KINGSWAY Corp Fair Value Disclosure

NOTE 23 FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best evidenced by quoted bid or ask price, as appropriate, in an active market. Where bid or ask prices are not available, such as in an illiquid or inactive market, the closing price of the most recent transaction of that instrument subject to appropriate adjustments as required is used. Where quoted market prices are not available, the quoted prices of similar financial instruments or valuation models with observable market-based inputs are used to estimate the fair value. These valuation models may use multiple observable market inputs, including observable interest rates, foreign exchange rates, index levels, credit spreads, equity prices, counterparty credit quality, corresponding market volatility levels and option volatilities. Minimal management judgment is required for fair values calculated using quoted market prices or observable market inputs for models. Greater subjectivity is required when making valuation adjustments for financial instruments in inactive markets or when using models where observable parameters do not exist. Also, the calculation of estimated fair value is based on market conditions at a specific point in time and may not be reflective of future fair values. For the Company's financial instruments carried at cost or amortized cost, the book value is not adjusted to reflect increases or decreases in fair value due to market fluctuations, including those due to interest rate changes, as it is the Company's intention to hold them until there is a recovery of fair value, which may be to maturity.

 

The Company employs a fair value hierarchy to categorize the inputs it uses in valuation techniques to measure the fair value. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1:

 

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Level 1 – Quoted prices for identical instruments in active markets.

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Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

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Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are not observable.

 

The Company classifies its investments in fixed maturities as available-for-sale and reports these investments at fair value. The Company's limited liability investment, at fair value, subordinated debt, contingent consideration and seller phantom equity awards are measured and reported at fair value.

 

Fixed maturities - Fair values of fixed maturities for which no active market exists are derived from quoted market prices of similar instruments or other third-party evidence. All classes of the Company’s fixed maturities, primarily consisting of investments in US. Treasury bills and government bonds; obligations of states, municipalities and political subdivisions; mortgage-backed securities; and corporate securities, are classified as Level 2. Level 2 is applied to valuations based upon quoted prices for similar assets in active markets; quoted prices for identical or similar assets in markets that are inactive; or valuations based on models where the significant inputs are observable or can be corroborated by observable market data.

 

 

The Company engages a third-party vendor who utilizes third-party pricing sources and primarily employs a market approach to determine the fair values of our fixed maturities. The market approach includes primarily obtaining prices from independent third-party pricing services as well as, to a lesser extent, quotes from broker-dealers. Our third-party vendor also monitors market indicators, as well as industry and economic events, to ensure pricing is appropriate. All classes of our fixed maturities are valued using this technique. The Company has obtained an understanding of our third-party vendor’s valuation methodologies and inputs. Fair values obtained from our third-party vendor are not adjusted by the Company.

 

The following is a description of the significant inputs, by asset class, used by the third-party pricing services to determine the fair values of our fixed maturities included in Level 2:

 

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U.S. government, government agencies and authorities are generally priced using the market approach. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets and maturity.

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States, municipalities and political subdivisions are generally priced using the market approach. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets, new issuances and credit spreads.

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Mortgage-backed securities are generally priced using the market approach. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets, expected prepayments, expected credit default rates, delinquencies and issue specific information including, but not limited to, collateral type, seniority and vintage.

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Corporate securities are generally priced using the market approach using pricing vendors. Inputs generally consist of trades of identical or similar securities, quoted prices in inactive markets, issuer rating, benchmark yields, maturity and credit spreads.

 

Limited liability investment, at fair value - Limited liability investment, at fair value includes the underlying investments of Argo Holdings.  Argo Holdings makes investments in limited liability companies and limited partnerships that hold investments in private operating companies.

