As filed with the Securities and Exchange Commission on August 14, 2003

Registration No. 333-100655
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.

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Amendment No. 6 to

FORM F-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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KINGSWAY FINANCIAL SERVICES INC.
(Exact name of registrant as specified in its charter)

Ontario Not Applicable
(State or other (I.R.S. Employer
jurisdiction of Identification Number)
incorporation or
organization)

Mr. James R. Zuhlke
5310 Explorer Drive, Kingsway America Inc.
Suite 200 1515 Woodfield Road,
Mississauga, Ontario L4W Suite 820
5H8 Schaumburg, Illinois 60173
(905) 629-7888 (847) 619-7610
(Address and telephone (Name, address and
number of telephone number of agent
Registrant's principal for service)
executive offices)

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KINGSWAY AMERICA INC.
KINGSWAY U.S. FUNDING INC.
KINGSWAY FINANCIAL CAPITAL TRUST I
(Exact name of registrant as specified in its charter)

98-0180930
30-0121682
Delaware 57-6195377
(State or other (I.R.S. Employer
jurisdiction of Identification Number)
incorporation or
organization)

Mr. James R. Zuhlke
c/o Kingsway America Inc. Kingsway America Inc.
1515 Woodfield Road, 1515 Woodfield Road,
Suite 820 Suite 820
Schaumburg, Illinois 60173 Schaumburg, Illinois 60173
(847) 619-7610 (847) 619-7610
(Address and telephone (Name, address and
number of telephone number of agent
Registrant's principal for service)
executive offices)

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Copies to:
Janet O. Love, Esq. William R. Kunkel, Esq.
Lord, Bissell & Brook Skadden, Arps, Slate,
115 South LaSalle Street Meagher & Flom (Illinois)
Chicago, Illinois 60603 333 West Wacker Drive
(312) 443-0700 Chicago, Illinois 60606
(312) 407-0700

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]

CALCULATION OF REGISTRATION FEE

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Proposed Proposed
maximum maximum
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered(1) per share(1) offering price(1) registration fee(6)
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Preferred Securities of Kingsway Financial
Capital Trust I............................... 2,300,000 $25 $57,500,000 $5,290
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Subordinated Notes of Kingsway America Inc.
(2)(3)(5)..................................... -- -- -- --
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Junior Subordinated Debentures of Kingsway
U.S. Funding Inc. (2)(4)(5)................... -- -- -- --
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Guarantee of Kingsway Financial Services Inc.
with respect to the above-referenced Preferred
Securities (2)(5)............................. -- -- -- --
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Guarantee of Kingsway Financial Services Inc.
with respect to the above-referenced
Debentures.................................... -- -- -- --
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Total.......................................... 2,300,000 $25 $57,500,000 $5,290
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- ------------------------------------------------------------------------------------------------------------------
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(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457 of the Securities Act of 1933, as amended.
(2) This Registration Statement is deemed to cover the Junior Subordinated
Debentures of Kingsway U.S. Funding Inc., the Subordinated Notes of
Kingsway America Inc., the rights of holders of Junior Subordinated
Debentures of Kingsway U.S. Funding Inc. under the Indenture, and the
rights of holders of the Preferred Securities under the Trust Agreement,
the Preferred Securities Guarantee and the Debenture Guarantee entered into
by Kingsway Financial Services Inc.
(3) The Subordinated Notes will be purchased by Kingsway U.S. Funding Inc. with
the proceeds of the sale of the Junior Subordinated Debentures.
(4) The Junior Subordinated Debentures will be purchased by Kingsway Financial
Capital Trust I with the proceeds of the sale of the preferred securities.
Such securities may later be distributed for no additional consideration to
the holders of the Preferred Securities of Kingsway Financial Capital Trust
I upon its dissolution and the distribution of its assets.
(5) No separate consideration will be received for the Subordinated Notes,
Junior Subordinated Debentures, the Preferred Securities Guarantee and the
Debenture Guarantee.
(6) Of the $5,290 filing fee, $46 was paid in connection with the initial
filing on October 22, 2002 and, pursuant to Rule 457(p) of the Securities
Act, $5,244 was offset against the filing fee paid by Kingsway for the Form
F-10 Registration Statement (no. 333-90298) filed with the SEC on June 7,
2002.

The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission becomes effective. This prospectus is not an
offer to sell these securities and we are not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED AUGUST 14, 2003

PROSPECTUS

[LOGO] K

2,000,000 Trust Preferred Securities
Kingsway Financial Capital Trust I

% Trust Preferred Securities
(US$25 liquidation amount per trust preferred security)
Fully and Unconditionally Guaranteed by
Kingsway Financial Services Inc.
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Kingsway Financial Capital Trust I will sell trust preferred securities to
the public. Each trust preferred security represents a corresponding amount of
the junior subordinated debentures issued by Kingsway U.S. Funding Inc. and the
related rights under the debenture guarantee and the preferred securities
guarantee of Kingsway Financial Services Inc. Kingsway Financial Capital Trust
I will use the proceeds from the sale of the trust preferred securities to buy
the junior subordinated debentures issued by Kingsway U.S. Funding Inc.

Kingsway Financial Capital Trust I will pay you quarterly cumulative cash
distributions on the trust preferred securities at an annual rate equal to %
on the liquidation amount of US$25 per trust preferred security, beginning
on , 2003, from payments on the debentures. Kingsway U.S. Funding Inc. can
defer interest payments on the debentures one or more times for up to a maximum
of 20 consecutive quarterly periods per deferral period. If it defers interest
payments, Kingsway Financial Capital Trust I will defer distribution payments
to the holders of the trust preferred securities. The debentures mature, and
the trust preferred securities must be redeemed by, , 2033. Kingsway
Financial Capital Trust I may redeem all or some of the trust preferred
securities at any time, and for any reason, on or after , 2008, or all,
but not some, of the trust preferred securities at any time before , 2008
under some circumstances, at a redemption price equal to US$25 per trust
preferred security, plus accumulated interest, if any, as described in this
prospectus.

The trust preferred securities have been approved for listing on the New
York Stock Exchange under the symbol "KFS PrA."
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Investing in the trust preferred securities involves risks. See "Risk
Factors" beginning on page 12 of this prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful and complete. Any representation to the contrary is
a criminal offense.
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Per Preferred Security Total
- -------------------------------------------------------- ---------------------- -----

Public offering price................................... US$25.00 US$
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Proceeds to the Kingsway Financial Capital Trust I...... US$25.00 US$
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Underwriting commissions (1)............................ US$ US$
- -------------------------------------------------------------------------------------
Proceeds (before expenses) to Kingsway U.S. Funding Inc. US$ US$
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(1) Kingsway U.S. Funding Inc. will pay the underwriters' commission for the
sale of the trust preferred securities to the public and Kingsway Financial
Capital Trust I will use all proceeds from the sale of the trust preferred
securities to invest in Kingsway U.S. Funding Inc.'s debentures.
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Kingsway Financial Capital Trust I has granted the underwriters a 30-day
option to purchase up to 300,000 additional trust preferred securities at US$25
per trust preferred security to cover over-allotments.

The underwriters are offering the trust preferred securities to you. The
underwriters will only sell the trust preferred securities after they have
purchased the trust preferred securities from Kingsway Financial Capital Trust
I. The underwriters entirely or partially may reject any order for trust
preferred securities and they may withdraw, cancel or modify the offering
without giving you any notice. The underwriters expect to deliver the trust
preferred securities against payment therefor in book-entry form through The
Depository Trust Company on or about , 2003.

Advest, Inc.
Ferris, Baker Watts
Incorporated
Keefe, Bruyette & Woods, Inc.
Raymond James
Sandler O'Neill & Partners, L.P.
Putnam Lovell NBF Securities Inc.

The date of this prospectus is , 2003

PROSPECTUS SUMMARY

This summary highlights only some of the information contained in this
prospectus and does not contain all of the information that may be important to
you in deciding whether to purchase the trust preferred securities. You should
carefully read the entire prospectus and the documents that we have filed with
the Securities and Exchange Commission, or SEC, that are incorporated by
reference into this prospectus, prior to deciding whether to invest in the
trust preferred securities. You should pay special attention to the section of
this prospectus entitled "Risk Factors" beginning on page 12 to determine
whether an investment in the trust preferred securities is appropriate for you.
You may obtain the information incorporated by reference into this prospectus
without charge by following the instructions under "Where You Can Find More
Information" beginning on page 118.

Unless otherwise specified in this prospectus, "Kingsway Financial," refers
to Kingsway Financial Services Inc., a holding company incorporated under the
laws of Ontario, Canada; "Kingsway," "we," "our" and "us" refer to Kingsway
Financial and its consolidated subsidiaries; "Kingsway America" refers to
Kingsway America Inc., the U.S. holding company for all of our U.S.
subsidiaries; "Funding Co." refers to Kingsway U.S. Funding Inc.; the "Trust"
refers to Kingsway Financial Capital Trust I; and "you" and "yours" refer to
the holders of the applicable securities.

All of the dollar amounts in this prospectus are expressed in Canadian
dollars, except where otherwise indicated. References to "Canadian dollars,"
"dollars," "C$" or "$" are to Canadian dollars and any references to "U.S.
dollars" or "US$" are to U.S. dollars. As presented in this prospectus, our
combined ratios for our Canadian and U.S. segment information include the
results of our Bermuda and Barbados reinsurance subsidiaries, respectively.

The Offering

What are the trust preferred securities?

Each trust preferred security represents an undivided beneficial interest in
the assets of the Trust. The underwriters are offering 2,000,000 trust
preferred securities at a public offering price of US$25 for each trust
preferred security. The underwriters may also purchase up to an additional
300,000 trust preferred securities at the public offering price within 30 days
after the date of this prospectus to cover any over-allotments.

Who is the Trust?

The Trust is a Delaware statutory trust. The Trust will sell its preferred
securities to the public and its common securities to Funding Co. The Trust
will use the proceeds from these sales to buy a series of % Junior
Subordinated Debentures due 2033 from Funding Co. with the same economic terms
as the trust preferred securities. Kingsway Financial will fully and
unconditionally guarantee payments of principal and interest on the debentures
and the payment of principal and interest on the trust preferred securities to
the extent described in this prospectus. The Trust's assets will consist solely
of the debentures and payments received on the debentures.

There are five trustees of the Trust. The three administrative trustees will
initially be James R. Zuhlke, Brian K. Williamson and Kelly A. Marketti, each
of whom is an officer or employee of Kingsway America. BNY Midwest Trust
Company will act as the property trustee of the Trust and The Bank of New York
(Delaware) will act as the Delaware trustee.

Who are Kingsway, Kingsway Financial, Kingsway America and Funding Co.?

Kingsway is a specialty provider of personal and commercial lines of
property and casualty insurance in the United States and Canada. Kingsway
Financial is a holding company incorporated under the laws of Ontario, Canada.
Kingsway America is a wholly owned subsidiary of Kingsway Financial and is the
U.S. holding company for all of our U.S. subsidiaries. Funding Co. is a wholly
owned subsidiary of Kingsway America and was established as a financing entity
to raise funds for our U.S. operations. Funding Co. will use the proceeds from
the sale of the debentures to the Trust to buy subordinated notes issued by
Kingsway America that have economic terms substantially similar to the
debentures.

What transactions will take place between Kingsway Financial, Kingsway America,
Funding Co., the Trust and you as holders of the trust preferred securities in
connection with this offering?

The offering will consist of the following transactions, which will occur
simultaneously:

. The Trust will issue the common securities of the Trust to Funding Co.
The Trust will publicly offer the trust preferred securities to you. The
Trust will use the proceeds from the offering and sale of the trust
preferred securities and the common securities to purchase the debentures
from Funding Co.

. Funding Co. will use all of the proceeds from the sale of its debentures
to purchase subordinated notes from Kingsway America.

. Kingsway Financial will issue the preferred securities guarantee and the
debenture guarantee.

The following diagram outlines the relationships among Kingsway Financial,
Kingsway America, Funding Co., the Trust and you as holders of the trust
preferred securities after completion of this offering.

[FLOW CHART]

When will you receive quarterly distributions on the trust preferred securities?

If you purchase the trust preferred securities, you will be entitled to
receive cumulative cash distributions at an annual rate of % of the
liquidation amount of US$25 per preferred security. Distributions will
accumulate from the date the Trust issues the trust preferred securities and
will be paid quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, beginning with the first such date after issuance.

When can payment of distributions on the trust preferred securities be deferred?

Funding Co. may, on one or more occasions, defer interest payments on the
debentures for up to a maximum of 20 consecutive quarterly periods per deferral
period, unless an event of default under the indenture has occurred and is
continuing. At the end of an interest deferral period, upon payment of all
accrued and unpaid interest then due and assuming that no event of default has
occurred and is continuing under the indenture, Funding Co. may again elect to
defer interest payments for up to 20 consecutive quarterly periods. As long as
no default under the indenture has occurred and is continuing, there is no
limit to the number of times that interest can be deferred, except that a
deferral of interest payments cannot extend beyond the scheduled maturity date
of the debentures (which is , 2033).

Kingsway America's payments of principal and interest payable under its
subordinated notes issued to Funding Co. will be Funding Co.'s only source of
funds. The subordinated notes will be unsecured and will rank junior to all of
Kingsway America's senior debt, including indebtedness that Kingsway America
may incur in the future. Kingsway America may, on one or more occasions, defer
interest payments on the subordinated notes for up to a maximum of 20
consecutive quarterly periods per deferral period, unless an event of default
under the subordinated notes has occurred and is continuing. At the end of an
interest deferral period, upon payment of all accrued and unpaid interest then
due and assuming that no event of default has occurred and is continuing under
the subordinated notes, Kingsway America may again elect to defer interest
payments for up to 20 consecutive quarterly periods. As long as no default
under the subordinated notes has occurred and is continuing, there is no limit
to the number of times that interest can be deferred, except that a deferral of
interest payments cannot extend beyond the scheduled maturity date of the
subordinated notes (which is , 2033).

If Kingsway America defers interest payments on its subordinated notes
issued to Funding Co., Funding Co. will defer interest payments on the
debentures, and the Trust will defer its distributions on the trust preferred
securities. During this deferral period, distributions will continue to
accumulate on the trust preferred securities at an annual rate of % of the
liquidation amount of US$25 per trust preferred security. Also, the deferred
distributions will themselves accumulate distributions at an annual rate
of %, to the extent permitted by law. Once Funding Co. makes all deferred
interest payments on the debentures, with accrued interest, the Trust will then
pay all accumulated and unpaid distributions to you. Funding Co. may again
defer interest payments on the debentures if no event of default under the
indenture has occurred and is continuing.

During any period in which Funding Co. defers interest payments on the
debentures (or if a default under the indenture has occurred and is
continuing), neither Funding Co. nor Kingsway Financial will be permitted to:

. declare or pay a dividend or distribution on any of its outstanding
capital stock;

. redeem, purchase, acquire or make a liquidation payment with respect to
any of its outstanding capital stock;

. make or permit any subsidiary to make, a principal, premium or interest
payment (other than payments under the subordinated notes) on, or repay,
repurchase or redeem, any debt security that ranks equally with or junior
to the debentures, Kingsway Financial's guarantee of the debentures or
the subordinated notes, as the case may be; or

. make or permit any subsidiary to make, any guarantee payments with
respect to any guarantee of any debt security (other than payments under
the debenture guarantee and the preferred securities guarantee), if such
guarantee ranks equally with or junior to the debentures or the debenture
guarantee, as the case may be.

If a deferral of payment occurs, you will still be required to recognize the
deferred amounts as income for U.S. federal income tax purposes in advance of
receiving cash relating to these amounts, even if you are a cash-basis taxpayer.

When can the Trust redeem the trust preferred securities?

The Trust will redeem all of the outstanding trust preferred securities when
the debentures are paid at maturity on , 2033. Funding Co. has the
option, however, to redeem the debentures at any time on or after ,
2008 and up to 90 days prior to , 2033. In addition, Funding Co. may
redeem, at any time, all of the debentures if:

. there is a change in existing laws or regulations, or new official
administrative or judicial interpretation or application of these laws
and regulations, that causes the interest that Funding Co. pays on the
debentures to no longer be deductible for U.S. federal income tax
purposes;

. the Trust becomes subject to U.S. federal income tax;

. the Trust becomes or will become subject to more than an immaterial
amount of other taxes or governmental charges; or

. there is a change in existing laws or regulations that requires the Trust
to register as an investment company under the Investment Company Act of
1940.

We may also redeem the debentures at any time, and from time to time, in an
amount equal to the liquidation amount of any trust preferred securities that
we purchase, plus a proportionate amount of common securities, but only in
exchange for a like amount of the trust preferred securities and common
securities then owned by us.

If your trust preferred securities are redeemed by the Trust, you will
receive the liquidation amount of US$25 per trust preferred security, plus any
accrued and unpaid distributions to the date of redemption.

What is the nature of Kingsway Financial's guarantee of the trust preferred
securities and the debentures and when will it be required to make payments on
the guarantee?

Kingsway Financial will fully and unconditionally guarantee all payments to
the Trust under the debentures and will guarantee all payments from the Trust
on the trust preferred securities to the extent that there are funds in the
Trust for those payments. These two guarantees, together with Kingsway
Financial's other obligations and the rights of the debenture holders and trust
preferred holders under the indenture and the trust agreement, in the
aggregate, constitute a full, irrevocable and unconditional guarantee by
Kingsway Financial on a subordinated basis, of the obligations of the Trust
under the trust preferred securities and of the obligations of Funding Co.
under the debentures.

The proceeds from the sale of the debentures by Funding Co. to the Trust
will be loaned to Kingsway America in exchange for subordinated notes issued by
Kingsway America, that have economic terms substantially similar to the terms
of the debentures. If Kingsway America defaults on its payments under the
subordinated notes, Funding Co. will not have sufficient funds to make payments
under the debentures to the Trust and Kingsway Financial's debenture guarantee
would then obligate it to make or cause Funding Co. to make the debenture
payments to the Trust. To the extent there are funds in the Trust, Kingsway
Financial's preferred securities guarantee would obligate it to make or cause
the Trust to make related payments under the trust preferred securities. The
subordinated notes will rank junior in priority of payment to all of Kingsway
America's senior debt. If Kingsway America defaults on any of its senior debt,
it will be prohibited from making payments on the subordinated notes. If
Kingsway America experiences a business downturn or a cash shortage, its
ability to make payments on the subordinated notes will also be adversely
affected. Kingsway Financial's obligations under the debenture guarantee and
the preferred securities guarantee rank junior in priority of payment to all of
Kingsway Financial's senior debt.

When can the debentures be distributed to you?

Funding Co., as the depositor of the Trust, has the right to dissolve the
Trust at any time. If Funding Co. exercises this right to dissolve the Trust,
after satisfaction of any creditors of the Trust in accordance with applicable
law, the Trust will be liquidated by distribution of the debentures to holders
of the trust preferred securities and the common securities.

What happens if the Trust is dissolved and the debentures are not distributed?

The Trust may also be dissolved in circumstances where the debentures will
not be distributed to you. In those situations, after satisfaction of any
creditors of the Trust, the Trust will be obligated to pay in cash the
liquidation amount of US$25 for each trust preferred security plus accumulated
and unpaid distributions to the date such payment is made. The Trust will be
able to make this liquidation distribution only if the debentures are redeemed
by Funding Co. Funding Co. will not have sufficient funds to redeem the
debentures unless Kingsway America redeems the subordinated notes.

How will the trust preferred securities and the debentures rank in right of
payment?

The Trust's obligations under the trust preferred securities are unsecured
and the trust preferred securities will rank equally with the common securities
of the Trust with regard to right of payment. The Trust will pay distributions
on the trust preferred securities and the common securities pro rata. However,
if Funding Co. defaults with respect to the debentures or Kingsway Financial
defaults with respect to the debenture guarantee, then no distributions on the
common securities of the Trust will be paid until all accumulated and unpaid
distributions on the trust preferred securities have been paid.

Funding Co.'s obligations under the debentures and Kingsway Financial's
obligations under the debenture guarantee are unsecured and will rank junior in
priority to their existing and future senior debt.

As of June 30, 2003, on a pro forma as adjusted basis to give effect to the
issuance and sale of the trust preferred securities offered by the Trust in
this offering, the total amount of Kingsway's senior debt that would have
effectively ranked senior to the debenture guarantee and the preferred
securities guarantee was approximately $234.5 million.

What voting rights will holders of the trust preferred securities have?

Except in limited circumstances, holders of the trust preferred securities
will have no voting rights.

Will the trust preferred securities be listed on a stock exchange?

The trust preferred securities have been approved for listing on the New
York Stock Exchange under the symbol "KFS PrA." Trading of the trust preferred
securities on the New York Stock Exchange is expected to commence within 30
days after the trust preferred securities are first issued. You should be aware
that the listing of the trust preferred securities will not necessarily ensure
that a liquid trading market for the trust preferred securities will develop or
be maintained.

If the Trust distributes the debentures, we will use our best efforts to
list them on the New York Stock Exchange or any other exchange or other
organization on which the trust preferred securities are then listed.

In what form will the trust preferred securities be issued?

The trust preferred securities will be represented by one or more global
securities that will be deposited with, and registered in the name of, The
Depository Trust Company, or DTC, or its nominee. This means that you will not
receive a certificate for your trust preferred securities but, instead, will
hold your interest through DTC's book-entry system. The trust preferred
securities will be ready for delivery through DTC on or about , 2003.

Our Company

Kingsway is a specialty provider of personal and commercial lines of
property and casualty insurance in the United States and Canada. Our principal
line of business is non-standard automobile insurance, which covers drivers who
do not qualify for standard automobile insurance coverage because of their
payment history, driving record, place of residence, age, vehicle type or other
factors. Such drivers typically represent higher than normal risks and pay
higher insurance rates for comparable coverage. We also provide standard
automobile insurance as well as insurance for commercial and public vehicles,
including taxis and trucks.

In addition to automobile insurance, we provide motorcycle insurance,
specialized commercial and personal property coverage, warranty insurance and
other specialty coverages, such as customs and surety bonds. In the year ended
December 31, 2002, we derived 39.0% of our gross premiums written from
non-standard automobile insurance, 32.3% from trucking, 13.5% from commercial
and personal property coverages, 7.5% from commercial automobile, 2.5% from
motorcycle, 1.7% from standard automobile, 1.2% from warranty and
2.3% from other specialty lines. In the year ended December 31, 2002, 47.4% of
our gross premiums written were generated from personal lines and 52.6% were
from our commercial lines.

We are a leading provider of non-standard automobile and motorcycle
insurance in Canada and have a prominent position in several U.S. markets in
which we currently operate, such as Florida, Illinois and South Carolina, based
on direct premiums written. We are the second largest writer of non-standard
automobile insurance in Illinois and the third largest in South Carolina,
according to A.M. Best, an insurance company rating organization. In the six
months ended June 30, 2003 and the year ended December 31, 2002, we generated
77% of our gross premiums written from the United States and 23% from Canada.

The insurance industry is highly competitive. However, we generally seek to
identify and operate in specialty markets which present opportunities for us to
effectively compete due to the narrow scope or limited size of the market or
the specialty nature of the coverage or risk. These specialty markets may be
defined by geographic area, type of insurance or other factors.

We focus on specialty lines of automobile, property and casualty insurance
where we believe competition is more limited. We emphasize underwriting profit
and will not underwrite risks at rates which we believe are unprofitable in
order to increase our premium volume. We believe that by executing this
strategy we have been able to deliver returns that have exceeded the average in
our industry in both the United States and Canada.

In addition to revenues derived from premiums earned, we also derive revenue
from premium financing and investment income, including net realized gains.
These sources of revenue amounted to $81.1 million in 2002 as compared to $64.6
million in 2001. In the six months ended June 30, 2003, revenue from premium
financing and investment income, including net realized gains amounted to $43.7
million as compared to $36.1 million in the first half of 2002. In 2002, we
generated net income of $79.5 million, an increase of 77% over the $44.9
million earned in 2001. Our net income for the six months ended June 30, 2003
was $51.7 million as compared to $32.5 million in the first half of 2002.

We conduct our operations through our wholly owned subsidiaries in Canada
and the United States. We are licensed to write a broad range of property and
casualty insurance in all Canadian provinces and territories and in 49 states
and the District of Columbia in the United States. We distribute all of our
products through independent agents, managing general agents, or MGAs, and
brokers.

Corporate Strategy

Our strategy is to build long-term shareholder value by targeting three
financial measurements over a five year period: (i) a 15% average after-tax
return on shareholders' equity, (ii) an average combined ratio, a measurement
of underwriting profitability, of 96% or less, and (iii) average increases in
net premiums earned of 15% per annum. Our strategy is characterized by the
following principles:

. Adhere to a strict underwriting discipline. We manage our business with
a strict focus on underwriting profit rather than on premium growth or
market share and have demonstrated our willingness to increase pricing or
reduce or increase premium volumes based on market conditions. For 2002,
our combined ratio was 99.8%. Over the five year period ended December
31, 2002, our combined ratio averaged 99.3% including 102.0% for our
Canadian operations and 98.5% for our U.S. operations. For the six months
ended June 30, 2003, our combined ratio was 98.1%, including 105.4% for
our Canadian operations and 96.1% for our U.S. operations. Management's
incentive compensation is directly linked to our combined ratio and
return on equity objectives.

. Apply a specialty focus to regional markets. We seek to identify market
segments where we believe competition is more limited, presenting the
potential for above average returns. We believe that the non-standard
automobile insurance business, our primary business, is presently one
such specialty market. Other specialty markets in which we operate
include trucking, taxi, motorcycle and warranty insurance. We operate
through a network of regionally based operating subsidiaries. This
decentralized operating structure allows us to target specialized markets
and products based on our underwriting expertise and knowledge of local
market conditions.

. Rigorously manage claims at the local level. We seek to protect our
business through diligent claims management. Our claims are managed by
our experienced personnel located in our regional operating subsidiaries.
We maintain a culture of rigorously investigating claims, preventing
fraud and litigating our claims as necessary before final settlement.

. Expand in the United States and Canada. We rely on our detailed
understanding of our regional markets to take advantage of any favorable
conditions or trends. We look for opportunities to expand our specialty
focus into selected regional markets and increase the distribution of our
core products in our existing territories. We may also look for
opportunities to acquire books of business or other companies which are
in line with our specialty focus. For example, we completed the
acquisition of American Country Holdings Inc., or ACHI, and its
subsidiaries for a purchase price of approximately US$24.0 million in
April 2002. ACHI specializes in the underwriting and marketing of
commercial property and casualty insurance for the transportation and
hospitality industry. This acquisition strengthened our position in the
Chicago metropolitan area, where ACHI is the dominant writer of taxicab
insurance. Since late 2001, we have also entered into new programs with
several MGAs in the United States to expand the distribution network for
our core business lines. In 2002, gross premiums written from these
programs were $961.4 million, or 45% of our business, compared to $206.0
million, or 19% of our business, in 2001.

to increase efficiency and further reduce our operating costs, including
through the use of technology and automation. We also look for
opportunities to expand our distribution relationships and enhance our
product mix.

For more details about our business, see the section of this prospectus
entitled "The Company," beginning on page 56.

Recent Developments

Canadian Equity Offering

On July 3, 2003, Kingsway Financial sold 6.1 million common shares to a
syndicate of underwriters led by Scotia Capital Inc., and on July 11, 2003,
Kingsway Financial sold an additional 610,000 shares pursuant to the exercise
of an over-allotment option granted to the underwriters. The shares were sold
only in Canada at a price of $16.70 per share. Approximately $98 million of the
proceeds of the Canadian offering were used to increase the capital of certain
of our insurance subsidiaries, and the remainder will be used for general
corporate purposes.

Private Placement of Trust Preferred Securities

On May 15, 2003, Kingsway Connecticut Statutory Trust II, or Kingsway
Connecticut II, a statutory trust formed by Kingsway America, sold $25.6
million (US$17.5 million) in 30-year floating rate trust preferred securities.
Kingsway Connecticut II used the proceeds from the offering to purchase a
floating rate junior subordinated deferrable interest debenture from Kingsway
America. This floating rate debenture bears interest at 3-month LIBOR plus
4.1%, but until May 15, 2008, the interest rate on this debenture will not
exceed 12.5%. This debenture is unconditionally guaranteed by Kingsway
Financial. Kingsway America has the right to call the securities at par after
five years. The floating rate debenture issued by Kingsway America to Kingsway
Connecticut II will rank equally to the subordinated notes to be issued by
Kingsway America to Funding Co. in connection with this offering. The proceeds
of this private offering were used to increase the capital of our U.S.
insurance subsidiaries.

On May 22, 2003, Kingsway Delaware Statutory Trust III, or Kingsway Delaware
III, a statutory trust formed by Kingsway America, sold $22 million (US$15
million) in 30-year floating rate trust preferred securities. Kingsway Delaware
III used the proceeds from the offering to purchase a floating rate junior
subordinated deferrable interest debenture from Kingsway America. This floating
rate debenture bears interest at 3-month LIBOR plus 4.2%, but until May 22,
2008, the interest rate on this debenture will not exceed 12.5%. This debenture
is unconditionally guaranteed by Kingsway Financial. Kingsway America has the
right to call the securities at par after five years. The floating rate
debenture issued by Kingsway America to Kingsway Delaware III will rank equally
to the subordinated notes to be issued by Kingsway America to Funding Co. in
connection with this offering. The proceeds of this private offering were used
to increase the capital of our U.S. insurance subsidiaries.

New Accounting Pronouncement

In May 2003, the United States Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity, or
Statement 150. Statement 150 is generally effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. Statement
150 is applicable to mandatorily redeemable instruments, including our
outstanding trust preferred securities, as well as the trust preferred
securities offered herein. Under United States generally accepted accounting
principles such instruments must be classified as liabilities in the statement
of financial position.

A.M. Best Ratings Review

the largest provider of non-standard automobile and motorcycle insurance in
Canada and the prospect of improved underwriting and operating performance in
2003. A.M. Best recognized that Kingsway anticipates improved results in Canada
in 2003, citing Kingsway's proactive approach to settling claims and combating
fraud in Ontario, significant rate increases that were implemented in 2002 and
new regulatory legislation enacted in Ontario. It stated, however, that the
rating will remain under pressure pending the ability of our Canadian
subsidiaries to improve their capital position and meet their underwriting and
operating objectives for 2003. In addition, the financial strength rating for
Lincoln General Insurance Company, our largest U.S. subsidiary, remains under
review with negative implications pending the completion of our current capital
raising initiatives and effective management of Lincoln's premium growth in
2003. A.M. Best expressed concerns regarding our ability to secure significant
amounts of new capital both to support our current book of business and to
sustain our future growth plans as well as Lincoln General's ability to
maintain profitability and effectively manage its growth and administer the
underwriting and claims functions associated with its substantial amount of new
business. We believe that AM. Best will look favorably upon completion of our
current capital raising efforts as long as we limit our growth to sustainable
levels. However, we cannot assure you that A.M. Best will not downgrade our
ratings or place them under review with negative implications, in the future,
even if we complete this offering. If we are unable to maintain our current
ratings, our ability to write insurance and compete with other insurance
companies may be adversely affected.

Litigation

On July 25, 2003, we commenced an action against PricewaterhouseCoopers,
LLP, Miller, Herbers, Lehman & Associates, Inc. and the former Directors of
ACHI relating to the understatement of the reserves of ACHI's insurance
subsidiary for the years 1998 through 2001 and associated costs and damages
thereon. These reserve deficiencies occurred prior to our acquisition of ACHI
in April 2002.

Corporate Information

Our principal executive offices are located at 5310 Explorer Drive, Suite
200, Mississauga, Ontario L4W 5H8. Our telephone number is (905) 629-7888.
Kingsway America is the U.S. holding company for all of our U.S. subsidiaries.
Kingsway America's principal executive offices and the principal offices of
Funding Co. and the Trust are located at 1515 Woodfield Road, Suite 820,
Schaumburg, Illinois 60173. Kingsway America's telephone number is (847)
619-7610.

Kingsway Financial's Web site is www.kingsway-financial.com. Information on
our Web site is not incorporated by reference in this prospectus and you should
not consider this information as part of this prospectus.

Risk Factors

You should carefully consider all information contained or incorporated by
reference in this prospectus before making an investment in the trust preferred
securities. In particular, you should consider the risk factors described in
the section of this prospectus entitled "Risk Factors" beginning on page 12.

Summary Consolidated Financial Data

The following table sets forth our summary consolidated financial data and
other financial information as at and for each of the years in the five year
period ended December 31, 2002 and as at and for each of the six-month periods
ended June 30, 2003 and June 30, 2002. The summary consolidated financial data
presented below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page 33
of this prospectus and our consolidated financial statements and the related
notes included in this prospectus beginning on page F-1.

Our consolidated financial statements contained in this prospectus have been
prepared in accordance with Canadian generally accepted accounting principles,
which we refer to in this prospectus as Canadian GAAP. Canadian GAAP, as
applied to us, conforms in all material respects with U.S. generally accepted
accounting principles, which we refer to in this prospectus as U.S. GAAP,
except as otherwise described in our consolidated financial statements included
in this prospectus beginning on page F-1, where we provide a reconciliation of
the differences between Canadian GAAP and U.S. GAAP. We publish our
consolidated financial statements in Canadian dollars. The comparability of the
operating data in different periods is affected by currency exchange rate
fluctuations.

Six Months Ended
June 30, Year Ended December 31,
------------------- --------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
---------- -------- ---------- ---------- -------- -------- --------
(unaudited)
(in thousands of Canadian dollars, except per share data and ratios)

AMOUNTS UNDER CANADIAN GAAP:
Statement of Operations Data
Gross premiums written..................... $1,332,488 $919,044 $2,124,691 $1,065,262 $643,022 $508,595 $409,200
Net premiums written....................... 1,273,855 870,146 2,009,963 1,014,960 604,693 468,874 320,396
---------- -------- ---------- ---------- -------- -------- --------
Revenues:
Net premiums earned.................... 1,172,535 709,646 1,737,754 872,830 539,969 445,557 314,651
Investment income...................... 29,074 26,891 56,316 42,692 37,109 32,037 24,771
Premium finance income................. 5,861 3,860 8,539 9,861 7,467 5,761 5,883
Net realized gains..................... 8,789 5,317 16,259 12,079 10,444 950 6,945
---------- -------- ---------- ---------- -------- -------- --------
Total revenues...................... 1,216,259 745,714 1,818,868 937,462 594,989 484,305 352,250
---------- -------- ---------- ---------- -------- -------- --------
Expenses:
Claims incurred........................ 830,115 505,914 1,240,329 616,079 371,946 304,541 193,801
Commissions and premium taxes.......... 255,453 143,208 372,051 167,176 106,378 90,844 61,927
General and administrative............. 64,425 58,046 122,762 81,938 66,925 61,630 39,848
Interest expense....................... 9,510 5,754 12,274 11,399 11,408 10,557 2,034
Amortization of intangible assets...... 444 -- 716 -- -- -- --
---------- -------- ---------- ---------- -------- -------- --------
Total expenses...................... 1,159,947 712,922 1,748,132 876,592 556,657 467,572 297,610
---------- -------- ---------- ---------- -------- -------- --------
Income before income taxes................. 56,312 32,792 70,736 60,870 38,332 16,733 54,640
Income taxes (benefit)..................... 4,654 311 (8,796) 10,083 5,393 (1,896) 20,873
---------- -------- ---------- ---------- -------- -------- --------
Net income before goodwill................. 51,658 32,481 79,532 50,787 32,939 18,629 33,767
Amortization of goodwill, net of applicable
income taxes (1).......................... -- -- -- 5,856 5,469 5,031 2,756
---------- -------- ---------- ---------- -------- -------- --------
Net income................................. $ 51,658 $ 32,481 $ 79,532 $ 44,931 $ 27,470 $ 13,598 $ 31,011
========== ======== ========== ========== ======== ======== ========
Diluted earnings per share................. $ 1.04 $ 0.66 $ 1.61 $ 1.19 $ 0.80 $ 0.38 $ 0.86

As at June 30, 2003 As at December 31,
---------------------------------------- ------------------------------------------------------
As Pro Forma
Actual Adjusted(2) As Adjusted(2)(3) 2002 2001 2000 1999 1998
---------- ----------- ----------------- ---------- ---------- ---------- ---------- ----------
(unaudited)
(in thousands of Canadian dollars, except per share data)

AMOUNTS UNDER CANADIAN GAAP:
Balance Sheet Data
Cash and investments........ $2,171,177 $ $ $2,078,665 $1,223,198 $ 780,510 $ 686,196 $ 627,629
Total assets................ 3,115,170 2,984,434 1,778,744 1,173,926 1,071,710 1,014,603
Unpaid claims............... 1,357,909 1,200,554 589,963 435,322 444,689 446,245
Bank indebtedness........... 156,515 170,390 144,516 143,129 153,270 100,863
Senior unsecured debentures. 78,000 78,000 -- -- -- --
Trust preferred securities.. 64,408 23,636 -- -- -- --
Total shareholders' equity.. 591,808 612,925 536,842 272,713 242,042 250,065
Book value per share........ $ 12.09 $ $ $ 12.56 $ 11.03 $ 8.01 $ 7.12 $ 6.96

Six Months
Ended June 30, Year Ended December 31,
---------------------- -------------------------------------------
2003 2002 2002 2001 2000 1999
---------- ----------- ---------- ---------- ---------- ----------
(unaudited)
(in thousands of Canadian dollars, except per share data)
AMOUNTS UNDER U.S. GAAP:
Statement of Operations Data
Net income.................. $ 52,439 $32,900 $ 81,821 $ 46,365 $ 27,608 $ 10,673
Diluted earnings per share.. $ 1.06 $ 0.66 $ 1.66 $ 1.22 $ 0.80 $ 0.30

As at June 30, 2003 As at December 31,
---------------------------------------- -------------------------------------------
As Pro Forma
Actual Adjusted(2) As Adjusted(2)(3) 2002 2001 2000 1999
---------- ----------- ----------------- ---------- ---------- ---------- ----------
(unaudited)
(in thousands of Canadian dollars, except per share data)
AMOUNTS UNDER U.S. GAAP:
Balance Sheet Data
Cash and investments........ $2,231,722 $ $ $2,104,223 $1,227,667 $ 773,423 $ 661,691
Total assets................ 3,165,269 3,007,064 1,783,062 1,167,325 1,046,909
Unpaid claims............... 1,357,909 1,200,554 589,963 435,322 444,689
Bank indebtedness........... 156,515 170,390 144,516 143,129 153,270
Senior unsecured debentures. 78,000 78,000 -- -- --
Trust preferred securities.. 64,408 23,636 -- -- --
Total shareholders' equity.. 637,124 626,924 533,680 266,112 217,241
Book value per share........ $ 13.01 $ $ $ 12.85 $ 10.97 $ 7.81 $ 6.39

Six Months
Ended June 30, Year Ended December 31,
------------- ---------------------------------
2003 2002 2002 2001 2000 1999 1998
------ ------ ------ ------ ------ ------ -----
(unaudited)

Other Data:
Consolidated
Claims ratio(4).... 70.8% 71.3% 71.4% 70.6% 68.9% 68.4% 61.6%
Expense ratio(5)... 27.3% 28.4% 28.4% 28.5% 32.1% 34.2% 32.3%
------ ------ ------ ------ ------ ------ -----
Combined ratio(6).. 98.1% 99.7% 99.8% 99.1% 101.0% 102.6% 93.9%
Canadian operations(7)
Claims ratio(4).... 77.3% 78.1% 78.3% 73.5% 70.1% 72.7% 60.4%
Expense ratio(5)... 28.1% 30.3% 30.1% 29.6% 31.7% 32.1% 31.6%
------ ------ ------ ------ ------ ------ -----
Combined ratio(6).. 105.4% 108.4% 108.4% 103.1% 101.8% 104.8% 92.0%
U.S. operations(7)
Claims ratio(4).... 69.0% 68.9% 69.2% 68.9% 67.8% 64.5% 63.5%
Expense ratio(5)... 27.1% 27.7% 28.0% 27.9% 33.1% 36.1% 33.5%
------ ------ ------ ------ ------ ------ -----
Combined ratio(6).. 96.1% 96.6% 97.2% 96.8% 100.9% 100.6% 97.0%
Return on equity(8)... 17.2% 11.9% 13.8% 13.3% 10.7% 5.5% 13.4%

- --------
(1) Effective January 1, 2002, in accordance with new accounting standards, all
existing goodwill and intangible assets with indefinite lives ceased to be
amortized to income over time, and are subject to a periodic impairment
review to ensure that the fair value remains greater than, or equal to,
book value.

(2) Reflects the net proceeds of approximately $107.6 million from the sale of
6.71 million common shares in July 2003.

(3) Reflects the net proceeds of approximately $ million
(US$ million), based on an offering price of US$25 per trust preferred
security, after deducting the underwriting commission and estimated
offering expenses.

(4) The claims ratio is derived by dividing the amount of claims incurred by
net premiums earned.
(5) The expense ratio is derived by dividing the sum of commissions and premium
taxes and general and administrative expenses by net premiums earned.
(6) The combined ratio is the sum of the claims ratio and the expense ratio.
(7) Canadian and U.S. segment information includes the results of our Bermuda
and Barbados reinsurance subsidiaries, respectively.

(8) Return on equity percentage is net income expressed as a percentage of
average shareholders' equity during the period. Return on equity
percentages for the six months ended June 30, 2003 and 2002 are annualized.

RISK FACTORS

An investment in the trust preferred securities involves a number of risks.
You should carefully read and consider the following risks as well as the other
information contained or incorporated by reference in this prospectus,
including the financial statements and the related notes, before investing in
the trust preferred securities. The business, financial condition and results
of operations of Kingsway, including Funding Co., could be materially adversely
affected by any of these risks. Because the Trust will rely on payments it
receives on the debentures to make payments on the trust preferred securities,
and because the Trust may distribute the debentures in exchange for the trust
preferred securities upon liquidation of the Trust, you are making an
investment decision with regard to the debentures as well as the trust
preferred securities. You should carefully read the information in this
prospectus about both of these securities.

Risks Relating to this Offering

Kingsway Financial's obligation under the debenture guarantee and the preferred
securities guarantee, Kingsway America's obligations under the subordinated
notes and Funding Co.'s obligations under the debentures, are subordinated.

Kingsway Financial's obligations under the debenture guarantee and the
preferred securities guarantee will be unsecured and will rank junior in
priority of payment to all other debt of Kingsway Financial outstanding at any
time, except:

. debt made equal with or junior to the debenture guarantee or the
preferred securities guarantee by its terms;

. other debenture guarantees or preferred securities guarantees issued by
Kingsway Financial or any of its subsidiaries on behalf of holders of
trust preferred securities or other similar securities of any other
trust, partnership or other entity affiliated with Kingsway, which is a
financing vehicle of Kingsway or an affiliate of Kingsway;

. trade accounts payable; and

. indebtedness of Kingsway Financial to an employee or an affiliate.

This means that Kingsway Financial cannot make any payments on the debenture
guarantee or the preferred securities guarantee if Kingsway Financial defaults
on a payment of any of its other debt, except as described above. In the event
of the bankruptcy, liquidation or dissolution of Kingsway Financial, its assets
would be available to pay obligations under the debenture guarantee and the
preferred securities guarantee only after all payments had been made on the
other debt of Kingsway Financial, except as described above.

Funding Co.'s obligations under the debentures will be unsecured and will
rank junior in priority of payment to all of Funding Co.'s senior debt, if any,
as described in the section of this prospectus entitled "Description of the
Debentures and the Debenture Guarantee" beginning on page 91. Funding Co. will
lend the proceeds received from the sale of its debentures to the Trust to
Kingsway America in exchange for subordinated notes of Kingsway America. The
economic terms of the subordinated notes of Kingsway America will be
substantially similar to the terms of the debentures and will be unsecured and
rank junior in priority of payment to all of Kingsway America's senior debt.
Therefore, if Kingsway America defaults on a payment of any of its senior debt,
Kingsway America cannot make any payments on its subordinated notes and Funding
Co. will not have sufficient funds to make any payments on the debentures to
the Trust. Kingsway America will not be a party to the indenture and will not
be a guarantor of the debentures, since a guaranty of the trust preferred
securities and the debentures is being provided by Kingsway Financial, the
ultimate parent of the Kingsway group. Further, though Kingsway Financial will
guarantee payments on the debentures, Kingsway Financial is an Ontario
corporation with its principal place of business in Ontario, Canada, and with
reinsurance subsidiaries domiciled in Barbados and Bermuda for the sole purpose
of reinsuring risks from Kingsway Financial's insurance subsidiaries. It may,
therefore, be more difficult for debenture holders to pursue remedies against
Kingsway Financial than it would have been to pursue remedies against a U.S.
guarantor whose assets are located entirely in the United States.

As of June 30, 2003, on an adjusted basis to give effect to the issuance and
sale of the trust preferred securities offered by the Trust in this offering,
the total amount of Kingsway's senior debt that would have effectively ranked
senior to the debenture guarantee and the preferred securities guarantee was
approximately $234.5 million.

Kingsway Financial's holding company structure effectively subordinates claims
against it to claims against its operating subsidiaries.

Kingsway Financial is a holding company with assets consisting primarily of
the capital stock of its Canadian operating subsidiaries and Kingsway America,
which is a holding company for its U.S. operating subsidiaries. Since Kingsway
Financial is a holding company, its right and the rights of its creditors to
participate in any asset distributions of any of its subsidiaries on
liquidation, reorganization or otherwise, will rank junior to all creditors of
the operating subsidiaries, including insureds under policies, except to the
extent that Kingsway Financial may itself be a creditor of an operating
subsidiary.

Further, the right of creditors of Kingsway Financial (including the holders
of the debentures who are creditors of Kingsway Financial by virtue of the
debenture guarantee and the holders of trust preferred securities who are
creditors of Kingsway Financial by virtue of the preferred securities
guarantee) to participate in any distribution of the stock owned by Kingsway
Financial in certain of its subsidiaries, including its insurance subsidiaries,
may also be subject to approval by insurance regulatory authorities having
jurisdiction over such subsidiaries. Consequently, the debenture guarantee, the
preferred securities guarantee and, therefore, the trust preferred securities
will be structurally subordinated to all liabilities of Kingsway Financial's
subsidiaries.

Funding Co. and Kingsway Financial have made only limited covenants in the
indenture, the trust agreement and the preferred securities guarantee
agreement, which may not protect your investment in the event they experience
significant adverse changes in their financial condition or results of
operations.

The indenture governing the debentures and the debenture guarantee, the
trust agreement governing the trust preferred securities and the preferred
securities guarantee agreement do not require Funding Co. or Kingsway Financial
to maintain any financial ratios or specified levels of net worth, revenues,
income, cash flow or liquidity. As a result, these governing documents will not
protect your investment in the event that Funding Co. or Kingsway Financial
experiences significant adverse changes in its financial condition or results
of operations. The indenture prevents Funding Co. from incurring indebtedness,
in connection with the issuance of any trust preferred securities or any
similar securities, that is senior in right of payment to the debentures.
Except as described above, neither the indenture, the trust agreement nor the
preferred securities guarantee agreement limits the ability of Funding Co. or
Kingsway to incur other additional indebtedness that is senior in right of
payment to the debentures, payment under the debenture guarantee or the
preferred securities guarantee, as the case may be. You should not consider the
covenants contained in these governing documents as a significant factor in
evaluating whether Funding Co. will be able to comply with its obligations
under the debentures or Kingsway Financial will be able to comply with its
obligations under the debenture guarantee or the preferred securities guarantee.

In addition, you will have no protection under the terms of the indenture,
the trust agreement or the preferred securities guarantee agreement against any
sudden decline in Kingsway Financial's credit quality resulting from any highly
leveraged transaction, takeover, merger, recapitalization or similar
restructuring or change in control.

Other than additional borrowings available under our $66.5 million unsecured
revolving credit facility, we do not presently plan to incur any additional
debt in the near future that is senior in right of payment to the debentures,
the debenture guarantee and the preferred securities guarantee. We also
currently have no plans or proposals that relate to any restructuring or change
of control that might cause a change of our credit quality rating.

The preferred securities guarantee covers payments only if the Trust has
sufficient funds.

The Trust will depend solely on Funding Co.'s interest payments on the
debentures or Kingsway Financial's payments under the debenture guarantee to
pay amounts due to you on the trust preferred securities. If Funding Co.
defaults on its obligation to pay the principal or interest on the debentures
or Kingsway Financial defaults on its obligations under the debenture
guarantee, the Trust will not have sufficient funds to pay distributions or the
liquidation amount on the trust preferred securities. In that case, you will
not be able to rely on the preferred securities guarantee of Kingsway Financial
for payment of these amounts because Kingsway Financial's preferred securities
guarantee only applies if the Trust has sufficient funds to make distributions
on or to pay the liquidation amount of the trust preferred securities. Instead,
you or the property trustee will have to institute a direct action against
Funding Co. or Kingsway Financial to enforce the property trustee's or your pro
rata rights under the indenture relating to the debentures or the debenture
guarantee, as the case may be, as described under the section of this
prospectus entitled "Relationship Among the Trust Preferred Securities, the
Debentures and the Guarantees" beginning on page 107.

If our operating subsidiaries are unable to pay dividends, Kingsway Financial
may be unable to make payments under the preferred securities guarantee or the
debenture guarantee and Funding Co. may be unable to make payments on the
debentures.

Kingsway Financial conducts its operations through its Canadian subsidiaries
and Kingsway America, which conducts its operations through its U.S. operating
subsidiaries. Kingsway Financial also has wholly owned reinsurance subsidiaries
domiciled in Bermuda and Barbados. As a result, Kingsway Financial's ability to
make payments on the debenture guarantee or the preferred securities guarantee
and Kingsway America's ability to make payments on its subordinated notes
(which will allow Funding Co. to make payments on the debentures) will depend
primarily on distributions or other payments to Kingsway Financial and Kingsway
America from their operating subsidiaries. The payment of distributions, making
of loans and advances or other payments to Kingsway Financial and Kingsway
America from their respective subsidiaries depends on the earnings of those
subsidiaries and is subject to various other business considerations. In
addition, distributions and other payments by our insurance and reinsurance
subsidiaries are subject to various statutory and regulatory restrictions
imposed by the insurance laws of the domiciliary jurisdiction of such
subsidiaries, including Barbados and Bermuda. For the year 2003, under these
insurance regulatory restrictions, based on our December 31, 2002 financial
statements, our insurance and reinsurance subsidiaries would have aggregate
dividend capacity of $180.3 million.

If Kingsway America defers interest payments on the subordinated notes issued
to Funding Co., Funding Co. will defer interest payments on the debentures and
you will not receive timely distributions on the trust preferred securities.

As long as there is no event of default under the indenture that has
occurred but has not been cured or waived, Funding Co. will have the right to
defer interest payments on the debentures for up to a maximum of 20 consecutive
quarters per deferral period, but not beyond , 2033. At the end of an
interest deferral period, upon payment of all accrued and unpaid interest then
due and assuming that no event of default has occurred and is continuing under
the indenture, Funding Co. may again elect to defer interest payments for up to
20 consecutive quarterly periods. Subject to those parameters, there is no
limit on the number of deferral periods that Funding Co. may impose. Deferral
periods are periods during which Funding Co. defers interest payments on the
debentures. If Funding Co. defers interest payments on the debentures, the
Trust will defer payment of distributions on the trust preferred securities.
During a deferral period, you will still accumulate distributions at an annual
rate of %, compounded quarterly from the relevant distribution date.

Kingsway America's payments of principal and interest payable under the
subordinated notes issued to Funding Co. will be Funding Co.'s only source of
funds. The subordinated notes will be unsecured and will rank junior to all of
Kingsway America's senior debt, including indebtedness that Kingsway America
may incur in the future. Kingsway America may, on one or more occasions, defer
interest payments on the subordinated notes for up to a maximum of 20
consecutive quarterly periods, unless an event of default under the
subordinated notes has

occurred and is continuing. At the end of an interest deferral period, upon
payment of all accrued and unpaid interest then due and assuming that no event
of default has occurred and is continuing under the subordinated notes,
Kingsway America may again elect to defer interest payments for up to 20
consecutive quarterly periods. Subject to those parameters, there is no limit
on the number of deferral periods that Kingsway America may impose. If Kingsway
America defers interest payments on the subordinated notes, Funding Co. will
defer interest payments on the debentures and the Trust will defer interest
payments on the trust preferred securities.

If Funding Co. elects to defer interest payments on the debentures, you will
have to include interest in your taxable income before you receive any cash
distribution.

Although you will not receive cash distributions during a deferral period,
for U.S. federal income tax purposes, you will be required to recognize the
interest income that accrues on your proportionate share of the debentures held
by the Trust in the tax year in which that interest accrues (determined on a
constant yield basis). As a result, you will be required to include this income
in your gross income for U.S. federal income tax purposes before you receive
any cash distribution with respect to this income. For more information on the
tax consequences of interest deferral, see the section of this prospectus
entitled "Material U.S. Federal Income Tax Consequences--Interest Income and
Original Issue Discount" beginning on page 111.

Funding Co.'s right to defer interest on the debentures could adversely affect
the market price of the trust preferred securities.

Due to Funding Co.'s right to defer interest payments on the debentures, the
market price of the trust preferred securities may be more volatile than the
market prices of other securities without this deferral feature. If Funding Co.
exercises its right to defer interest payments on the debentures, the market
price of the trust preferred securities would likely be adversely affected.
During a deferral period, the trust preferred securities may trade at a price
that does not fully reflect the value of accrued but unpaid interest on the
debentures. If you sell your trust preferred securities during an interest
deferral period, you may not receive the same return on your investment as
someone who continues to hold the trust preferred securities.

If you sell your trust preferred securities before the record date for payment,
you may incur additional U.S. federal income tax consequences.

If you sell your trust preferred securities before the record date for the
payment of distributions, you will not receive payment of a distribution for
the period before the disposition. However, you will be required to include
accrued but unpaid interest on the debentures through the date of disposition
as ordinary income for U.S. federal income tax purposes. In addition, if
Funding Co. has, at any time, deferred interest payments on the debentures, you
will be required to add the amount of the accrued but unpaid interest to your
tax basis in the trust preferred securities. Your increased tax basis in the
trust preferred securities will increase the amount of any capital loss or
decrease the amount of any capital gain that you may have otherwise realized on
the sale. You cannot offset ordinary income against capital losses for U.S.
federal income tax purposes, except in a few limited cases. For more
information on the tax consequences of selling your trust preferred securities
before the record date for the payment of distributions, see the section of
this prospectus entitled "Material U.S. Federal Income Tax Consequences--Sales
of Trust Preferred Securities" beginning on page 112.

Our ability to deduct interest on the debentures for U.S. federal income tax
purposes may be limited or deferred. If so, our income taxes could be increased
and we may have a reduced amount of cash available to pay interest or principal
to the trust preferred securities holders.

The deduction of interest payable with respect to the debentures as accrued
for U.S. federal income tax purposes may be deferred or disallowed (i) pursuant
to the earnings stripping rules of Section 163(j) of the United States Internal
Revenue Code of 1986, as amended, or the Code, (ii) in the event that the
debentures are deemed to be applicable high yield discount obligations within
the meaning of Section 163(i) of the Code or (iii) for that portion of the
interest expense allocable to the holding of tax-exempt obligations as provided
by Section 265 of the Code.

Under the earnings stripping rules of Section 163(j) of the Code, because
the debentures are guaranteed by Kingsway Financial, a Canadian company, if the
debt-to-equity ratio of our U.S. affiliated group exceeds a "safe harbor
amount" equal to 1.5 to 1, the U.S. federal income tax deduction for interest
accrued on the debentures would potentially be subject to partial or complete
deferral or disallowance. The amount deferred or disallowed would be limited to
the amount that our U.S. group's net interest expense exceeds the sum of 50% of
the group's adjusted taxable income plus any unused "excess limitation" from
the prior three years. Our U.S. group's "excess limitation" would be equal to
the amount by which 50% of the group's adjusted taxable income exceeds its net
interest expense. Any amount of the deduction for interest disallowed under the
earnings stripping rules could be carried over to the succeeding taxable year.
Legislation proposed in 2003 would substantially amend the earnings stripping
rules. The proposed legislation would eliminate the 1.5 to 1 debt-to-equity
safe harbor described above and limit the carryover of disallowed interest to a
period of 10 years. The amount deferred or disallowed for a taxable year would
be limited to the sum of our U.S. group's "excess interest expense" and "excess
related party interest expense," but in no case would our deduction for
"disqualified interest" be reduced below an amount equal to the sum of the
interest includible in our U.S. group's gross income for the relevant taxable
year and an amount equal to 25% (35% for our first taxable year beginning after
December 31, 2003) of our U.S. group's adjusted taxable income. "Excess
interest expense" means the excess of the U.S. group's net interest expense
over 50% of the group's adjusted taxable income, and "excess related party
interest expense" is the excess of (i) the lesser of (x) the group's
"disqualified interest" or (y) the group's net interest expense, over (ii) 25%
(35% for our first taxable year beginning after December 31, 2003) of the U.S.
group's adjusted taxable income. "Disqualified interest" includes interest paid
on indebtedness guaranteed by a related foreign party on which no gross basis
tax is imposed (such as interest paid on the debentures) and certain interest
paid to related foreign parties. We believe that our deduction of interest
payable with respect to the debentures would not currently be deferred or
disallowed pursuant to the existing or proposed limitations. However, we cannot
assure you that deductions may not be limited in the future.

Under Section 163(i) of the Code, if a debt instrument is an applicable high
yield discount obligation, or AHYDO, then the issuer's deduction for original
issue discount, or OID, on the debt would be deferred until actually paid.
Moreover, if the yield to maturity on an AHYDO exceeds the sum of the
applicable federal rate (a floating rate published monthly by the Internal
Revenue Service) plus six percentage points, a portion of the deduction for OID
would be permanently disallowed. For the debentures to be treated as AHYDOs,
(i) the yield to maturity on the debentures must equal or exceed the applicable
federal rate plus five percentage points, and (ii) the debentures must be
issued with "significant" OID, as determined under Section 163(i). As discussed
at greater length in "Material United States Income Tax Consequences--Interest
Income and Original Issue Discount" on page 111, we do not anticipate that the
debentures will be considered to be issued with OID at the time of their
original issuance. However, if Funding Co. exercised its right to defer
payments of interest on the debentures (or if the exercise of such option was
determined not to be remote at the time of issuance), the debentures would be
treated as issued with OID at the time of such exercise (or at the time of
issuance if the exercise of such option was determined not to be remote). In
such case, depending on the difference between the yield to maturity on the
debentures and the applicable federal rate, it is possible that the debentures
could be treated as AHYDOs and some or all of the deduction for such OID could
be deferred or disallowed under the above rules.

Under Section 265(a)(2) of the Code, interest on indebtedness incurred or
continued to purchase or carry obligations exempt from U.S. federal income tax
is not deductible. The determination of whether the indebtedness incurred by
Funding Co. from the issuance of the debentures was continued or incurred to
purchase or carry tax-exempt obligations is based on relevant facts and
circumstances, and to the extent that we invest in tax-exempt obligations after
issuance of the debentures, our deduction for U.S. federal income taxes could
be subject to disallowance.

