FORWARD-LOOKING STATEMENTS





Management's Discussion and Analysis includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 that are not historical facts, and
involve risks and uncertainties that could cause actual results to differ
materially from those expected and projected. Words such as "expects,"
"believes," "anticipates," "intends," "estimates," "seeks" and variations and
similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future
performance, but reflect Kingsway management's current beliefs, based on
information currently available. A number of factors could cause actual events,
performance or results to differ materially from the events, performance and
results discussed in the forward-looking statements. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, see Kingsway's securities
filings, including its Annual Report on Form 10-K for the year ended December
31, 2020 ("2020 Annual Report"). The Company's securities filings can be
accessed on the EDGAR section of the U.S. Securities and Exchange Commission's
website at www.sec.gov, on the Canadian Securities Administrators' website at
www.sedar.com or through the Company's website at www.kingsway-financial.com.
Except as expressly required by applicable securities law, the Company disclaims
any intention or obligation to update or revise any forward-looking statements
because of new information, future events or otherwise.





OVERVIEW



Kingsway is a Delaware holding company with operating subsidiaries located in
the United States. The Company owns or controls subsidiaries primarily in the
extended warranty, asset management and real estate industries. Kingsway
conducts its business through two reportable segments: Extended Warranty and
Leased Real Estate.



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



IWS is a licensed motor vehicle service agreement company and is a provider of after-market vehicle protection services distributed by credit unions in 26 states and the District of Columbia to their members.





Geminus primarily sells vehicle service agreements to used car buyers across the
United States, through its subsidiaries, The Penn Warranty Corporation ("Penn")
and Prime Auto Care, Inc. ("Prime"). Penn and Prime distribute these products in
32 and 40 states, respectively, via independent used car dealerships and
franchised car dealerships.



PWI markets, sells and administers vehicle service agreements to used car buyers
in all fifty states via independent used car and franchise network of approved
automobile and motorcycle dealer partners. PWI's business model is supported by
an internal sales and operations team and partners with American Auto Shield in
three states with a white label agreement.



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





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



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



Impact of COVID-19



In March 2020, the outbreak of COVID-19 caused by a novel strain of the
coronavirus was recognized as a pandemic by the World Health Organization, and
the outbreak has become increasingly widespread in the United States, including
in the markets in which we operate. The COVID-19 outbreak has had a notable
impact on general economic conditions, including but not limited to the
temporary closures of many businesses; "shelter in place" and other governmental
regulations; and reduced consumer spending due to both job losses and other
effects attributable to COVID-19. There remain many unknowns and the Company
continues to monitor the expected trends and related demand for its services and
has and will continue to adjust its operations accordingly.



The near-term impacts of COVID-19 are primarily with respect to our Extended
Warranty segment. As consumer spending has been impacted, including a decline in
the purchase of new and used vehicles, and many businesses through which we
distribute our products either remain closed or are open but with capacity
constraints, we have seen cash flows being affected by a reduction in new
warranty sales for vehicle service agreements. With respect to homeowner
warranties, we saw an initial reduction in new enrollments in our home warranty
programs associated with the impact of COVID-19 on new home sales in the United
States.



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The Company could experience other potential impacts as a result of COVID-19,
including, but not limited to, potential impairment charges to the carrying
amounts of goodwill, indefinite-lived intangibles and long-lived assets, the
loss in value of investments, as well as the potential for adverse impacts on
the Company's debt covenant financial ratios. The Company is not aware of any
specific event or circumstance that would require an update to its estimates or
judgments or a revision of the carrying value of its assets or liabilities as
of the date of issuance of this Quarterly Report on Form 10-Q. Actual results
may differ materially from the Company's current estimates as the scope of
COVID-19 evolves or if the duration of business disruptions is longer than
initially anticipated. We continue to monitor the impact of the COVID-19
outbreak closely. However, the extent to which the COVID-19 outbreak will impact
our operations or financial results is uncertain.





NON-U.S. GAAP FINANCIAL MEASURE





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



Segment Operating Income (Loss)





Segment operating income (loss) represents one measure of the pretax
profitability of our segments and is derived by subtracting direct segment
expenses from direct segment revenues. Revenues and expenses are presented in
the unaudited consolidated statements of operations, but are not subtotaled by
segment; however, this information is available in total and by segment in Note
18, "Segmented Information," to the unaudited consolidated interim financial
statements, regarding reportable segment information. The nearest comparable
U.S. GAAP measure to total segment operating income is loss from continuing
operations before income tax benefit that, in addition to segment operating
income (loss), includes net investment income, net realized gains, (loss) gain
on change in fair value of equity investments, gain (loss) on change in fair
value of limited liability investments, at fair value, net change in unrealized
loss on private company investments, other-than-temporary impairment loss,
interest expense not allocated to segments, other revenue and expenses not
allocated to segments, net, amortization of intangible assets, (loss) gain on
change in fair value of debt and gain on extinguishment of debt not allocated to
segments. A reconciliation of total segment operating income to loss from
continuing operations before income tax benefit for the three and six months
ended June 30, 2021 and June 30, 2020 is presented in Table 1 of the "Results of
Continuing Operations" section of Management's Discussion and Analysis.





SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ESTIMATES





The preparation of unaudited consolidated interim financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts and classifications of assets and liabilities,
revenues and expenses, and the related disclosures of contingent assets and
liabilities in the consolidated financial statements and accompanying notes.
Actual results could differ from these estimates. Estimates and their underlying
assumptions are reviewed on an ongoing basis. Changes in estimates are recorded
in the accounting period in which they are determined.



