notice of annual and special meeting of shareholders...

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS OF

KINGSWAY FINANCIAL SERVICES INC.

AND MANAGEMENT INFORMATION CIRCULAR

FOR THE MEETING TO BE HELD ON THURSDAY, MAY 27, 2010

DATED APRIL 26, 2010

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

NOTICE IS HEREBY GIVEN THAT an annual and special meeting (the “Meeting”) of the shareholders of Kingsway Financial Services Inc. (the “Corporation”) will be held at 10:00 a.m. (Toronto time) on Thursday, May 27, 2010, at the offices of Ogilvy Renault LLP, Suite 3800, Royal Bank Plaza, South Tower, Toronto, Ontario, M5J 2Z4, for the following purposes:

1) To receive and consider the consolidated financial statements of the Corporation for the fiscal year ended December 31, 2009 together with the report of the auditors thereon;

2) To elect directors of the Corporation;

3) To appoint KPMG LLP as the auditors of the Corporation for the fiscal year ending December 31, 2010 and to authorize the board of directors of the Corporation to set the auditors’ remuneration;

4) To consider a resolution in the form attached as Schedule “A” to the accompanying management information circular (the “Circular”), confirming the repeal of the former by-laws of the Corporation and the adoption of the new by-Laws, as more fully described in the attached Circular;

5) To consider a special resolution in the form attached as Schedule “D” to the accompanying Circular amending the articles of incorporation of the Corporation, as more fully described in the attached Circular; and

6) To transact such other business as may properly come before the Meeting, and any postponements or adjournments thereof.

The accompanying Circular provides additional information relating to the matters to be dealt with at the Meeting and is deemed to form part of this Notice of Meeting.

SHAREHOLDERS WHO ARE UNABLE TO ATTEND THE MEETING IN PERSON SHOULD COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY, AND RETURN IT IN THE ENVELOPE PROVIDED FOR THAT PURPOSE.

Proxies to be used at the Meeting must be deposited with Computershare Investor Services Inc., Proxy Department, 100 University Avenue, 9th Floor, Toronto, Ontario, M5J 2Y1, before 10:00 a.m. (Toronto time) on Tuesday, May 25, 2010, or if the meeting is adjourned, no later than 5:00 p.m. (Toronto time) on the second business day preceding the day to which the Meeting is adjourned. The proxy voting cut-off may be waived by the Chairman at his discretion without notice.

By Order of the Board

“Spencer L. Schneider”

Spencer L. Schneider Chairmanof the Board

Toronto, OntarioApril 26, 2010

MANAGEMENT INFORMATION CIRCULAR

All information in this circular is as of April 26, 2010, unless otherwise indicated.

TABLE OF CONTENTS

INVITATION TO SHAREHOLDERS....................................................................................................................................1GENERAL PROXY INFORMATION ...................................................................................................................................1

Solicitation of Proxies ......................................................................................................................................1Quorum ..........................................................................................................................................................1Voting Securities and Principal Holders Thereof.............................................................................................1Q&A on Proxy Voting.......................................................................................................................................1

PARTICULARS OF MATTERS TO BE ACTED UPON ..........................................................................................................4Financial Statements .......................................................................................................................................4Approval of Appointment of Auditors.............................................................................................................4Election of Directors........................................................................................................................................5Confirmation of the Corporation’s New By-Laws..........................................................................................10Amendment of the Corporation’s Articles of Incorporation.........................................................................11

STATEMENT OF CORPORATE GOVERNANCE PRACTICES.............................................................................................12Board Committees.........................................................................................................................................12

EXECUTIVE COMPENSATION .......................................................................................................................................13Named Executive Officers for 2009...............................................................................................................13Compensation Discussion & Analysis ............................................................................................................14Performance Graph.......................................................................................................................................18Option-based Awards....................................................................................................................................19Summary Compensation Table for Named Executive Officers .....................................................................20Summary Compensation Table for Named Executive Officers - Narrative Description................................22Currencies......................................................................................................................................................22Officers Who Also Act as Directors................................................................................................................22Incentive Plan Awards ...................................................................................................................................22Termination and Change of Control Benefits................................................................................................24Director Compensation .................................................................................................................................26Securities Authorized for Issuance Under Equity Compensation Plans ........................................................30Indebtedness of Directors and Officers.........................................................................................................30Directors’ and Officers’ Insurance.................................................................................................................31Interests of Informed Persons and Others in Material Transactions ............................................................31

INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON............................................................................31APPROVAL....................................................................................................................................................................31OTHER MATTERS .........................................................................................................................................................32ADDITIONAL INFORMATION........................................................................................................................................32SCHEDULE “A” ............................................................................................................................................................ A1SCHEDULE “B”..............................................................................................................................................................B1SCHEDULE “C”..............................................................................................................................................................C1SCHEDULE “D” ............................................................................................................................................................ D1SCHEDULE “E”..............................................................................................................................................................E1SCHEDULE “F” .............................................................................................................................................................. F1SCHEDULE “G” ............................................................................................................................................................ G1

INVITATION TO SHAREHOLDERS

I would like to invite you to join our board of directors and the senior management of Kingsway Financial Services Inc. at our next annual and special meeting, which convenes at 10:00 a.m. (Toronto time) on Thursday, May 27, 2010, at the offices of Ogilvy Renault LLP, Suite 3800, Royal Bank Plaza, South Tower, Toronto, Ontario, M5J 2Z4.

Should you have any questions for us, we would be pleased to answer them.

If you cannot attend in person, I encourage you to exercise the power of your proxy, which is well explained in the accompanying Management Information Circular.

I appreciate your participation, and I look forward to seeing you on May 27, 2010 in Toronto.

Sincerely,

“Colin Simpson”

Colin SimpsonPresident and Chief Executive Officer

GENERAL PROXY INFORMATION

SOLICITATION OF PROXIES

This management information circular (the “Circular”) is furnished in connection with the solicitation of proxies by or on behalf of the management of Kingsway Financial Services Inc. (the “Corporation”) for use at the annual and special meeting (the “Meeting”) of shareholders of the Corporation (the “shareholders”) to be held on Thursday, May 27, 2010 at 10:00 a.m. (Toronto time) at the offices of Ogilvy Renault LLP, Suite 3800, Royal Bank Plaza, South Tower, Toronto, Ontario, M5J 2Z4, or any adjournment thereof, for the purposes set out in the accompanying notice of meeting (the “Notice of Meeting”).

The solicitations will be made primarily by mail, but proxies may also be solicited personally or by telephone by directors, officers and regular employees of the Corporation at nominal cost. The Corporation has also retained Kingsdale Shareholder Services Inc. in connection with the solicitation of proxies at a cost of CAD$65,000 and reimbursement of disbursements related to the solicitation. Banks, brokers, custodians, nominees and fiduciaries will be requested to forward the proxy soliciting materials to beneficial owners, and the Corporation will reimburse such persons for such reasonable out-of-pocket expenses incurred by them. The expenses of soliciting proxies, including the cost of preparing, assembling and mailing of this Circular and proxy material to shareholders, will be borne by the Corporation.

QUORUM

A quorum is required in order for the Meeting to be properly constituted. Two (2) shareholders personally present and representing, either in their own right or by proxy, not less than twenty five percent (25%) of the issued shares of the Corporation shall constitute a quorum of the Meeting.

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

The authorized capital of the Corporation consists of an unlimited number of common shares (the “Shares” or “Common Shares”). As of the close of business on April 22, 2010, the record date for the Meeting, 52,095,828 Common Shares were outstanding and entitled to be voted at the Meeting. Each Common Share is entitled to one (1) vote. The outstanding Common Shares are listed on the Toronto Stock Exchange (the “TSX”) and the New York Stock Exchange (the “NYSE”) under the symbol “KFS”.

As of April 22, 2010, the record date for the Meeting (the “Record Date”), to the knowledge of the directors and officers of the Corporation, the following persons beneficially owned or exercised control or direction over more than ten (10%) percent of the outstanding Common Shares of the Corporation:

• Joseph Stilwell, approximately 7,523,450 Shares (representing approximately 14.4% of the outstanding Shares)

• Bruce Mitchell, approximately 5,367,578 Shares (representing approximately 10.3% of the outstanding Shares)

Q&A ON PROXY VOTING

Q: What am I voting on?

A: Shareholders are voting on the following: (i) the election of directors of the Corporation (the “Board”); (ii) the appointment of the auditors of the Corporation; (iii) the confirmation of the new by-laws of the Corporation; and (iv) the amendment of the articles of incorporation of the Corporation, all as more fully described in the Circular.

Q: Who is entitled to vote?

A: Shareholders as of the close of business on the Record Date are entitled to vote. Each Common Share is entitled to one vote on those items of business identified in the Notice of Meeting.

Q: Who can I call with questions?

A: If you have questions about the information contained in this Circular or require assistance in completing your form of proxy, please call Kingsdale Shareholder Services Inc., the Corporation’s proxy solicitation agent, toll-free at 1-866-851-4179. Further contact details for Kingsdale Shareholder Services are located on the back cover of this Circular.

Q: How do I vote?

