase of common shares for
cancellation
|
(8,129 | ) | - | - | - | - | (8,129 | ) | ||||||||||||||||
Common share
dividend
|
(15,710 | ) | - | - | - | - | (15,710 | ) | ||||||||||||||||
Increase/(decrease) in bank
indebtedness
|
- | 103,953 | - | - | (103,953 | ) | - | |||||||||||||||||
Increase in senior unsecured
indebtedness
|
- | - | 94,429 | 111,776 | (94,429 | ) | 111,776 | |||||||||||||||||
Increase in subordinated
indebtedness
|
- | - | - | 17,274 | - | 17,274 | ||||||||||||||||||
(22,757 | ) | 254,012 | 105,096 | 129,050 | (359,108 | ) | 106,293 | |||||||||||||||||
Investing
Activities:
|
||||||||||||||||||||||||
Purchase of
investments
|
(19,922 | ) | - | - | (4,115,535 | ) | - | (4,135,457 | ) | |||||||||||||||
Proceeds from
sale of investments
|
20,021 | - | - | 4,054,146 | - | 4,074,167 | ||||||||||||||||||
Acquisitions
|
109,179 | (51,113 | ) | - | 6,392 | (109,179 | ) | (44,721 | ) | |||||||||||||||
Other
|
(9,390 | ) | (197,975 | ) | - | (321,281 | ) | 493,207 | (35,439 | ) | ||||||||||||||
99,888 | (249,088 | ) | - | (376,278 | ) | 384,028 | (141,450 | ) | ||||||||||||||||
Increase (decrease) in cash during
the year
|
10,241 | 3,756 | 566 | 17,366 | - | 31,929 | ||||||||||||||||||
Cash, beginning of
year
|
3,475 | 3,204 | - | 123,027 | - | 129,706 | ||||||||||||||||||
Cash, end of
year
|
$ | 13,716 | $ | 6,960 | $ | 566 | $ | 140,393 | $ | - | $ | 161,635 |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular amounts in thousands of
U.S. dollars, except for per share
amounts)
|
Condensed Consolidating Statement
of Cash Flows
|
||||||||||||||||||||
For
the year ended December 31, 2006
|
||||||||||||||||||||
KFSI
|
KAI
|
Other
subsidiaries
|
Consolidation adjustments |
Total
|
||||||||||||||||
(the
“Guarantor”)
|
(the
“Issuer”)
|
(the
“Non-Guarantor subsidiaries”)
|
||||||||||||||||||
Cash provided by (used
in):
|
||||||||||||||||||||
Operating
activities:
|
||||||||||||||||||||
Net
income
|
$ | 123,309 | $ | (32,687 | ) | $ | 150,891 | $ | (118,204 | ) | $ | 123,309 | ||||||||
Adjustments to reconcile net
income to net cash used by operating
activities:
|
||||||||||||||||||||
Equity in
undistributed earnings in subsidiaries
|
(131,747 | ) | 13,543 | - | 118,204 | - | ||||||||||||||
Other
|
6,593 | (4,503 | ) | 41,829 | - | 43,919 | ||||||||||||||
(1,845 | ) | (23,647 | ) | 192,720 | - | 167,228 | ||||||||||||||
Financing
Activities:
|
||||||||||||||||||||
Increase in share capital,
net
|
3,005 | 35,000 | - | (35,000 | ) | 3,005 | ||||||||||||||
Repurchase of common shares for
cancellation
|
(16,246 | ) | - | - | - | (16,246 | ) | |||||||||||||
Common share
dividend
|
(12,988 | ) | - | - | - | (12,988 | ) | |||||||||||||
Increase/(decrease) in bank
indebtedness
|
21,891 | - | 18,954 | - | 40,845 | |||||||||||||||
Increase in senior unsecured
indebtedness
|
- | - | - | - | - | |||||||||||||||
Increase in subordinated
indebtedness
|
- | - | - | - | - | |||||||||||||||
(4,338 | ) | 35,000 | 18,954 | (35,000 | ) | 14,616 | ||||||||||||||
Investing
Activities:
|
||||||||||||||||||||
Purchase of
investments
|
(307 | ) | - | (3,279,678 | ) | - | (3,279,985 | ) | ||||||||||||
Proceeds from
sale of investments
|
406 | 2,983 | 3,160,826 | - | 3,164,215 | |||||||||||||||
Acquisitions
|
7,023 | (943 | ) | (21,472 | ) | (7,023 | ) | (22,415 | ) | |||||||||||
Other
|
(295 | ) | (19,786 | ) | (46,929 | ) | 42,023 | (24,987 | ) | |||||||||||
6,827 | (17,746 | ) | (187,253 | ) | 35,000 | (163,172 | ) | |||||||||||||
Increase (decrease) in cash during
the year
|
644 | (6,393 | ) | 24,421 | - | 18,672 | ||||||||||||||
Cash, beginning of
year
|
2,831 | 9,597 | 98,606 | - | 111,034 | |||||||||||||||
Cash, end of
year
|
$ | 3,475 | $ | 3,204 | $ | 123,027 | $ | - | $ | 129,706 |
Condensed Consolidating Statement
of Cash Flows
|
||||||||||||||||||||
For
the year ended December 31, 2005
|
|
|||||||||||||||||||
KFSI
|
KAI
|
Other
subsidiaries
|
Consolidation adjustments |
Total
|
||||||||||||||||
(the
“Guarantor”)
|
(the
“Issuer”)
|
(the
“Non-Guarantor subsidiaries”)
|
||||||||||||||||||
Cash provided by (used
in):
|
||||||||||||||||||||
Operating
activities:
|
||||||||||||||||||||
Net
income
|
$ | 135,008 | $ | (12,370 | ) | $ | 153,896 | $ | (141,526 | ) | $ | 135,008 | ||||||||
Adjustments to reconcile net
income to net cash used by operating
activities:
|
||||||||||||||||||||
Equity in
undistributed earnings in subsidiaries
|
(141,845 | ) | 319 | - | 141,526 | - | ||||||||||||||
Other
|
11,390 | (1,506 | ) | 128,855 | - | 138,739 | ||||||||||||||
4,553 | (13,557 | ) | 282,751 | - | 273,747 | |||||||||||||||
Financing
Activities:
|
||||||||||||||||||||
Increase in share capital,
net
|
2,926 | (20,283 | ) | - | 20,283 | 2,926 | ||||||||||||||
Common share
dividend
|
(9,426 | ) | - | - | - | (9,426 | ) | |||||||||||||
Increase/(decrease) in bank
indebtedness
|
(28,532 | ) | 66,222 | (20,312 | ) | - | 17,378 | |||||||||||||
Increase in senior unsecured
indebtedness
|
- | - | - | - | - | |||||||||||||||
Increase in subordinated
indebtedness
|
- | - | - | - | - | |||||||||||||||
(35,032 | ) | 45,939 | (20,312 | ) | 20,283 | 10,878 | ||||||||||||||
Investing
Activities:
|
||||||||||||||||||||
Purchase of
investments
|
(9,053 | ) | (24,436 | ) | (2,556,529 | ) | - | (2,590,018 | ) | |||||||||||
Proceeds from sale of
investments
|
9,177 | 21,682 | 2,325,722 | - | 2,356,581 | |||||||||||||||
Acquisitions
|
32,058 | (23,934 | ) | 12,042 | (32,058 | ) | (11,892 | ) | ||||||||||||
Other
|
(2,807 | ) | 2,032 | (26,365 | ) | 11,775 | (15,365 | ) | ||||||||||||