The Company's most critical accounting policies are those that are most
important to the portrayal of its financial condition and results of operations,
and that require the Company to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain. The critical accounting policies and judgments in the
accompanying unaudited consolidated interim financial statements include the
valuation of fixed maturities and equity investments; impairment assessment of
investments; valuation of limited liability investments, at fair value;
valuation of real estate investments; valuation of deferred income taxes;
valuation of mandatorily redeemable preferred stock; accounting for business
combinations; valuation and impairment assessment of intangible assets; goodwill
recoverability; deferred acquisition costs; fair value assumptions for
subordinated debt obligations; fair value assumptions for stock-based
compensation liabilities; and revenue recognition. Although management believes
that its estimates and assumptions are reasonable, they are based upon
information available when they are made, and therefore, actual results may
differ from these estimates under different assumptions or conditions.



The Company's significant accounting policies and critical estimates are
described in Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the 2020 Annual Report. There has been no
material change subsequent to December 31, 2020 to the information previously
disclosed in the 2020 Annual Report with respect to these significant accounting
policies and critical estimates.  The Company has added the following critical
accounting policy:


Accounting for Business Combinations:





The acquisition method of accounting is used to account for acquisitions of
subsidiaries or other businesses by assigning the purchase price to tangible and
intangible assets acquired and liabilities assumed. Assets acquired and
liabilities assumed are recorded at their fair values and the excess of the
purchase price over the amounts assigned is recorded as goodwill. We determine
the fair value of such assets and liabilities, often in consultation with
third-party valuation advisors. Acquired intangible assets with finite lives are
amortized over their estimated useful lives. Adjustments to fair value
assessments are recorded to goodwill over the purchase price allocation period.



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    KINGSWAY FINANCIAL SERVICES INC.

RESULTS OF CONTINUING OPERATIONS





A reconciliation of total segment operating income to net (loss) income for the
three and six months ended June 30, 2021 and June 30, 2020 is presented in Table
1 below:


Table 1 Segment Operating Income



(in thousands of dollars)



                                  For the three months ended June 30,               For the six months ended June 30,
                                2021               2020        Change            2021              2020        Change
Segment operating
income:
Extended Warranty       $      2,600       $      1,285     $   1,315     $     7,910       $     2,135     $   5,775
Leased Real Estate            (2,302 )              838        (3,140 )        (1,009 )           1,435        (2,444 )
Total segment
operating income                 298              2,123        (1,825 )         6,901             3,570         3,331
Net investment income            403                681          (278 )           824             1,400          (576 )
Net realized gains               187                  8           179             238               216            22
(Loss) gain on change
in fair value of
equity investments               (45 )              489          (534 )          (196 )            (108 )         (88 )
Gain (loss) on change
in fair value of
limited liability
investments, at fair
value                            731               (123 )         854             529             1,776        (1,247 )
Net change in
unrealized loss on
private company
investments                        -                  -             -               -              (670 )         670

Other-than-temporary


impairment loss                    -                  -             -               -              (117 )         117
Interest expense not
allocated to segments         (1,593 )           (1,997 )         404          (3,145 )          (4,150 )       1,005
Other revenue and
expenses not
allocated to
segments, net                 (2,261 )           (2,133 )        (128 )        (5,752 )          (5,163 )        (589 )
Amortization of
intangible assets               (496 )             (573 )          77            (993 )          (1,147 )         154
(Loss) gain on change
in fair value of debt           (738 )             (202 )        (536 )        (1,757 )           2,443        (4,200 )
Gain on
extinguishment of
debt not allocated to
segments                           -                  -             -             311                 -           311
Loss from continuing
operations before
income tax benefit            (3,514 )           (1,727 )      (1,787 )        (3,040 )          (1,950 )      (1,090 )
Income tax benefit            (3,258 )             (300 )      (2,958 )        (3,683 )            (130 )      (3,553 )
(Loss) income from
continuing operations           (256 )           (1,427 )       1,171             643            (1,820 )       2,463
Gain on disposal of
discontinued
operations, net of
taxes                              -                  6            (6 )             -                 6            (6 )
Net (loss) income       $       (256 )     $     (1,421 )   $   1,165     $       643       $    (1,814 )   $   2,457

(Loss) Income from Continuing Operations and Net (Loss) Income





In the second quarter of 2021, we reported loss from continuing operations of
$0.3 million compared to $1.4 in the second quarter of 2020. The loss from
continuing operations for the three months ended June 30, 2021 is primarily due
to operating loss in Leased Real Estate, interest expense not allocated to
segments and other revenue and expenses not allocated to segments, net,
partially offset by operating income in Extended Warranty and income tax
benefit. The loss from continuing operations for the three months ended June 30,
2020 is primarily due to interest expense not allocated to segments and other
income and expenses not allocated to segments, net, partially offset by
operating income in Extended Warranty and Leased Real Estate and net investment
income.



For the six months ended June 30, 2021, we reported income from continuing
operations of $0.6 million compared to loss from continuing operations of $1.8
million for the six months ended June 30, 2020.  The income from continuing
operations for the six months ended June 30, 2021 is primarily due to operating
income in Extended Warranty and net investment income, partially offset by
operating loss in Leased Real Estate, interest expense not allocated to
segments, other revenue and expenses not allocated to segments, net, loss on
change in fair value of debt and income tax benefit. For the six months ended
June 30, 2021, Extended Warranty segment operating income includes gain on
extinguishment of debt of $2.2 million, related to PPP loan forgiveness. See
Note 11, "Debt," to the unaudited consolidated interim financial statements, for
further discussion.  The loss from continuing operations for the six months
ended June 30, 2020 is primarily due to interest expense not allocated to
segments and other income and expenses not allocated to segments, net, partially
offset by operating income in Extended Warranty and Leased Real Estate, gain on
change in fair value of debt and gain on change in fair value of limited
liability investments, at fair value.