A: If you are a registered shareholder there are a number of ways you can vote your Shares - you may vote in person at the Meeting or you may sign the enclosed form of proxy appointing the named persons or some other person you choose, who need not be a shareholder, to represent you as proxyholder and vote your Shares at the Meeting. In addition, you may vote your Shares by telephone or on the internet in the manner described in the enclosed form of proxy. If your Shares are held in the name of a nominee and you wish to attend the Meeting, refer to the answer to the question “If my Shares are not registered in my name but are held in the name of a nominee (a bank, trust company, securities broker, trustee or other), how do I vote my Shares?”.

Q: What if I plan to attend the Meeting and vote in person?

A: If you are a registered shareholder and plan to attend the Meeting on May 27, 2010 and wish to vote your Shares in person at the Meeting, do not complete or return the form of proxy. When you arrive to vote in person at the Meeting, please register with the transfer agent, Computershare Investor Services Inc. Computershare will remove your vote from the proxy tabulation and your vote will be counted in person. If your Shares are held in the name of a nominee and you wish to attend the Meeting, refer to the answer to the question “If my Shares are not registered in my name but are held in the name of a nominee (a bank, trust company, securities broker, trustee or other), how do I vote my Shares?” for voting instructions.

Q: Who is soliciting my proxy?

A: Your proxy is being solicited by or on behalf of management of Kingsway Financial Services Inc. and the associated costs will be borne by the Corporation. The solicitation will be made primarily by mail but may also be made by the telephone, in writing or in person by the employees of the Corporation, Computershare Investor Services Inc. or Kingsdale Shareholder Services Inc.

Q: What happens if I sign the form of proxy enclosed with this Circular?

A: Signing the enclosed form of proxy gives authority to Spencer Schneider, Chairman of the Board, or failing him, Colin Simpson, President and Chief Executive Officer of the Corporation, respectively, or to another person you have appointed, to vote your Shares at the Meeting.

Q: Can I appoint someone other than these representatives to vote my Shares?

A: Yes. Write the name of this person, who need not be a shareholder, in the blank space provided in the form of proxy. It is important to ensure that any other person you appoint is attending the Meeting and is aware that he or she has been appointed to vote your Shares. Proxyholders should, upon arrival at the Meeting, present themselves to a representative of Computershare Investor Services Inc.

Q: What do I do with my completed proxy?

A: Return it to the Corporation’s transfer agent, Computershare Investor Services Inc., in the envelope provided, at Computershare Investor Services Inc., Proxy Department, 100 University Avenue, 9th Floor, Toronto, Ontario M5J 2Y1, or by fax to 1-866-249-7775, so that it arrives no later than 10:00 a.m. (Toronto time) on May 25, 2010. This will ensure that your vote is recorded. The proxy voting cut-off may be waived by the Chairman at his discretion without notice.

Q: How will my Shares be voted if I give my proxy?

A: On the form of proxy, you can indicate how you want your proxyholder to vote your Shares, or you can let your proxyholder decide for you. Your proxyholder must vote or withhold from voting in accordance with your instructions on any ballot that may be called for, and if you have specified on the form of proxy how you want your Shares to be voted on any matter to be acted upon, your Shares will be voted accordingly.

If you have not specified on the form of proxy how you want your Shares to be voted on a particular issue, then your proxyholder can vote your Shares as he or she sees fit.

In the absence of such directions, however, the management nominees will vote your Shares in favour of:(i) the election of the proposed directors noted in the Circular to the Board; (ii) the appointment of auditors; (iii) confirming the new by-laws of the Corporation as noted in the Circular; and (iv) amending the articles of incorporation of the Corporation as noted in the Circular.

Q: If I change my mind, can I take back my proxy once I have given it?

A: Yes. If you change your mind and wish to revoke your proxy, prepare a written statement to this effect. The statement must be signed by you or your attorney as authorized in writing or, if the shareholder is a corporation, signed under its corporate seal or by a duly authorized officer or attorney of the corporation. This statement must be delivered either to the registered office of the Corporation at any time up to 5:00 p.m. (Toronto time) on Wednesday, May 26, 2010 or to transfer agent on the day of the Meeting, May 27, 2010, or any adjournment or postponement of the Meeting, prior to the time of voting. The proxy voting cut-off may be waived by the Chairman at his discretion without notice. A subsequent validly submitted proxy, or a subsequent internet or telephone vote will also supersede a previous vote.

Q: What if amendments are made to these matters or if other matters are brought before the Meeting?

A: The persons named in the form of proxy will have discretionary authority with respect to amendments or variations to matters identified in the Notice of Meeting and with respect to other matters which may properly come before the Meeting.

As of the date of this Circular, management of the Corporation knows of no such amendment, variation or other matter expected to come before the Meeting. If any other matters properly come before the Meeting, the persons named in the form of proxy will vote on them in accordance with their best judgment.

Q: How many Shares are entitled to vote?

A: As of the Record Date, there were 52,095,828 Common Shares outstanding. Each registered shareholder has one vote for each Common Share held at the close of business on the Record Date.

Q: How will the votes be counted?

A: Each question brought before the Meeting is determined by a majority of votes cast on the question. In the case of equal votes, the Chairman of the Meeting is not entitled to a second or casting vote.

Q: Who counts the votes?

A: The Corporation’s transfer agent, Computershare Investor Services Inc., counts and tabulates the proxies.

Q: If I need to contact the transfer agent, how do I reach them?

A: You can contact the transfer agent as follows:

by mail: by telephone or email:

Computershare Investor Services Inc. Proxy Department. 100 University Avenue, 9th Floor Toronto, Ontario, M5J 2Y1

within Canada and the United States at 1-800-564-6253 all other countries (416) 981-9633

or by email: [email protected]

Q: If my Shares are not registered in my name but are held in the name of a nominee (a bank, trust company, securities broker, trustee or other), how do I vote my Shares?

A: Generally, your Shares may be voted in one of two ways:

(i) Unless you have previously informed your nominee that you do not wish to receive material relating to the Meeting, you will have received this Circular from your nominee, together with a request for voting instructions for the number of Shares you hold. If you do not plan on attending the Meeting, or do not otherwise wish to vote in person at the Meeting, please follow the voting instructions provided by your nominee.

(ii) If you wish to attend and vote your shareholdings at the Meeting, the Corporation will have no record of your shareholdings or of your entitlement to vote unless your nominee has appointed you as proxyholder. Therefore, if you wish to vote in person at the Meeting, insert your own name in the space provided on the voting instruction form sent to you by your nominee. Then sign and return the voting instruction form by following the signing and returning instructions provided by your nominee. By doing so, you are instructing your nominee to appoint you as proxyholder. Do not otherwise complete the voting instruction form as your vote will be taken at the Meeting. Please register with the transfer agent, Computershare Investor Services Inc., upon arrival at the Meeting.

In any event, shareholders must explicitly follow any instructions provided by their nominee.

PARTICULARS OF MATTERS TO BE ACTED UPON

FINANCIAL STATEMENTS

Shareholders will receive and consider the audited financial statements of the Corporation for the fiscal year ended December 31, 2009 together with the auditors’ report thereon. These documents are also available on the Corporation’s website (www.kingsway-financial.com) and at the System for Electronic Document Analysis and Retrieval (“SEDAR”) (www.sedar.com).

APPROVAL OF APPOINTMENT OF AUDITORS

The Board recommends approval of the appointment of KPMG LLP Chartered Accountants of Toronto, Ontario, the present auditors, as the auditors of the Corporation to hold office until the close of the next annual meeting of the shareholders. KPMG LLP has served as the Corporation’s auditors continuously since 1989.

AUDIT FEES

The aggregate fees billed by KPMG LLP for professional services rendered for the audit of the consolidated financial statements of the corporation and its subsidiaries, and for the reviews of the Corporation’s quarterly financial statements were CAD$3,791,931 in fiscal year 2009 and CAD$4,549,500 in fiscal year 2008.

AUDIT RELATED FEES

The aggregate fees, including expenses reimbursed, billed by KPMG LLP were CAD$175,000 in fiscal year 2009 and CAD$136,200 in fiscal year 2008. This work primarily includes consultations related to financial accounting and reporting standards, the audit of a subsidiary’s pension plan and French translation services in both 2009 and 2008.

TAX FEES

The aggregate fees, including expenses reimbursed, billed by KPMG LLP for tax compliance, tax advice and tax planning services were CAD$704,807 in fiscal year 2009 and CAD$397,300 in fiscal year 2008. These services included analyses of various tax matters affecting the Corporation and its subsidiaries.

ALL OTHER FEES

The aggregate fees, including expenses reimbursed, billed by KPMG LLP for services rendered to the Corporation and its subsidiaries, other than the services described above, were CAD$2,000 in fiscal year 2009 and CAD$2,000 in fiscal year 2008 and these services were related to a subscription for online accounting research.

The Audit Committee Charter provides for the Audit Committee to establish the auditors’ fees. Such fees have been based upon the complexity of the matters in question and the time incurred by the auditors. Management believes that the fees negotiated in the past with the auditors of the Corporation were reasonable in the circumstances and would be comparable to fees charged by other auditors providing similar services.

As discussed in the “Report of the Audit Committee” in this Circular, the Audit Committee has reviewed and considered whether the provision of services other than audit services is compatible with maintaining the auditors’ independence. In 2004, the Audit Committee considered and pre-approved expenditure limits for the Corporation’s auditors and established a system to review and pre-approve the provision of audit and non-audit services by the Corporation’s auditors to ensure they are consistent with maintaining the auditors’ independence. In 2009, all non-audit services were approved by the Audit Committee.