29,375 | (24,656 | ) | (245,130 | ) | (20,283 | ) | (260,694 | ) | ||||||||||||
Increase (decrease) in cash during
the year
|
(1,104 | ) | 7,726 | 17,309 | - | 23,931 | ||||||||||||||
Cash, beginning of
year
|
3,935 | 1,871 | 81,297 | - | 87,103 | |||||||||||||||
Cash, end of
year
|
$ | 2,831 | $ | 9,597 | $ | 98,606 | $ | - | $ | 111,034 |
CONTENTS
|
51 Non-GAAP
Measures
|
51 Reporting
Currency
|
51 Overview
|
53 Corporate
Strategy
|
54 Corporate
Structure
|
54 Revenues
|
59 Investment Securities and
Investment Income
|
63 Provision for Unpaid
Claims
|
71 Reinsurance
|
72 Results of
Operations
|
77 Financial
Condition
|
82 Legal
Proceedings
|
82 Systems and
Technology
|
82 Employees
|
82 Quarterly
Results
|
83 Controls and Accounting
Policies
|
85 Risk
Factors
|
2007
|
2006
|
2005
|
||||||||||
Net income (loss), as
reported
|
$ | (18,526 | ) | $ | 123,309 | $ | 135,008 | |||||
Net realized gains before taxes,
as reported
|
52,111 | 28,987 | 38,239 | |||||||||
Ta x effect on net realized
gains
|
11,320 | 5,614 | 9,589 | |||||||||
Net realized gains after
tax
|
40,791 | 23,373 | 28,650 | |||||||||
Net operating income
(loss)
|
$ | (59,317 | ) | $ | 99,936 | $ | 106,358 |
•
|
Distinctive
underwriting capabilities in
target specialty markets
We
seek to identify market segments where we believe
competition is more limited, presenting the
potential for above average underwriting results.
We operate through a network of regionally
based operating subsidiaries. Our decentralized operating structure allows
us to target specialized markets and products based on our underwriting
expertise and knowledge of local market
conditions.
We
rely on our detailed understanding of our regional markets to take
advantage of favourable conditions or trends. We look for opportunities
to expand our specialty focus into
selected regional markets and to increase the
distribution of our core products in existing territories.
We may also look for opportunities to acquire
books of business or other companies which are in line with our specialty
focus.
|
•
|
An
extensive network of independent agents and program managers focused
on specialty markets
We
are committed to our distribution network of approximately 9,000
independent agents, and approximately 30 program managers in the
U.S. and approximately 3,000 independent brokers
in Canada.
We
continually strive to provide the highest level of service to agents,
program managers and
brokers and to build relationships at the local level in the markets in
which we operate. We communicate
with our network through a variety of
channels and we look for opportunities to increase efficiency and further
reduce operating costs, including through the use of technology
and
automation. We also look for opportunities to expand our distribution
relationships and to enhance
product
mix.
|
•
|
Rigorous
industry-leading program management
capabilities
Our
program management begins with a thorough due
diligence review of agents’ operations and understanding of their
historical results. This review is performed by a team of individuals with
extensive underwriting, actuarial and claims management
expertise.
We
maintain strict control over programs by limiting the claims authority
granted to agents and structuring the agents’ agreements so that we have
all pricing and reinsurance authority. Our program managers have the
opportunity to significantly
increase their compensation through commission
incentives that are strictly tied to underwriting profit on their
program.
Each
program manager is subject to regular and
vigorous audits to ensure that disciplined underwriting
and claims processes are in place and
are being followed in accordance with the agreement.
|
•
|
Strong claims operations tailored
to local markets
We seek to protect our business through diligent claims management. Claims are managed by experienced personnel located in regional operating subsidiaries and by selected program managers. We maintain a culture of rigorously investigating claims, promptly paying legitimate claims, preventing fraud and litigating claims as necessary before final settlement. |
•
|
Shared corporate support
function
Our corporate structure helps to
meet varied local conditions under a cohesive set of
policies and procedures designed to provide underwriting discipline,
consistency and control. We believe we can derive efficiencies and
cost savings by sharing corporate support
functions such as investment management, information
systems development,
purchasing of reinsurance, procurement and office
space.
|
•
|
Outstanding
management
Each of our thirteen operating subsidiaries is led by an experienced executive team with expertise in their chosen niche lines of business and extensive knowledge of their local markets. The operating subsidiaries are supported and guided by an executive management team at Kingsway. |
•
|
maintain discrete brand
identities; and
|
•
|
develop
expertise and organizational cultures that best serve the individual
markets in which we operate.
|
•
|
ability
to identify specialty markets that are more likely to produce an
underwriting profit;
|
• | disciplined underwriting approach; |
• | diversified product and geographic platforms; |
• | prudent claims management; |
• | rigorous approach to reserving for unpaid claims; |
•
|
cost
containment and the economics of shared support functions;
and
|
•
|
services
and competitive commissions we provide to our independent agents, program
managers and brokers.