Extended Warranty



The Extended Warranty service fee and commission revenue increased 80.8% (or
$8.4 million) to $18.8 million for the three months ended June 30, 2021 compared
with $10.4 million for the three months ended June 30, 2020 ($37.3 million year
to date compared to $21.6 million prior year to date).  The increase in service
fee and commission revenue is primarily due to the inclusion of PWI for the
three and six months ended June 30, 2021 following its acquisition effective
December 1, 2020. PWI service fee and commission revenue was $7.4 million and
$14.8 million for the three and six months ended June 30, 2021, respectively.



The Extended Warranty operating income was $2.6 million for the three months
ended June 30, 2021 compared with $1.3 million for the three months ended June
30, 2020 ($7.9 million year to date compared to $2.1 million prior year to
date). The increase in operating income is primarily due to the following:



• Inclusion of Paycheck Protection Program ("PPP") loan forgiveness related to

Extended Warranty companies of $2.2 million for the six months ended June 30,


    2021;




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    KINGSWAY FINANCIAL SERVICES INC.

$0.8 million due to the inclusion of PWI in 2021 following its acquisition


    effective December 1, 2020 ($2.0 million year to date);



• A $0.2 million increase at IWS to $0.6 million for the three months ended June

30, 2021 (an increase of $1.4 million year to date to $2.2 million), due to a

decrease in claims authorized on vehicle service agreements and lower general

and administrative expenses that was partially offset by a slight decrease in


    revenue;



• A $0.2 million increase at Trinity to $0.3 million for the three months ended

June 30, 2021 (an increase of $0.4 million year to date to $0.6 million),

driven by increased revenues in its equipment breakdown and maintenance

support services, as well as increased revenue and gross profit on the

extended warranty services product, partially offset by a related increase in


    cost of services sold compared to the same period in 2020;



• A $0.3 million increase at PWSC to $0.5 million for the three months ended

June 30, 2021 (an increase of $1.1 million year to date to $1.5 million), due

to an increase in revenue and lower general and administrative expenses; and

• A $0.2 million decrease at Geminus to $0.4 million for the three months ended

June 30, 2021 due to a decrease in revenue that was partially offset by lower

general and administrative expenses compared with the three months ended June

30, 2020 (an increase of $0.9 million year to date to $1.6 million, due to a

decrease in claims authorized on vehicle service agreements and lower general


    and administrative expenses that was partially offset by a  decrease in
    revenue compared with the six months ended June 30, 2020).




Leased Real Estate



Leased Real Estate rental revenue was $3.3 million for each of the three months
ended June 30, 2021 and June 30, 2020 ($6.7 million for each of the six months
ended June 30, 2021 and June 30, 2020).  The rental income is derived from CMC's
long-term triple net lease.



Leased Real Estate operating loss was $2.3 million for the three months ended
June 30, 2021 compared with operating income of $0.8 million for the three
months ended June 30, 2020 (operating loss of $1.0 million year to date compared
to operating income of $1.4 million prior year to date).  The operating loss for
the three and six months ended June 30, 2021 is primarily the result of a $2.9
million expense recorded during the second quarter of 2021 to write-off an
indemnification receivable (which is exactly offset by a tax benefit of $2.9
million in net (loss) income), as well as management expense of $0.2 million for
the three months ended June 30, 2021 as a result of the March settlement
agreement. The operating loss for the six months ended June 30, 2021 also
includes a $0.6 million benefit recorded in 2021 related to the finalization of
management fees and legal expenses associated with the settlement of CMC
litigation (see Note 21, "Commitments and Contingencies," to the unaudited
consolidated interim financial statements, for further information on the
settlement). Leased Real Estate operating income includes interest expense of
$1.5 million for each of the three months ended June 30, 2021 and June 30,
2020 ($3.0 million for each of the six months ended June 30, 2021 and June 30,
2020).



Net Investment Income



Net investment income was $0.4 million in the second quarter of 2021 compared to
$0.7 million in the second quarter of 2020 ($0.8 million year to date compared
to $1.4 million prior year to date). The decrease in net investment income for
the three and six months ended June 30, 2021 relates primarily to
lower investment income from the Company's limited liability investments, at
fair value and fixed maturities as a result of general changes in market
conditions.



Net Realized Gains



Net realized gains were $0.2 million in the second quarter of 2021 compared to
less than $0.1 million in the second quarter of 2020 ($0.2 million year to date
compared to $0.2 million prior year to date). The net realized gains for the
three and six months ended June 30, 2021 primarily relate to realized gains
recognized by Argo Holdings Fund I, LLC ("Argo Holdings").  The net realized
gains for the three months ended June 30, 2020 relate to sales of
fixed maturities.  The net realized gains for the six months ended June 30,
2020 relate primarily to sales of fixed maturities and distributions received
from one of the Company's investments in which its carrying value previously had
been written down to zero as a result of prior distributions.



(Loss) Gain on Change in Fair Value of Equity Investments

Loss on change in fair value of equity investments was less than $0.1 million in the second quarter of 2021 compared to a gain of $0.5 million in the second quarter of 2020 (loss of $0.2 million year to date compared to a loss of $0.1 million prior year to date). Significant drivers include:

• Unrealized losses of less than $0.1 million and unrealized gains of

$0.5 million on equity investments held during the three months ended June 30,

2021 and June 30, 2020, respectively (unrealized losses of $0.2 million

and $0.1 million, respectively, year to date and prior year to date); and

• Net realized gains of zero on equity investments sold during the three months

ended June 30, 2021 and June 30, 2020 (less than $0.1 million and zero year to


    date and prior year to date).





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    KINGSWAY FINANCIAL SERVICES INC.