Management unanimously recommends that shareholders vote FOR the approval of the appointment of KPMG LLP as auditors of the Corporation. In the absence of contrary instructions, the persons designated by management of the Corporation in the enclosed form of proxy intend to vote FOR the approval of the appointment of KPMG LLP as auditors of the Corporation.

ELECTION OF DIRECTORS

The Board consists of not fewer than one and not more than ten directors. The Board has determined that the number of directors constituting the Board currently be set at five.

All five nominees are currently members of the Board and have been since the dates indicated in their respective profiles set out below. Management does not contemplate that any of the nominees will be unable to serve as a director. However, if a nominee should be unable to so serve for any reason prior to the Meeting, the persons named in the enclosed form of proxy reserve the right to vote for another nominee in their discretion. Each director elected will hold office until the next annual meeting or until his successor is appointed, unless his office is earlier vacated in accordance with the Business Corporations Act (Ontario) (the “OBCA”) and the by-laws of the Corporation.

In 2009, the Board adopted a “Majority Election of Directors Policy” that provides that a director nominee who does not receive a majority (50% +1) of “for” votes in favour of their election in an uncontested election will be required to immediately submit their resignation to the Audit Committee. The Audit Committee must make a recommendation to the Board to accept or reject the resignation and the Board must act on the Audit Committee’s recommendation within 90 days of the Meeting.

Management unanimously recommends that shareholders vote FOR the election of all of the nominees whose names are set forth on the following pages. In the absence of contrary instructions, the persons designated by management of the Corporation in the enclosed form of proxy intend to vote FOR the election of all of the nominees whose names are set forth on the following pages.

Information set out below is as of April 22, 2010, unless otherwise indicated. Total compensation paid to the directors of the Corporation for the fiscal year ended December 31, 2009 is set out in the section entitled “Executive Compensation - Director Compensation Table” of this Circular.

Gregory P. Hannon has been a Vice-President and Director of Oakmont Capital Inc. since 1997. He previously was a founding partner of Lonrisk, a Toronto-based specialty insurer and subsidiary of the London Insurance Group, where he was the Vice-President. Prior to that, Mr. Hannon worked for the Continental Bank of Canada in commercial credit and as auditor for Arthur Andersen and Company, Chartered Accountants. Mr. Hannon received a Bachelor of Commerce degree from Queen’s University in 1978 and an M.B.A. from The Harvard Business School in 1987. He currently sits on the board of Delhi-Solac, a privately owned manufacturer of steel tubing.

Board Committee Membership: Attendance(2) Public Board Membership:

BoardAudit Committee Corporate Governance andNominating Committee

9/10 3/3 N/A

90%100%

None

Shareholdings / DSU holdings:

Common Shares(3) Value(4) DSUs Value(5) Total Common Shares / DSUs(5)

Total Value of Common Shares / DSUs

3,411,000 CAD$8,254,620 2,441 CAD$5,907 3,413,441 CAD$8,260,527

Options(7):

Date Granted Expiry Date Number Granted Exercise Price Total Unexercised Value of Unexercised Options(8)

N/A N/A N/A N/A N/A N/A

Gregory P. Hannon

Residence:Ontario, Canada

Director Since:September 16, 2009

Independent(1)

TOTALS: -- -- -- -- --

Terence M. Kavanagh has, since 1997, served as President and a Director of Oakmont Capital Inc., a Toronto-based private investment company. Prior to co-founding Oakmont Capital, Mr. Kavanagh’s previous experience includes managing the Brentwood Pooled Investment Fund, a North American based investment fund, and managing a number of family-owned operating businesses in the real estate, property management and building services industries. Mr. Kavanagh was previously an investment banker in New York and Toronto with The First Boston Corporation and Lehman Brothers. He holds a Bachelor of Law degree from The University of Western Ontario, and an M.B.A. from the Tuck School of Business at Dartmouth College.


BoardCompensation Committee Investment and Capital Committee

24/25 1/1 7/8

96%100% 88%

None




3,412,500 CAD$8,258,250 7,428 CAD$17,976 3,419,928 CAD$8,276,226

Options(7):



Terence M. Kavanagh


Director Since:April 23, 2009

Independent(1)

TOTALS: -- -- -- -- --

Spencer L. Schneider, Chairman of the Board, is engaged in the private practice of law in New York, New York. Mr. Schneider opened his law firm in 1989 and practices law primarily in the areas of corporate law and litigation. Mr. Schneider is a member of the Bar of the State of New York. He has been a director of American Physicians Capital, Inc., a Michigan based insurance carrier, since February 2002, where he is Chairman of the governance committee and compensation committee and has served as a member of the audit committee since 2002. He has been Chairman of the Board since April 23, 2009.


BoardAudit Committee Corporate Governance and Nominating Committee

35/35 2/2 5/5

100% 100% 100%

American Physicians Capital, Inc. (NASDAQ) 2002-Present


Common Shares Value(4) DSUs Value(5) Total Common Shares / DSUs(6)


6,000 CAD$14,520 8,377 CAD$20,272 14,377 CAD$34,792

Options(8):



Spencer L. Schneider

Residence:New York, United States of America

Director Since:January 7, 2009

Independent(1)(9)

TOTALS: -- -- -- -- --

Colin Simpson became a member of the Corporation’s management team in 2008 as Chief Strategy Officer and is currently President and CEO of Kingsway Financial Services Inc. He was previously President and CEO of York Fire & Casualty Insurance Company. Mr. Simpson began his career with the Kingsway Group of Companies in 2004 as Chief Financial Officer of York Fire & Casualty Insurance Company. Prior to working with the Kingsway Group of Companies, Mr. Simpson held various senior management positions in Canada and the United Kingdom with a large, multinational insurance company. Mr. Simpson is a member of the Institute of Chartered Accountants (Scotland) and holds a Master of Science Degree in Accountancy and Finance, and a Bachelor (Honours) Degree in Business Law and Economics, both from the University of Stirling in Scotland.


BoardInvestment and Capital Committee

12/12 1/1

100% 100%

None


Common Shares Value(4) DSUs Value(5) Total Common Shares/DSUs(6)

Total Value of Common Shares/DSUs

21,421 CAD$51,839 N/A N/A N/A CAD$51,839

Options(7):


Feb 13, 2006 Feb 12, 2007 Feb 20, 2008 Mar 05, 2009

Feb 13,2011 Feb 12, 2012 Feb 20, 2013 Mar 05, 2014

10,000 10,000 10,000 65,000

CAD$24.55CAD$23.00CAD$13.47CAD$1.90

10,000 10,000 10,000 65,000

NILNILNIL

33,800

Colin Simpson


Director Since:August 6, 2009

Non-independent director

TOTALS: 95,000 95,000 33,800

Joseph Stilwell has acted as a private investment manager overseeing the Stilwell Group of funds since 1993. He has been a director of the Corporation since April 23, 2009. He has been a director of American Physicians Capital, Inc., a Michigan based insurance carrier, since 2004, and he sat on the board of directors of SCPIE Holdings Inc., a California based insurance carrier, in 2007. Mr. Stilwell is a graduate from the Wharton School of the University of Pennsylvania with a Bachelor of Science in Economics.


BoardAudit Committee Investment and Capital Committee Compensation Committee

23/24 3/3 6/6

3/3

92%100% 100%

100%

American Physicians Capital, Inc. (NASDAQ) 2004-Present




7,523,450 CAD$18,206,749 7,428 CAD$17,976 7,530,878 CAD$18,224,725

Options(7):



Joseph Stilwell

Residence:New York, United States of America

Director Since:April 23, 2009

Independent(1)

TOTALS: -- -- -- -- --

Notes:

(1) “Independent” refers to the standards of independence established under Sections 1.4 and 1.5 of the Canadian Securities’ Administrators National-Instrument 52-110 and section 301 of the Sarbanes-Oxley Act of 2002.

(2) It is the policy of the Corporation that Directors attend all meetings of the Board and its committees on which they sit. (3) This aggregate number includes Common Shares beneficially owned, controlled or directed. 3,275,000 Common Shares of the

Corporation are held jointly by Mr. Hannon and Mr. Kavanagh. (4) The Value of the Common Shares is based on the closing price of the Common Shares on the TSX as of April 22, 2010: CAD$2.42.(5) The value of the deferred stock units (“DSUs”) is based on the on the closing price of the Common Shares on the TSX as of April 22, 2010,

being CAD$2.42. In January 2010, the Board decided to eliminate the practice of granting DSUs and is now considering their eliminationentirely.

(6) “Total Common Shares / DSUs” refers to the number of Common Shares, DSUs and the total number of Common Shares, DSUs beneficially owned, directly or indirectly, or controlled or directed, as of April 22, 2010.

(7) Upon the recommendation of the Compensation Committee, the Board did not award stock options to the directors of the Corporation in 2009.

(8) “Value of Options Unexercised” is based on the grant date fair value of the award. See Section entitled “Executive Compensation - Summary Compensation Table - Narrative Description” of this Circular for an explanation of the methodology used calculate the grant date fair value, including key assumptions and estimates.