You must rely on the property trustee to enforce your rights if there is an
event of default under the indenture.

You may not be able to directly enforce your rights against Funding Co. or
Kingsway Financial if an event of default under the indenture occurs. If an
event of default under the indenture occurs and is continuing, this event will
also be an event of default under the trust agreement. In that case, you must
rely on the enforcement by the property trustee of its rights as holder of the
debentures against Funding Co. and its rights as holder of the debenture
guarantee. The holders of a majority in liquidation amount of the trust
preferred securities will have

the right to direct the property trustee to enforce its rights. If an event of
default occurs under the trust agreement that is attributable to Funding Co.'s
failure to pay interest or principal on the debentures, or Kingsway Financial's
failure to pay interest or principal under the debenture guarantee or the
preferred securities guarantee, you may proceed directly against Funding Co. or
Kingsway Financial, as the case may be. You will not be able to
exercise directly any other remedies available to the holders of the debentures
unless the property trustee fails to do so.

If Funding Co. redeems the debentures before maturity, you may be required to
reinvest your money in other investments at a lower rate of return.

Funding Co. will have an option to redeem the debentures, and, therefore,
cause the Trust to redeem a like amount of the trust preferred securities, at
any time on or after , 2008 and up to 90 days prior to , 2033.
You should assume that Funding Co. will exercise its redemption option if it is
able to refinance at a lower interest rate or it is in its interest to redeem
the debentures at that time. Consequently, your trust preferred securities
could be redeemed as early as five years after the issue date.

In addition, if a tax event or an investment company event, as further
described below, occurs, Funding Co. has the right to redeem the debentures in
whole, but not in part, within 180 days. If Funding Co. redeems the debentures,
the Trust will be required to redeem the trust preferred securities. Thus, it
is possible that the trust preferred securities could be redeemed before
, 2008.

A tax event could result from amendments or changes in U.S. federal income
tax laws or regulations, including those arising from judicial decisions or
administrative pronouncements, that could cause Funding Co. to be unable to
deduct the interest payments on the debentures or subject the Trust to tax. An
investment company event could result from changes in laws or regulations that
could cause the Trust to be deemed an investment company under the Investment
Company Act of 1940. These events could have adverse tax consequences for us or
the Trust.

Legislation had been proposed in 2002 that would have, among other things,
disallowed a deduction for U.S. tax purposes for certain indebtedness,
including interest paid or accrued on debt instruments that are not included as
liabilities in the certified annual report of an issuer. We cannot assure you
that any such legislation or similar legislation will not ultimately be enacted
or what the effective date of any such legislation might be. If any such
legislation or similar legislation were to apply to the debentures, Funding Co.
would not be able to deduct interest payments on the debentures for U.S.
federal income tax purposes, and, consequently, a tax event would result.

For more information on these events and on redemption generally, see the
section of this prospectus entitled "Description of the Trust Preferred
Securities--Redemption or Exchange" beginning on page 79.

There is no current public market for the trust preferred securities, and their
market price may be subject to significant fluctuations.

Prior to this offering, there has been no public market for the trust
preferred securities. Although the trust preferred securities have been
approved for listing on the New York Stock Exchange, we cannot assure you that
an active trading market will develop or how liquid that market might become.
If an active trading market does not develop, the market price and liquidity of
the trust preferred securities may be adversely affected. Even if an active
trading market does develop, there is no guarantee that the market price for
the trust preferred securities will equal or exceed the price you pay for the
trust preferred securities. Future trading prices of the trust preferred
securities may be subject to significant fluctuations in response to prevailing
interest rates, our future operating results and financial condition, the
market for similar securities and general economic and market conditions. In
addition, the commencement of a deferral period would likely cause the market
price of the trust preferred securities to decline.

Funding Co. can distribute the debentures to you in exchange for the trust
preferred securities, which may adversely affect the liquidity and the market
value of your investment.

The Trust will dissolve upon the occurrence of the events described in the
section of this prospectus entitled, "Description of the Trust Preferred
Securities--Liquidation Distribution Upon Dissolution" beginning on page 83,
including if Funding Co. elects to dissolve the Trust. After Funding Co.
dissolves the Trust and after satisfying all liabilities to the Trust's
creditors, the property trustee may distribute the debentures to you in
exchange for the trust preferred securities.

There is no public market for the debentures. In the event the debentures
are distributed to the trust preferred security holders, we will use our best
efforts to list the debentures on the New York Stock Exchange or any other
stock exchange or automated quotation system on which the trust preferred
securities are then listed or quoted. However, we cannot assure you that the
debentures will be approved for listing or that a trading market will exist for
the debentures. Accordingly, the debentures that you receive upon a
distribution, or the trust preferred securities you hold pending such a
distribution, may trade at a lower price than you paid to purchase the trust
preferred securities.

Under current U.S. federal income tax law and interpretations and assuming
that the Trust is treated as a grantor trust, as is expected, and not as an
association taxable as a corporation, you would not be taxed if the property
trustee distributed the debentures to you upon liquidation of the Trust.
However, if a tax event were to occur and the Trust was taxed on income
received or accrued on the debentures, you and the Trust could be taxed on the
distribution of the debentures.

As a holder of trust preferred securities, you have limited voting rights, and
Funding Co. generally can amend the trust agreement without your consent.

Holders of trust preferred securities will have limited voting rights
relating principally to the amendment of the trust agreement. In general, only
Funding Co. can replace or remove any of the trustees. However, if an event of
default under the trust agreement occurs and is continuing, the holders of at
least a majority in aggregate liquidation amount of the trust preferred
securities may replace the property trustee and the Delaware trustee. In
addition, Funding Co. generally may amend the trust agreement without the
consent of the holders of trust preferred securities.

It may be difficult for investors to enforce civil liabilities against Kingsway
Financial under U.S. federal and state securities laws.

Kingsway Financial is incorporated under the laws of Ontario, Canada. Most
of its directors and executive officers are residents of Canada and a
substantial portion of our assets and the assets of these persons are located
outside of the United States. As a result, it may be difficult or impossible
for U.S. investors to effect service of process within the United States upon
us or such directors and officers, or any experts named in this prospectus
located outside the United States, or to realize against them upon judgments of
courts of the United States predicated upon the civil liabilities of Kingsway
Financial or its directors or officers, or any experts named in this prospectus
located outside the United States, under U.S. federal securities laws or
securities or blue sky laws of any state within the United States. We believe
that a judgment of a U.S. court predicated solely upon the civil liability
under the Securities Act and/or the Exchange Act would likely be enforceable in
Canada if the U.S. court in which the judgment was obtained had a basis for
jurisdiction in the matter that was recognized by a Canadian court for such
purposes. We cannot assure you that this will be the case. There is substantial
doubt, however, whether an action could be brought in Canada in the first
instance on the basis of liability predicated solely upon such laws.

Risks Relating to Our Business

Our provision for unpaid claims may be inadequate, which would result in a
reduction in our net income.

Our provisions for unpaid claims do not represent an exact calculation of
our actual liability, but are estimates involving actuarial and statistical
projections at a given point in time of what we expect to be the cost

of the ultimate settlement and administration of known and unknown claims. The
process for establishing the provision for unpaid claims reflects the
uncertainties and significant judgmental factors inherent in predicting future
results of both known and unknown claims and as such, the process is inherently
complex and imprecise. Actual losses from claims may deviate, perhaps
substantially, from the provisions for unpaid claims reflected in our financial
statements. As of June 30, 2003, our provisions for unpaid claims were $1,357.9
million, which we believe are adequate.

We base our provisions for unpaid claims on facts and circumstances then
known, estimates of future trends in claims severity and other variable factors
such as inflation. Furthermore, factors such as inflation, claims settlement
patterns, legislative activity and litigation trends, all of which are
difficult to predict, may have a substantial impact on our actual claims
experience. As time passes and more information about the claims becomes known,
the estimates are appropriately adjusted upward or downward to reflect this
additional information. Because of the elements of uncertainty encompassed in
this estimation process, and the extended time it can take to settle many of
the more substantial claims, several years of experience are usually required
before a meaningful comparison can be made between actual losses and the
original provisions for unpaid claims.

The development of the provisions for unpaid claims is shown by the
difference between estimates of claims as of the initial year-end and the
re-estimated liability at each subsequent year end. Favorable development
(reserve redundancy) means that the original claims estimates were higher than
subsequently determined. Unfavorable development (reserve deficiency) means
that the original claims estimates were lower than subsequently determined.
During 2002, we experienced reserve deficiencies of $101.1 million on prior
periods. Of this deficiency, 84% was related to Ontario automobile business and
non-standard automobile in the southeastern United States. Although we have
made adjustments in our reserving practices to reflect this abnormal claims
experience, we cannot assure you that these unfavorable trends will not require
additional reserves in the future. For a summary of the development of our
provision for unpaid claims over the past ten years, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Provisions for Unpaid Claims" beginning on page 35 of this
prospectus.

To the extent our actual claims experience is less favorable than our
current claims estimates reflected in our provisions for unpaid claims, we will
be required to increase our provisions for unpaid claims which will reduce our
profitability in future periods. Moreover, insufficiencies in our provisions
for unpaid claims could have a material adverse effect on our results of
operations and financial condition.

We may experience difficulty in managing our growth, which could adversely
affect our results of operations and financial condition.

We have grown rapidly over the last several years. As a result, our gross
premiums increased 26% in 2000, 66% in 2001, 99% in 2002 and 45% in the first
six months of 2003 compared to the prior period. This growth may place a strain
on our management systems and operational and financial resources. We plan to
continue to expand our specialty focus into selected regional markets in the
United States and Canada and to increase the distribution of our core products
in our existing markets. Our future growth and the successful integration and
management of new MGA relationships, acquired businesses and other new business
involves numerous risks that could adversely affect our growth and
profitability, and are contingent on various factors, including:

. expanding our financial, operational and management information systems;

. managing our relationships with independent agents, MGAs and brokers,
including maintaining adequate controls;

. expanding our executive management and the infrastructure required to
effectively control our growth;

. maintaining ratings for certain of our insurance subsidiaries;

. increasing the statutory capital of our insurance subsidiaries to support
additional underwriting;

. accurately setting provisions for claims for new business where we lack
historical underwriting experience;

. obtaining regulatory approval for appropriate premium rates; and

. obtaining the required regulatory approvals to offer additional insurance
products or expand into additional states and provinces.

As described elsewhere in this prospectus, A.M. Best announced in February
2003 that the financial strength rating for Lincoln General Insurance Company,
our largest U.S. subsidiary, remains under review with negative implications
pending the completion of our current capital raising initiatives and effective
management of Lincoln General's premium growth in 2003. A.M. Best expressed
concerns regarding our ability to secure significant amounts of new capital
both to support our current book of business and to sustain our future growth
plans as well as Lincoln General's ability to maintain profitability and
effectively manage its growth and administer the underwriting and claims
functions associated with Lincoln General's substantial amount of new business.
In addition, A.M. Best lowered the financial strength rating of our Canadian
subsidiaries from A (Excellent) to A- (Excellent) as a result of deterioration
in the Canadian group's capitalization due to strong premium growth and poor
underwriting performance driven by adverse loss development on our Ontario
automobile business. If we are unable to maintain our current claims-paying
ratings, our ability to write insurance and compete with other insurance
companies may be adversely affected.

We cannot assure you that we will be able to manage our growth effectively
or that we will be successful in expanding our business, that our existing
infrastructure will be able to support additional expansion or that any new
business will be profitable. If we are unable to manage our growth, our results
of operations and financial condition may be adversely affected.

We rely on independent agents, MGAs and brokers and are exposed to related
risks.

We market and distribute our automobile insurance products through a network
of over 3,500 independent agents and approximately 20 MGAs in the United States
and over 3,000 independent brokers across Canada. In 2002, approximately 58% of
our gross written premiums in the United States were sourced through MGAs and
approximately 42% were sourced through independent agents. Our insurance
products are marketed through a large number of independent agents, MGAs and
brokers and we rely heavily on their ability to attract new business. These
independent agencies and MGAs typically represent more than one insurance
company, which may expose us to competition within the agency, and, therefore,
we cannot rely on their commitment to our insurance products. In some markets,
we operate pursuant to "open market" arrangements in which we have no formal
relationships with the brokers who place our risk in these markets. Loss of all
or a substantial portion of the business provided by these intermediaries could
have a material adverse effect on our business, results of operations and
financial condition.

Our independent agents, MGAs and brokers generally have the ability to bind
insurance policies and a few MGAs may settle claims on our behalf, and we have
only limited ability to exercise control over them. In the event that an
independent agent, MGA or broker exceeds its authority by binding us on a risk
that does not comply with our underwriting guidelines, we may be at risk for
that policy until we effect a cancellation. Although to date we have not
experienced a material loss from improper use of binding authority by our
agents, MGAs or brokers, any improper use of such authority may result in
losses that could have a material adverse effect on our business, results of
operations and financial condition.

In accordance with industry practice, our customers often pay the premiums
for their policies to agents, MGAs or brokers for payment over to us. These
premiums are considered paid when received by the agent, MGA or broker and
thereafter the customer is no longer liable to us for those amounts, whether or
not we have actually received the premiums from the agent, MGA or broker.
Consequently, we assume a degree of risk associated with our reliance on
independent agents, MGAs and brokers in connection with the settlement of
insurance balances.

The highly competitive environment in which we operate could have an adverse
effect on our business, results of operations and financial condition.

The automobile insurance and other property and casualty markets in which we
operate are highly competitive. We compete, and will continue to compete, with
major North American and other insurers, many of which have greater financial,
marketing and management resources than we do. There may also be other
companies that may be planning to enter the insurance industry of which we are
not aware. Insurers in our

markets generally compete on the basis of price, consumer recognition,
coverages offered, claims handling, financial stability, customer service and
geographic coverage. Although our pricing is influenced to some degree by that
of our competitors, we generally believe that it is not in our best interest to
compete solely on price, and may from time to time experience a loss of market
share during periods of intense price competition. Our business could be
adversely impacted by the loss of business to competitors offering competitive
insurance products at lower prices. This competition could affect our ability
to attract and retain profitable business.

In our non-standard automobile business, we compete with both large national
underwriters and smaller regional companies. Our competitors include other
companies that, like us, serve the independent agency market, as well as
companies that sell insurance directly to customers. Direct underwriters may
have certain competitive advantages over agency underwriters, including
increased name recognition, loyalty of the customer base to the insurer rather
than to an independent agency and reduced costs to acquire policies. Any new,
proposed or potential legislative or industry developments could further
increase competition in our markets. New competition from these developments
could cause the demand for our products to decrease, which would adversely
affect our profitability. In addition, in certain provinces or states,
government-operated risk plans may provide non-standard automobile insurance
products at a lower price than those we provide.

Additionally, our markets may attract competition from time to time from new
or temporary entrants. In some cases, such entrants may, because of
inexperience, the desire for new business or for other reasons, price their
insurance below the rates that we believe offer an acceptable premium for the
related risk. Further, a number of our competitors, including new entrants to
our markets, are developing e-business capabilities which may impact the level
of business transacted through our more traditional distribution channels or
which may affect pricing in the market as a whole.

Our operating results may fluctuate as a result of many factors, including
cyclical patterns in the property and casualty insurance industry and in the
automobile insurance market.

The results of companies in the property and casualty insurance industry
have been subject to significant fluctuations and uncertainties. The industry's
profitability can be affected significantly by many factors, including:

. rising costs that are not known by companies at the time they price their
products, such as unforeseen case law developments;

. volatile and unpredictable developments, including weather-related and
other natural catastrophes;

. changes in insurance and tax laws and regulation, as well as new
legislative initiatives; and

. general economic conditions, such as fluctuations in interest rates,
inflationary pressures and other changes in the investment environment,
which affect returns on invested capital and may impact the ultimate
payout of loss amounts.

In addition, the profitability of automobile insurers can be affected
significantly by many factors, including:

. regulatory regimes which limit their ability to detect and defend against
fraudulent claims and fraud rings;

. developing trends in tort and class action litigation which may encourage
frivolous litigation or expose automobile insurers to allegations of bad
faith;

. changes in consumer protection laws which could limit the use of used or
like kind and quality after-market parts or to compel compensation for
alleged diminution in value notwithstanding repair of the vehicle; and

. changes in laws or regulations, including the adoption of consumer
initiatives regarding rates charged for automobile or other insurance
coverage or claims handling procedures.

The financial performance of the property and casualty insurance industry
has historically tended to fluctuate in cyclical patterns of "soft" markets
characterized generally by increased competition resulting in lower premium
rates followed by "hard" markets characterized generally by lessening
competition and increasing premiums rates. Although an individual insurance
company's financial performance depends on its own specific business
characteristics, the profitability of most property and casualty insurance
companies tends to follow this cyclical market pattern with profitability
generally increasing in hard markets and decreasing in soft markets.

If we fail to comply with the covenants in our credit agreements or fail to
maintain specified financial ratios, the lenders under our credit facilities
could declare us in default of our obligations and prevent us from making
distributions on the trust preferred securities.

Our credit agreements contain numerous covenants that limit our ability,
among other things, to borrow money, make particular types of investments or
other restricted payments, sell assets, merge or consolidate. These agreements
also require us to maintain specified financial ratios, including a requirement
that we maintain on a consolidated basis a specified ratio of net premiums
written to statutory capital and surplus, or capital surplus ratio. If we fail
to comply with the covenants under our credit facilities or meet these
financial ratios, the lenders under our credit facilities could declare a
default and demand immediate repayment of all amounts owed to them. If a
default occurs and is continuing under our credit agreements, Kingsway
Financial will be unable to make any payments under the debenture guarantee or
the preferred securities guarantee, Kingsway America will be unable to make
interest payments under the subordinated notes to Funding Co. and will have to
defer these payments, Funding Co. will have to defer interest payments on the
debentures and the Trust will defer its distributions under the trust preferred
securities. A default under our credit agreements may, if our lenders declare
us in default and demand immediate repayment, force us to pay the full balance
under our credit facilities, thereby adversely affecting our liquidity and
forcing us to cease or substantially slow our growth.

If we are unable to maintain our current claims-paying ratings, our ability to
write insurance and compete with other insurance companies may be adversely
impacted.

Third party rating agencies assess and rate the claims-paying ability of
insurers and reinsurers based upon criteria established by the rating agencies.
Periodically these rating agencies evaluate us to confirm that we continue to
meet the criteria of the ratings previously assigned to us. Financial strength
ratings are an important factor in establishing the competitive position of
insurance companies and may be expected to have an effect on an insurance
company's premiums.

Our insurance subsidiaries maintain individual ratings by A.M. Best, which
represent independent opinions of an insurer's financial strength and ability
to meet policyholder obligations. Our Canadian subsidiaries, Kingsway General
Insurance Company, York Fire & Casualty Insurance Company and Jevco Insurance
Company, possess an "A-" (Excellent) rating from A.M. Best (fourth highest of
15 rating levels). Of our U.S. subsidiaries, Lincoln General Insurance Company
and Universal Casualty Company have an "A-" (Excellent) rating (fourth highest
of 15 rating levels), American Service Insurance Company, Inc. has a "B++"
(Very Good) rating (fifth highest of 15 rating levels), American Country
Insurance Company and Southern United Fire Insurance Company have a "B+" (Very
Good) rating (sixth highest of 15 rating levels), and U.S. Security Insurance
Company has a "B" (Fair) rating (seventh highest of 15 rating levels).
According to A.M. Best, companies rated as A and A- (Excellent) are deemed
"secure" and are assigned to insurers which have, on balance, excellent balance
sheet strength and operating performance and business profile when compared to
the standards established by A.M. Best and, in A.M. Best's opinion, have a
strong ability to meet their ongoing obligations to policyholders. According to
A.M. Best, companies rated as B++ and B+ (Very Good) are deemed "secure" and
are assigned to insurers which have, on balance, very good balance sheet
strength and operating performance and business profile when compared to the
standards established by A.M. Best and, in A.M. Best's opinion, have a good
ability to meet their ongoing obligations to policyholders. According to A.M.
Best, companies rated as B (Fair) are deemed "vulnerable" and are assigned to
insurers which have, on balance, fair balance sheet strength and operating
performance and business profile when compared to the standards established by
A.M. Best and, in A.M. Best's opinion, have an ability to meet their ongoing
obligations to policyholders.

On February 27, 2003, A.M. Best affirmed the individual financial strength
ratings of our U.S. insurance subsidiaries and lowered the group financial
strength rating of our Canadian subsidiaries from A (Excellent) to A-
(Excellent). A.M. Best stated that the lowered rating of our Canadian group is
a result of deterioration in the group's capitalization due to strong premium
growth and poor underwriting performance driven by adverse loss development in
our Ontario automobile business. A.M. Best also stated that the rating will
remain under pressure pending the ability of our Canadian Subsidiaries to
improve their capital position and meet their underwriting and operating
objectives for 2003. In addition, the financial strength rating for Lincoln
General Insurance Company, our largest U.S. subsidiary, remains under review
with negative implications pending the completion of our current capital
raising initiatives and effective management of Lincoln's premium growth in
2003. A.M. Best expressed concerns regarding our ability to secure significant
amounts of new capital both to support our current book of business and to
sustain our future growth plans as well as Lincoln General's ability to
maintain profitability and effectively manage its growth and administer the
underwriting and claims functions associated with its substantial amount of new
business. We believe that A.M. Best will look favorably upon completion of our
current capital raising efforts as long as we limit our growth to sustainable
levels. However, we cannot assure you that A.M. Best will not downgrade our
ratings or place them under review with negative implications, in the future,
even if we complete this offering. If we are unable to maintain our current
ratings, our ability to write insurance business and compete with other
insurance companies may be adversely affected.

Rating agencies evaluate insurance companies based on financial strength and
the ability to pay claims, factors which are more relevant to policyholders
than investors. Financial strength ratings by rating agencies are not ratings
of securities or recommendations to buy, hold or sell any security.

The majority of our gross premiums written are derived from the non-standard
automobile and trucking insurance markets. If the demand for insurance in these
markets declines, our results of operations could significantly decline.

For the year ended December 31, 2002, approximately 39.0% of our gross
premiums written were attributable to non-standard automobile and 32.3% were
attributable to trucking insurance. In the six month period ended June 30,
2003, approximately 34.9% of our gross premiums written were attributable to
non-standard automobile and 30.7% were attributable to trucking insurance. The
size of both the non-standard automobile and trucking insurance markets can be
affected significantly by many factors outside of our control, such as the
underwriting capacity and underwriting criteria of standard automobile
insurance carriers and trucking insurers, and we may specifically be affected
by these factors. Additionally, an economic downturn in one or more of our
principal markets could result in fewer automobile sales and a lower volume of
goods shipped by truck resulting in less demand for these insurance products.
To the extent that these insurance markets are affected adversely for any
reason, our gross premiums written will be disproportionately affected due to
our substantial reliance on these insurance markets.

If we fail to comply with applicable insurance regulatory requirements, our
business and financial condition could be adversely affected.

As an insurance company, we are subject to numerous laws and regulations.
These laws and regulations delegate regulatory, supervisory and administrative
powers to federal, provincial or state insurance commissioners and agencies.
Such regulation generally is designed to protect policyholders rather than
shareholders, and is related to matters including:

. rate setting;

. risk-based capital and solvency standards;

. restrictions on types of investments;

. the maintenance of adequate reserves for unearned premiums and unpaid
claims;

. the examination of insurance companies by regulatory authorities,
including periodic financial and market conduct examinations;

. the licensing of insurers and their agents; and

. limitations on dividends and transactions with affiliates.

In addition, these statutes typically require us periodically to file
financial statements and annual reports, prepared on a statutory accounting
basis, and other information with insurance regulatory authorities, including
information concerning our capital structure, ownership, financial condition
and general business operations. We allocate considerable time and resources to
compliance with these requirements, and could be subject to regulatory
sanctions and fines if a regulatory authority believed we had failed to comply
with any applicable law or regulation.

Any such failure to comply with applicable laws could result in the
imposition of significant restrictions on our ability to do business, which
could adversely affect our results of operations or financial condition. In
addition, any changes in laws and regulation, including the adoption of
consumer initiatives regarding rates charged for automobile or other insurance
coverage or claims handling procedures, could materially adversely affect our
business, results of operations and financial condition.

If our insurance subsidiaries fail to comply with minimum capital requirements,
they may be subject to regulatory action.

In order to enhance the regulation of insurer solvency, a risk based
capital, or RBC, formula was adopted by the U.S. National Association of
Insurance Commissioners, or NAIC, for U.S. insurance companies. State insurance
regulators monitor the financial status of an insurer by reviewing the
insurer's compliance with RBC requirements. The provinces in Canada in which we
operate have similar solvency requirements. If our insurance subsidiaries do
not comply with these minimum capital requirements, they may be restricted or
prohibited from operating. If our insurance subsidiaries are required to
increase their reserves in the future, as a result of unexpectedly poor claims
experience or otherwise, they may violate these minimum capital requirements
unless we are able to take actions to improve the solvency of those
subsidiaries. As a result, our business, results of operations, and financial
condition may be materially adversely affected.

Our business could be adversely affected as a result of changing political,
regulatory, economic or other influences.

The insurance industry is subject to changing political, economic and
regulatory influences. These factors affect the practices and operation of
insurance and reinsurance organizations. Legislatures in Canada, the United
States, Barbados, Bermuda and local jurisdictions in which we operate have
periodically considered programs to reform or amend their respective insurance
and reinsurance systems. Recently, the insurance and reinsurance regulatory
framework has been subject to increased scrutiny in many jurisdictions. For
example, in the United States, current and proposed federal measures that may
affect our business include proposals regarding insurance coverage for
terrorism, natural disaster protection and tort reform. In Canada, we
experienced an extension of the reporting period during which a plaintiff may
bring suit against us under the tort provisions of the current Ontario
automobile legislation which negatively impacted our results.

Changes in current insurance regulation may include increased governmental
involvement in the insurance industry, initiatives aimed at premium controls,
or may otherwise change the business and economic environment in which
insurance industry participants operate. In some states, the automobile
insurance industry has been under pressure in past years from regulators,
legislators or special interest groups to reduce, freeze or set rates at levels
that are not necessarily related to underlying costs, including initiatives to
roll back automobile and other personal line rates. These changes, if adopted,
may limit our ability to price automobile insurance adequately and could
require us to discontinue unprofitable product lines, make unplanned
modifications of our products and services, or may result in delays or
cancellations of sales of our products and services. We cannot predict the
future impact of changing law or regulation on our operations and any changes
could have a material adverse effect on our results of operations or financial
condition.

Our business may be materially adversely affected if the tax laws of the United
States or Canada change.

We operate subsidiary reinsurance companies in Barbados and Bermuda for the
sole purpose of reinsuring risks from our own subsidiaries. Legislation had
been proposed in 2002 which would have disallowed a deduction for U.S. income
tax purposes for premiums paid to certain specified related reinsurers. If this
or similar legislation or regulation were to be enacted, this could have the
effect of increasing the taxes payable by certain of our subsidiaries. We
cannot assure you that any such legislation or regulations or similar
legislation or regulations will not be enacted.

Due to our corporate structure and to differences in the tax laws of the
United States and Canada, we deduct interest paid on certain of our debt in the
United States as well as in Canada. Such deductions are based on our
interpretation of applicable tax laws. There is no guarantee that the Internal
Revenue Service or any other tax authority will not challenge our
interpretation, and if such a challenge were made and were successful, the
taxes payable by us or certain of our subsidiaries could be increased. In
addition, amendments or changes in applicable income tax laws or regulations,
including those arising from judicial decisions or administrative
pronouncements, could deny a deduction for interest to taxpayers with a
structure similar to ours.

We may not be able to realize our investment objectives, which could reduce our
net income significantly.

We depend on income from our investment portfolio for a substantial portion
of our earnings. In 2001, 2002, and the first six months of 2003, net
investment income and net realized capital gains accounted for approximately
6.9%, 4.5% and 3.6%, respectively, of our consolidated revenue. A significant
decline in investment yields in our investment portfolio or an impairment of
securities that we own could have a material adverse effect on our business,
results of operations and financial condition. We currently maintain and intend
to continue to maintain an investment portfolio comprising primarily fixed
income securities. As of June 30, 2003, the fair value of our investment
portfolio included $1.8 billion of fixed income securities. For 2001, 2002, and
the first six months of 2003, the change in net unrealized gains in our
portfolio reflected an increase of $12.0 million, an increase of $21.0 million,
and an increase of $34.0 million, respectively. Due to fluctuations in the
yields on fixed income securities, we face reinvestment risk as these
securities mature because the funds may be reinvested at rates lower than the
maturing security.

Our ability to achieve our investment objectives is affected by general
economic conditions that are beyond our control. General economic conditions
can adversely affect the markets for interest-rate-sensitive securities,
including the extent and timing of investor participation in such markets, the
level and volatility of interest rates and, consequently, the value of fixed
income securities. In addition, changing economic conditions can result in
increased defaults by the issuers of securities that we own. Interest rates are
highly sensitive to many factors, including monetary policies, domestic and
international economic and political conditions and other factors beyond our
control.

General economic conditions, stock market conditions and many other factors
can also adversely affect the securities markets and, consequently, the value
of the securities we own. We may not be able to realize our investment
objectives, which could reduce our net income significantly.

We derive the majority of our premiums from a few geographic areas, which may
cause our business to be affected by catastrophic losses or business conditions
in these areas.

We derive most of our premiums from a relatively small number of
jurisdictions, including Illinois, Florida, Ontario and California. Our results
of operations may, therefore, be adversely affected by any catastrophic losses
in these areas. Catastrophic losses can be caused by a wide variety of events,
including earthquakes, hurricanes, tropical storms, tornadoes, wind, ice
storms, hail, fires, terrorism, riots and explosions, and their incidence and
severity are inherently unpredictable. Catastrophic losses are characterized by
low frequency but high severity due to aggregation of losses, and could result
in adverse effects on our results of operations or financial condition. Our
results of operations may also be adversely affected by general economic
conditions, competition, regulatory actions or other business conditions that
affect losses or business conditions in the areas in which we do business.

If reinsurance rates rise significantly or reinsurance becomes unavailable or
reinsurers are unable to pay our claims, we may be adversely affected.

We purchase reinsurance from third parties in order to reduce our liability
on individual risks. Reinsurance does not relieve us of liability to our
insureds. A third party reinsurer's insolvency or inability or unwillingness to
make payments under the terms of a reinsurance treaty could have a material
adverse effect on our financial condition or results of operations. As of June
30, 2003, we had $193.9 million recoverable from third party reinsurers and
other insurers. The majority of these recoverables are unsecured. The losses
reported by the reinsurance industry in 2001 and 2002, which included the
impact of the terrorist attacks of September 11, 2001 in the United States, may
adversely affect the financial resources of some reinsurers and their ability
to pay claims. Also, the material decline in the worldwide equity markets and
the defaults and credit downgrades on bonds of many companies have contributed
to a significant decline in the net equity of some reinsurers.

The amount and cost of reinsurance available to our insurance companies are
subject, in large part, to prevailing market conditions beyond our control. Our
ability to provide insurance at competitive premium rates and coverage limits
on a continuing basis depends in part upon the extent to which we can obtain
adequate reinsurance in amounts and at rates that will not adversely affect our
competitive position. We cannot assure you that we will be able to maintain our
current reinsurance facilities, which generally are subject to annual renewal.
If we are unable to renew any of these facilities upon their expiration or
obtain other reinsurance facilities in adequate amounts and at favorable rates,
we may need to modify our underwriting practices or reduce our underwriting
commitments.

Kingsway Financial is a holding company and its operating subsidiaries are
subject to dividend restrictions.

Kingsway Financial is an insurance holding company with assets consisting
primarily of the capital stock of its subsidiaries. Our operations are and will
continue to be limited by the earnings of our subsidiaries and the distribution
or other payment of such earnings to us in the form of dividends, loans,
advances or the reimbursement of expenses. The payment of dividends, the making
of loans and advances or the reimbursement of expenses to us by our
subsidiaries is contingent upon the earnings of those subsidiaries and is
subject to various business considerations. In addition, payments of dividends
to us by our insurance and reinsurance subsidiaries are subject to various
statutory and regulatory restrictions imposed by the insurance laws of the
domiciliary jurisdiction of such subsidiaries, including Barbados and Bermuda.
For the year 2003, under these insurance regulatory restrictions, based on our
December 31, 2002 financial statements, our insurance and reinsurance
subsidiaries would have aggregate dividend capacity of $180.3 million. The
inability of our subsidiaries to pay dividends to us could have a material
adverse effect on our business and financial condition.

Our business depends upon key employees, and if we are unable to retain the
services of these key employees or to attract and retain additional qualified
personnel, our business may suffer.

We are substantially dependent on a number of key employees. Our success has
been, and will continue to be, dependent on our ability to retain the services
of our existing key employees and to attract and retain additional qualified
personnel in the future. The loss of the services of any of our key employees,
or the inability to identify, hire and retain other highly qualified personnel
in the future, could adversely affect the quality and profitability of our
business operations. There are no employment contracts in place for any of our
executives.

Fluctuations in currency exchange rates could negatively affect our results.

We publish our consolidated financial statements in Canadian dollars. The
majority of our premiums are currently denominated in U.S. dollars, and we
expect that our U.S. business will continue to grow as a proportion of our
business. Therefore, fluctuations in the U.S.-Canadian dollar exchange rate
will impact our results of operations and financial condition from period to
period. Our Canadian insurance operations generally write policies denominated
in Canadian dollars and invest in Canadian dollars. Our U.S. operations
generally write policies denominated in U.S. dollars and invest in U.S.
dollars. Although investing in local currencies limits the effect of currency
exchange rate fluctuations on local operating results, fluctuations in such
rates could affect our operations or results, and do affect the translation of
these results into our consolidated financial statements. During the first six
months of 2003, our shareholders' equity was reduced by $74.0 million as a
result of the currency translation adjustment of our U.S. dollar denominated
assets into Canadian dollars.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under the captions Prospectus Summary, Risk Factors,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, The Company and elsewhere in this prospectus constitute
forward-looking statements. You can identify these statements from our use of
the words may, should, could, potential, continue, plan, forecast, estimate,
project, believe, intend, anticipate, expect, target, is likely, will, or the
negative of these terms, and similar expressions. These forward-looking
statements may include, among other things:

. statements and assumptions relating to projected growth, earnings,
earnings per share, and other financial performance measures as well as
management's short-term and long-term performance goals;

. statements relating to the anticipated effects on results of operations
or financial condition from recent and expected developments or events;

. statements relating to the adequacy of our provisions for unpaid claims;

. statements relating to our business and growth strategies; and

. any other statements, projections or assumptions that are not historical
facts.

We believe that our expectations are based on reasonable assumptions.
However, these forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause our actual results,
performance or achievements, or industry results, to differ materially from our
expectations of future results, performance or achievements expressed or
implied by these forward-looking statements. In addition, our past results of
operations do not necessarily indicate our future results. We discuss these and
other uncertainties in the "Risk Factors" section of this prospectus beginning
on page 12.

The risk factors and cautionary statements contained or referred to in this
prospectus should be considered in connection with any subsequent written or
oral forward-looking statements that we, or persons acting on our behalf may
issue. You should not place undue reliance on any forward-looking statements.
These statements speak only as of the date of this prospectus. Except as
otherwise required by federal securities laws, we undertake no obligation to
publicly update or revise any forward-looking statements or the risk factors
described in this prospectus, whether as a result of new information, future
events, changed circumstances or any other reason after the date of this
prospectus.

USE OF PROCEEDS

The Trust will use the proceeds of $ million (US$ million) from
the sale of the trust preferred securities and all of the proceeds of
$ million (US$ million) from the issuance of its common securities to
purchase the debentures from Funding Co. Funding Co. will use the proceeds,
before expenses, of $ million (US$ million) from the sale of the
debentures to purchase subordinated notes from Kingsway America.

Kingsway America intends to use the proceeds from the sale of the
subordinated notes issued to Funding Co. to repay advances from Kingsway
Financial of approximately $39 million (US$28 million) which Kingsway America
used to provide approximately $50 million of additional capital to its
subsidiaries. These advances are payable on demand without interest. Kingsway
America intends to use the balance of the proceeds to provide additional
capital to its subsidiaries to support the expected growth of our business and
for general corporate purposes, which may include the payment of a portion of
the then outstanding amount under our $66.5 million unsecured revolving credit
facility, and future acquisitions. Pending the foregoing uses, Kingsway America
intends to invest the net proceeds from the sale of its subordinated notes in
short-term, interest bearing, investment grade marketable securities.

CAPITALIZATION

The following table sets forth our indebtedness and total capitalization as
of June 30, 2003. Our capitalization is presented:

. on an actual basis;

. on an as adjusted basis to give effect to net proceeds in the amount of
approximately $107.6 million from the sale by Kingsway of 6.71 million
common shares in July 2003; and

. on a pro forma as adjusted basis to give effect to the issuance and sale
of 2,000,000 trust preferred securities offered by the Trust in this
offering at an offering price of US$25 per trust preferred security and
the application of the net proceeds therefrom, as if these events
occurred June 30, 2003.

This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page 33
and our consolidated financial statements and the related notes included
elsewhere in this prospectus.

As of June 30, 2003
------------------------------------------
Pro Forma
Actual As Adjusted(1) As Adjusted(1)(2)
-------- -------------- -----------------
(in thousands of Canadian dollars)

Bank indebtedness............................................... $156,515 $ $
8.25% senior unsecured debentures............................... 78,000
Company obligated mandatorily redeemable preferred securities of
subsidiary trusts holding subordinated debentures............. 64,408
Shareholders' equity
Common shares, no par value (authorized--unlimited;
outstanding--48,955,629)................................... 358,408
Currency translation adjustment.............................. (62,901)
Retained earnings............................................ 296,301
Total shareholders' equity...................................... 591,808
-------- -------- -
Total capitalization............................................ $890,731 $ $
======== ======== =

- --------

(1) Reflects the net proceeds in the amount of approximately $107.6 million
from the sale by Kingsway Financial of 6.71 million common shares in July
2003.

(2) Reflects the trust preferred securities to be issued by the Trust at US$25
per trust preferred security. The only assets of the Trust will be
approximately US$ million (C$ million) in aggregate principal
amount of subordinated debentures, including the amounts attributable to
the issuance of the common securities of the Trust to Funding Co. Kingsway
Financial will indirectly own all of the common securities issued by the
Trust.

ACCOUNTING TREATMENT

In May 2003, the United States Financial Accounting Standards Board issued
Statement 150. Statement 150 is generally effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. Statement
150 is applicable to mandatorily redeemable instruments, including our
outstanding trust preferred securities, as well as the trust preferred
securities offered herein. Under United States generally accepted accounting
principles such instruments must be classified as liabilities in the statement
of financial position.

For financial reporting purposes, Funding Co. and the Trust will be treated
as our subsidiaries and, accordingly, the accounts of Funding Co. and the Trust
will be included in our consolidated financial statements. The trust preferred
securities will be presented as a liability in a separate line item in our
consolidated balance sheet under the caption "Company obligated mandatorily
redeemable preferred securities of subsidiary trust holding subordinated
debentures," or other similar caption. In addition, appropriate disclosures
about the trust preferred securities, the debenture guarantee, the preferred
securities guarantee, the debentures and the subordinated notes will be
included in the notes to our consolidated financial statements. For financial
reporting purposes, we will record distributions payable on the trust preferred
securities as interest expense in our consolidated statements of income.

Our future reports filed under the Exchange Act will include a footnote to
our audited consolidated financial statements stating that Funding Co. and the
Trust are wholly owned, the sole assets of Funding Co. are the subordinated
notes and the common securities of the Trust and the sole assets of the Trust
are the debentures (in each case, specifying the outstanding principal amount,
interest rate and maturity date). The footnote will further state that our
obligations described in this prospectus, in the aggregate, constitute a full,
irrevocable and unconditional guarantee on a subordinated basis by Kingsway
Financial of the obligations of the Trust under the trust preferred securities.

As of the date of this prospectus, SEC accounting rules do not require us to
include separate financial statements of Funding Co. or the Trust in reports
filed under the Exchange Act because we own all of Funding Co.'s and the
Trust's voting securities, Funding Co. and the Trust have no independent
operations and Kingsway Financial has guaranteed the payments on the trust
preferred securities to the extent described in this prospectus.

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth our ratio of consolidated earnings to fixed
charges for the periods indicated. Ratios of earnings to combined fixed charges
and preferred stock dividends are not presented as there were no preferred
share dividends in any of the periods indicated.

Six months
ended June 30, Year ended December 31
-------------- -------------------------
2003 2002 2001 2000 1999 1998
-------------- ---- ---- ---- ---- -----

Ratio of earnings to fixed charges 6.92 6.76 5.83 3.88 2.11 26.29

Earnings consist of income from continuing operations before income taxes
plus fixed charges to the extent that such charges are included in the
determination of earnings. Fixed charges consist of interest expense.

SELECTED CONSOLIDATED FINANCIAL INFORMATION

You should read the following selected financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 33 and our consolidated financial statements and
the related notes contained in this prospectus.

The statement of operations data set forth below for the years ended
December 31, 2002, 2001 and 2000 and the balance sheet data as of December 31,
2002 and 2001 are derived from, and are qualified by reference to, our audited
consolidated financial statements included elsewhere in this prospectus. KPMG
LLP, our independent auditors, audited these financial statements. The
statement of operations data set forth below for the years ended December 31,
1999 and 1998 and the balance sheet data as of December 31, 2000, 1999 and 1998
are derived from audited consolidated financial statements not included in this
prospectus. The statement of operations data set forth below for the six months
ended June 30, 2003 and the balance sheet data as of June 30, 2003 are derived
from our unaudited consolidated financial statements included in this
prospectus. The unaudited financial statements include all normal recurring
adjustments that we consider necessary for a fair presentation of our results
of operations and financial condition. The results of operations for the six
months ended June 30, 2003 are not necessarily indicative of the results that
may be expected for the full year ending December 31, 2003, or any other future
periods.

Our consolidated financial statements contained in this prospectus have been
prepared in accordance with Canadian GAAP. Canadian GAAP, as applied to us,
conforms in all material respects with U.S. GAAP, except as otherwise described
in our consolidated financial statements included in this prospectus beginning
on page F-1, where we provide a reconciliation of the differences between
Canadian GAAP and U.S. GAAP. We publish our consolidated financial statements
in Canadian dollars.

Six Months
Ended June 30, Year Ended December 31,
------------------- --------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
---------- -------- ---------- ---------- -------- -------- --------
(unaudited)
(in thousands of Canadian dollars, except per share data and ratios)

AMOUNTS UNDER CANADIAN GAAP:
Statement of Operations Data
Gross premiums written..................... $1,332,488 $919,044 $2,124,691 $1,065,262 $643,022 $508,595 $409,200
Net premiums written....................... 1,273,855 870,146 2,009,963 1,014,960 604,693 468,874 320,396
---------- -------- ---------- ---------- -------- -------- --------
Revenues:
Net premiums earned..................... 1,172,535 709,646 1,737,754 872,830 539,969 445,557 314,651
Investment income....................... 29,074 26,891 56,316 42,692 37,109 32,037 24,771
Premium finance income.................. 5,861 3,860 8,539 9,861 7,467 5,761 5,883
Net realized gains...................... 8,789 5,317 16,259 12,079 10,444 950 6,945
---------- -------- ---------- ---------- -------- -------- --------
Total revenues....................... 1,216,259 745,714 1,818,868 937,462 594,989 484,305 352,250
---------- -------- ---------- ---------- -------- -------- --------
Expenses:
Claims incurred......................... 830,115 505,914 1,240,329 616,079 371,946 304,541 193,801
Commissions and premium taxes........... 255,453 143.208 372,051 167,176 106,378 90,844 61,927
General and administrative.............. 64,425 58,046 122,762 81,938 66,925 61,630 39,848
Interest expense........................ 9,510 5,754 12,274 11,399 11,408 10,557 2,034
Amortization of intangible assets....... 444 -- 716 -- -- -- --
---------- -------- ---------- ---------- -------- -------- --------
Total expenses....................... 1,159,947 712,922 1,748,132 876,592 556,657 467,572 297,610
---------- -------- ---------- ---------- -------- -------- --------
Income before income taxes................. 56,312 32,792 70,736 60,870 38,332 16,733 54,640
Income taxes (benefit)..................... 4,654 311 (8,796) 10,083 5,393 (1,896) 20,873
---------- -------- ---------- ---------- -------- -------- --------
Net income before goodwill................. 51,658 32,481 79,532 50,787 32,939 18,629 33,767
Amortization of goodwill, net of applicable
income taxes(1)........................... -- -- -- 5,856 5,469 5,031 2,756
---------- -------- ---------- ---------- -------- -------- --------
Net income................................. $ 51,658 $ 32,481 $ 79,532 $ 44,931 $ 27,470 $ 13,598 $ 31,011
========== ======== ========== ========== ======== ======== ========
Diluted earnings per share................. $ 1.04 $ 0.66 $ 1.61 $ 1.19 $ 0.80 $ 0.38 $ 0.86

As at June 30, 2003 As at December 31,
------------------------------------- ------------------------------------------------------
As Pro Forma As
Actual Adjusted(2) Adjusted(2)(3) 2002 2001 2000 1999 1998
---------- ----------- -------------- ---------- ---------- ---------- ---------- ----------
(unaudited)
(in thousands of Canadian dollars, except per share data)

As at June 30, 2003 As at December 31,
------------------------------------- -------------------------------------------
As Pro Forma As
Actual Adjusted(2) Adjusted(2)(3) 2002 2001 2000 1999
---------- ----------- -------------- ---------- ---------- ---------- ----------
(unaudited)
(in thousands of Canadian dollars, except per share data)
AMOUNTS UNDER U.S. GAAP:
Balance Sheet Data
Cash and investments........ $2,231,722 $ $ $2,104,223 $1,227,667 $ 773,423 $ 661,691
Total assets................ 3,165,269 3,007,064 1,783,062 1,167,325 1,046,909
Unpaid claims............... 1,357,909 1,200,554 589,963 435,322 444,689
Bank indebtedness........... 156,515 170,390 144,516 143,129 153,270
Senior unsecured debentures. 78,000 78,000 -- -- --
Trust preferred securities.. 64,408 23,636 -- -- --
Total shareholders' equity.. 637,124 626,924 533,680 266,112 217,241
Book value per share........ $ 13.01 $ $ $ 12.85 $ 10.97 $ 7.81 $ 6.39

Six Months
Ended June 30, Year Ended December 31,
---------------------- ------------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
---------- ----------- ---------- ---------- ---------- ---------- ----------
(unaudited)
Other Data:
Consolidated
Claims ratio(4).......... 70.8% 71.3% 71.4% 70.6% 68.9% 68.4% 61.6%
Expense ratio(5)......... 27.3% 28.4% 28.4% 28.5% 32.1% 34.2% 32.3%
---- ---- ---- ---- ---- ---- -----
Combined ratio(6)........ 98.1% 99.7% 99.8% 99.1% 101.0% 102.6% 93.9%
Canadian operations(7)
Claims ratio(4).......... 77.3% 78.1% 78.3% 73.5% 70.1% 72.7% 60.4%
Expense ratio(5)......... 28.1% 30.3% 30.1% 29.6% 31.7% 32.1% 31.6%
---- ---- ---- ---- ---- ---- -----
Combined ratio(6)........ 105.4% 108.4% 108.4% 103.1% 101.8% 104.8% 92.0%
U.S. operations(7)
Claims ratio(4).......... 69.0% 68.9% 69.2% 68.9% 67.8% 64.5% 63.5%
Expense ratio(5)......... 27.1% 27.7% 28.0% 27.9% 33.1% 36.1% 33.5%
---- ---- ---- ---- ---- ---- -----
Combined ratio(6)........ 96.1% 96.6% 97.2% 96.8% 100.9% 100.6% 97.0%
Return on equity(8)......... 17.2% 11.9% 13.8% 13.3% 10.7% 5.5% 13.4%

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this prospectus. The
following discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ substantially from those
anticipated in these forward-looking statements as a result of several factors,
including those set forth under the section entitled "Risk Factors" beginning
on page 12 and elsewhere in this prospectus.

All of the dollar amounts in this prospectus are expressed in Canadian
dollars, except where otherwise indicated. References to "Canadian dollars,"
"dollars," "C$," or "$" are to Canadian dollars and any references to "U.S.
dollars" or "US$" are to U.S. dollars. As presented in this prospectus, our
Canadian and U.S. segment information includes the results of our Bermuda and
Barbados reinsurance subsidiaries, respectively.

Overview

We provide property and casualty insurance in specialized lines in the
United States and Canada. Our primary business is non-standard automobile
insurance, which covers drivers who do not qualify for standard automobile
insurance coverage. Such drivers typically represent higher than normal risks
and pay higher insurance rates for comparable coverage. We also write standard
automobile insurance as well as insurance for commercial and public vehicles,
including taxis and trucks. In addition to automobile insurance, we provide
motorcycle insurance, specialized commercial and personal property coverage,
warranty insurance and other specialty coverages such as customs and surety
bonds.

We use the claims ratio, the expense ratio and the combined ratio as
important measures of our performance. The claims ratio is derived by dividing
the amount of claims incurred by net premiums earned. The expense ratio is
derived by dividing the sum of commissions and premium taxes and general and
administrative expenses by net premiums earned. The combined ratio is the sum
of the claims ratio and the expense ratio. A combined ratio below 100%
demonstrates underwriting profit whereas a combined ratio over 100%
demonstrates an underwriting loss. We believe that underwriting profit is the
true measure of performance of the core business of a property and casualty
insurance company. We, therefore, emphasize underwriting profit and will not
underwrite risks at rates which we believe are unprofitable in order to
increase our premium volume. Management's incentive compensation is directly
linked to our combined ratio and our return on equity objectives.

In recent years, the North American property and casualty insurance market,
including non-standard automobile market, has been extremely price competitive.
Many insurers significantly reduced premium rates from 1998 to 2000. Only late
in 2000 did premium rates begin to rise and they have continued to do so
throughout 2001 and 2002. We expect the rate increase trend to continue through
2003 and into 2004. However, as a result of lower premium rates through the
periods mentioned and increased claims costs in the U.S. and Canada, including
adverse development of prior years' claims reserves, the industry reported
substantial underwriting losses in 2001. Although the industry posted better
underwriting results for 2002 due to the increase in premium rates, the
continued trend of adverse development of prior years' claims has and will
likely continue to minimize improvement as many companies have announced
material year-end 2002 adjustments to prior years' claims reserves.

At the same time, the insurance industry has been adversely affected by
lower prevailing interest rates and a significant drop in equity indices.
Accordingly, in addition to reporting higher combined ratios many U.S. and
Canadian companies reported declining investment results and reduced capital
levels in 2001 and 2002.

In addition to the effects poor pricing, adverse prior years' claims
development and historically low investment returns have had on the insurance
industry capital base, the tragic events of September 11, 2001 triggered an
unprecedented rise in reinsurance rates and a significant decline in available
reinsurance capacity. Although there has been a series of new reinsurance
companies started since September 2001, these new companies have not materially
replaced the capital and corresponding reinsurance capacity lost since that
time.

As a result of all of the above factors taken together, we believe the
insurance industry's current improved pricing environment and significant
dislocation of business due to capital constraints will continue in the U.S.
and Canadian insurance markets through 2004. However, due to the delay between
the implementation of rate increases and recognition of earned premium and the
prior years' claim development trend reported for 2002, we do not expect
overall industry results to show improvement until late 2003.

Since 1996, we have experienced significant growth through acquisitions. In
Canada, we acquired York Fire in February 1996 and Jevco in March 1997. In the
United States, we acquired Universal Casualty and Southern United in January
1998, American Service in March 1998, Lincoln General in December 1998, U.S.
Security in January 1999, and American Country in April 2002 (using an
effective date of March 31, 2002). We accounted for these acquisitions using
the purchase method of accounting. Accordingly, we included the assets and
liabilities of the acquired entities in our consolidated financial statements
at their fair market value at the date of acquisition. We may from time to time
be involved in discussions concerning acquisition opportunities, although we
cannot assure you that any such discussions will result in a transaction.

Critical Accounting Policies

Our significant accounting policies are described in Note 1 to the audited
financial statements included in this prospectus starting on page F-1. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported in the financial statements. As more information
becomes known, these estimates and assumptions could change and thus impact
amounts reported in the future. Management believes that the establishment of
the provision for unpaid claims is the area where the degree of judgment
required to determine amounts recorded in the financial statements makes the
accounting policy critical. We discuss the policy below under the heading
"Provision for Unpaid Claims."

Revenues

Revenues reflected in our consolidated financial statements are derived from
insurance premiums earned, investment income and net realized investment gains.

Premium Income

Our gross premiums written increased 99% in 2002 to $2.1 billion, compared
to $1.1 billion in 2001. In 2002, we experienced an increase of 38% in gross
premiums written for our Canadian operations and 130% for our U.S. operations.
In the six months ended June 30, 2003, our gross premiums written increased by
45% to $1,332.5 million, compared to $919.0 million in the six months of 2002,
increasing by 30% for our Canadian operations and by 50% for our U.S.
operations. We attribute the growth over the last five years to our various
acquisitions and to internal growth, as we have executed our strategy to
diversify both by line of business and by geographic location.

Net premiums written represent gross premiums written less amounts ceded to
reinsurers. In the United States, 37% of our gross premiums written are from
non-standard automobile insurance policies, which generally have lower limits
of insurance commensurate with the minimum coverage requirement under the
statute of the states in which we write the business. These limits of liability
are typically not greater than US$40,000 per occurrence. Consequently, we are
able to retain most of our gross written premiums for our own account while
minimizing our claims exposure, and only purchase reinsurance to limit our
exposure to the larger and catastrophic type losses.

Investment Income

Our investment income increased 23% in 2002 to $64.9 million, compared to
$52.6 million in 2001 and by 14% in the six months ended June 30, 2003 to $34.9
million, compared to $30.8 million in the first six months of 2002. Our
insurance subsidiaries' investments must comply with applicable regulations
which prescribe the type, quality and concentration of investments. These
regulations, in the various jurisdictions in which our insurance subsidiaries
are domiciled, permit investments in government, state, provincial, municipal
and corporate bonds, and preferred and common equities, within specified limits
and subject to certain qualifications. The majority of our investments are held
by our insurance subsidiaries.

At June 30, 2003, we held cash and investments with a market value of $2.24
billion and a carrying value of $2.17 billion, resulting in a net unrealized
gain of $66.6 million. Because most of our investment portfolio is comprised of
fixed-income securities, which are usually held to maturity, periodic changes
in interest rate levels generally impact our financial results to the extent
that reinvestment yields are different than the original yields on maturing
securities. Our investment portfolio includes investments that are subject to
changes in market values with changes in interest rates. Actual maturities may
differ from contractual maturities because certain issuers have the right to
call or prepay obligations with or without penalties.

We maintain a liquid portfolio to ensure there is sufficient cash available
for the payment of claims on a timely basis. Our historical ability to generate
an underwriting profit has reduced our reliance on cash flow from premiums
written to fund the payment of losses and loss adjustment expense. We believe
that funds generated by operations and our liquid investment portfolio provide
us with sufficient liquidity to meet our obligations to our policyholders.

Premiums for property and casualty insurance are typically payable at the
time a policy is placed in force or renewed. We provide the option of monthly
payments on personal automobile policies, whereby the insured is only required
to pay a portion of the premium when the policy is placed in force and the
balance in monthly installments. The insured pays us an additional fee for this
option, reflecting handling costs and the income we would have earned on such
premium, had we received the total amount at the beginning of the policy
period. The option of monthly premium payments is available only where
permitted under the laws or regulations of the specific territory. We typically
collect sufficient premiums in advance of the period of risk which ensures that
in the event of payment defaults by insureds, we do not have uncollectable
balances. Some jurisdictions require the option of monthly premium payments at
a specific annual interest rate or monthly charge. We consider our income from
our premium finance activities to be a part of investment income, because this
additional fee is essentially an interest payment on the balance of unpaid
premium.

Provisions for Unpaid Claims

We establish provisions for unpaid claims to reflect the estimated ultimate
cost of both reported but unsettled claims and incurred but not reported
claims. Our provisions for unpaid claims are based on individual reported
claims, for which we establish case reserves; estimated provisions for claims
that have not yet been made but we expect will be made in the future; and
internal or unallocated claims adjustment expenses. The provisions for claims
not yet made are sometimes referred to as provisions for incurred but not yet
reported claims, or IBNR. The establishment of provisions for unpaid claims is
based on known facts and interpretation of circumstances and is, therefore, a
complex and dynamic process influenced by a large variety of factors. These
factors include our experience with similar cases and historical trends
involving claim payment patterns, loss payments, pending levels of unpaid
claims, product mix or concentration, claims severity, claim frequency patterns
and inflation rates. Our provisions for unpaid claims are not discounted to
reflect expected future payouts of claims nor do they reflect any future
investment income.

The process for establishing the provisions for unpaid claims reflects the
uncertainties and significant judgmental factors inherent in predicting future
results of both known and unknown claims and as such, the process is inherently
complex and imprecise. Factors affecting provisions for unpaid claims include
the continually evolving and changing regulatory and legal environment,
actuarial studies, professional experience

and expertise of our claims personnel and independent adjustors retained to
handle individual claims, the quality of the data used for projection purposes,
existing claims management practices, including claims handling and settlement
practices, the effect of inflationary trends on future claims settlement costs,
court decisions, economic conditions and public attitudes. In addition, time
can be a critical part of the provisions' determination, because the longer the
span between the incidence of a loss and the payment or settlement of the
claims, the more variable the ultimate settlement amount can be. Accordingly,
short-tailed claims, such as property claims, tend to be more reasonably
predictable than long-tailed claims, such as general liability and automobile
accident benefit claims, which are less predictable.

The process of establishing provisions for unpaid claims relies on the
judgment and opinions of a large number of individuals, on historical precedent
and trends, on prevailing legal, economic, social and regulatory trends and on
expectations as to future developments. The process of determining the
provision necessarily involves risks that the actual results will deviate,
perhaps substantially, from the best estimates made. This evaluation includes a
re-estimation of the liability for unpaid claims relating to each preceding
financial year compared to the liability that we originally established. In
addition, we conduct a detailed review of all open claims each quarter and
consider all factors into the provisions' calculation. Accordingly, as
experience develops and new information becomes known, we adjust our reserves
as necessary following these evaluations. Any adjustments are reflected in our
consolidated statement of income in the period in which they become known and
are accounted for as changes in estimates. Even after such adjustments,
ultimate liability or recovery may exceed or be less than the revised estimates.

Each operating company separately establishes, maintains and evaluates its
respective provisions for unpaid claims for statutory reporting purposes. The
process undertaken by each operating company includes evaluating all of its
respective policy coverages and paid and open claim level data to ascertain
claim frequency and severity trends, as well as the effects, if any, of
inflation and the impact that any premium rate action or changes in operating
structure or process may have on future loss settlements. The management of
each operating company works with reporting segment management to ensure IBNR
reserve methodologies are appropriate, based on lines of business and
geographic region. Management incorporates all of the above information to
record its best estimate of liabilities for unpaid claims.