|
2007
|
2006
|
|||||||||||||||
Non-Standard
Automobile
|
$ | 617.0 | 31.4 | % | $ | 498.4 | 25.8 | % | ||||||||
Standard
Automobile
|
90.8 | 4.7 | 108.5 | 5.6 | ||||||||||||
Motorcycle
|
81.0 | 4.1 | 68.7 | 3.5 | ||||||||||||
Property (including
liability)
|
120.6 | 6.1 | 121.0 | 6.3 | ||||||||||||
Other Specialty
Lines
|
29.8 | 1.6 | 32.9 | 1.7 | ||||||||||||
Total
Personal
|
$ | 939.2 | 47.9 | % | $ | 829.5 | 42.9 | % | ||||||||
Trucking
|
$ | 416.6 | 21.2 | % | $ | 634.2 | 32.8 | % | ||||||||
Commercial
Automobile
|
322.8 | 16.4 | 269.9 | 14.0 | ||||||||||||
Property (including
liability)
|
201.2 | 10.3 | 137.4 | 7.1 | ||||||||||||
Other Specialty
Lines
|
82.9 | 4.2 | 61.7 | 3.2 | ||||||||||||
Total
Commercial
|
$ | 1,023.5 | 52.1 | % | $ | 1,103.2 | 57.1 | % | ||||||||
Total Gross Premiums
Written
|
$ | 1,962.7 | 100.0 | % | $ | 1,932.7 | 100.0 | % |
2007
|
2006
|
|||||||||||||||
California
|
$ | 272.8 | 13.9 | % | $ | 263.5 | 13.6 | % | ||||||||
Florida
|
188.6 | 9.6 | 183.0 | 9.5 | ||||||||||||
Illinois
|
166.4 | 8.5 | 189.7 | 9.8 | ||||||||||||
New
York
|
129.7 | 6.6 | 88.1 | 4.6 | ||||||||||||
Texas
|
99.8 | 5.1 | 110.2 | 5.7 | ||||||||||||
Hawaii
|
74.1 | 3.8 | 66.3 | 3.4 | ||||||||||||
New
Jersey
|
43.9 | 2.2 | 49.4 | 2.5 | ||||||||||||
Other
|
417.4 | 21.3 | 391.8 | 20.3 | ||||||||||||
Total United
States
|
$ | 1,392.7 | 71.0 | % | $ | 1,342.0 | 69.4 | % | ||||||||
Ontario
|
$ | 362.7 | 18.4 | % | $ | 372.6 | 19.3 | % | ||||||||
Québec
|
122.3 | 6.2 | 113.7 | 5.9 | ||||||||||||
Alberta
|
46.5 | 2.4 | 70.6 | 3.7 | ||||||||||||
Other
|
38.5 | 2.0 | 33.8 | 1.7 | ||||||||||||
Total
Canada
|
$ | 570.0 | 29.0 | % | $ | 590.7 | 30.6 | % | ||||||||
Total
|
$ | 1,962.7 | 100.0 | % | $ | 1,932.7 | 100.0 | % |
2007
|
2006
|
|||||||
Type of
security
|
||||||||
Term
deposits
|
$ | 394.6 | $ | 379.1 | ||||
Government
bonds
|
372.3 | 333.2 | ||||||
Corporate debt
securities
|
2,047.7 | 1,771.5 | ||||||
Subtotal
|
$ | 2,814.6 | $ | 2,483.8 | ||||
Common
shares
|
$ | 434.7 | $ | 404.2 | ||||
Preferred
shares
|
7.1 | - | ||||||
Finance
premiums
|
91.9 | 67.5 | ||||||
Cash and cash
equivalents
|
161.6 | 129.8 | ||||||
Total
|
$ | 3,509.9 | $ | 3,085.3 |
2007
|
2006
|
|||||||
Average securities at
cost
|
$ | 3,297.8 | $ | 3,013.6 | ||||
Investment income after
expenses
|
$ | 141.5 | $ | 120.9 | ||||
Percent earned
on average investments (annualized)
|
4.3 | % | 4.0 | % | ||||
Net realized
gains
|
$ | 52.1 | $ | 29.0 | ||||
Total investment
income
|
$ | 193.6 | $ | 149.9 | ||||
Total realized
yield
|
5.9 | % | 5.0 | % | ||||
Change in unrealized investment
gains
|
$ | 8.1 | $ | 8.3 | ||||
Total return
yield
|
6.1 | % | 5.2 | % |
2007
|
2006
|
|||||||||||||||
Due in less than one
year
|
$ | 714.3 | 25.4 | % | $ | 600.0 | 24.2 | % | ||||||||
Due in one through five
years
|
1,242.7 | 44.1 | 1,157.5 | 46.5 | ||||||||||||
Due after five through ten
years
|
720.5 | 25.6 | 590.9 | 23.8 | ||||||||||||
Due after ten
years
|
137.1 | 4.9 | 135.4 | 5.5 | ||||||||||||
Total
|
$ | 2,814.6 | 100.0 | % | $ | 2,483.8 | 100.0 | % |
2007
|
2006
|
||||||||
Rating
|
|||||||||
AAA/Aaa
|
53.9 | % | 54.0 | % | |||||
AA/Aa2
|
23.5 | % | 24.1 | % | |||||
A/A2 | 16.7 | % | 17.8 | % | |||||
Percentage rated A/A2 or
better
|
94.1 | % | 95.9 | % | |||||
BBB/Baa2
|
3.4 | % | 2.8 | % | |||||
BB/Ba2
|
0.3 | % | 0.4 | % | |||||
B/B2 | 0.4 | % | 0.6 | % | |||||
CCC/Caa or lower, or not
rated
|
1.8 | % | 0.3 | % | |||||
Total
|
100.0 | % | 100.0 | % |
Securities
|
Cash
Flow
|
|||||||||||
Securities
|
Portfolio
|
Generated
|
||||||||||
Portfolio
|
Per
Share
|
from
|
||||||||||
at Fair
Value
|
Outstanding
|
Operations
|
||||||||||
(in
millions)
|
(in
dollars)
|
(in
millions)
|
||||||||||
1998
|
$ | 409 | $ | 11.40 | $ | 43 | ||||||
1999
|
457 | 13.43 | 23 | |||||||||
2000
|
522 | 15.32 | 62 | |||||||||
2001
|
775 | 15.92 | 134 | |||||||||
2002
|
1,346 | 27.59 | 382 | |||||||||
2003
|
2,124 | 38.04 | 471 | |||||||||
2004
|
2,644 | 47.04 | 392 | |||||||||
2005
|
2,933 | 51.93 | 274 | |||||||||
2006
|
3,085 | 55.21 | 167 | |||||||||
2007
|
3,510 | 63.22 | 67 |
•
|
identifying
all security holdings in an unrealized loss position that has existed for
at least six months or that other circumstances exist where management
believes those circumstances may impact the recoverability of the
security;
|
•
|
obtaining
a valuation analysis from third party investment managers regarding the
intrinsic value of these holdings based on their knowledge and experience
together with market-based valuation
techniques;
|
•
|
reviewing
the trading range of certain securities over the preceding calendar
period;
|
•
|
assessing
if declines in market value are other than temporary for debt security
holdings based on the
investment grade credit rating from third party security rating
agencies;
|
•
|
assessing
if declines in market value are other than temporary for any debt security
holding with a non-investment grade credit rating based on the continuity
of its debt service record;
and
|
•
|
determining
the necessary provision for declines in market value that are considered
other than temporary based on the analyses
performed.