(9) Mr. Schneider has been granted options to purchase, in the aggregate, 200,000 Common Shares from Stilwell Value Partners III, L.P. (“SVP III”) and Stilwell Associates, L.P. (“Associates”) pursuant to a Stock Option Agreement made and entered into as of January 7, 2009 (the “Schneider Stock Option Agreement”) by and among SVP III, Associates and Mr. Schneider. The terms and conditions with respect to the exercise of such options, including, among other things, the exercisability of such options, the exercise price for such options and the method of exercising such options, are set out in the Schneider Stock Option Agreement, a copy of which is attached as Exhibit 10 to United States Securities and Exchange Commission Schedule 13D (Amendment No. 8), dated February 18, 2009 filed with the United States Securities Exchange Commission (the “SEC”). These options are currently out-of-the-money and are currently worth $0. A copy of such Stock Options Agreement can be viewed on the SEC’s website at http://www.sec.gov/edgar.shtmk.

(10) This number reflects 600,000 Shares beneficially owned and the following number of Shares controlled and directed through: Stilwell Associates L.P. (1,818,300 Shares); Stilwell Offshore Fund Ltd. (137,000 Shares); Stilwell Value Partners III L.P. (3,000,000 Shares); Stilwell Value Partners IV, L.P. (1,818,150 Shares); and Stilwell Associates Insurance Fund of the S.A.L.I. Multi-Series Fund L.P. (150,000 Shares).

CONFIRMATION OF THE CORPORATION’S NEW BY-LAWS

The Corporation is governed by the OBCA. Section 116(1) of the OBCA provides that the directors of a corporation may by resolution, make, amend or repeal any by-laws that regulate the business or affairs of the corporation. Under the OBCA, the directors are required to submit a new by-law, or the amendment or repeal of an existing by-law, to the next meeting of the shareholders of the corporation following the directors resolution adopting, making, amending or repealing such by-law.

On June 11, 2009, the board of directors of the Corporation (the “Board”) enacted by-law no. 4 (“By-law No. 4”) to amend section 3.12 of by-law no.3 (“By-law No. 3”) of the Corporation. The sole purpose of By-law No. 4 was to amend the notice of meetings provision for the time and manner in which meetings of the Board can be called to reduce the minimum notice from 48 hours to 24 hours.

At the Meeting, Shareholders will be asked to consider, and if thought appropriate, confirm another resolution passed by the Board that: (i) repealed the former by-laws of the Corporation (comprised of by-law no. 2, By-law No. 3 and By-law No. 4 (collectively, the “Former by-laws”) attached as Schedule “C” to this Circular); and (ii) adopted by-law No. 5 (the “New by-laws”) attached as Schedule “B” to this Circular. The New by-laws adopt certain specific provisions related to meetings of shareholders and meetings of directors of the Corporation and are otherwise silent as to certain matters. Unless a matter is explicitly dealt with in the New by-laws, it will be governed by the provisions of the OBCA or administrative resolutions passed by the Board. The New by-laws minimize duplication of the provisions in the OBCA and provide flexibility so that the Corporation can operate efficiently with respect to its governing documents.

The following is a partial summary of the provisions contained in the New by-laws. Shareholders are urged to review the New by-laws in their entirety, attached as Schedule “B” to this Circular:

• The New by-laws allow for the holding of shareholder meetings at such place as the Board may determine, from time to time.

• The New bylaws allow for telephonic or other forms of electronic meetings of shareholders that permit participants to communicate adequately with each other.

• The quorum for shareholders meetings is maintained at any two shareholders representing not less than twenty five percent (25%) of the issued Shares of the Corporation.

• Unless otherwise fixed, a majority of directors of the Corporation in office constitutes a quorum for meetings of the Board.

• The New by-laws eliminate the requirement that a majority of directors be Canadian residents, in accordance with the provisions of the OBCA.

The repeal of the Former by-laws and the adoption of the New by-laws are effective until they are confirmed, confirmed as amended or rejected by the Shareholders, by ordinary resolution, and if confirmed or confirmed as amended, the New by-laws will continue in effect in the form in which they were so confirmed. If shareholders reject the confirmation of the New by-laws, the Former by-laws become effective again.

Management unanimously recommends that shareholders vote FOR the resolution attached as Schedule “A” to this Circular confirming the adoption of the New by-laws. In the absence of contrary instructions, the persons designated by management of the Corporation in the enclosed form of proxy intend to vote FOR the resolution attached as Schedule “A” to this Circular.

AMENDMENT OF THE CORPORATION’S ARTICLES OF INCORPORATION

ARTICLES OF AMENDMENT

In connection with our fresh start, the Board is proposing to amend the articles of incorporation (the “Articles”) in order to affirm the nature of our business. The entire text of the proposed amendment to the Articles is attached as Schedule “E” to this Circular.

Management unanimously recommends that shareholders vote FOR the special resolution (the “Amendment Resolution”) attached as Schedule “D” to this Circular to amend the Articles to restrict the business of the Corporation. A special resolution of shareholders requires that at least two-thirds of the votes cast by shareholders at the Meeting, present in person or by proxy, be voted in favour of the resolution in order to pass. In the absence of contrary instructions, the persons designated by management of the Corporation in the enclosed form of proxy intend to vote FOR the special resolution attached as Schedule “D” to this Circular.

Registered Shareholders who vote against the special resolution to amend the Articles as proposed will be entitled to dissent and require that the Corporation acquire the Common Shares of the Corporation that they hold for fair value if the Amendment Resolution passes and the Articles are amended. These rights of dissent are described in greater detail below. The full text of the dissent procedures provided by Section 185 of the OBCA is attached as Schedule “F” to this Circular. ALL SHAREHOLDERS ARE URGED TO READ SCHEDULE “F” CAREFULLY AND IN ITS ENTIRETY.

RIGHTS OF DISSENT

Under Section 185 of the OBCA, a registered shareholder of the Corporation is entitled to send a written objection to the Amendment Resolution. In addition to any other right a Shareholder may have, when the action authorized by the Amendment Resolution becomes effective, a registered Shareholder who complies with the dissent procedure under Section 185 of the OBCA is entitled to be paid the fair value of his or her Shares in respect of which he or she dissents, determined as at the close of business on the day before the Amendment Resolution is adopted. The full text of the dissent procedures provided by Section 185 of the OBCA is attached as Schedule “F” to this Circular. ALL SHAREHOLDERS ARE URGED TO READ SCHEDULE “F” TO THIS CIRCULAR CAREFULLY AND IN ITS ENTIRETY.

A Shareholder is not entitled to dissent if such Shareholder votes any of the Shares beneficially held by him or her in favour of the Amendment Resolution. The execution or exercise of a proxy does not constitute a written objection for the purposes of Section 185 of the OBCA.

Persons who are beneficial owners of Shares registered in the name of a broker, custodian, nominee, other intermediary or in some other name who wish to dissent, should be aware that only the registered owner of such securities is entitled to dissent. A non-registered shareholder will not be entitled to exercise his or her right to dissent directly (unless the Common Shares are re-registered in the non-registered shareholder’s name). A non-registered shareholder who wishes to exercise the right of dissent should immediately contact the intermediary with whom the non-registered Shareholder deals with in respect of his or her Common Shares and either (i) instruct the intermediary to exercise the right to dissent on the non-registered shareholder’s behalf (which, if the Common Shares are registered in the name of a clearing agency, would require that the Common Shares first be re-registered in the name of the intermediary), or (ii) instruct the intermediary to re-register the Common Shares in the name of the non-registered shareholder, in which case the non-registered shareholder would be required to exercise the right to dissent directly.

A registered Shareholder who objects to the Amendment Resolution and who wishes to exercise his or her right of dissent (a ‘‘Dissenting Shareholder’’) must send to Kingsdale Shareholder Services Inc. to the attention of Carol Dixon, Corporate Actions, the Exchange Tower, 130 King Street West, Suite 2950, P.O. Box 361, Toronto, Ontario, M5X1E2, a written notice of such holder’s objection to the resolution (a ‘‘Notice of Objection’’) prior to the Meeting or deliver a Notice of Objection to the Chairman of the Board at the Meeting.

The filing of a Notice of Objection does not deprive a Shareholder of the right to vote at the Meeting; however the OBCA provides, in effect, that a Shareholder who has submitted a Notice of Objection and who votes in favour of the Amendment Resolution will be deprived of further rights under section 185 of the OBCA. A Shareholder need not vote his or her Shares against the Amendment Resolution in order to dissent. Similarly, the revocation of a proxy conferring authority on the proxyholder to vote in favour of the Amendment Resolution does not constitute a Notice of Objection. However, any proxy granted by a Shareholder who intends to dissent, other than a proxy that instructs the proxyholder to vote against the Amendment Resolution, should be validly revoked in order to prevent the proxyholder from voting such Shares in favour of the Amendment Resolution and thereby causing the Shareholder to forfeit his or her right to dissent.

FAILURE TO ADHERE STRICTLY TO THE REQUIREMENTS OF SECTION 185 OF THE OBCA AND THE TIME FRAMES SPECIFIED THEREIN WILL RESULT IN THE LOSS OR UNAVAILABILITY OF RIGHTS UNDER THAT SECTION.