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





Gain on change in fair value of limited liability investments, at fair value was
$0.7 million in the second quarter of 2021 compared to a loss of $0.1 million in
the second quarter of 2020 (gain of $0.5 million year to date compared to a gain
of $1.8 million prior year to date). The gain for the three months ended June
30, 2021 represents an increase in fair value of $0.8 million related to Net
Lease Investment Grade Portfolio LLC ("Net Lease") due to an increase in fair
value of the properties held by the underlying LLC's and a reduction in debt at
one of the underlying LLC's, partially offset by a decrease in fair value of
$0.1 million related to Argo Holdings. The loss for the three months ended June
30, 2020 represents a decrease in fair value of $0.1 million related to Argo
Holdings.


The gain for the six months ended June 30, 2021 represent increases in fair value of $0.4 million related to Net Lease and $0.1 million related to Argo Holdings. The gain for the six months ended June 30, 2020 represents an increase in fair value of $1.9 million related to Net Lease, partially offset by a decrease in fair value of $0.1 million related to Argo Holdings.

Net Change in Unrealized Loss on Private Company Investments





Net change in unrealized loss on private company investments was zero in both
the second quarter of 2021 and the second quarter of 2020 (zero year to date
compared to $0.7 million prior year to date). For the three and six months ended
June 30, 2021 and June 30, 2020, the Company did not record any adjustments to
the fair value of its investments in private companies for observable price
changes. Also, as part of the Company's quarterly impairment analysis of its
investments in private companies, the Company determined it should write down
one of its investments for other-than-temporary impairment of $0.7 million for
the six months ended June 30, 2020 as a result of the impact of COVID-19 on the
investment's underlying business.



Interest Expense not Allocated to Segments





Interest expense not allocated to segments for the second quarter of 2021 was
$1.6 million compared to $2.0 million in the second quarter of
2020 ($3.1 million year to date compared to $4.2 million prior year to
date). The decrease for the three and six months ended June 30, 2021 is
primarily attributable to lower interest expense at Net Lease as a result of
repaying their existing financing during the first quarter of 2021, as well as
lower interest expense related to the Company's subordinated debt, which
resulted from generally lower London interbank offered interest rates for
three-month U.S. dollar deposits ("LIBOR") during the three and six months ended
June 30, 2021 compared to the same periods in 2020. The Company's subordinated
debt bears interest at the rate of LIBOR, plus spreads ranging from 3.85% to
4.20%. See "Debt" section below for further details.



Other Revenue and Expenses not Allocated to Segments, Net





Other revenue and expenses not allocated to segments, net was a net expense of
$2.3 million in the second quarter of 2021 compared to $2.1 million in the
second quarter of 2020 ($5.8 million year to date compared to $5.2 million prior
year to date).


The increase in net expense for the three months ended June 30, 2021 is primarily attributable higher salary expense related to restricted stock awards, partially offset by a decrease in audit professional services fees incurred during the three months ended June 30, 2021 compared to the same period in 2020.





The increase in net expense for the six months ended June 30, 2021 is primarily
attributable higher salary expense related to restricted stock awards, partially
offset by a $0.9 million decrease in expense recorded pursuant to outstanding
litigation between the Company and Aegis Security Insurance Company ("Aegis")
recorded during the first quarter of 2020 and a decrease in audit professional
services fees incurred during the six months ended June 30, 2021 compared to the
same period in 2020.


See Note 21, "Commitments and Contingencies," to the unaudited consolidated interim financial statements, for further discussion related to Aegis.

(Loss) Gain on Change in Fair Value of Debt





Loss on change in fair value of debt was $0.7 million in the second quarter of
2021 compared to $0.2 million in the second quarter of 2020 (loss of
$1.8 million year to date compared to a gain of $2.4 million prior year to
date). The loss for the three and six months ended June 30, 2021 and the three
months ended June 30, 2020 reflect increases in the fair value of the
subordinated debt resulting from changes in inputs, other than the
instrument-specific credit risk, to the Company's fair value model which was
primarily the result of decreases in the risk-free rate and lower overall LIBOR
rates. The gain for the six months ended June 30, 2020 reflects a decrease in
the fair value of the subordinated debt resulting from changes in inputs, other
than the instrument-specific credit risk, to the Company's fair value model
which were primarily a result of lower overall LIBOR rates. See "Debt" section
below for further information.



Gain on Extinguishment of Debt not Allocated to Segments





For the six months ended June 30, 2021, gain on extinguishment of debt not
allocated to segments consists of a $0.3 million gain (recorded in the first
quarter) on forgiveness of the balance of the holding company's loan obtained
through the PPP. See Note 11, "Debt," to the unaudited consolidated interim
financial statements, for further discussion.



Income Tax Benefit



Income tax benefit for the second quarter of 2021 was $3.3 million compared
to $0.3 million in the second quarter of 2020 ($3.7 million year to date
compared to $0.1 million prior year to date). During the three months ended June
30, 2021, the Company recorded an income tax benefit of $2.9 million for the
release of a liability that had been included in income taxes payable in the
consolidated balance sheets.  See Note 14, "Income Taxes," to the unaudited
consolidated interim financial statements, for additional detail of the income
tax benefit recorded for the three and six months ended June 30, 2021 and June
30, 2020.





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    KINGSWAY FINANCIAL SERVICES INC.




INVESTMENTS



Portfolio Composition



The following is an overview of how we account for our various investments:

• Investments in fixed maturities are classified as available-for-sale and are


    reported at fair value.


  • Equity investments are reported at fair value.

• Limited liability investments are accounted for under the equity method of

accounting. The most recently available financial statements of the limited

liability investments are used in applying the equity method. The difference

between the end of the reporting period of the limited liability investments


    and that of the Company is no more than three months.