|
•
|
the
opinion of professional investment managers could be
incorrect;
|
•
|
the
past trading patterns of individual securities may not reflect future
valuation trends;
|
•
|
the
credit ratings assigned by independent credit rating agencies may be
incorrect due to unforeseen or unknown facts related to a company’s
financial situation; and
|
•
|
the
debt service pattern of non-investment grade securities may not reflect
future debt service capabilities and may not reflect a company’s unknown
underlying financial
problems.
|
2007
|
2006
|
(%) Increase
|
||||||||||
U.S.
Operations
|
||||||||||||
Case
Reserves
|
$ | 732,861 | $ | 656,383 | 12 | % | ||||||
IBNR
|
610,128 | 482,024 | 27 | % | ||||||||
Total unpaid
claims
|
$ | 1,342,989 | $ | 1,138,407 | 18 | % | ||||||
Canadian
Operations
|
||||||||||||
Case
Reserves
|
$ | 581,404 | $ | 512,769 | 13 | % | ||||||
IBNR
|
342,689 | 288,187 | 19 | % | ||||||||
Total unpaid
claims
|
$ | 924,093 | $ | 800,956 | 15 | % | ||||||
Consolidated unpaid
claims
|
$ | 2,267,082 | $ | 1,939,363 | 17 | % |
Low
|
High
|
Point
Estimate |
Carried
|
|||||||||||||
U.S.
Operations
|
$ | 1,201.2 | $ | 1,490.7 | $ | 1,332.4 | $ | 1,343.0 | ||||||||
Canadian
Operations
|
813.0 | 1,039.6 | 921.6 | 924.1 | ||||||||||||
Total Consolidated Provision for
Unpaid Claims
|
$ | 2,014.2 | $ | 2,530.3 | $ | 2,254.0 | $ | 2,267.1 | ||||||||
As
of December 31, 2006 (in millions of dollars)
|
||||||||||||||||
Low
|
High
|
Point
Estimate |
Carried
|
|||||||||||||
U.S.
Operations
|
$ | 991.0 | $ | 1,274.9 | $ | 1,132.4 | $ | 1,138.4 | ||||||||
Canadian
Operations
|
684.2 | 915.3 | 800.0 | 801.0 | ||||||||||||
Total Consolidated Provision for
Unpaid Claims
|
$ | 1,675.2 | $ | 2,190.2 | $ | 1,932.4 | $ | 1,939.4 |
2007
|
2006
|
2005
|
2004
|
2003
|
2002
|
2001
|
2000
|
1999
|
1998
|
1997
|
||||||||||||||||||||||||||||||||||
Unpaid claims originally
established -end of year, gross
|
2,267.1 | 1,939.4 | 1,844.2 | 1,689.2 | 1,310.6 | 765.3 | 358.4 | 287.6 | 306.4 | 291.6 | 132.4 | |||||||||||||||||||||||||||||||||
Less:
Reinsurance
recoverable
on unpaid
losses
|
177.7 | 176.5 | 181.6 | 225.9 | 122.0 | 85.6 | 64.4 | 61.7 | 83.1 | 88.0 | 44.9 | |||||||||||||||||||||||||||||||||
Unpaid claims originally
established -end of year, net
|
2,089.4 | 1,762.9 | 1,662.6 | 1,463.3 | 1,188.6 | 679.7 | 294.0 | 225.9 | 223.3 | 203.6 | 87.5 | |||||||||||||||||||||||||||||||||
Cumulative paid (net of currency
translation impact) as
of:
|
||||||||||||||||||||||||||||||||||||||||||||
One year
later
|
699.8 | 740.6 | 652.1 | 584.9 | 319.8 | 190.6 | 123.4 | 102.0 | 84.2 | 35.5 | ||||||||||||||||||||||||||||||||||
Two years
later
|
1,148.7 | 1,080.7 | 961.6 | 588.7 | 264.5 | 197.0 | 159.9 | 134.5 | 52.7 | |||||||||||||||||||||||||||||||||||
Three years
later
|
1,336.4 | 1,198.4 | 774.2 | 361.0 | 237.5 | 206.0 | 171.1 | 64.8 | ||||||||||||||||||||||||||||||||||||
Four years
later
|
1,327.9 | 875.3 | 428.3 | 284.2 | 224.4 | 198.5 | 76.7 | |||||||||||||||||||||||||||||||||||||
Five years
later
|
926.7 | 460.5 | 313.4 | 248.0 | 205.0 | 85.3 | ||||||||||||||||||||||||||||||||||||||
Six years
later
|
476.6 | 326.4 | 263.3 | 217.4 | 86.4 | |||||||||||||||||||||||||||||||||||||||
Seven years
later
|
334.1 | 267.5 | 225.1 | 89.3 | ||||||||||||||||||||||||||||||||||||||||
Eight years
later
|
272.0 | 226.2 | 93.9 | |||||||||||||||||||||||||||||||||||||||||
Nine years
later
|
228.6 | 92.6 | ||||||||||||||||||||||||||||||||||||||||||
Ten years
later
|
93.9 | |||||||||||||||||||||||||||||||||||||||||||
Re-estimated liability as
of:
|
||||||||||||||||||||||||||||||||||||||||||||
One year
later
|
1,943.3 | 1,726.9 | 1,487.5 | 1,241.8 | 818.2 | 363.5 | 246.2 | 220.1 | 198.5 | 78.7 | ||||||||||||||||||||||||||||||||||
Two years
later
|
1,906.9 | 1,645.7 | 1,399.7 | 915.4 | 424.1 | 274.5 | 228.2 | 200.5 | 80.7 | |||||||||||||||||||||||||||||||||||
Three years
later
|
1,740.1 | 1,480.9 | 984.7 | 475.4 | 313.5 | 241.1 | 206.5 | 82.6 | ||||||||||||||||||||||||||||||||||||
Four years
later
|
1,520.8 | 1,007.3 | 496.8 | 335.4 | 263.8 | 217.2 | 85.0 | |||||||||||||||||||||||||||||||||||||