Our independent appointed actuary independently develops a range of reserve
estimates. Once an amount for liabilities for unpaid claims is established by
management, our independent appointed actuary reviews management's
methodologies, data and work papers to ascertain whether the provision for
unpaid claims as established by management is reasonably stated and within the
appointed independent actuary's range of reserve estimates. The provisions for
unpaid claims established by each operating company are then consolidated for
public reporting purposes.

As of December 31, 2002, the range of reserve estimates for unpaid claims
established by our independent appointed actuary and the actual provision for
unpaid claims on a gross basis for each of our operating companies were as
follows:

Low High Actual
------ ------ ------
(in millions of Canadian dollars)
United States
-------------

Lincoln General Insurance Company.......... $372.1 $534.2 $395.0
American Country Insurance Company......... 202.4 244.9 223.6
American Service Insurance Company......... 67.1 82.0 80.4
U.S. Security Insurance Company............ 56.5 64.8 58.2
Universal Casualty Insurance Company....... 52.4 63.8 57.6
Southern United Fire Insurance Company..... 45.5 55.0 49.4
Kingsway Reinsurance Corporation (Barbados) 6.6 6.6 6.6

Canada
------
Kingsway General Insurance Company......... $229.9 $299.0 $248.4
Jevco Insurance Company.................... 49.3 55.5 50.2
York Fire and Casualty insurance Company... 27.7 35.2 31.1

Low High Actual
-------- -------- --------
(in millions of Canadian dollars)

United States........................ $ 802.6 $1,051.3 $ 870.8
Canada............................... 306.9 389.7 329.7
-------- -------- --------
Total provision for unpaid claims. $1,109.5 $1,441.0 $1,200.5
======== ======== ========

Estimating amounts of reinsurance recoverables is also impacted by the
uncertainties involved in the establishment of provisions for unpaid claims. As
our underlying reserves continue to develop, the amount ultimately recoverable
may vary from amounts currently recorded. Our reinsurance recoverables are
generally unsecured. We regularly evaluate our reinsurers, and the respective
amounts recoverable, and a provision for uncollectable reinsurance is recorded,
if needed. At December 31, 2002, 93.9% of the receivables were due from
reinsurers that were rated "A-" or higher. The following table summarizes the
composition of the amounts due from reinsurers at December 31, 2002, by the
rating as assigned by A.M. Best to the applicable reinsurers.

December 31,
A.M. Best Rating 2002
---------------- ------------

A++............ 15.6%
A+............. 62.2%
A.............. 10.8%
A-............. 5.3%
B++/B+/B-...... 0.6%
C++u........... 1.1%
Not Rated...... 4.4%
-----
Total..... 100.0%
=====

The development of the provisions for unpaid claims is shown by the
difference between estimates of claims as of the initial year-end and the
re-estimated liability at each subsequent year-end. This is based on actual
payments in full or partial settlement of claims, plus re-estimates of the
claims required for claims still open or claims still unreported. Favorable
development (reserve redundancy) means that the original claim estimates were
higher than subsequently determined. Unfavorable development (reserve
deficiency) means that the original claim estimates were lower than
subsequently determined.

The following table summarizes the provisions for unpaid claims, net of
recoveries from reinsurers, established as at the end of the years 1992 through
2001 for our Canadian operations and at the end of years 1998 to 2001 for our
U.S. operations. The table compares the re-estimation of those liabilities as
at December 31, 2002.

(In thousands of 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
Canadian dollars) --------- ------- ------- ------- ------- ------- ------ ------ ------ ------ ------

Unpaid claims--
originally
established--end of
year, gross.......... 1,200,554 589,963 435,322 444,689 446,245 198,186 -- -- -- -- --
Less: Reinsurance
recoverable on
unpaid losses........ 134,198 102,734 92,546 119,817 135,270 73,242 -- -- -- -- --
Unpaid claims--
originally
established--end of
year, net............ 1,066,356 487,229 342,776 324,872 310,975 124,944 65,142 24,322 16,987 10,945 11,648
Cumulative paid as of:
One year later........ 382,051 189,801 149,708 141,093 46,083 31,309 13,665 12,384 5,984 4,329
Two years later....... 301,411 239,178 217,108 74,479 42,108 19,404 18,633 8,032 6,615
Three years later..... 309,888 261,809 91,127 55,214 25,273 22,066 10,347 7,910
Four years later...... 306,748 108,391 60,230 31,738 25,456 11,739 9,255
Five years later...... 121,076 66,029 32,679 29,300 12,576 10,210
Six years later....... 68,543 35,884 29,051 14,259 10,517
Seven years later..... 37,419 31,068 14,147 11,271
Eight years later..... 32,515 14,160 11,190
Nine years later...... 16,834 10,934
Ten years later....... 13,038
Re-estimated liability
as of:
One year later........ 588,308 377,592 329,069 306,377 112,075 62,022 27,705 22,776 11,395 10,621
Two years later....... 423,371 346,548 309,629 114,922 65,122 27,467 25,628 12,187 10,290
Three years later..... 367,951 318,226 117,759 66,368 31,707 25,580 12,256 10,550
Four years later...... 333,109 122,578 66,508 32,254 27,589 12,164 10,167
Five years later...... 129,697 68,570 32,745 28,243 13,004 9,999
Six years later....... 71,720 34,050 28,225 13,310 10,245
Seven years later..... 36,520 28,892 13,219 10,505
Eight years later..... 32,248 13,652 10,349
Nine years later...... 16,387 10,473
Ten years later....... 12,747
As at December 31,
2002:
Cumulative
(redundancy)
deficiency........... 101,079 80,594 43,079 22,134 4,753 6,578 12,198 15,261 5,442 1,099
Cumulative
(redundancy)
deficiency as a
percentage % of
reserves originally
established.......... 20.75% 23.51% 13.26% 7.12% 3.80% 10.10% 50.15% 89.84% 49.72% 9.44%
Re-estimated
liability--gross..... 680,352 510,241 485,622 473,257 198,990 -- -- -- -- --
Less: Re-estimated
reinsurance
recoverable.......... 92,044 86,870 117,671 140,148 69,293 -- -- -- -- --
Re-estimated
liability--net....... 588,308 423,371 367,951 333,109 129,697 -- -- -- -- --
Cumulative
(redundancy)
deficiency--gross.... 90,389 74,919 40,934 27,012 804 -- -- -- -- --
% of reserves
originally
established.......... 15.32% 17.21% 9.21% 6.05% 0.41% -- -- -- -- --

The foregoing table presents the development of unpaid claims liabilities
for 1992 through 2001. The top line of the table presents the estimated
liability for unpaid claims recorded at the balance sheet date for each of the
indicated years. This liability represents the estimated amount of losses and
adjustment expenses for claims unpaid at the balance sheet date, including
losses that had been incurred and not reported.

The table also presents the re-estimated liabilities for unpaid claims on a
gross basis, with separate disclosure of the re-estimated reinsurance
recoverable on unpaid claims for years 1997 through 2001. Information related
to gross unpaid claims development is not available for years 1996 and prior.

The table presents the cumulative amount paid with respect to the previously
recorded liability as of the end of each succeeding year and the re-estimated
amount of the previously recorded liability based on experience as of the end
of the succeeding year. The estimate is increased or decreased as more
information about the claims becomes known for individual years. For example,
as of December 31, 2002, we had paid $68.5 million of the currently estimated
$71.7 million of claims that had been incurred through the end of 1996; thus an
estimated $3.2 million of losses incurred through 1996 remain unpaid as of the
current financial statement date.

The cumulative development represents the aggregate change in the estimates
over all prior years. For example, unpaid claims at December 31, 1992 have
developed adversely by $1.1 million over the ten subsequent years and unpaid
claims at December 31, 1995 have developed adversely by $12.2 million over the
seven subsequent years. The effects on income during the past three years due
to changes in estimates of unpaid claims is shown in the reconciliation table
on page F-33 as the "prior years" contribution to incurred losses.

Each cumulative development amount includes the effects of all changes in
amounts during the current year for prior periods and the impact of currency
translation. For example, the amount of the development related to losses
settled in 2002, but incurred in 1998, will be included in the cumulative
development amounts for years 1998, 1999, 2000 and 2001. In addition, the
deficiency identified during the year 2002 of $101.1 million was attributable
to unpaid claims as at December 31, 2001 for unpaid claims for the year 2001
and all prior years. Of this deficiency, $55.3 million related to claims
occurring in accident year 2001, $24.4 million to claims occurring in 2000,
$6.5 million to claims in 1999, $7.8 million to claims occurring in 1998 and
$7.1 million to claims occurring in 1997 and prior years. Information with
respect to our liability for unpaid claims and the subsequent development of
those claims is presented in the following tables.

Liability for
Unpaid Claims
December 31,
-------------------
Line of Business 2002 2001
---------------- ---------- --------
(in thousands of
Canadian dollars)

Non-Standard Auto $ 401,976 $297,997
Standard Auto.... 26,967 24,908
Commercial Auto.. 197,705 38,697
Trucking......... 320,708 119,269
Motorcycle....... 54,191 44,666
Liability........ 139,977 28,271
Property......... 52,046 29,888
Other............ 6,984 6,267
---------- --------
Total......... $1,200,554 $589,963
========== ========

Liability for Unpaid
Claims--Net of
Reinsurance Recoverables
December 31,
------------------------
Line of Business 2002 2001
---------------- ---------- --------
(in thousands of
Canadian dollars)

Non-Standard Auto $ 380,193 $269,141
Standard Auto.... 25,024 22,815
Commercial Auto.. 175,097 29,864
Trucking......... 291,739 88,214
Motorcycle....... 45,583 33,269
Liability........ 104,063 18,140
Property......... 39,723 20,354
Other............ 4,934 5,432
---------- --------
Total......... $1,066,356 $487,229
========== ========

These increases (decreases) in prior year incurred claims, net of
reinsurance, for the years ended December 31, 2002, 2001 and 2000 were $101.1
million, $33.9 million and ($3.4 million), respectively. The following tables
identify the relative contribution of the increases (decreases) in incurred
claims attributable to the respective products and incurred loss years.

Year Ended December 31, 2002
(in thousands of Canadian dollars)
----------------------------------------------------------------------------
Standard Non-Standard
Motorcycle Trucking Auto Auto Property Liability Other Total
- ---------- -------- -------- ------------ -------- --------- ----- --------

1997 and prior... $3,210 $ (487) $ (108) $ 4,402 $ (583) $ 687 $ (3) $ 7,118
1998.......... (71) 3,346 2,675 1,068 35 579 133 7,765
1999.......... 396 1,177 1,692 2,212 71 965 8 6,521
2000.......... 1,864 3,107 6,096 13,654 (88) 261 (520) 24,374
2001.......... 336 4,575 6,051 42,981 1,023 362 (27) 55,301
------ ------- ------- ------- ------ ------ ----- --------
Total..... $5,735 $11,718 $16,406 $64,317 $ 458 $2,854 $(409) $101,079
====== ======= ======= ======= ====== ====== ===== ========

Year Ended December 31, 2001
(in thousands of Canadian dollars)
---------------------------------------------------------------------------
Standard Non-Standard
Motorcycle Trucking Auto Auto Property Liability Other Total
- ---------- -------- -------- ------------ -------- --------- ----- -------

1996 and prior... $ 35 $ (9) $ (120) $ 1,256 $ (6) $ 546 $ 38 $ 1,740
1997.......... 66 385 303 1,868 43 128 (10) 2,783
1998.......... 1,480 255 470 4,881 (92) 168 11 7,173
1999.......... 1,447 1,919 (161) 4,942 (308) 603 41 8,483
2000.......... 553 1,923 1,991 9,119 130 269 (290) 13,695
------ ------ ------ ------- ----- ------ ----- -------
Total..... $3,581 $4,473 $2,483 $22,066 $(233) $1,714 $(210) $33,874
====== ====== ====== ======= ===== ====== ===== =======

Year Ended December 31, 2000
(in thousands of Canadian dollars)
-----------------------------------------------------------------------------
Standard Non-Standard
Motorcycle Trucking Auto Auto Property Liability Other Total
- ---------- -------- -------- ------------ -------- --------- ------- -------

1995 and prior... $ 379 $ -- $ (462) $ 8,162 $ (45) $ 57 $ (61) $ 8,030
1996.......... (228) 22 (359) (497) (69) (7) (9) (1,147)
1997.......... 563 479 (719) (6,853) (159) 106 (149) (6,732)
1998.......... 16 5,804 (581) (5,766) (348) 109 (308) (1,074)
1999.......... (745) (5,674) (287) 6,006 (1,421) 508 (850) (2,463)
----- ------- ------- ------- ------- ---- ------- -------
Total..... $ (15) $ 631 $(2,408) $ 1,052 $(2,042) $773 $(1,377) $(3,386)
===== ======= ======= ======= ======= ==== ======= =======

We do not have exposure to asbestos, environmental or other products
liability exposure.

The results for the year ended December 31, 2002 were adversely affected by
the evaluation of unpaid claims related to prior years that identified a net
deficiency of $101.1 million related to claims incurred during 2001 and prior
years. Of this $101.1 million deficiency, 84% was related to non-standard
automobile, standard automobile and motorcycle business in Ontario, which we
refer to as Ontario automobile business, and non-standard automobile in the
southeastern United States. The adverse development of prior years' claims in
2002 related to Ontario automobile business and non-standard automobile in the
southeastern United States was $63.9 million and $20.4 million, respectively.
In the first quarter of 2003, adverse development related to Ontario automobile
business was $3.6 million, compared to $8.9 million in the first quarter of
2002, and there was no material loss development related to non-standard
automobile in the southeastern United States.

Adverse development of Ontario automobile business claims liabilities was
driven by several factors. The following chart identifies the increase in
reported claims and the increase in reserves and settled claims from 2000
through 2002. From 2000 to 2002, earned premium grew by 83% while reported
claims increased 44.0%. However, claims severity increased by 92.5% during the
same period. The increase in fraudulent claims, the erosion of the tort
threshold and accelerating health cost inflation contributed to the required
increase in claims liabilities related to prior years. During that period we
continued to revise our reserve methodology to react to the changing claims
settlement environment. Although our average claims reserves at December 31,
2002 exceeded our average settlements in 2002, we expect claim settlements to
approximate our current reserving position in the future.

At December 31, 2002, the provision for unpaid claims for Ontario automobile
business was $113.4 million and the range of reserve estimates for unpaid
claims established by our independent appointed actuary was from $104.5 million
to $142.7 million.

Number of Claims Average Dollars
Ontario Automobile Business ---------------- -----------------
(in millions of
Canadian dollars)
Total
Pending Total Total Unpaid
as of Reported Settled Claim Settled
12/31 in in Reserve Claim
------- -------- ------- ------- -------

2002............ 3,312 7,251 7,068 $22,821 $8,659
2001............ 3,129 6,978 6,171 $16,529 $6,893
2000............ 2,322 5,018 4,335 $16,564 $4,498

Evolving case law and the erosion of the tort threshold in Ontario has led
to an extension of the reporting period during which a plaintiff may bring
suit. The adverse development experienced by us was part of an industry wide
adverse development situation that began to materialize in 2000 and continued
through 2002. The escalation in health cost inflation and the higher incidence
of fraud in Ontario significantly exceeded industry expectations.

Also, beginning in 2000, we identified significantly increased frequency and
severity trends in health care costs in Ontario where we are required to offer
unlimited coverages and much higher liability limits than our other markets. As
changes to Ontario automobile policies have occurred, the changes have been
reflected in our assessment of unpaid claims for current and prior years as
well as our assessment of claims that occur in future periods. As a result, we
increased our estimate for unpaid claims relating to automobile third party
liability claims incurred prior to 2002. The estimated provisions related to
automobile accident benefit claims were also increased as the assumed inflation
rate and severity factors previously utilized were found to be inadequate based
on the actual development experienced in 2002. We increased our reserves
related to tort liability and revised our expected loss estimates for
automobile accident benefit claims in our 2002 unpaid claims liabilities to
account for the upward changes in both health care cost inflation and severity.
Actuarial assumptions were also changed in 2002 to account for the shift in
loss development trends. The numerous changes to Ontario automobile legislation
and court decisions throughout the 1990's has inhibited the Canadian insurance
industry's ability to accurately predict the ultimate claims liabilities
associated with Ontario automobile policies, which includes automobile,
trucking and motorcycle risks.

Adverse development in the southeastern United States was driven by two
factors. First, the increase in Personal Injury Protection litigation in
Florida gave rise to increased estimates for allocated loss adjustment
expenses. The increase in litigation was caused in part by plaintiffs'
attorneys bringing separate actions for each clinic or claimant, rather than
consolidating cases, and to delays in claims handling due to difficulty in
hiring enough qualified claims adjusters. Staffing issues have been alleviated
resulting in a 33% decline in monthly suit counts since September 2002. At
December 31, 2002, the provision for unpaid claims for non-standard automobile
in Florida was $58.2 million and the range of reserve estimates for unpaid
claims established by our independent appointed actuary was from $56.5 million
to $64.8 million.

Number of Claims Average Dollars
Florida ---------------- ---------------
Total
Pending Total Total Unpaid
as of Reported Settled Claim Settled
12/31 In In Reserve Claim
------- -------- ------- ------- -------

2002.. 12,335 32,098 29,695 $2,217 $1,969
2001.. 9,932 21,031 16,914 $1,979 $1,657
2000.. 5,815 11,725 10,164 $1,885 $1,706

The second element leading to adverse development of claims liabilities was
the escalation of reserves for Southern United Fire Insurance Company located
in Mobile, Alabama. Although average settlements had declined 7.5% from 2000 to
2002, average reserves more than doubled. The justification for this case
reserve increase is that claims activities in newer territories such as South
Carolina are developing with greater than expected frequency and severity
requiring additions to the reserves. At December 31, 2002, the provision for
unpaid claims for non-standard automobile at Southern United Fire Insurance
Company was $49.4 million and the range of reserve estimates for unpaid claims
established by our independent appointed actuary was from $45.5 million to
$55.0 million.

Number of Claims Average Dollars
Southern United Fire Insurance Company ---------------- ---------------
Total Reserve
Pending Total Total Per
as of Reported Settled Unpaid Settled
12/31 In In Claim Claim
------- -------- ------- ------- -------

2002................. 7,754 36,887 38,494 $4,516 $1,696
2001................. 9,361 35,859 32,264 $2,963 $1,784
2000................. 5,766 17,610 14,959 $2,281 $1,833

The claims reserve deficiency reported during 2002 is largely attributable
to accident years 2001, 2000, 1999 and 1998 of Ontario Automobile and accident
year 2001 for the southeastern United States. In addition to the enactment of
more favorable automobile insurance legislation in Ontario to combat fraud and
control the tort claims in the no-fault system, we believe we have taken the
necessary steps to reflect the ultimate cost of claims from these years. In the
southeastern United States, we have put new management in place and have
increased the quality and number of our claims staff to ensure that claims are
investigated and adjudicated promptly and to avoid delays in establishing
reserves for the ultimate cost of personal injury claims.

Results of Operations

For the six months ended June 30, 2003 and 2002

Gross Premiums Written. During the first six months of 2003, gross premiums
written increased by 45% to $1.3 billion, compared to $919.0 million in the
first six months of 2002. Gross premiums written from U.S. operations increased
50% to $1.0 billion, compared with $686.2 million in 2002. In the first six
months of 2003, U.S. operations represented 77% of gross premiums written
compared with 75% in first six months of 2002. Gross premiums written from
Canadian operations grew 30% to $303.1 million during the first six months of
2003, compared to $232.8 million in the first six months of 2002. ACHI was
acquired on April 5, 2002, and the results of this acquisition have been
consolidated with our U.S. operations since March 31, 2002. ACHI contributed
$79.2 million of gross premiums written or 5.9% of our gross premiums written
in the first six months of 2003.

Gross premiums written for trucking and commercial automobile in the first
six months of 2003 increased by 69% to $585.2 million over the first six months
of 2002, and for non-standard automobile, increased by 19% to $465.1 million
over the same period last year. We continue to experience both volume growth
and rate increases for both trucking lines and non-standard automobile in most
of our markets, with the exception of Ontario and metropolitan Chicago where
rate increases have led to a reduction in volume compared to the first six
months of 2002.

Net Premiums Written. Net premiums written increased 46% to $1.3 billion
compared with $870.1 million for the first six months of last year. Net
premiums written from the U.S. operations increased 52% to $988.9 million
compared with $651.1 million in the first six months of last year. Net premiums
written from the Canadian operations increased 30% to $284.9 million compared
with $219.0 million for the first six months of last year.

Net Premiums Earned. Net premiums earned increased 65% to $1.2 billion for
the first six months of this year, compared with $709.6 million for the first
six months of last year. For U.S. operations, net premiums earned increased 76%
to $923.3 million in the first six months compared with $525.1 million in the
first six months of 2002 and Canadian operations increased by 35% to $249.2
million compared with $184.5 million in the first six months of last year.
Earned premiums have grown due to the increase in written premiums during the
past year. In the first six months of 2003, net premiums earned from private
passenger automobile in Ontario were $52.9 million, or 5% of total net premiums
earned, compared to $48.9 million or 7% in first six months of 2002.

Investment Income. Investment income increased to $34.9 million compared
with $30.8 million for the first six months of last year. The growth in our
premiums written generated positive cash flow from operations of $226.0 million
which increased the investment portfolio during the period.

Net Realized Gains. Net realized gains amounted to $8.8 million compared
with net realized gains of $5.3 million in the first six months of last year.
The performance of the investment portfolio improved during the second quarter
of 2003 as a result of our increased investment in common shares during 2003
and improved market performance, with unrealized gains increasing to $66.6
million at June 30, 2003. In deciding whether to reduce the carrying value of
common shares, we take into account a number of factors, including whether the
decline in market value is more than 20% and has persisted for a period
exceeding six months. In the case of fixed income securities, we also take into
account whether the issuer is in financial distress (unable to pay interest or
some other situation that would question the issuer's ability to satisfy their
debt obligations).

Claims Incurred. Our claims ratio for the first six months of 2003 was
70.8%, compared to 71.3% for the first six months of 2002. The claims ratio for
our U.S. operations was 69.0% compared with 68.9% for the first six months of
2002. The slight deterioration in our U.S. operations claims ratio is a
reflection of the growth of the business. The claims ratio for our Canadian
operations improved to 77.3% compared to 78.1% for the first six months of last
year as a result of the improvement in our Ontario automobile results.

Underwriting Expenses. Our expense ratio for the six months of 2003
improved to 27.3% compared to 28.4% in the first six months of last year. The
expense ratio for our Canadian operations for the first six months of 2003 was
28.1%, compared to 30.3% for the same period last year and the expense ratio
for the U.S. operations was 27.1% and 27.7%, respectively, for the same
periods. In order to be more consistent with industry practice and the
treatment of expenses on our program, or MGA, business, effective October 1,
2002, we initiated the deferral of underwriting and marketing costs relating to
the acquisition of premiums on all of our business, where previously such
deferral was applied only to our MGA business. The impact of this change was an
increase in net income of $7.3 million or 15 cents per share diluted for the
year to date.

Combined Ratio. The combined ratio of 98.1% for the first six months of 2003
produced an underwriting profit of $22.5 million, compared with 99.7% in the
first six months of 2002, which produced an underwriting profit of $2.5
million. For the first six months of 2003, the U.S. operations combined ratio
improved to 96.1% (96.6% last year) and for the Canadian operations improved to
105.4% (108.4% last year).

The U.S. operations were positively impacted by the improvement in the
results of our Illinois non-standard automobile business compared to last year.
The Ontario private passenger automobile product showed improved results for
the first six months of 2003 with a combined ratio of 104.4% on $52.9 million
of net premiums earned compared to a combined ratio of 126.5% on $48.9 million
of net premiums earned in the first six months of 2002. The improvement in our
Canadian operations reflects our initiatives against fraud and increased
pricing for the Ontario private passenger automobile product, partially offset
by adverse loss development in Alberta.

Interest Expense. Interest expense for the first six months of 2003 was
$9.5 million, compared to $5.8 million last year, reflecting the issuance of
$78 million in senior unsecured debentures in December 2002.

Net Income and Earnings Per Share. Net income for the first six months of
2003 was $51.7 million, a 59% increase over the $32.5 million reported for the
first six months of last year. Diluted earnings per share were $1.04 for the
first six months of 2003 compared to 66 cents for the same period last year.

A significant portion of the Company's operations and net assets are
denominated in U.S. dollars whereas the Company reports in Canadian dollars.
During the six month period ended June 30, 2003 the Canadian dollar appreciated
significantly against the U.S. dollar thereby affecting the comparability to
the same periods of 2002. Had the results of the U.S. operations been
translated at the same exchange rates as the same periods last year, net income
and earnings per share for the six months would have been increased by $4.4
million and 9 cents, respectively.

Book Value Per Share and Return on Equity. For the first six months of
2003, shareholders' equity was reduced by $74.0 million and book value per
share by $1.51 as a result of the unrealized currency translation adjustment of
our U.S. dollar denominated net assets into Canadian dollars. Despite this
adjustment, book value per share increased by 7% to $12.09 from $11.29 a year
ago. Our annualized return on equity was 17.2% for the first six months of 2003
compared to 11.9% for the first six months of last year.

Balance Sheet. Total assets as at June 30, 2003 grew to $3.1 billion. The
investment portfolio, which includes cash and premium finance receivables, and
accrued investment income increased to $2,192.0 million (market value $2,258.6
million), compared to $2,094.9 million (market value $2,127.5 million) as at
December 31, 2002. Investment portfolio per share increased 4% to $44.78
compared to $42.93 as at December 31, 2002. Unrealized gains on the investment
portfolio increased to $66.6 million ($1.36 per share outstanding) at June 30,
2003 compared with $21.9 million at March 31, 2003 as a result of the Company's
increased investment in common shares during the first half of 2003.

Years ended December 31, 2002 and 2001

Gross Premiums Written. Our gross premiums written in 2002 increased 99% to
$2.1 billion, compared with $1.1 billion in 2001. Gross premiums written for
our U.S. operations in 2002 increased 130% to $1.6 billion, compared with
$709.2 million in 2001. For 2002, U.S. operations represented 77% of gross
premiums written compared with 67% last year. Gross premiums written from
Canadian operations in 2002 increased 38% to $490.8 million compared with
$356.0 million in 2001.

Gross premiums written from non-standard automobile increased by 52% to
$828.1 million over last year. Non-standard automobile insurance covers drivers
who do not qualify for standard automobile insurance coverage because of their
payment history, driving record, place of residence, age, vehicle type or other
factors. We continue to experience both volume growth and rate increases in
most of our non-standard automobile markets. In Canada, we implemented rate
increases in early 2002 and again in the third quarter of 2002 to improve the
profitability of our Ontario Automobile business. During the third quarter we
obtained approval for a rate increase as well as permission to eliminate
certain classes of risk in Ontario. The impact of these initiatives was to
increase rates by an average of 22.3% and for many of our policyholders in the
metropolitan Toronto area by over 40%. We currently do not offer policy terms
of longer than six months duration for non-standard automobile in Ontario. Our
Canadian operations experienced a 41% increase in non-standard automobile
premiums and our U.S. operations experienced a 55% increase from existing
markets compared to 2001.

In 2002, gross premiums written from trucking and commercial automobile
increased 175% to $844.4 million compared to $307.2 million in 2001. As a
result of the market conditions, we are experiencing growth through additional
new business as well as through the ability to charge higher premiums for the
business. Trucking and commercial automobile represented 40% of gross premiums
written in 2002 compared with 29% last year.

The programs that we started to implement with managing general agents, or
MGAs, in the United States during the last half of 2001 for non-standard
automobile, trucking and commercial automobile have been expanded in 2002. In
2002 these programs generated $961.4 million or 45% of our gross premiums
written compared with $206.0 million or 19% last year. We have been able to
grow this aspect of our business due to limited competition, and as a result,
we have been able to implement more favorable pricing than the companies we
have replaced. In each of these arrangements, the MGAs' compensation is
dependent on the underwriting profit they generate.

American Country Holdings Inc., or ACHI, was acquired on April 5, 2002 and
its results have been consolidated with our U.S. operations since March 31,
2002. ACHI has contributed $36.0 million of gross premiums written or 3% of the
increase in our gross premiums written during 2002.

Net Premiums Written. Net premiums written in 2002 increased 98% to $2.0
billion compared with $1.0 billion for 2001. Net premiums written from our U.S.
operations in 2002 increased 128% to $1.5 billion compared with $679.1 million
for 2001. Net premiums written from our Canadian operations increased 38% to
$463.0 million from $335.9 million for 2001. The increase in net premiums
written is attributable to the aforementioned increases in gross premiums
written. In 2002 reinsurance premiums ceded represented 5.4% of gross premiums
written compared to 4.7% in 2001 as a result of the increased cost of
reinsurance coverages.

Net Premiums Earned. Net premiums earned for 2002 increased 99% to $1.7
billion, compared with $872.8 million for 2001. For U.S. operations, net
premiums earned for 2002 increased 140% to $1,322.5 million compared with
$550.9 million in 2001. Net premiums earned from our Canadian operations for
2002 increased by 29% to $415.2 million compared with $321.9 million for 2001.
Earned premiums have grown due to the increase in written premiums during the
past year.

Investment Income. Investment income for 2002 increased to $64.9 million
compared with $52.6 million for 2001. The growth in our premiums written
generated positive cash flow from operations which increased the investment
portfolio by $600.4 million during 2002, which was offset by the impact of
lower interest rates.

Net Realized Gains. Net realized gains amounted to $16.3 million in 2002
compared with $12.1 million in 2001. Included in net realized gains were
adjustments to the carrying value of investments for declines in market value
considered other than temporary of $6.6 million in 2002 compared to $1.2
million in 2001.

Claims Incurred. Our claims ratio for 2002 was 71.4%, compared to 70.6% for
2001. The claims ratio for the U.S. operations for 2002 was 69.2% compared with
68.9% for 2001. The slight deterioration in the U.S.

operations claims ratio is a reflection of adverse claims development amounting
to $35.2 million. The claims ratio for our Canadian operations in 2002 was
78.3% compared to 73.5% for 2001. The claims ratio for our Canadian operations
was adversely influenced by results from Ontario Automobile, which experienced
$63.9 million of adverse prior year claims development. The claims ratio for
the Canadian operation for 2002 was 64.6% excluding Ontario Automobile. For
2002, net premiums earned from Ontario Automobile amounted to $137.0 million,
which produced claims incurred of $145.3 million.

Underwriting Expenses. Our expense ratio for 2002 was 28.4%, compared to
28.5% for 2001. The expense ratio for Canada for 2002 was 30.1%, compared to
29.6% for 2001, and the expense ratio for the U.S. for 2002 was 28.0%, compared
to 27.9% for 2001. In order to be more consistent with industry practice and
the treatment of expenses on our MGA business, effective October 1, 2002 we
initiated the deferral of underwriting and marketing costs relating to the
acquisition of premiums on all of our business, where previously such deferral
was applied only to our MGA business. The impact of this change was to defer an
additional $6.6 million of underwriting expenses, which reduced the expense
ratio by 0.3% for the year.

Combined Ratio. The combined ratio of 99.8% for 2002 produced an
underwriting profit of $2.6 million, compared with $7.6 million profit reported
in 2001. For 2002, the U.S. operations combined ratio was 97.2% (96.8% last
year) and for the Canadian operations the combined ratio was 108.4% (103.1%
last year). The results of our Canadian operations were adversely affected by
results from automobile and motorcycle business in Ontario (Ontario Automobile)
due to increases in accident benefit loss costs. In 2002, the U.S. operations
produced an underwriting profit of $37.5 million compared to an underwriting
profit of $17.5 million in 2001. The Canadian operations produced an
underwriting loss of $34.9 million compared to a underwriting loss of $9.8
million for 2001. For 2002, Ontario Automobile generated $137.0 million, or 8%,
of net premiums earned at a combined ratio of 131.4%, and produced an
underwriting loss of $43.1 million. The combined ratio for 2002 and 2001 was
influenced by adverse development on prior year claims. In 2002, adverse
development of prior year claims amounted to $101.1 million, which increased
the combined ratio by 5.8% for the year. Adverse development for prior year
claims during the year ended December 31, 2001 amounted to $33.9 million, which
increased the combined ratio by 3.9% in 2001.

Interest Expense. Interest expense in 2002 was $12.3 million, compared to
$11.4 million for 2001. The increase was primarily the result of an increase in
our bank debt during the year.

Net Income and Earnings Per Share. Our net income for 2002 increased by 77%
to $79.5 million, compared to $44.9 million in 2001. As a result of a higher
proportion of income before tax being generated in lower tax jurisdictions, and
net losses incurred in higher tax jurisdictions, in 2002, we reported a
consolidated income tax credit of $8.8 million compared to an income tax
expense of $10.1 million in 2001. Prior to January 1, 2002, we amortized
goodwill arising from acquisitions over the applicable useful life of the asset
acquired, which in 2001 resulted in expense of $5.8 million after tax. Diluted
earnings per share for 2002 were $1.61, compared to $1.19 on 31% more shares
outstanding in 2002.

Book Value Per Share and Return on Equity. Book value per share was $12.56
at December 31, 2002 compared to $11.03 at December 31, 2001. Our return on
equity was 13.8% in 2002 compared to 13.3% for 2001. Our investment portfolio
increased to $2,094.9 million (market value $2,127.5 million) as at December
31, 2002, compared to $1,235.4 million (market value $1,247.0 million) as at
December 31, 2001.

Years Ended December 31, 2001 and 2000

Gross Premiums Written. Our gross premiums written in 2001 increased by
66%, to $1,065.3 million in 2001, compared to $643.0 million in 2000, due
primarily to premium growth in our non-standard automobile insurance business.
The increase in gross premiums written was primarily achieved by taking
advantage of opportunities to increase prices and the volume of business.
Unearned premiums increased by 58% to $424.1 million at the end of 2001 from
$268.2 million at the beginning of the year.

Gross premiums written from our Canadian operations increased by 23% to
$356.0 million compared with $289.4 million in 2000. Our non-standard
automobile business in Canada increased 24% to $119.8 million for 2001,
compared to $96.9 million for 2000. We experienced growth in all of our major
provinces of Ontario, Alberta and Quebec in our non-standard automobile
business. Our trucking business also experienced strong growth in Canada of 56%
to $56.1 million as a number of insurers have exited the marketplace over the
last year allowing us to acquire additional books of business and to underwrite
these risks at significantly higher rates.

Gross premiums written by our U.S. operations in 2001 increased by 101% to
$709.2 million, compared to $353.6 million in 2000. We entered into a number of
MGA relationships during 2001 to expand our non-standard automobile, trucking
and commercial automobile insurance. Our MGA programs accounted for 49% or
$206.0 million of our growth in gross premiums written in 2001. During the year
we saw strong growth in California and Texas due to the exit of several
competitors from these markets. We entered the California market during the
second quarter of 2001 and wrote $44.7 million in 2001, representing 13% of the
growth for our U.S. operations.

Gross premiums written from non-standard automobile insurance in 2001
increased by 51% to $546.3 million, compared to $361.3 million in 2000.
Premiums in Canada increased by 24% over 2000, and by 61% in the United States.
Non-standard automobile insurance represented 51% of our total business in
2001, compared to 56% in 2000.

Gross premiums written from commercial automobile insurance, including
trucking and taxis, in 2001 increased by 192% to $307.2 million, compared to
$105.3 million in 2000. The increase resulted primarily from the rate increases
that were implemented during the year and new business relationships that we
established in the United States. Premiums from property and liability lines,
including warranty, in 2001 increased by 31% to $100.6 million, compared to
$76.6 million in 2000. Premiums from motorcycle insurance increased 15% to
$42.1 million, compared to $36.5 million in 2000.

Net Premiums Written. Our net premiums written in 2001 increased by 68% to
$1,015.0 million, compared to $604.7 million in 2000. In Canada, net premiums
written in 2001 increased 24% to $335.9 million, compared to $272.0 million in
2000, and by 104% in the U.S. to $679.1 million from $332.7 million. This
significant growth resulted from the increase in gross premiums written and the
increased retention of business. In 2001, premiums ceded to reinsurers
represented 5% of gross premiums written compared to 6% in 2000.

Net Premiums Earned. Our net premiums earned in 2001 increased 62% to
$872.8 million, compared to $540.0 million in 2000. Net premiums earned from
Canadian operations increased 28% to $321.9 million, compared to $251.9 million
in 2000. The U.S. operations increased by 91% to $550.9 million, compared with
$288.1 million in 2000.

Investment Income. Our investment income in 2001 increased by 18% to $52.6
million, compared to $44.6 million in 2000. The growth in our premiums written
increased the cash available for investment which increased the investment
portfolio in the year.

Net Realized Gains. We realized net gains on sales of investments of $12.1
million in 2001. The market value of our portfolio improved significantly in
2001 due to declining interest rates and increased values in our equity
portfolio. At December 31, 2001, the fair value of the investment portfolio was
approximately $11.6 million higher than the carrying value of the portfolio
based on prevailing market prices. At December 31, 2000 the carrying value was
$0.4 million higher than the fair value.

Claims Incurred and Unpaid Claims. Our claims ratio for 2001 was 70.6%,
compared to 68.9% for 2000. The claims ratio for the Canadian operations
deteriorated to 73.5%, compared to 70.1% in 2000 and for the twelfth
consecutive year outperformed the Canadian industry ratio which was 79.1% for
2001, according to the Insurance Bureau of Canada, or IBC. The increase in the
claims ratio of our Canadian operations was caused by the deterioration of the
results of our Ontario automobile business. We experienced an extension of the
reporting

period during which a plaintiff may bring suit against us under the tort system
under the then current Ontario automobile legislation. As a result, we
increased our estimate for unpaid claims during 2001, which increased our
claims ratio by 10.3%. The claims ratio for the U.S. operations increased
slightly to 68.9% in 2001, compared to 67.8% in 2000 and remains below the U.S.
industry of 90.1% in 2001, according to A.M. Best. The increase in the claims
ratio for our U.S. operations reflected adverse development of non-standard
automobile that added 0.1% to the claims ratio.

Underwriting Expenses. The expense ratio for 2001 decreased to 28.5%,
compared to 32.1% in 2000. The decrease is mainly attributable to general and
administrative expenses, which were 9.4% of premiums earned, compared with
12.4% in 2000. The general and administrative expenses were lower as a
percentage of net premiums earned due to increased levels of earned premiums in
both Canada and the United States.

Commissions and premium taxes in 2001 were 19.1% of earned premiums,
compared to 19.7% in 2000. For our Canadian operations, commissions and premium
taxes represented 18.9% of earned premiums in 2001, compared to 21.3% in 2000
and in the United States were 19.3% of earned premiums in 2001, compared to
18.3% in 2000.

General and administrative expenses for our Canadian operations were 10.7%
of net premiums earned, compared to 10.4% in 2000. For our U.S. operations,
general and administrative expenses were 8.7% of net premiums earned, compared
to 14.8% for 2000.

Combined Ratio. The combined ratio for 2001 improved to 99.1% compared to
101.0% in 2000. This produced an underwriting profit of $7.6 million for 2001
compared to an underwriting loss of $5.3 million in 2000. For 2001, the
combined ratio of our U.S. operations improved to 96.8% compared to 100.9% in
2000 and for the Canadian operations was 103.1% compared to 101.8% in 2000. The
results of the Canadian operations were adversely affected by prior years
claims development of $33.3 million related primarily to our Ontario automobile
business. This increased charge related to prior periods increased the combined
ratio of Canadian operations by 10.3% and the consolidated combined ratio by
3.8% for the year ended December 31, 2001.

Interest Expense. Interest expense in 2001 was $11.4 million, compared to
$11.4 million in 2000.

Net Income Before Goodwill Amortization. Our acquisitions in Canada and the
United States have required that goodwill amortization of $5.9 million be
charged against earnings in 2001 compared to $5.5 million in 2000. Net income
before goodwill amortization in 2001 increased by 54% to $50.8 million,
compared to $32.9 million in 2000. As of January 1, 2002 all existing goodwill
and intangible assets with indefinite lives which are currently included in our
Consolidated Balance Sheets will cease to be amortized to income over time, and
will be subject to a periodic impairment review to ensure that the fair value
remains greater than, or equal to, book value. The Company currently has no
intangible assets with indefinite lives.

Net Income and Earnings Per Share. Our net income in 2001 increased to
$44.9 million, compared to $27.4 million in 2000. Diluted earnings per share
improved to $1.19 on 37,856,100 weighted average number of shares, compared to
$0.80 on weighted average number of shares 34,341,235 shares in 2000. Fully
diluted earnings per share before goodwill increased to $1.34, compared to
$0.96 in 2000.

Book Value Per Share and Return on Equity. Book value per share increased
by 38% to $11.03 at the end of 2001, compared to $8.01 at the end of 2000. Our
return on equity in 2001 improved to 13.3%, compared to 10.7% in 2000.

Quarterly Results of Operations

The following table presents unaudited quarterly results of operations data
for each of the eight quarters ended June 30, 2003. You should read the
following table in conjunction with the consolidated financial statements and
related notes included in this prospectus. In our opinion, this information
reflects all normal non-recurring adjustments that we consider necessary for a
fair presentation of such information in accordance with Canadian GAAP. The
results for any quarter are not necessarily indicative of results that may be
expected for any future period.

Quarter Ended
-------------------------------------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30,
2001 2001 2002 2002 2002 2002 2003 2003
------------- ------------ --------- -------- ------------- ------------ --------- --------
(unaudited, in thousands of Canadian dollars, except per share amounts)

Gross premiums
written........... $297,522 $291,578 $416,397 $502,647 $605,566 $600,081 $702,560 $629,928
Net premiums
earned............ 237,334 278,423 310,369 399,277 479,407 548,701 551,255 621,280
Total revenues...... 252,651 297,617 327,852 417,862 505,297 567,857 566,333 649,926
Net income before
goodwill.......... 15,786 11,481 16,259 16,222 21,653 25,398 24,394 27,264
Net income.......... 14,338 10,001 16,259 16,222 21,653 25,398 24,394 27,264
Diluted earnings per
share............. $ 0.36 $ 0.23 $ 0.33 $ 0.33 $ 0.44 $ 0.51 $ 0.49 $ 0.55

Financial Condition

Liquidity and Capital Resources

The purpose of liquidity management is to ensure that there is sufficient
cash to meet all financial commitments and obligations as they fall due. We
believe that we have the flexibility to obtain, from internal sources, the
funds needed to fulfill our cash requirements during the current financial year
and also to satisfy regulatory capital requirements. However, such funds may
not provide sufficient capital to enable us to pursue additional market
opportunities.

Our insurance operations create liquidity by collecting and investing
premiums from new and renewal business in advance of earning those premiums and
paying claims. This creates a liquid float of money that we hold on behalf of
our policyholders. We earn investment income on this float until we pay the
claim. As long as we continue to grow and remain profitable, the float grows
and continues to be available for investment. Net cash provided from the growth
in operations in 2001 was $207.3 million, in 2002 was $600.4 million, and in
the first six months of 2003 was $226.0 million.

In February 1999, we entered into a US$100.0 million unsecured credit
facility with Canadian Imperial Bank of Commerce, The Bank of Nova Scotia,
LaSalle Bank National Association and First Union National Bank. This facility
is for a fixed term of five years, at a fixed rate of LIBOR plus a spread which
varies with our credit rating. We drew down the facility in full and entered
into an interest rate swap transaction whereby we fixed our rate at 5.91% plus
a spread based on our credit rating or the ratio of funded debt to total
capitalization, whichever is higher, for the term of the facility. The current
interest rate, including the spread, on this facility is 7.41%. As of June 30,
2003, we were in compliance with all of the covenants of this credit facility
and we had a principal balance of $111.2 million (US$82.5 million). This
facility is subject to periodic principal reductions and may not be reborrowed.

In May 2002, we entered into a $66.5 million revolving credit facility with
Canadian Imperial Bank of Commerce, HSBC Bank Canada and LaSalle Bank National
Association. The facility is a 364 day revolving

credit facility at a floating interest rate determined based on the type of
loan and our senior unsecured debt rating. The facility was renewed in May
2003. As of June 30, 2003, the effective interest rate was approximately 3%.
This debt ranks pari passu with our US$100 million unsecured credit facility.
As of June 30, 2003, we were in compliance with all of the covenants of this
credit facility and we had approximately $43.6 million outstanding and an
additional $22.9 million available under this revolving facility.

Our US$100 million unsecured credit facility and our $66.5 million revolving
credit facility contain financial covenants, including a requirement that we
maintain a specified capital surplus ratio. The capital surplus ratio for both
facilities is 3.00 to 1. As of June 30, 2003, we were in compliance with this
covenant and we believe that we will remain in compliance with this ratio and
all of the other bank covenants for the remainder of the terms of these
facilities.

On December 6, 2002, Kingsway Financial sold $78 million aggregate principal
amount of 8.25% senior unsecured debentures due December 31, 2007. The net
proceeds of the offering amounted to approximately $77.1 million, after the
application of the underwriters' discount and commission. The yield on the
debentures to maturity is 8.298%. The debentures are unconditionally guaranteed
by Kingsway America. We used a portion of the net proceeds of the senior
unsecured debentures to provide approximately $50 million to Kingsway America
to support the growth of our U.S. operations, approximately $16.4 million to
pay a portion of the amount outstanding under our $66.5 million unsecured
revolving credit facility and the balance for general corporate purposes.

On December 4, 2002, Kingsway Connecticut sold $23.6 million (US$15 million)
in 30-year floating rate trust preferred securities. Kingsway America has the
right to call the securities at par after five years. Kingsway Connecticut used
the proceeds from the offering to purchase a floating rate junior subordinated
deferrable interest debenture from Kingsway America. This floating rate
debenture bears interest initially at the rate of 5.42375% until March 4, 2003;
thereafter, the rate will be 3-month LIBOR plus 4%, but until December 4, 2007,
the interest rate will not exceed 12.5%. This debenture is unconditionally
guaranteed by Kingsway Financial. The floating rate debenture issued by
Kingsway America to Kingsway Connecticut will rank equally to the subordinated
notes to be issued by Kingsway America to Funding Co. in connection with this
offering. The proceeds of the private offering were used to increase the
capital of our U.S. insurance subsidiaries.

On May 15, 2003, Kingsway Connecticut II sold $25.6 million (US$17.5
million) in 30-year floating rate trust preferred securities. Kingsway
Connecticut II used the proceeds from the offering to purchase a floating rate
junior subordinated deferrable interest debenture from Kingsway America. This
floating rate debenture bears interest at 3-month LIBOR plus 4.1%, but until
May 15, 2008, the interest rate on this debenture will not exceed 12.5%. This
debenture is unconditionally guaranteed by Kingsway Financial. Kingsway America
will have the right to call the securities at par after five years. The
floating rate debenture issued by Kingsway America to Kingsway Connecticut II
will rank equally to the subordinated notes to be issued by Kingsway America to
Funding Co. in connection with this offering. The proceeds of this private
offering were used to increase the capital of our U.S. insurance subsidiaries.

On May 22, 2003, Kingsway Delaware III sold $22 million (US$15 million) in
30-year floating rate trust preferred securities. Kingsway Delaware III used
the proceeds from the offering to purchase a floating rate junior subordinated
deferrable interest debenture from Kingsway America. This floating rate
debenture bears interest at 3-month LIBOR plus 4.2%, but until May 22, 2008,
the interest rate on this debenture will not exceed 12.5%. This debenture is
unconditionally guaranteed by Kingsway Financial. Kingsway America will have
the right to call the securities at par after five years. The floating rate
debenture issued by Kingsway America to Kingsway Delaware III will rank equally
to the subordinated notes to be issued by Kingsway America to Funding Co. in
connection with this offering. The proceeds of this private offering were used
to increase the capital of our U.S. insurance subsidiaries.

exercise of an over-allotment option granted to the underwriters. The shares
were sold only in Canada at a price of $16.70 per share. Approximately $98
million of the proceeds of the Canadian offering were used to increase the
capital of certain of our insurance subsidiaries, and the remainder will be
used for general corporate purposes.

Kingsway expects to participate in additional private placements from time
to time, subject to its capital requirements and market conditions. We cannot,
however, assure you as to whether or when any such offerings will be completed.

Kingsway Financial is substantially dependent on dividends, loans, and
advances from its subsidiaries to meet its commitments and obligations,
including its obligations under the debenture guarantee and the preferred
securities guarantee. The payment of dividends to Kingsway Financial by its
insurance and reinsurance subsidiaries is subject to limitations imposed by the
insurance laws of the domiciliary jurisdiction of such subsidiaries,
principally the laws of the various states in the U.S. where our subsidiaries
are located, Canadian federal and provincial laws, and the laws of Barbados and
Bermuda. Based on the dividend restrictions imposed by applicable insurance
laws, dividends available for payment from our subsidiaries during 2003, based
on our December 31, 2002 financial statements, would have been $180.3 million.
For more information on these regulatory restrictions, see the section of this
prospectus entitled "The Company--Insurance Regulatory Matters." Also, both of
our credit facilities described above contain financial covenants regarding
Kingsway Financial's minimum net worth and the maintenance of certain financial
ratios. The indenture for our senior debt offering also contains similar
covenants. These facilities allow Kingsway Financial's subsidiaries to pay
dividends only if after giving effect to such dividends, there would be no
default or event of default under the facilities.

Our senior debt is rated "BBB" (Investment Grade) by Standard & Poor's, a
primary rating agency for debt in North America, and by Dominion Bond Rating
Services, a Toronto-based, full-service credit rating agency established in
1976.

Shareholders' Equity

As a result of our profitability, our shareholders' equity increased to
$612.9 million at December 31, 2002 compared to $536.8 million at December 31,
2001. As at June 30, 2003, our shareholders' equity was $591.8 million. During
the first six months of 2003, our shareholders' equity was negatively impacted
by the unrealized currency translation adjustment of our U.S. dollar
denominated net assets into Canadian dollars amounting to $74.0 million. Book
value per share outstanding was $12.56 per share at December 31, 2002, an
increase of 14% compared to $11.03 per share at December 31, 2001. Book value
per share was $12.09 at June 30, 2003 and was also impacted by the unrealized
currency translation adjustment of our U.S. dollar denominated net assets into
Canadian dollars. Our book value per share outstanding increased 17% in 1998,
2% in 1999, 13% in 2000, 38% in 2001 and 14% in 2002.

Investments

The fair value of our investment portfolio, including cash and premium
finance receivables, amounted to $2.24 billion at June 30, 2003 and $2.13
billion as of December 31, 2002 and $1.25 billion as of December 31, 2001. At
December 31, 2002, our portfolio, other than cash and premium finance
receivables, was comprised

primarily of short-term securities including treasury bills, bankers'
acceptances, government bonds and corporate bonds (94.7% rated "A" or higher
and 3.5% invested in non-investment grade securities). The fair value of equity
investments represented 12.0% of our investment portfolio at June 30, 2003,
8.8% of our investment portfolio at December 31, 2002 and 9.4% at December 31,
2001.

We recognized a charge of $6.6 million and $1.2 million for investment value
impairment that was considered other than temporary for the years ended
December 31, 2002 and December 31, 2001, respectively. During the first six
months of 2003, we recognized a charge of $2.6 million for investment
impairment, compared to no charge in the first six months of 2002. We perform
periodic analyses of our investment holdings to determine if declines in market
value are other than temporary. These periodic analyses include some or all
of the following procedures:

. identifying all security holdings in an unrealized loss position that has
existed for at least six months;

. obtaining a valuation analysis from third party investment managers
regarding the intrinsic value of these holdings based on their knowledge,
experience and other market based valuation techniques;

. reviewing the trading range of certain securities over the preceding
calendar period;

. assessing if declines in market value are other than temporary for debt
security holdings based on the investment grade credit rating from third
party security rating agencies;

. assessing if declines in market value are other than temporary for any
debt security holding with non-investment grade credit rating based on
the continuity of their debt service record; and

. determining the necessary provision for declines in market value that are
considered other than temporary based on the analyses performed.

The risks and uncertainties inherent in the assessment methodology utilized
to determine declines in market value that are other than temporary include but
may not be limited to the following:

. the opinion of professional investment managers could be incorrect;

. the past trading patterns of individual securities may not reflect future
valuation trends;

. the credit ratings assigned by independent credit rating agencies may be
incorrect due to unforeseen or unknown facts related to a company's
financial situation; and

. the debt service pattern of non-investment grade securities may not
reflect future debt service capabilities and may not reflect the
company's unknown underlying financial problems.

The length of time securities may be held in an unrealized loss position may
vary based on the opinion of our appointed investment managers and their
respective analyses related to valuation and the various credit risks that may
prevent us from recapturing our principal investment. In cases where our
appointed investment manager determines there is little or no risk of default
prior to the maturity of a holding, we would elect to hold the security in an
unrealized loss position until the price recovers or the security matures.

In situations where facts emerge that might increase the risk associated
with recapture of principal, securities would be traded and losses realized.
Due to the current volatility of the equity markets, we believe there are a
number of securities currently trading at values below their respective
intrinsic values based on historical valuation measures. In these situations,
holdings may be maintained in an unrealized loss position for different periods
of time based on the underlying economic assumptions driving the investment
manager's valuation of the holding. In cases where the economic realities
divert from the underlying assumptions driving the investment manager's
valuation, securities would be traded and losses realized. In cases where the
economic assumptions coincide with valuation assumptions, the holding would be
maintained until the market value of the security recovers in the public
markets.

As of June 30, 2003, December 31, 2002 and December 31, 2001, the gross
unrealized losses amounted to $5.9 million, $11.3 million and $10.4 million,
respectively. The unrealized loss attributable to non-investment grade fixed
income securities at June 30, 2003, December 31, 2002 and December 31, 2001 was
$0.5 million, $0.8 million and $2.4 million, respectively. The unrealized
losses at June 30, 2003, December 31, 2002 and December 31, 2001 were
considered temporary declines in market value based on the review of individual
holdings as indicated above.

The following tables highlight the aggregate unrealized loss position, by
security type, of holdings in an unrealized loss position as at June 30, 2003,
December 31, 2002 and December 31, 2001. The tables segregate the holdings
based on the period of time the securities have been continuously held in a
material unrealized loss position.

As of June 30, 2003
-----------------------------------------------------
0-6 months 6-12 months over 12 months Total
------------ ----------- -------------- ------------
(in Canadian dollars, except number of positions)

Common Stock
Number of Positions. 59 0 0 59
Fair Value.......... $ 28,340,569 -- -- $ 28,340,569
Carrying Value...... 31,721,801 -- -- 31,721,801
Unrealized Loss..... (3,381,231) -- -- (3,381,231)
Preferred Stock
Number of Positions. 0 0 0 --
Fair Value.......... $ -- $ -- $ -- $ --
Carrying Value...... -- -- -- --
Unrealized Loss..... -- -- -- --
Fixed Income
Number of Positions. 80 0 1 81
Fair Value.......... $679,149,575 $ -- $ 552,500 $679,702,075
Carrying Value...... 681,405,374 -- 805,819 682,211,193
Unrealized Loss..... (2,255,798) -- (253,319) (2,509,118)
Total
Number of Positions. 139 0 1 140
Fair Value.......... $707,490,145 $ -- $ 552,500 $708,042,645
Carrying Value...... 713,127,174 -- 805,819 713,932,993
Unrealized Loss..... (5,637,030) -- (253,319) (5,890,349)

As of December 31, 2002
-----------------------------------------------------
0-6 months 6-12 months over 12 months Total
------------ ----------- -------------- ------------
(in Canadian dollars, except number of positions)
Common Stock
Number of Positions. 119 1 0 120
Fair Value.......... $ 82,037,019 $2,351,388 $ -- $ 84,388,407
Carrying Value...... 91,163,160 2,676,220 -- 93,839,380
Unrealized Loss..... (9,126,141) (324,832) -- (9,450,973)
Preferred Stock
Number of Positions. 1 0 0 1
Fair Value.......... $ 887,184 $ -- $ -- $ 887,184
Carrying Values..... 909,000 -- -- 909,000
Unrealized Loss..... (21,816) -- -- (21,816)
Fixed Income
Number of Positions. 30 0 1 31
Fair Value.......... $435,124,083 $ -- $ 345,000 $435,469,083
Carrying Values..... 436,579,087 -- 730,996 437,310,083
Unrealized Loss..... (1,455,004) -- (385,996) (1,841,000)
Total
Number of Positions. 150 1 1 152
Fair Value.......... $518,048,285 $2,351,388 $ 345,000 $520,744,674
Carrying Values..... 528,651,247 2,676,220 730,996 532,058,463
Unrealized Loss..... (10,602,961) (324,832) (385,996) (11,313,789)

As of December 31, 2001
------------------------------------------------------
0-6 months 6-12 months over 12 months Total
------------ ----------- -------------- ------------
(in Canadian dollars, except number of positions)

Common Stock
Number of Positions. 32 3 1 36
Fair Value.......... $ 31,183,432 $ 4,499,241 $ 319,899 $ 36,002,571
Carrying Value...... 34,037,094 5,764,746 497,226 40,299,066
Unrealized Loss..... (2,853,662) (1,265,505) (177,327) (4,296,495)
Preferred Stock
Number of Positions. 1 0 1 2
Fair Value.......... $ 302,898 $ -- $ 274,803 $ 577,701
Carrying Value...... 410,390 -- 442,290 852,680
Unrealized Loss..... (107,492) -- (167,487) (274,979)
Fixed Income
Number of Positions. 68 2 3 73
Fair Value.......... $343,755,665 $ 648,700 $ 805,145 $345,209,510
Carrying Value...... 347,760,018 1,133,738 2,189,375 351,083,131
Unrealized Loss..... (4,004,353) (485,038) (1,384,230) (5,873,621)
Total
Number of Positions. 101 5 5 111
Fair Value.......... $375,241,994 $ 5,147,941 $ 1,399,847 $381,789,782
Carrying Value...... 382,207,502 6,898,484 3,128,891 392,234,877
Unrealized Loss..... (6,965,507) (1,750,543) (1,729,044) (10,445,094)

At June 30, 2003, December 31, 2002 and December 31, 2001, unrealized losses
related to government bonds and term deposits were considered temporary as
there was no evidence of default risk. Corporate bonds, even those below
investment grade, in a material unrealized loss position, continued to pay
interest and were not subject to material changes in their respective debt
ratings. We concluded that a default risk did not exist at the time and
therefore, the decline in value was considered temporary. From December 2002 to
June 2003, the market value increased supporting our determination of the
declines as temporary. As we have the capacity to hold these securities to
maturity, no investment impairment provision was considered necessary. Common
stock positions in an unrealized loss position for more than six months were
not considered impaired based on the underlying fundamentals of the respective
holdings. In making our investment impairment decisions, we utilized the
professional expertise of our investment advisors, analyzed independent
economic indicators (such as the price of oil when evaluating an oil and gas
sector holding) and reviewed stock market trends.

With the exception of U.S. and Canadian government bonds, we limit our
investment concentration at each of our subsidiary companies in any one issuer
or related groups of issuers to less than 5% of the subsidiary company's
investment portfolio.

