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Note 6 - Investments

3 Months Ended

Mar. 31, 2023

NOTE 6 INVESTMENTS

The amortized cost, gross unrealized gains and losses included in accumulated other comprehensive (loss) income, and estimated fair value of the Company's available-for-sale investments at March 31, 2023 and December 31, 2022 are summarized in the tables shown below:

(in thousands)	March 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. government, government agencies and authorities	$	15,063	$	4	$	551	$	14,516
States, municipalities and political subdivisions		3,241		6		127		3,120
Mortgage-backed		8,550		3		567		7,986
Asset-backed		1,449		—		61		1,388
Corporate		10,964		8		825		10,147
Total fixed maturities	$	39,267	$	21	$	2,131	$	37,157

(in thousands)	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. government, government agencies and authorities	$	15,797	$	—	$	717	$	15,080
States, municipalities and political subdivisions		2,390		—		158		2,232
Mortgage-backed		9,058		1		647		8,412
Asset-backed		1,682		—		72		1,610
Corporate		11,200		1		944		10,257
Total fixed maturities	$	40,127	$	2	$	2,538	$	37,591

The table below summarizes the Company's fixed maturities at March 31, 2023 by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturity of these obligations.

(in thousands)	March 31, 2023
	Amortized Cost		Estimated Fair Value
Due in one year or less	$	6,429	$	6,323
Due after one year through five years		26,924		25,494
Due after five years through ten years		2,274		2,075
Due after ten years		3,640		3,265
Total	$	39,267	$	37,157

KINGSWAY FINANCIAL SERVICES INC.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2023

The following tables highlight the aggregate unrealized loss position, by security type, of available-for-sale investments in unrealized loss positions where no credit loss allowance had been established as of March 31, 2023 and December 31, 2022. The tables segregate the holdings based on the period of time the investments have been continuously held in unrealized loss positions.

(in thousands)	March 31, 2023
	Less than 12 Months				Greater than 12 Months				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Fixed maturities:
U.S. government, government agencies and authorities	$	3,377	$	53	$	9,218	$	498	$	12,595	$	551
States, municipalities and political subdivisions		695		13		1,345		114		2,040		127
Mortgage-backed		1,257		28		6,038		539		7,295		567
Asset-backed		646		17		681		44		1,327		61
Corporate		1,943		24		7,822		801		9,765		825
Total fixed maturities	$	7,918	$	135	$	25,104	$	1,996	$	33,022	$	2,131

(in thousands)	December 31, 2022
	Less than 12 Months				Greater than 12 Months				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Fixed maturities:
U.S. government, government agencies and authorities	$	4,543	$	126	$	10,537	$	591	$	15,080	$	717
States, municipalities and political subdivisions		1,040		73		937		85		1,977		158
Mortgage-backed		2,248		93		5,756		554		8,004		647
Asset-backed		1,251		39		299		33		1,550		72
Corporate		3,244		155		6,760		789		10,004		944
Total fixed maturities	$	12,326	$	486	$	24,289	$	2,052	$	36,615	$	2,538

At March 31, 2023, there are approximately 196 individual available-for-sale investments that were in unrealized loss positions, for which an allowance for credit losses had not been recorded. The Company did not have the intent to sell these investments, and it was not more likely than not that the Company would be required to sell these investments before recovery of its amortized cost. The Company evaluated these investments for credit losses at March 31, 2023. The Company considers many factors in evaluating whether the unrealized losses were credit related including, but not limited to, the extent to which the fair value has been less than amortized cost, conditions related to the security, industry, or geographic area, payment structure of the investment and the likelihood of the issuer’s ability to make contractual cashflows, defaults or other collectability concerns related to the issuer, changes in the ratings assigned by a rating agency, and other credit enhancements that affect the investment’s expected performance. The Company determined that the unrealized losses on the fixed maturity investments were due to non-credit related factors at March 31, 2023.

At December 31, 2022, there are approximately 208 individual available-for-sale investments that were in unrealized loss positions. Prior to the adoption of ASU 2016-13, the Company performed an analysis of the individual investments to determine if declines in market value were other-than-temporary. See the "Significant Accounting Policies and Critical Estimates" section of Management's Discussion and Analysis of Financial Condition included in the 2022 Annual Report for further information regarding the Company's detailed analysis and factors considered in establishing an other-than-temporary impairment on an investment. The Company reviewed currently available information regarding investments with estimated fair values less than their carrying amounts and believes these unrealized losses are not other-than-temporary and are primarily due to temporary market and sector-related factors rather than to issuer-specific factors. The Company did not have the intent to sell these investments, and it was not more likely than not that the Company would be required to sell those investments before recovery of its amortized cost.