Five years
later
|
1,020.9 | 505.5 | 343.2 | 274.1 | 226.1 | 90.5 | ||||||||||||||||||||||||||||||||||||||
Six years
later
|
509.6 | 345.8 | 275.4 | 230.7 | 94.2 | |||||||||||||||||||||||||||||||||||||||
Seven years
later
|
354.0 | 276.8 | 231.7 | 96.4 | ||||||||||||||||||||||||||||||||||||||||
Eight years
later
|
284.0 | 233.5 | 96.1 | |||||||||||||||||||||||||||||||||||||||||
Nine years
later
|
239.0 | 97.1 | ||||||||||||||||||||||||||||||||||||||||||
Ten years
later
|
99.3 | |||||||||||||||||||||||||||||||||||||||||||
As at December 31, 2007:
Cumulative
(redundancy) deficiency
|
180.4 | 244.4 | 276.8 | 332.1 | 341.2 | 215.6 | 128.1 | 60.8 | 35.4 | 11.8 | ||||||||||||||||||||||||||||||||||
Cumulative (redundancy) deficiency
as a % of
reserves originally established - net
|
10 | % | 15 | % | 19 | % | 28 | % | 50 | % | 73 | % | 57 | % | 27 | % | 17 | % | 14 | % | ||||||||||||||||||||||||
Re-estimated liability - gross
|
2,093.0 | 2,079.1 | 1,982.6 | 1,692.1 | 1,162.8 | 607.5 | 420.7 | 368.1 | 338.1 | 141.7 | ||||||||||||||||||||||||||||||||||
Less: Re-established reinsurance
recoverable
|
149.7 | 172.2 | 242.5 | 171.3 | 141.9 | 98.0 | 66.7 | 84.0 | 99.1 | 42.4 | ||||||||||||||||||||||||||||||||||
Re-estimated provision - net
|
1,943.3 | 1,906.9 | 1,740.1 | 1,520.8 | 1,020.9 | 509.6 | 354.0 | 284.0 | 239.0 | 99.3 | ||||||||||||||||||||||||||||||||||
Cumulative deficiency - gross
|
153.6 | 234.8 | 293.4 | 381.4 | 397.5 | 249.1 | 133.1 | 61.7 | 46.4 | 9.3 | ||||||||||||||||||||||||||||||||||
% of reserves originally
established -
gross
|
8 | % | 13 | % | 17 | % | 29 | % | 52 | % | 70 | % | 46 | % | 20 | % | 16 | % | 7 | % |
By Accident
Year
|
2007
|
2006
|
2005
|
2004
|
2003
|
2002
|
2001
|
2000
|
1999
|
1998 &
prior
|
||||||||||||||||||||||||||||||
By Calendar
Year
|
||||||||||||||||||||||||||||||||||||||||
2007
|
(180,395 | ) | 332 | 85,685 | 54,484 | 26,325 | 9,491 | (4,072 | ) | 902 | 1,771 | 5,477 | ||||||||||||||||||||||||||||
2006
|
(64,329 | ) | (93,877 | ) | 77,044 | 58,524 | 13,930 | 6,053 | 1,247 | (360 | ) | 1,768 | ||||||||||||||||||||||||||||
2005
|
(24,233 | ) | (133,660 | ) | 88,651 | 47,823 | 13,670 | 6,481 | 195 | 1,073 | ||||||||||||||||||||||||||||||
2004
|
(53,196 | ) | (44,023 | ) | 45,974 | 29,311 | 11,575 | 5,803 | 4,556 | |||||||||||||||||||||||||||||||
2003
|
(138,482 | ) | 77,820 | 21,621 | 16,422 | 13,676 | 8,943 | |||||||||||||||||||||||||||||||||
2002
|
(69,497 | ) | 41,283 | 15,235 | 2,279 | 10,700 | ||||||||||||||||||||||||||||||||||
2001
|
(20,350 | ) | 12,317 | 2,115 | 5,918 | |||||||||||||||||||||||||||||||||||
2000
|
3,150 | (5,208 | ) | 2,058 | ||||||||||||||||||||||||||||||||||||
1999
|
5,081 | (5,081 | ) | |||||||||||||||||||||||||||||||||||||
Total
|
(180,395 | ) | (63,997 | ) | (32,425 | ) | (55,328 | ) | (9,005 | ) | 125,541 | 87,516 | 67,329 | 25,352 | 35,412 | |||||||||||||||||||||||||
Combined ratio as
reported
|
109.3 | % | 98.8 | % | 97.2 | % | 97.8 | % | 101.6 | % | 99.8 | % | 99.1 | % | 101.0 | % | 102.6 | % | ||||||||||||||||||||||
Net reserve
re-estimates
|
(9.8 | %) | (3.6 | %) | (1.8 | %) | (3.1 | %) | (0.5 | %) | 11.3 | % | 15.5 | % | 18.5 | % | 8.5 | % | ||||||||||||||||||||||
Accident year combined
ratio
|
99.5 | % | 95.2 | % | 95.4 | % | 94.7 | % | 101.1 | % | 111.1 | % | 114.6 | % | 119.5 | % | 111.1 | % |
By Accident
Year
|
2007
|
2006
|
2005
|
2004
|
2003
|
2002
|
2001
|
2000
|
1999
|
|||||||||||||||||||||||||||
Canadian
Operations
|
||||||||||||||||||||||||||||||||||||
Combined ratio
as reported
|
94.5 | % | 94.5 | % | 96.1 | % | 97.9 | % | 111.8 | % | 108.4 | % | 103.1 | % | 101.8 | % | 104.8 | % | ||||||||||||||||||
Net reserve
re-estimates
|
5.9 | % | (0.6 | %) | (8.6 | %) | (17.5 | %) | (17.3 | %) | 11.8 | % | 16.6 | % | 31.6 | % | 17.8 | % | ||||||||||||||||||
Accident year
combined ratio
|
100.4 | % | 93.9 | % | 87.5 | % | 80.4 | % | 94.5 | % | 120.2 | % | 119.7 | % | 133.4 | % | 122.6 | % |
By Accident
Year
|
2007
|
2006
|
2005
|
2004
|
2003
|
2002
|
2001
|
2000
|
1999
|
|||||||||||||||||||||||||||
U.S.