  • Limited liability investments, at fair value represent the underlying
    investments of the Company's consolidated entities Net Lease and Argo
    Holdings. The difference between the end of the reporting period of the

    limited liability investments, at fair value and that of the Company is no
    more than three months.


• Investments in private companies consist of: convertible preferred stocks and

notes in privately owned companies; and investments in limited liability

companies in which the Company's interests are deemed minor. These investments

do not have readily determinable fair values and, therefore, are reported at


    cost, adjusted for observable price changes and impairments.


  • Real estate investments are reported at fair value.

• Other investments include collateral loans and are reported at their unpaid

principal balance.

• Short-term investments, which consist of investments with original maturities

between three months and one year, are reported at cost, which approximates


    fair value.



At June 30, 2021, we held cash and cash equivalents, restricted cash and investments with a carrying value of $102.3 million.





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



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

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

(in thousands of dollars, except for percentages)





                                                                                   December
Type of investment                           June 30, 2021       % of Total        31, 2020       % of Total
Fixed maturities:
U.S. government, government agencies and
authorities                                         10,490             10.3 %        10,104              8.8 %
States, municipalities and political
subdivisions                                         1,284              1.3 %         1,454              1.3 %
Mortgage-backed                                      6,066              5.9 %         5,394              4.7 %
Asset-backed                                           127              0.1 %             -                - %
Corporate                                            3,635              3.6 %         3,764              3.3 %
Total fixed maturities                              21,602             21.2 %        20,716             18.1 %
Equity investments:
Common stock                                           193              0.2 %           155              0.1 %
Warrants                                                32              0.0 %           289              0.3 %
Total equity investments                               225              0.2 %           444              0.4 %
Limited liability investments                        3,568              3.5 %         3,692              3.2 %
Limited liability investments, at fair
value                                               20,362             19.9 %        32,811             28.7 %
Investments in private companies                       790              0.7 %           790              0.7 %
Real estate investments                             10,662             10.4 %        10,662              9.3 %
Other investments                                      288              0.3 %           294              0.2 %
Short-term investments                                 157              0.2 %           157              0.1 %
Total investments                                   57,654             56.4 %        69,566             60.7 %
Cash and cash equivalents                           17,093             16.7 %        14,374             12.6 %
Restricted cash                                     27,540             26.9 %        30,571             26.7 %
Total                                              102,287            100.0 %       114,511            100.0 %



Other-Than-Temporary Impairment





The Company performs a quarterly analysis of its investments classified as
available-for-sale to determine if declines in market value are
other-than-temporary. Further information regarding our detailed analysis and
factors considered in establishing an other-than-temporary impairment on an
investment is discussed within the "Significant Accounting Policies and Critical
Estimates" section of Management's Discussion and Analysis of Financial
Condition included in the 2020 Annual Report.



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KINGSWAY FINANCIAL SERVICES INC.

As a result of the analysis performed, the Company recorded the following write downs for other-than-temporary impairment:

• Other investments: zero for the three months ended June 30, 2021 and June 30,

2020 (zero and $0.1 million for the six months ended June 30, 2021 and June


    30, 2020, respectively).



• Limited liability investments, at fair value: zero for the three months ended

June 30, 2021 and June 30, 2020 (less than $0.1 million and zero for the six

months ended June 30, 2021 and June 30, 2020, respectively), which are

included in gain (loss) on change in fair value of limited liability

investments, at fair value in the consolidated statements of operations.

• Investments in private companies: zero for the three months ended June 30,

2021 and June 30, 2020 (zero and $0.7 million for the six months ended June

30, 2021 and June 30, 2020, respectively), which are included in net change in

unrealized loss on private company investments in the consolidated statements


    of operations.




There were no write-downs recorded for other-than-temporary impairments related
to available-for sale investments or limited liability investments for the three
and six months ended June 30, 2021 and June 30, 2020.



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



At June 30, 2021 and December 31, 2020, the gross unrealized losses for fixed
maturities amounted to less than $0.1 million, and there were no unrealized
losses attributable to non-investment grade fixed maturities. At each of June
30, 2021 and December 31, 2020, all unrealized losses on individual investments
were considered temporary.


Impact of COVID-19 on Investments





The Company continues to assess the impact that the COVID-19 pandemic may have
on the value of its various investments, which could result in future material
decreases in the underlying investment values. Such decreases may be considered
temporary or could be deemed to be other-than-temporary, and management may be
required to record write-downs of the related investments in future reporting
periods.





DEBT



Bank Loans



On October 12, 2017, the Company borrowed a principal amount of $5.0 million
from a bank to partially finance its acquisition of PWSC (the "PWSC Loan"). The
PWSC Loan was scheduled to mature on October 12, 2022; however, the principal
was fully repaid on January 30, 2020.



In 2019, the Company formed KWH, whose subsidiaries include IWS, Geminus and
Trinity. On March 1, 2019, KWH borrowed a principal amount of $10.0 million from
a bank to finance its acquisition of Geminus (the "2019 KWH Loan"). The 2019 KWH
Loan had an annual interest rate equal to LIBOR, having a floor of 2.00%, plus
9.25%. The 2019 KWH Loan was scheduled to mature on March 1, 2024; however, the
principal was fully repaid on December 1, 2020.



As part of the acquisition of PWI on December 1, 2020, PWI became a wholly owned
subsidiary of KWH, which borrowed a principal amount of $25.7 million from a
bank to partially finance its acquisition of PWI and to fully repay the prior
outstanding loan at KWH (the "2020 KWH Loan"). The 2020 KWH Loan has an annual
interest rate equal to LIBOR, having a floor of 0.75%, plus 3.00% and is carried
in the consolidated balance sheets at its amortized cost, which reflects the
quarterly pay-down of principal as well as the amortization of the debt discount
and issuance costs using the effective interest rate method. The 2020 KWH Loan
matures on December 1, 2025. See Note 11, "Debt," to the unaudited consolidated
interim financial statements for further details.