The following table segregates the unrealized losses at June 30, 2003,
December 31, 2002 and December 31, 2001 by security type or industry sector:

June 30, December 31, December 31,
2003 2002 2001
- ----------- ------------ ------------

Mortgage backed............. $ (4,931) $ 0 $ (919,613)
Government.................. (1,199,794) (83,913) (1,553,468)
Provincial, State, Municipal (52,370) -- (36,997)
Financial Services.......... (497,162) (1,609,392) (1,088,599)
Energy...................... (401,064) (414,383) (839,031)
Telecommunications.......... (266,225) (493,087) (1,735,398)
Information Technology...... -- (646,184) (618,843)
Consumer Products........... (329,293) (1,371,575) (828,132)
Metals & Mining............. -- (224,915) (393,897)
Industrials................. (2,365,504) (2,971,869) (1,360,498)
Utilities................... (39,479) (8,680) --
Media....................... (140,651) (1,227,437) (331,376)
Medical..................... -- (5,486) --
Pharmaceuticals............. (252,150) (700,731) (739,243)
Retail...................... (341,726) (1,322,744) --
Real Estate................. -- (233,392) --
----------- ------------ ------------
Total....................... $(5,890,349) $(11,313,789) $(10,445,094)
=========== ============ ============

We may hold other non-traded securities from time to time subject to the
review and approval of our Investment Committee. The carrying value and fair
value of non-traded securities as at June 30, 2003, December 31, 2002 and
December 31, 2001 was $7.9 million and $22.7 million, respectively. The fair
value of non-traded securities are estimated based on a multiple of earnings
per share that is consistent with earnings multiples of other public entities
in the same industry. The fair value of non-traded securities is reviewed at
least annually to determine if any decline should be considered other than
temporary.

We historically complied with SFAS 115 related to Accounting for Certain
Investments in Debt and Equity Securities and recognized losses on securities
whose decline in market value was deemed to be other than temporary. Subsequent
to the issuance of SAB 59 in 2001 however, we reviewed our policy for
determining declines considered other than temporary against the guidance
provided by the SEC and identified certain securities for which a write-down
may have been appropriate, based on the more specific requirements. We disposed
of those securities that fell into this category and recognized the loss. None
of the capital losses realized in 2003, 2002 and 2001 were considered
individually material as we limit the exposure to any one security through our
investment policy.

For a more detailed discussion of our investments see "The
Company--Investments" beginning on page 64 of this prospectus.

Interest Rate and Equity Market Fluctuations

Movements in short-term and long-term interest rates, as well as
fluctuations in the value of equity securities, affect the level and timing of
recognition of gains and losses on securities we hold, causing changes in
realized and unrealized gains and losses. Generally, our investment income will
be reduced during sustained periods of lower interest rates as higher yielding
fixed income securities are called, mature, or are sold and the proceeds are
reinvested at lower rates. During periods of rising interest rates, the market
value of our existing fixed-income securities will generally decrease and our
realized gains on fixed-income securities will likely be reduced.

Generally, declining interest rates result in unrealized gains in the value
of fixed income securities we continue to hold, as well as realized gains to
the extent the relevant securities are sold. General economic conditions, stock
market conditions and many other factors can also adversely affect the
securities markets and, consequently, the value of the equity securities we own.

We currently maintain and intend to maintain an investment portfolio
comprising primarily fixed income securities.

THE COMPANY

Overview

In addition to automobile insurance, we provide motorcycle insurance,
specialized commercial and personal property coverage, warranty insurance and
other specialty coverages, such as customs and surety bonds. In the year ended
December 31, 2002, we derived 39.0% of our gross premiums written from
non-standard automobile insurance, 32.3% from trucking, 13.5% from commercial
and personal property coverages, 7.5% from commercial automobile, 2.5% from
motorcycle, 1.7% from standard automobile, 1.2% from warranty and 2.3% from
other specialty lines. In the year ended December 31, 2002, 47.4% of our gross
premiums written were generated from personal lines and 52.6% were from our
commercial lines.

We are a leading provider of non-standard automobile and motorcycle
insurance in Canada and have a prominent position in several U.S. markets in
which we currently operate, such as Florida, Illinois, and South Carolina,
based on direct premiums written. We are the second largest writer of
non-standard automobile insurance in Illinois and the third largest in South
Carolina according to A.M. Best. In the six months ended June 30, 2003 and the
year ended December 31, 2002, we generated 77% of our gross premiums written
from the United States and 23% from Canada.

The insurance industry is highly competitive. However, we generally seek to
identify and operate in specialty markets which present opportunities for us to
compete effectively due to the narrow scope or limited size of the market or
the specialty nature of the coverage or risk. These specialty markets may be
defined by geographic area, type of insurance or other factors.

In 2002, our gross premiums written increased 99% to $2.12 billion, compared
to $1.1 billion in 2001 and our total revenues increased 94% to $1,818.9
million in 2002, compared to $937.5 million in 2001. Our gross premiums written
for the six months ended June 30, 2003 increased 45% to $1,332.5 million,
compared to $919.0 million in the first six months of 2002, and our total
revenues increased 63% to $1,216.3 million compared to $745.7 million in the
first six months of 2002. Our return on equity averaged 11.3% for the fiscal
years 1998 to 2002 and for the year ended December 31, 2002 was 13.8%. As of
December 31, 2002, we had total assets of $3.0 billion and shareholders' equity
of $612.9 million. As of June 30, 2003, we had total assets of $3.1 billion and
shareholders' equity of $591.8 million. During the first six months of 2003,
our shareholders' equity was negatively impacted by the unrealized currency
translation adjustment of our U.S. dollar denominated assets into Canadian
dollars amounting to $74.0 million. In addition to revenues derived from
premiums earned, we also derive revenue from premium financing and investment
income, including net realized gains. These sources of revenue amounted to
$81.1 million in 2002 as compared to $64.6 million in 2001. In the six months
ended June 30, 2003, revenue from premium financing and investment income
amounted to $34.9 million as compared to $30.8 million in the first quarter of
2002. In 2002, we generated net income of $79.5 million, an increase of 77%
over the $44.9 million earned in 2001. Our net income for the six months ended
June 30, 2003 was $51.7 million as compared to $32.5 million in the first half
of 2002.

49 states and the District of Columbia in the United States. We distribute all
of our products through independent agents, MGAs, and brokers.

Corporate Strategy

Our strategy is to build long-term shareholder value by targeting three
financial measurements over a five year period: (i) a 15% average after-tax
return on shareholders' equity, (ii) an average combined ratio, a measurement
of profitability, of 96% or less, and (iii) average increases in net premiums
earned of 15% per annum. Our strategy is characterized by the following
principles:

. Adhere to a strict underwriting discipline. We manage our business with
a strict focus on underwriting profit rather than on premium growth or
market share and have demonstrated our willingness to increase pricing or
reduce or increase premium volumes based on market conditions. For 2002,
our combined ratio was 99.8%. Over the five year period ended December
31, 2002 our combined ratio averaged 99.3% including 102.0% for our
Canadian operations and 98.5% for our U.S. operations. For the six months
ended June 30, 2003, our combined ratio was 98.1%, including 105.4% for
our Canadian operations and 96.1% for our U.S. operations. Management's
incentive compensation is directly linked to our combined ratio and
return on equity objectives.

. Expand in the United States and Canada. We rely on our detailed
understanding of our regional markets to take advantage of any favorable
conditions or trends. We look for opportunities to expand our specialty
focus into selected regional markets and increase the distribution of our
core products in our existing territories. We may also look for
opportunities to acquire books of business or other companies which are
in line with our specialty focus. For example, we completed the
acquisition of ACHI and its subsidiaries for a purchase price of
approximately US$24.0 million in April 2002. ACHI specializes in the
underwriting and marketing of commercial property and casualty insurance
for the transportation and hospitality industry. This acquisition
strengthened our position in the Chicago metropolitan area, where ACHI is
the dominant writer of taxicab insurance. Since late 2001, we have also
entered into new programs with several MGAs in the United States to
expand the distribution network for our core business lines. In 2002,
gross premiums written from these programs were $961.4 million or 45% of
our business, compared to $206.0 million or 19% of our business in 2001.

. Maintain a strong relationship with our agents, MGAs and brokers. We are
committed to our distribution network of independent agents, MGAs and
brokers. We continually strive to provide the highest level of service to
our agents, MGAs and brokers and build relationships at the local level
in the markets in which we operate. We communicate with our network
through a variety of channels and we look for opportunities to increase
efficiency and further reduce our operating costs, including through the
use of technology and automation. We also look for opportunities to
expand our distribution relationships and enhance our product mix.

Recent Developments

Canadian Equity Offering

On July 3, 2003, Kingsway Financial sold 6.1 million common shares to a
syndicate of underwriters led by Scotia Capital Inc., and on July 11, 2003,
Kingsway Financial sold an additional 610,000 shares pursuant to the exercise
of an over-allotment option granted to the underwriters. The shares were sold
only in Canada, at a price of $16.70 per share. Approximately $98 million of
the proceeds of the Canadian offering were used to increase the capital of
certain of our insurance subsidiaries, and the remainder will be used for
general corporate purposes.

Private Placement of Trust Preferred Securities

New Accounting Pronouncement

A.M. Best Ratings Review

On February 27, 2003, A.M. Best affirmed the individual financial strength
ratings of our U.S. insurance subsidiaries and lowered the group financial
strength rating of our Canadian subsidiaries from A (Excellent) to A-
(Excellent). A.M. Best stated that the lowered rating of our Canadian group is
a result of deterioration in the group's capitalization due to strong premium
growth and poor underwriting performance driven by adverse loss development in
our Ontario automobile business. Offsetting the negative rating factors, A.M.
Best referred to Kingsway's lead market position as the largest provider of
non-standard auto and motorcycle insurance in Canada and the prospect of
improved underwriting and operating performance in 2003. A.M. Best recognized
that Kingsway anticipates improved results in Canada in 2003, citing Kingsway's
proactive approach to settling claims and combating fraud in Ontario,
significant rate increases that were implemented in 2002 and new regulatory
legislation enacted in Ontario. It stated, however, that the rating will remain
under pressure pending the ability of our Canadian subsidiaries to improve
their capital position and meet their underwriting and operating objectives for
2003. In addition, the financial strength rating for Lincoln General Insurance
Company, our largest U.S. subsidiary, remains under review with negative
implications pending the completion of our current capital raising initiatives
and effective management of Lincoln's premium growth in 2003. A.M. Best
expressed concerns regarding our ability to secure significant amounts of new
capital both to support our current book of business and to sustain our future
growth plans as well as Lincoln General's ability to maintain profitability and
effectively manage its growth and administer the underwriting and claims
functions associated with its substantial amount of new business. We believe
that AM. Best will look favorably upon completion of our current capital
raising efforts as long as we limit our growth to sustainable levels. However,
we cannot assure you that A.M. Best will not downgrade our ratings or place
them under review with negative implications, in the future, even if we
complete this offering or any other offering described in this prospectus. If
we are unable to maintain our current ratings, our ability to write insurance
business and compete with other insurance companies may be adversely affected.

Corporate Structure

Kingsway serves as the holding company for our business. Our insurance
subsidiaries include Kingsway General, York Fire, and Jevco in Canada and
Universal Casualty, Southern United, American Service, Lincoln General, U.S.
Security and American Country in the United States. We also have wholly owned
reinsurance subsidiaries domiciled in Bermuda and Barbados.

We conduct our operations through these subsidiaries to, among other things:

. maintain discrete brand identities; and

. develop expertise and organizational cultures that best serve the
individual markets in which we operate.

We believe that the markets for our insurance products differ greatly by
community because regulations, legal decisions, traffic, law enforcement,
cultural attitudes, insurance agents, medical services and auto repair services
vary greatly by jurisdiction and by community. Our corporate structure helps to
meet varied local conditions under a cohesive set of policies and procedures
designed to provide underwriting discipline, consistency and control.

Lines of Business

We write automobile insurance primarily for the non-standard automobile
market. We also write insurance in selected other lines of business for both
individuals and commercial customers. Other coverages for individuals that we
provide include motorcycle, homeowners, home appliance and automobile warranty
and selected specialty lines. Our commercial coverages include automobile,
trucking, property and selected specialty lines such as customs bonds. Our
personal lines business accounted for 47% of our gross premiums written for the
year ended December 31, 2002, and 53% was generated from our commercial lines.
In the first six months of 2003, our personal lines accounted for 44% of gross
premiums written and 56% was generated from commercial lines.

Our automobile insurance products provide coverage in three major areas:
liability, accident benefits and physical damage. Liability insurance provides
coverage, where our insured is responsible for an automobile accident, for the
payment for injuries and for property damage to third parties. Accident
benefits provide coverage for loss of income, medical and rehabilitation
expenses for insured persons who are injured in an automobile accident,
regardless of fault. Physical damage coverages provide for the payment of
damages to an insured automobile arising from a collision with another object
or from other risks such as fire or theft. Automobile physical damage and
liability coverages generally provide more predictable results than automobile
personal injury insurance.

The following sets forth our gross premiums written by line of business for
the periods indicated:

Six Months Ended
June 30, For the Year Ended December 31,
------------------ ------------------------------------
2003 2002 2001
------------------ ------------------ ----------------
(in millions of Canadian dollars, except for percentages)

Non-Standard Automobile......... $ 465.1 34.9% $ 828.1 39.0% $ 546.3 51.3%
Standard Automobile............. 25.8 1.9 36.5 1.7 33.7 3.2
Motorcycle...................... 38.3 2.9 52.3 2.5 42.1 4.0
Property (including liability).. 22.8 1.7 49.2 2.3 29.3 2.8
Warranty........................ 13.6 1.0 25.8 1.2 20.0 1.9
Other Specialty Lines........... 14.2 1.1 15.9 0.7 13.5 1.1
-------- ----- -------- ----- -------- -----
Total Personal............... $ 579.8 43.5% $1,007.8 47.4% $ 684.9 64.3%
Trucking........................ 409.4 30.7 685.5 32.3 253.5 23.8
Commercial Automobile........... 175.8 13.2 158.9 7.5 53.8 5.0
Property (including liability).. 135.6 10.2 237.5 11.2 51.3 4.8
Other Specialty Lines........... 31.9 2.4 35.0 1.6 21.8 2.1
-------- ----- -------- ----- -------- -----
Total Commercial............. $ 752.7 56.5% $1,116.9 52.6% $ 380.4 35.7%
-------- ----- -------- ----- -------- -----
Total Gross Premiums Written. $1,332.5 100.0 $2,124.7 100.0% $1,065.3 100.0%
======== ===== ======== ===== ======== =====

We conduct our business in the United States and Canada. The following table
sets forth our gross premiums written by state and province for the periods
indicated:

Florida......................... $ 171.9 12.9% $ 257.4 12.1% $ 134.9 12.7%
California...................... 147.3 11.1 230.1 10.8 44.7 4.2
Illinois........................ 162.7 12.2 224.8 10.6 162.6 15.3
Texas........................... 79.4 6.0 149.7 7.0 66.6 6.2
South Carolina.................. 45.0 3.4 93.1 4.4 55.0 5.2
Alabama......................... 31.3 2.4 60.0 2.9 40.4 3.8
Pennsylvania.................... 23.7 1.8 54.8 2.6 31.0 2.9
Other........................... 368.1 27.5 564.0 26.5 174.0 16.3
-------- ----- -------- ----- -------- -----
Total United States.......... $1,029.4 77.3% $1,633.9 76.9% $ 709.2 66.6%
Ontario......................... 133.7 10.0 220.0 10.4 175.3 16.5
Alberta......................... 72.5 5.4 122.8 5.8 73.8 6.9
Quebec.......................... 62.9 4.7 109.0 5.1 84.0 7.9
Other........................... 34.0 2.6 39.0 1.8 23.0 2.1
-------- ----- -------- ----- -------- -----
Total Canada................. $ 303.1 22.7% $ 490.8 23.1% $ 356.1 33.4%
-------- ----- -------- ----- -------- -----
Total Gross Premiums Written. $1,332.5 100.0% $2,124.7 100.0% $1,065.3 100.0%
======== ===== ======== ===== ======== =====

Non-Standard Automobile

Non-standard automobile insurance is principally provided to individuals who
do not qualify for standard automobile insurance coverage because of their
payment history, driving record, place of residence, age, vehicle type or other
factors. Such drivers typically represent higher than normal risks and pay
higher insurance rates for comparable coverage. As underwriting standards for
providing standard coverages have become more restrictive and many
jurisdictions now require insurance regardless of driving record, high risk
individuals have been forced to seek non-standard coverage and have contributed
to the increase in the size of the non-standard automobile insurance market.

Non-standard automobile insurance is generally accompanied by increased loss
exposure, higher claims experience and a higher incidence of consumer fraud.
However, these factors are mitigated to some extent by higher premium rates,
the tendency of high-risk individuals to own low value automobiles, and
generally lower limits of insurance coverage. In addition, policy renewal rates
tend to be low for non-standard automobile policies. Non-standard policyholders
often allow their policies to lapse because of non-payment of premiums and then
reapply for insurance as new policyholders. This creates an ongoing requirement
to replace non-renewing policyholders with new policyholders. Non-standard
automobile insurance accounted for 39% and 51% of our gross premiums written
for the years ended December 31, 2002 and 2001, respectively and 35% for the
six months ended June 30, 2003.

The insuring of non-standard drivers is often transitory. We expect that if
and when their driving records improve, these drivers will qualify for and
obtain insurance in the standard market at lower premium rates. As a result,
our automobile insurance policies experience a retention rate that is lower
than that experienced for standard market risks. Most of our insureds pay their
premiums on a monthly installment basis. We limit our risk of non-payment of
premiums by requiring a deposit for two months of insurance premiums.

In the United States and Canada, automobile insurers are generally required
to participate in various involuntary residual market pools that provide
automobile insurance coverages to individuals or other entities that are unable
to purchase such coverage in the voluntary market. For example, in Ontario,
every insurer is required to be a member of the Facility Association, an entity
that was created to ensure the availability of automobile insurance to every
motorist in Ontario. The Facility Association selects designated carriers to
provide

coverage and claims handling services to drivers who are unable to purchase
insurance through private carriers, in return for an administration fee.
Participation in these pools in most jurisdictions is in proportion to
voluntary writings of selected lines of business in that jurisdiction.

In Canada, we are the largest writer of non-standard automobile insurance
operating primarily in Ontario, Alberta and Quebec, with Ontario being our
largest market. The non-standard automobile insurance market in Canada is
primarily focused on providing drivers with minimum levels of liability and
accident benefit insurance. We obtained approval for premium rate increases
effective in early 2002 in Ontario of 5.7% and Alberta of 10.0% and we continue
to assess opportunities for additional rate increases. In July 2002, we
obtained approval for a further rate increase commencing September 2002 and to
eliminate certain rating classes in Ontario, the effect of which was an average
22.3% increase in premiums, although many of our insureds will face increases
in excess of 40%. Effective February 2003, we obtained approval for an
additional average 7% increase in Ontario.

In the United States, we write non-standard automobile insurance in
Illinois, South Carolina, Florida, Mississippi, Alabama, Missouri, Indiana,
Texas, Georgia, California, Louisiana, Ohio and Virginia. Our business in
Illinois is presently concentrated in the Chicago metropolitan area, although
we are expanding into other areas of Illinois.

Standard Automobile

Standard automobile insurance provides coverage for drivers of standard-risk
private passenger automobiles. Premiums for these types of policies are usually
lower than premiums charged in the non-standard market. However, the frequency
and severity of accidents and other loss events are also typically lower. The
majority of our standard automobile business is written in Ontario.

Motorcycle

Motorcycle insurance primarily consists of liability, physical damage and
personal injury insurance coverages. In Canada we are the largest writer of
motorcycle insurance, writing in the provinces of Ontario, Alberta and Quebec.
We have obtained approval for a 17.7% rate increase in Ontario, our largest
market, which became effective March 1, 2003. We also write motorcycle
insurance in the United States.

Property (including liability)

We write property (including liability) insurance for businesses and
individuals in Canada and the United States. This business focuses on insuring
against damage to property and accidents that may occur on such property. Our
commercial property and liability business consists of risks that are difficult
to place due to class, age, location or occupancy of the risk. These risks are
characterized by high premiums and deductibles and limited coverage. We
generally limit our exposure to no more than $500,000 on any one risk.

Our specialty property business includes insurance for restaurants, rental
properties and garages. We also write non-hydrant protected homeowners
insurance and habitational risks which do not qualify for coverage by writers
of standard insurance. We provide coverage on a very itemized named perils
basis with relatively high rates and high deductibles for risks that are
considered substandard by other companies. We believe these risks provide us
with the opportunity to achieve attractive returns.

Our strategy is to operate as a niche underwriter of classes of property
business that are more difficult to underwrite and offer the potential to
achieve higher levels of underwriting profitability. We underwrite this
business using our carefully developed underwriting methodology based on a
stringent set of criteria. This business is seldom subject to a high degree of
competition and we have often been able to write these policies at relatively
high rates with fairly restricted coverage.

Warranty

In our warranty insurance business, we assume the liability for performance
under the terms of service contracts and limited warranties issued by retailers
of automobiles, home appliances, furniture and electronics

and by residential home builders. This coverage indemnifies the consumer
against loss resulting from service contract claims that occur during a
specified period after expiration of the manufacturer's or builder's warranty.

Trucking

We provide coverage for liability, accident benefits, physical damage, cargo
and comprehensive general liability under a package program throughout both
Canada and the United States. Since late 2000, several companies have exited
this business as a result of poor performances due to severe underpricing.
These market conditions have allowed us to increase our prices, expand our
relationships and have led to a significant increase in our gross premiums
written for trucking insurance.

In the year ended December 31, 2002, gross premiums written from trucking
increased by 170% to $685.5 million compared to $253.5 million in 2001.
Trucking insurance accounted for 32% and 24% of our gross premiums written for
the years ended December 31, 2002 and 2001, respectively, and 31% and 31% for
the six months ended June 30, 2003 and 2002, respectively.

Commercial Automobile

Commercial automobile policies provide coverage for taxis, rental car fleets
and garage risks. Through our rental car program, we offer coverage for the
rental agency property, dual interest liability, and physical damage on the
rental vehicle. In the year ended December 31, 2002, gross premiums written
from commercial automobile increased by 195% to $158.9 million compared to
$53.8 million in 2001. Commercial automobile accounted for 13% of our gross
premiums written for the six months ended June 30, 2003 compared to 6% in the
first half of 2002.

Other Specialty Lines

Our other specialty lines include customs and surety bonds written in both
the United States and Canada. Custom bonds involve insuring the timely payment
of customs duties on goods imported into the United States and Canada, as well
as any penalties incurred due to late payment of the duties or administrative
non-compliance. Such duties generally represent less than 5% of the face value
of the imported goods. We also write contract payment and performance and other
miscellaneous surety bonds.

Underwriting

We employ stringent underwriting standards to develop a broad spread of risk
and to receive an appropriate premium for each risk. We seek to achieve an
underwriting profit, targeting a combined ratio of 96.0% or less. Our
underwriting philosophy stresses receiving an adequate premium and spread of
risks for the business we accept. Rather than attempt to select individual
risks, we seek to set premium rates at levels that will generate profitable
underwriting. Once we have set premium rates that we believe are adequate, we
are generally willing to accept as much business within our underwriting
guidelines as is available to us. We regularly monitor premium adequacy by
territory and class of business and make adjustments as required. We refuse to
reduce our pricing when competitors offer to underwrite certain classes of
business at premium rates which are below what we believe is an acceptable
level. Instead, we elect to maintain our premium per risk rather than write a
large number of risks at premiums which we consider to be inadequate. In such
instances, our premium volumes have decreased, in some cases significantly.
Underwriting profitability is dependent in large part on the amount of claims
incurred on the policies sold in relation to net premiums earned. At the time
premium levels are established, the amount of claims to be incurred on the
policies sold is unknown. The process for estimating claims is inherently
uncertain and imprecise. A discussion of our process for establishing the
provision for unpaid claims is described in this prospectus in the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Provisions for Unpaid Claims" beginning on page 35.

We regularly consider and implement various initiatives to address adverse
profitability trends in our business. These initiatives vary by jurisdiction,
but include tightening of underwriting requirements, price increases, policy

non-renewals (where permitted) and other administrative changes. All companies
writing insurance in Canada and in most U.S. jurisdictions must have their
premium rates approved by the applicable regulatory authority. Once these rates
are approved, an insurance company is prohibited from altering them without
approval for new rates.

Marketing and Distribution

We focus on developing and maintaining strong relationships with our
independent agents, MGAs and brokers. We continually strive to provide
excellent service to our agents, MGAs and brokers and build relationships in
the local markets in which we operate. We communicate with our agents, MGAs and
brokers through a variety of channels and we look for opportunities to increase
efficiency and reduce operating costs. We believe that the commissions we pay
to our agents, MGAs and brokers are fair and competitive.

Our independent agents, MGAs and brokers generally have the authority to
enter into binding policies on our behalf with respect to specified insurance
coverages within prescribed underwriting guidelines, subject to compliance with
our mandated procedures. These guidelines prescribe the kinds and amounts of
coverage that may be written and the premium rates that may be charged for
specified categories of risk. In most cases, our independent agents, MGAs and
brokers do not have authority on our behalf to settle or adjust claims,
establish underwriting guidelines, develop rates or enter into other
transactions or commitments. Certain MGAs have greater authority than our
independent agents and brokers. However, we work diligently with them to ensure
that they adhere to our underwriting standards and claims handling procedures.

Claims

Claims management is the procedure by which an insurance company determines
the validity and amount of a claim. We focus on rigorous claims management,
which we believe is one of our areas of expertise. We believe that effective
claims management is fundamental to our operations.

We investigate the actual circumstances of the incident that give rise to
the claim and the actual loss suffered. An important part of claims management
is verifying the accuracy of the information provided to the insurance company
at the time the policy is underwritten.

The nature of non-standard automobile insurance typically requires more
thorough claims management and, in particular, more thorough investigative
procedures than other types of insurance. Insurance claims on our policies are
investigated and settled by our local claims adjusters. If necessary, we also
employ independent adjusters, private investigators, various experts and legal
counsel to adjust claims. Claims are scrutinized by an appraiser, an adjuster
and, as appropriate, senior management, before claims payments are made.

Reinsurance Ceded

We purchase reinsurance from third parties in order to reduce our liability
on individual risks and our exposure to catastrophic events. Reinsurance is
insurance purchased by one insurance company from another for part of the risk
originally underwritten by the purchasing insurance company. The practice of
ceding insurance to reinsurers allows an insurance company to reduce its
exposure to loss by size, geographic area, type of risk or on a particular
policy. An effect of ceding insurance is to permit an insurance company to
write additional insurance

for risks in greater number or in larger amounts than it would otherwise insure
independently, having regard to its statutory capital, risk tolerance and other
factors.

We generally purchase reinsurance to limit our net exposure to a maximum
amount on any one loss of $500,000 with respect to property claims and $1.0
million with respect to liability claims. In addition, we purchase catastrophe
reinsurance which provides coverage in the event of a series of claims arising
out of a single occurrence, which limits this exposure in Canada to $1.5
million per occurrence to a maximum coverage of $40.0 million, and in the
United States to US$5.0 million per occurrence to a maximum coverage of US$50.0
million. On January 1, 2003, our net exposure for Ontario automobile business
claims was increased to $2.5 million, and our catastrophe exposure in Canada
was increased to $5 million per occurrence. For most of the non-standard
automobile business that we write in the United States, the liability is
limited to the minimum statutory liability limits, which are typically not
greater than US$40,000 per occurrence, depending on the state. The cost of our
external reinsurance represented 4.7% of gross premiums written for the year
ended December 31, 2001, 5.4% for the year ended December 31, 2002, and 5.1%
for the three months ended March 31, 2003.

Reinsurance ceded does not relieve us of our ultimate liability to our
insureds in the event that any reinsurer is unable to meet its obligations
under its reinsurance contracts. We therefore enter into reinsurance contracts
with only those reinsurers who we believe have sufficient financial resources
to provide the requested coverage. Reinsurance treaties are generally subject
to cancellation by our reinsurers or us on the anniversary date and are subject
to renegotiation annually. We regularly evaluate the financial condition of our
reinsurers and monitor the concentrations of credit risk to minimize our
exposure to significant losses as a result of insolvency of a reinsurer. We
believe that the amounts we have recorded as reinsurance recoverables are
appropriately established. However, estimating amounts of reinsurance
recoverables is subject to various uncertainties and the amounts ultimately
recoverable may vary from amounts currently recorded. As of December 31, 2002,
we had $164.7 million recoverable from third party reinsurers and other
insurers, which are generally unsecured. At December 31, 2002, 93.9% of the
receivables were due from reinsurers that were rated "A-" or higher.

Investments

Our business philosophy stresses the importance of both underwriting profits
and investment returns to build shareholder value. We manage our investment
portfolio primarily to support the liabilities of our insurance operations and
generate current investment returns. We invest predominantly in high quality
corporate, government and municipal bonds with relatively short durations. We
also invest in preferred and common equity securities and consider our finance
premium receivables to be a part of our investment portfolio. Our overall
investment strategy is aimed at maximizing returns without compromising
liquidity and risk control.

All of our investments are managed by professional, third-party investment
management firms. We have engaged Conning Asset Management to oversee our fixed
income investments of our U.S., Canadian and Bermuda subsidiaries. In addition,
Burgundy Asset Management, Deans Knight Capital Management Limited, Marquest
Investment Counsel, SFE Investment Counsel, Kingwest and Company and Royal Bank
of Canada (Caribbean) have each been engaged to manage portions of our
subsidiaries' equity and fixed income investments.

Our investment guidelines stress the preservation of capital, market
liquidity to support payment obligations of our insurance liabilities and the
diversification of risk. As part of this strategy, we attempt to maintain an
appropriate relationship between the average duration of the investment
portfolio and the approximate duration of our policy claims liabilities. With
respect to fixed maturity securities, we generally purchase securities with the
expectation of holding them to their maturity. Insurance laws and regulations
in each domiciliary state or province also place limitations on the permitted
investments of property and casualty insurers.

At December 31, 2002, we held cash and investments with a market value of
$2.11 billion and a carrying value of $2.08 billion, resulting in a net
unrealized gain of $32.6 million. At June 30, 2003, we held cash and
investments with a fair value of $2.24 billion and a carrying value of $2.17
billion, resulting in a net unrealized gain of $66.6 million. Because most of
our investment portfolio is comprised of fixed-income securities which are
usually held to

maturity, periodic changes in interest rate levels generally impact our
financial results to the extent that reinvestment yields are different than the
original yields on maturing securities. Our investment portfolio includes
investments which are subject to changes in market values with changes in
interest rates. We do not hedge any foreign currency exposure that may exist in
the portfolio.

The following table summarizes the fair value of our investments, including
cash and cash equivalents, at the dates indicated:

June 30, December 31,
Type of Investment 2003 2002
------------------ -------- ------------
(in millions of
Canadian dollars)

Term deposits............ $ 207.2 $ 506.5
Government Bonds......... 612.3 454.5
Corporate debt securities 982.8 630.7
-------- --------
Subtotal.............. 1,802.3 1,591.7
Preferred shares......... 3.4 2.0
Common shares............ 265.0 185.8
Financed premiums........ 85.0 86.8
Cash and cash equivalents 82.0 244.9
-------- --------
Total................. $2,237.7 $2,111.2
======== ========

Investment results before the effect of income taxes were as follows:

June 30, December 31,
2003 2002
-------- ------------
(in millions of
Canadian dollars)

Average investments at cost....................... $2,143.5 $1,665.1
Investment income after expenses.................. 34.9 64.9
Percent earned on average investments (annualized) 3.3% 3.9%
Net realized gains................................ 8.8 16.3
Change in unrealized investment gains............. $ 34.0 $ 21.0

These results compare with the Lehman Brothers Global Bond Index of 14.9%
and 0.25% for the S&P 500 Index for the year ended June 30, 2003.

The following table summarizes the fair value by contractual maturities of
our fixed maturity investment portfolio, excluding cash and cash equivalents,
at the dates indicated.

June 30, December 31,
2003 2002
-------- ------------
(in millions of
Canadian dollars)

Due in less than one year....... $ 321.1 $ 638.2
Due after one through five years 1,143.6 717.5
Due after five through ten years 270.6 188.2
Due after ten years............. 67.0 47.8
-------- --------
Total........................ $1,802.3 $1,591.7
======== ========

Actual maturities may differ from contractual maturities because certain
issuers have the right to call or prepay obligations with or without call or
prepayment penalties.

Currently, we maintain a liquid portfolio to ensure there is sufficient cash
available for the payment of claims on a timely basis. Our historical ability
to generate an underwriting profit has reduced our reliance on cash flow from
premiums written to fund the payment of losses and loss adjustment expense. We
believe that our high quality, liquid investment portfolio and our success in
underwriting provide us with sufficient liquidity to meet our obligations to
our policyholders.

The following table summarizes the composition of the fair value of our
fixed maturity investment portfolio, excluding cash and cash equivalents, at
the dates indicated, by rating as assigned by S&P or Moody's Investors Service,
using the higher of these ratings for any security where there is a split
rating.

June 30, December 31,
Rating 2003 2002
------ -------- ------------

AAA/Aaa....................... 64.7% 61.5%
AA/Aa2........................ 14.2% 23.1%
A/A2.......................... 15.1% 10.1%
BBB/Baa2...................... 3.1% 1.8%
BB/Ba2........................ 0.6% 0.4%
B/B2.......................... 0.5% 0.5%
CCC/Caa or lower, or not rated 1.8% 2.6%
----- -----
Total...................... 100.0% 100.0%
===== =====

Premiums for property and casualty insurance are typically payable at the
time a policy is placed in force or renewed. To assist our insureds in making
their payments to us, in some instances we offer premium financing either
directly or through a separate premium finance company, whereby the insured can
pay a portion of the premium in monthly installments.

We provide the option of monthly payments on personal automobile policies,
whereby the insured is only required to pay a portion of the premium when the
policy is placed in force and the balance in monthly installments. The insured
pays us an additional premium for this option, reflecting handling costs and
the income we would have earned on such premium, had we received the total
amount at the beginning of the policy period. The option of monthly premium
payments is available only where permitted under the laws or regulations of the
specific territory. Some jurisdictions require the option of monthly premium
payments at a specific annual interest rate or monthly charge.

In Canada and certain states within the United States, where premium
financing is through a separate premium finance company, we consider our income
from our premium finance activities to be a part of investment income, because
this additional premium is essentially an interest payment on the balance of
unpaid premium. At June 30, 2003, the balance of our financed premiums was
$85.1 million. The fair value of financed premiums approximates their carrying
amount.

Competition

The insurance industry is highly competitive. We compete on the basis of
numerous factors such as distribution strength, pricing, agency and broker
relationships, service, reputation, and financial strength. In Canada, our main
competitor for non-standard auto is Pembridge Insurance Company, a subsidiary
of The Allstate Corporation. In the United States, we face competition in our
non-standard automobile lines from Allstate, Progressive and State Farm and in
our trucking lines from Associates Insurance Group, Old Republic General Group,
Canal Insurance Company and Harco National Insurance Company. We also compete
in both Canada and the United States with numerous smaller insurance companies.
Many of our larger competitors have greater financial and other resources than
we do, have more favorable A.M. Best ratings and offer more diversified
insurance coverages. Many of our competitors in the non-standard automobile
markets in the United States are small companies with limited capital resources
who generally have less favorable A.M. Best ratings and who have traditionally
relied upon the support of reinsurers to supplement their capital by way of
proportional reinsurance treaties. Current reinsurance market conditions have
led to a contraction of the availability of these coverages.

Our competitors include other companies that, like us, serve the independent
agency market, as well as companies that sell insurance directly to customers.
Direct underwriters may have certain competitive advantages over agency
underwriters, including increased name recognition, loyalty of the customer
base to the insurer rather than an independent agency and, potentially, reduced
acquisition costs.

Additionally, our markets may attract competition from time to time from new
or temporary entrants in our niche markets. In some cases, these entrants may,
because of inexperience, desire for new business or other reasons, price their
insurance below the rates that we believe provide an acceptable premium for the
related risk. We believe that it is generally not in our best interest to
compete solely on price, and may from time to time experience a loss of market
share during periods of intense price competition or "soft" market conditions.

In addition, certain banks and other financial institutions in Canada and
the United States have begun to enter the North American property and casualty
insurance business through the establishment or acquisition of insurance
companies.

We believe that we will be able to compete successfully in our industry
based on:

. our ability to identify specialty markets which are more likely to
produce an underwriting profit;

. our disciplined underwriting approach;

. our prudent claims management; and

. the service and competitive commissions we provide to our agents, MGAs
and brokers.

Any new, proposed or potential legislative or industry developments could
further increase competition in our markets. New competition from these
developments could cause the prices for insurance to fall, which would
adversely affect our underwriting profitability.

Insurance Regulatory Matters

We are subject to regulation and supervision by insurance departments of the
jurisdictions in which Kingsway Financial and our insurance and reinsurance
subsidiaries are domiciled or licensed to transact business. Such regulation is
designed to protect policyholders rather than investors. We believe that our
insurance and reinsurance subsidiaries are in compliance with all applicable
regulatory requirements in all material respects. It is not possible to predict
the future impact of changing federal, state and provincial regulation on our
operations, and there can be no assurance that laws and regulations enacted in
the future will not be more restrictive than existing laws. The following is a
brief discussion of certain regulatory matters applicable to our insurance and
reinsurance operations.

Canada

General. Each of Kingsway General and York Fire is provincially
incorporated under the Corporations Act (Ontario). Kingsway General is licensed
to carry on business in all provinces and territories in Canada. York Fire is
licensed to carry on business in the provinces of Ontario and Alberta. Kingsway
General and York Fire are governed by the Insurance Act (Ontario), or ICO, and
licensed under insurance legislation in each of the provinces in which they
operate. Jevco is a federal property and casualty insurance company continued
under the Insurance Companies Act (Canada), or ICA, and licensed to carry on
property and casualty insurance business in all of the provinces and
territories of Canada. The ICA is administered, and activities of Jevco are
supervised, by the Office of the Superintendent of Financial Institutions, or
OSFI.

The ICA and provincial and territorial legislation requires the filing by
our Canadian insurance subsidiaries of annual and other reports on their
financial condition, imposes restrictions on transactions with related parties,
and sets forth requirements governing actuarial liabilities and the safekeeping
of assets and other matters. OSFI, with respect to Jevco, and the Financial
Services Commission of Ontario, or FSCO, with respect to Kingsway General and
York Fire, conduct examinations to ensure compliance with applicable
legislation and to confirm the financial condition of the companies. The most
recently completed periodic examinations of Jevco, Kingsway General and York
Fire did not raise any material issues.

Investment Powers. Under the ICA, an insurance company must maintain a
prudent portfolio of investments and loans, subject to certain overall
limitations on the amount they may invest in certain classes of

investments, such as commercial loans, real estate and stocks. Additional
restrictions (and in some cases, the need for regulatory approvals) limit the
type of investment which an insurance company can make. The ICO contains
specific restrictions on the type of investments which an insurance company may
make. Typical investments which are permitted by the ICO are government
securities of Canada and other specified countries, municipal bonds, securities
issued by the International Bank for Reconstruction and Development, and,
subject to various restrictions, other bonds, debentures, mortgages, shares,
and real estate.

Minimum Capital and Liquidity Requirements. The ICA and ICO each require
insurance companies to maintain minimum levels of capital liquidity. These
minimums generally require an insurer to maintain assets with a total value at
least equal to a prescribed formula based on provisions for unpaid claims,
liabilities, gross written premiums and claims. It is anticipated that in 2003,
the capital liquidity requirements will be changed to a risk based approach
referred to as the minimum capital test. We anticipate that these regulatory
changes will not adversely affect our Canadian insurance subsidiaries. OSFI and
the provincial regulators may invoke various remedies if these minimums are not
maintained, including freezing property or taking control of the company if
necessary to protect the interests of the insureds. All of our Canadian
subsidiaries exceeded the minimum levels of capital liquidity as of June 30,
2003.

Restrictions on Dividends and Capital Transactions. Generally, regulatory
approval is required prior to the payment of a dividend or other withdrawal of
capital from our Canadian subsidiaries.

Change of Control. Under the ICA, advance approval by OSFI is required
prior to the acquisition of a significant interest in an insurance company
licensed thereunder. A "significant interest" is generally a direct or indirect
ownership representing 10% of the voting rights or 25% of the shareholders'
equity of an insurance company. Under provincial regulation, notice of
acquisitions of insurance companies or interests in insurance companies is
required, but prior approval is not.

Provincial and Territorial Insurance Regulation. Each of Kingsway General,
York Fire and Jevco are subject to provincial regulation and supervision in
each of the provinces and territories of Canada in which they carry on
business. Provincial insurance regulations deal primarily with the form of
insurance contracts and the sale and marketing of insurance products, including
licensing and supervision of insurance producers. In the provinces of Alberta,
Ontario, New Brunswick and Newfoundland premium rates for automobile insurance
are regulated by public authorities. They require insurers to submit proposed
rates to a regulatory body and have them approved before use. The approval
process may also involve a hearing. Insurance authorities in all provinces
exercise strict control over the form of automobile insurance policies. No form
of policy (and, in most provinces, application, endorsement or renewal) may be
used without the approval of the Superintendent of Insurance. It is a common
practice that standard forms are approved by the provinces for use by all
insurers, leaving relatively few matters (such as the amount of coverage in
excess of statutory minimums and deductibles) to be settled in individual
cases. With respect to other types of insurance, provincial regulation
automatically deems different insurance contracts to include certain terms
which cannot be changed without the approval of the Superintendent of Insurance.

Regulatory Initiatives. On December 9, 2002, the Ontario government passed
legislation which includes provisions for the implementation of mandatory
arbitration for certain types of claims including income loss and loss of
earning capacity. The legislation also allows an arbitrator to order an insured
or an insured's representative to pay expenses of the arbitration in certain
circumstances. Under prior law, the costs of arbitration proceedings were
assessed against the insurance company regardless of the outcome of the
arbitration. The legislation also provides that payments received for certain
loss of income or earning capacity through disability plans are to be deducted
from tort awards. The legislation enables the Superintendent of Insurance to
issue guidelines setting forth treatment plans for certain injured insureds. We
believe that this legislation will assist us in reducing the incidence and
amount of fraudulent claims by insureds and their representatives.

United States

General. In the United States, an insurance company is subject to
regulation and supervision by the state insurance department in any state in
which it does business but is subject to a higher degree of regulation and
supervision in its state of domicile. Our U.S. insurance subsidiaries are
domiciled in the states of Alabama, Florida, Illinois, and Pennsylvania, and
currently one or more insurance subsidiaries are licensed in 49 states, the
District of Columbia and accredited by the U.S. government.

The state insurance laws cover a broad range of matters, including: the
licensing of insurers and their agents; minimum capital requirements;
restrictions on the types and amounts of an insurer's investments; financial
and market conduct examinations of insurers; periodic reporting of financial
and other information; disclosure of affiliated transactions; premium rate and
policy form filing and approval; trade practices; and numerous other matters.

State insurance departments are charged with monitoring insurers' compliance
with state insurance laws, especially those laws intended to ensure that
insurance companies maintain adequate capital and surplus in relation to their
liabilities. Our U.S. insurance subsidiaries are required to file detailed
annual and quarterly financial statements with their domiciliary insurance
regulators and with insurance regulators in other states where the companies
are licensed. These financial statements are based on statutory accounting
principles, which focus on liquidity.

Insurance Holding Company Regulation. We are also subject to laws governing
insurance holding companies in the states where our U.S. subsidiaries are
domiciled. Insurance holding company laws regulate certain transactions between
licensed insurers and their affiliates. These laws require that affiliated
transactions meet certain standards, such as the terms of the transaction being
fair and reasonable, and also require that certain transactions be filed for
the prior approval of the insurer's domiciliary regulator. The holding company
laws also require our U.S. insurance subsidiaries to file and update annual
registration statements disclosing information regarding the insurers'
ownership and the insurers' transactions and agreements with affiliates.

Risk-Based Capital. In order to enhance the regulation of insurer solvency,
a risk based capital, or RBC, formula was adopted by NAIC. State insurance
regulators monitor the financial status of an insurer by reviewing the
insurer's compliance with RBC requirements. RBC requirements seek to measure
the adequacy of an insurer's capital by calculating minimum capital
requirements using a formula that takes into account four major areas of risk:
(1) underwriting, which encompasses the risk of adverse loss developments and
inadequate pricing; (2) declines in asset values arising from credit risk; (3)
declines in asset values arising from investment risks; and (4) off-balance
sheet risk arising from adverse experience from non-controlled assets,
guarantees for affiliates or other contingent liabilities and claim liability
and premium growth. Insurers having less statutory surplus than that required
by the RBC calculation are subject to four degrees of regulatory action,
depending on the level of capital inadequacy. As of June 30, 2003, all of our
U.S. insurance subsidiaries, had adjusted capital in excess of the minimum
required by the RBC calculation.

NAIC Ratios. The NAIC has also established the Insurance Regulatory
Information System, or IRIS, to assist state insurance departments in their
oversight of the financial condition of insurance companies operating in their
respective states. IRIS is a series of financial ratios calculated by the NAIC
based on financial information submitted by insurers on an annual basis. Each
ratio has an established "usual range" of results. The NAIC shares the IRIS
ratios calculated for each insurer with the interested state insurance
departments. Generally, an insurance company may be subject to regulatory
scrutiny and action if its ratios fall outside specified ranges. As of December
31, 2002, each of our U.S. insurance subsidiaries except for Universal Casualty
Company had one or more IRIS ratios outside of the specified ranges, with
Lincoln General having seven IRIS ratios outside of specified ranges, U.S.
Security having five IRIS ratios outside of specified ranges and American
Country and Southern United having four IRIS ratios outside of specified
ranges. Many of these ratios are outside of the specified ranges due to our
rapid growth, loss development in the southeast United States, declining
investment yields and capital infusions to our insurance subsidiaries. We do
not expect any material regulatory action as a result of our insurance
subsidiaries being outside of specified ranges.

Examinations. Our U.S. insurance subsidiaries are subject to periodic
examination by state insurance departments. The examinations are generally
conducted by the insurance department in an insurer's state of domicile but may
be conducted by other states in which an insurer is licensed. The examinations
focus on compliance with financial and/or market conduct regulatory
requirements during a specific period of time. During the most recently
completed examinations of our U.S. insurance subsidiaries, the applicable state
insurance departments raised issues regarding the U.S. insurance subsidiaries
compliance with certain regulatory requirements. However, such examinations
have not resulted in any material regulatory action. In the past the state
insurance departments have levied fines on some of our subsidiaries in
connection with these examinations.

Change of Control. Many state insurance laws intended primarily for the
protection of policyholders require advance approval by state insurance
commissioners of any change in control of an insurance company that is
domiciled (or, in some cases, having such substantial business that it is
deemed to be commercially domiciled) in that state. "Control" is generally
presumed to exist through the ownership of 10% or more of the voting securities
of a domestic insurance company or of any company that controls a domestic
insurance company. In addition, insurance laws in many states contain
provisions that require prenotification to the insurance commissioners of a
change in control of a non-domestic insurance company licensed in those states.

Any future transactions that would constitute a change in control of our
U.S. insurance company subsidiaries, including a change of control of Kingsway
Financial, would generally require the party acquiring control to obtain the
prior approval by the insurance departments of the insurance subsidiaries'
states of domicile or commercial domicile, if any, and may require
pre-acquisition notification in applicable states that have adopted
pre-acquisition notification provisions. Obtaining these approvals could result
in material delay of, or deter, any such transaction.

Codification of Statutory Accounting Principles. The NAIC has recently
adopted the Codification of Statutory Accounting Principles, or the
Codification, for life insurers and non-life insurers which became effective on
January 1, 2001. The Codification has been implemented by our U.S. insurance
subsidiaries following its adoption by the relevant domestic state insurance
departments. The Codification has not had a material impact on the statutory
results of operations and financial positions of our U.S. insurance
subsidiaries.

Restrictions on Dividends. The payment of dividends by our U.S. insurance
subsidiaries is subject to the insurance laws of the various states in which
our insurance subsidiaries are domiciled. Generally, these laws require that
ordinary dividends be reported to the insurer's domiciliary regulator prior to
payment of the dividend and that extraordinary dividends may not be paid
without such regulator's prior approval. An extraordinary dividend is generally
defined as a dividend that, together with all other dividends made within the
past 12 months, exceeds the greater of 100% of the insurer's statutory net
income for the most recent calendar year or 10% of its statutory policyholders'
surplus as of the preceding year-end. Insurance regulators have broad powers to
prevent the reduction of statutory surplus to inadequate levels, and there is
no assurance that extraordinary dividend payments would be permitted.

Form and Rates. The policy forms and premium rates used by our U.S.
insurance subsidiaries are subject to regulation in each of the states in which
the insurers do business. Policy forms and premium rates generally must be
filed with the state insurance department in each state in which the form or
rate will be used. Often, policy forms and premium rates may not be used in a
state unless they have been approved by the applicable state insurance
department. Such restrictions may limit the ability of our U.S. insurance
subsidiaries to introduce new products or implement desired changes to current
premium rates or policy forms.

Withdrawal From a Market. Many jurisdictions have laws and regulations that
limit an insurer's ability to withdraw from a particular market. For example,
certain states limit an automobile insurer's ability to cancel or not renew
policies. Furthermore, certain states prohibit an insurer from withdrawing one
or more lines of business from the state, except pursuant to a plan that is
approved by the state insurance department. The state insurance department may
disapprove a plan that may lead to market disruption. Laws and regulations that
limit cancellation and non-renewal and that subject program withdrawals to
prior approval requirements may restrict an insurer's ability to exit
unprofitable markets.

Guaranty Associations. Virtually all states require licensed insurers to
participate in various forms of guaranty associations in order to bear a
portion of the loss suffered by the policyholders of insurance companies that
become insolvent. Depending upon state law, insurers can be assessed an amount
that is generally equal to between 1% and 2% of the annual premiums written for
the relevant lines of insurance in that state to pay the claims of an insolvent
insurer. These assessments may increase or decrease in the future depending
upon the rate of insolvencies of insurance companies.

Residual Market Pools. Our insurance subsidiaries are also required to
participate in various involuntary residual market pools, principally involving
automobile insurance, which provide various insurance coverages to individuals
or other entities that otherwise are unable to purchase such coverage in the
voluntary market. Participation in these pools in most states is generally in
proportion to voluntary writings of related lines of business in that state.

Regulatory Initiatives. In some states, the automobile insurance industry
has been under pressure in past years from regulators, legislators or special
interest groups to reduce, freeze or set rates to or at levels that are not
necessarily related to underlying costs, including initiatives to roll back
automobile and other personal lines rates. This kind of activity has adversely
affected, and may in the future adversely affect, the profitability and growth
of our U.S. subsidiaries' automobile insurance business in those jurisdictions,
and may limit their ability to increase rates to compensate for increases in
costs. Adverse legislative and regulatory activity limiting their ability to
price automobile insurance adequately may occur in the future. The impact of
these regulatory changes on our U.S. subsidiaries' businesses cannot be
predicted.

The state insurance regulatory framework has come under increased federal
scrutiny. Current and proposed federal measures that may affect the non-life
insurance industry may include: possible changes to the tax laws governing
non-life insurance companies; proposals regarding natural disaster protection;
and tort reform (including limits to product liability lawsuits). It is not
possible to predict whether any of the proposed legislation discussed above
will be enacted, what form such legislation might take when enacted, or the
potential effects of such legislation on our competitors and us.

The Gramm-Leach-Bliley Act. In November 1999, Congress passed the
Gramm-Leach-Bliley Act of 1999, or GLB. The GLB permits commercial banks,
insurers and securities firms to combine under one holding company, a
"financial holding company." Bank holding companies that qualify and elect to
be treated as financial holding companies may engage in activities, and acquire
companies engaged in activities that are "financial" in nature or "incidental"
or "complementary" to such financial activities. Such financial activities
include acting as principal, agent or broker in the underwriting and sale of
life, property, casualty and other forms of insurance and annuities. The
ability of banks to affiliate with insurers may affect our U.S. subsidiaries'
product lines by substantially increasing the number, size and financial
strength of potential competitors.

In addition, the GLB placed new privacy requirements on financial
institutions, including insurance companies, designed to protect the "nonpublic
personal information" of consumers. Our U.S. insurance subsidiaries are
currently in material compliance with all applicable privacy laws and
regulations.

Credit for Reinsurance. Under all state laws, a U.S. insurer cannot treat
reinsurance ceded to an unlicensed or non-accredited reinsurer, such as our
Barbados subsidiary, as an asset or as a deduction from its liabilities in its
annual statutory statement, except to the extent that the reinsurer has
provided collateral security in an approved form, such as a letter of credit.
Our Barbados subsidiary provides letters of credit, which allows our U.S.
insurance subsidiaries to take financial statement credit for reinsurance
provided by it.

Barbados

Our Barbados subsidiary, Kingsway Reinsurance Corporation, or Kingsway
Barbados, acts as a reinsurer for our U.S. insurance subsidiaries. Kingsway
Barbados was incorporated in Barbados on November 20, 1997 and was granted a
license to engage in exempt insurance business in accordance with the
provisions of the Exempt

Insurance (Amendment) Act, 1995-22, as amended, and related regulations. On
December 28, 2000, following the surrender of its exempt insurance license,
Kingsway Barbados was granted a license (Certificate of Qualification) by the
Supervisor of Insurance to conduct international insurance business as a
Qualifying Insurance Company under the Barbados Insurance Act (Act 1996-32) as
amended 1998-31, or the Act. A Qualifying Insurance Company is a registered
insurer that has at least 90% of its premiums originating outside of the
Caribbean.

The Act grants to the Supervisor powers to supervise, investigate and
intervene in the affairs of insurance companies. The Supervisor has the
authority to suspend or revoke a license if at any time a licensee fails to
satisfy the conditions of the license, is in violation of any provisions of the
Act, or ceases to carry on the business of insurance pursuant to its license.

Under the Act, Kingsway Barbados may pay dividends only if after the
payment: (a) it would be able to pay its liabilities as they come due; and (b)
the realizable value of its assets would exceed its liabilities and stated
capital. Dividends may not be paid out of unrealized profits. Further, under
the Act, Kingsway Barbados is required to maintain a minimum capitalization of
Bds$250,000 (approximately US$125,000) and, in addition, the recorded value of
its assets must exceed its liabilities by: (a) Bds$250,000 (approximately
US$125,000) where its earned premium in the preceding financial year did not
exceed Bds$1.5 million (approximately US$750,000); (b) an amount equal to 20%
of its earned premium for the preceding financial year, where such income
exceeded Bds$1.5 million (approximately US$750,000) but did not exceed Bds$10
million (approximately US$5 million); and (c) an amount equal to the aggregate
of Bds$2.0 million (approximately US$1 million) and 10% of the amount by which
its earned premium for the preceding financial year exceeded Bds$10 million
(approximately US$5 million).

Kingsway Barbados must file annual financial statements with the Supervisor
that are prepared in accordance with Canadian GAAP and reported on by the
company's independent auditor.

Bermuda

Our Bermuda subsidiary, Kingsway Reinsurance (Bermuda) Ltd., acts as a
reinsurer for our Canadian insurance subsidiaries. The Insurance Act of 1978,
as amended, and related regulations, or the Insurance Act, which regulates the
insurance business of Kingsway Reinsurance (Bermuda) Ltd., provides that no
person shall carry on insurance business (including the business of
reinsurance) in or from within Bermuda unless registered as an insurer under
Section 4 of the Insurance Act by the Bermuda Monetary Authority. Kingsway
Reinsurance (Bermuda) Ltd. is registered as a Class 3 insurer under the
Insurance Act.

The Insurance Act imposes on Bermuda insurance companies solvency and
liquidity standards and auditing and reporting requirements and grants to the
Bermuda Monetary Authority powers to supervise, investigate, assist certain
foreign regulatory authorities, requisition information and intervene in the
affairs of insurance companies. An insurer's registration may be canceled by
the Bermuda Monetary Authority in accordance with Section 41 of the Insurance
Act, and such cancellation is published in the "Gazette" (as such term is
defined by the Insurance Act).

Every Class 3 insurer is required to file annually a Statutory Financial
Return and Statutory Financial Statements. Penalty fines may be incurred if
filings are not made as required. The Statutory Financial Statements as
prescribed by the Insurance Act include in statutory form a balance sheet,
income statement, and a statement of capital and surplus, rules for valuation
of assets and determination of the liabilities and detailed notes thereto. The
Statutory Financial Statements are not prepared in accordance with Canadian
GAAP and are distinct from the financial statements prepared for presentation
to the insurer's shareholders under the Companies Act 1981 of Bermuda, or the
Companies Act, which financial statements may be prepared in accordance with
Canadian GAAP. The Statutory Financial Return includes a business solvency
certificate and a declaration of the statutory ratios, both signed by two
directors of the company (and the principal representative appointed under the
Insurance Act).

Every registered insurer must appoint an independent auditor approved by the
Bermuda Monetary Authority who will annually audit and report on the Statutory
Financial Statements and the Statutory Financial Return of the insurer.

The Insurance Act provides that the statutory assets of an insurer must
exceed its statutory liabilities by an amount greater than the prescribed
minimum solvency margin which varies depending upon the type of

registration of the insurer under the Insurance Act and the insurer's net
premiums written and loss reserve level. Pursuant to Regulation 10 of The
Insurance Returns and Solvency Regulations 1980, the minimum solvency margin
for a Class 3 insurer is the greatest of (a) US$1.0 million; (b) 20% of net
premiums written up to US$6.0 million; where net premiums written do or are
expected to exceed US$6.0 million, then the solvency margin shall be calculated
as the aggregate of US$1.2 million and 15% of the amount by which the net
premiums written exceed US$6.0 million in that year; and (c) 15% of the
aggregate of the insurer's loss and loss expense provisions and other general
business insurance reserves. The Insurance Act regulates the declaration and
payment of dividends and distributions, including prohibiting the declaration
or payment where there has been or would be, a failure to comply with the
minimum solvency margin or minimum liquidity ratio. As a Class 3 Insurer,
Kingsway Reinsurance (Bermuda) Ltd., may not reduce its statutory capital by
15% or more, as set out in its previous year's financial statements, without
the prior approval of the Bermuda Monetary Authority. In addition, as a Class 3
insurer, Kingsway Reinsurance (Bermuda) Ltd. must maintain the required level
of certain types of assets (such as cash and time deposits) in compliance with
the minimum liquidity ratio regulation.

Kingsway Reinsurance (Bermuda) Ltd. must comply with the provisions of the
Companies Act regulating the payment of dividends and making distributions from
contributed surplus. A company may not declare or pay a dividend, or make a
distribution out of contributed surplus, if there are reasonable grounds for
believing that: (a) the company is, or would after the payment be, unable to
pay its liabilities as they become due; or (b) the realizable value of the
company's assets would thereby be less than the aggregate of its liabilities
and its issued share capital and share premium accounts. In addition, the
Companies Act regulates return of capital, reduction of capital and repurchases
or redemption of shares by Kingsway Reinsurance (Bermuda) Ltd.

Legal Proceedings

In the ordinary course of business, we are, from time to time, involved in
various claims and legal proceedings, including class actions. While it is not
possible to estimate the final outcome of these various proceedings at this
time, we do not believe the outcome of such proceedings will have a material
impact on our results.