Operations
|
||||||||||||||||||||||||||||||||||||
Combined ratio
as reported
|
113.5 | % | 100.8 | % | 97.7 | % | 97.7 | % | 98.3 | % | 97.2 | % | 96.8 | % | 100.9 | % | 100.6 | % | ||||||||||||||||||
Net reserve
re-estimates
|
(16.3 | %) | (5.1 | %) | 1.5 | % | 2.5 | % | 4.6 | % | 11.2 | % | 14.9 | % | 7.0 | % | 0.3 | % | ||||||||||||||||||
Accident year
combined ratio
|
97.2 | % | 95.7 | % | 99.2 | % | 100.2 | % | 102.9 | % | 108.4 | % | 111.7 | % | 107.9 | % | 100.9 | % |
Line of
Business
|
2007
|
2006
|
||||||
Trucking
|
$ | 811,638 | $ | 734,913 | ||||
Non-Standard
Auto
|
575,206 | 475,343 | ||||||
Standard
Auto
|
144,486 | 126,397 | ||||||
Commercial
Auto
|
239,160 | 220,839 | ||||||
Motorcycle
|
126,830 | 102,809 | ||||||
Property &
Liability
|
303,251 | 228,809 | ||||||
Other
|
66,511 | 50,253 | ||||||
Total
|
$ | 2,267,082 | $ | 1,939,363 |
Line of
Business
|
2007
|
2006
|
||||||
Trucking
|
$ | 713,240 | $ | 645,596 | ||||
Non-Standard
Auto
|
564,747 | 466,074 | ||||||
Standard
Auto
|
141,020 | 123,751 | ||||||
Commercial
Auto
|
243,290 | 221,949 | ||||||
Motorcycle
|
97,335 | 74,911 | ||||||
Property &
Liability
|
270,621 | 188,224 | ||||||
Other
|
59,158 | 42,427 | ||||||
Total
|
$ | 2,089,411 | $ | 1,762,932 |
Accident Year
|
Motorcycle
|
Trucking
|
Standard Auto
|
Non-Standard Auto
|
Property & Liability
|
Other
|
Total
|
|||||||||||||||||||||
2002 &
prior
|
$ | 1,803 | $ | 3,570 | $ | (43 | ) | $ | 690 | $ | 6,165 | $ | 1,384 | $ | 13,569 | |||||||||||||
2003
|
(586 | ) | 16,973 | (447 | ) | (1,116 | ) | 7,516 | 3,985 | 26,325 | ||||||||||||||||||
2004
|
719 | 42,915 | (237 | ) | 876 | 8,862 | 1,349 | 54,484 | ||||||||||||||||||||
2005
|
(966 | ) | 64,680 | 2,293 | (2,337 | ) | 23,645 | (1,630 | ) | 85,685 | ||||||||||||||||||
2006
|
(3,070 | ) | 20,771 | (10,336 | ) | (8,783 | ) | 8,323 | (6,573 | ) | 332 | |||||||||||||||||
Total
|
$ | (2,100 | ) | $ | 148,909 | $ | (8,770 | ) | $ | (10,670 | ) | $ | 54,511 | $ | (1,485 | ) | $ | 180,395 |
Year
Ended December 31, 2006 (in thousands of
dollars)
|
||||||||||||||||||||||||||||
Accident
Year
|
Motorcycle
|
Trucking
|
Standard Auto |
Non- Standard |
Property
& Liability |
Other
|
Total
|
|||||||||||||||||||||
2001&
prior
|
$ | 3,415 | $ | 3,571 | $ | (215 | ) | $ | 1,177 | $ | 379 | $ | 381 | $ | 8,708 | |||||||||||||
2002
|
99 | 8,217 | (66 | ) | 920 | 8,555 | (3,795 | ) | 13,930 | |||||||||||||||||||
2003
|
613 | 30,252 | 298 | 7,426 | 10,403 | 9,532 | 58,524 | |||||||||||||||||||||
2004
|
(39 | ) | 55,833 | 833 | 2,219 | 15,067 | 3,131 | 77,044 | ||||||||||||||||||||
2005
|
966 | (36,384 | ) | (5,469 | ) | (15,587 | ) | (21,198 | ) | (16,205 | ) | (93,877 | ) | |||||||||||||||
Total
|
$ | 5,054 | $ | 61,489 | (4,619 | ) | $ | (3,845 | ) | $ | 13,206 | $ | (6,956 | ) | $ | 64,329 |
Year Ended
December 31, 2005 (in thousands of dollars)
|
|
|||||||||||||||||||||||||||
Accident Year
|
Motorcycle
|
Trucking
|
Standard Auto
|
Non-Standard Auto
|
Property & Liability
|
Other
|
Total
|
|||||||||||||||||||||
2001&
prior
|
$ | 197 | $ | (230 | ) | $ | (638 | ) | $ | 4,883 | $ | 2,301 | $ | 1,236 | $ | 7,749 | ||||||||||||
2001
|
(933 | ) | 5,012 | 341 | 4,611 | 3,248 | 1,391 | 13,670 | ||||||||||||||||||||
2002
|
1,946 | 15,851 | 1,379 | 13,462 | 8,565 | 6,620 | 47,823 | |||||||||||||||||||||
2003
|
(636 | ) | 46,305 | 938 | 17,601 | 17,472 | 6,971 | 88,651 | ||||||||||||||||||||
2004
|
(3,762 | ) | (32,695 | ) | (12,164 | ) | (62,944 | ) | (13,128 | ) | (8,967 | ) | (133,660 | ) | ||||||||||||||
Total
|
$ | (3,188 | ) | $ | 34,243 | $ | (10,144 | ) | $ | (22,387 | ) | $ | 18,458 | $ | 7,251 | $ | 24,233 |
2007
|
2006
|
2005
|
||||||||||
U.S.