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

The Canadian securities regulatory authorities have adopted National Instrument 58-101 “Disclosure of Corporate Governance Practices” (“NI 58-101”), which requires disclosure of the approach of the Corporation to corporate governance, and National Policy 58-201 “Corporate Governance Guidelines” (“NP 58-201”), which provides guidance on corporate governance practices. In the U.S., the United States Sarbanes-Oxley Act of 2002 (“SOX”) as well as the NYSE listing standards and corporate governance requirements (the “NYSE Provisions”) require similar disclosure.

All of the current and proposed directors are independent, except for Colin Simpson.

The Corporation has adopted a Statement of Corporate Governance Practices which complies with NI 58-101. The Statement of Corporate Governance Practices was amended in April 2010. The Statement of Corporate Governance Practices can be found on the Corporation’s website at www.kingsway-financial.com/governance and is also attached as Schedule “G” to this Circular.

The text of the written mandate of the Board is included in Schedule “G” to this Circular. The following are reports of Board committees which summarise the mandates and activities of each committee.

BOARD COMMITTEES

THE AUDIT COMMITTEE

For detailed information on the Audit Committee and its activities for the fiscal year ended December 31, 2009, please refer to the section entitled “Audit Committee” in our 2009 Annual Information Form, which section is incorporated herein by reference.

THE COMPENSATION COMMITTEE

The Compensation Committee’s (formerly, the “Compensation and Management Resources Committee”) primary duties and responsibilities are:

• to assist the Board in discharging its responsibilities in respect of compensation of the Corporation’s executive officers, including setting salary and annual bonus levels for the Corporation’s senior executive officers as well as overseeing the senior staff bonus plans, subject to the approval of the Board;

• to produce a report for inclusion in the Corporation’s information circular on executive compensation;

• to provide recommendations to the Board in connection with directors’ compensation; and

• to provide recommendations to the Board in connection with succession planning for senior management of the Corporation.

The Compensation Committee’s charter requires all Committee members satisfy the applicable independence requirements of NI 58-101, NP 58-201 and other regulatory requirements. The Board determined that each member of the Compensation Committee in 2009 was independent.

As at December 31, 2009, the Committee was comprised of Joseph Stilwell (Chairman) and Terence M. Kavanagh.

THE CORPORATE GOVERNANCE AND NOMINATING COMMITTEE

The Corporate Governance and Nominating Committee’s primary duties and responsibilities are:

• identifying individuals qualified to become Board members and recommending that the Board select director nominees each year for the next annual meeting of the Corporation’s stockholders; and

• ensuring that the Audit Committee, Investment and Capital Committee, Corporate Governance and Nominating Committee and Compensation Committee of the Board have the benefit of qualified and experienced “independent” directors.

The charter of the Corporate Governance and Nominating Committee requires that all committee members satisfy the applicable independence requirements of NI 58-101, NP 58-201, the NYSE Provisions and other regulatory requirements. The Board determined that each member of the Corporate Governance and Nominating Committee in 2009 was independent.

As at December 31, 2009, the Committee was comprised of Spencer L. Schneider (Chairman) and Gregory Hannon.

THE INVESTMENT AND CAPITAL COMMITTEE

The Board has established the Investment and Capital Committee, whose primary duties and responsibilities include:

• to assist the Board and management in respect of the management of the invested assets of the Corporation and its subsidiaries;

• to develop and monitor investment and capital policies and guidelines for the Corporation and its subsidiaries;

• to provide recommendations to the Board in connection with the hiring of external investment managers; and

• to meet with and monitor the performance of external investment managers.

As at December 31, 2009, the Committee was comprised of Terence M. Kavanagh (Chairman), Colin Simpson and Joseph Stilwell.

EXECUTIVE COMPENSATION

NAMED EXECUTIVE OFFICERS FOR 2009

The term “Named Executive Officers”, as defined in National Instrument Form 51-102F6 - “Statement of Executive Compensation (in respect of financial years ending on or after December 31, 2008)” (“Form 51-102F6”), means each of the following individuals: the Chief Executive Officer, the Chief Financial Officer and at December 31, 2009, each of the three most highly compensated executive officers, other than the Chief Executive Officer and the Chief Financial Officer, whose total compensation (as determined in accordance with the Form 51-102F6) was, individually, in excess of CAD$150,000 in the Corporation’s most recently completed financial year.

The following individuals, holding the respective positions set forth opposite their names, are the Named Executive Officers for 2009:

Name Title

Colin Simpson(1) President and Chief Executive Officer of the Corporation

Daniel J. Brazier(2) Chief Financial Officer of the Corporation

Kathleen Howie(3) Former Vice President and General Counsel of the Corporation

Scott Wollney(4) President and Chief Executive Officer of Kingsway America Inc.

Serge Lavoie(7) President and Chief Executive Officer of Jevco Insurance Company (as at March 29, 2010, no longer a subsidiary of the Corporation)

W. Shaun Jackson(5) Former President and Chief Executive Officer of the Corporation

Shelly Gobin(6) Former Senior Vice President and Chief Financial Officer of the Corporation

Notes:

(1) On April 23, 2009, Mr. Simpson was appointed President and Chief Executive Officer. From February 8, 2009 to April 23, 2009, Mr. Simpson was the Chief Operating Officer and executive in charge of the Corporation’s transformation program. From May 2008 to February 2009, he was the Chief Strategy Officer of the Corporation. Prior thereto, Mr. Simpson held a variety of senior positions with York Fire & Casualty Insurance Company (“York Fire”), a former subsidiary of the Corporation, culminating in his appointment as the President and Chief Executive Officer of York Fire in July, 2007, a position he held until September 30, 2008.

(2) On May 18, 2009, the Corporation entered into an arrangement with Resources Global Professionals, an external professional services company, to retain Mr. Dan Brazier to assume the role of Chief Financial Officer. Mr. Brazier is an employee of Global ResourcesProfessionals.

(3) As of March 31, 2010, Ms. Howie was no longer with the Corporation. (4) Prior to May 6, 2008, Mr. Wollney’s position within the Corporation was that of President of Avalon Risk Management, Inc. (“Avalon”), a

former subsidiary of the Corporation. Mr. Wollney was President and CEO of Lincoln General Insurance Company from May 13, 2008 until March 31, 2009, President and CEO of US Commercial Lines from April 1, 2009 until July 18, 2009, and, as of July 19, 2009, he wasPresident and CEO of Kingsway America Inc.

(5) As of April 23, 2009, Mr. Jackson was no longer with the Corporation. (6) As of May 18, 2009, Ms. Gobin was no longer with the Corporation. (7) As of March 29, 2010, Mr. Serge Lavoie was no longer with the Corporation.

As at December 31, 2009, Scott Wollney’s principal occupation within the Corporation was President and Chief Executive Officer of Kingsway America Inc. (“KAI”), a subsidiary of the Corporation, and Serge Lavoie’s principal occupation with the Corporation was President and Chief Executive Officer of Jevco Insurance Company (“Jevco”), a former subsidiary of the Corporation.

In the opinion of the Compensation Committee and the Board, Messrs. Wollney and Lavoie, in their roles as senior members of the executive management, performed policy-making functions in respect of the Corporation, and as such, are executive officers of the Corporation for the purposes of determining the Corporation’s Named Executive Officers for the most recently completed financial year.

COMPENSATION DISCUSSION & ANALYSIS

OBJECTIVES OF THE CORPORATION’S EXECUTIVE COMPENSATION PROGRAMS

The Corporation’s executive compensation program was significantly changed in early 2009 to align with the need for material change within the group. The President and CEO’s compensation was directly aligned with the success of the agreed transformation program as were the programs for other Named Executive Officers.

The variable element of the executives’ compensation was benchmarked against the financial objectives and agreed timelines of the transformation program that was specifically formulated to downsize and enable the survival of the Corporation.

ELEMENTS OF THE CORPORATION’S EXECUTIVE OFFICER COMPENSATION PROGRAMS

The executive compensation programs are comprised of the following three components:

Compensation Element How it is paid What the compensation element is designed to award

Why the Corporation chooses to pay the compensation element

Base Salary Cash • Rewards skills, capabilities, knowledge and experience, reflecting the level of responsibility, as well as the contribution from each executive.

• Some portion of compensation should be in a form that is fixed and liquid.

Non-equity incentive – Annual cash bonus

Cash • Recognizes contribution to the overall transformation of the Corporation, business segment and overall performance by each Named Executive Officer.

• Incentivize the Named Executive Officers to attain particular objectives directly related to the overall transformation of the Corporation, the performance of the particular subsidiary at which the individual is employed and the attainment of the individual’s personal goals for the year.

Equity-incentive – Stock options

Long-termincentives in the form of stock options

• Rewards contribution to the long-term performance of the Corporation and incentivizes behaviours that align with our shareholders.

• A portion of each Named Executive Officer’s compensation should be in the form of equity awards - equity awards serve to align the long term interests of Named Executive Officers and the Corporation’s shareholders as a result of the fact that the availability (vesting) of the award is dependent upon continued employment and the value of each award is dependant upon the stock market’s perception of the Corporation’s performance.

• Stock option grants in 2009 were sparingly issued and tied to expected individuals’ contribution to turning around the financial fortunes of the Corporation.

Other Elements Objectives

Employee Share Purchase Plan • Align executive interest with shareholder interests by incentivizing executives to own Shares of the Corporation.

• Non-dilutive in nature - the Shares purchased under the Employee Share Purchase Plan are purchased on the open market and not from treasury.