Systems and Technology

We believe that efficient information systems are important to processing
policies and claims and retrieving information quickly to interface with our
agents, MGAs and brokers and insureds. Although our current information systems
are sufficient to support the expected growth in our business, we continually
review our systems and seek to update and improve their capabilities. In late
2000, we successfully implemented an expanded and updated system in our
Canadian subsidiaries. The new system has helped to expand our capabilities for
the efficient development and implementation of new products and territories
while enhancing our ability to access and manage information. We are also
working on an update of the systems used by our U.S. insurance subsidiaries,
with the ultimate goal of implementing one common system among our units. This
implementation was recently completed for our non-standard auto operations.

We are also in the process of implementing and expanding an electronic
imaging system in our insurance subsidiaries to provide immediate access to all
data and files and reduce the cost of storage and filing. We also intend to
work towards a point-of-sale system to make our products readily available
through our agents, MGAs and brokers network, providing our agents, MGAs and
brokers with a direct interface and allowing them to quote and issue policies
electronically. We expect the enhancements and additions to our systems to
increase our operating efficiencies and reduce our operating costs, and to help
us strengthen our important relationships with our independent agents, MGAs and
brokers.

Employees

As of June 30, 2003, we employed approximately 1,927 personnel, of whom
approximately 682 are located in Canada and approximately 1,245 are located in
the United States. None of our employees are represented by a labor union and
we have never experienced a work stoppage. We believe our relationship with our
employees is good.

MANAGEMENT

Directors and Executive Officers

Our directors and executive officers as of August 14, 2003 are as follows:

Name Age Positions
---- --- ---------

William G. Star 67 Chairman, President and Chief Executive
Officer
W. Shaun Jackson 44 Executive Vice President and Chief
Financial Officer
James R. Zuhlke 57 Director and President of Kingsway
America
David Atkins (1) 68 Director
John L. Beamish 74 Director
Thomas A. Di Giacomo (1) 61 Director
Bernard Gluckstein 66 Director
J. Brian Reeve 47 Director
F. Michael Walsh (1) 56 Lead Director

- --------
(1) member of the Audit Committee

William G. Star has served as our Chairman, President and Chief Executive
Officer since founding Kingsway in 1989. Mr. Star has also served as President
of Kingsway General since 1986. Prior thereto, Mr. Star was an advisor to the
Ontario Task Force on Insurance. Mr. Star was a vice-president of York during
1984 and 1985. From 1970 to 1983 he held various positions with Pafco Insurance
Company, including President.

W. Shaun Jackson has served as our Chief Financial Officer since 1995 and an
Executive Vice President since 1998. Mr. Jackson obtained his Chartered
Accountancy designation in 1982, and, in 1985, joined the property and casualty
insurance industry practice of KPMG LLP in Bermuda. In 1989, Mr. Jackson joined
the property and casualty insurance industry practice of KPMG LLP in Toronto.

James R. Zuhlke has served as one of our directors since 1989. Mr. Zuhlke
has served as President and Chief Executive Officer of Kingsway America since
April 1998. From October 1997 to March 1998, Mr. Zuhlke was President of J.R.
Zuhlke and Associates. Previously, Mr. Zuhlke was President of Intercargo
Corporation between 1985 and September 1997.

David Atkins has served as one of our directors since 1999. Mr. Atkins has
been a Senior Advisor at Lang, Michener, Barristers and Solicitors, since
January 4, 1999. Prior thereto, Mr. Atkins was a Partner of Coopers & Lybrand
(now PriceWaterhouseCoopers) from 1968 to 1998.

John L. Beamish has served as one of our directors since 1998. Mr. Beamish
has been the President of J. Llewellyn Beamish and Associates, Inc., an
insurance consulting and management firm, since 1994. Prior thereto, he held
the position of Vice-President and Chief Agent in charge of Canadian operations
for Employers Reinsurance Corporation.

Thomas A. Di Giacomo has served as one of our directors since 1995. Mr. Di
Giacomo has been the President of TADICO Limited, a business consulting and
investment firm, since 1994. Prior thereto, he served as Chairman, President
and Chief Executive Officer of Manulife Financial Inc.

Bernard Gluckstein, Q.C., has served as one of our directors since our
inception in 1989. Mr. Gluckstein has been a senior partner of Gluckstein &
Associates, a law firm specializing in personal injury litigation since 1995.

J. Brian Reeve has served as one of our directors since February 2002. Since
1988, Mr. Reeve has been a partner at Cassels Brock and Blackwell LLP, a
Toronto law firm, where he specializes in the regulation and corporate
governance of insurance companies, and is currently a member of the Executive
Committee as well as the Practice Group leader of the Financial Services Group.
He has also been a special advisor to both the Ontario and Federal Ministries
of Finance on insurance matters and has served on the boards of several
Canadian insurance companies, as well as being chief agent in Canada for
several foreign insurers.

F. Michael Walsh has served as one of our directors since 2000. Mr. Walsh
has been a private investor since January 1, 2000. Prior thereto, he held
several senior positions at First Marathon Securities Limited and First
Marathon Inc. (now National Bank Financial) from 1993 through December 1999. In
2003, Mr. Walsh was appointed lead director.

Composition of our Board of Directors

Our board of directors currently consists of nine directors. Seven of our
directors are non-employee directors. The two related directors are William G.
Star, our President and Chief Executive Officer and James R. Zuhlke, the
President of Kingsway America, Inc. On February 10, 2003, F. Michael Walsh was
elected as the lead director of our board of directors.

Committees

Our board has four committees, an Audit Committee, a Compensation and
Management Resources Committee, an Investment Committee and a Nominating
Committee.

The Audit Committee, in accordance with resolutions of our board of
directors, must be comprised solely of independent directors. The Audit
Committee is currently comprised of Messrs. Atkins, Di Giacomo and Walsh. Mr.
Atkins serves as chairman of this committee. This committee has responsibility
for review of our annual audit, actuarial reports and disclosed results and
recommendation of the financial statements to our board of directors as well as
monitoring our internal control systems. In addition, pursuant to an express
resolution adopted by our board of directors, the Audit Committee has assumed
responsibility for reviewing and recommending corporate governance issues. In
2000, pursuant to an additional resolution of our board of directors, the Audit
Committee specifically assumed conduct review responsibilities.

The Compensation and Management Resources Committee is comprised of Messrs.
Beamish, Di Giacomo and Gluckstein. Mr. Gluckstein serves as chairman of this
committee. This committee deals with compensation for directors and senior
executives, and the establishment of criteria for, and the awarding of bonuses
and options under our Stock Option Plan. Recommendations of the committee are
submitted to our board for approval. Our board of directors has delegated to
the Compensation and Management Resources Committee the task of developing
position descriptions for senior management including definitions of the limits
to management responsibilities for approval by our board of directors. In
addition, the board of directors has mandated the Compensation and Management
Resources Committee to review succession planning for senior management.

The Investment Committee is comprised of Messrs. Di Giacomo, Star and Walsh.
Mr. Di Giacomo serves as chairman of this committee. The Investment Committee
is responsible for reviewing our investment policies, recommending changes in
such policies to our board from time to time, selecting our outside investment
managers and reviewing our investment activities.

The Nominating Committee is comprised of Messrs. Atkins, Walsh and Reeve.
Mr. Walsh serves as chairman of this committee. This committee is responsible
for proposing new nominees to the board of directors and the boards of our
subsidiaries, and for evaluating our board of directors and its effectiveness.

KINGSWAY FINANCIAL CAPITAL TRUST I

General

The Trust is a statutory trust formed pursuant to the Delaware Statutory
Trust Act under a declaration of trust executed by Funding Co., as depositor
for the Trust, and certain of the trustees. In connection with this offering,
Funding Co. will enter into an amended and restated declaration of trust, or
the trust agreement, with the trustees that will be essentially in the form
filed as an exhibit to the registration statement of which this prospectus
forms a part, which will state the terms and conditions for the Trust to issue
and sell the trust preferred securities and common securities.

Upon completion of this offering, the holders of the trust preferred
securities will own all of the issued and outstanding preferred securities of
the Trust, which have certain rights over the common securities of the Trust.
Funding Co. will not initially own any of the trust preferred securities, but
it will initially own all of the issued and outstanding common securities of
the Trust. The common securities, together with the trust preferred securities,
are called the trust securities.

The Trust exists solely to:

. issue the trust preferred securities to the public;

. issue its common securities to Funding Co.;

. use the proceeds it receives from the issuance of the trust securities to
acquire debentures issued by Funding Co. in an amount that is equivalent
to the amount of trust securities issued by the Trust; and

. engage in other activities that are necessary, advisable or incidental to
these purposes.

The rights of the holders of the trust preferred securities are as set forth
in the trust agreement, the Delaware Statutory Trust Act and the Trust
Indenture Act. The trust agreement does not permit the Trust to borrow money or
make any investment other than in the debentures. Other than with respect to
the trust preferred securities, Funding Co. has agreed to pay for all debts and
obligations and all costs and expenses of the Trust, including the fees and
expenses of the trustees and any income taxes, duties and other governmental
charges, and all costs and expenses related to these charges, to which the
Trust may become subject, except for U.S. withholding taxes that are properly
withheld.

The number of trustees of the Trust will initially be five. The three
administrative trustees will initially be James R. Zuhlke, Brian K. Williamson
and Kelly A. Marketti, each of whom is an officer or employee of Kingsway
America. The fourth trustee will be an entity that maintains its principal
place of business in the State of Delaware. This trustee is called the Delaware
trustee. Initially, The Bank of New York (Delaware), a Delaware banking
corporation, will act as Delaware trustee. The fifth trustee, called the
property trustee, will initially be BNY Midwest Trust Company, an Illinois
trust company. The property trustee is the institutional trustee under the
trust agreement and acts as the indenture trustee called for under the
applicable provisions of the Trust Indenture Act. Also for purposes of
compliance with the Trust Indenture Act, BNY Midwest Trust Company will act as
guarantee trustee and indenture trustee under the preferred securities
guarantee agreement and the indenture, respectively. Funding Co., as holder of
all of the common securities, will have the right to appoint or remove any
trustee unless an event of default under the indenture has occurred and is
continuing, in which case only the holders of a majority in liquidation amount
of the trust preferred securities may remove the Delaware trustee or the
property trustee. The Trust has a term of approximately 30 years but may
dissolve earlier as provided in the trust agreement.

The property trustee will hold the debentures and the debenture guarantee
for the benefit of the holders of the trust preferred securities and will have
the power to exercise all rights, powers and privileges under the indenture as
the holder of the debentures and the debenture guarantee. In addition, the
property trustee will maintain exclusive control of a segregated
non-interest-bearing payment account established with BNY Midwest Trust Company
in its trust department to hold all payments made on the debentures or the
debenture guarantee, as the case may be, for the benefit of the holders of the
trust securities. The property trustee will make payments of distributions and
payments on liquidation, redemption and otherwise to the holders of the trust
securities out of funds from the payment account. The guarantee trustee will
hold the preferred securities guarantee for the benefit of the holders of the
trust preferred securities.

KINGSWAY U.S. FUNDING INC.

General

Funding Co. is a corporation formed pursuant to the Delaware Business
Corporation Act. In connection with this offering, Funding Co. will enter into
the trust agreement with the trustees, which will state the terms and
conditions for the Trust to issue and sell the trust preferred securities and
common securities. Funding Co. will also enter into an indenture with the
trustee and Kingsway Financial, which will be essentially in the form filed as
an exhibit to the registration statement of which this prospectus forms a part,
which will state the terms and conditions for Funding Co. to issue and sell the
debentures.

Upon completion of this offering, Kingsway America will hold all of the
issued and outstanding common stock of Funding Co. and the property trustee,
for the benefit of the Trust, will hold all of the debentures issued by Funding
Co. Funding Co. will initially own all of the issued and outstanding common
securities of the Trust.

Funding Co. exists solely to:

. issue its common stock to Kingsway America;

. issue the debentures to the Trust or other debentures to other future
similar trusts;

. use the proceeds it receives from issuance of the debentures to the Trust
or other debentures to other future similar trusts to purchase
subordinated notes issued by Kingsway America in an aggregate principal
amount that is equivalent to the aggregate principal amount of debentures
so issued by Funding Co.; and

. engage in other activities that are incidental to these purposes.

Funding Co. will use all of the proceeds it receives from the issuance of
the debentures to purchase subordinated notes issued by Kingsway America, which
will be essentially in the form filed as an exhibit to the registration
statement of which this prospectus forms a part. The economic terms of the
subordinated notes purchased from Kingsway America will be substantially
similar to the terms of the debentures. The subordinated notes will be
unsecured and will rank junior to all of Kingsway America's senior debt,
including indebtedness that Kingsway America may incur in the future. The
common securities of the Trust and the subordinated notes will initially be the
only assets of Funding Co.

The board of directors of Funding Co., which will consist initially of three
directors, will conduct Funding Co.'s business and affairs. The directors and
officers of Funding Co. are also directors or officers of Kingsway Financial or
Kingsway America.

DESCRIPTION OF THE TRUST PREFERRED SECURITIES

The trust preferred securities will be issued pursuant to the trust
agreement. The terms of the trust preferred securities will include those
stated in the trust agreement and those made part of the trust agreement by the
Trust Indenture Act.

The following discussion contains a description of the material provisions
of the trust preferred securities and is subject to, and is qualified in its
entirety by reference to, the trust agreement and to the Trust Indenture Act.
We urge you to read the form of the trust agreement, which is filed as an
exhibit to the registration statement of which this prospectus forms a part.

General

The trust agreement authorizes the Trust to issue the trust securities,
which are comprised of the trust preferred securities and the common
securities. Funding Co. will initially own all of the common securities issued
by the Trust. The Trust is not permitted to issue any securities other than the
trust securities or incur any other indebtedness.

The trust preferred securities will represent preferred undivided beneficial
interests in the assets of the Trust, and the holders of the trust preferred
securities will be entitled to a preference over the common securities upon an
event of default with respect to distributions and amounts payable on
redemption or liquidation. The trust preferred securities will rank equally,
and payments on the trust preferred securities will be made proportionally,
with the common securities, except as described under "Subordination of Common
Securities" below.

The property trustee will hold legal title to the debentures in trust for
the benefit of the holders of the trust securities. Kingsway Financial will
guarantee the payment of distributions out of money held by the Trust, and
payments upon redemption of the trust preferred securities or liquidation of
the Trust, to the extent described under "Description of the Preferred
Securities Guarantee" beginning on page 103. The preferred securities guarantee
agreement does not cover the payment of any distribution or the liquidation
amount when the Trust does not have sufficient funds available to make these
payments.

Distributions

Source of Distributions. The funds of the Trust available for distribution
to holders of the trust preferred securities will be limited to payments made
under the debentures or the debenture guarantee, as the case may be.
Distributions will be paid through the property trustee, which will hold the
amounts received from Funding Co.'s interest payments on the debentures or by
Kingsway Financial on the debenture guarantee, as the case may be, in the
payment account for the benefit of the holders of the trust securities. Funding
Co.'s only source of funds will be payments of principal and interest payable
under the subordinated notes issued to it by Kingsway America. If Kingsway
America defers interest payments on its subordinated notes issued to Funding
Co., Funding Co. will defer interest payments on the debentures and the
property trustee will not have funds available to pay distributions on the
trust preferred securities.

Payment of Distributions. Distributions on the trust preferred securities
will be payable at the annual rate of % of the US$25 stated liquidation
amount, payable quarterly on March 31, June 30, September 30 and December 31 of
each year, to the holders of the trust preferred securities on the relevant
record dates. So long as the trust preferred securities are represented by a
global security, as described below, the record date will be the business day
immediately preceding the relevant distribution date.

Distributions will accumulate from the date of issuance, will be cumulative
and will be computed on the basis of a 360-day year of twelve 30-day months. If
the distribution date is not a business day, then payment of the distributions
will be made on the next day that is a business day, without any additional
interest or other

payment for the delay. However, if the next business day is in the next
calendar year, payment of the distribution will be made on the business day
immediately preceding the scheduled distribution date, without any reduction in
interest. Business day means any day other than a Saturday, a Sunday, a day on
which banking institutions in New York, New York are authorized or required by
law, regulation or executive order to remain closed, or a day on which the
corporate trust office of the property trustee or the indenture trustee is
closed for business.

Deferral Period. As long as no event of default under the indenture has
occurred and is continuing, Funding Co. has the right to defer the payment of
interest on the debentures at any time for a maximum of 20 consecutive quarters
per deferral period. No deferral period may extend beyond the scheduled
maturity of the debentures or end on a date other than an interest payment
date, which dates are the same as the distribution dates. If Funding Co. defers
the payment of interest on the debentures, quarterly distributions on the trust
preferred securities will also be deferred during any such deferral period. Any
deferred distributions under the trust preferred securities will accumulate
additional amounts at the annual rate of %, compounded quarterly from the
relevant distribution date. The term distributions as used in this prospectus
includes those accumulated amounts.

During a deferral period, neither Funding Co. nor Kingsway Financial will be
permitted to:

. declare or pay a dividend or distribution on any of its outstanding
capital stock;

. redeem, purchase, acquire or make a liquidation payment with respect to
any of its outstanding capital stock;

. make or permit any subsidiary to make, any guarantee payments with
respect to any guarantee of any debt security (other than payments under
the preferred securities guarantee), if such guarantee ranks equally with
or junior to the debentures or the debenture guarantee, as the case may
be.

After the termination of any deferral period and the payment of all amounts
due, Funding Co. may elect to begin a new deferral period, subject to the above
requirements.

Redemption or Exchange

General. Funding Co. will have the right to redeem the debentures:

. in whole or in part on or after , 2008 and up to 90 days prior to
, 2033; or

. in whole, but not in part, within 180 days following the occurrence of a
tax event or an investment company event, which terms we define below.

Mandatory Redemption. Upon Funding Co.'s repayment or redemption, in whole
or in part, of any debentures, whether upon the scheduled maturity or earlier,
the property trustee will apply the proceeds to redeem the same amount of the
trust securities, upon not less than 30 days nor more than 60 days notice, at
the redemption price. The redemption price will equal 100% of the aggregate
liquidation amount of the trust securities plus accumulated but unpaid
distributions to the date of redemption. If less than all of the debentures are
to be repaid or redeemed on a date of redemption, then the proceeds from such
repayment or redemption will be allocated to redemption of trust preferred
securities and common securities proportionately.

Distribution of Debentures in Exchange for Trust Preferred
Securities. Funding Co. will have the right at any time to dissolve the Trust
and, after satisfaction of the liabilities of creditors of the Trust as
provided by applicable law, including, without limitation, amounts due and
owing the trustees of the Trust, cause the debentures to be distributed
directly to the holders of trust securities in liquidation of the Trust.

After the liquidation date fixed for any distribution of debentures in
exchange for trust securities:

. those trust securities will no longer be deemed to be outstanding;

. certificates representing debentures in a principal amount equal to the
liquidation amount of those trust securities will be issued in exchange
for the trust securities certificates;

. any certificates representing trust securities that are not surrendered
for exchange will be deemed to represent debentures with a principal
amount equal to the liquidation amount of those trust securities,
accruing interest at the rate provided for in the debentures from the
last distribution date on the trust preferred securities;

. all rights of the trust securityholders other than the right to receive
debentures upon surrender of a certificate representing trust securities
will terminate; and

. we will use our reasonable efforts to have the debentures listed on the
New York Stock Exchange or such other securities exchange or other
organization on which the trust preferred securities are then listed or
traded.

We cannot assure you that the market prices for the trust preferred
securities or the debentures that may be distributed if a dissolution and
liquidation of the Trust were to occur would be favorable. The trust preferred
securities that an investor may purchase, or the debentures that an investor
may receive on dissolution and liquidation of the Trust, may trade at a
discount to the liquidation preference, or stated principal, thereof.

Redemption upon a Tax Event or Investment Company Event. If a tax event or
an investment company event occurs, Funding Co. will have the right to redeem
the debentures in whole, but not in part, and thereby cause a mandatory
redemption of all of the trust securities at the redemption price. If one of
these events occurs and Funding Co. does not elect to redeem the debentures, or
to dissolve the Trust and cause the debentures to be distributed to holders of
the trust securities as described below under "Liquidation Distribution Upon
Dissolution," then the trust preferred securities will remain outstanding and
additional interest may be payable on the debentures.

Tax event means the receipt by the Trust of an opinion of counsel
experienced in such matters to the effect that as a result of:

. any amendment to, or change (including any announced prospective change)
in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein; or

. any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations,

which amendment or change is effective, or which pronouncement or decision is
announced, on or after the date of issuance of the trust preferred securities
under the trust agreement, there is more than an insubstantial risk that:

. interest payable by Funding Co. on the debentures is not, or within 90
days of the date of the opinion will not be, deductible by Funding Co.,
in whole or in part, for U.S. federal income tax purposes;

. the Trust is, or will be within 90 days after the date of the opinion,
subject to U.S. federal income tax with respect to income received or
accrued on the debentures; or

. the Trust is, or will be within 90 days after the date of opinion,
subject to more than an immaterial amount of other taxes, duties,
assessments or other governmental charges.

However, any obligation of Kingsway Financial to withhold or deduct at
source any present or future taxes, fees, duties, assessments or governmental
charges of whatever nature imposed or levied by or on behalf of Canada or any
province, territory, political subdivision or taxing authority thereof or
therein with respect to any payment made under the debenture guarantee or the
preferred securities guarantee will not give rise to a tax event.

Legislation had been proposed in 2002 that would have, among other things,
disallow a deduction for U.S. tax purposes for certain indebtedness, including
in the case of an SEC registrant any indebtedness of such registrant if such
indebtedness is not shown in the certified annual report as part of the total
liabilities of such registrant, and any indebtedness of an off-balance-sheet
entity if the proceeds from the issuance of such indebtedness are used directly
or indirectly to acquire stock (or other ownership interest) in such
registrant. There can be no assurance that any such legislation or similar
legislation will not be enacted that would adversely affect Funding Co.'s
ability to deduct interest on the debentures or otherwise affect the U.S.
federal income tax treatment of the Trust or the transactions described in this
prospectus. Such a change could, if applicable to the trust preferred
securities or debentures, give rise to a tax event, which would permit Funding
Co. to redeem the debentures as described above.

Investment company event means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that the Trust is or will be
considered an investment company that is required to be registered under the
Investment Company Act, as a result of a change in law or regulation or a
change in interpretation or application of law or regulation.

Redemption of Debentures in Exchange for Trust Preferred Securities
Purchased by Us. We will also have the right at any time, and from time to
time, so long as Funding Co. is not exercising its right to defer interest
payments on the debentures, to redeem debentures in exchange for any trust
preferred securities we may have purchased in the market. If we elect to
surrender any trust preferred securities beneficially owned by us to the
property trustee in exchange for a like amount of debentures, Funding Co. will
also surrender a proportionate amount of common securities in exchange for
debentures. Trust preferred securities owned by other holders will not be
called for redemption at any time when we elect to exchange trust securities we
own to redeem debentures.

The common securities Funding Co. surrenders will be in the same proportion
to the trust preferred securities we surrender as is the ratio of common
securities purchased by us to the trust preferred securities issued by the
Trust. In exchange for the trust securities surrendered by Funding Co., the
property trustee will cause to be released to us for cancellation debentures
with a principal amount equal to the liquidation amount of the trust
securities, plus any accumulated but unpaid distributions, if any, then held by
the property trustee allocable to those trust securities. After the date of
redemption involving an exchange by us, the trust securities we surrender will
no longer be deemed outstanding and the debentures redeemed in exchange will be
delivered to the indenture trustee and cancelled.

Redemption Procedures

Trust preferred securities will be redeemed at the redemption price with the
applicable proceeds from Funding Co.'s contemporaneous redemption of the
debentures. Redemptions of the trust preferred securities will be made, and the
redemption price will be payable, on each redemption date only to the extent
that the Trust has funds available for the payment of the redemption price.

Notice of any redemption will be mailed at least 30 days but not more than
60 days before the date of redemption to each holder of trust securities to be
redeemed at its registered address. Unless Funding Co. defaults in payment of
the redemption price on the debentures, interest will cease to accumulate on
the debentures called for redemption on and after the date of redemption.

If the Trust gives notice of redemption of its trust securities, then the
property trustee, to the extent funds are available, will irrevocably deposit
with the depositary for the trust securities funds sufficient to pay the
aggregate redemption price and will give the depositary for the trust
securities irrevocable instructions and authority to pay the redemption price
to the holders of the trust securities. If the trust preferred securities are
no longer in book-entry only form, the property trustee, to the extent funds
are available, will deposit with the designated paying agent for those trust
preferred securities funds sufficient to pay the aggregate redemption price and
will give the paying agent irrevocable instructions and authority to pay the
redemption price to the holders upon surrender of their certificates evidencing
the trust preferred securities. Notwithstanding the foregoing, distributions
payable on or prior to the date of redemption for any trust securities called
for redemption will be payable to the holders of the trust securities on the
relevant record dates for the related distribution dates.

If notice of redemption has been given and Funding Co. has deposited funds
as required, then on the date of the deposit all rights of the holders of the
trust securities called for redemption will cease, except the right to receive
the redemption price, but without interest on such redemption price after the
date of redemption. The trust securities will also cease to be outstanding on
the date of the deposit. If any date fixed for redemption of trust securities
is not a business day, then payment of the redemption price payable on that
date will be made on the next day that is a business day, without any
additional interest or other payment in respect of the delay. However, if the
next business day is in the next succeeding calendar year, payment of the
interest will be made on the immediately preceding business day, without any
reduction in interest.

If payment of the redemption price in respect of trust securities called for
redemption is improperly withheld or refused and not paid by the Trust, or by
Kingsway Financial pursuant to the preferred securities guarantee,
distributions on the trust securities will continue to accumulate at the
applicable rate from the date of redemption originally established by the Trust
for the trust securities to the date the redemption price is actually paid. In
this case, the actual payment date will be considered the date fixed for
redemption for purposes of calculating the redemption price.

Payment of the redemption price on the trust preferred securities and any
distribution of debentures to holders of trust preferred securities will be
made to the applicable recordholders as they appear on the register for the
trust preferred securities on the relevant record date. As long as the trust
preferred securities are represented by a global security, the record date will
be the business day immediately preceding the date of redemption or liquidation
date, as applicable.

If less than all of the trust securities are to be redeemed, then the
aggregate liquidation amount of the trust securities to be redeemed will be
allocated proportionately to those trust securities based upon the relative
liquidation amounts. The particular trust preferred securities to be redeemed
will be selected by the property trustee from the outstanding trust preferred
securities not previously called for redemption by a method the property
trustee deems fair and appropriate. This method may provide for the redemption
of portions equal to US$25 or an integral multiple of US$25 of the liquidation
amount of the trust preferred securities. The property trustee will promptly
notify the registrar for the trust preferred securities in writing of the trust
preferred securities selected for redemption and, in the case of any trust
preferred securities selected for partial redemption, the liquidation amount to
be redeemed.

Subordination of Common Securities

Payment of distributions on, and the redemption price of, the trust
preferred securities and common securities will be made pro rata, based on the
liquidation amount of these securities. However, if an event of default under
the indenture has occurred and is continuing, no distributions on or redemption
of the common securities may be made unless payment in full in cash of all
accumulated and unpaid distributions on all of the outstanding trust preferred
securities for all distribution periods terminating on or before that time, or
in the case of payment of the redemption price, payment of the full amount of
the redemption price on all of the outstanding trust preferred securities then
called for redemption, has been made or provided for. All funds available to the

property trustee will first be applied to the payment in full in cash of all
distributions on, or the redemption price of, the trust preferred securities
then due and payable.

In the case of the occurrence and continuance of any event of default under
the trust agreement resulting from an event of default under the indenture,
Funding Co., as holder of the common securities, will be deemed to have waived
any right to act with respect to that event of default under the trust
agreement until the effect of the event of default has been cured, waived or
otherwise eliminated. Until the event of default under the trust agreement has
been so cured, waived or otherwise eliminated, the property trustee will act
solely on behalf of the holders of the trust preferred securities and not on
Funding Co.'s behalf, and only the holders of the trust preferred securities
will have the right to direct the property trustee to act on their behalf.

Liquidation Distribution Upon Dissolution

Funding Co. will have the right at any time to dissolve the Trust and cause
the debentures to be distributed to the holders of the trust preferred
securities.

In addition, the Trust will automatically dissolve upon expiration of its
term and will dissolve earlier on the first to occur of:

. the bankruptcy, dissolution or liquidation of Funding Co. or Kingsway
Financial;

. the distribution of a like amount of the debentures to the holders of
trust securities in exchange for their trust securities, if Funding Co.
has given written direction to the property trustee to dissolve the Trust;

. redemption of all of the trust preferred securities as described under
"Redemption or Exchange--Mandatory Redemption"; or

. the entry of a court order for the dissolution of the Trust.

With the exception of a redemption, if an early dissolution of the Trust
occurs, the Trust will be liquidated by the administrative trustees as
expeditiously as they determine to be possible. After satisfaction of
liabilities to creditors of the Trust as provided by applicable law, the
trustees will distribute to the holders of trust securities, debentures:

. in an aggregate stated principal amount equal to the aggregate stated
liquidation amount of the trust securities;

. with an interest rate identical to the distribution rate on the trust
securities; and

. with accrued and unpaid interest equal to accumulated and unpaid
distributions on the trust securities.

If the property trustee, however, determines that the distribution is not
practical, then the holders of trust securities will be entitled to receive,
instead of debentures, a proportionate amount of the liquidation distribution.
The liquidation distribution will be the amount equal to the aggregate of the
liquidation amount plus accumulated and unpaid distributions to the date of
payment. If the liquidation distribution can be paid only in part because the
Trust has insufficient assets available to pay in full the aggregate
liquidation distribution, then the amounts payable directly by the Trust on the
trust securities will be paid on a proportional basis, based on liquidation
amounts, to Funding Co., as the holder the common securities, and to the
holders of the trust preferred securities. However, if an event of default
under the indenture has occurred and is continuing, the trust preferred
securities will have a priority over the common securities. See the section of
this prospectus captioned "Subordination of Common Securities" beginning on
page 82.

Under current U.S. federal income tax law and interpretations and assuming
that the Trust is treated as a grantor trust, as is expected, a distribution of
the debentures will not be a taxable event to holders of the trust preferred
securities. Should there be a change in law, a change in legal interpretation,
a tax event or another circumstance, however, the distribution could be a
taxable event to holders of the trust preferred securities. If

Funding Co. does not elect to redeem the debentures prior to maturity or to
liquidate the Trust and distribute the debentures to holders of the trust
preferred securities, the trust preferred securities will remain outstanding
until the repayment of the debentures.

If Funding Co. elects to dissolve the Trust and thus cause the debentures to
be distributed to holders of the trust preferred securities in liquidation of
the Trust, Funding Co. will continue to have the right to redeem the debentures.

Liquidation Value

The amount of the liquidation distribution payable on the trust preferred
securities in the event of any liquidation of the Trust is US$25 per trust
preferred security plus accumulated and unpaid distributions to the date of
payment, which may be in the form of a distribution of debentures having a
liquidation value and accrued interest of an equal amount.

Events of Default; Notice

Any one of the following events would constitute an event of default under
the trust agreement with respect to the trust preferred securities:

. the occurrence of an event of default under the indenture;

. a default by the Trust in the payment of any distribution when it becomes
due and payable, and continuation of the default for a period of 30 days;

. a default by the Trust in the payment of any redemption price of any of
the trust securities when it becomes due and payable;

. a default in the performance, or breach, in any material respect, of any
covenant or warranty of the trustees in the trust agreement, other than
those defaults covered in the previous two points, and continuation of
the default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the trustee(s) by the holders of at
least 25% in aggregate liquidation amount of the outstanding trust
preferred securities, a written notice specifying the default or breach
and requiring it to be remedied and stating that the notice is a Notice
of Default under the trust agreement; or

. the occurrence of events of bankruptcy or insolvency with respect to the
property trustee and our failure to appoint a successor property trustee
within 60 days.

Within 60 days after the occurrence of any event of default actually known
to the property trustee, the property trustee will transmit notice of the event
of default to the holders of the trust preferred securities, the administrative
trustees and to Funding Co., unless the event of default has been cured or
waived. Funding Co. and the administrative trustees are required to file
annually with the property trustee a certificate as to whether or not Funding
Co. is in compliance with all the conditions and covenants applicable to it
under the trust agreement.

If an event of default under the indenture has occurred and is continuing,
the trust preferred securities will have preference over the common securities
upon dissolution of the Trust. The existence of an event of default under the
trust agreement does not entitle the holders of trust preferred securities to
accelerate the maturity thereof, unless the event of default is caused by the
occurrence of an event of default under the indenture and both the indenture
trustee and holders of at least 25% in principal amount of the debentures fail
to accelerate the maturity thereof.

Removal of the Trustees

Unless an event of default under the indenture has occurred and is
continuing, Funding Co. may remove any trustee at any time. If an event of
default under the indenture has occurred and is continuing, only the holders of
a

majority in liquidation amount of the outstanding trust preferred securities
may remove the property trustee or the Delaware trustee. The holders of the
trust preferred securities have no right to vote to appoint, remove or replace
the administrative trustees. These rights are vested exclusively with Funding
Co. as the holder of the common securities. No resignation or removal of a
trustee and no appointment of a successor trustee will be effective until the
successor trustee accepts the appointment in accordance with the trust
agreement.

Co-Trustees and Separate Property Trustee

Unless an event of default under the indenture has occurred and is
continuing, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the trust property
may at the time be located, Funding Co. and the administrative trustees will
have the power to appoint at any time or times, and upon written request of the
property trustee will appoint, one or more persons or entities either (1) to
act as a co-trustee, jointly with the property trustee, of all or any part of
the trust property, or (2) to act as separate trustee of any trust property. In
either case these trustees will have the powers that may be provided in the
instrument of appointment, and will have vested in them any property, title,
right or power deemed necessary or desirable, subject to the provisions of the
trust agreement. In case an event of default under the indenture has occurred
and is continuing, the property trustee alone will have power to make the
appointment.

Merger or Consolidation of Trustees

Generally, any person or successor to any of the trustees may be a successor
trustee to any of the trustees, including a successor resulting from a merger
or consolidation. However, any successor trustee must meet all of the
qualifications and eligibility standards to act as a trustee.

Mergers, Consolidations, Amalgamations or Replacements of the Trust

The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below or as described in the section of this prospectus entitled
"Liquidation Distribution Upon Dissolution." For these purposes, if Funding Co.
consolidates or merges with another entity, or transfers or sells substantially
all of its assets to another entity, in some cases that transaction may be
considered to involve a replacement of the Trust, and the conditions set forth
below would apply to such transaction. The Trust may, at Funding Co.'s request,
with the consent of the administrative trustees and without the consent of the
holders of the trust preferred securities, the property trustee or the Delaware
trustee, undertake a transaction listed above if the following conditions are
met:

. the successor entity either (a) expressly assumes all of the obligations
of the Trust with respect to the trust preferred securities, or (b)
substitutes for the trust preferred securities other securities having
substantially the same terms as the trust preferred securities, referred
to as successor securities, so long as the successor securities rank the
same in priority as the trust preferred securities with respect to
distributions and payments upon liquidation, redemption and otherwise;

. a trustee of the successor entity possessing substantially the same
powers and duties as the property trustee in its capacity as the holder
of the debentures is appointed;

. the successor securities are listed or traded or will be listed or traded
on any national securities exchange or other organization on which the
trust preferred securities are then listed, if any;

. the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the trust preferred securities, including
any successor securities, in any material respect;

. such merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the trust preferred
securities, including any successor securities, to be downgraded by any
nationally recognized statistical rating organization;

. the successor entity has a purpose substantially identical to that of the
Trust;

. prior to the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, an opinion of counsel is obtained that (a)
any transaction of this kind does not adversely affect the rights,
preferences and privileges of the holders of the trust preferred
securities (including any successor securities) in any material respect,
(b) following the transaction, neither the Trust nor the successor entity
will be required to register as an investment company under the
Investment Company Act, (c) such transaction will not cause the Trust to
fail to be classified as a grantor for U.S. federal income tax purposes,
and (d) following the transaction, the Trust or the successor entity will
be classified as a grantor trust and not as an association taxable as a
corporation for U.S. federal income tax purposes; and

. Funding Co. or any permitted successor or assignee owns all of the common
securities of the successor entity and Kingsway Financial or any
permitted successor guarantees the obligations of the successor entity
under the successor securities at least to the extent provided by the
preferred securities guarantee.

Notwithstanding the foregoing, the Trust may not, except with the consent of
every holder of the trust preferred securities, enter into any transaction of
this kind if the transaction would cause the Trust or the successor entity not
to be classified as a grantor trust for U.S. federal income tax purposes.

Voting Rights; Amendment of Trust Agreement

Except as described below and under "Description of the Preferred Securities
Guarantee--Amendments" and as otherwise required by the Trust Indenture Act and
the trust agreement, the holders of the trust preferred securities will have no
voting rights.

The trust agreement may be amended from time to time by Funding Co. and the
administrative trustees, without the consent of the holders of the trust
preferred securities, in the following circumstances:

. to provide for a successor trustee;

. to cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising under
the trust agreement, as long as the amendment is not inconsistent with
the other provisions of the trust agreement and does not have a material
adverse effect on the interests of any holder of trust securities;

. to modify, eliminate or add to any provisions of the trust agreement if
necessary to ensure that the Trust will be classified for U.S. federal
income tax purposes as a grantor trust at all times that any trust
securities are outstanding or to ensure that the Trust will not be
required to register as an investment company under the Investment
Company Act; or

. to reduce or increase the liquidation amount per trust security and to
simultaneously increase or decrease the number of trust securities issued
and outstanding solely for the purpose of maintaining the eligibility of
the trust preferred securities for quotation on any national securities
exchange or other organization on which the trust preferred securities
are then quoted or listed.

With the consent of the holders of a majority of the aggregate liquidation
amount of the outstanding trust securities, Funding Co. and the trustees may
amend the trust agreement if the trustees receive an opinion of counsel
experienced in these matters to the effect that the amendment or the exercise
of any power granted to the trustees in accordance with the amendment will not
affect the Trust's status as a grantor trust for U.S. federal income tax
purposes or the Trust's exemption from status as an investment company under
the Investment Company Act. However, without the consent of each holder of
trust securities, the trust agreement may not be amended to (a) change the
amount or timing of any distribution on the trust securities or otherwise
adversely affect the amount of any distribution required to be made in respect
of the trust securities as of a specified date, or (b) restrict the right of a
holder of trust securities to institute suit for the enforcement of the payment
on or after that date.

As long as the property trustee holds any debentures, the trustees will not,
without obtaining the prior approval of the holders of a majority in aggregate
liquidation amount of all outstanding trust preferred securities:

. direct the time, method and place of conducting any proceeding for any
remedy available to the indenture trustee, or executing any trust or
power conferred on the property trustee with respect to the debentures;

. waive any past default that is waivable under the indenture;

. exercise any right to rescind or annul a declaration that the principal
of all the debentures will be due and payable; or

. consent to any amendment or termination of the indenture or the
debentures, where the consent of the holders of such majority is
required. However, where a consent under the indenture requires the
consent of each holder of the affected debentures, no consent will be
given by property trustee without the prior consent of each holder of
trust preferred securities.

The trustees may not revoke any action previously authorized or approved by
a vote of the holders of the trust preferred securities except by subsequent
vote of the holders of the trust preferred securities. The property trustee
will notify each holder of trust preferred securities of any notice of default
with respect to the debentures or the debenture guarantee, as the case may be.
In addition to obtaining the foregoing approvals of the holders of the trust
preferred securities, prior to taking any of the foregoing actions, the
trustees must obtain an opinion of counsel experienced in these matters to the
effect that the Trust will not be classified as an association taxable as a
corporation for U.S. federal income tax purposes on account of the action.

Any required approval of holders of trust securities may be given at a
meeting or by written consent. The property trustee will cause a notice of any
meeting at which holders of the trust securities are entitled to vote to be
given to each holder of record of Trust securities. No annual meeting of
holders of trust preferred securities is required; however, the administrative
trustees may call a meeting at any time, and must call a meeting upon the
written request of the holders of 25% of the aggregate liquidation amount of
all outstanding trust preferred securities, to vote on any matters on which
such holders are entitled to vote.

No vote or consent of the holders of trust preferred securities will be
required for the Trust to redeem and cancel the trust preferred securities in
accordance with the trust agreement.

Notwithstanding the fact that holders of trust preferred securities are
entitled to vote or consent under any of the circumstances described above, any
of the trust preferred securities that are owned by Kingsway Financial or any
of its subsidiaries, including Funding Co., the trustees or any affiliate of
Funding Co., Kingsway Financial or any of its subsidiaries or any trustee will,
for purposes of the vote or consent, be treated as if they were not outstanding.

Global Preferred Securities

The trust preferred securities will be represented by one or more global
preferred securities registered in the name of DTC, or its nominee. A global
preferred security is a security representing interests of more than one
beneficial owner. Ownership of beneficial interests in the global preferred
securities will be reflected in DTC participant account records through DTC's
book-entry transfer and registration system. Participants are brokers, dealers,
or others having accounts with DTC. Indirect beneficial interests of other
persons investing in the trust preferred securities will be shown on, and
transfers will be effected only through, records maintained by DTC
participants. Except as described below, trust preferred securities in
definitive form will not be issued in exchange for the global preferred
securities.

No global preferred security may be exchanged for trust preferred securities
registered in the names of persons other than DTC or its nominee unless:

. DTC notifies the property trustee that it is unwilling or unable to
continue as a depositary for the global preferred security and we are
unable to locate a qualified successor depositary;

. we execute and deliver to the property trustee a written order stating
that we elect to terminate the book-entry system through DTC; or

. there shall have occurred and be continuing an event of default under the
indenture.

Any global preferred security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for definitive certificates registered in the
names as DTC shall direct. It is expected that the instructions will be based
upon directions received by DTC with respect to ownership of beneficial
interests in the global preferred security. If trust preferred securities are
issued in definitive form, the trust preferred securities will be in
denominations of US$25 and integral multiples of US$25 and may be transferred
or exchanged at the offices described below.

Unless and until it is exchanged in whole or in part for the individual
trust preferred securities represented thereby, a global preferred security may
not be transferred except as a whole by DTC to a nominee of DTC, by a nominee
of DTC to DTC or another nominee of DTC or by DTC or any nominee to a successor
depositary or any nominee of the successor.

Payments of principal, interest and premium, if any, on the trust preferred
securities represented by the global securities to DTC, as the depository for
the global preferred securities, is the responsibility of the appropriate
trustee and us. If the trust preferred securities are issued in definitive
form, distributions will be payable by check mailed to the address of record of
the persons entitled to the distribution, and the transfer of the trust
preferred securities will be registrable, and trust preferred securities will
be exchangeable for trust preferred securities of other denominations of a like
aggregate liquidation amount, at the corporate office of the property trustee,
or at the offices of any paying agent or transfer agent appointed by the
administrative trustees. In addition, if the trust preferred securities are
issued in definitive form, the record dates for payment of distributions will
be the 15th day of the month in which the relevant distribution date occurs.

Upon the issuance of one or more global preferred securities, and the
deposit of the global preferred security with or on behalf of DTC or its
nominee, DTC or its nominee will credit, on its book-entry registration and
transfer system, the respective aggregate liquidation amounts of the individual
trust preferred securities represented by the global preferred security to the
designated accounts of persons that participate in the DTC system. These
participant accounts will be designated by the dealers, underwriters or agents
selling the trust preferred securities. Ownership of beneficial interests in a
global preferred security will be limited to persons or entities having an
account with DTC or who may hold interests through DTC participants. With
respect to interests of any person or entity that is a DTC participant,
ownership of beneficial interests in a global preferred security will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominee. With respect to persons or entities who hold
interests in a global preferred security through a participant, the interest
and any transfer of the interest will be shown only on the participant's
records. The laws of some states require that certain purchasers of securities
take physical delivery of securities in definitive form. These laws may impair
the ability to transfer beneficial interests in a global preferred security.

So long as DTC or another depositary, or its nominee, is the registered
owner of the global preferred security, the depositary or the nominee, as the
case may be, will be considered the sole owner or holder of the trust preferred
securities represented by the global preferred security for all purposes under
the trust agreement. Except as described in this prospectus, owners of
beneficial interests in a global preferred security will not be entitled to
have any of the individual trust preferred securities represented by the global
preferred security registered in their names, will not receive or be entitled
to receive physical delivery of any the trust preferred securities in
definitive form and will not be considered the owners or holders of the trust
preferred securities under the trust agreement.

None of Funding Co., Kingsway Financial, the property trustee, any paying
agent or the securities registrar for the trust preferred securities will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests of the global preferred
security representing the trust preferred securities or for maintaining,
supervising or reviewing any records relating to the beneficial interests.

DTC or its nominee, upon receipt of any payment of the liquidation amount or
distributions in respect of a global preferred security, will be responsible
for distribution of such payments to direct participants and will immediately
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the aggregate liquidation amount of the
global preferred security as shown on the records of DTC or its nominee.
Payments by participants to owners of beneficial interests in the global
preferred security held through the participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in street name.
Distribution of such payments to the beneficial owners will be the
responsibility of the participants.

Payment and Paying Agency

Payments in respect of the trust preferred securities shall be made to DTC
or its nominee, which shall credit the relevant accounts of participants on the
applicable distribution dates, or, if any of the trust preferred securities are
not held by DTC or its nominee, the payments shall be made by check mailed to
the address of the holder as listed on the register of holders of the trust
preferred securities. The paying agent for the trust preferred securities will
initially be the property trustee and any co-paying agent chosen by the
property trustee and acceptable to us and the administrative trustees. The
paying agent for the trust preferred securities may resign as paying agent upon
30 days written notice to the administrative trustees, the property trustee and
us. If the property trustee no longer is the paying agent for the trust
preferred securities, the administrative trustees will appoint a successor to
act as paying agent. The successor must be a bank or trust company acceptable
to us and the property trustee.

Registrar and Transfer Agent

The property trustee will act as the registrar and the transfer agent for
the trust preferred securities. Registration of transfers of trust preferred
securities will be effected without charge by or on behalf of the Trust, but
upon payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. The Trust and its registrar and
transfer agent will not be required to register or cause to be registered the
transfer of trust preferred securities after they have been called for
redemption.

Information Concerning the Property Trustee

The property trustee undertakes to perform only the duties set forth in the
trust agreement. After the occurrence of an event of default that is
continuing, the property trustee must exercise the same degree of care and
skill as a prudent person exercises or uses in the conduct of its own affairs.
The property trustee is under no obligation to exercise any of the powers
vested in it by the trust agreement at the request of any holder of trust
preferred securities unless it is offered indemnity satisfactory to the
property trustee against the costs, expenses and liabilities that might be
incurred. If no event of default under the trust agreement has occurred and is
continuing and the property trustee is required to decide between alternative
causes of action, construe ambiguous or inconsistent provisions in the trust
agreement or is unsure of the application of any provision of the trust
agreement, and the matter is not one on which holders of trust preferred
securities are entitled to vote upon, then the property trustee will take the
action directed in writing by us. If the property trustee is not so directed,
then it will take the action it deems advisable and in the best interests of
the holders of the trust securities and will have no liability except for its
own bad faith, negligence or willful misconduct.

Miscellaneous

The administrative trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that:

. the Trust will not be deemed to be an investment company required to be
registered under Investment Company Act;

. the Trust will not be classified as an association taxable as a
corporation for U.S. federal income tax purposes; and

. the debentures will be treated as indebtedness of Funding Co. for U.S.
federal income tax purposes.

In this regard, Funding Co. and the administrative trustees are authorized
to take any action not inconsistent with applicable law, the certificate of
trust or the trust agreement, that Funding Co. and the administrative trustees
determine to be necessary or desirable for these purposes.

Holders of the trust preferred securities have no preemptive or similar
rights. The trust agreement and the trust securities will be governed by
Delaware law.

DESCRIPTION OF THE DEBENTURES AND THE DEBENTURE GUARANTEE

Concurrently with the issuance of the trust preferred securities, Funding
Co. will issue the debentures to the Trust. The debentures will be issued as
unsecured debt under the indenture between Funding Co., Kingsway Financial, as
the debenture guarantor, and BNY Midwest Trust Company, as indenture trustee.
The indenture will be qualified under the Trust Indenture Act.

The following discussion contains a description of the material provisions
of the debentures and the debenture guarantee and is subject to, and is
qualified in its entirety by reference to, the indenture, the Officer's
Certificate and to the Trust Indenture Act. We urge you to read the indenture
and the Officer's Certificate, which are filed as exhibits to the registration
statement of which this prospectus forms a part.

General

The debentures will be issued as unsecured subordinated debt under the
indenture. The indenture does not limit the aggregate principal amount of debt
securities which may be issued thereunder and provides that the debt securities
may be issued thereunder from time to time in one or more series. However, the
debentures, as a separate series, will be limited in aggregate principal amount
to US$59,279,000. This amount represents the sum of the aggregate stated
liquidation amounts of the trust securities. The debentures will bear interest
at the annual rate of % of the principal amount. The interest will be payable
quarterly on March 31, June 30, September 30 and December 31 of each year,
beginning on the first such date after issuance of the debentures, to the
person in whose name each debenture is registered at the close of business on
the 15th day of the last month of the calendar quarter. It is anticipated that,
until the dissolution and liquidation, if any, of the Trust, the debentures
will be held in the name of the property trustee in trust for the benefit of
the holders of the trust securities.

The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. If any date on which interest is
payable on the debentures is not a business day, then payment of interest will
be made on the next day that is a business day without any additional interest
or other payment in respect of the delay. However, if the next business day is
in the next calendar year, payment of interest will be made on the immediately
preceding business day, without any reduction in interest. Accrued interest
that is not paid on the applicable interest payment date will bear additional
interest on the amount due at the annual rate of %, compounded quarterly.

The debentures will mature on , 2033, the stated maturity date. Funding
Co. will not have the right to redeem the debentures from the Trust until after
, 2008, except if (a) a tax event, or an investment company event, which
terms are defined in the section of this prospectus entitled "Description of
the Trust Preferred Securities--Redemption or Exchange" beginning on page 79,
has occurred, or (b) we repurchase trust preferred securities in the market, in
which case we can elect to redeem debentures specifically in exchange for a
like amount of trust preferred securities owned by us plus a proportionate
amount of common securities so long as no event of default has occurred and is
continuing under the indenture. The debentures will not be subject to any
sinking fund.

The debentures will be unsecured and will rank junior to all of Funding
Co.'s senior debt, including indebtedness it may incur in the future. The
debenture guarantee will also be unsecured and will rank junior to all of
Kingsway Financial's senior debt, including indebtedness it may incur in the
future. The indenture does not limit the incurrence or issuance of other
secured or unsecured debt of Kingsway Financial or Funding Co. including senior
debt, whether under the indenture or any existing or other indenture that
Kingsway Financial or Funding Co. may enter into in the future or otherwise,
except in limited circumstances as described below under "Subordination."

The indenture does not contain provisions that afford holders of the
debentures protection in the event of a highly leveraged transaction or other
similar transaction involving Funding Co. or Kingsway Financial, nor does it
require Funding Co. or Kingsway Financial to maintain or achieve any financial
performance levels or to obtain or maintain any credit rating on the debentures.

Debenture Guarantee

Kingsway Financial will fully and unconditionally guarantee all payments
with respect to the debentures. The debenture guarantee will be an unsecured
obligation of Kingsway Financial, subordinated in right of payment to the prior
payment in full of all Kingsway Financial senior debt as described below under
"Subordination." The debenture guarantee will rank equally with the guarantee
by Kingsway Financial of any other subordinated debentures issued under the
indenture to similar trusts.

Since Kingsway Financial is a holding company, its rights and the rights of
its creditors (including the holders of the debentures who are creditors of
Kingsway Financial by virtue of the debenture guarantee) and stockholders to
participate in any distribution of the assets of any subsidiary of Kingsway
Financial upon its liquidation or reorganization or otherwise would be subject
to prior claims of the subsidiary's creditors, except to the extent that
Kingsway Financial may itself be a creditor with recognized claims against the
subsidiary. The right of creditors of Kingsway Financial (including the holders
of the debentures who are creditors of Kingsway Financial by virtue of the
debenture guarantee) to participate in any distribution of the stock owned by
Kingsway Financial in certain of its subsidiaries, including Kingsway
Financial's insurance subsidiaries, may also be subject to approval by certain
insurance regulatory authorities having jurisdiction over such subsidiaries.

Kingsway Financial will make all payments of principal of and premium, if
any, interest and any other amounts on, or in respect of, the debentures
without withholding or deduction at source for, or on account of, any present
or future taxes, fees, duties, assessments or governmental charges of whatever
nature imposed or levied by or on behalf of Canada or such other country in
which a successor to Kingsway Financial is organized (such as Bermuda,
Barbados, the Cayman Islands or any country that is presently a member of the
Organization for Economic Cooperation and Development), Canada or such other
country of organization being referred to as the Taxing Jurisdiction, or any
province, territory, political subdivision or taxing authority thereof or
therein, collectively referred to as Foreign Taxes, unless such Foreign Taxes
are required to be withheld or deducted by (x) the laws (or any regulations or
rulings promulgated thereunder) of the Taxing Jurisdiction or any province,
territory, political subdivision or taxing authority thereof or therein or (y)
an official position regarding the application, administration, interpretation
or enforcement of any such laws, regulations or rulings (including, without
limitation, a holding by a court of competent jurisdiction or by a taxing
authority in the Taxing Jurisdiction or any province, territory, or political
subdivision thereof). If a withholding or deduction for Foreign Taxes is
required, Kingsway Financial will, subject to certain limitations and
exceptions described below, pay to the holder of the debentures such additional
amounts, referred to as additional amounts, as may be necessary so that every
net payment of principal, premium, if any, interest or any other amount made to
such holder, after such withholding or deduction, will not be less than the
amount such holder would have received if such Foreign Taxes had not been
withheld or deducted; provided, however, that Kingsway Financial will not be
required to pay any additional amounts for or on account of:

. any Foreign Taxes that would not have been imposed but for the fact that
the holder (or the beneficial owner) was a resident, domiciliary or
national of, or engaged in business or maintained a permanent
establishment or was physically present in the Taxing Jurisdiction or any
province, territory, or political subdivision thereof or otherwise had
some connection therewith other than by reason of the mere ownership of,
or receipt of payment under, such debenture;

. any estate, inheritance, gift, sale, transfer, personal property or
similar tax, assessment or other governmental charge; or

. any Foreign Taxes that are imposed or withheld by reason of the failure
by the holder (or the beneficial owner) of such debenture to comply with
any reasonable and timely written request by Kingsway Financial or its
agent addressed to the holder within 60 days of such request (a) to
provide information concerning the nationality, residence or identity of
the holder (or such beneficial owner) or (b) to make any declaration or
other similar claim or satisfy any information, certification,
identification, documentation or other reporting requirement, which in
either case is required or imposed by statute, treaty, regulation or
administrative practice of the Taxing Jurisdiction or any province,
territory or political subdivision thereof as a precondition to exemption
from all or part of such Foreign Taxes.

In addition, Kingsway Financial will not pay additional amounts with respect
to any payment of principal of, or premium, if any, interest or any other
amounts on, any such debenture to any holder who is, for income tax purposes of
the Taxing Jurisdiction, a fiduciary or partnership or other than the sole
beneficial owner of such debenture to the extent such payment would be required
by the laws of the Taxing Jurisdiction (or any province, territory or political
subdivision or relevant taxing authority thereof or therein) to be included in
the income for tax purposes of a beneficiary or settlor with respect to such
fiduciary, or a partner of such partnership, or a beneficial owner who would
not have been entitled to such additional amounts had it been the holder of the
debenture.

Option to Defer Interest Payments

As long as no event of default under the indenture has occurred and is
continuing, Funding Co. has the right under the indenture to defer the payment
of interest on the debentures at any time for a period not exceeding 20
consecutive quarters. However, no deferral period may extend beyond the stated
maturity of the debentures or end on a date other than a date interest is
normally due. At the end of a deferral period, Funding Co. must pay all
interest then accrued and unpaid. During a deferral period, interest will
continue to accrue and holders of debentures, or the holders of trust preferred
securities if they are then outstanding, will be required to accrue and
recognize as income for U.S. federal income tax purposes the accrued but unpaid
interest amounts in the year in which such amounts accrued.

During a deferral period (or if an event of default under the indenture has
occurred and is continuing), neither Funding Co. nor Kingsway Financial will be
permitted to:

. declare or pay a dividend or distribution on any of its outstanding
capital stock;

. redeem, purchase, acquire or make a liquidation payment with respect to
any of its outstanding capital stock;

. make or permit any subsidiary to make a principal, premium or interest
payment (other than payments under the subordinated notes) on, or repay,
repurchase or redeem, any debt security that ranks equally with or junior
to the debentures, the debenture guarantee or the subordinated notes
issued by Kingsway America to Funding Co., as the case may be; or

. make or permit any subsidiary to make any guarantee payments with respect
to any guarantee of any debt security (other than payments under the
preferred securities guarantee), if such guarantee ranks equally with or
junior to the debentures or the debenture guarantee, as the case may be.

Financial's indebtedness for any class or series of its capital stock, (iii)
the purchase of fractional interests in shares of Kingsway Financial's capital
stock pursuant to the conversion or exchange provisions of such capital stock
or the security being converted or exchanged, or (iv) any declaration of a
dividend in connection with any stockholders' rights plan, or the issuance of
rights, stock or other property under any stockholders' rights plan, or the
redemption or repurchase of rights pursuant thereto.

Prior to the termination of any deferral period, so long as no event of
default under the indenture has occurred and is continuing, Funding Co. may
further defer the payment of interest subject to the above stated requirements,
as long as such deferral does not exceed an aggregate of 20 consecutive
quarters. Upon the termination of any deferral period and the payment of all
amounts then due, Funding Co. may elect to begin a new deferral period at any
time. Funding Co. does not currently intend to exercise its right to defer
payments of interest on the debentures.

Funding Co. must give the property trustee, the administrative trustees and
the indenture trustee notice of its election of a deferral period at least five
business days prior to the earlier of (a) the next date on which distributions
on the trust securities would have been payable except for the election to
begin an extension period, or (b) the date the Trust is required to give notice
of the record date, or the date the distributions are payable, to the New York
Stock Exchange, or other applicable self-regulatory organization, or to holders
of the trust preferred securities, but in any event at least five business day
prior to the record date.

Other than as described above, there is no limitation on the number of times
that Funding Co. may elect to begin a deferral period.

Redemption

Funding Co. may redeem the debentures prior to maturity:

. in whole or in part at any time on or after , 2008 and up to 90 days
prior to , 2033; or

. in whole but not in part at any time within 180 days following the
occurrence of a tax event or an investment company event.

We may also redeem debentures at any time, and from time to time, in an
amount equal to the liquidation amount of any trust preferred securities that
we purchase, plus a proportionate amount of common securities, but only in
exchange for a like amount of trust preferred securities and common securities
that we own.
In each case, Funding Co. will pay a redemption price equal to the accrued
and unpaid interest on the debentures so redeemed to the date fixed for
redemption, plus 100% of the principal amount of the redeemed debentures.