 

The fair value of Argo Holdings' limited liability investments that hold investments in private operating companies is valued using a market approach including valuation multiples applied to corresponding performance metrics, such as earnings before interest, tax, depreciation and amortization; revenue; or net earnings. The selected valuation multiples were estimated using multiples provided by the investees and review of those multiples in light of investor updates, performance reports, financial statements and other relevant information. These investments are categorized in Level 3 of the fair value hierarchy

 

Subordinated debt - The fair value of the subordinated debt is calculated using a model based on significant market observable inputs and inputs developed by a third-party. These inputs include credit spread assumptions developed by a third-party and market observable swap rates. The subordinated debt is categorized in Level 2 of the fair value hierarchy.

 

Contingent consideration - The consideration for the Company's acquisitions of Ravix, CSuite, Advanced Plumbing and Southside Plumbing includes future payments to the former owners that are contingent upon the achievement of certain targets over future reporting periods. Liabilities for contingent consideration are measured and reported at fair value and are included in accrued expenses and other liabilities in the consolidated balance sheets.  Contingent consideration liabilities are revalued each reporting period. Changes in the fair value of contingent consideration liabilities can result from changes to one or multiple inputs, including adjustments to the discount rates or changes in the assumed achievement or timing of any targets. Any changes in fair value are reported in the consolidated statements of operations. The contingent consideration liabilities are categorized in Level 3 of the fair value hierarchy.

 

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The fair value of Ravix's contingent consideration liability was estimated by applying the Monte Carlo simulation method to forecast achievement of gross profit which resulted in the maximum of $4.5 million in total payments to the former owners of Ravix through October 2024. Key inputs in the valuation included forecasted gross profit, gross profit volatility, discount rate and discount term.  During 2022 and 2023, Ravix made payments to the former owners totaling $1.1 million.  The remaining contingent liability of $3.4 million was due to be paid in October 2024.  Ravix made a payment of $0.7 million during the fourth quarter of 2024.  In accordance with the terms of the purchase agreement, any unpaid portion will bear interest at an annual rate of 6.0%.  In February 2025, the Ravix contingent consideration liability and related accrued interest was paid in full. At  December 31, 2024, the unpaid contingent consideration liability due to the former owners of Ravix was $2.7 million.  Accrued interest on the unpaid contingent consideration liability, which is included in accrued expenses and other liabilities in the consolidated balance sheet, was less than $0.1 million at  December 31, 2024.

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The fair value of CSuite's contingent consideration liability was estimated by applying the Monte Carlo simulation method to forecast achievement of gross revenue which could have resulted in up to $3.6 million in total payments to the former owners of CSuite through October 2025.  Key inputs in the valuation included forecasted gross revenue, gross revenue volatility, discount rate and discount term. The earn-out period expired on October 31, 2025 and no amount was due to the former owners of CSuite. The estimated fair value of the CSuite contingent consideration liability at December 31, 2024 was zero.

	•	The fair value of Advanced Plumbing's contingent consideration liability is estimated by applying the Monte Carlo simulation method to forecast achievement of adjusted EBITDA, which  may result in up to $1.5 million in total payments to the former owners of Advanced Plumbing through August 2028.  Key inputs in the valuation include projected EBITDA, asset volatility, risk-free rate, discount rate and discount term.  The estimated fair value of the Advanced Plumbing contingent consideration liability at December 31, 2025 was $0.8 million.
	•	The fair value of Southside's contingent consideration liability is estimated by applying the Monte Carlo simulation method to forecast achievement of adjusted EBITDA, which  may result in up to $1.125 million in total payments to the former owners of Southside Plumbing through August 2028.  Key inputs in the valuation include projected EBITDA, asset volatility, risk-free rate, discount rate and discount term.  The estimated fair value of the Southside Plumbing contingent consideration liability at December 31, 2025 was $0.2 million.

 

Seller phantom equity awards - In connection with the acquisition of Roundhouse, the Company granted phantom equity awards to the former owners. The seller phantom equity awards are measured and reported at fair value and are included in accrued expenses and other liabilities in the consolidated balance sheet at  December 31, 2025. The seller phantom equity awards liability is measured and reported at fair value at the date of grant and is revalued each reporting period.  Changes in the fair value of the seller phantom equity awards can result from changes to one or multiple inputs, including adjustments to the discount rates or changes in Roundhouse performance. Any changes in fair value are reported in the consolidated statements of operations as non-operating other revenue, net. The seller phantom equity awards liability is categorized in Level 3 of the fair value hierarchy.