The Company did not record any write-downs for impairment related to investments for the three months ended March 31, 2023 and March 31, 2022.

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

Limited liability investments include investments in limited liability companies and limited partnerships. The Company's interests in these investments are not deemed minor and, therefore, are accounted for under the equity method of accounting. The most recently available financial statements are used in applying the equity method. The difference between the end of the reporting period of the limited liability entities and that of the Company is no more than three months. As of March 31, 2023 and December 31, 2022, the carrying value of limited liability investments totaled $0.9 million and $1.0 million, respectively. Income or loss from limited liability investments is recognized based on the Company's share of the earnings of the limited liability entities and is included in net investment income in the consolidated statements of operations. At March 31, 2023, the Company had no unfunded commitments related to limited liability investments.

Limited liability investments, at fair value represents the underlying investments of the Company’s consolidated entities Net Lease Investment Grade Portfolio, LLC ("Net Lease") and Argo Holdings Fund I, LLC ("Argo Holdings"). As of March 31, 2023 and December 31, 2022, the carrying value of the Company's limited liability investments, at fair value was $11.7 million and $17.1 million, respectively. The Company recorded no impairments related to limited liability investments, at fair value during the three months ended March 31, 2023 and March 31, 2022. At March 31, 2023, the Company had no unfunded commitments to fund limited liability investments, at fair value.

KINGSWAY FINANCIAL SERVICES INC.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2023

The Company consolidates the financial statements of Net Lease on a three-month lag. Net Lease owns investments in limited liability companies that hold investment properties. During the fourth quarter of 2022, one of Net Lease's limited liability companies refinanced their existing debt. A portion of the debt proceeds were distributed to Net Lease, which decreased Net Lease's investment in the limited liability company. During the first quarter of 2023, Net Lease sold its final investment property for $15.8 million. As a result of the three-month lag, the Company will record this transaction in its second quarter 2023 financial statements.

Investments in private companies consist of convertible preferred stocks and notes in privately owned companies and investments in limited liability companies in which the Company’s interests are deemed minor. The Company's investments in private companies do not have readily determinable fair values. The Company has elected to record investments in private companies at cost, adjusted for observable price changes and impairments. As of March 31, 2023 and December 31, 2022, the carrying value of the Company's investments in private companies totaled $0.8 million. For the three months ended March 31, 2023 and March 31, 2022, the Company did not record any adjustments to the fair value of its investments in private companies for observable price changes.

The Company performs a quarterly impairment analysis of its investments in private companies. As a result of the analysis performed, the Company did not record any impairments related to investments in private companies for the three months ended March 31, 2023 and March 31, 2022.

Net investment income for the three months ended March 31, 2023 and March 31, 2022 is comprised as follows:

(in thousands)	Three months ended March 31,
	2023			2022
Investment income:
Interest from fixed maturities	$	229		$	93
Dividends		60			31
(Loss) income from limited liability investments		(34	)		235
Income from real estate investments		—			200
Other		520			83
Gross investment income		775			642
Investment expenses		(37	)		(23	)
Net investment income	$	738		$	619

Gross realized gains and losses on available-for-sale investments, limited liability investments, limited liability investments, at fair value and investments in private companies for the three months ended March 31, 2023 and March 31, 2022 are comprised as follows:

(in thousands)	Three months ended March 31,
	2023		2022
Gross realized gains	$	210	$	59
Gross realized losses		—		(5	)
Net realized gains	$	210	$	54

Gain (loss) on change in fair value of equity investments for the three months ended March 31, 2023 and March 31, 2022 is comprised as follows:

(in thousands)	Three months ended March 31,
	2023		2022
Net gains recognized on equity investments sold during the period	$	—	$	—
Change in unrealized gains (losses) on equity investments held at end of the period		1,075		(10	)
Gain (loss) on change in fair value of equity investments	$	1,075	$	(10	)

The Company holds warrants in Limbach Holdings, Inc. ("Limbach"). During the first quarter of 2023, the underlying common stock price of Limbach increased, resulting in an increase in the fair value of the warrants held as of March 31, 2023.