The 2020 KWH Loan contains a number of covenants, including, but not limited to,
a leverage ratio, a fixed charge ratio and limits on annual capital
expenditures, all of which are as defined in and calculated pursuant to the 2020
KWH Loan that, among other things, restrict KWH's ability to incur additional
indebtedness, create liens, make dividends and distributions, engage in mergers,
acquisitions and consolidations, make certain payments and investments and
dispose of certain assets.



Notes Payable



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



On June 2, 2021, TRT Leaseco ("TRT"), a subsidiary of CMC, entered into an
amendment to the Mortgage to borrow an additional $15.0 million, which is
recorded as note payable in the consolidated balance sheets ("the
Additional Mortgage").  The net proceeds from the Additional Mortgage were used
to advance increased rental payments to the parties that had entered into a
legal settlement agreement reached during the first quarter of 2021, including
the Company which received $2.7 million.  See Note 21(a), "Commitments and
Contingencies - Legal proceedings," to the unaudited consolidated interim
financial statements for further discussion of the CMC litigation settlement
agreement.  The Additional Mortgage matures on May 15, 2034 and has a fixed
interest rate of 3.20%.  The Additional Mortgage is carried in the consolidated
balance sheets at its amortized cost, which reflects the monthly pay-down of
principal as well as the amortization of the debt discount and issuance costs
using the effective interest rate method. See Note 11, "Debt," to the unaudited
consolidated interim financial statements for further details.



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



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    KINGSWAY FINANCIAL SERVICES INC.




On October 15, 2015, Net Lease assumed a $9.0 million mezzanine debt in
conjunction with the purchase of investment real estate properties ("the Net
Lease Note"). The Net Lease Note matured on November 1, 2020 and had a fixed
interest rate of 10.25%. The Net Lease Note is carried in the consolidated
balance sheet at December 31, 2020 at its unpaid principal balance. In
conjunction with the maturity of the Net Lease Note on November 1, 2020, Net
Lease explored alternatives to maximize the value of its investment portfolio.
As a result of this process, Net Lease elected to sell one of its three
investment real estate properties while refinancing the remaining properties and
the existing financing was repaid. Each of these transactions closed on October
30, 2020, however because the Company reports Net Lease on a three-month lag,
the consolidated balance sheet at December 31, 2020 continued to report the $9.0
million mezzanine debt.



In April 2020, certain subsidiaries of the Company received loan proceeds under
the PPP, totaling $2.9 million with a stated annual interest rate of 1.00%. The
PPP, established as part of the CARES Act and administered by the U.S. Small
Business Administration (the "SBA"), provides for loans to qualifying businesses
for amounts up to 2.5 times of the average monthly payroll costs (as defined for
purposes of the PPP) of the qualifying business. The loans and accrued interest
are forgivable as long as the borrower uses the loan proceeds for eligible
purposes, including payroll, costs, rent and utilities, during the twenty-four
week period following the borrower's receipt of the loan and maintains its
payroll levels and employee headcount. The amount of loan forgiveness will be
reduced if the borrower reduces its employee headcount below its average
employee headcount during a benchmark period or significantly reduces salaries
for certain employees during the covered period.



The Company used the entire loan amount for qualifying expenses. The U.S.
Department of the Treasury has announced that it will conduct audits for PPP
loans that exceed $2.0 million. If we were to be audited and receive an adverse
outcome in such an audit, we could be required to return the full amount of the
PPP Loan and may potentially be subject to civil and criminal fines and
penalties.



On December 21, 2020 the SBA approved the forgiveness of the full amount of one
of the five PPP loans, which included principal and interest of $0.4 million. In
January 2021 and March 2021, the SBA provided the Company with notices of
forgiveness of the full amount of the remaining four loans. The forgiveness in
the first quarter of 2021 included total principal and interest of $2.5 million.
The carrying value of the PPP at December 31, 2020 represents its unpaid
principal balance.



Subordinated Debt



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



During the third quarter of 2018, the Company gave notice to its Trust Preferred
trustees of its intention to exercise its voluntary right to defer interest
payments for up to 20 quarters, pursuant to the contractual terms of its
outstanding Trust Preferred indentures, which permit interest deferral. This
action does not constitute a default under the Company's Trust Preferred
indentures or any of its other debt indentures. At June 30, 2021 and December
31, 2020, deferred interest payable of $16.4 million and $14.1 million,
respectively, is included in accrued expenses and other liabilities in the
consolidated balance sheets.



The agreements governing our subordinated debt contain a number of covenants
that, among other things, restrict the Company's ability to incur additional
indebtedness, make dividends and distributions, and make certain payments in
respect of the Company's outstanding securities.



The Company's subordinated debt is measured and reported at fair value. At June
30, 2021, the carrying value of the subordinated debt is $58.2 million. The fair
value of the subordinated debt is calculated using a model based on significant
market observable inputs and inputs developed by a third party. For a
description of the market observable inputs and inputs developed by a third
party used in determining fair value of debt, see Note 19, "Fair Value of
Financial Instruments," to the unaudited consolidated interim financial
statements.