 

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The balances of the Company's financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of December 31, 2025 and December 31, 2024 are as follows:

 

(in thousands)										December 31, 2025
		Fair Value Measurements at the End of the Reporting Period Using
						Quoted
						Prices in
						Active				Significant
						Markets for				Other				Significant
						Identical				Observable				Unobservable
						Assets				Inputs				Inputs
		Total				(Level 1)				(Level 2)				(Level 3)
Recurring fair value measurements
Assets:
Fixed maturities:
U.S. government, government agencies and authorities		$	13,491			$	—			$	13,491			$	—
States, municipalities and political subdivisions			1,771				—				1,771				—
Mortgage-backed			9,818				—				9,818				—
Asset-backed			1,364				—				1,364				—
Corporate			10,321				—				10,321				—
Total fixed maturities			36,765				—				36,765				—
Limited liability investment, at fair value			3,476				—				—				3,476
Total assets		$	40,241			$	—			$	36,765			$	3,476
Liabilities:
Subordinated debt		$	13,698			$	—			$	13,698			$	—
Contingent consideration			980				—				—				980
Seller phantom equity awards			3,328				—				—				3,328
Total liabilities		$	18,006			$	—			$	13,698			$	4,308

 

(in thousands)										December 31, 2024
		Fair Value Measurements at the End of the Reporting Period Using
						Quoted
						Prices in
						Active				Significant
						Markets for				Other				Significant
						Identical				Observable				Unobservable
						Assets				Inputs				Inputs
		Total				(Level 1)				(Level 2)				(Level 3)
Recurring fair value measurements
Assets:
Fixed maturities:
U.S. government, government agencies and authorities		$	13,354			$	—			$	13,354			$	—
States, municipalities and political subdivisions			2,775				—				2,775				—
Mortgage-backed			9,886				—				9,886				—
Asset-backed			1,326				—				1,326				—
Corporate			9,622				—				9,622				—
Total fixed maturities			36,963				—				36,963				—
Limited liability investment, at fair value			2,859				—				—				2,859
Total assets		$	39,822			$	—			$	36,963			$	2,859
Liabilities:
Subordinated debt		$	13,409			$	—			$	13,409			$	—
Contingent consideration			2,725				—				—				2,725
Total liabilities			16,134				—				13,409				2,725

 

The following table provides a reconciliation of the fair value of recurring Level 3 fair value measurements for the years ended December 31, 2025 and December 31, 2024:

 

(in thousands)		Years ended December 31,
		2025				2024
Assets:
Limited liability investment, at fair value:
Beginning balance		$	2,859			$	3,496
Distributions received			(153	)			(2,347	)
Realized gains included in net loss			153				1,369
Change in fair value of limited liability investments, at fair value included in net loss			617				341
Ending balance		$	3,476			$	2,859
Unrealized gains on limited liability investments, at fair value held at end of period:
Included in net loss		$	617			$	341
Included in other comprehensive income			—				—
Ending balance - assets		$	3,476			$	2,859
Liabilities:
Contingent consideration:
Beginning balance		$	2,725			$	3,105
Issuance of contingent consideration in connection with acquisitions			980				—
Settlements of contingent consideration liabilities			(2,725	)			(650	)
Change in fair value of contingent consideration included in net loss			—				270
Ending balance		$	980			$	2,725
Unrealized losses recognized on contingent consideration liabilities held at end of period:
Included in net loss			—				270
Included in other comprehensive income		$	—			$	—
Seller phantom equity awards:
Beginning balance		$	—				—
Issuance of seller phantom equity in connection with acquisition			3,328				—
Ending balance		$	3,328			$	—
Ending balance - liabilities		$	4,308			$	2,725