WHAT THE CORPORATION’S EXECUTIVE OFFICER COMPENSATION PROGRAMS ARE DESIGNED TO AWARD

In 2009 the Corporation’s executive compensation program was designed to award the Named Executive Officers for each of their personal contributions and achievements in driving the necessary change within the Corporation within agreed financial targets and timelines to facilitate its survival given the material challenges it faced.

Two of the Named Executive Officers were primarily employed as Presidents of operational business units in 2009. Accordingly, the executive compensation program for such Named Executive Officers takes into account the financial performance of the particular insurance operations and the individuals overall contribution to the Corporation’s transformation in 2009.

HOW THE CORPORATION DETERMINES THE AMOUNT OF COMPENSATION

Determining Compensation

The Compensation Committee has responsibility for approving the compensation program for the Named Executive Officers. The Compensation Committee acts in accordance with its charter and in conjunction with the Board.

The fact that the Corporation does not maintain a pension plan for the benefit of its executive officers is a factor in determining base salary.

The manner in which the Corporation determines the amount of each element of the executive compensation programs is discussed below. Except for the input of the President and Chief Executive Officer, the Named Executive Officers do not play a role in determining the amount of executive compensation paid to them. Mr. Simpson, who is a Named Executive Officer and was a member of the Board in 2009, was not a member of the Compensation Committee during such year and recused himself from any decisions made by the Board regarding any component of his compensation. Mr. Simpson provides recommendations with respect to each of the other Named Executive Officers in connection with each component of their compensation. The other Named Executive Officers have input with respect to compensation paid to all employees of the Corporation, or a subsidiary of the Corporation, as applicable, reporting directly or indirectly to them.

In December 2008, the Corporation announced that all wage increases for 2009 for all staff, including management, were frozen. In early 2009, executive bonuses associated with fiscal year 2008 were only paid to those individuals that were associated with those subsidiaries that were performing well financially or to individuals that were considered to be exceptional in their performance.

In early 2009, the goals of the executive officers and their potential bonus payments for fiscal year 2009 were aligned with the achievement and delivery of the publicly announced transformation program objectives.

Base Salary

The base salary for each Named Executive Officer for 2009 is set out in the Summary Compensation Table that follows. The base salary for each Named Executive Officer is reviewed annually by the Compensation Committee within the context of individual and corporate performance and market competitiveness.

On December 17, 2008, the Corporation announced that the Board had approved management’s recommendation to impose a salary freeze for the Named Executive Officers for 2009.

As part of the overall transformation program there was significant consolidation of business units and infrastructure which lead to the removal of several senior executives from the corporate structure. One consequence of this activity was the marked increase in breadth and depth of responsibilities of certain of the Named Executive Officers which lead to salary increases for both Mr. Wollney and Mr. Lavoie. Ms. Howie’s salary was adjusted to better reflect market levels and, in the case of Mr. Simpson, pursuant to the terms of an employment agreement entered into between the Corporation and Mr. Simpson.

Cash Bonus

The Corporation maintains performance-based cash bonus incentive plans for the Named Executive Officers and other senior officers of the Corporation and its subsidiaries. In 2009 this performance was aligned with the effective execution of financial targets within agreed timelines associated with the transformation program. The level of award of cash bonus for each executive was determined by Mr. Simpson, with the support of the Board. Due to the nature and scale of change there were no specific targets, measurements, minimums or maximums set for the executive officers other than Mr. Simpson. As such the cash bonus arrangements under the previous compensation plans were suspended indefinitely.

Mr. Simpson’s own cash bonus was set at a maximum of 100% of his salary when he was appointed to the role of President and CEO and was to be based 75% on his success in executing the approved program together with 25% at the Board’s discretion. Due to the significant activity in downsizing of the group and remaining operations being solely based in the US, Mr. Simpson has decided to resign on June 30, 2010 to pursue other career interests. In alignment with Mr. Simpson’s contract of employment and change of control agreement, a financial settlement for his release has been reached with the Corporation. This financial settlement includes Mr. Simpson’s entitlement to a cash bonus for 2009 and is detailed under the section entitled “Termination and Change of Control Benefits”, below.

Stock Options

Long-term incentives in the form of stock options are granted to executive officers pursuant to the Corporation’s Amended and Restated Stock Option Plan (the “Stock Option Plan”). The text of the Stock Option Plan can be found in Schedule “C” of the Corporation’s 2007 Management Information Circular dated March 16, 2007 available on SEDAR at www.sedar.com. The decision to grant, and the determination of the number of stock options to be granted, to the Named Executive Officers in 2009 was determined by the Board based on the recommendations of the Compensation Committee and the then financial performance of the Corporation.

The Board has the authority to determine which eligible persons are granted options and restricts these grants to those with the responsibility level and ability to affect the overall performance of their department or the Corporation at large. Awards are granted on a discretionary basis as recommended by the Compensation Committee and approved by the Board of Directors based on an eligible person’s position and level of authority.

The Board has generally followed a practice of making all option grants to its executive officers during the first quarter of each year. For the last 5 years, the Compensation Committee has granted these annual awards at its regularly scheduled meeting in February. As such, the value of option based awards set out in the Summary Compensation Table and in the Incentive Plan Awards sections below relate to those stock options awarded.

In 2009 the option price was set at a level that an existing shareholder would expect to consider to be an acceptable level.

It should be noted that Mr. Simpson’s stock options were determined as part of his employment agreement with the Corporation and set at 65,000 units per year, for the three following years commencing in 2009. Such options were granted in accordance with the Stock Option Plan. Options due for the second and third year following 2009 will not be granted.

For additional information concerning stock option grants to executive officers and the Stock Option Plan, see the sections entitled “Executive Compensation - Compensation Discussion & Analysis - Option-based Awards” and “Executive Compensation - Incentive Plan Awards” below in this Circular.

Employee Share Purchase Plan

During 2009, the Corporation’s employee share purchase plan provided an opportunity for all full-time or regular part-time employees working 20 hours or more per week to participate in its ownership. Under the employee share purchase plan, an employee may contribute between to 1% and 5% of his or her annual base salary for any given year toward the purchase of Common Shares. The contributions are deducted by the Corporation from the payroll of the given participant and paid over to a custodian for the account of such participant. The custodian, for and on behalf of each participant, purchases the Common Shares on the open market at the then current trading price of the Common Shares. The Corporation matches the employee’s contribution at a rate of 50% and assumes all administrative costs associated with the employee share purchase plan.

Retention Bonuses

During 2009, the Board determined that Mr. Simpson and Ms. Howie were essential for the future success of the Corporation and approved the payment of retention bonuses for both individuals payable in January 2010 on the condition they remained in the employment of the Corporation through to the end of fiscal year 2009. Mr. Simpson received an amount of CAD$400,000 and Ms. Howie received an amount of CAD$200,000 which were paid in January 2010.

Perquisites

The Named Executive Officers do not receive any perquisites or personal benefits other than those available to all employees within the Corporation and its subsidiaries through group plans, other than as indicated below. Perquisites available to all employees, subsidized partially or paid wholly by the Corporation, include group medical, dental, life and disability insurance, and retirement savings vehicles with company matching funds. The group disability and life insurance plans provide for different benefit levels based on class, which is defined by the participant’s position level in the organization, and these plans allow for enhanced benefit levels for eligible executives. Canadian executives Ms. Gobin, Mr. Jackson, Mr. Lavoie and Mr. Simpson received an additional income loss replacement benefit. These were individually underwritten contracts, corporately owned and paid, which provided supplemental disability coverage separate from the Corporation’s group disability plans.

Mr. Brazier was not an employee of the Corporation, and as such, he did not participate in any company benefit plans.

Mr. Wollney, due to being a resident US executive officer, also received a nominal monthly car allowance.

THE CORPORATION’S EXECUTIVE COMPENSATION PROGRAMS WITHIN THE CONTEXT OF THE CORPORATION’S OVERALL COMPENSATION OBJECTIVES

The Corporation’s executive compensation programs (and each element thereof) are consistent with the overall strategic objectives of the Corporation for 2009 and the Corporation’s overall compensation objectives. The compensation programs reward those behaviours and outcomes that were necessary to effect the transformation program and to preserve the future of the Corporation. As the Corporation has now substantially completed its downsizing and moves forward in 2010 the compensation programs will once again be revisited by the Board and Compensation Committee to ensure alignment with current and future shareholder objectives.

PERFORMANCE GRAPH

The following graph compares the total cumulative shareholder return for $100 invested in Common Shares on January 1, 2005 with the S&P/TSX Composite Total Return Index and the S&P/TSX Property & Casualty Index for the five most recently completed financial years. Dividends paid starting in 2005 on Common Shares of the Corporation are assumed to be reinvested at the closing share price on the dividend payment date. All S&P/TSX indices are total return indices, i.e., they include dividends reinvested. The graph shows market values as at various year-ends, so that there is no necessary correlation between the trends, if any, shown in that graph and our executive compensation, which is determined as described above.