Operations
|
||||||||||||
Trucking
|
$ | 149.7 | $ | 59.3 | $ | 29.5 | ||||||
Non-standard
automobile
|
3.7 | 1.6 | (30.1 | ) | ||||||||
Commercial
automobile
|
- | (0.1 | ) | 3.1 | ||||||||
Property &
liability
|
58.3 | 13.5 | 17.4 | |||||||||
Other
|
0.7 | 1.1 | 2.3 | |||||||||
Subtotal U.S.
Operations
|
$ | 212.4 | $ | 75.4 | $ | 22.2 | ||||||
Canadian
Operations
|
||||||||||||
Trucking
|
$ | (0.8 | ) | $ | 2.1 | $ | 4.7 | |||||
Non-standard
automobile
|
(14.3 | ) | (5.4 | ) | 8.6 | |||||||
Standard
automobile
|
(8.8 | ) | (4.6 | ) | (10.1 | ) | ||||||
Commercial
automobile
|
(2.1 | ) | (1.9 | ) | 2.9 | |||||||
Motorcycle
|
(2.1 | ) | 5.1 | (3.2 | ) | |||||||
Property &
Liability
|
(3.8 | ) | (0.3 | ) | 1.1 | |||||||
Other
|
(0.1 | ) | (6.1 | ) | (2.0 | ) | ||||||
Subtotal Canadian
Operations
|
$ | (32.0 | ) | $ | (11.1 | ) | $ | 2.0 | ||||
Total increase in claims incurred
for
unpaid claims occurring prior to
December 31st
|
$ | 180.4 | $ | 64.3 | $ | 24.2 | ||||||
As a % of unpaid claims at prior
year end
|
9.3 | % | 3.5 | % | 1.4 | % |
A.M. Best / S&P
Rating
|
2007
|
2006
|
A++
|
5.2%
|
9.2%
|
A+
|
23.6%
|
22.9%
|
A
|
37.0%
|
29.7%
|
A-
|
28.9%
|
29.4%
|
B++/B+/B-
|
2.6%
|
3.9%
|
C++/C
|
-
|
0.2%
|
Not
Rated
|
2.7%
|
4.7%
|
Total
|
100.0%
|
100.0%
|
Canadian
Operations
|
U.S.
Operations
|
Total
|
||||||||||
2007
|
$ | 1,032,615 | $ | 1,609,618 | $ | 2,642,233 | ||||||
2006
|
865,236 | 1,389,962 | 2,255,198 | |||||||||
2005
|
820,823 | 1,300,813 | 2,121,636 | |||||||||
2004
|
667,906 | 1,332,040 | 1,999,946 | |||||||||
2003
|
510,601 | 1,139,289 | 1,649,890 | |||||||||
2002
|
262,035 | 779,777 | 1,041,812 |
Contractual
|
||||||||||||||||||||||||||||
Obligations
|
2008
|
2009
|
2010
|
2011
|
2012
|
Thereafter
|
Total
|
|||||||||||||||||||||
Bank
indebtedness
|
$ | 172,436 | $ | $ | $ | $ | $ | $ | 172,436 | |||||||||||||||||||
Senior unsecured debentures
|
- | - | - | - | 99,680 | 120,400 | 220,080 | |||||||||||||||||||||
Subordinated
indebtedness
|
- | - | - | - | - | 87,354 | 87,354 | |||||||||||||||||||||
Loan
payable
|
- | - | - | - | 66,222 | 66,222 | ||||||||||||||||||||||
Total
indebtedness
|
172,436 | - | - | - | 99,680 | 273,976 | 546,092 | |||||||||||||||||||||
Unpaid
claims
|
735,534 | 543,819 | 323,745 | 241,362 | 175,180 | 247,442 | 2,267,082 | |||||||||||||||||||||
Future minimum lease
payments
|
3,886 | 2,068 | 1,737 | 1,596 | 1,368 | 3,096 | 13,751 | |||||||||||||||||||||
Total
|
$ | 911,856 | $ | 545,887 | $ | 325,482 | $ | 242,958 | $ | 276,228 | $ | 524,514 | $ | 2,826,925 |
2007
|
2006
|
|||||||||||||||
MCT
(%)
|
Excess
over
Minimum1
|
MCT
(%)
|
Excess
over
Minimum1
|
|||||||||||||
Canadian Insurance
Subsidiaries
|
||||||||||||||||
Kingsway
General
|
266 | $ | 59.9 | 241 | $ | 42.1 | ||||||||||
York
Fire
|
279 | 16.8 | 298 | 19.4 | ||||||||||||
Jevco
|
240 | 49.2 | 250 | 47.6 | ||||||||||||
Kingsway Reinsurance (Bermuda)
Ltd.
|
80.9 | 47.1 | ||||||||||||||
Total Canadian
Operations
|
$ | 206.8 | $ | 156.2 | ||||||||||||
U.S. Insurance
Subsidiaries
|
RBC
(%)
|
RBC
(%)
|
||||||||||||||
Lincoln
General
|
153 | $ | - | 236 | $ | 20.5 | ||||||||||
Universal
Casualty
|
374 | 13.7 | 541 | 20.1 | ||||||||||||
American
Service
|
558 | 19.1 | 782 | 27.0 | ||||||||||||
American
Country
|
368 | 8.6 | 442 | 13.5 | ||||||||||||
Hamilton
Group
|
731 | 24.6 | 614 | 20.6 | ||||||||||||
Southern
United
|
206 | 0.2 | 483 | 17.9 | ||||||||||||
Zephyr
|
1,413 | 21.1 | 1,313 | 8.6 | ||||||||||||
Mendota
Insurance
|
156 | - |
NA
|
NA
|
||||||||||||
Mendakota
Insurance
|
377 | 4.2 |
NA
|
NA
|
||||||||||||
Kingsway Reinsurance Corporation
(Barbados)
|
298.7 | 351.9 | ||||||||||||||
Total U.S.