 

The following table summarizes the valuation techniques and significant unobservable inputs utilized in determining fair values for the Company's investments that are categorized as Level 3 at December 31, 2025:

 

Categories		Fair Value			Valuation Techniques	Unobservable Inputs		Input Value(s)
Limited liability investment, at fair value		$	3,476		Market approach	Valuation multiples		1.0x - 9.0x
Contingent consideration		$	980		Option-based income approach	Discount rate			14.0%-17.0%
						Risk-free rate		3.64%-3.67%
						Expected volatility		28.0		%
Seller phantom equity awards		$	3,328		Market approach	Internal rate of return			19.7	%

 

The following table summarizes the valuation techniques and significant unobservable inputs utilized in determining fair values for the Company's investments that are categorized as Level 3 at December 31, 2024:

 

Categories		Fair Value			Valuation Techniques	Unobservable Inputs		Input Value(s)
Limited liability investment, at fair value		$	2,859		Market approach	Valuation multiples		1.0x - 9.0x
Contingent consideration		$	2,725		Option-based income approach	Discount rate			8.25	%
						Risk-free rate		4.96		%
						Expected volatility		9.0		%

 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

 

Goodwill and indefinite-lived intangible assets are recorded at carrying value, and, if impaired, are adjusted to fair value using Level 3 inputs.  Refer to Note 8, "Goodwill" and Note 9, "Intangible Assets" for further information regarding the process of determining the fair value of goodwill and indefinite-lived intangible assets, respectively, and the impairment charges recorded for the years ended December 31, 2025 and  December 31, 2024.

 

As further discussed in Note 4, "Acquisitions," the Company acquired several companies during 2025 and 2024 and allocated the purchase price of these various acquisitions to the assets acquired and liabilities assumed. The fair values of intangible assets associated with the acquisitions were determined to be Level 3 under the fair value hierarchy.

 

The following tables summarize the valuation techniques and significant unobservable inputs utilized in determining fair values for these Level 3 measurements at the respective acquisition dates:

 

 

Customer Relationships (using the multi-period excess earnings valuation technique):

 

	Acquisition Date		Fair Value (in thousands)				Unobservable Inputs
							Growth rate				Attrition rate				Discount rate
Bud's Plumbing	March 14, 2025		$	500				3.0	%			30.0	%			18.0	%
Roundhouse	July 1, 2025		$	11,000				9.0	%			10.0	%			21.0	%
Advanced Plumbing	August 1, 2025		$	1,100				3.0	%			15.0	%			17.0	%
Southside Plumbing	August 14, 2025		$	1,000				5.0	%			20.0	%			15.0	%
Image Solutions	September 26, 2024		$	11,100				3.0	%			2.0	%			25.0	%

 

Trade Name (using the relief from royalty valuation technique):

 

	Acquisition Date		Fair Value (in thousands)				Unobservable Inputs
							Royalty rate				Discount rate
Bud's Plumbing	March 14, 2025		$	3,100				5.0	%			17.0	%
Roundhouse	July 1, 2025		$	1,220				1.5	%			20.0	%
Advanced Plumbing	August 1, 2025		$	1,600				3.0	%			16.0	%
Southside Plumbing	August 14, 2025		$	1,100				3.0	%			14.0	%
Image Solutions	September 26, 2024		$	1,500				2.0	%			25.0	%

 

Assets and Liabilities Not Carried at Fair Value 

 

The carrying amounts reported in the consolidated balance sheets approximate fair values for cash and cash equivalents, restricted cash, short-term investments and certain other assets and other liabilities because of their short-term nature. The fair values of the Company's bank loans, which are reported as debt in the consolidated balance sheets, are derived from quoted market prices of industrial bonds with similar maturities and are categorized within Level 2 of the fair value hierarchy. The estimated fair value of bank loans was $57.3 million and $45.6 million as of December 31, 2025 and  December 31, 2024, respectively.