During the six months ended June 30, 2021, the market observable swap rates
changed, and the Company experienced a decrease in the credit spread assumption
developed by the third-party. Changes in the market observable swap rates affect
the fair value model in different ways. An increase in the LIBOR swap rates has
the effect of increasing the fair value of the Company's subordinated debt while
an increase in the risk-free swap rates has the effect of decreasing the fair
value. The increase in the credit spread assumption has the effect of decreasing
the fair value of the Company's subordinated debt while a decrease in the credit
spread assumption has the effect of increasing the fair value. The other primary
variable affecting the fair value of debt calculation is the passage of time,
which will always have the effect of increasing the fair value of debt. The
changes to the credit spread and swap rate variables during the six months ended
June 30, 2021, along with the passage of time, contributed to the $7.3 million
increase in fair value of the Company's subordinated debt between December 31,
2020 and June 30, 2021.



Of the $7.3 million increase in fair value of the Company's subordinated debt
between December 31, 2020 and June 30, 2021, $5.5 million is reported as
increase in fair value of debt attributable to instrument-specific credit risk
in the Company's unaudited consolidated statements of comprehensive (loss)
income and $1.8 million is reported as loss on change in fair value of debt in
the Company's unaudited consolidated statements of operations.



Though changes in the market observable swap rates will continue to introduce
some volatility each quarter to the Company's reported gain or loss on change in
fair value of debt, changes in the credit spread assumption developed by the
third party does not introduce volatility to the Company's consolidated
statements of operations. The fair value of the Company's subordinated debt will
eventually equal the principal value totaling $90.5 million of the subordinated
debt by the time of the stated redemption date of each trust, beginning with the
trust maturing on December 4, 2032 and continuing through January 8, 2034, the
redemption date of the last of the Company's outstanding trusts.



For a description of each of the Company's six subsidiary trusts, see Note 11, "Debt," to the unaudited consolidated interim financial statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 4, "Recently Issued Accounting Standards," to the unaudited consolidated interim financial statements, for discussion of certain accounting standards that may be applicable to the Company's current and future consolidated financial statements.







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    KINGSWAY FINANCIAL SERVICES INC.

LIQUIDITY AND CAPITAL RESOURCES





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



Cash Flows



During the six months ended June 30, 2021, the Company reported $11.5 million of
net cash used in operating activities, primarily due to $10.6 million prepaid
management fees recorded during the second quarter of 2021.  The $10.6 million
was only paid because of the gross proceeds received under the Additional
Mortgage (see explanation of cash provided by financing activities below), of
which the Company retained $2.7 million.



During the six months ended June 30, 2021, the net cash provided by investing
activities was $11.9 million. This source of cash was primarily attributed to a
distribution received by Net Lease from one of its limited liability investment
companies of $12.9 million during the first quarter of 2021, partially offset
by purchases of fixed maturities in excess of proceeds from sales and maturities
of fixed maturities.



During the six months ended June 30, 2021, the net cash used in financing
activities was $0.7 million. This use of cash was primarily attributed
to principal repayment on bank loan of $2.2 million and principal repayments of
$11.3 million on the notes payable, of which $9.0 million relates to the
repayment of Net Lease's $9.0 million mezzanine loan and $2.3 million relating
to principal paydowns on the Mortgage, Additional Mortgage and the Flower
Note; partially offset by net proceeds from notes payable of $13.3 million
related to the Additional Mortgage.



Receipt of dividends from the Company's insurance subsidiaries has not generally
been considered a source of liquidity for the holding company. The insurance
subsidiaries have required regulatory approval for the return of capital and, in
certain circumstances, prior to the payment of dividends. At June 30, 2021,
Amigo was restricted from making any dividend payments to the holding company
without regulatory approval pursuant to domiciliary insurance regulations.



The Company's Extended Warranty subsidiaries fund their obligations primarily
through service fee and commission revenue. The Company's Leased Real Estate
subsidiary funds its obligations through rental revenue.



The liquidity of the holding company is managed separately from its subsidiaries. The obligations of the holding company primarily consist of holding company operating expenses; transaction-related expenses; investments; and any other extraordinary demands on the holding company.





Actions available to the holding company to generate liquidity in order to meet
its obligations include the sale of passive investments; sale of subsidiaries;
issuance of debt or equity securities; exercise of warrants; distributions from
the Company's Extended Warranty subsidiaries, as further described below; and
giving notice to its Trust Preferred trustees of its intention to exercise its
voluntary right to defer interest payments for up to 20 quarters on the six
subsidiary trusts of the Company's subordinated debt, which right the Company
exercised during the third quarter of 2018.



On December 1, 2020, the Company closed on the acquisition of PWI, a
full-service provider of vehicle service agreements. Related to the PWI
acquisition, the Company secured the 2020 KWH Loan with IWS, Trinity, Geminus
and PWI as borrowers under the 2020 KWH Loan. Pursuant to satisfying the
covenants under the 2020 KWH Loan, IWS, Trinity, Geminus and PWI are permitted
to make distributions to the holding company in an aggregate amount not to
exceed $1.5 million in any 12-month period (which is the same amount as under
the predecessor loan).



Separately, pursuant to covenants under the PWSC Loan secured to partially
finance the acquisition of PWSC on October 12, 2017, PWSC was not permitted to
make distributions to the holding company without the consent of the lender. The
PWSC Loan was scheduled to mature on October 12, 2022; however, the remaining
principal totaling $0.3 million was fully repaid on January 30, 2020 and, as
such, PWSC is no longer subject to such restrictions.



Historically, dividends from the Leased Real Estate segment were not generally
considered a source of liquidity for the holding company. However, as more fully
described in Note 21, "Commitments and Contingencies," to the unaudited
consolidated interim financial statements, the holding company is now permitted
to receive 20% of the proceeds from the increased rental payments resulting from
an earlier amendment to the lease (or any borrowings against such increased
rental payments). In the second quarter of 2021, the Leased Real Estate segment
completed a borrowing against the increased rental payments and, as a result,
the holding company received a dividend of $2.7 million.  Refer to Note 11,
"Debt," to the unaudited consolidated interim financial statements, for further
information about this borrowing.