Operations
|
$ | 390.2 | $ | 480.1 | ||||||||||||
Total
Consolidated
|
$ | 597.0 | $ | 636.3 |
2007
|
2006
|
|||||||||||||||||||||||||||||||
Q4 | Q3 | Q2 |
Ql
|
Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||
Gross premiums
written
|
$ | 448,998 | $ | 509,143 | $ | 525,245 | $ | 479,354 | $ | 409,115 | $ | 483,903 | $ | 532,489 | $ | 507,243 | ||||||||||||||||
Net premiums
earned
|
464,564 | 485,323 | 474,042 | 418,189 | 424,977 | 458,309 | 456,196 | 427,015 | ||||||||||||||||||||||||
Net
income
|
(103,494 | ) | 23,611 | 41,716 | 19,641 | 16,848 | 37,405 | 40,174 | 28,882 | |||||||||||||||||||||||
Earnings per
share
|
||||||||||||||||||||||||||||||||
Basic
|
$ | (1.86 | ) | $ | 0.43 | $ | 0.75 | $ | 0.35 | $ | 0.30 | $ | 0.67 | $ | 0.71 | $ | 0.51 | |||||||||||||||
Diluted
|
(1.84 | ) | 0.42 | 0.74 | 0.35 | 0.30 | 0.66 | 0.71 | 0.51 |
•
|
expanding
our financial, operational and management information
systems;
|
•
|
managing
our relationships with independent agents, program managers and brokers,
including maintaining adequate
controls;
|
•
|
expanding
our executive management and the infrastructure required to effectively
control our growth;
|
•
|
maintaining
ratings for certain of our insurance
subsidiaries;
|
•
|
increasing
the statutory capital of our insurance subsidiaries to support growth in
written premiums;
|
•
|
accurately
setting provisions for claims for new business where historical
underwriting experience may not be
available;
|
•
|
obtaining
regulatory approval for appropriate premium rates;
and
|
•
|
obtaining
the required regulatory approvals to offer additional insurance products
or to expand into additional states or
provinces.
|
•
|
difficulties
in the integration of the acquired
business;
|
•
|
assumption
of unknown material liabilities, including deficient provisions for unpaid
claims;
|
•
|
diversion
of management’s attention from other business
concerns;
|
•
|
failure
to achieve financial or operating objectives;
and
|
•
|
potential
loss of policyholders or key employees of acquired
companies.
|
•
|
Actuarial
projections of the cost of settlement and administration of claims
reflecting facts and circumstances then
known;
|
•
|
Estimates
of future trends in claims severity and
frequency;
|
•
|
Judicial
and legislative trends, and actions such as class action lawsuits and
judicial interpretation of coverages or
policy exclusions;
and
|
•
|
disputes
regarding sales practices, disclosure, premium refunds, licensing,
regulatory compliance and compensation
arrangements;
|
•
|
disputes
with our agents, producers or network providers over compensation and
termination of contracts and related
claims;
|
•
|
disputes
relating to customers regarding the ratio of premiums to benefits in our
various business lines;
|
•
|
disputes
with taxing authorities regarding our tax liabilities;
and
|
•
|
disputes
relating to certain businesses acquired or disposed of by
us.
|
•
|
restrictions
on the amount, type, nature, quality and quantity of
securities;
|
•
|
the
maintenance of adequate reserves for unearned premiums and unpaid
claims;
|
•
|
restrictions
on the types of terms that can be included in insurance
policies;
|
•
|
the
examination of insurance companies by regulatory authorities, including
periodic financial and market conduct
examinations;
|
•
|
limitations
on dividends and transactions with
affiliates;
|
Years
Ended December 31,
|
|||||||||
in
Canadian dollars
|
2007
|
2006
|
|||||||
Audit
fees
|
$ | 4,586,000 | $ | 4,237,000 | |||||
Audit-related
fees
|
$ | 74,000 | $ | 190,000 | |||||
Tax
fees
|
$ | 208,000 | $ | 162,000 | |||||
Other
fees
|
$ | 2,000 | $ | 2,000 | |||||
Total
|
$ | 4,870,000 | $ | 4,591,000 |
Exhibit
Number |
Title |
1.
|
Consent
of KPMG LLP
|
2.
|
Consent
of Towers Perrin Inc.
|
99.1
|
Certification
of W. Shaun Jackson, Chief Executive Officer, pursuant to Rule 13a-14(a)
or 15d-14(a) of the Securities Exchange
Act
|
99.2
|
Certification
of Shelly Gobin, Chief Financial Officer, pursuant to Rule 13a-14(a) or
15d-14(a) of the Securities Exchange
Act
|
99.3
|
Certification
of W. Shaun Jackson, Chief Executive Officer, pursuant to Rule 13a-14(b)
or 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United
States Code (18 U.S.C. 1350)
|
99.4
|
Certification
of Shelly Gobin, Chief Financial Officer, pursuant to Rule 13a-14(b) or
15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States
Code (18 U.S.C. 1350)
|
99.5
|
Page
86 of 2007 Annual Report of Kingsway Financial Services
Inc.
|
KINGSWAY
FINANCIAL SERVICES INC.
|
|||
March 28, 2008 | By: | /s/ Shelly Gobin | |
Shelly
Gobin
Vice President and Chief Financial Officer |
Number
|
Document
|
Sequential
Page Number |
1.
|
Consent
of KPMG LLP
|
106
|
2.
|
Consent
of Towers Perrin Inc.
|
107
|
99.1
|
Certification
of W. Shaun Jackson, Chief Executive Officer, pursuant to Rule 13a-14(a)
or 15d-14(a) of the Securities Exchange Act
|
108
|
99.2
|
Certification
of Shelly Gobin, Chief Financial Officer, pursuant to Rule 13a-14(a) or
15d-14(a) of the Securities Exchange Act
|
109
|
99.3
|
Certification
of W. Shaun Jackson, Chief Executive Officer, pursuant to Rule 13a-14(b)
or 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United
States Code (18 U.S.C. 1350)
|
110
|
99.4
|
Certification
of Shelly Gobin, Chief Financial Officer, pursuant to Rule 13a-14(b) or
15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States
Code (18 U.S.C. 1350)
|
111
|
99.5
|
Page
86 of the 2007 Annual Report of Kingsway Financial Services
Inc.
|
112
|