Notice of any redemption will be mailed at least 30 calendar days but no
more than 60 calendar days before the redemption date to each holder of
debentures to be redeemed at its registered address. Redemption of less than
all outstanding debentures must be effected proportionately, by lot or in any
other manner deemed to be fair and appropriate by the indenture trustee. Unless
Funding Co. defaults in payment of the redemption price for the debentures, on
and after the redemption date interest will no longer accrue on the debentures
or the portions of the debentures called for redemption.

The debentures will not be subject to any sinking fund.

Distribution Upon Liquidation

Under certain circumstances, the debentures may be distributed to the
holders of the trust preferred securities in liquidation of the Trust after
satisfaction of liabilities to creditors of the Trust. If this occurs, we will
use our reasonable efforts to list the debentures on the New York Stock
Exchange or other stock exchange or national quotation system on which the
trust preferred securities are then listed, if any. There can be no assurance
as to the market price of any debentures that may be distributed to the holders
of trust preferred securities.

Subordination

The debentures are subordinated and junior in right of payment to all of
Funding Co.'s senior debt and the debenture guarantee is subordinated and
junior in right of payment to all of Kingsway Financial's senior debt. Upon any
payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up or reorganization of Funding Co. or Kingsway Financial,
as the case may be, whether voluntary or involuntary in bankruptcy, insolvency,
receivership or other proceedings in connection with any insolvency or
bankruptcy proceedings, the holders of Funding Co.'s or Kingsway Financial's
senior debt, as the case may be, will first be entitled to receive payment in
full of principal and interest before the holders of debentures will be
entitled to receive or retain any payment in respect of the debentures.

If the maturity of any debentures is accelerated, the holders of all of
Funding Co.'s and Kingsway Financial's senior debt outstanding at the time of
the acceleration will also be entitled to first receive payment in full of all
amounts due to them, including any amounts due upon acceleration, before the
holders of the debentures will be entitled to receive or retain any principal
or interest payments on the debentures.

No payments of principal or interest on the debentures, and no payment on
the debenture guarantee, may be made if there has occurred and is continuing a
default in any payment with respect to any of Funding Co.'s or Kingsway
Financial's senior debt, as the case may be, or an event of default with
respect to any of its senior or subordinated debt resulting in the acceleration
of the maturity of the senior debt, or if any judicial proceeding is pending
with respect to any default.

Debt means, with respect to any person, whether recourse is to all or a
portion of the assets of the person and whether or not contingent:

. every obligation of the person for money borrowed;

. every obligation of the person issued or assumed as the deferred purchase
price of property or services, excluding expense accruals and deferred
compensation items arising in the ordinary course of business;

. every obligation of the person evidenced by notes, bonds, debentures or
other similar instruments, other than performance, surety and appeals
bonds arising in the ordinary course of business;

. all payment obligations created or arising under any conditional sale,
deferred price, or other title retention agreement with respect to
property acquired by such person (unless the rights and remedies of the
seller or lender under such agreement in the event of default are limited
to repossession or sale of such property);

. every capital lease obligation of the person;

. every reimbursement obligation of the person with respect to letters of
credit, bankers acceptances or similar facilities issued for the account
of the person; and

. every obligation of the type referred to in the six points above of
another person the payment of which the first person has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise or
is secured by property owned by such person.

Senior debt means the principal of, and premium and interest, including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to Funding Co. or Kingsway Financial, on debt, whether
incurred on or prior to the date of the indenture or thereafter incurred.
However, senior debt will not be deemed to include:

. any debt where it is provided in the instrument creating the debt that
the obligations are not superior in right of payment to the debentures,
or the debenture guarantee, as the case may be, or to other debt which is
equal with, or subordinated to, the debentures, or the debenture
guarantee, as the case may be;

. other debt issued by Funding Co., Kingsway Financial or any of their
subsidiaries, or the preferred securities guarantee, as the case may be,
to any trust, partnership or other entity affiliated with Kingsway
Financial, which is a financing vehicle for Funding Co., Kingsway
Financial, or any of their subsidiaries as the case may be;

. securities issued under the indenture and guaranteed by Kingsway
Financial under the indenture;

. trade accounts payable arising in the ordinary course of business; and

. any debt of Funding Co. or Kingsway Financial to any employee or an
affiliate.

Funding Co. does not have any indebtedness other than the debentures and
does not presently intend to incur any such indebtedness in the foreseeable
future. As of June 30, 2003, on an as adjusted basis to give effect to the
issuance and sale of the trust preferred securities offered by the Trust in
this offering, the total amount of Kingsway's senior debt that would have
effectively ranked senior to the debenture guarantee and the preferred
securities guarantee would have been approximately $234.5 million. The
indenture does not limit the incurrence or issuance of other secured or
unsecured debt of Kingsway, including senior debt, whether under the indenture
or any existing or other indenture that Kingsway may enter into in the future
or otherwise.

Payment and Paying Agents

Generally, payment of principal of and interest on the debentures will be
made at the office of the indenture trustee in New York, New York. However,
Funding Co. has the option to make payment of any interest by check mailed to
the address of the person entitled to payment at the address listed in the
register of holders of the debentures. Payment of any interest on debentures
will be made to the person in whose name the debenture is registered at the
close of business on the regular record date for the interest payment, except
in the case of defaulted interest.

Any moneys deposited with the indenture trustee or any paying agent for the
debentures, or then held by Funding Co. or Kingsway Financial in trust, for the
payment of the principal of or interest on the debentures and remaining
unclaimed for two years after the principal or interest has become due and
payable, will be paid to Funding Co. upon its request, or if deposited by
Kingsway Financial, paid to Kingsway Financial upon its request. If Funding Co.
or Kingsway Financial holds any of this money in trust, then it will be
discharged from the trust to Funding Co. or Kingsway Financial, as the case may
be, and the holder of the debenture will thereafter look, as a general
unsecured creditor, only to Funding Co. or Kingsway Financial, as the case may
be, for payment.

Registrar and Transfer Agent

The indenture trustee will act as the registrar and the transfer agent for
the debentures. Debentures may be presented for registration of transfer, with
the form of transfer endorsed thereon, or a satisfactory written instrument of
transfer, duly executed, at the office of the registrar. Provided that Funding
Co. maintains a transfer agent in New York, New York, Funding Co. may rescind
the designation of any transfer agent or approve a change in the location
through which any transfer agent acts. Funding Co. may at any time designate
additional transfer agents with respect to the debentures.

If Funding Co. redeems any of the debentures, neither Funding Co. nor the
indenture trustee will be required to (a) issue, register the transfer of or
exchange any debentures during a period beginning at the opening of business 15
days before the day of the mailing of the notice of redemption and ending at
the close of business on the day of the mailing of the relevant notice of
redemption, or (b) transfer or exchange any debentures so selected for
redemption, except, in the case of any debentures being redeemed in part, any
portion not to be redeemed.

Modification of Indenture

Funding Co., Kingsway Financial and the indenture trustee may, from time to
time without the consent of the holders of the debentures, amend, waive their
rights under or supplement the indenture for purposes which do not materially
adversely affect the rights of the holders of the debentures. Other changes may
be made by Funding Co., Kingsway Financial and the indenture trustee with the
consent of the holders of a majority in principal amount of the outstanding
debentures. However, without the consent of the holder of each outstanding
debenture affected by the proposed modification, no modification may:

. extend the maturity date of the debentures;

. reduce the principal amount or the rate of interest;

. reduce the percentage of principal amount of debentures required to amend
the indenture; or

. modify the obligations of Kingsway Financial's debenture guarantee in any
manner adverse to the debenture holders.

As long as any of the trust preferred securities remain outstanding, no
modification of the indenture may be made that requires the consent of the
holders of the debentures, no termination of the indenture may occur, and no
waiver of any event of default under the indenture may be effective, without
the prior consent of the holders of a majority of the aggregate liquidation
amount of the trust preferred securities.

Debenture Events of Default

The indenture provides that any one or more of the following events with
respect to the debentures that has occurred and is continuing constitutes an
event of default under the indenture:

. Funding Co.'s failure to pay any interest on the debentures for 30 days
after the due date, except where Funding Co. has properly deferred the
interest payment;

. Funding Co.'s failure to pay any principal on the debentures when due
whether at maturity, upon redemption or otherwise;

. Funding Co.'s or Kingsway Financial's failure to observe or perform any
other covenants or agreements contained in the indenture for 60 days
after written notice to Funding Co. and Kingsway Financial from the
indenture trustee or the holders of at least 25% in aggregate outstanding
principal amount of the debentures; or

. Funding Co.'s or Kingsway Financial's bankruptcy, insolvency or
reorganization or dissolution of the Trust.

If any of these events occur, neither Funding Co. nor Kingsway Financial
will be permitted to:

. declare or pay a dividend or distribution on any of its outstanding
capital stock;

. redeem, purchase, acquire or make a liquidation payment with respect to
any of its outstanding capital stock;

. make or permit any subsidiary to make, a principal, premium or interest
payment (other than payments under the subordinated notes) on, or repay,
repurchase or redeem, any debt security that ranks equally with or junior
to the debentures, the debenture guarantee or the subordinated notes as
the case may be; or

. make or permit any subsidiary to make, any guarantee payments with
respect to any guarantee of any debt security (other than payments under
the debenture guarantee or the preferred securities guarantee), if such
guarantee ranks equally with or junior to the debentures or the debenture
guarantee, as the case may be.

The above restrictions will not prevent Kingsway Financial from any of the
following: (i) repurchases, redemptions or other acquisitions of shares of its
capital stock in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of Kingsway Financial (or securities convertible into or exercisable for
such capital stock) as consideration in an acquisition transaction entered into
prior to the occurrence of the event of default or interest deferral, as
applicable, (ii) any transactions resulting from any reclassification of
Kingsway Financial's capital stock, or the exchange or conversion of any class
or series of Kingsway Financial's capital stock for any other class or series
of its capital stock, or the exchange or conversion of any class or series of
Kingsway Financial's indebtedness for any class or series of its capital stock,
(iii) the purchase of fractional interests in shares of Kingsway Financial's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, or (iv) any declaration of
a dividend in connection with any stockholders' rights plan, or the issuance of
rights, stock or other property under any stockholders' rights plan, or the
redemption or repurchase of rights pursuant thereto.

The holders of a majority of the aggregate outstanding principal amount of
the debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the indenture trustee.
The indenture trustee, or the holders of at least 25% in aggregate outstanding
principal amount of the debentures, may declare the principal due and payable
immediately upon an event of default under the indenture. The holders of a
majority of the outstanding principal amount of the debentures may rescind and
annul the declaration and waive the default if the default has been cured and a
sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration, has been deposited with the indenture trustee.
Should the holders of the debentures fail to annul the declaration and waive
the default, the holders of at least 25% in aggregate liquidation amount of the
trust preferred securities will have this right.

If an event of default under the indenture has occurred and is continuing,
the property trustee will have the right to declare the principal of and the
interest on the debentures, and any other amounts payable under the indenture,
to be immediately due and payable and to enforce its other rights as a creditor
with respect to the debentures. The holders may not annul a declaration of
acceleration and waive a default if the default is the non-payment of the
principal of the debentures which has become due solely by the acceleration. If
an event of default is due to the bankruptcy or other insolvency proceeding of
Funding Co. or Kingsway Financial, then the principal of and the interest on
the debentures will become immediately due and payable without any declaration
by the property trustee.

Funding Co. and Kingsway Financial are required to file annually with the
indenture trustee a certificate as to whether or not they are in compliance
with all of the conditions and covenants applicable to them under the indenture.

Enforcement of Certain Rights by Holders of the Trust Preferred Securities

If an event of default under the indenture has occurred and is continuing
and the event is attributable to the failure by Funding Co. to pay interest on
or principal of the debentures or the failure of Kingsway Financial to pay
interest or principal under the debenture guarantee, as the case may be, on the
date on which the payment is due and payable and certain other conditions set
forth in the indenture are met, then a holder of trust preferred securities may
institute a direct action against Funding Co. or Kingsway Financial, as the
case may be, to compel it to make the payment. Funding Co. and Kingsway
Financial may not amend the indenture to remove the foregoing right to bring a
direct action without the prior written consent of all of the holders of the
trust preferred securities. If the right to bring a direct action is removed,
the Trust may become subject to the reporting obligations under the Exchange
Act.

The holders of the trust preferred securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the debentures unless there has been an event of
default under the trust agreement.

Consolidation, Merger, Sale of Assets and Other Transactions

Neither Funding Co. nor Kingsway Financial may consolidate with or merge
into any other entity or convey or transfer its properties and assets
substantially as an entirety to any entity, and no entity may be consolidated
with or merged into Funding Co. or Kingsway Financial, or sell, convey,
transfer or otherwise dispose of its properties and assets substantially as an
entirety to Funding Co. or Kingsway Financial, unless:

. the successor person expressly assumes by supplemental indenture the
obligations of Funding Co. or Kingsway Financial on the debentures or the
debenture guarantee, as the case may be;

. immediately after the transaction, no event of default under the
indenture, and no event which, after notice or lapse of time, or both,
would become an event of default under the indenture, occurred and is
continuing;

. the transaction is permitted under the trust agreement and will not
result in a breach or violation of the trust agreement; and

. other conditions as prescribed in the indenture are met.

In addition, it is a condition precedent to any transaction involving
Funding Co. described above that either Funding Co. is the surviving person in
the combination or if Funding Co. consolidates with or merges into another
person or conveys or transfers its properties and assets substantially as an
entirety to any person, the successor person is organized under the laws of the
U.S. or any state or the District of Columbia.

Satisfaction and Discharge

The indenture will cease to be of further effect and Funding Co. and
Kingsway Financial will be deemed to have satisfied and discharged their
obligations under the indenture when all debentures not previously delivered to
the indenture trustee for cancellation:

. have become due and payable; or

. will become due and payable at their stated maturity within one year or
are to be called for redemption within one year,

and Funding Co. or Kingsway Financial deposits or causes to be deposited with
the indenture trustee funds, in trust, for the purpose and in an amount
sufficient to pay and discharge the entire indebtedness on the debentures not
previously delivered to the indenture trustee for cancellation, for the
principal and interest due to the date of the deposit or to the stated maturity
or redemption date, as the case may be.

Funding Co. and Kingsway Financial may still be required to provide
officers' certificates, opinions of counsel and pay fees and expenses due after
these events occur.

Governing Law

The indenture and the debentures will be governed by and construed in
accordance with New York law.

Information Concerning the Indenture Trustee

The indenture trustee is subject to all the duties and responsibilities
specified with respect to an indenture trustee under the Trust Indenture Act.
Subject to these provisions, the indenture trustee is under no obligation to
exercise any of the powers vested in it by the indenture at the request of any
holder of debentures, unless offered security or indemnity satisfactory to the
indenture trustee by the holder against the costs, expenses and liabilities
which might be incurred. The indenture trustee is not required to expend or
risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the indenture trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.

Expenses

Funding Co., pursuant to the indenture, irrevocably and unconditionally
agrees to pay all costs, expenses or liabilities of the Trust, other than
obligations of the Trust to pay to the holders of the trust preferred
securities or other similar interests in the Trust of the amounts due to the
holders pursuant to the terms of the trust preferred securities or other
similar interests, as the case may be. Third party creditors of the Trust may
proceed directly against Funding Co. under the indenture, regardless of whether
they had notice of the indenture.

Miscellaneous

Funding Co. has agreed, pursuant to the indenture, for so long as trust
preferred securities remain outstanding:

. to maintain directly or indirectly 100% ownership of the common
securities of the Trust, except that the common securities may be
transferred to certain related parties or certain successors that are
permitted pursuant to the indenture;

. not to voluntarily terminate, dissolve, windup or liquidate the Trust,
except to distribute the debentures to the holders of the trust preferred
securities or to redeem all of trust preferred securities or, if it
merges or consolidates with another company and the trust agreement
permits;

. to cause the Trust (a) to remain a statutory trust except in connection
with a distribution of debentures, the redemption of all of the trust
securities of the Trust or mergers, consolidations or amalgamations, each
as permitted by the trust agreement; and (b) to use its reasonable
efforts to cause the Trust to continue to be treated as a grantor trust
and not as an association taxable as a corporation for U.S. federal
income tax purposes, and to avoid involuntary dissolution, winding up or
liquidation.

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BOOK-ENTRY ISSUANCE

General

DTC will act as securities depositary for the trust preferred securities and
may act as securities depositary for all of the debentures in the event of the
distribution of the debentures to the holders of trust preferred securities.
Except as described below, the trust preferred securities will be issued as
registered securities in the name of Cede & Co., DTC's nominee, or such other
name as may be requested by an authorized representative of DTC. One or more
global preferred securities will be issued for the trust preferred securities
and will be deposited with DTC.

DTC is a limited purpose trust company organized under New York banking law,
a "banking organization" within the meaning of the New York banking law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act. DTC holds
securities that its participants deposit with DTC. DTC also facilitates the
settlement among participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its direct participants and by
the New York Stock Exchange, Inc., the American Stock Exchange LLC and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to indirect participants, such as securities brokers and
dealers, banks and trust companies that clear through or maintain custodial
relationships with direct participants, either directly or indirectly. The
rules applicable to DTC and its participants are on file with the SEC.

Purchases of trust preferred securities under the DTC system must be made by
or through direct participants, which will receive a credit for the trust
preferred securities on DTC's records. The ownership interest of each actual
purchaser of each trust preferred security, or beneficial owner, is in turn to
be recorded on the direct and indirect participants' records. Beneficial owners
will not receive written confirmation from DTC of their purchases, but
beneficial owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the direct or indirect participants through which the beneficial owners
purchased trust preferred securities. Transfers of ownership interests in the
trust preferred securities are to be accomplished by entries made on the books
of participants acting on behalf of beneficial owners. Beneficial owners will
not receive certificates representing their ownership interest in trust
preferred securities, except if use of the book-entry-only system for the trust
preferred securities is discontinued.

To facilitate subsequent transfers, all trust preferred securities deposited
by direct participants with DTC are registered in the name of DTC's nominee,
Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of trust preferred securities with DTC and
their registration in the name of Cede & Co. or such other nominee do not
effect any change in beneficial ownership. DTC will have no knowledge of the
actual beneficial owners of the trust preferred securities; DTC's records
reflect only the identity of the direct participants to whose accounts the
trust preferred securities are credited, which may or may not be the beneficial
owners. The participants will remain responsible for keeping account of their
holdings on behalf of their customers.

The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be accurate, but we and the
Trust assume no responsibility for the accuracy thereof. Neither we nor the
Trust have any responsibility for the performance by DTC or its participants of
their respective obligations as described in this prospectus or under the rules
and procedures governing their respective operations.

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Notices and Voting

Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
and indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.

Redemption notices will be sent to DTC. If less than all of the trust
preferred securities are being redeemed, the amount to be redeemed will be
determined in accordance with the trust agreement.

Although voting with respect to the trust preferred securities is limited to
the holders of record of the trust preferred securities, in those instances in
which a vote is required, neither DTC nor Cede & Co. (nor such other nominee)
will itself consent or vote with respect to trust preferred securities. Under
its usual procedures, DTC would mail an omnibus proxy to the property trustee
as soon as possible after the record date. The omnibus proxy assigns Cede &
Co.'s consenting or voting rights to those direct participants to whose
accounts the trust preferred securities are credited on the record date
(identified in a listing attached to the omnibus proxy).

Distribution of Funds

The property trustee will make redemption proceeds, distributions and
dividend payments on the trust preferred securities to Cede & Co., or such
other nominee as may be requested by an authorized representative of DTC. DTC's
practice is to credit direct participants' accounts, upon DTC's receipt of
funds and corresponding detail information from the property trustee on payable
date in accordance with their respective holdings shown on DTC's records.
Payments by participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of the participant and not of DTC, the property
trustee, the Trust or us, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of redemption proceeds,
distributions and dividends to DTC is the responsibility of the property
trustee, disbursement of the payments to direct participants is the
responsibility of DTC, and disbursements of the payments to the beneficial
owners is the responsibility of direct and indirect participants.

Successor Depositaries and Termination of Book-Entry System

DTC may discontinue providing its services with respect to the trust
preferred securities at any time by giving reasonable notice to the property
trustee or Funding Co. If no successor securities depositary is obtained,
definitive certificates representing the trust preferred securities are
required to be printed and delivered. We also have the option to discontinue
use of the system of book-entry transfers through DTC (or a successor
securities depositary). After an event of default under the indenture, the
holders of a majority in liquidation amount of trust preferred securities may
determine to discontinue the system of book-entry transfers through DTC. In
either of these events, definitive certificates for the trust preferred
securities will be printed and delivered.

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DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE

The preferred securities guarantee agreement will be executed and delivered
by Kingsway Financial concurrently with the issuance of the trust preferred
securities for the benefit of the holders of the trust preferred securities.
The preferred securities guarantee agreement will be qualified as an indenture
under the Trust Indenture Act, and the guarantee trustee will act as trustee
for purposes of complying with the provisions of the Trust Indenture Act, and
will also hold the preferred securities guarantee for the benefit of the
holders of the trust preferred securities.

The following discussion contains a description of the material provisions
of the preferred securities guarantee agreement and is subject to, and is
qualified in its entirety by reference to, the preferred securities guarantee
agreement and the Trust Indenture Act. We urge you to read the form of the
preferred securities guarantee agreement, which is filed as an exhibit to the
registration statement of which this prospectus forms a part.

General

Kingsway Financial agrees to pay in full on a subordinated basis, to the
extent described in the preferred securities guarantee agreement, the preferred
securities guarantee payments, as defined below, to the holders of the trust
preferred securities, as and when due, regardless of any defense, right of
set-off or counterclaim that the Trust may have or assert other than the
defense of payment. Kingsway Financial's obligations under the preferred
securities guarantee are several and independent of the obligations of Funding
Co. with respect to the debentures, the obligations of the Trust with respect
to the trust preferred securities and Kingsway Financial's obligations under
the debenture guarantee.

The following payments with respect to the trust preferred securities are
called the preferred securities guarantee payments and, to the extent not paid
or made by the Trust and to the extent that the Trust has funds available for
those distributions, will be subject to the preferred securities guarantee:

. any accumulated and unpaid distributions required to be paid on the trust
preferred securities;

. with respect to any trust preferred securities called for redemption, the
redemption price; and

. upon a voluntary or involuntary dissolution of the Trust (other than in
connection with the distribution of debentures to the holders of trust
preferred securities in exchange for trust preferred securities), the
lesser of:

. the amount of the liquidation distribution; and

. the amount of assets of the Trust remaining available for distribution
to holders of trust preferred securities in liquidation of the Trust.

Kingsway Financial may satisfy its obligations to make a preferred
securities guarantee payment by making a direct payment of the required amounts
to the holders of the trust preferred securities or by causing the Trust to pay
the amounts to the holders. If Kingsway Financial satisfies its obligations to
make a guarantee payment by making a direct payment of the required amounts to
the holders of the trust preferred securities, Kingsway Financial will make all
such payments without withholding or deduction at the source for or on account
of any Foreign Taxes, unless such Foreign Taxes are required to be withheld or
deducted by (x) the laws (or any regulations or rulings promulgated thereunder)
of the Taxing Jurisdiction or any province, territory, political subdivision or
taxing authority thereof or therein or (y) an official position regarding the
application, administration, interpretation or enforcement of any such laws,
regulations or rulings (including a holding by a court of competent
jurisdiction or by a taxing authority in the Taxing Jurisdiction or any
province, territory, or political subdivision thereof). If a withholding or
deduction for Foreign Taxes at source is required, Kingsway Financial will,
subject to certain limitations and exceptions described below, pay to the
holders of the trust preferred securities such additional amounts, referred to
as additional amounts, as may be necessary in order

103

that the net amounts received by such holders after such withholding or
deduction will not be less than the amount such holders would have received in
respect of the trust preferred securities if such Foreign Taxes had not been
withheld or deducted; provided, however, that Kingsway Financial will not be
required to pay any additional amounts for or on account of:

. any estate, inheritance, gift, sale, transfer, personal property or
similar tax, assessment or other governmental charge; or

. any Foreign Taxes that are imposed or withheld by reason of the failure
by the holder (or the beneficial owner) of such trust preferred security
to comply with any reasonable and timely written request by Kingsway
Financial or its agent addressed to the holder within 60 days of such
request (a) to provide information concerning the nationality, residence
or identity of the holder (or such beneficial owner) or (b) to make any
declaration or other similar claim or satisfy any information,
certification, identification, documentation or other reporting
requirement, which in either case is required or imposed by statute,
treaty, regulation or administrative practice of the Taxing Jurisdiction
or any province, territory or political subdivision thereof as a
precondition to exemption from all or part of such Foreign Taxes.

In addition, Kingsway Financial will not pay additional amounts with respect
to any payment of principal of, or premium, if any, interest or any other
amounts on, any such trust preferred security to any holder who is, for income
tax purposes of the Taxing Jurisdiction, a fiduciary or partnership or other
than the sole beneficial owner of such trust preferred security to the extent
such payment would be required by the laws of the Taxing Jurisdiction (or any
province, territory or political subdivision or relevant taxing authority
thereof or therein) to be included in the income for tax purposes of a
beneficiary or settlor with respect to such fiduciary, or a partner of such
partnership, or a beneficial owner who would not have been entitled to such
additional amounts had it been the holder of the trust preferred security.

The preferred securities guarantee agreement is a guarantee, on a
subordinated basis, of the guarantee payments on the trust preferred
securities, but the preferred securities guarantee only applies to the extent
the Trust has funds available for those distributions. If Funding Co. does not
make interest payments on the debentures purchased by the Trust, the Trust will
not have funds available to make the distributions and will not pay
distributions on the trust preferred securities.

Status of the Guarantee

The guarantee constitutes Kingsway Financial's unsecured obligation that
ranks subordinate and junior in right of payment to all of Kingsway Financial's
senior debt. Kingsway Financial expects to incur additional indebtedness in the
future, although it has no specific plans in this regard presently, and, except
in limited circumstances, neither the indenture nor the preferred securities
guarantee limits the amounts of the obligations that Kingsway Financial may
incur.

The preferred securities guarantee constitutes a guarantee of payment and
not of collection. If Kingsway Financial fails to make payments under the
preferred securities guarantee when required, holders of trust preferred
securities may institute a legal proceeding directly against it to enforce
their rights under the preferred securities guarantee without first instituting
a legal proceeding against any other person or entity. The preferred securities
guarantee will not be discharged except by payment of the preferred securities
guarantee payments in full to the extent not paid by the Trust or upon
distribution of the debentures to the holders of the trust preferred securities.

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Amendments

Except with respect to any changes that do not materially adversely affect
the rights of holders of the trust preferred securities, in which case no vote
will be required, the preferred securities guarantee agreement may be amended
only with the prior approval of the holders of a majority of the aggregate
liquidation amount of the outstanding trust preferred securities.

Events of Default; Remedies

An event of default under the preferred securities guarantee agreement will
occur upon Kingsway Financial's failure to make any required preferred
securities guarantee payments or to perform any other obligations under the
preferred securities guarantee. The holders of a majority in aggregate
liquidation amount of the trust preferred securities will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the preferred securities guarantee trustee in respect of the
guarantee and may direct the exercise of any power conferred upon the guarantee
trustee under the preferred securities guarantee agreement.

Any holder of trust preferred securities may institute and prosecute a legal
proceeding directly against Kingsway Financial to enforce its rights under the
preferred securities guarantee without first instituting a legal proceeding
against Funding Co., the Trust, the guarantee trustee or any other person or
entity.

Kingsway Financial is required to periodically provide to the guarantee
trustee a certificate as to whether or not it is in compliance with all of the
conditions precedent and covenants applicable to it under the preferred
securities guarantee agreement. Kingsway Financial is also required to provide
the guarantee trustee, the SEC and the holders of the trust preferred
securities all information required pursuant to the Trust Indenture Act.

Restrictions on Payments

If an event of default under the indenture, the trust agreement or the
preferred securities guarantee agreement shall have occurred and be continuing,
or if a deferral period is in effect, Kingsway Financial will not be permitted
to:

. declare or pay a dividend or distribution on any of its outstanding
capital stock;

. redeem, purchase, acquire or make a liquidation payment with respect to
any of its outstanding capital stock;

. make or permit any subsidiary to make, a principal, premium or interest
payment (other than payments under the subordinated notes) on, or repay,
repurchase or redeem, any debt security that ranks equally with or junior
to the debentures, the debenture guarantee or the subordinated notes as
the case may be; or

105

other class or series of its capital stock, or the exchange or conversion of
any class or series of Kingsway Financial's indebtedness for any class or
series of its capital stock, (iii) the purchase of fractional interests in
shares of Kingsway Financial's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, or (iv) any declaration of a dividend in connection with any
stockholders' rights plan, or the issuance of rights, stock or other property
under any stockholders' rights plan, or the redemption or repurchase of rights
pursuant thereto.

Termination of the Guarantee

The guarantee will terminate and be of no further force and effect upon:

. full payment of the redemption price of the trust preferred securities;

. full payment of the amounts payable upon liquidation of the Trust; or

. distribution of the debentures to the holders of the trust preferred
securities.

If at any time any holder of the trust preferred securities must restore
payment of any sums paid under the trust preferred securities or the guarantee,
the guarantee will continue to be effective or will be reinstated with respect
to such amounts.

Information Concerning the Guarantee Trustee

The guarantee trustee, other than during the occurrence and continuance of
Kingsway Financial's default in performance of the guarantee, undertakes to
perform only those duties as are specifically set forth in the guarantee. When
an event of default has occurred, and is actually known to the trustee and is
continuing, the guarantee trustee must enforce the preferred securities
guarantee for the benefit of the holders and must exercise the rights and
powers vested in it by the preferred securities guarantee, and use the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to those provisions, the guarantee
trustee is under no obligation to exercise any of the powers vested in it by
the guarantee at the request of any holder of any trust preferred securities
unless it is offered indemnity satisfactory to the guarantee trustee against
the costs, expenses and liabilities that might be incurred thereby.

Governing Law

The guarantee will be governed by and construed in accordance with New York
law.

106

RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES,
THE DEBENTURES AND THE GUARANTEES

Full and Unconditional Guarantee

Kingsway Financial will irrevocably guarantee, as and to the extent
described in this prospectus, payments of distributions and other amounts due
on the trust preferred securities, to the extent the Trust has funds available
for the payment of these amounts pursuant to the preferred securities guarantee
agreement, and will fully and unconditionally guarantee all payments with
respect to the debentures pursuant to the debenture guarantee contained in the
indenture. Funding Co., Kingsway Financial and the Trust believe that, taken
together, the obligations of Funding Co. and Kingsway Financial under the
debentures, the indenture, the trust agreement, the preferred securities
guarantee agreement and the debenture guarantee provide, in the aggregate, a
full, irrevocable and unconditional guarantee, on a subordinated basis, of
payment of distributions and other amounts due on the trust preferred
securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes a guarantee on the payments
of distributions or other amounts due on the trust preferred securities. It is
only the combined operation of these documents that has the effect of providing
a full, irrevocable and unconditional guarantee of the obligations of the Trust
under the trust preferred securities.

If and to the extent that Funding Co. does not make payments on the
debentures, the Trust will not pay distributions or other amounts due on the
trust preferred securities. Kingsway Financial's preferred securities guarantee
does not cover payment of distributions when the Trust does not have sufficient
funds to pay the distributions. In this event, the remedy of a holder of trust
preferred securities is to institute a legal proceeding directly against
Funding Co. for enforcement of payment of the distributions on the debentures
to the Trust, or against Kingsway Financial for enforcement of its obligations
to make payments under its debenture guarantee.

Kingsway Financial's obligations under the preferred securities guarantee
and the debenture guarantee are subordinated and junior in right of payment to
all of its other senior debt. The preferred securities guarantee and the
debenture guarantee will be unsecured obligations of Kingsway Financial,
subordinated in right of payment to the prior payment in full of all Kingsway
Financial's senior debt as described above under "Description of the Debenture
and the Debenture Guarantee--Subordination" beginning on page 95 and
"Description of the Preferred Securities Guarantee--Status of the Guarantee"
beginning on page 104. The preferred securities guarantee and the debenture
guarantee will rank equally with the guarantee by Kingsway Financial of any
other subordinated debentures issued under the indenture to the Trust or
similar trusts.

Sufficiency of Payments

As long as payments of interest and other payments are made when due on the
debentures, these payments will be sufficient to cover distributions and other
payments due on the trust preferred securities, primarily because:

. the aggregate principal amount of the debentures will be equal to the sum
of the aggregate stated liquidation amount of the trust securities;

. the interest rate and interest and other payment dates on the debentures
will match the distribution rate and distribution and other payment dates
for the trust preferred securities;

. Funding Co. will pay for any and all costs, expenses and liabilities of
the Trust, except the obligations of the Trust to pay to holders of the
trust preferred securities the amounts due to the holders pursuant to the
terms of the trust preferred securities; and

. the Trust will not engage in any activity that is not consistent with the
limited purposes of the Trust.

Enforcement Rights of Holders of Trust Preferred Securities

Upon default involving nonpayment of any distributions that have become due,
a holder of any trust preferred security may institute a legal proceeding
directly against Kingsway Financial to enforce its rights under

107

the preferred securities guarantee or the debenture guarantee without first
instituting a legal proceeding against the guarantee trustee, Funding Co., the
Trust or any other person. A default or event of default under any of Funding
Co.'s senior debt would not constitute a default or event of default under the
trust agreement. In the event, however, of payment defaults under, or
acceleration of, its senior debt, the subordination provisions of the indenture
provide that no payments may be made in respect of the debentures until the
obligations have been paid in full or any payment default has been cured or
waived. Failure to make required payments on the debentures would constitute an
event of default under the trust agreement.

Limited Purpose of the Trust

The trust preferred securities evidence preferred undivided beneficial
interests in the assets of the Trust. The Trust exists for the exclusive
purposes of issuing the trust securities, investing the proceeds thereof in
debentures and engaging in only those other activities necessary, advisable or
incidental thereto. A principal difference between the rights of a holder of a
trust preferred security and the rights of a holder of a debenture is that a
holder of a debenture is entitled to receive from Funding Co. the principal
amount of and interest accrued on debentures (or from Kingsway Financial under
the debenture guarantee) held, while a holder of trust preferred securities is
entitled to receive distributions from the Trust (or from Kingsway Financial
under the preferred securities guarantee) if and to the extent the Trust has
funds available for the payment of the distributions.

Rights Upon Dissolution

Upon any voluntary or involuntary dissolution of the Trust involving the
liquidation of the debentures, the holders of the trust preferred securities
will be entitled to receive, out of assets held by the Trust, the liquidation
distribution.

Upon Funding Co.'s or Kingsway Financial's voluntary or involuntary
liquidation or bankruptcy, the property trustee, as holder of the debentures,
would be a subordinated creditor of them. Therefore, the property trustee would
be subordinated in right of payment to all of their respective senior debt, but
is entitled to receive payment in full of principal and interest before any of
their respective shareholders receive payments or distributions. Since Kingsway
Financial is the guarantor under the preferred securities guarantee and the
debenture guarantee and Funding Co. has agreed to pay for all costs, expenses
and liabilities of the Trust other than the obligations of the Trust to pay to
holders of the trust preferred securities the amounts due to the holders
pursuant to the terms of the trust preferred securities, the positions of a
holder of the trust preferred securities and a holder of the debentures
relative to Kingsway Financial's other creditors and to Kingsway Financial's
stockholders in the event of liquidation or bankruptcy are expected to be
substantially the same.

108

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

General

This summary describes all material U.S. federal income tax consequences of
the acquisition, ownership and disposition of the trust preferred securities
and the debentures resulting from this offering and outlines the U.S. federal
income tax treatment of the Trust as of the date of this prospectus. The
statements of law and legal conclusions in the following discussion are the
opinion of Lord, Bissell & Brook, our counsel, based on and subject to the
facts, factual assumptions and limitations set forth in this discussion.

Except where we state otherwise, this summary deals only with the trust
preferred securities held as capital assets within the meaning of the Internal
Revenue Code of 1986, as amended, which we refer to as the Code, by a holder
who:

. is a United States Person, as defined below; and

. acquires the trust preferred securities upon original issuance at their
original issue price.

United States Person means a beneficial owner of trust preferred securities
that, for U.S. federal tax purposes, is:

. a citizen or resident of the United States;

. a corporation, partnership or other entity taxable as a corporation or
partnership that is created or organized in or under the laws of the
United States or any political subdivision of the United States;

. an estate the income of which is subject to U.S. federal income taxation
without regard to its source; or

. a trust that:

. is subject to the primary supervision of a court within the United
States and the control of one or more United States Persons, or

. has a valid election in effect under the applicable United States
Treasury regulations to be treated as a United States Person.

This discussion does not discuss all of the U.S. federal income tax
consequences, or, except as specifically noted, any other tax consequences, of
the acquisition, ownership and disposition of the trust preferred securities
that may be relevant to beneficial owners. Nor does it address tax consequences
to beneficial owners who are subject to special rules, such as:

. banks;

. thrift institutions;

. real estate investment trusts;

. regulated investment companies;

. insurance companies;

. dealers in securities or currencies;

. securities traders that elect to use a mark to market method of
accounting for their securities holdings;

. tax-exempt organizations;

. persons holding the trust preferred security as a position in a straddle,
or as part of a hedging, conversion, or constructive sale transaction;

. persons that have a functional currency other than the United States
dollar;

. except with respect to the discussion under the caption Non-United States
Holders, persons who are not United States Persons; and

. former United States Persons subject to U.S. taxation under provisions
relating to expatriation to avoid tax.

109

In addition, this discussion does not address:

. the income tax consequences to stockholders in, or partners or
beneficiaries of, a holder of the trust preferred securities;

. the United States alternative minimum tax consequences of purchasing,
owning and disposing of the trust preferred securities; or

. any state, local or foreign tax consequences of purchasing, owning and
disposing of the trust preferred securities.

This discussion is based on U.S. federal income tax laws (and foreign tax
laws relevant to the discussion under the heading "Foreign Tax Credits" on page
111) in effect on the date of this prospectus, including applicable regulations
and administrative and judicial interpretations. Changes to any of these laws,
regulations or interpretations after this date may affect the tax consequences
described below, possibly on a retroactive basis.

Some of the authorities on which this discussion is based are subject to
various interpretations, and either the IRS or the courts could take a contrary
position. Moreover, no rulings have been or will be sought from the IRS with
respect to the transactions described in this prospectus. Accordingly, we
cannot assure you that the IRS will not challenge the consequences of the
acquisition, ownership and disposition of the trust preferred securities
outlined in this prospectus or that a court would not sustain such a challenge.

The U.S. federal income tax discussion set forth below is included for
general information only and may not be applicable depending upon your
particular situation. We urge you to consult your own tax advisor regarding the
tax consequences to you of the purchase, ownership and disposition of the trust
preferred securities, including the tax consequences under state, local,
foreign and other tax laws and the possible effects of changes in U.S. federal
or other laws.

Classification of the Trust

At the closing of this offering, the law firm of Lord, Bissell & Brook will
render an opinion that the Trust will be classified for U.S. federal income tax
purposes as a grantor trust and not an association taxable as a corporation
based on and subject to the facts and assumptions set forth in the opinion,
including the assumption that there will be full compliance with the terms of
the trust agreement, the indenture and certain other documents.

Under the rules for grantor trusts, you generally will be considered the
owner of an undivided interest in the debentures owned by the Trust for U.S.
federal income tax purposes. Accordingly, when you acquire the trust preferred
securities, you will be treated as acquiring an interest in the debentures and
you will be required to include all income or gain recognized for U.S. federal
income tax purposes with respect to your share of the debentures in your gross
income for U.S. federal income tax purposes, whether or not you receive
distributions on your trust preferred securities. Further, as described below
in more detail, the distribution of the debentures to you upon liquidation of
the Trust would not be a taxable event for U.S. federal income tax purposes. In
contrast, if the Trust were treated as an association taxable as a corporation,
it would be taxable on its interest income from the debentures, and if it
distributed the debentures, the Trust would also be taxable on any gain
realized upon the distribution, and the distribution would likely constitute a
taxable event to you. In that case, upon the distribution of the debentures,
you would recognize gain or loss equal to the difference between your adjusted
tax basis in your trust preferred securities and the fair market value of the
debentures you received. The remainder of this discussion assumes that the
Trust will be treated as a grantor trust and not as an association taxable as a
corporation.

Classification of Funding Co.'s Debentures

The debentures are intended to be classified for U.S. federal income tax
purposes as indebtedness of Funding Co. By acceptance of the trust preferred
securities, each holder covenants to treat the debentures as indebtedness and
the trust preferred securities as evidence of an indirect beneficial ownership
interest in the

110

debentures. We cannot assure you that the IRS will not challenge this position.
The remainder of this discussion assumes that the debentures will be treated as
indebtedness of Funding Co. for U.S. federal income tax purposes.

Interest Income and Original Issue Discount

We anticipate that the debentures will not be issued with an issue price
that is less than their stated redemption price at maturity. Under applicable
United States Treasury regulations, a contingency that stated interest will not
be timely paid that is remote will be ignored in determining whether a debt
instrument is issued with original issue discount, or OID. As a result of terms
and conditions of the debentures that prohibit payments with respect to Funding
Co.'s and Kingsway Financial's capital stock and indebtedness if Funding Co.
elects to defer interest payments, we believe that the likelihood of Funding
Co. exercising its option to defer payments is remote. Based on the foregoing,
we believe that the debentures will not be considered to be issued with OID at
the time of their original issuance and, accordingly, you should include in
gross income your allocable share of interest on the debentures at the time
that it is paid or accrued in accordance with your regular method of
accounting, although the IRS could take a contrary position. The following
discussion assumes that unless and until Funding Co. exercises its option to
defer interest on the debentures, the debentures will not be treated as issued
with OID.

If Funding Co. exercised its right to defer payments of interest on the
debentures (or if the exercise of such option was determined not to be remote),
the debentures would be treated as issued with OID at the time of such exercise
(or at the time of issuance if the exercise of such option was determined not
to be remote). In such case, you will be subject to the special OID rules
described below. Once the debentures become OID instruments, they will be taxed
as OID instruments for as long as they remain outstanding.

Under the OID economic accrual rules, the following occurs:

. regardless of your method of accounting, you would accrue an amount of
interest income each year that approximates the stated interest payments
called for under the terms of the debentures using the
constant-yield-to-maturity method of accrual;

. the actual cash payments of interest you receive on the debentures would
not be reported separately as taxable income;

. any amount of OID included in your gross income (whether or not during a
deferral period) with respect to the debentures would increase your tax
basis in such debentures; and

. the amount of distributions in respect of such accrued OID would reduce
your tax basis in such debentures.

Because the debentures are debt for U.S. federal income tax purposes,
corporate holders will not be entitled to a dividends received deduction with
respect to any income in respect of the trust preferred securities and
individual holders will not be entitled to the benefit of the reduced rates
provided by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (referred
to as the "2003 Tax Act") for "qualified dividend income" with respect to any
income in respect of the trust preferred securities.

Foreign Tax Credits

If with respect to any guarantee payment that Kingsway Financial makes under
the debenture guarantee or the preferred securities guarantee foreign income
taxes are imposed on the holders of debentures or trust preferred securities,
as the case may be, and Kingsway Financial pays additional amounts to such
holders for such foreign income taxes, those additional amounts will likely be
taxable as foreign source income to holders who are United States Persons.
However, those foreign income taxes will generally be treated as foreign taxes
eligible for (a) credit against the holder's U.S. federal income tax liability,
subject to limitations in the Code and any applicable income tax treaty between
the United States and the relevant Taxing Jurisdiction, or (b) at the holder's
election, deduction in computing the holder's taxable income for U.S. federal
income tax purposes.

111

Receipt of Debentures or Cash Upon Liquidation of the Trust

Under certain circumstances described above, the Trust may distribute the
debentures to you in exchange for your trust preferred securities in
liquidation of the Trust. Except as discussed below, a distribution of the
debentures would not be a taxable event for U.S. federal income tax purposes.
In that case, you would have an aggregate adjusted tax basis in the debentures
you receive equal to your aggregate adjusted basis in your trust preferred
securities, and your holding period for the debentures you receive would
include the period during which you held your trust preferred securities.

Under certain circumstances, Funding Co. may redeem debentures from the
Trust for cash and the Trust may distribute the proceeds of this redemption to
you in exchange for your trust preferred securities. This redemption would be
taxable for U.S. federal income tax purposes, and you would recognize gain or
loss as if you had sold the trust preferred securities for cash. See "Sales of
Trust Preferred Securities" below.

Sales of Trust Preferred Securities

If you sell the trust preferred securities, or the trust preferred
securities are redeemed for cash, you will recognize gain or loss, as the case
may be, equal to the difference between your adjusted tax basis in the trust
preferred securities and the amount realized on the sale or redemption of the
trust preferred securities. Unless a debenture is treated as having OID, any
portion of the amount you receive that is attributable to accrued interest will
be treated as interest income and will not be treated as part of the amount
realized for purposes of determining your gain or loss on the disposition of
trust preferred securities. If, however, the debentures are treated as having
OID, the basis of the trust preferred securities would be increased by OID
included in your gross income to the date of disposition, and decreased by
payments received on the trust preferred securities other than any interest for
the period prior to the date that the debentures are treated as issued with
OID. Any gain or loss generally will be capital gain or loss, and generally
will be a long-term capital gain or loss if you have held the trust preferred
securities as a capital asset for more than one year prior to the date of
disposition. In the case of individuals, trusts and estates, long-term capital
gains generally are taxed at a lower rate than short-term capital gains.
Subject to certain limited exceptions, capital losses generally cannot be
applied to offset ordinary income.

The 2003 Tax Act contains provisions that generally reduce the maximum rate
of tax imposed on long-term capital gains realized by individuals from 20
percent to 15 percent. The reduced rate applies to long-term capital gains from
sales or exchanges recognized on or after May 6, 2003 and ceases to apply for
taxable years beginning after December 31, 2008. The reduced rate does not
apply to short-term capital gains. Prospective investors should consult their
own tax advisors in order to evaluate the consequences and effective dates of
this change in law.

Market Discount and Acquisition Premium

Holders of trust preferred securities other than holders who acquired the
trust preferred securities upon original issuance may be considered to have
acquired their trust preferred securities with "market discount" or
"acquisition premium" as those phrases are defined for U.S. federal income tax
purposes. Such holders are advised to consult their own tax advisors as to the
income tax consequences of the acquisition, ownership and disposition of the
trust preferred securities.

Non-United States Holders

The following discussion applies to you only if you would be a beneficial
owner of the trust preferred securities and are not a United States Person as
defined above. Under present U.S. federal income tax law, if you are not
engaged in a trade or business in the United States:

. No withholding of U.S. federal income tax will be required with respect
to the payment by Funding Co., the Trust or any paying agent of principal
or interest, including any OID, on the trust preferred securities or the
debentures provided that:

112

. you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock entitled to vote;

. you are not a controlled foreign corporation as defined in the Code
that is related to us through stock ownership;

. you are not a bank whose receipt of interest on a debenture or trust
preferred security is described in Section 881(c)(3)(A) of the Code;

. you are not a foreign private foundation; and

. either (a) you provide your name and address on IRS Form W-8BEN or
another appropriate form and certify, under penalties of perjury, that
you are not a United States Person, or (b) a financial institution
holding the trust preferred security (or the debenture) on your behalf
certifies, under penalties of perjury, that it has received an IRS
Form W-8BEN or another appropriate form from you and provides us with
a copy;

. If you do not satisfy the requirements described above, payments of
interest made to you will be subject to a 30% U.S. federal withholding
tax, unless you provide us or our paying agent with a properly executed:

. IRS Form W-8BEN or another appropriate form claiming an exemption
from, or a reduction of, withholding tax under the benefit of an
applicable tax treaty; or

. IRS Form W-8ECI or another appropriate form stating that interest
received on the trust preferred securities or the debentures is not
subject to withholding tax because it is effectively connected with
your conduct of a trade or business in the United States.

. No withholding of U.S. federal income tax will be required with respect
to any gain realized by you upon the sale or other disposition of the
trust preferred securities or the debentures if you provide appropriate
documentation that you are not a United States Person.

If you are engaged in a trade or business in the United States and income on
the trust preferred securities and/or the debentures is effectively connected
with the conduct of that trade or business, you will be subject to U.S. federal
income tax on that income on a net income basis in the same manner as if you
were a United States Person. In addition, if you are a foreign corporation, you
may be subject to a 30% branch profits tax.

Any gain realized upon the sale or disposition of the trust preferred
securities and/or the debentures generally will not be subject to U.S. federal
income tax unless:

. the gain is effectively connected with a United States trade or business
conducted by you; or

. if you are a non-United States holder who is an individual, you are
present in the United States for 183 days or more in the taxable year of
the sale or other disposition.

Your estate will not be subject to U.S. federal estate tax on the trust
preferred securities or the debentures beneficially owned by you at the time of
your death, provided that:

. you do not own 10% or more of the total combined voting power of all
classes of our voting stock; and

. interest on the trust preferred securities or debentures would not have
been, if received at the time of your death, effectively connected with
your conduct of a trade or business in the United States.

The consequences to non-United States holders of acquiring, owning and
disposing of the debentures and/or the trust preferred securities described
above may be modified by an applicable tax treaty. Non-United States holders
should consult their tax advisors about the rules concerning the tax
consequences to them of acquiring, owning and disposing of the debentures
and/or the trust preferred securities, including withholding on payments to
non-United States holders and the potential applicability of tax treaties.

113

Backup Withholding Tax and Information Reporting

The amount of interest paid and any OID accrued on the debentures held
directly or through the trust preferred securities by United States Persons,
other than corporations and other exempt recipients, will be reported annually
to the IRS. Funding Co. or the Trust will report the amount of such income to
holders by January 31st following each calendar year.

Backup withholding will apply to payments of interest, dividends and
payments of redemption or other disposition proceeds to you if you are a
non-exempt United States Person unless you furnish your taxpayer identification
number in the manner prescribed in applicable Treasury regulations (generally,
on an IRS Form W-9), certify under penalties of perjury, that this number is
correct, and meet certain other conditions. The backup withholding rate is 28%.
Any amounts withheld under the backup withholding rules will be allowable as a
refund or a credit against your U.S. federal income tax liability, provided
that the required information is furnished to the IRS.

The U.S. federal income tax discussion set forth above is included for
general information only and may not be applicable depending upon the
particular situation of a holder of the trust preferred securities. Holders of
the trust preferred securities are urged to consult their own tax advisors with
respect to the tax consequences to them of the purchase, ownership and
disposition of the trust preferred securities, including the tax consequences
under state, local, foreign and other tax laws and the possible effects of
changes in federal or other tax laws.

114

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, dated
, 2003, among Kingsway Financial, Funding Co., Kingsway America, the
Trust and the underwriters named below, the Trust has agreed to sell to the
underwriters, and the underwriters have severally agreed to purchase from the
Trust, the following respective aggregate liquidation amounts of trust
preferred securities at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus:

Liquidation
Amount of Trust
Preferred
Securities to be
Name of Underwriter Purchased
------------------- ----------------

Advest, Inc...................... US$
Ferris, Baker Watts, Incorporated US$
Keefe, Bruyette & Woods, Inc..... US$
Raymond James & Associates, Inc.. US$
Sandler O'Neill & Partners, L.P.. US$
Putnam Lovell NBF Securities Inc. US$
-------------
Total............................ US$50,000,000
=============

The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters will
purchase all of the trust preferred securities offered hereby if any of such
trust preferred securities are purchased.

The underwriters have advised us that they propose to offer the trust
preferred securities to the public at the public offering price set forth on
the cover page of this prospectus and to certain dealers at such price less a
concession not in excess of US$ per trust preferred security. The
underwriters may allow, and such dealers may reallow, a concession not in
excess of US$ per trust preferred security to certain other dealers.
After the public offering, the offering price and other selling terms may be
changed by the underwriters. The underwriters intend to distribute and deliver
this prospectus only by hand or mail.

The Trust has granted to the underwriters an option, exercisable not later
than 30 days after the date of the underwriting agreement, to purchase up to an
additional 300,000 trust preferred securities at the public offering price. To
the extent that the underwriters exercise such option, the Trust will be
obligated, pursuant to the option, to sell such trust preferred securities to
the underwriters. The underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the trust preferred
securities offered in this prospectus. If purchased, the underwriters will
offer these additional trust preferred securities on the same terms as those on
which the US$25 aggregate liquidation amount of the trust preferred securities
are being offered.

In connection with this offering, the underwriters and any selling group
members and their respective affiliates may engage in transactions effected in
accordance with Rule 104 of the SEC's Regulation M that are intended to
stabilize, maintain or otherwise affect the market price of the trust preferred
securities. Such transactions may include over-allotment transactions in which
the underwriters create a short position for their own account by selling more
trust preferred securities than they are committed to purchase from the Trust.
In such a case, to cover all or part of the short position, the underwriters
may exercise the over-allotment option described above or may purchase trust
preferred securities in the open market following completion of the initial
offering of the trust preferred securities. The underwriters also may engage in
stabilizing transactions in which they bid for, and purchase, shares of the
trust preferred securities at a level above that which might otherwise prevail
in the open market for the purpose of preventing or retarding a decline in the
market price of the trust preferred securities. The underwriters also may
reclaim any selling concessions allowed to an underwriter or dealer if the
underwriters repurchase shares distributed by that underwriter or dealer. Any
of the foregoing

115

transactions may result in the maintenance of a price for the trust preferred
securities at a level above that which might otherwise prevail in the open
market. We do not, nor do any of the underwriters, make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the trust preferred securities. The
underwriters are not required to engage in any of the foregoing transactions
and, if commenced, such transactions may be discontinued at any time without
notice.

In view of the fact that the proceeds from the sale of the trust preferred
securities will be used to purchase Funding Co.'s debentures, the underwriting
agreement provides that Funding Co. will pay as compensation for the
underwriters' arranging the investment of such proceeds an amount of US$ per
trust preferred security (or US$ (US$ if the over-allotment option is
exercised in full) in the aggregate).

Because the National Association of Securities Dealers, Inc. is expected to
view the trust preferred securities as interests in a direct participation
program, this offering is being made in compliance with the applicable
provisions of Rule 2810 of the NASD's Conduct Rules.

The trust preferred securities are a new issue of securities with no
established trading market. The representatives have advised the Trust and us
that they intend to make a market in the trust preferred securities. However,
the underwriters are not obligated to do so and such market making may be
interrupted or discontinued at any time without notice at the sole discretion
of each of the underwriters. No assurance can be given as to the development or
liquidity of any market for the trust preferred securities.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.

Advest, Ferris, Baker Watts, Keefe, Bruyette & Woods, Inc., Raymond James,
Sandler O'Neill and National Bank Financial Inc., an affiliate of Putnam
Lovell, have, from time to time, performed investment banking and other
services for us in the ordinary course of business and have received fees from
us for their services.

116

LEGAL MATTERS

Certain U.S. federal income tax matters and other various legal matters will
be passed upon for Kingsway Financial, Funding Co. and the Trust by Lord,
Bissell & Brook, Chicago, Illinois. Various legal matters relating to this
offering will be passed upon for the underwriters by Skadden, Arps, Slate,
Meagher & Flom (Illinois), Chicago, Illinois. The validity of the preferred
securities under Delaware law will be passed upon on behalf of Kingsway
Financial, Funding Co. and the Trust by Richards, Layton & Finger, P.A.,
Wilmington, Delaware.

EXPERTS

KPMG LLP, independent auditors, have audited our consolidated financial
statements as at December 31, 2002 and 2001 and for each of the years in the
three year period ended December 31, 2002, as set forth in their auditors'
report. We have included our consolidated financial statements in this
prospectus in reliance on KPMG LLP's report, given on their authority as
experts in accounting and auditing.

ENFORCEMENT OF CIVIL LIABILITIES

Kingsway Financial is incorporated under the laws of Ontario, Canada. Most
of its directors and executive officers are residents of Canada and a
substantial portion of its assets and the assets of these persons are located
outside of the United States. As a result, it may be difficult or impossible
for United States investors to effect service of process within the United
States upon Kingsway Financial or such directors and officers or to realize
against them in the United States upon judgments of courts of the United States
predicated upon civil liabilities of us or such directors and officers under
the federal securities laws of the United States or the securities or blue sky
laws of any state within the United States. We believe that a judgment of a
U.S. court predicated solely upon the civil liability under the Securities Act
and/or the Exchange Act would probably be enforceable in Canada if the U.S.
court in which the judgment was obtained had a basis for jurisdiction in the
matter that was recognized by a Canadian court for such purposes. We cannot
assure you that this will be the case. There is substantial doubt, however,
whether an action could be brought in Canada in the first instance on the basis
of liability predicated solely upon such laws.

117

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Exchange Act, and in
accordance therewith file reports and other information with the SEC. Under a
multi jurisdictional disclosure system adopted by the United States, such
reports and other information may be prepared in accordance with the disclosure
requirements of Canada, which requirements are different from those of the
United States. You may read and copy all or any portion of any reports,
statements or other information we file with the SEC at the SEC's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. You may also
inspect our SEC reports and other information at the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.

We do not expect that Kingsway America, Funding Co. or the Trust will file
reports and other information under the Exchange Act with the SEC.

This prospectus is part of a registration statement on Form F-3 we filed
with the SEC. This prospectus does not contain all the information set forth in
the registration statement and all of its exhibits and schedules. For further
information on the trust preferred securities, the debentures, the preferred
securities guarantee and the debenture guarantee, Kingsway Financial Services
Inc., Kingsway Financial Capital Trust I, Kingsway America Inc. and Kingsway
U.S. Funding Inc., you should review our registration statement, its exhibits
and the documents incorporated by reference into this prospectus. This
prospectus summarizes material provisions of the contracts and other documents
that we refer you to. Since this prospectus may not contain all the information
that you may find important, you should review the full text of these
documents. We have included copies of these documents as exhibits to our
registration statement. Copies of these documents will, so long as any trust
preferred securities are outstanding, be available for inspection during usual
business hours at the specified office of the paying agent in Delaware.

Incorporation of Information About Us

The SEC allows us to "incorporate by reference" into this prospectus the
information that we file with them, which means that:

. the incorporated documents are considered part of this prospectus;

. we can disclose important information to you by referring you to those
documents; and

. information that we file with the SEC will automatically be considered to
update and supersede the information in this prospectus.

We incorporate by reference into this prospectus:

. Kingsway's Annual Report on Form 40-F for the year ended December 31,
2002, filed with the SEC on May 14, 2003.

118

All subsequent reports that we file on Form 40-F under the Securities
Exchange Act of 1934 prior to the termination of this offering will also be
deemed to be incorporated by reference into this prospectus. We may also
incorporate any other Form 6-K that we submit to the SEC after the date of this
prospectus and prior to the termination of this offering if the Form 6-K filing
specifically states that it is incorporated by reference into this prospectus.

Any statement contained in a document incorporated or deemed to be
incorporated by reference into this prospectus will be deemed to be modified or
superseded for purposes of this prospectus to the extent that it is modified or
superseded by a statement that is in this prospectus or in any later filed
document that is or is deemed to be incorporated by reference. Any statement
that is modified or superseded in this manner will no longer be a part of this
prospectus, except as modified or superseded.