On July 16, 2018, the Company announced it had entered into a definitive
agreement to sell its non-standard automobile insurance companies Mendota
Insurance Company, Mendakota Insurance Company and Mendakota Casualty Company
(collectively "Mendota"). On October 18, 2018, the Company completed the
previously announced sale of Mendota. As part of the transaction, the Company
will indemnify the buyer for any loss and loss adjustment expenses with respect
to open claims and certain specified claims in excess of Mendota's carried
unpaid loss and loss adjustment expenses at June 30, 2018. The maximum
obligation to the Company with respect to the open claims is $2.5 million. A
security interest on the Company's equity interest in its consolidated
subsidiary, Net Lease, as well as any distributions to the Company from Net
Lease, is collateral for the Company's payment of obligations with respect to
the open claims. There is no maximum obligation to the Company with respect to
the specified claims.



The holding company's liquidity, defined as the amount of cash in the bank
accounts of Kingsway Financial Services Inc. and Kingsway America Inc., was
$5.6 million (approximately twelve months of operating cash outflows) and $1.1
million at June 30, 2021 and December 31, 2020, respectively. The amount as of
June 30, 2021 excludes $1.8 million of cash proceeds received in July 2021
related to the exercise of 350,000 warrants and future actions available to the
holding company that could be taken to generate liquidity. The holding company
cash amounts are reflected in the cash and cash equivalents of $17.1 million and
$14.4 million reported at June 30, 2021 and December 31, 2020, respectively, on
the Company's consolidated balance sheets.



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KINGSWAY FINANCIAL SERVICES INC.






As of the filing date of this report on Form 10-Q for the three and six months
ended June 30, 2021, the holding company's liquidity of $7.0 million represented
approximately 17 months of regularly recurring operating expenses before any
transaction-related expenses, any new holding company investments or any other
extraordinary demands on the holding company.



The holding company's liquidity at June 30, 2021 and as of the filing date of
this report on Form 10-Q for the three and six months ended June 30, 2021
represents only actual cash on hand and does not include cash that would be made
available to the holding company from the sale of investments owned by the
holding company. In addition, the holding company has access to some of the
operating cash generated by the Extended Warranty subsidiaries as described
above. While these sources do not represent cash of the holding company as of
the filing date of this report on Form 10-Q for the three and six months ended
June 30, 2021, they do represent future sources of liquidity.



As of June 30, 2021, there are 182,876 shares of the Company's Class A Preferred
Stock (the "Preferred Shares"), issued and outstanding. The outstanding
Preferred Shares were required to be redeemed by the Company on April 1, 2021
("Redemption Date") at a redemption value of $6.7 million, if the Company
had sufficient legally available funds to do so. Additionally, the Company has
exercised its right to defer payment of interest on its outstanding subordinated
debt ("trust preferred securities") and, because of the deferral which totaled
$16.4 million at June 30, 2021, the Company is prohibited from redeeming any
shares of its capital stock while payment of interest on the trust preferred
securities is being deferred. If the Company was required to pay either the
Preferred Shares redemption value or both the deferred interest on the trust
preferred securities and redeem all the Preferred Shares currently outstanding,
then the Company has determined that it does not have sufficient legally
available funds to do so. However, the Company is prohibited from doing so under
Delaware law and, as such, (a) the interest on the trust preferred securities
remains on deferral as permitted under the indentures and (b) in accordance with
Delaware law the Preferred Shares were not redeemed on the Redemption Date and
instead remain outstanding with a redemption value of $6.8 million as of June
30, 2021, continue to be convertible at the discretion of the holder, and will
accrue dividends until such time as the Company has sufficient legally available
funds to redeem the Preferred Shares and is not otherwise prohibited from doing
so. The Company continues to operate in the ordinary course.



The Company notes there are several variables to consider in such a situation,
and management is exploring the following opportunities: negotiating with the
holders of the Preferred Shares with respect to the key provisions, raising
additional funds through capital market transactions, as well as the Company's
strategy of working to monetize its non-core investments while attempting to
maximize the tradeoff between liquidity and value received.



Based on the Company's current business plan and revenue prospects, existing
cash, cash equivalents, investment balances and anticipated cash flows from
operations are expected to be sufficient to meet the Company's working capital
and operating expenditure requirements, excluding the cash that may be required
to redeem the Preferred Shares and deferred interest on its trust preferred
securities, for the next twelve months. However, the Company's assessment could
also be affected by various risks and uncertainties, including, but not limited
to, the effects of the COVID-19 pandemic.



Regulatory Capital



In the United States, a risk-based capital ("RBC") formula is used by the
National Association of Insurance Commissioners ("NAIC") to identify property
and casualty insurance companies that may not be adequately capitalized. In
general, insurers reporting surplus as regards policyholders below 200% of the
authorized control level, as defined by the NAIC, at December 31 are subject to
varying levels of regulatory action, including discontinuation of operations. As
of December 31, 2020, surplus as regards policyholders reported by Amigo
exceeded the 200% threshold.



During the fourth quarter of 2012, the Company began taking steps to place all
of Amigo into voluntary run-off. In April 2013, Kingsway filed a comprehensive
run-off plan with the Florida Office of Insurance Regulation, which outlines
plans for Amigo's run-off. Amigo remains in compliance with that plan.



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



OFF-BALANCE SHEET ARRANGEMENTS





The Company has off-balance sheet arrangements related to guarantees, which are
further described in Note 21, "Commitments and Contingent Liabilities," to the
unaudited consolidated interim financial statements.

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