Relative Market Performance January 1, 2005 - December 31, 2009

Cumulative returns ($) 2005 2006 2007 2008 2009

KFS 124.9 130.6 65.1 37.5 10.5

S&P/TSX Composite Total Return 124.1 145.6 159.9 107.1 144.7

S&P/TSX Composite (Property and Casualty Insurance)

122.3 110.7 86.1 71.1 74.7

OPTION-BASED AWARDS

The Board administers the Stock Option Plan and the grant of option-based awards to the Named Executive Officers and other executive officers of the Corporation. Subject to the terms of the Stock Option Plan, the Board has the authority to fix the terms and conditions of individual agreements with participants, including the duration of the award and any vesting requirements, subject to requirements of applicable regulatory authorities. The Stock Option Plan permits the Board to grant options for the purchase of Common Shares for a term of up to 5 years. The total number of Common Shares reserved for issuance under the Stock Option Plan may not exceed 4,800,000 Common Shares. As of December 31, 2009, 2,513,142 Common Shares were reserved for issuance pursuant to the Stock Option Plan. The number of Common Shares granted to any one person is determined at the discretion of the Board, provided that in the case of any one person, the aggregate number of Common Shares reserved for issuance may not exceed 5% of the Common Shares outstanding at the time of the grant.

In accordance with the provisions of the Stock Option Plan, the option price and the terms and conditions on which the options may be exercised are set out in written stock option agreements, in the form approved by the Board, entered into by the Corporation and each option holder. Under the Stock Option Plan, the exercise price shall not be lower than the closing price on the TSX on the last business day preceding the effective date of the grant. In the event of the death or disability of the option holder, the option may be exercised up to the earlier of the expiration

date of the option or the date which is the 3rd anniversary of the date of death or long term disability of the Optionee.

The Stock Option Plan may be amended by the Board, subject to approval of the shareholders as well as the TSX and the NYSE, and subject to compliance with applicable legislation.

The Board has generally followed a practice of making all option grants to its executive officers during the first quarter of each year. In previous years, the Compensation Committee granted these annual awards at its regularly scheduled meeting in February.

Due to the poor financial performance of the Corporation in 2009, option awards were limited. Stock options awarded in February 2009 are set out under the sections entitled “Executive Compensation - Compensation Discussion & Analysis - How the Corporation determines the amount of Compensation - Stock Options” and “Executive Compensation - Incentive Plan Awards”.

While the bulk of the Corporation’s stock option granted to Named Executive Officers and other executive officers of the Corporation have historically been made pursuant to the Corporation’s annual grant program, the Committee retains the discretion to make additional awards to the Named Executive Officers and other executive officers at other times, in connection with the initial hiring of a new officer, for retention purposes or otherwise. Such grants are referred to as “ad hoc” awards.

Other than the President and Chief Executive Officer, the Named Executive Officers do not have a role in setting or amending any grant of stock options under the Stock Option Plan, and the President and Chief Executive Officer plays no role regarding the stock option grants to himself.

The previous grant of stock options is not taken into account when considering new grants of stock options to executive officers.

The Board considers the overall Stock Option Plan to be ineffective as a compensation tool and it is unlikely to continue in 2010. The Board may, however, support the granting of options in exceptional circumstances.

SUMMARY COMPENSATION TABLE FOR NAMED EXECUTIVE OFFICERS

The following table, presented in accordance with Form 51-102F6, sets forth all compensation paid to those individuals who are the Named Executive Officers in 2009 for the fiscal years ended on or after December 31, 2008, including the fiscal year ended December 31, 2009.

For compensation related to previous years, please refer to the Corporation’s Management Information Circulars filed with the Canadian Securities Commissions and available on SEDAR at www.sedar.com.

Non-equity incentive plan compensation

Name and Principal Position Year Salary (US$)

Share-based

awards(1)

(US$)

Option-based

awards(2)

(US$)

Annual incentive plans

Long-term incentive plans(3)

Pension Value(4)

(US$)

All other compensation(5)

(US$)

Totalcompensation

(US$)

Colin Simpson(6)

President and CEO 2009

2008

473,537(12)

206,510

NIL

NIL

55,096

26,979

NIL

NIL

NIL

NIL

NIL

NIL

353,788(13)

1,379

882,421

234,868

Dan Brazier(7)

Chief Financial Officer 2009

2008

117,794

N/A

NIL

N/A

NIL

N/A

13,135

N/A

NIL

N/A

NIL

N/A

NIL

N/A

130,929

N/A

Kathleen Howie(8)

Former Vice President and General Counsel

2009

2008

206,549

159,512

NIL

NIL

7,811

NIL

87,566

9,381

NIL

NIL

NIL

NIL

175,131(13)

NIL

477,057

168,893

Scott Wollney President and CEO, Kingsway America Inc.

2009

2008

289,168

236,673

NIL

NIL

7,811

54,289

125,000

65,000

NIL

NIL

NIL

NIL

7,154(12)

480

429,133

356,442

Serge Lavoie(9)

President and CEO, Jevco Insurance Company (as at March 29, 2010, no longer a subsidiary of the Corporation)

2009

2008

262,697

159,114

NIL

NIL

7,811

26,979

109,457

109,594

NIL

NIL

NIL

NIL

294

315

380,259

296,002

W. Shaun Jackson(10)

Former President and CEO 2009

2008

197,022

609,756

NIL

NIL

NIL

202,345

NIL

NIL

NIL

NIL

NIL

NIL

13,362

1,532

210,384

813,633

Shelly Gobin(11)

Former Chief Financial Officer 2009

2008

99,024

259,798

NIL

NIL

NIL

40,469

NIL

NIL

NIL

NIL

NIL

NIL

1,804

1,072

100,828

301,339

Notes:

(1) As of December 31, 2009, the Corporation had not granted any share-based awards. (2) The value of option based awards is based on the grant date fair value of the award. (3) As of December 31, 2009, the Corporation had not adopted any long term incentive plans. (4) As of December 31, 2009, the Corporation had not adopted a pension plan. (5) For an explanation of “All Other Compensation”, please refer to the section entitled “Summary Compensation Table for Named Executive

Officers – Narrative Description”. (6) Mr. Simpson was appointed as President and CEO on April 23, 2009. On February 9, 2009, Mr. Simpson was appointed as the Senior Vice

President and Chief Operating Officer of the Corporation. As announced on April 16, 2010, Mr. Simpson, having substantially completed the downsizing and restructuring of the Corporation, will resign as President and CEO of the Corporation on June 30, 2010. Mr. Simpson will remain on the Corporation’s Board. As announced on April 16, 2010, the President and CEO of the Corporation as of June 30, 2010 will be Mr. Larry Swets.

(7) On May 18, 2009, the Corporation entered into an arrangement with Global Resources Professionals, an external professional services company, to retain Mr. Dan Brazier to assume the role of Chief Financial Officer. Mr. Brazier is an employee of Global Resources Professionals. Gross compensation paid to Global Resources Professionals during 2009 for executive management services provided by Mr. Brazier was US$297,421.

(8) As of March 31, 2010, Ms. Howie was no longer with the Corporation. (9) As of March 29, 2010, Mr. Serge Lavoie was no longer with the Corporation. (10) As of April 23, 2009, Mr. Jackson was no longer with the Corporation. (11) As of May 18, 2009, Ms. Gobin was no longer with the Corporation. (12) Representing a CAD$225,000 base salary from January 1, 2009 to February 8, 2009, a CAD$400,000 base salary from February 9, 2009 to

April 22, 2009 and a base salary of CAD$600,000 upon Mr. Simpson’s appointment as President and CEO on April 23, 2009 through toDecember 31, 2009.

(13) Additional severance amounts have or will have been paid in 2010 as detailed in the section below entitled “Termination and Change of Control Benefits”.

SUMMARY COMPENSATION TABLE FOR NAMED EXECUTIVE OFFICERS - NARRATIVE DESCRIPTION

The option based awards are comprised of awards under the Stock Option Plan described herein. It is the Board’s policy to award options to vest equally on the 1st 2nd and 3rd anniversary of the effective date of grant. Option based awards are awarded at the closing price for the Shares on the day prior to the effective date of the grant or as otherwise determined by the Board of Directors.

With respect to “All Other Compensation” we have included the insurance premiums paid by the Corporation for personal insurance during the covered financial year on behalf of each Named Executive Officer.

CURRENCIES

Amounts reported in the Executive Compensation section are in US dollars, the same currency that the Corporation uses in its financial statements. The base salary of each Named Executive Officer, other than Scott Wollney, was paid in Canadian dollars. For the Named Executive Officers who received their base salary in Canadian dollars, the figures under the heading “Salary” are disclosed based on the Bank of Canada average annual exchange rate of $1.142 for the fiscal year 2009.

OFFICERS WHO ALSO ACT AS DIRECTORS

Colin Simpson, the President and Chief Executive Officer of the Corporation, joined the Board in 2009. W. Shaun Jackson, the Former President and Chief Executive Officer of the Corporation, was a member of the Board in 2009. It is the policy of the Corporation that compensation only be paid to directors who are non-employee directors. Accordingly, Mr. Simpson and Mr. Jackson did not receive any compensation for their respective roles as members of the Board.