You may request a copy, at no cost, of any or all of the filings that are
incorporated by reference into this prospectus, excluding exhibits (other than
those that we specifically incorporate by reference into the documents that you
request) by contacting us, orally or in writing, at the following address:

Mr. Michael Slan
Corporate Secretary
Suite 4400
Royal Trust Tower
Toronto-Dominion Centre
Toronto, Ontario M5K 1G8

You may also obtain a copy of any documents that we incorporate by reference
in this prospectus, at no cost, at the office of the paying agent in Delaware.

119

INDEX TO FINANCIAL STATEMENTS

Page
----

Kingsway Financial Services Inc.

Interim Consolidated Financial Statements
Consolidated Balance Sheets as at June 30, 2003 and December 31, 2002........................ F-2
Consolidated Statements of Operations for the three and six months ended June 30, 2003 and
2002....................................................................................... F-3
Consolidated Statement of Retained Earnings for the six months ended June 30, 2003 and 2002.. F-4
Consolidated Statements of Cash Flows for the three and six months ended June 30, 2003 and
2002....................................................................................... F-5
Notes to Consolidated Financial Statements................................................... F-6
Reconciliation with United States Generally Accepted Accounting Principles................... F-10

Annual Consolidated Financial Statements
Management Statement on Responsibility for Financial Information............................. F-13
Auditors' Report............................................................................. F-15
Appointed Actuary's Report................................................................... F-16
Consolidated Balance Sheets as at December 31, 2002 and 2001................................. F-17
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000... F-18
Consolidated Statements of Retained Earnings for the years ended December 31, 2002, 2001 and
2000....................................................................................... F-19
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000... F-20
Notes to Consolidated Financial Statements................................................... F-21

F-1

KINGSWAY FINANCIAL SERVICES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)

As at June 30, As at Dec. 31,
2003 2002
-------------- --------------
(unaudited)

ASSETS
Cash...................................................... $ 81,951 $ 244,921
Investments............................................... 2,089,226 1,833,744
Accrued investment income................................. 20,843 16,223
Accounts receivable and other assets...................... 347,339 334,603
Due from reinsurers and other insurers.................... 193,876 164,742
Deferred policy acquisition costs......................... 173,234 178,574
Income taxes recoverable.................................. 8,658 3,851
Future income taxes....................................... 52,665 59,505
Capital assets............................................ 56,723 43,981
Goodwill and intangible assets............................ 90,655 104,290
---------- ----------
$3,115,170 $2,984,434
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Bank indebtedness...................................... $ 156,515 $ 170,390
Accounts payable and accrued liabilities............... 90,979 122,606
Unearned premiums...................................... 775,551 776,323
Unpaid claims.......................................... 1,357,909 1,200,554
Senior unsecured debentures............................ 78,000 78,000
---------- ----------
2,458,954 2,347,873
---------- ----------
Subordinated indebtedness................................. 64,408 23,636
Shareholders' equity
Share capital.......................................... 358,408 357,192
Issued and outstanding number of common shares
48,955,629--June 30, 2003
48,794,212--December 31, 2002
Currency translation adjustment........................ (62,901) 11,090
Retained earnings...................................... 296,301 244,643
---------- ----------
591,808 612,925
---------- ----------
$3,115,170 $2,984,434
========== ==========

See accompanying notes to consolidated financial statements.

F-2

KINGSWAY FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands of Canadian dollars, except for per share amounts)

Three Months Ended Six Months Ended
June 30, June 30,
----------------- -------------------
2003 2002 2003 2002
-------- -------- ---------- --------

Gross premiums written................. $629,928 $502,647 $1,332,488 $919,044
======== ======== ========== ========
Net premiums written................... $607,192 $469,829 $1,273,855 $870,146
======== ======== ========== ========
Revenue:
Net premiums earned................. $621,280 $399,277 $1,172,535 $709,646
Investment income................... 19,169 16,981 34,935 30,751
Net realized gains.................. 9,477 1,604 8,789 5,317
-------- -------- ---------- --------
649,926 417,862 1,216,259 745,714
Expenses:
Claims incurred..................... 441,451 286,125 830,115 505,914
Commissions and premium taxes....... 141,144 79,061 255,453 143,208
General and administrative expenses. 33,993 33,808 64,425 58,046
Interest expense.................... 5,048 2,932 9,510 5,754
Amortization of intangibles......... 214 -- 444 --
-------- -------- ---------- --------
621,850 401,926 1,159,947 712,922
-------- -------- ---------- --------
Income before income taxes............. 28,076 15,936 56,312 32,792
Income taxes........................... 812 (286) 4,654 311
-------- -------- ---------- --------
Net income............................. $ 27,264 $ 16,222 $ 51,658 $ 32,481
======== ======== ========== ========
Earnings per share:
Basic:.............................. $ 0.56 $ 0.34 $ 1.06 $ 0.67
Diluted:............................ $ 0.55 $ 0.33 $ 1.04 $ 0.66
Weighted average shares outstanding:
Basic:.............................. 48,931 48,750 48,880 48,714
Diluted:............................ 49,531 49,445 49,507 49,486

See accompanying notes to consolidated financial statements.

F-3

KINGSWAY FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(unaudited)
(In thousands of Canadian dollars)

Six Months Ended
June 30,
-----------------
2003 2002
-------- --------

Retained earnings, beginning of period $244,643 $165,111
Net income for the period............. 51,658 32,481
-------- --------
Retained earnings, end of period...... $296,301 $197,592
======== ========

See accompanying notes to consolidated financial statements.

F-4

KINGSWAY FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands of Canadian dollars)

Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ------------------------
2003 2002 2003 2002
----------- --------- ----------- -----------

Cash provided by (used in):

Operating activities:
Net income...................................... $ 27,264 $ 16,222 $ 51,658 $ 32,481

Items not affecting cash:
Amortization................................. 2,023 1,782 3,487 3,114
Future income taxes.......................... (4,568) (2,974) (4,141) (4,342)
Net realized gains........................... (9,477) (1,604) (8,789) (5,317)
Amortization of bond premiums and discounts.. 3,084 257 5,681 1,024
----------- --------- ----------- -----------
18,326 13,683 47,896 26,960
Net change in non-cash balances................. 111,107 92,806 178,061 140,535
----------- --------- ----------- -----------
129,433 106,489 225,957 167,495
Financing activities:
Increase of share capital, net............... 414 259 1,216 732
Increase (decrease) in bank indebtedness..... (6,548) 38,160 8,743 38,154
Increase in subordinated indebtedness........ 44,458 -- 44,458 --
----------- --------- ----------- -----------
38,324 38,419 54,417 38,886
Investing activities:
Purchase of investments...................... (2,133,793) (720,009) (4,530,957) (1,399,678)
Proceeds from sale of investments............ 1,859,049 649,785 4,109,862 1,266,635
Financed premiums receivable, net............ (1,689) (2,078) (1,756) 9,330
Purchase of subsidiary, net of cash acquired. -- (34,428) -- (34,428)
Additions to capital assets.................. (20,908) (2,515) (20,493) (5,240)
----------- --------- ----------- -----------
(297,341) (109,245) (443,344) (163,381)

Increase (decrease) in cash during period....... (129,584) 35,663 (162,970) 43,000
Cash, beginning of period....................... 211,535 103,537 244,921 96,200
----------- --------- ----------- -----------
Cash, end of period............................. $ 81,951 $ 139,200 $ 81,951 $ 139,200
=========== ========= =========== ===========

See accompanying notes to consolidated financial statements.

F-5

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended June 30, 2003 and 2002

(Unaudited)
(Tabular amounts in thousands of Canadian dollars except per share amounts)

1. Basis of presentation

These consolidated financial statements should be read in conjunction with
the Company's consolidated financial statements for the year ended December 31,
2002 as set out beginning on page F-17 of this prospectus. These consolidated
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles using the same accounting policies as were used
for the Company's consolidated financial statements for the year ended December
31, 2002.

2. Stock-based compensation

As reported on pages F-29 and F-30 of this prospectus, the Company applies
the intrinsic-value method of accounting for stock-based compensation awards
granted to employees and non-employee directors. The Company must provide the
following pro forma disclosures of net income and earnings per share as if the
Company had measured the compensation element of stock options granted based on
the fair value on the date of grant. Such proforma disclosure follows:

Three Months Ended
June 30,
------------------
2003 2002
------- -------

Net income
As reported............ $27,264 $16,222
Pro forma.............. 26,684 15,749
Basic earnings per share
As reported............ $ 0.56 $ 0.34
Pro forma.............. 0.55 0.32
Diluted earnings per share
As reported............ $ 0.55 $ 0.33
Pro forma.............. 0.54 0.32

Six Months Ended
June 30,
------------------
2003 2002
------- -------
Net income
As reported............ $51,658 $32,481
Pro forma.............. 50,498 31,536
Basic earnings per share
As reported............ $ 1.06 $ 0.67
Pro forma.............. 1.03 0.65
Diluted earnings per share
As reported............ $ 1.04 $ 0.66
Pro forma.............. 1.02 0.64

The per share weighted average fair value of options granted during 2003 and
2002 was $6.11 and $8.39. The fair value of the options granted was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions:

As at June 30,
-------------------
2003 2002
--------- ---------

Risk-free interest rate............................................... 5.44% 5.54%
Dividend yield........................................................ 0.0% 0.0%
Volatility of the expected market price of the Company's common shares 56.0% 59.1%
Expected option life (in years)....................................... 5.5 years 5.4 years

F-6

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the six months ended June 30, 2003 and 2002

(Unaudited)
(Tabular amounts in thousands of Canadian dollars)

The Black-Scholes option valuation model was developed for use in estimating
fair value of traded options which have no vesting restrictions and are fully
transferable. As the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the above pro forma adjustments are not necessarily a
reliable single measure of the fair value of the Company's employee stock
options.

3. Segmented information

The Company provides property and casualty insurance and other insurance
related services in three reportable segments, Canada, the United States and
corporate and other insurance related services. The Company's Canadian and
United States segments include transactions with the Company's reinsurance
subsidiaries. At the present time, other insurance related services are not
significant. Results for the Company's operating segments are based on the
Company's internal financial reporting systems and are consistent with those
followed in the preparation of the consolidated financial statements.

Three Months ended June 30, 2003
--------------------------------------
United Corporate
Canada States and Other Total
-------- -------- --------- --------

Gross premiums written........... $176,069 $453,859 $ -- $629,928
Net premiums earned.............. 137,086 484,194 -- 621,280
Investment income................ 7,080 11,960 129 19,169
Net realized gains (losses)...... (211) 9,688 -- 9,477
Interest expense................. -- 2,962 2,086 5,048
Amortization of capital assets... 188 1,402 330 1,920
Amortization of intangible assets -- 214 -- 214
Net income tax expense (recovery) (3,748) 5,020 (460) 812
Net income (loss)................ (5,000) 31,798 466 27,264
Claims ratio..................... 83.2% 67.6% -- 71.0%
Expense ratio.................... 26.8% 28.6% -- 28.2%
Combined ratio................... 110.0% 96.2% -- 99.2%

Three Months ended June 30, 2002
--------------------------------------
United Corporate
Canada States and Other Total
-------- -------- --------- --------
Gross premiums written........... $140,459 $362,188 $ -- $502,647
Net premiums earned.............. 100,846 298,431 -- 399,277
Investment income (loss)......... 5,329 12,243 (591) 16,981
Net realized gains (losses)...... 1,041 (193) 756 1,604
Interest expense................. -- 2,515 417 2,932
Amortization of capital assets... 180 923 327 1,430
Net income tax expense (recovery) (1,637) 1,111 240 (286)
Net income (loss)................ (2,311) 17,730 803 16,222
Claims ratio..................... 78.8% 69.3% -- 71.7%
Expense ratio.................... 30.1% 27.6% -- 28.2%
Combined ratio................... 108.9% 96.9% -- 99.9%

F-7

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the six months ended June 30, 2003 and 2002

(Unaudited)
(Tabular amounts in thousands of Canadian dollars)

Six Months ended June 30, 2003
------------------------------------------
United Corporate
Canada States and Other Total
-------- ---------- --------- ----------

Gross premiums written........... $303,077 $1,029,411 $ -- $1,332,488
Net premiums earned.............. 249,266 923,269 -- 1,172,535
Investment income................ 13,123 21,656 156 34,935
Net realized gains (losses)...... (1,122) 9,913 (2) 8,789
Interest expense................. -- 5,426 4,084 9,510
Amortization of capital assets... 364 2,728 637 3,729
Amortization of intangible assets -- 444 -- 444
Net income tax expense (recovery) (2,784) 7,658 (220) 4,654
Net income (loss)................ (2,008) 54,074 (408) 51,658
Total assets..................... $967,716 $2,126,610 $20,844 $3,115,170
Claims ratio..................... 77.3% 69.0% -- 70.8%
Expense ratio.................... 28.1% 27.1% -- 27.3%
Combined ratio................... 105.4% 96.1% -- 98.1%

Six Months ended June 30, 2002
------------------------------------------
United Corporate
Canada States and Other Total
-------- ---------- --------- ----------
Gross premiums written........... $232,784 $ 686,260 $ -- $ 919,044
Net premiums earned.............. 184,521 525,125 -- 709,646
Investment income (loss)......... 10,418 20,866 (533) 30,751
Net realized gains (losses)...... 829 2,754 1,734 5,317
Interest expense................. -- 5,058 696 5,754
Amortization of capital assets... 349 1,751 367 2,467
Net income tax expense (recovery) (3,515) 3,346 480 311
Net income (loss)................ (3,498) 33,114 2,865 32,481
Total assets..................... $753,311 $1,594,682 $27,597 $2,375,590
Claims ratio..................... 78.1% 68.9% -- 71.3%
Expense ratio.................... 30.3% 27.7% -- 28.4%
Combined ratio................... 108.4% 96.6% -- 99.7%

F-8

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the six months ended June 30, 2003 and 2002

(Unaudited)
(Tabular amounts in thousands of Canadian dollars)

4. Investments

The carrying amounts and fair values of investments are summarized below:

June 30, 2003
---------------------
Carrying Fair
Amount Value
---------- ----------

Term deposits.... $ 207,237 $ 207,223
Bonds:
Government.... 600,372 612,328
Corporate..... 959,574 982,743
Preferred shares. 3,267 3,382
Common shares.... 233,709 265,049
Financed premiums 85,067 85,067
---------- ----------
$2,089,226 $2,155,792
========== ==========

December 31, 2002
---------------------
Carrying Fair
Amount Value
---------- ----------
Term deposits.... $ 506,575 $ 506,511
Bonds:
Government.... 441,674 454,482
Corporate..... 613,732 630,658
Preferred shares. 2,045 2,025
Common shares.... 182,904 185,816
Financed premiums 86,814 86,814
---------- ----------
$1,833,744 $1,866,306
========== ==========

5. Subsequent Events

The Company completed its previously announced common share offering on July
3, 2003 and completed the exercise of the over allotment option on July 11,
2003. In total, 6,710,000 common shares were issued for total gross proceeds of
$112,057,000.

F-9

KINGSWAY FINANCIAL SERVICES INC.
RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(In thousands of Canadian dollars, except per share amounts)

(Information as at and for the six month periods ended June 30, 2003 and 2002
is unaudited)

The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles ("GAAP") in Canada.
The significant differences between Canadian GAAP and U.S. GAAP, which affect
the Company's consolidated financial statements, are described below:

The following table reconciles the consolidated net income as reported under
Canadian GAAP with net income and other comprehensive income in accordance with
U.S. GAAP:

Six Months Ended
June 30,
------------------
2003 2002
-------- --------
(unaudited)

Net income based on Canadian GAAP............................................ $ 51,658 $ 32,481
Impact on net income of U.S. GAAP adjustments, net of tax:
Deferred start-up costs (note 1).......................................... 487 527
Equity accounting (note 3)................................................ 294 468
Derivative financial instruments (note 4)................................. -- (576)
-------- --------
Net income based on U.S. GAAP................................................ $ 52,439 $ 32,900
Other comprehensive income adjustments:
Change in unrealized gain on investments classified as available for sale
(note 4)................................................................ 34,004 3,293
Change in fair value of interest rate swaps............................... 3,848 (320)
Less: related future income taxes......................................... (7,316) 598
-------- --------
Other comprehensive income adjustments.................................... 30,536 3,571
Currency translation adjustments in the period............................ (73,991) (19,486)
-------- --------
Other comprehensive loss..................................................... (43,455) (15,915)
-------- --------
Total comprehensive income (loss)............................................ $ (8,984) $ 16,985
======== ========
Basic earnings per share based on U.S. GAAP net income....................... $ 1.07 $ 0.68
Diluted earnings per share based on U.S. GAAP net income..................... $ 1.06 $ 0.66

The following table reconciles shareholders' equity as reported under
Canadian GAAP with shareholders' equity in accordance with U.S. GAAP:

June 30, Dec. 31,
2003 2002
----------- ---------
(unaudited) (audited)

Shareholders' equity based on Canadian GAAP $591,808 $612,925
Other comprehensive income................. 47,094 16,558
Cumulative net income impact:
Deferred start-up costs (note 1)........ (1,494) (1,981)
Goodwill amortization (note 2).......... (1,213) (1,213)
Equity accounting (note 3).............. 929 635
-------- --------
Shareholders' equity based on U.S. GAAP.... $637,124 $626,924
======== ========

F-10

KINGSWAY FINANCIAL SERVICES INC.
RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES--(Continued)
(In thousands of Canadian dollars, except per share amounts)

(Information as at and for the six month periods ended June 30, 2003 and 2002
is unaudited)

sheet. Total cumulative other comprehensive income (loss) amounted to $(15,807)
and $27,648 as at June 30, 2003 and December 31, 2002, respectively.

(1) Deferred start-up costs:

Under Canadian GAAP, start-up costs of Avalon Risk Management, Inc. are
deferred and amortized over a five year period commencing from the date the
start-up period ended. Under U.S. GAAP, such costs are expensed in the
periods in which the expenditures are incurred.

(2) Goodwill amortization:

Under Canadian GAAP, guarantee fund assessment liabilities were estimated
and accrued at the date of acquisition, which resulted in an increase in the
amount of goodwill recorded. Under U.S. GAAP, such costs are expenses in the
periods in which the liabilities are estimated.

(3) Equity accounting:

Under Canadian GAAP, the Company's 25% equity investment in an investee
is carried at cost as the Company does not have significant influence over
the investee. Under U.S. GAAP, we are deemed to have significant influence
because the Company's equity investment exceeds 20%, and the equity method
of accounting is used. This method recognizes the Company's share of net
income or loss of the investee. Also, under U.S. GAAP, goodwill is
recognized, and prior to December 31, 2001 was being amortized over a period
of 10 years.

(4) Portfolio investments:

Under Canadian GAAP, portfolio investments are carried at cost or
amortized cost, and where a decline in value of an investment is considered
to be other than temporary, a write-down of the investment to its estimated
recoverable amount is recorded. Under U.S. GAAP, such investments would be
classified as available for sale and are marked to market after write-downs
for other than temporary declines in values, and the unrealized gain or
loss, net of any future income taxes, is recorded as other comprehensive
income, a component of shareholders' equity.

American Country Insurance Company ("American Country"), acquired by the
Company in April, 2002, utilized derivative financial instruments for the
purpose of enhancing the overall return of its portfolio investments. The
only derivatives owned by American Country were convertible securities, all
of which were disposed of during 2002. American Country did not utilize
derivative financial instruments for the purpose of hedging or reducing the
cost of its debt obligations. The embedded derivative associated with the
convertible security was accounted for under FAS 133 and any change in the
market value of the embedded derivative was recorded as a realized
investment gain or loss through the Statement of Operations and Statement of
Cash Flows.

(5) Accounting for Derivative Instruments and Hedging Activities:

F-11

KINGSWAY FINANCIAL SERVICES INC.
RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES--(Continued)
(In thousands of Canadian dollars, except per share amounts)

(Information as at and for the six month periods ended June 30, 2003 and 2002
is unaudited)

values, and changes in such fair values must be recognized immediately in
earnings unless specific hedging criteria are met. The Company adopted this
statement effective January 1, 2001 for purposes of its U.S. GAAP
reconciliation. The Company has purchased interest rate swap contracts that
are designated as cash flow hedges against the amounts borrowed under the
unsecured credit facility. The terms of the swaps match those of the
unsecured credit facility, and were entered into to minimize the Company's
exposure to fluctuations in interest rates. The change in the fair value of
interest rate swap contracts is reflected in other comprehensive income.

(6) Future accounting pronouncements:

The Company does not expect the adoption of any known proposed accounting
pronouncements to have a material impact on its consolidated financial
statements.

F-12

MANAGEMENT STATEMENT ON RESPONSIBILITY FOR FINANCIAL INFORMATION

Management is responsible for presentation and preparation of the annual
consolidated financial statements included in this prospectus on pages F-17 to
F-41, Management's Discussion and Analysis (MDA) and all other information in
this prospectus. The consolidated financial statements were prepared in
accordance with Canadian generally accepted accounting principles and also
include a reconciliation to generally accepted accounting principles in the
United States. Financial information appearing elsewhere in this prospectus is
consistent with the consolidated financial statements.

The consolidated financial statements and information in the MDA necessarily
include amounts based on informed judgements and estimates of the expected
effects of current events and transactions with appropriate consideration to
materiality. In addition, in preparing the financial information management
must make determinations as to the relevancy of information to be included, and
make estimates and assumptions that affect reported information. The MDA also
includes information regarding the estimated impact of current transactions and
events, sources of liquidity and capital resources, operating trends, risks and
uncertainties. Actual results in the future may differ materially from
management's present assessment of this information because future events and
circumstances may not occur as expected.

In meeting its responsibility for the reliability of the consolidated
financial statements and for the accounting systems from which they are
derived, management maintains the necessary system of internal controls. These
controls are designed to provide management with reasonable assurance that the
financial records are reliable for preparing financial statements and other
financial information, assets are safeguarded against unauthorized use or
disposition and liabilities are recognized.

We, as Kingsway Financial's Chief Executive Officer and Chief Financial
Officer, will be certifying Kingsway Financial's annual disclosure document
filed with the SEC (Form 40-F) as required by the new United States
Sarbanes-Oxley Act.

The Board of Directors oversees management's responsibilities for financial
reporting through an Audit Committee, which is composed entirely of directors
who are neither officers nor employees of the Company. The Audit Committee
reviews the consolidated financial statements and recommends them to the board
for approval. The Audit Committee also reviews and monitors weaknesses in the
Company's system of internal controls as reported by management or the external
auditors.

Role of the Actuary

With respect to the preparation of these financial statements, management
prepares a valuation including the selection of appropriate assumptions of the
Company's obligations at the balance sheet date under insurance policies issued
by its subsidiaries. With respect to the preparation of these financial
statements, KPMG LLP carries out a review of management's valuation of the
policy liabilities and provides an opinion to the Board of Directors regarding
the appropriateness of the claims liabilities recorded by management to meet
all policyholder obligations of the Company at the balance sheet date. The work
to form that opinion includes an examination of the sufficiency and reliability
of data, and review of the valuation process used by management. The actuary is
responsible for assessing whether the assumptions and methods used for the
valuation of policy liabilities are in accordance with accepted actuarial
practice, applicable legislation, and associated regulations and directives. In
performing the review of these liabilities determined by management, which are
by their very nature inherently variable, the Actuary makes assumptions as to
future loss ratios, trends, reinsurance recoveries, expenses and other
contingencies, taking into consideration the circumstances of the Company and
the nature of the insurance policies.

The valuation is based on projections of future claims and claim adjustment
expenses on claims incurred at the balance sheet date. It is certain that
actual future claims and claim adjustment expenses will not develop exactly as
projected and may, in fact, vary significantly from the projections. Further,
the projections make no provision for new classes or claim categories not
sufficiently recognized in the claims database.

F-13

Management is responsible for the accuracy and completeness of the
underlying data used in the valuation. The actuary's report outlines the scope
of the review and the opinion.

Role of the Auditor

The external auditors, KPMG LLP, have been appointed by the shareholders.
Their responsibility is to conduct an independent and objective audit of the
financial statements in accordance with Canadian generally accepted auditing
standards and to report thereon to the shareholders. In carrying out their
audit, the auditors make use of the work of the actuary and their report on the
claim liabilities of the Company. The shareholders' auditors have full and
unrestricted access to the Board of Directors and the Audit Committee to
discuss audit, financial reporting and related findings. The auditors' report
outlines the scope of their audit and their opinion.

William G. Star W. Shaun Jackson
President & Chief Executive Officer Executive Vice President & Chief
Financial Officer

February 6, 2003

F-14

AUDITORS' REPORT

To the Board of Directors
Kingsway Financial Services Inc.

We have audited the consolidated balance sheets of Kingsway Financial
Services Inc. as at December 31, 2002 and December 31, 2001 and the
consolidated statements of operations, retained earnings and cash flows for
each of the years in the three-year period ended December 31, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
2002 and December 31, 2001 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2002 in
accordance with Canadian generally accepted accounting principles.

KPMG LLP
Chartered Accountants

Toronto, Canada
February 6, 2003

F-15

APPOINTED ACTUARY'S REPORT

KPMG LLP has reviewed management's valuation, including the selection of
appropriate assumptions and methods, of the unpaid claims liabilities of the
insurance and reinsurance subsidiaries of Kingsway Financial Services Inc. for
its consolidated balance sheets at December 31, 2002 and 2001 and their changes
in the statement of operations for each of the years in the three year period
ended December 31, 2002 in accordance with accepted actuarial practice.

In accepted actuarial practice, the valuation of unpaid claims liabilities
reflects the time value of money. Insurance regulations in some jurisdictions
require that the valuation of some unpaid claims liabilities not reflect the
time value of money. The valuation complies with that directive.

In our opinion, the unpaid claims liabilities are appropriate except as
described in the preceding paragraph and the consolidated financial statements
fairly present its results.

Claudette Cantin, F.C.I.A.
February 6, 2003

F-16

KINGSWAY FINANCIAL SERVICES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)

As at December 31
---------------------
2002 2001
---------- ----------

ASSETS
Cash........................................... $ 244,921 $ 96,200
Investments (notes 2 and 11(c))................ 1,833,744 1,126,998
Accrued investment income...................... 16,223 12,173
Accounts receivable and other assets........... 334,603 176,692
Due from reinsurers and other insurers (note 5) 164,742 131,462
Deferred policy acquisition costs.............. 178,574 95,717
Income taxes recoverable....................... 3,851 1,246
Future income taxes (note 6)................... 59,505 23,086
Capital assets................................. 43,981 38,643
Goodwill and intangible assets (note 1(e))..... 104,290 76,527
---------- ----------
$2,984,434 $1,778,744
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank indebtedness (note 10(a)).............. $ 170,390 $ 144,516
Accounts payable and accrued liabilities.... 122,606 83,303
Unearned premiums (note 5).................. 776,323 424,120
Unpaid claims (notes 5 and 7)............... 1,200,554 589,963
Senior unsecured debentures (note 10(b)).... 78,000 --
---------- ----------
2,347,873 1,241,902
Subordinated indebtedness (note 10(c))......... 23,636 --
Shareholders' equity:
Share capital (note 3)...................... 357,192 356,232
Currency translation adjustment............. 11,090 15,499
Retained earnings (note 11(b)).............. 244,643 165,111
---------- ----------
612,925 536,842
Contingent liabilities (note 11)
---------- ----------
$2,984,434 $1,778,744
========== ==========

See accompanying notes to consolidated financial statements.

F-17

KINGSWAY FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of Canadian dollars, except per share amounts)

Years ended December 31
-------------------------------
2002 2001 2000
---------- ---------- --------

Gross premiums written................................ $2,124,691 $1,065,262 $643,022
---------- ---------- --------
Net premiums written.................................. $2,009,963 $1,014,960 $604,693
---------- ---------- --------
Revenue:
Net premiums earned (note 5)....................... $1,737,754 $ 872,830 $539,969
Investment income.................................. 64,855 52,553 44,576
Net realized gains................................. 16,259 12,079 10,444
---------- ---------- --------
1,818,868 937,462 594,989
Expenses:
Claims incurred (notes 5 and 7).................... 1,240,329 616,079 371,946
Commissions and premium taxes (note 5)............. 372,051 167,176 106,378
General and administrative expenses................ 122,762 81,938 66,925
Interest expense................................... 12,274 11,399 11,408
Amortization of intangible assets.................. 716 -- --
---------- ---------- --------
1,748,132 876,592 556,657
---------- ---------- --------
Income before income taxes............................ 70,736 60,870 38,332
Income taxes (recovery) (note 6):
Current............................................ 4,410 6,665 5,691
Future............................................. (13,206) 3,418 (298)
---------- ---------- --------
(8,796) 10,083 5,393
---------- ---------- --------
Net income before goodwill............................ 79,532 50,787 32,939
Amortization of goodwill, net of applicable income tax -- 5,856 5,469
---------- ---------- --------
Net income............................................ $ 79,532 $ 44,931 $ 27,470
========== ========== ========
Earnings per share (note 3):
Basic.............................................. $ 1.63 $ 1.21 $ 0.81
Diluted............................................ $ 1.61 $ 1.19 $ 0.80

See accompanying notes to consolidated financial statements.

F-18

KINGSWAY FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In thousands of Canadian dollars)

Years ended December 31
--------------------------
2002 2001 2000
-------- -------- --------

Retained earnings, beginning of year $165,111 $120,180 $ 92,710
Net income.......................... 79,532 44,931 27,470
-------- -------- --------
Retained earnings, end of year...... $244,643 $165,111 $120,180
======== ======== ========

See accompanying notes to consolidated financial statements.

F-19

KINGSWAY FINANCIAL SERVICES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)

Years ended December 31
-------------------------------------
2002 2001 2000
----------- ----------- -----------

Cash provided by (used in):
Operating activities:
Net income.................................................. $ 79,532 $ 44,931 $ 27,470
Items not affecting cash:
Amortization of goodwill and intangibles................ 716 6,674 6,206
Amortization of capital assets and deferred charges..... 9,358 5,137 4,121
Future income taxes..................................... (11,157) (873) (276)
Net realized gains...................................... (16,259) (12,079) (10,444)
Amortization of bond premiums and discounts............. 3,746 (4,856) (2,977)
----------- ----------- -----------
65,936 38,934 24,100
Change in non-cash balances:
Deferred policy acquisition costs....................... (79,898) (36,370) (12,084)
Due from reinsurers and other insurers.................. 1,863 5,377 33,427
Unearned premiums....................................... 303,012 131,028 64,024
Unpaid claims........................................... 370,193 132,279 (18,390)
Net change in other non-cash balances................... (60,722) (63,920) 1,429
----------- ----------- -----------
600,384 207,328 92,506
Financing activities:
Increase of share capital, net.............................. 960 207,751 19
Increase (decrease) in bank indebtedness.................... 26,952 (7,035) (14,445)
Increase in senior unsecured debentures..................... 78,000 -- --
Increase in subordinated indebtedness....................... 23,636 -- --
----------- ----------- -----------
129,548 200,716 (14,426)
Investing activities:
Purchase of investments..................................... (4,396,825) (2,277,643) (1,249,692)
Proceeds from sale of investments........................... 3,857,050 1,958,678 1,221,913
Financed premiums receivable, net........................... 7,768 (7,546) (24,191)
Purchase of subsidiaries, net of cash acquired (note 8)..... (36,908) (2,336) (4,468)
Additions to capital assets................................. (12,296) (12,837) (3,864)
----------- ----------- -----------
(581,211) (341,684) (60,302)
----------- ----------- -----------
Increase in cash during the year............................... 148,721 66,360 17,778
Cash, beginning of year........................................ 96,200 29,840 12,062
----------- ----------- -----------
Cash, end of year.............................................. 244,921 $ 96,200 $ 29,840
=========== =========== ===========
Supplementary disclosure of cash information:
Cash paid for:
Interest................................................ $ 12,186 $ 11,701 $ 11,507
Income taxes............................................ 3,034 9,909 1,098

See accompanying notes to consolidated financial statements.

F-20

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

1. Summary of significant accounting policies:

Kingsway Financial Services Inc. (the "Company") was incorporated under the
Business Corporations Act (Ontario) on September 19, 1989. The Company is a
financial services holding company which, through its subsidiaries, is engaged
in property and casualty insurance.

(a) Principles of consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiaries all of which are wholly-owned. Acquisitions are accounted
for by the purchase method, whereby the results of acquired companies are
included only from the date of acquisition, and divestitures are included up to
the date of disposal. Assets and liabilities of the acquired companies are
included in the financial statements at their fair values at the date of
acquisition.

The following is a list of our material subsidiaries, all of which are 100%
owned, directly or indirectly, (except for qualifying shares of York Fire &
Casualty Insurance Company and Kingsway General Insurance Company held by
directors in order to satisfy applicable statutory requirements), with the
jurisdiction of incorporation indicated in brackets: American Country Holdings
Inc. (Illinois); American Country Insurance Company (Illinois); American
Country Financial Services Corp. (Illinois); American Country Underwriting
Agency Inc. (Illinois); American Country Professional Services Corp.
(Illinois); American Service Investment Corporation (Illinois); American
Service Insurance Company, Inc. (Illinois); ARK Insurance Agency Inc.
(Illinois); Avalon Risk Management, Inc. (Illinois); Appco Finance Corporation
(Florida); AOA Payment Plan Inc. (Illinois); Hamilton Risk Management Company
(Florida); Insurance Management Services Inc. (Florida); U.S. Security
Insurance Company (Florida); Jevco Insurance Company (Canada); Kingsway America
Inc. (Delaware); Kingsway Connecticut Statutory Trust I (Delaware); Kingsway
Financial Capital Trust I (Delaware); Kingsway Finance Nova Scotia, ULC (Nova
Scotia); Kingsway General Insurance Company (Ontario); Kingsway Reinsurance
(Bermuda) Ltd. (Bermuda); Kingsway Reinsurance Corporation (Barbados); Kingsway
U.S. Finance Partnership (Delaware); Kingsway U.S. Funding Inc. (Delaware);
Kingsway U.S. Tier II Finance Partnership (Delaware); Southern United Holding,
Inc. (Alabama); Consolidated Insurance Management Corp. (Alabama); Funding Plus
of America (Alabama); Southern United Fire Insurance Company (Alabama);
Southern United General Agency of Texas, Inc. (Texas); UCC Corporation
(Nevada); Universal Casualty Company (Illinois); Walshire Assurance Company
(Pennsylvania); Lincoln General Insurance Company (Pennsylvania); Yorktowne
Premium Finance Company (Pennsylvania); and York Fire & Casualty Insurance
Company (Ontario).

(b) Use of estimates

The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
Actual results could differ from these estimates and changes in estimates are
recorded in the accounting period in which they are determined.

Fixed term investments are carried at amortized cost providing for the
amortization of the discount or premium on a constant yield basis to maturity.
Investments in common and preferred shares are carried at cost. Where a decline
in value of an investment is considered to be other than temporary a writedown
of the investment is recorded.

F-21

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

(d) Investment income

Investment income is recorded as it accrues. Dividend income on common and
preferred shares is recorded on the ex-dividend date. Gains and losses on
disposal of investments are determined and recorded as at the settlement date,
and are calculated on the basis of average cost.

(e) Goodwill and other intangible assets

When the Company acquires a subsidiary or other business where we exert
significant influence, we determine the fair value of the net tangible and
intangible assets acquired and compare them to the amount paid for the
subsidiary or business acquired. Any excess of the amount paid over the fair
value of those net assets is considered to be goodwill.

Goodwill is tested at least annually for impairment to ensure that its fair
value is greater than or equal to the carrying value. Any excess of carrying
value over fair value is charged to income in the period in which the
impairment is determined. At December 31, 2002 and 2001 goodwill, net of
accumulated amortization, was $97,671,000 and $76,527,000, respectively.

When the Company acquires a subsidiary or other business where we exert
significant influence, we may acquire intangible assets, which are recorded at
their fair value at the time of the acquisition. Intangible assets with a
definite useful life are amortized to income on a straight-line basis over the
defined useful life. The Company writes down the value of an intangible asset
with a definite useful life when the un-discounted cash flows are not expected
to allow for full recovery of the carrying value. At December 31, 2002 and 2001
intangible assets with a definite useful life, net of accumulated amortization,
were $3,066,000 and $nil, respectively.

Intangible assets with an indefinite useful life are not subject to
amortization and are tested at least annually for impairment to ensure that its
fair value is greater than or equal to its carrying value. Any excess of
carrying value over fair value is charged to income in the period in which the
impairment is determined. At December 31, 2002 and 2001 the Company had
intangible assets with an indefinite life of $3,553,000 and $nil, respectively.

Amortization of intangible assets reported in the Consolidated Statements of
Operations for the years ended December 31, 2002, 2001 and 2000 was $716,000,
$nil and $nil, respectively. There were no write-downs of goodwill or
intangible assets due to impairment during the years ended December 31, 2002,
2001, and 2000.

Prior to January 1, 2002 the Company amortized goodwill arising from
acquisitions made before July 1, 2001 over the estimated useful life of the
asset acquired. Amortization of goodwill was recorded net of applicable income
taxes in the Consolidated Statements of Operations. Goodwill amortization of
$5,856,000 and $5,469,000, net of applicable taxes of $818,000 and $737,000,
was included in income for the years ended December 31, 2001 and 2000,
respectively.

(f) Deferred policy acquisition costs

The Company defers brokers' commissions, premium taxes and other
underwriting and marketing costs relating to the acquisition of premiums
written to the extent they are considered recoverable. These costs are then
expensed as the related premiums are earned. The method followed in determining
the deferred policy acquisition costs limits the deferral to its realizable
value by giving consideration to estimated future claims and expenses to be
incurred as premiums are earned. Changes in estimates, if any, are recorded in
the accounting

F-22

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

period in which they are determined. Anticipated investment income is included
in determining the realizable value of the deferred policy acquisition costs.

Effective October 1, 2002, on a prospective basis, the Company began
deferring other underwriting and marketing costs relating to the acquisition of
premiums. The impact of this change was an increase to net income before taxes
of $6,589,000 for the year ended December 31, 2002. Had these costs been taken
into account in the deferral of policy acquisition costs in prior years, the
impact on the financial statements would not have been significant.

(g) Premium revenue and unearned premiums

The Company earns premium revenue over the period covered by each individual
insurance contract in proportion to the insurance protection provided. For
motorcycle premiums, a higher percentage of the premiums is earned during the
summer months, which is the motorcycle riding season in Canada. For all other
lines of business, the premiums are earned evenly over the contract period.
Unearned premiums represent the portion of premiums written related to the
unexpired risk portion of the policy at the year-end.

The reinsurers' share of unearned premiums is recognized as amounts
recoverable using principles consistent with the Company's method for
determining the unearned premium liability.

(h) Unpaid claims

The provision for unpaid claims includes adjustment expenses and represents
an estimate for the full amount of all expected costs, including investigation,
and the projected final settlements of claims incurred on or before the balance
sheet date. The provision does not take into consideration the time value of
money or make an explicit provision for adverse deviation.

These estimates of future loss activity are necessarily subject to
uncertainty and are selected from a wide range of possible outcomes. All
provisions are periodically reviewed and evaluated in the light of emerging
claim experience and changing circumstances. The resulting changes in estimates
of the ultimate liability are recorded as incurred claims in the accounting
period in which they are determined.

(i) Reinsurance

Net premiums earned and claims incurred are recorded net of amounts ceded
to, and recoverable from, reinsurers. Estimates of amounts recoverable from
reinsurers on unpaid claims are recorded separately from estimated amounts
payable to policyholders. Unearned premiums and deferred policy acquisition
costs are also reported before reduction for business ceded to reinsurers and
the reinsurers' portion is classified with amounts due from reinsurers.

Amounts recoverable from reinsurers are estimated and recognized in a manner
consistent with the Company's method for obtaining the related policy liability
associated with the reinsured policy.

(j) Translation of foreign currencies

Monetary assets and liabilities in foreign currencies are translated into
Canadian dollars at year-end exchange rates and non-monetary assets and
liabilities are translated at exchange rates prevailing at the transaction
date. Translation gains and losses are included in the current income. Income
and expenses are translated at the exchange rates in effect at the date
incurred. Realized gains and losses on foreign exchange are recognized in the
statement of operations.

F-23

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

The operations of the Company's subsidiaries in the United States and
Barbados are self-sustaining. As a result, the assets and liabilities of these
subsidiaries are translated at the year-end rates of exchange. Revenues and
expenses are translated at the average rate of exchange for each year. The
unrealized gains and losses, which result from translation are deferred and
included in shareholders' equity under the caption "currency translation
adjustment".

(k) Income taxes

The Company follows the asset and liability method of accounting for income
taxes, whereby future tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Future tax assets and
liabilities are measured using enacted or substantively enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on future tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the date of enactment or substantive enactment.

(l) Stock-based compensation plan

The Company has a stock-based compensation plan, which is described in Note
4 and uses the intrinsic-value method of accounting for stock-based
compensation awards granted to employees and non-employee directors. The
exercise price of all stock options is based on the market value of the shares
at the time the option is granted. No compensation expense is recognized for
this plan when stock options are issued to employees and non-employee
directors. The consideration paid by employees and non-employee directors on
exercise of stock options is credited to share capital.

(m) Capital assets

Capital assets are reported in the financial statements at depreciated cost.
Depreciation of property and equipment has been provided by the straight-line
method over the estimated useful lives of such assets. The useful lives range
from 15-40 years for building and leasehold improvements, 5-7 years for
furniture and equipment and 3-5 years for computers and software development.
At December 31, 2002 and 2001, the total cost of capital assets is $67,825,000
and $55,203,000, respectively, and accumulated depreciation is $23,844,000 and
$16,560,000, respectively. At December 31, 2002 and 2001 the buildings and
leasehold improvements account for 32% and 37% of the total cost, respectively
and 39% and 45% of the depreciated cost, respectively. At December 31, 2002 and
2001 the computers and software development account for 43% and 26% of the
total cost, respectively and 38% and 29% of the depreciated cost, respectively.

F-24

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

2. Investments:

The carrying amounts and fair values of investments are summarized below:

December 31, 2002
-------------------------------------------
Gross Gross
Carrying Unrealized Unrealized
amount Gains Losses Fair value
---------- ---------- ---------- ----------

Term deposits............. $ 506,575 $ 1 $ 65 $ 506,511
Bonds:
Canadian--Government... 130,736 3,993 -- 134,729
--Corporate........... 82,650 3,288 837 85,101
U.S. --Government...... 152,644 6,768 19 159,393
--Corporate........... 248,729 10,118 918 257,929
Other --Government..... 158,294 2,068 2 160,360
--Corporate........... 282,353 5,275 -- 287,628
---------- ------- ------- ----------
Sub-total................. $1,561,981 $31,511 $ 1,841 $1,591,651
========== ======= ======= ==========
Preferred shares--Canadian 2,045 2 22 2,025
Common shares--Canadian... 125,563 9,207 6,137 128,633
--U.S.................... 57,341 3,156 3,314 57,183
Financed premiums......... 86,814 -- -- 86,814
---------- ------- ------- ----------
$1,833,744 $43,876 $11,314 $1,866,306
========== ======= ======= ==========

The maturity profile of the bonds and term deposits investments at their
carrying amounts and fair values as at December 31, 2002 is as follows:

Carrying
Amount Fair Value
---------- ----------

Due in one year or less............... $ 636,726 $ 638,163
Due after one year through five years. 699,514 717,493
Due after five years through ten years 179,809 188,190
Due after ten years................... 45,932 47,805
---------- ----------
$1,561,981 $1,591,651
========== ==========

F-25

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

December 31, 2001
-------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Fair
amount Gains Losses value
---------- ---------- ---------- ----------

Term deposits................. $ 192,191 $ 1 $ 29 $ 192,163
Bonds:
Canadian -- Government 110,757 2,116 287 112,586
-- Corporate. 72,631 1,469 2,416 71,684
U.S. -- Government 135,251 1,551 346 136,456
-- Corporate. 136,590 2,915 666 138,839
Other -- Government 58,995 431 1 59,425
-- Corporate. 215,788 1,389 429 216,748
---------- ------- ------- ----------
Sub-total..................... $ 922,203 $ 9,872 $ 4,174 $ 927,901
---------- ------- ------- ----------
Preferred shares -- Canadian.. 8,115 13 748 7,380
-- U.S....... 1,202 71 325 948
Common shares -- Canadian.. 85,383 10,665 4,157 91,891
-- U.S....... 14,750 1,412 426 15,736
-- Other..... 1,746 -- 615 1,131
Financed premiums............. 93,599 -- -- 93,599
---------- ------- ------- ----------
$1,126,998 $22,033 $10,445 $1,138,586
========== ======= ======= ==========

The maturity profile of the bonds and term deposits investments at their
carrying amounts and fair values as at December 31, 2001 is as follows:

Carrying
Amount Fair Value
-------- ----------

Due in one year or less............... $287,625 $288,177
Due after one year through five years. 436,472 441,350
Due after five years through ten years 162,984 162,999
Due after ten years................... 35,122 35,375
-------- --------
$922,203 $927,901
======== ========

The carrying amounts are shown by contractual maturity. Actual maturity may
differ from contractual maturity because certain borrowers have the right to
call or prepay certain obligations with or without call or prepayment penalties.

Fair values of term deposits, bonds and common and preferred shares are
considered to approximate quoted market values based on the latest bid prices.
Financed premiums represent the portion of our insureds monthly premium
payments that are not yet due. Certain of our insureds have the option to pay a
portion of the premium when the policy is placed in force and the balance in
monthly installments. The insured pays an additional premium for this option,
reflecting handling costs and the investment income that would have been earned
on such premium, had the total amount been collected at the beginning of the
policy period. The additional premium is essentially an interest payment on the
balance of the unpaid premium and is recognized as income over the period of
the policy. The fair value of financed premiums, which are realized over the
term of the related policies of up to one year, approximates their carrying
amount.

F-26

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

Management has reviewed currently available information regarding those
investments whose estimated fair value is less than their carrying amount and
ascertained that the carrying amounts are expected to be recovered. Debt
securities whose carrying amount exceeds market value can be held until
maturity when management expects to receive the principal amount.

All of the Company's fixed term investments have fixed interest rates. The
coupon rates for the Company's fixed term investments range from 0.94% to
13.00% at December 31, 2002 and 3.75% to 13.25% at December 31, 2001. As the
fair value, carrying amounts and face amounts are not materially different, the
effective rates of interest based on fair values would not be materially
different from the coupon rates.

The Company limits its investment concentration in any one investee or
related group of investees to less than 5% of the Company's investments.

Net investment income for the years ended December 31 is comprised as
follows:

2002 2001 2000
------- ------- -------

Investment income:
Interest on short-term investments. $ 4,431 $ 6,457 $ 6,433
Interest on bonds.................. 50,317 29,654 26,029
Dividends.......................... 3,951 2,652 1,939
Premium finance.................... 8,539 9,861 7,467
Other.............................. 565 5,550 4,309
------- ------- -------
Gross investment income............... 67,803 54,174 46,177
Investment expenses................... 2,948 1,621 1,601
------- ------- -------
Net investment income................. $64,855 $52,553 $44,576
======= ======= =======

Net realized gains for the years ended December 31, 2002, 2001, and 2000
were $16,259,000, $12,079,000, and $10,444,000, respectively. Included in net
realized gains were adjustments to the carrying value of investments for
declines in market value considered other than temporary of $6,592,000,
$1,200,000 and $nil for the years ended December 31, 2002, 2001 and 2000,
respectively.

As at December 31, 2002, bonds and term deposits with an estimated fair
value of $28,621,000 (2001--$22,847,000) were on deposit with regulatory
authorities.

F-27

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

3. Share capital:

Authorized:

Unlimited number of common shares

Share transactions consist of the following:

Weighted-
Average
Shares Stock Exercise
Issued Options Price Amount
---------- --------- --------- --------

Balance as at December 31, 1999 34,010,068 834,567 $10.42 $148,462
Normal course issuer bid....... (85,200) (428)
Stock options:
Granted in year............. 701,000 4.30
Exercised in year........... 131,729 (131,729) 3.40 447
Forfeited in year........... (32,500) 8.97
---------- --------- ------ --------
Balance as at December 31, 2000 34,056,597 1,371,338 $ 8.00 $148,481
Issued July 12, 2001........... 5,750,000 68,315
Issued December 19, 2001....... 8,625,000 138,073
Stock options:
Granted in year............. 367,500 $ 7.80
Exercised in year........... 225,609 (225,609) 6.04 1,363
Forfeited in year........... (59,668) 6.96
---------- --------- ------ --------
Balance as at December 31, 2001 48,657,206 1,453,561 $ 8.30 $356,232
Stock options:
Granted in year............. 425,500 $19.66
Exercised in year........... 137,006 (137,006) 7.00 960
Forfeited in year........... (29,835) 11.39
---------- --------- ------ --------
Balance as at December 31, 2002 48,794,212 1,712,220 $11.17 $357,192
========== ========= ====== ========

Share issue expenses of $7,948,000, net of applicable income taxes of
$4,049,000, were deducted from the amount of share capital issued on July 12,
2001 and December 19, 2001.

(a) During the year ended December 31, 2002, options to acquire 137,006
shares (2001--225,609 shares; 2000--131,729 shares) were exercised at
prices from $4.30 to $14.50 per share (2001--$4.00 to $14.50 per share;
2000--$2.50 to $4.00 per share).

(b) The weighted average number of shares outstanding for the years ended
December 31, 2002, 2001 and 2000 were 48,742,622, 37,202,057 and
33,984,845, respectively. On a diluted basis, the weighted average
number of shares outstanding for the years ended December 31, 2002, 2001
and 2000 were 49,427,348, 37,856,100 and 34,341,235, respectively.

F-28

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

4. Stock-based compensation:

(a) The Company has established a stock option incentive plan for directors,
officers and key employees of the Company and its subsidiaries. For
December 31, 2002 and 2001, the maximum number of common shares that may
be issued under the plan is 3,400,000 (2000--2,400,000) common shares.
The maximum number of common shares available for issuance to any one
person under the stock option plan is 5% of the common shares
outstanding at the time of the grant. The exercise price is based on the
market value of the shares at the time the option is granted. In
general, the options vest evenly over a three-year period and are
exercisable for periods not exceeding 10 years.

The following tables summarize information about stock options
outstanding as at December 31, 2002, December 31, 2001 and December 31,
2000:

December 31, 2002

Exercise Date of Remaining Contractual Number Outstanding Number Exercisable
Price Grant Expiry Date Life (Years) as at December 31, 2002 at December 31, 2002
- -------- --------- ----------- --------------------- ----------------------- --------------------

$19.66 21-Feb-02 21-Feb-12 9.2 421,500 --
$ 7.80 22-Feb-01 22-Feb-11 8.2 293,340 84,667
$ 4.30 24-Feb-00 24-Feb-10 7.2 497,845 302,336
$11.50 25-Feb-99 25-Feb-04 1.2 293,535 293,535
$18.78 23-Apr-98 23-Apr-03 0.3 12,000 12,000
$14.50 19-Feb-98 19-Feb-03 0.2 194,000 194,000
- -------------------------------------------------------------------------------------------------
Total 6.0 1,712,220 886,538

December 31, 2001

Exercise Date of Remaining Contractual Number Outstanding Number Exercisable
Price Grant Expiry Date Life (Years) as at December 31, 2001 at December 31, 2001
- -------- --------- ----------- --------------------- ----------------------- --------------------

$ 7.80 22-Feb-01 22-Feb-11 9.2 346,500 --
$ 4.30 24-Feb-00 24-Feb-10 8.2 565,190 147,516
$11.50 25-Feb-99 25-Feb-04 2.2 322,203 211,034
$18.78 23-Apr-98 23-Apr-03 1.3 16,000 16,000
$14.50 19-Feb-98 19-Feb-03 1.2 199,000 199,000
$ 8.40 24-Apr-97 24-Apr-02 0.3 4,000 4,000
$ 8.75 20-Feb-97 20-Feb-02 0.2 668 668
- -------------------------------------------------------------------------------------------------
Total 6.0 1,453,561 578,218

December 31, 2000

Exercise Date of Remaining Contractual Number Outstanding Number Exercisable
Price Grant Expiry Date Life (Years) as at December 31, 2000 at December 31, 2000
- -------- --------- ----------- --------------------- ----------------------- --------------------

$ 4.30 24-Feb-00 24-Feb-10 9.2 686,000 --
$11.50 25-Feb-99 25-Feb-04 3.2 352,000 117,333
$18.78 23-Apr-98 23-Apr-03 2.3 16,000 10,666
$14.50 19-Feb-98 19-Feb-03 2.2 201,000 134,000
$ 8.40 24-Apr-97 24-Apr-02 1.3 6,000 6,000
$ 8.75 20-Feb-97 20-Feb-02 1.2 57,003 57,003
$ 4.00 18-Jul-96 18-Jul-01 0.5 53,335 53,335
- -------------------------------------------------------------------------------------------------
Total 5.8 1,371,338 378,337

At December 31, 2002, 2001 and 2000 the number of options exercisable is
886,538, 578,218 and 378,337, respectively, with weighted average prices
of $10.58, $10.87 and $11.25, respectively.

F-29

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

Canadian generally accepted accounting principles permit the use of the
intrinsic value based method, provided pro forma disclosures of net
income and earnings per share are made as if the Company had measured
the compensation element of stock options granted based on the fair
value on the date of grant. Such pro forma disclosure follows:

2002 2001 2000
--------------------------------------------------

Net income
As reported............ $79,532 $44,931 $27,470
Pro forma.............. 77,642 43,874 26,820
Basic earnings per share
As reported............ $ 1.63 $ 1.21 $ 0.81
Pro forma.............. 1.59 1.18 0.79
Diluted earnings per share
As reported............ $ 1.61 $ 1.19 $ 0.80
Pro forma.............. 1.57 1.16 0.78

The per share weighted average fair value of options granted during
2002, 2001 and 2000 was $8.39, $5.14 and $3.40. The fair value of the
options granted was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions:

2002 2001 2000
---- ---- ----

Risk-free interest rate............................................... 5.54% 5.65% 5.31%
Dividend yield........................................................ 0.0% 0.0% 0.0%
Volatility of the expected market price of the Company's Common shares 59.1% 62.2% 47.0%
Expected option life (in years)....................................... 5.4 5.5 4.0

The Black-Scholes option valuation model was developed for use in
estimating fair value of traded options which have no vesting
restrictions and are fully transferable. As the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the above pro forma adjustments are not necessarily a reliable single
measure of the fair value of the Company's employee stock options.

(b) The Company has an employee share purchase plan where qualifying
employees can choose each year to have up to 5% of their annual base
earnings withheld to purchase the Company's common shares. The Company
matches one half of the employee contribution amount, and its
contributions vest immediately. All contributions are used by the plan
administrator to purchase common shares in the open market. The
Company's contribution is expensed as paid and for the years ended
December 31, 2002, 2001 and 2000 totalled $367,000, $252,000 and
$226,000, respectively.

F-30

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

5. Underwriting policy and reinsurance ceded:

In the normal course of business, the Company seeks to reduce the loss that
may arise from catastrophe or other events that cause unfavourable underwriting
results by reinsuring certain levels of risk, in various areas of exposure,
with other insurers. The Company is not relieved of its primary obligation to
the policyholder as a result of the reinsurance transaction.

Failure of reinsurers to honour their obligations could result in losses to
the Company, consequently, the Company continually evaluates the financial
condition of its reinsurers and monitors concentrations of credit risk to
minimize its exposure to significant losses from reinsurer insolvency.

The Company follows the policy of underwriting and reinsuring contracts of
insurance, which limits the net exposure of the Company to a maximum amount on
any one loss of $500,000 and $1,000,000 in the event of property or liability
claims for each of the years ended December 31, 2002, 2001 and 2000,
respectively. In addition, the Company has obtained catastrophe reinsurance
which provides coverage in the event of a series of claims arising out of a
single occurrence, which limits this exposure in Canada to $1,500,000 per
occurrence to a maximum coverage of $40,000,000 for the year ended December 31,
2002 and a maximum coverage of $25,000,000 for the years ended December 31,
2001 and 2000. In the United States the Company's catastrophe reinsurance
limits this exposure to US$5,000,000, US$1,310,000 and US$1,000,000 for the
years ended December 31, 2002, 2001 and 2000, respectively, per occurrence to a
maximum coverage of US$80,000,000, US$15,000,000 and US$7,500,000,
respectively. For homeowners risk in Florida a separate maximum coverage was
maintained during the year ended December 31, 2001 of US$40,000,000.

The amounts deducted for reinsurance ceded from net premiums earned, claims
incurred and commissions and premium taxes for the years December 31, 2002,
2001 and 2000 were as follows:

2002 2001 2000
------- ------- -------

Net premiums earned.......... $91,698 $51,099 $37,787
Claims incurred.............. 33,256 35,705 17,312
Commissions and premium taxes 14,600 12,745 7,656

The amount of assumed premiums written was $198,086,000, $149,777,000 and
$27,359,000 for the years ended December 31, 2002, 2001 and 2000, respectively.
The amount of assumed premiums earned was $215,790,000, $142,715,000 and
$12,611,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

6. Income taxes:

(a) The Company's provision for income taxes, compared to statutory rates is
summarized as follows:

2002 2001 2000
-------- ------- -------

Provision for taxes at Canadian statutory marginal income tax rate $ 27,304 $22,621 $14,296
Non-taxable investment income..................................... (832) (282) (302)
Foreign operations subject to different tax rates................. (36,455) (9,106) (3,585)
Non-deductible goodwill amortization.............................. -- 2,786 2,762
Changes in tax rates and other.................................... 1,187 (5,936) (7,778)
-------- ------- -------
Provision for income taxes........................................ $ (8,796) $10,083 $ 5,393
======== ======= =======

F-31

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

(b) The components of future income tax balances are as follows:

2002 2001
-------- --------

Future income tax assets:
Losses carried forward.............. $ 34,089 $ 7,360
Unpaid claims and unearned premiums. 33,633 17,306
Investments......................... 1,713 1,095
Other............................... 7,624 8,258
-------- --------
Future income tax assets............... 77,059 34,019
-------- --------
Future income tax liabilities:
Deferred policy acquisition costs... (12,248) (8,593)
Unpaid claims and unearned premiums. (970) (697)
Investments......................... (786) (964)
Goodwill and intangible assets...... (2,843) --
Other............................... (707) (679)
-------- --------
Future income tax liabilities.......... (17,554) (10,933)
-------- --------
Net future income tax assets........... $ 59,505 $ 23,086
======== ========

Year of net operating
loss Expiration date Net operating loss
--------------------- ------------------------- -------------------------
Canadian operations:
2002 2009 $16,146
U.S. operations:
1995 2010 $ 1,510
1997 2012 4,637
1998 2018 7,033
1999 2019 1,324
2000 2020 2,868
2001 2021 5,119
2002 2022 62,101
(d) If the Company believes that all of its future income tax assets will
not result in future tax benefits, it must establish a valuation
allowance for the portion of these assets that it thinks will not be
realized. Based predominantly upon a review of the Company's anticipated
future earnings, but also including all other available evidence, both
positive and negative, the Company has concluded it is "more likely than
not" that its net future income tax assets will be realized.

7. Unpaid claims:

(a) Nature of unpaid claims:

The establishment of the provision for unpaid claims is based on known facts
and interpretation of circumstances and is therefore a complex and dynamic
process influenced by a large variety of factors. These factors include the
Company's experience with similar cases and historical trends involving claim
payment patterns, loss payments, pending levels of unpaid claims, product mix
or concentration, claims severity and claim frequency patterns.

Other factors include the continually evolving and changing regulatory and
legal environment, actuarial studies, professional experience and expertise of
the Company's claim departments' personnel and independent adjusters retained
to handle individual claims, the quality of the data used for projection
purposes, existing claims

F-32

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

management practices including claims handling and settlement practices, the
effect of inflationary trends on future claims settlement costs, court
decisions, economic conditions and public attitudes. In addition, time can be a
critical part of the provision determination, since the longer the span between
the incidence of a loss and the payment or settlement of the claims, the more
variable the ultimate settlement amount can be. Accordingly, short-tail claims
such as property claims, tend to be more reasonably predictable than
long-tailed claims, such as general liability and automobile accident benefit
claims which are less predictable.

Consequently, the process of establishing the provision for unpaid claims is
complex and imprecise as it relies on the judgement and opinions of a large
number of individuals, on historical precedent and trends, on prevailing legal,
economic, social and regulatory trends and on expectations as to future
developments. The process of determining the provision necessarily involves
risks that the actual results will deviate, perhaps substantially, from the
best estimates made.

(b) Provision for unpaid claims

The Company completes an annual evaluation of the adequacy of unpaid claims
at the end of each financial year. This evaluation includes a re-estimation of
the liability for unpaid claims relating to each preceding financial year
compared to the liability that was originally established. The results of this
comparison and the changes in the provision for unpaid claims for the years
ended December 31, 2002, 2001 and 2000 were as follows:

2002 2001 2000
---------- --------- ---------

Unpaid claims--beginning of year--net................. $ 487,229 $ 342,776 $ 324,872
Net unpaid claims of subsidiaries acquired............ 207,840 -- --
Provision for claims occurring:
In the current year................................ 1,152,507 588,942 373,431
In prior years..................................... 101,079 33,874 (3,386)
Claims paid during the year relating to:
The current year................................... (491,352) (303,783) (207,968)
The prior years.................................... (382,051) (189,801) (149,708)
Currency translation adjustment....................... (8,896) 15,221 5,535
---------- --------- ---------
Unpaid claims--end of year--net....................... 1,066,356 487,229 342,776
Reinsurers' and other insurers' share of unpaid claims 134,198 102,734 92,546
---------- --------- ---------
Unpaid claims--end of year............................ $1,200,554 $ 589,963 $ 435,322
========== ========= =========

The results for the years ended December 31, 2002 and 2001 were adversely
affected by the evaluation of unpaid claims related to prior years. The adverse
development of Ontario auto claims (including motorcycle, commercial auto and
long haul trucking) was the primary reason for the unpaid claims deficiency.
Evolving case law and the erosion of the tort threshold in Ontario has led to
an extension of the reporting period during which a plaintiff may bring suit.
Also, we identified significantly increased frequency and severity trends in
health care cost in Ontario beginning in 2000, where we are required to offer
unlimited coverage and much higher liability limits than our other markets. The
numerous changes to Ontario automobile legislation and court decisions
throughout the 1990's has inhibited the Canadian insurance industry's ability
to accurately predict the ultimate claims liabilities associated with Ontario
automobile policies, which includes automobile, trucking and motorcycle risks.
As changes to Ontario automobile policies have occurred, the changes have been
reflected in our assessment of unpaid claims for current and prior years as
well as our assessment of claims that occur in future periods. As a result, we
increased our estimate for unpaid claims relating to automobile third party
liability claims incurred prior to 2002. The estimated provisions related to
automobile accident benefit claims were also increased as the inflation rate
and severity factors previously utilized were found to be inadequate. We
increased

F-33

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

our reserves related to tort liability and revised our expected loss estimates
for automobile accident benefit claims in our 2002 unpaid claims liabilities to
account for the upward changes in both health care cost inflation and severity.

With the introduction of Bill 59 in November 1996, the insurance industry in
Ontario expected that tort liability claims would be dramatically reduced from
previously experienced, except in cases of catastrophic injuries, and
settlement procedures related to accident benefit claims would provide more
controls over health care costs and disability payments to claimants than under
previous legislation. Both of these expectations proved inaccurate based on
losses incurred from 1997 to 2001 that developed in subsequent periods. We
recognized these losses as the information supporting the unpaid claims
deficiency became available. We continue to re-evaluate the unpaid claims
provision in light of the changing environmental and legislative landscape.

Another material contributor to the adverse development of unpaid claims
liabilities in 2002, related to claims incurred in 2001 and prior years', was
non-standard auto policies written in Southeastern United States. Adverse
development of unpaid losses incurred in 2001 accounted for approximately $30
million in 2002 reported incurred losses. Similar to Ontario, Florida has
experienced a significant acceleration in fraudulent claims activity over the
last several years. Although we have taken steps to combat this development,
the unfavorable legal environment resulted in the inflation of claims payments
beyond our original estimates. We have reflected the revised claim estimates
related to unpaid automobile liability (personal injury protection) claims in
our 2002 unpaid claims liabilities.

The increases (decreases) in prior accident year incurred claims, which
amounted to $101.1 million, $33.9 million and ($3.4 million), were recognized
during the years ended December 31, 2002, 2001 and 2000, respectively. The
following tables identify the relative contribution of the increases in
incurred claims attributable to the respective products and incurred loss year.

Year Ended December 31, 2002
----------------------------------------------------------------------------
Standard Non-Standard
Motorcycle Trucking Auto Auto Property Liability Other Total
---------- -------- -------- ------------ -------- --------- ----- --------

Year Ended December 31, 2001
----------------------------------------------------------------------------
Standard Non-Standard
Motorcycle Trucking Auto Auto Property Liability Other Total
- ---------- -------- -------- ------------ -------- --------- ----- --------
1996 and prior... $ 35 $ (9) $ (120) $ 1,256 $ (6) $ 546 $ 38 $ 1,740
1997.......... 66 385 303 1,868 43 128 (10) 2,783
1998.......... 1,480 255 470 4,881 (92) 168 11 7,173
1999.......... 1,447 1,919 (161) 4,942 (308) 603 41 8,483
2000.......... 553 1,923 1,991 9,119 130 269 (290) 13,695
------ ------- ------- ------- ------ ------ ----- --------
Total..... $3,581 $ 4,473 $ 2,483 $22,066 $ (233) $1,714 $(210) $ 33,874
====== ======= ======= ======= ====== ====== ===== ========

F-34

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

Year Ended December 31, 2000
-----------------------------------------------------------------------------
Standard Non-Standard
Motorcycle Trucking Auto Auto Property Liability Other Total
- ---------- -------- -------- ------------ -------- --------- ------- -------

(c) The fair value of unpaid claims and adjustment expenses, gross and
recoverable from reinsurers, has been omitted because it is not practicable
to determine fair value with sufficient reliability.

8. Acquisitions:

In 1999 the Company acquired all of the outstanding shares of Hamilton
Investments, Inc. ("Hamilton"). All consideration will be paid in cash, part of
which was paid at closing, with the remainder to be paid based on the earnings
of Hamilton for the fiscal years 1999 to 2003. The present value of the
guaranteed future payments was accrued at the date of acquisition. The
additional consideration payable for the years ended December 31, 2002, 2001
and 2000 was $2,369,000, $2,336,000 and $2,197,000, respectively. At December
31, 2002 contingent consideration based on earnings is not expected to be
payable.

On April 5, 2002, the Company acquired all of the outstanding common and
preferred shares of American Country Holdings, Inc. for a purchase price of
$37.8 million. The results of American Country's operations have been included
in the consolidated financial statements since March 31, 2002. American Country
owns all the outstanding shares of American Country Insurance Company, an
insurer of taxicabs based in Chicago, Illinois.

The following table summarizes the estimated fair value of the assets
acquired and the liabilities assumed at the date of acquisition:

Cash and investments.. $216,885
Accounts receivable... 102,986
Other tangible assets. 35,708
Intangible assets
Contracts.......... 3,782
Insurance licenses. 3,553
Goodwill.............. 20,110
--------
Total assets.......... 383,024
Bank indebtedness..... 15,794
Insurance liabilities. 304,200
Accounts payable...... 22,454
Other liabilities..... 570
--------
Total liabilities..... 343,018
--------
Purchase price........ $ 40,006
========

9. Segmented information:

F-35

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

Company's Canadian and United States segments include transactions with the
Company's reinsurance subsidiaries. At the present time, other insurance
related services are not significant. Results for the Company's operating
segments are based on the Company's internal financial reporting systems and
are consistent with those followed in the preparation of the consolidated
financial statements. The segmented information for December 31, 2002 is
summarized as follows:

United Corporate
Canada States and Other Total
---------- ---------- --------- ----------

Gross premiums written............................. $ 490,754 $1,633,937 $ -- $2,124,691
Net premiums earned................................ 415,227 1,322,527 1,737,754
Investment income (loss)........................... 24,059 41,583 (787) 64,855
Net realized gains (losses)........................ (2,574) 17,084 1,749 16,259
Interest expense................................... -- 10,508 1,766 12,274
Net income tax expense (recovery).................. (6,005) (3,751) 960 (8,796)
Amortization of intangible assets.................. -- 716 -- 716
Amortization of capital assets and deferred charges 748 7,529 1,081 9,358
Net income (loss).................................. (13,042) 88,708 3,866 79,532

Total assets....................................... $1,299,918 $1,670,807 $13,709 $2,984,434
Additions to goodwill.............................. -- 20,110 -- 20,110
Additions to intangible assets..................... -- 7,335 -- 7,335
========== ========== ======= ==========

The segmented information for December 31, 2001 is summarized below:

United Corporate
Canada States and Other Total
-------- ---------- --------- ----------

Gross premiums written............................. $356,049 $ 709,213 $ -- $1,065,262
Net premiums earned................................ 321,926 550,904 -- 872,830
Investment income.................................. 25,035 27,289 229 52,553
Net realized gains................................. 7,579 4,426 74 12,079
Interest expense................................... -- 10,262 1,137 11,399
Net income tax expense............................. 2,941 6,730 412 10,083
Goodwill amortization.............................. 701 5,105 50 5,856
Amortization of capital assets and deferred charges 644 3,132 1,361 5,137
Net income......................................... 14,925 27,080 2,926 44,931

Total assets....................................... $633,545 $1,075,538 $69,661 $1,778,744
======== ========== ======= ==========

The segmented information for December 31, 2000 is summarized below:

United Corporate
Canada States and Other Total
-------- -------- --------- ----------

Gross premiums written............................. $289,416 $353,606 $ -- $ 643,022
Net premiums earned................................ 251,898 288,071 -- 539,969
Investment income.................................. 21,835 22,327 414 44,576
Net realized gains................................. 5,885 4,559 -- 10,444
Interest expense................................... -- 10,283 1,125 11,408
Net income tax expense (recovery).................. 4,079 1,690 (376) 5,393
Goodwill amortization.............................. 705 4,764 -- 5,469
Amortization of capital assets and deferred charges 1,314 2,718 89 4,121
Net income......................................... 18,488 7,619 1,363 27,470

Total assets....................................... $498,595 $649,668 $25,663 $1,173,926
Additions to goodwill.............................. -- 2,271 -- 2,271
======== ======== ======= ==========

F-36

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

The Company's gross premiums written are derived from the following business
lines and geographical areas:

2002 2001 2000
---- ---- ----

Business Line
Personal Lines:
Non-Standard Auto.............. 39% 51% 56%
Standard Auto.................. 2% 3% 6%
Motorcycle..................... 2% 4% 6%
Property (including Liability). 2% 3% 3%
Warranty....................... 1% 2% 3%
Other Specialty Lines.......... 1% 1% 2%
---- ---- ----
Total Personal Lines........... 47% 64% 76%

Commercial Lines:
Trucking....................... 32% 24% 13%
Commercial Auto................ 8% 5% 3%
Property (including Liability). 11% 5% 6%
Other Specialty Lines.......... 2% 2% 2%
---- ---- ----
Total Commercial Lines......... 53% 36% 24%
---- ---- ----

Total Gross Premiums Written...... 100% 100% 100%
==== ==== ====

2002 2001 2000
---- ---- ----
Geographical Area
United States:
Florida........................ 12% 13% 9%
Illinois....................... 11% 15% 20%
California..................... 11% 4% 0%
Texas.......................... 7% 6% 6%
South Carolina................. 4% 5% 2%
Alabama........................ 3% 4% 4%
Pennsylvania................... 3% 3% 4%
Other.......................... 26% 17% 10%
---- ---- ----
Total United States............ 77% 67% 55%

Canada:
Ontario........................ 10% 16% 24%
Alberta........................ 6% 7% 9%
Quebec......................... 5% 8% 9%
Other.......................... 2% 2% 3%
---- ---- ----
Total Canada................... 23% 33% 45%
---- ---- ----
Total Gross Premiums Written...... 100% 100% 100%
==== ==== ====

10. Indebtedness:

(a) Bank indebtedness:

On February 23, 1999, the Company entered into a US$100 million unsecured
credit facility with a syndicate of banks. Under this facility the Company has
the option to borrow at a floating rate equivalent to the

F-37

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

banks prime rate or for a fixed term at a fixed rate of LIBOR plus a spread
based on the Company's credit rating or upon the ratio of funded debt to total
capitalization, whichever is higher. The facility is for a fixed term of five
years and one day and was fully drawn on March 5, 1999 for general corporate
purposes. During each of the years ended December 31, 2002, 2001 and 2000 the
Company repaid US$5 million, and has the obligation to make principal
repayments of US$5 million in the year 2003, prior to the maturity of the
facility on February 23, 2004.

In March, 1999, the Company entered into interest rate swap contracts
whereby the Company fixed its rate on this US$100 million debt at 5.91% plus a
spread based on the Company's credit rating or upon the ratio of funded debt to
total capitalization, whichever is higher, for the period of the facility. The
fair values of the liabilities under the swap contracts at December 31, 2002,
2001 and 2000 were $8,632,000, $7,479,000 and $169,000, respectively.

In May, 2002, the Company entered into a $66.5 million revolving credit
facility with a syndicate of banks. The facility is a 364 day revolving credit
facility at a floating interest rate determined based on the type of loan and
our senior unsecured debt rating. As at December 31, 2002, $33,076,000 was
outstanding under this facility with an effective interest rate of
approximately 3%.

(b) Senior unsecured debentures:

On December 6, 2002, the Company issued $78 million of 8.25% unsecured
senior debentures with a maturity date of December 31, 2007. The debentures are
redeemable prior to the maturity date, at the Company's option, providing at
least 30 days notice to debenture holders. Interest on the debentures is
payable semi-annually in arrears. The net proceeds to the Company were
$77,087,420.

On December 4, 2002, a subsidiary trust of the Company issued US$15 million
of capital securities to a third party in a private transaction. A US$15
million 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 debenture bears interest through March
4, 2003 at the rate of 5.42375%. Thereafter, the rate will be the London
interbank offered interest rate for three-month U.S. dollar deposits, plus 4%,
but until December 4, 2007, the interest rate will not exceed 12.5%. The
Company has the right to call the securities at par after five years.

11. Contingent liabilities:

(a) Legal Proceedings

In connection with its operations, the Company and its subsidiaries are,
from time to time, named as defendants in actions for damages and costs
allegedly sustained by the plaintiffs. While it is not possible to estimate the
outcome of the various proceedings at this time, such actions have generally
been resolved with minimal damages or expense in excess of amounts provided and
the Company does not believe that it will incur any significant additional loss
or expense in connection with such actions.

(b) Statutory Requirements

Statutory policyholders' capital and surplus of the Company's insurance
subsidiaries was $654.3 million and $456.9 million at December 31, 2002 and
2001, respectively.

F-38

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

Minimum asset and capital requirements were met in all jurisdictions in
which the Company's subsidiaries operate. For the year 2003, under the various
insurance regulatory restrictions, based on our December 31, 2002 financial
statements, our insurance and reinsurance subsidiaries would have aggregate
dividend capacity of $180.3 million.

At December 31, 2001 the Company had entered into a US$175 million letter of
credit facility. On October 4, 2002 this was replaced by a syndicated US$350
million facility. The letter of credit facility is principally used to
collateralize inter-company reinsurance balances for statutory capital
management purposes. The Company pledges securities to collateralize the
utilized portion of the letter of credit facility. At December 31, 2002 and
2001 the letter of credit facility utilization was US$304.6 million and
US$173.5 million, respectively.

Also from time to time, the Company pledges securities to third parties to
collateralize liabilities incurred under its policies of insurance. At December
31, 2002 and 2001, the amount of pledged securities was US$49.2 million and
$nil, respectively.

12. Fair value disclosure:

The fair value of financial assets and liabilities, other than investments
(note 2), unpaid claims (note 7) and interest rate swaps (note 10) approximate
their carrying amounts.

13. Reconciliation of Canadian and United States Generally Accepted Accounting
Principles:

The following table reconciles the consolidated net income as reported under
Canadian GAAP with net income and other comprehensive income in accordance with
U.S. GAAP:

2002 2001 2000
------- ------- -------

Net income based on Canadian GAAP........................................ $79,532 $44,931 $27,470
Impact on net income of U.S. GAAP adjustments, net of tax:
Deferred start-up costs (note 13(a)).................................. 1,052 1,037 911
Goodwill amortization (note 13(b)).................................... -- 116 110
Equity accounting (note 13(c))........................................ 1,237 281 (883)
------- ------- -------
Net income based on U.S. GAAP............................................ $81,821 $46,365 $27,608
Other comprehensive income adjustments:
Change in unrealized gain on investments classified as available for sale
(note (13d))........................................................... 20,973 11,996 24,098
Change in fair value of interest rate swaps........................... (1,152) (7,479) --
Less: related future income taxes..................................... (4,949) (2,512) (6,036)
------- ------- -------
Other comprehensive income adjustments................................ 14,872 2,005 18,062
Currency translation adjustments in the period........................ (4,409) 11,447 3,182
------- ------- -------
Other comprehensive income............................................... 10,463 13,452 21,244
------- ------- -------
Total comprehensive income............................................... $92,284 $59,817 $48,852
======= ======= =======
Basic earnings per share based on U.S. GAAP net income................... $ 1.68 $ 1.25 $ 0.81
Diluted earnings per share based on U.S. GAAP net income................. $ 1.66 $ 1.22 $ 0.80
======= ======= =======

F-39

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

The following table reconciles shareholders' equity as reported under
Canadian GAAP with shareholders' equity in accordance with U.S. GAAP:

2002 2001
-------- --------

Shareholders' equity based on Canadian GAAP $612,925 $536,842
Other comprehensive income................. 16,558 1,686
Cumulative net income impact:
Deferred start-up costs (note 13(a)).... (1,981) (3,033)
Goodwill amortization (note 13(b))...... (1,213) (1,213)
Equity accounting (note 13(c)).......... 635 (602)
-------- --------
Shareholders' equity based on U.S. GAAP.... $626,924 $533,680
======== ========

Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting
Comprehensive Income" requires the Company to disclose items of other
comprehensive income in a financial statement and to disclose accumulated
balances of other comprehensive income or loss in the equity section of the
Company's balance sheet. The total cumulative other comprehensive income
amounts to $27,648,000 and $17,185,000 as at December 31, 2002 and 2001,
respectively.

(a) Deferred start-up costs

(b) Goodwill amortization:

As per Note 1(e), effective January 1, 2002, all existing goodwill which is
currently included in the Company's Consolidated Balance Sheets ceased to be
amortized to income over time for both Canadian and U.S. GAAP, and is subject
to a periodic impairment review to ensure that the fair value remains greater
than, or equal to, book value. Any excess of book value over fair value will be
charged to income in the period in which the impairment is determined. The
Company adopted this new standard prospectively. As a result of the adoption of
this new standard, no goodwill amortization was recorded in the twelve months
ended December 31, 2002.

Prior to January 1, 2002, under Canadian GAAP, the amortization of goodwill
was shown as the final item in the Statement of Operations, net of applicable
taxes, whereas under U.S. GAAP this presentation was not permitted and the
applicable taxes would be included in the income tax expense on the Statement
of Operations. As a result, under U.S. GAAP, the applicable taxes of $818,000
and $737,000 for the twelve months ended December 31, 2001 and 2000,
respectively, would be reclassified to increase the goodwill amortization and
decrease the income tax expenses. Goodwill amortization would be classified
with expenses under U.S. GAAP.

Under Canadian GAAP, the Company's 25% equity investment in an investee is
carried at cost as the Company does not have significant influence over the
investee. Under U.S. GAAP, we are deemed to have

F-40

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars, except for per share amounts)

significant influence because the Company's equity investment exceeds 20%, and
the equity method of accounting is used. This method recognizes the Company's
share of net income or loss of the investee. Also, under U.S. GAAP goodwill is
recognized, and prior to December 31, 2001 was being amortized over a period of
10 years.

(d) Portfolio investments:

Under Canadian GAAP, portfolio investments are carried at cost or amortized
cost, and where a decline in value of an investment is considered to be other
than temporary, a write-down of the investment to its estimated recoverable
amount is recorded. Under U.S. GAAP, such investments would be classified as
available for sale and are marked to market after write-downs for other than
temporary declines in values, and the unrealized gain or loss, net of any
future income taxes, is recorded as other comprehensive income, a component of
shareholders' equity.

(e) Accounting for Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"), as amended by Statements No. 137 and 138, which
established accounting and reporting standards for derivative instruments and
for hedging activities. Under FAS 133, all derivative instruments, including
certain derivative instruments embedded in other contracts, are recognized as
either assets or liabilities in the balance sheet at their fair values, and
changes in such fair values must be recognized immediately in earnings unless
specific hedging criteria are met. The Company adopted this statement effective
January 1, 2001 for purposes of its U.S. GAAP reconciliation. The Company has
purchased interest rate swap contracts that are designated as cash flow hedges
against the amounts borrowed under the unsecured credit facility. The terms of
the swaps match those of the unsecured credit facility, and were entered into
to minimize the Company's exposure to fluctuations in interest rates. The
change in the fair value of interest rate swap contracts is reflected in other
comprehensive income.

(f) Future accounting pronouncements:

The Company does not expect the adoption of any known proposed accounting
pronouncements to have a material impact on its consolidated financial
statements.

14. Comparative figures:

Certain comparative figures have been reclassified to conform with the
financial statement presentation adopted in the current year.

15. Supplemental Condensed Consolidating Financial Information:

Subject to the necessary regulatory approvals, Kingsway America Inc.
("KAI") may issue subordinated notes to Kingsway U.S. Funding Inc.
("Funding Co."), and Funding Co. may issue subordinated debentures which
will be fully and unconditionally guaranteed by the Company. The following
is condensed consolidating financial information for the Company as of
December 31, 2002 and 2001 and for the three years ended December 31, 2002,
2001 and 2000, with a separate column for each of KAI as Issuer, the
Company ("KFSI") as Guarantor and the other businesses of the Company
combined (the "Non-Guarantor Subsidiaries"). For the purposes of the
condensed consolidating financial information, the Company and KAI carry
their investments under the equity method.

F-41

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars)

Condensed Consolidating Statement of Operations
For the year ended December 31, 2002
(In thousands of Canadian dollars)

Other Consolidation
KFSI KAI subsidiaries adjustments Total
------------ --------- -------------- ------------- ----------
(the
(the (the "Non-Guarantor
"Guarantor") "Issuer") subsidiaries")

Revenues
Net premiums earned............... $ -- $ -- $1,813,208 $ (75,454) $1,737,754
Investment related income......... 960 15,972 77,773 (13,591) 81,114
Management fees................... 38,001 2,153 -- (40,154) --
------- ------- ---------- --------- ----------
38,961 18,125 1,890,981 (129,199) 1,818,868
Expenses
Claims incurred................... -- -- 1,323,780 (83,451) 1,240,329
Commissions and premium taxes..... -- -- 379,123 (7,072) 372,051
Other expenses.................... 32,369 7,334 122,451 (38,676) 123,478
Interest expense.................. 1,766 -- 10,508 -- 12,274
------- ------- ---------- --------- ----------
34,135 7,334 1,835,862 (129,199) 1,748,132
Income before taxes.................. 4,826 10,791 55,119 -- 70,736
Income taxes......................... 960 (976) (8,780) -- (8,796)
Equity in undistributed net income of
subsidiaries....................... 75,666 (5,464) -- (70,202) --
------- ------- ---------- --------- ----------
Net income........................... $79,532 $ 6,303 $ 63,899 $ (70,202) $ 79,532
======= ======= ========== ========= ==========

F-42

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars)

Condensed Consolidating Statement of Operations
For the year ended December 31, 2001
(In thousands of Canadian dollars)

Other Consolidation
KFSI KAI subsidiaries adjustments Total
------------ --------- -------------- ------------- --------
(the
(the (the "Non-Guarantor
"Guarantor") "Issuer") subsidiaries")

Revenues
Net premiums earned..................... $ -- $ -- $872,830 $ -- $872,830
Investment related income............... 304 17,377 62,120 (15,169) 64,632
Management fees......................... 29,516 1,762 -- (31,278) --
------- ------- -------- -------- --------
29,820 19,139 934,950 (46,447) 937,462
Expenses
Claims incurred......................... -- -- 623,163 (7,084) 616,079
Commissions and premium taxes........... -- -- 167,176 -- 167,176
Other expenses.......................... 25,297 2,168 93,836 (39,363) 81,938
Interest expense........................ 1,136 -- 10,263 -- 11,399
------- ------- -------- -------- --------
26,433 2,168 894,438 (46,447) 876,592
Income before taxes........................ 3,387 16,971 40,512 -- 60,870
Income taxes............................... 412 612 9,059 -- 10,083
Amortization of goodwill, net of applicable
income tax............................... -- -- 5,856 -- 5,856
Equity in undistributed net income of
subsidiaries............................. 41,956 12,724 -- (54,680) --
------- ------- -------- -------- --------
Net income................................. $44,931 $29,083 $ 25,597 $(54,680) $ 44,931
======= ======= ======== ======== ========

F-43

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars)

Condensed Consolidating Statement of Operations
For the year ended December 31, 2000
(In thousands of Canadian dollars)

Other Consolidation
KFSI KAI subsidiaries adjustments Total
------------ --------- -------------- ------------- --------
(the
(the (the "Non-Guarantor
"Guarantor") "Issuer") subsidiaries")

Revenues
Net premiums earned..................... $ -- $ -- $539,969 $ -- $539,969
Investment related income............... 140 21,299 53,030 (19,449) 55,020
Management fees......................... 21,029 1,245 -- (22,274) --
------- ------- -------- -------- --------
21,169 22,544 592,999 (41,723) 594,989
Expenses
Claims incurred......................... -- -- 371,946 -- 371,946
Commissions and premium taxes........... -- -- 106,378 -- 106,378
Other expenses.......................... 18,987 1,270 88,391 (41,723) 66,925
Interest expense........................ 1,125 -- 10,283 -- 11,408
------- ------- -------- -------- --------
20,112 1,270 576,998 (41,723) 556,657
Income before taxes........................ 1,057 21,274 16,001 -- 38,332
Income taxes............................... (376) 606 5,163 -- 5,393
Amortization of goodwill, net of applicable
income tax............................... -- -- 5,469 -- 5,469
Equity in undistributed net income of
subsidiaries............................. 26,037 3,873 -- (29,910) --
------- ------- -------- -------- --------
Net income................................. $27,470 $24,541 $ 5,369 $(29,910) $ 27,470
======= ======= ======== ======== ========

F-44

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars)

Condensed Consolidating Balance Sheet as at December 31, 2002
(In thousands of Canadian dollars)

Other Consolidation
KFSI KAI subsidiaries adjustments Total
------------ --------- -------------- ------------- ----------
(the
(the (the "Non-Guarantor
"Guarantor") "Issuer") subsidiaries")

Assets
Investments in subsidiaries...... $619,192 $405,578 $ 761,943 $(1,786,713) $ --
Cash............................. 1,402 464 243,055 -- 244,921
Investments...................... 5,139 506 1,828,099 -- 1,833,744
Goodwill and other intangible
assets......................... -- -- 94,250 10,040 104,290
Other assets..................... 87,756 (41,924) 1,856,742 (1,101,095) 801,479
-------- -------- ---------- ----------- ----------
$713,489 $364,624 $4,784,089 $(2,877,768) $2,984,434
Liabilities and Shareholders' Equity
Liabilities:.....................
Bank indebtedness................ $ 20,532 $ -- $ 149,858 $ -- $ 170,390
Other liabilities................ 2,032 1,389 120,008 (823) 122,606
Unearned premiums................ -- -- 1,282,603 (506,280) 776,323
Unpaid claims.................... -- -- 1,809,608 (609,054) 1,200,554
Senior unsecured debentures...... 78,000 -- -- -- 78,000
-------- -------- ---------- ----------- ----------
100,564 1,389 3,362,077 (1,116,157) 2,347,873
Subordinated indebtedness........... -- 23,636 -- -- 23,636

Shareholders' equity:
Share capital.................... 357,192 379,111 1,295,744 (1,674,855) 357,192
Currency translation adjustment.. 11,090 (1,640) 17,481 (15,841) 11,090
Retained earnings................ 244,643 (37,872) 108,787 (70,915) 244,643
-------- -------- ---------- ----------- ----------
612,925 339,599 1,422,012 (1,761,611) 612,925
-------- -------- ---------- ----------- ----------
$713,489 $364,624 $4,784,089 $(2,877,768) $2,984,434
======== ======== ========== =========== ==========

F-45

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars)

Condensed Consolidating Balance Sheet as at December 31, 2001
(In thousands of Canadian dollars)

Other Consolidation
KFSI KAI subsidiaries adjustments Total
------------ --------- -------------- ------------- ----------
(the
(the (the "Non-Guarantor
"Guarantor") "Issuer") subsidiaries")

Assets
Investments in subsidiaries...... $490,755 $269,997 $ 677,647 $(1,438,399) $ --
Cash............................. 2,099 854 93,247 -- 96,200
Investments...................... 43,529 335 1,083,134 -- 1,126,998
Goodwill and other intangible
assets......................... -- -- 68,845 7,682 76,527
Other assets..................... 16,783 35,947 878,657 (452,368) 479,019
-------- -------- ---------- ----------- ----------
$553,166 $307,133 $2,801,530 $(1,883,085) $1,778,744
======== ======== ========== =========== ==========
Liabilities and Shareholders' Equity
Liabilities:
Bank indebtedness................ $ 14,346 $ -- $ 130,170 $ -- $ 144,516
Other liabilities................ 1,978 690 80,977 (342) 83,303
Unearned premiums................ -- -- 648,720 (224,600) 424,120
Unpaid claims.................... -- -- 832,790 (242,827) 589,963
-------- -------- ---------- ----------- ----------
16,324 690 1,692,657 (467,769) 1,241,902
Shareholders' equity:
Share capital.................... 356,232 296,367 1,036,881 (1,333,248) 356,232
Currency translation adjustment.. 15,499 16,042 (630) (15,412) 15,499
Retained earnings................ 165,111 (5,966) 72,622 (66,656) 165,111
-------- -------- ---------- ----------- ----------
536,842 306,443 1,108,873 (1,415,316) 536,842
-------- -------- ---------- ----------- ----------
$553,166 $307,133 $2,801,530 $(1,883,085) $1,778,744
======== ======== ========== =========== ==========

F-46

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars)

Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 2002
(In thousands of Canadian dollars)

Other Consolidation
KFSI KAI subsidiaries adjustments Total
------------ --------- -------------- ------------- -----------
(the
(the (the "Non-Guarantor
"Guarantor") "Issuer") subsidiaries")

Cash provided by (used in):
Operating activities:
Net income.............................. $ 79,532 $ 6,303 $ 63,899 $(70,202) $ 79,532
Adjustments to reconcile net income to
net cash used by operating activities:
Equity in undistributed earnings in
subsidiaries....................... (75,666) 5,464 -- 70,202 --
Other................................ (73,617) 79,919 475,094 39,456 520,852
--------- --------- ----------- -------- -----------
(69,751) 91,686 538,993 39,456 600,384
Financing activities:
Increase in share capital, net....... 960 82,744 11,002 (93,746) 960
Increase/(decrease) in bank
indebtedness....................... 6,186 -- 20,766 -- 26,952
Increase in subordinated
indebtedness....................... -- 23,636 -- -- 23,636
Increase in senior unsecured
debentures......................... 78,000 -- -- -- 78,000
--------- --------- ----------- -------- -----------
85,146 106,380 31,768 (93,746) 129,548
Investing activities:
Purchase of investments.............. (145,341) (177) (4,251,307) -- (4,396,825)
Proceeds from sale of
investments........................ 185,651 -- 3,671,399 -- 3,857,050
Other................................ (56,402) (198,279) 158,955 54,290 (41,436)
--------- --------- ----------- -------- -----------
(16,092) (198,456) (420,953) 54,290 (581,211)
Increase (decrease) in cash during the
year.................................. (697) (390) 149,808 -- 148,721
Cash, beginning of year................. 2,099 854 93,247 -- 96,200
--------- --------- ----------- -------- -----------
Cash, end of year....................... $ 1,402 $ 464 $ 243,055 $ -- $ 244,921
========= ========= =========== ======== ===========

F-47

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars)

Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 2001
(In thousands of Canadian dollars)

Other Consolidation
KFSI KAI subsidiaries adjustments Total
------------ --------- -------------- ------------- -----------
(the
(the (the "Non-Guarantor
"Guarantor") "Issuer") subsidiaries")

Cash provided by (used in):
Operating activities:
Net income.............................. $ 44,931 $ 29,083 $ 25,597 $ (54,680) $ 44,931
Adjustments to reconcile net income to
net cash used by operating activities:
Equity in undistributed earnings in
subsidiaries....................... (41,956) (12,724) -- 54,680 --
Other................................ (10,432) (8,079) 180,908 -- 162,397
--------- -------- ----------- --------- -----------
(7,457) 8,280 206,505 -- 207,328
Financing activities:
Increase in share capital, net....... 207,751 70,610 93,664 (164,274) 207,751
Increase/(decrease) in bank
indebtedness....................... 139 -- (7,174) -- (7,035)
207,890 70,610 86,490 (164,274) 200,716
Investing activities:
Purchase of investments.............. (129,274) (9,682) (2,138,687) -- (2,277,643)
Proceeds from sale of
investments........................ 97,258 9,898 1,851,522 -- 1,958,678
Other................................ (167,772) (87,482) 68,261 164,274 (22,719)
--------- -------- ----------- --------- -----------
(199,788) (87,266) (218,904) 164,274 (341,684)
Increase (decrease) in cash during the
year.................................. 645 (8,376) 74,091 -- 66,360
Cash, beginning of year................. 1,454 9,230 19,156 -- 29,840
--------- -------- ----------- --------- -----------
Cash, end of year....................... $ 2,099 $ 854 $ 93,247 $ -- $ 96,200
========= ======== =========== ========= ===========

F-48

KINGSWAY FINANCIAL SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in thousands of Canadian dollars)

Condensed Consolidating Statement of Cash Flows
For the year ended December 31, 2000
(In thousands of Canadian dollars)

Other Consolidation
KFSI KAI subsidiaries adjustments Total
------------ --------- -------------- ------------- -----------
(the
(the (the "Non-Guarantor
"Guarantor") "Issuer") subsidiaries")

Cash provided by (used in):
Operating activities:
Net income.............................. $ 27,470 $ 24,541 $ 5,369 $(29,910) $ 27,470
Adjustments to reconcile net income to
net cash used by operating activities:
Equity in undistributed earnings in
subsidiaries....................... (26,037) (3,873) -- 29,910 --
Other................................ 1,858 (2,080) 65,258 -- 65,036
-------- -------- ----------- -------- -----------
3,291 18,588 70,627 -- 92,506
Financing activities:
Increase in share capital, net....... 19 -- 1,375 (1,375) 19
Increase/(decrease) in bank
indebtedness....................... (7,528) -- (6,917) -- (14,445)
-------- -------- ----------- -------- -----------
(7,509) -- (5,542) (1,375) (14,426)
Investing activities:
Purchase of investments.............. (47,319) (2,302) (1,200,071) -- (1,249,692)
Proceeds from sale of
investments........................ 40,020 8,626 1,173,267 -- 1,221,913
Other................................ 12,592 (23,521) (22,969) 1,375 (32,523)
-------- -------- ----------- -------- -----------
5,293 (17,197) (49,773) 1,375 (60,302)
Increase (decrease) in cash during the
year.................................. 1,075 1,391 15,312 -- 17,778
Cash, beginning of year................. 379 7,839 3,844 -- 12,062
-------- -------- ----------- -------- -----------
Cash, end of year....................... $ 1,454 $ 9,230 $ 19,156 $ -- $ 29,840
======== ======== =========== ======== ===========

F-49

================================================================================

You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any person to provide you
with different information. We are offering to sell, and seeking offers to buy,
shares of trust preferred securities only in jurisdictions where offers and
sales are permitted. The prospectus is not an offer to sell or a solicitation
of an offer to buy the trust preferred securities in any jurisdiction where it
is unlawful. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the trust preferred securities.

-----------------

TABLE OF CONTENTS

Page
----

Prospectus Summary........................... 1
Risk Factors................................. 12
Special Note Regarding Forward-Looking
Statements................................. 27
Use of Proceeds.............................. 28
Capitalization............................... 29
Accounting Treatment......................... 30
Ratio of Earnings to Fixed Charges........... 30
Selected Consolidated Financial Information.. 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 33
The Company.................................. 56
Management................................... 74
Kingsway Financial Capital Trust I........... 76
Kingsway U.S. Funding Inc.................... 77
Description of the Trust Preferred Securities 78
Description of the Debentures and the
Debenture Guarantee........................ 91
Book-Entry Issuance.......................... 101
Description of the Preferred Securities
Guarantee.................................. 103
Relationship among the Trust Preferred
Securities, the Debentures and the
Guarantees................................. 107
Material U.S. Federal Income Tax
Consequences............................... 109
Underwriting................................. 115
Legal Matters................................ 117
Experts...................................... 117
Enforcement of Civil Liabilities............. 117
Where You Can Find More Information.......... 118
Index to Financial Statements................ F-1

-----------------

================================================================================
================================================================================

2,000,000 Trust Preferred Securities
Kingsway Financial Capital Trust I

% Trust Preferred Securities
US$25 liquidation amount
fully and unconditionally guaranteed by
Kingsway Financial Services Inc.

[LOGO] K

-----------------

PROSPECTUS

-----------------

Advest, Inc.

Ferris, Baker Watts
Incorporated

Keefe, Bruyette &
Woods, Inc.

Raymond James

Sandler O'Neill & Partners, L.P.

Putnam Lovell NBF
Securities Inc.

, 2003

================================================================================

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 8. Indemnification of Directors and Officers

Under the Corporations Act (Ontario), Kingsway Financial may indemnify a
present or former director or officer or a person who acts or acted at Kingsway
Financial's request as a director or officer of another corporation of which
Kingsway Financial is or was a shareholder or creditor and his heirs and legal
representatives against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he is made a party by reason of being or having been such a director or officer
if the director or officer acted honestly and in good faith with a view to the
best interests of Kingsway Financial, and, in the case of a criminal or
administrative action or proceeding that is enforced by a monetary penalty, had
reasonable grounds for believing that his conduct was lawful. Such
indemnification may be made in connection with a derivative action only with
court approval. A director or officer is entitled to indemnification from
Kingsway Financial as a matter of right if he was substantially successful on
the merits and fulfilled the conditions set forth above.

In accordance with the Corporations Act (Ontario), Kingsway Financial's
by-laws provide that it shall indemnify a director or officer, a former
director or officer, or a person who acts or acted at Kingsway Financial's
request as a director or officer of another corporation of which Kingsway
Financial is or was a shareholder or creditor and his heirs and legal
representatives against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he is made a party by reason of being or having been a director or officer of
such body if he acted honestly and in good faith with a view to the best
interests of Kingsway Financial, and, in the case of a criminal action or
administrative action or proceeding that is enforced by monetary penalty, he
had reasonable grounds for believing that his conduct was lawful.

Kingsway Financial has purchased directors' and officers' liability
insurance for the directors and officers of Kingsway. The aggregate annual
premium paid by Kingsway Financial is $507,800. The annual insurance coverage
under the policy is limited to $45 million per policy year. There is a $1
million deductible provision for any claim made by Kingsway Financial, but no
such deductible provision for claims made directly by any director or officer.

The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrants and their officers and directors for certain liabilities
arising under the Securities Act, or otherwise.

The certificate of incorporation and bylaws for Funding Co. provide that
Funding Co. shall indemnify its directors, officers, employees and agents to
the full extent permitted by Delaware General Corporation Law.

The Declaration of Trust limits the liability of the Trust and certain other
persons and provides for the indemnification by Funding Co. and the Trust of
the trustees, their officers, directors and employees and certain other persons.

II-1

ITEM 9. Exhibits and Financial Schedules

(A) Exhibits

See Exhibit Index.

(B) Financial Statement Schedules

The following Kingsway financial statement schedules are included as part of
this registration statement immediately following the signature pages.

Schedule Page
-------- ----

Auditors' Report--KPMG LLP............................................. S-1
I--Summary of Investments.............................................. S-2
II--Condensed Financial Information of Kingsway Financial Services Inc. S-3
III--Supplementary Insurance Information............................... S-7
IV--Reinsurance........................................................ S-8

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or ir shown in the financial
statements or the notes thereto.

ITEM 10. Undertakings

The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of our
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liability (other than the payment by the registrants of expenses incurred
or paid by a director, officer or controlling person of either registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.

The undersigned registrants hereby undertake that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrants pursuant to Rule 424(b)(1) or (4) of 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-2

SIGNATURES

Pursuant to the requirements of the Securities Act, Kingsway Financial
Services Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form F-3 and has duly caused this
Amendment No. 6 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mississauga, Province of
Ontario, Country of Canada, on August 13, 2003.

KINGSWAY FINANCIAL SERVICES INC.

By: /S/ WILLIAM G. STAR
-----------------------------
William G. Star,
Chairman, President and Chief
Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 6 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:

Signature Title Date
--------- ----- ----

/S/ WILLIAM G. STAR Chairman, President and Chief August 13, 2003
- ----------------------------- Executive Officer
William G. Star (Principal Executive
Officer)

/S/ W. SHAUN JACKSON Executive Vice President and August 13, 2003
- ----------------------------- Chief Financial Officer
W. Shaun Jackson (Principal Financial and
Accounting Officer)

* Director August 13, 2003
- -----------------------------
David H. Atkins

* Director August 13, 2003
- -----------------------------
John L. Beamish

* Director August 13, 2003
- -----------------------------
Thomas A. Di Giacomo

* Director August 13, 2003
- -----------------------------
Bernard Gluckstein

* Director August 13, 2003
- -----------------------------
J. Brian Reeve

* Lead Director August 13, 2003
- -----------------------------
F. Michael Walsh

/S/ JAMES R. ZUHLKE Director August 13, 2003
- -----------------------------
James R. Zuhlke

* The undersigned, by signing his name hereto, does hereby sign this Amendment
No. 6 to the Registration Statement on behalf of each of the above-indicated
persons pursuant to a power of attorney executed by each such person.

By: /S/ WILLIAM G. STAR
-------------------------
William G. Star
Chairman, President and
Chief Executive Officer

II-3

AUTHORIZED REPRESENTATIVE

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 6 to the Registration Statement has been signed below by the
undersigned as the duly authorized representative of Kingsway Financial
Services Inc. in the United States.

By: /s/ JAMES R. ZUHLKE
-----------------------------
James R. Zuhlke

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act, Kingsway America Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-3 and has duly caused this Amendment No. 6 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Schaumburg, Illinois, on August 13,
2003.

KINGSWAY AMERICA INC.

By: /S/ JAMES R. ZUHLKE
-----------------------------
James R. Zuhlke
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 6 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:

Signature Title Date
--------- ----- ----

/S/ JAMES R. ZUHLKE President, Chief Executive August 13, 2003
- ----------------------------- Officer and Director
James R. Zuhlke (Principal Executive
Officer)

/S/ BRIAN K. WILLIAMSON Chief Financial Officer August 13, 2003
- ----------------------------- (Principal Financial and
Brian K. Williamson Accounting Officer)

/S/ WILLIAM G. STAR Director August 13, 2003
- -----------------------------
William G. Star

/S/ W. SHAUN JACKSON Director August 13, 2003
- -----------------------------
W. Shaun Jackson

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act, Kingsway U.S. Funding
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form F-3 and has duly caused this Amendment No.
6 to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Schaumburg, Illinois, on August 13,
2003.

KINGSWAY U.S. FUNDING INC.

By: /S/ JAMES R. ZUHLKE
-----------------------------
James R. Zuhlke
President

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 6 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:

Signature Title Date
--------- ----- ----

/S/ JAMES R. ZUHLKE President and August 13, 2003
- ----------------------------- Director (Principal
James R. Zuhlke Executive Officer)

/S/ BRIAN K. WILLIAMSON Treasurer (Principal August 13, 2003
- ----------------------------- Financial and Accounting
Brian K. Williamson Officer)

/S/ WILLIAM G. STAR Director August 13, 2003
- -----------------------------
William G. Star

/S/ W. SHAUN JACKSON Director August 13, 2003
- -----------------------------
W. Shaun Jackson

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act, Kingsway Financial
Capital Trust I certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form F-3 and has duly caused this
Amendment No. 6 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Schaumburg, Illinois, on
August 13, 2003.

KINGSWAY FINANCIAL CAPITAL TRUST I

By: /S/ JAMES R. ZUHLKE
-----------------------------
James R. Zuhlke
Administrative Trustee

II-7

Auditors' Report

The Board of Directors,
Kingsway Financial Services Inc.

Under date of February 6, 2003, we reported on the consolidated balance
sheets of Kingsway Financial Services Inc. and subsidiaries as of December 31,
2002 and 2001, and the related consolidated statements of operations, retained
earnings and cash flows for each of the years in the three-year period ended
December 31, 2002, which are included in the Registration Statement F-3. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedules in the Registration Statement. These financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements schedule based on our audits.

In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

KPMG LLP

Chartered Accountants

Toronto, Canada
February 6, 2003

S-1

SCHEDULE I

KINGSWAY FINANCIAL SERVICES INC. (Consolidated)
Summary of Investments (other than investments in related parties)
(In thousands of Canadian dollars)

December 31, 2002
--------------------------------
Cost /
Amortized Fair Carrying
Cost Value Value
---------- ---------- ----------

Type of Investment
Fixed maturities:
United States government and government agencies and
authorities.................................................. $ 17,927 $ 19,188 $ 17,927
States, municipalities and political subdivisions.............. 47,769 49,658 47,769
Canada and other foreign federal and provincial and government
agencies and authorities..................................... 289,030 295,088 289,030
Mortgaged-backed securities.................................... 86,949 90,549 86,949
All other corporate bonds...................................... 613,732 630,657 613,732
---------- ---------- ----------
Total fixed maturities..................................... $1,055,407 $1,085,140 $1,055,407
========== ========== ==========
Equity securities:
Common stocks:
Bank, trust and insurance companies.......................... $ 18,816 $ 18,394 $ 18,816
Industrial, miscellaneous and other.......................... 156,150 159,483 156,150
Preferred stocks: 2,045 2,025 2,045
---------- ---------- ----------
Total Equities............................................. $ 177,011 $ 179,902 $ 177,011
========== ========== ==========
Short term investments: 506,574 506,510 506,574
---------- ---------- ----------
Total Investments.......................................... $1,738,992 $1,771,552 $1,738,992
========== ========== ==========

Note: A 25% equity investment in an investee is excluded from this schedule.

S-2

SCHEDULE II

KINGSWAY FINANCIAL SERVICES INC.
Condensed Financial Information of Registrant (Parent Company Only)
Condensed Statements of Operations
(In thousands of Canadian dollars)

Year ended December 31,
------------------------
2002 2001 2000
------- ------- -------

Revenues
Investment income.................................. $ (788) $ 53 $ 140
Net realized gains................................. 1,748 251 --
Management Fees*................................... 38,001 29,516 21,029
------- ------- -------
38,961 29,820 21,169
Expenses
Interest expense................................... 1,766 1,136 1,125
Other operating expenses........................... 32,369 25,297 18,987
------- ------- -------
34,135 26,433 20,112
Income before taxes................................ 4,826 $ 3,387 $ 1,057
Income taxes....................................... 960 412 (376)
Equity in undistributed net income of subsidiaries* 75,666 41,956 26,037
------- ------- -------
Net Income......................................... $79,532 $44,931 $27,470
======= ======= =======

- --------

* Eliminated in consolidated

See accompanying notes to condensed financial information

S-3

KINGSWAY FINANCIAL SERVICES INC.
Condensed Financial Information of Registrant (Parent Company Only)
Condensed Balance Sheets

December 31, 2002, with comparative figures for 2001
(In thousands of Canadian dollars)

2002 2001
-------- --------

Assets
Investments in subsidiaries......... $619,192 $490,755
Cash................................ 1,402 2,099
Investments......................... 5,139 43,529
Due from subsidiaries............... 76,486 5,054
Income tax receivable............... 253 --
Other assets........................ 11,017 11,729
-------- --------
$713,489 $553,166
======== ========

Liabilities and Shareholders' Equity
Liabilities:
Bank loan........................ $ 20,532 $ 14,346
Senior unsecured debentures...... 78,000 --
Accrued liabilities.............. 2,032 1,411
Income tax payable............... -- 567
-------- --------
100,564 16,324
Shareholders' equity:
Share capital.................... 357,192 356,232
Currency translation adjustment.. 11,090 15,499
Retained earnings................ 244,643 165,111
-------- --------
612,925 536,842
-------- --------
$713,489 $553,166
======== ========

See accompanying notes to condensed financial information

S-4

KINGSWAY FINANCIAL SERVICES INC.
Condensed Financial Information of Registrant (Parent Company Only)
Condensed Statements of Cash Flows

Year ended December 31
---------------------------------
2002 2001 2000
--------- --------- --------
(In thousands of Canadian dollars)

Cash provided by (used in):
Operating activities:
Net income........................................................ $ 79,532 $ 44,931 $ 27,470
Adjustments to reconcile net income to net cash used by operating
activities:
Equity in undistributed earnings in subsidiaries.............. (75,666) (41,956) (26,037)
Net realized gains............................................ 1,748 251 --
Due from subsidiaries......................................... (72,040) -- --
Other operating assets and liabilities............................ (3,325) (10,683) 1,858
--------- --------- --------
(69,751) (7,457) 3,291
Financing activities:
Increase in share capital, net.................................... 960 207,751 19
Increase/(decrease) in bank indebtedness.......................... 6,186 139 (7,528)
Increase in senior unsecured debentures........................... 78,000 -- --
--------- --------- --------
85,146 207,890 (7,509)
Investing activities:
Purchase of investments........................................... (145,341) (129,274) (47,319)
Proceeds from sale of investments................................. 185,651 97,258 40,020
Capital contributions to subsidiaries............................. (55,010) (173,745) 1,375
Dividends received from subsidiaries.............................. -- 8,000 14,000
Purchase of subsidiaries.......................................... -- -- --
Additions to capital assets....................................... (1,392) (2,027) (2,783)
--------- --------- --------
(16,092) (199,788) 5,293
Increase (decrease) in cash during the year.......................... (697) 645 1,075
Cash, beginning of year.............................................. 2,099 1,454 379
--------- --------- --------
Cash, end of year.................................................... $ 1,402 $ 2,099 $ 1,454
========= ========= ========

See accompanying notes to condensed financial information

S-5

KINGSWAY FINANCIAL SERVICES INC.
Condensed Financial Information of Registrant (Parent Company Only)
Notes to the Condensed Financial Information

1. The condensed financial information of the registrant should be reviewed
in conjunction with the Company's consolidated financial statements for the
year ended December 31, 2002 included in this Registration Statement starting
on page F-2.

2. The condensed financial information of the registrant has been prepared
in accordance with Canadian generally accepted accounting principles.

3. The consolidated financial statements have been reconciled with United
States generally accepted accounting principles in Note 13 to the consolidated
financial statements included in this Registration Statement starting on page
F-39.

S-6

Kingsway Financial Services Inc.

Schedule III--Supplementary Insurance Information

Years Ended December 31, 2002, 2001 and 2000
(in thousands of Canadian dollars)

Deferred Liability for Other
Policy unpaid claims Net Commissions General & Net
Acquisition and loss Unearned Earned Investment Claims & Premium Administrative Premiums
Segment Costs expenses Premiums Premiums Income Incurred Taxes Expenses Written
- ------- ----------- ------------- -------- ---------- ---------- ---------- ----------- -------------- ----------

2002
United
States. $145,468 $ 870,206 $587,052 $1,322,526 $41,583 $ 915,279 $288,533 $ 81,201 $1,546,998
Canada.. 33,106 330,348 189,271 415,227 24,059 325,050 83,518 47,192 462,965
Other... 0 0 0 0 (787) 0 0 (5,631) 0
======== ========== ======== ========== ======= ========== ======== ======== ==========
Total... $178,574 $1,200,554 $776,323 $1,737,753 $64,855 $1,240,329 $372,051 $122,762 $2,009,963
======== ========== ======== ========== ======= ========== ======== ======== ==========
2001
United
States. $ 70,404 $ 335,626 $283,039 $ 550,904 $27,289 $ 379,484 $106,372 $ 47,586 $ 679,077
Canada.. 25,313 254,337 141,081 321,926 25,035 236,595 60,804 38,573 335,883
Other... 0 0 0 0 229 0 0 (4,221) 0
======== ========== ======== ========== ======= ========== ======== ======== ==========
Total... $ 95,717 $ 589,963 $424,120 $ 872,830 $52,553 $ 616,079 $167,176 $ 81,938 $1,014,960
======== ========== ======== ========== ======= ========== ======== ======== ==========
2000
United
States. $ 30,324 $ 217,533 $142,100 $ 288,071 $22,327 $ 195,431 $ 52,730 $ 42,441 $ 332,740
Canada.. 23,143 217,789 126,108 251,898 21,835 176,515 53,648 26,172 271,953
Other... 0 0 0 0 414 0 0 (1,688) 0
======== ========== ======== ========== ======= ========== ======== ======== ==========
Total... $ 53,467 $ 435,322 $268,208 $ 539,969 $44,576 $ 371,946 $106,378 $ 66,925 $ 604,693
======== ========== ======== ========== ======= ========== ======== ======== ==========

S-7

Kingsway Financial Services Inc. (consolidated)

Schedule IV--Reinsurance

Years Ended December 31, 2002, 2001 and 2000
(in thousands of Canadian dollars)

Assumed Percentage
Ceded From of Amount
Gross to Other Other Net Assumed
Amount Companies Companies Amount to Net
---------- --------- --------- ---------- ----------

Year ended December 31, 2002
Property and casualty premiums. $1,608,546 $86,582 $215,790 $1,737,754 12.4%
========== ======= ======== ==========
Year ended December 31, 2001
Property and casualty premiums. $ 781,169 $51,054 $142,715 $ 872,830 16.4%
========== ======= ======== ==========
Year ended December 31, 2000
Property and casualty premiums. $ 564,804 $37,446 $ 12,611 $ 539,969 2.3%
========== ======= ======== ==========

S-8

EXHIBIT INDEX

Exhibit
Number Description of Exhibit
- ------- ----------------------

1.1 * Form of Underwriting Agreement.

4.1** Form of Indenture between Kingsway U.S. Funding Inc., Kingsway Financial Services Inc. and
BNY Midwest Trust Company, Trustee.

4.2** Officer's Certificate setting forth the terms of the Junior Subordinated Debentures.

4.3** Form of Junior Subordinated Debenture (included in Exhibit 4.2).

4.4** Certificate of Trust of Kingsway Financial Capital Trust I.

4.5** Declaration of Trust of Kingsway Financial Capital Trust I.

4.6** Form of Amended and Restated Declaration of Trust of Kingsway Financial Capital Trust I.

4.7** Form of Preferred Security (included in Exhibit 4.6).

4.8** Form of Common Security (included in Exhibit 4.6).

4.9** Form of Preferred Securities Guarantee Agreement between Kingsway Financial Services Inc., as
Guarantor, and BNY Midwest Trust Company, as Guarantee Trustee.

4.10** Form of Guarantee of Junior Subordinated Debenture (included in Exhibit 4.1)

4.11** Form of Subordinated Note.

5.1* Opinion of Richards, Layton & Finger, P.A.

8.1* Tax Opinion of Lord, Bissell & Brook.

10.1** Credit Agreement dated February 23, 1999 among Kingsway Financial Services Inc., Kingsway
U.S. Finance Partnership and the lenders named therein; Credit Amending Agreement dated as
of August 11, 2000; Second Amendment to Credit Amendment dated as of March 30, 2001;
Third Amendment to Credit Agreement dated as of June 30, 2001; Fourth Amendment to Credit
Agreement dated as of October 5, 2001; Credit Agreement Consent and Waiver dated September
9, 2002; and Fifth Amendment to Credit Agreement dated as of October 25, 2002.

10.2** Credit Agreement dated May 28, 2002 among Kingsway Financial Services Inc., Kingsway U.S.
Finance Partnership and the lenders named therein; Credit Amending Agreement dated as of
September 24, 2002; Second Credit Amending Agreement dated as of September 24, 2002;
Third Amending Agreement dated as of October 30, 2002.

10.3** Consent and Amendment letter dated December 4, 2002 and Sixth Amendment to Credit
Agreement dated as of January 1, 2003 to the Credit Agreement dated February 23, 1999. (1)

10.4** Fourth Credit Amending Agreement dated December 4, 2002 and Fifth Credit Amending
Agreement dated as of January 1, 2003 to the Credit Agreement dated May 28, 2002. (1)

10.5** Seventh Amendment to Credit Agreement dated as of February 13, 2003 to the Credit Agreement
dated February 23, 1999.

10.6** Sixth Credit Amending Agreement dated as of February 13, 2003 to the Credit Agreement dated
May 28, 2002.

10.7** Eighth Amendment to Credit Agreement dated as of March 28, 2003 to the Credit Agreement dated
February 23, 1999.

10.8** Amended Credit Agreement dated May 27, 2003 among Kingsway Financial Services Inc.,
Kingsway U.S. Finance Partnership and the lenders named therein.

11.1 Computation of earnings per share.

12.1 Computation of Ratio of Earnings to Fixed Charges

E-1

Exhibit
Number Description of Exhibit
- ------- ----------------------

23.1 Consent of KPMG LLP as Auditors.

23.2 Consent of KPMG LLP as Appointed Actuary.

23.3* Consent of Lord, Bissell & Brook (included in Exhibit 8.1).

23.4* Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.1).

24.1** Power of Attorney.

25.1** Statement of Eligibility under the Trust Indenture Act of 1939 of BNY Midwest Trust Company as
Trustee under the Indenture.

25.2 ** Statement of Eligibility under the Trust Indenture Act of 1939 of BNY Midwest Trust Company as
Property Trustee under the Amended and Restated Declaration of Trust.

25.3** Statement of Eligibility under the Trust Indenture Act of 1939 of BNY Midwest Trust Company as
Guarantee Trustee under the Preferred Securities Guarantee Agreement.

- --------
* To be filed by amendment.
** Previously filed.
(1) Portions of this Exhibit have been omitted pursuant to a Confidential
Treatment Request filed with the SEC.

E-2