INCENTIVE PLAN AWARDS

OUTSTANDING SHARE-BASED AWARDS AND OPTION-BASED AWARDS

Option-based Awards Share-based Awards(1)

Name and Principal Position

Number of securities

underlying unexercised

options (#)

Option exercise price

(CAD$) Option expiration

date

Value of unexercised in-

the-money options(2)

Number of shares or units of shares that have

not vested (#)

Market or payout value of

share-based awards that

have not vested (CAD$)

Colin Simpson President and CEO

65,000 $1.90 March 5, 2014 NIL NIL NIL

Dan Brazier Chief Financial Officer

N/A N/A March 5, 2014 NIL NIL NIL

Kathleen Howie Former Vice President and General Counsel

20,000 $10.03 March 5, 2014 NIL NIL NIL


20,000 $10.03 March 5, 2014 NIL NIL NIL

Option-based Awards Share-based Awards(1)


Number of securities

underlying unexercised

options (#)

Option exercise price

(CAD$) Option expiration

date

Value of unexercised in-

the-money options(2)

Number of shares or units of shares that have

not vested (#)

Market or payout value of

share-based awards that

have not vested (CAD$)

Serge Lavoie President and CEO, Jevco Insurance Company (as at March 29, 2010, no longer a subsidiary of the Corporation)

20,000 $10.03 March 5, 2014 NIL NIL NIL

W. Shaun Jackson Former President and CEO

NIL NIL NIL NIL NIL NIL

Shelly Gobin Former Chief Financial Officer

NIL NIL NIL NIL NIL NIL

Notes:

(1) As of December 31, 2009, the Corporation had not granted any share-based awards. (2) The value of unexercised in-the-money options is based on the difference between the market value of the Common Shares underlying

the options as at December 31, 2009 and the exercise price of the option.

INCENTIVE PLAN AWARDS - VALUE VESTED OR EARNED DURING THE YEAR


Option-based awards – Value vested during the

year

(US$)

Share-based awards – Value vested during the year

(US$)

Non-equity incentive plan compensation - value earned

during the year

(US$) Colin Simpson(1)

President and CEO NIL NIL NIL

Dan Brazier Chief Financial Officer

NIL NIL 13,135

Kathleen Howie Former Vice President and General Counsel

NIL NIL 87,566


NIL NIL 125,000

Serge Lavoie President and CEO, Jevco Insurance Company (as at March 29, 2010, no longer a subsidiary of the Corporation)

NIL NIL 109,457

W. Shaun Jackson Former President and CEO

NIL NIL NIL

Shelly Gobin Former Chief Financial Officer

NIL NIL NIL

Note:

(1) Please see note (1) to table summarizing the terms of severance under the section below entitled “Termination and Change of Control Benefits”.

INCENTIVE PLAN AWARDS - NARRATIVE DESCRIPTION

Awards granted during the year vest equally on the 1st, 2nd and 3rd anniversary of the effective day of the grant. The terms of the Stock Option Plan provide that in the event an individual is no longer employed by the Corporation or one of its subsidiaries, all unvested awards terminate and are of no further effect after a period of time which varies between 30 days to 1 year depending on the circumstances surrounding the cessation of employment subject, in certain circumstances to the exercise of discretion by the President to extend the time for exercise of such options to the later of the 3rd anniversary of the event giving rise to the cessation of employment or the date the options otherwise expire.

In 2009, the executives’ non-equity incentive plan compensation was wholly made up of cash bonuses and directly linked to the individuals’ contribution to the implementation of the transformation program and financial performance of the operations under their direction where appropriate.

TERMINATION AND CHANGE OF CONTROL BENEFITS

Each Named Executive Officer, other than Dan Brazier who is a contractor, has a change of control agreement. Mr. Simpson and Ms. Howie also have an employment contract with specific termination and control benefits therein.

Each Change of Control Agreement that provides for a severance payment to be paid to such Named Executive Officer in the event that:

• there is a “Change of Control” of the Corporation. “Change of Control” is defined in each of the Named Executive Officers’ respective Change of Control Agreements as the acquisition of greater than 20% of the issued and outstanding Common Shares of the Corporation; and

• such Named Executive Officers’ employment with the Corporation is terminated within 90 days prior or within 2 years from a Change of Control. Termination for the purposes of the Change of Control Agreement includes a termination for good reason. Termination for good reason includes any action that materially diminishes the employee’s compensation, benefits, authority, duties, title or status within the Corporation or moves the employee’s work location more than 80 kilometres from their current work location.

In such event, the applicable Named Executive Officer is entitled to a lump sum payment based upon his or her base salary, benefits and the non-equity incentive plan compensation entitlements to which the Named Executive Officer is otherwise entitled. For the President and Chief Executive Officer, this award is the equivalent of 36 months base salary, the deemed achievement of a Return on Equity of 15% under the non-equity incentive plan and 100% of the Employee’s personal goals for such period. The same formula applies with respect to the other Named Executive Officers except that the base salary payment is based on 24 months. In both cases, the Named Executive Officer has agreed to non-competition covenants for a period of 12 months. Pursuant to the terms of the Stock Option Plan, all unvested stock options terminate 90 days after a deemed “Change of Control”.

The events that constitute a “Change of Control” in the Change of Control Agreements were selected because such events are similar to those found in change of control agreements for executive officers in similar positions.

In addition to the Change of Control Agreements, pursuant to the terms of their employment, each of Mr. Simpson and Ms. Howie has an entitlement to severance in the event of termination of employment by the Corporation. Termination without cause for these purposes includes a termination for good reason and includes any action that materially diminishes the employee’s compensation, benefits, authority, duties, title or status within the Corporation or moves the employee’s work location more than 80 kilometres from their current work location. In

such event, the executive officer is entitled to a lump sum payment based upon his or her base salary, benefits and the non-equity incentive plan compensation entitlements to which the executive officer is otherwise entitled. For the President and Chief Executive Officer, this award is the equivalent of 24 months base salary, the deemed achievement of a Return on Equity of 15% under the non-equity incentive plan and 100% of the executive officer’s personal goals for such period. In 2009, this was increased to twenty-one months in the case of Mr. Simpson pursuant to his employment contract entered into when he became Chief Operating Officer. Ms. Howie’s agreement was based upon 12 months, with an additional one month added for each full year of service, up to a maximum of 18 months. As at the end of 2009, Ms. Howie was entitled to 13 months under the terms of her agreement. Pursuant to the terms of the Stock Option Plan, all unvested stock options terminate 90 days after termination of employment without cause.

In 2009, Mr. Jackson and Ms. Gobin were relieved of their duties by the Corporation. Both Mr. Jackson and Ms. Gobin have initiated separate legal actions against the Corporation relating to their termination, which the Corporation is vigorously defending.

Due to the significant downsizing that took place during 2009 and the resulting movement of operations from across North America to be solely based in the US, the Corporation’s need and the needs of the Named Executive Officers have changed. As a consequence, the Corporation and Named Executive Officers have agreed to certain terms for each individual executive officer upon exiting the Corporation.

In coming to an agreement on these terms the Board considered the following factors:

• The contractual obligations of the Corporation • The level of contribution and commitment each individual made to the transformation program and

preservation of the future state of the Corporation • Length of service • Ease with which the Named Executive Officer will find alternative employment in the marketplace • Employment law and related regulations associated with each jurisdiction of each Named Executive

Officer

The following table summarizes the agreed terms of severance:


Maximum Exposure under Employment Contract(7)

($)

Maximum Exposure under Change of Control Agreement(7)

($)

Severance Payment Agreed(7)

($) Colin Simpson President and CEO(1)

CAD$3,000,000 Plus Perquisites

CAD$4,200,000 Plus Perquisites

CAD$3,000,000(6)

Plus Perquisites Dan Brazier Chief Financial Officer(2)

N/AContractor

N/AContractor

N/AContractor

Kathleen Howie Former Vice President and General Counsel(3)

CAD$486,958 Plus Perquisites



Scott Wollney President and CEO, Kingsway America Inc.(4)

N/A US$961,000 Plus Perquisites

US$315,000 Plus Perquisites

Serge Lavoie President and CEO, Jevco Insurance Company(5) (as at March 29, 2010, no longer a subsidiary of the Corporation)

N/A CAD$930,000 Plus Perquisites

N/A

Notes:

(1) Mr. Simpson has agreed to resign on June 30, 2010. Included in the above Maximum Exposure under Employment Contract and Maximum Exposure under Change of Control Agreement there is an amount added of CAD$600,000 representing the maximum bonus that could be earned and paid for 2009. The Severance Payment Agreed negates any payment of any bonus for 2009 or 2010. Mr. Simpson has also agreed to forego 65,000 stock options that should have been issued in 2010 and 2011 per his agreed terms of employment.

(2) Mr. Brazier is a contractor and is therefore not eligible for severance upon his departure. Mr. Brazier has agreed to remain with the Corporation for the time being but is likely to depart at the end of 2010 once the finance function has been fully transitioned.

(3) Ms. Howie left the Corporation on March 31, 2010. (4) Mr. Wollney is leaving the organization upon the completion of certain objectives which are currently expected to be completed by the

end of 2010. Mr. Wollney currently has an opportunity to earn a bonus up to US$150,000 in 2010 upon the completion of specific objectives.

(5) As at March 29, 2010 Jevco Insurance Company is no longer a subsidiary of the Corporation. Mr. Lavoie was paid a bonus of CAD$175,000 upon the successful completion of the sale of Jevco Insurance Company.

(6) As of March 31, 2010, Mr. Simpson had already received CAD$1,700,000 of his severance payment. The remainder is payable on June 30, 2010 upon his resignation.

(7) For an explanation of Perquisites, please refer to the section entitled “Compensation Discussion & Analysis – How the Corporation Determines the Amount of Compensation – Perquisites”.

DIRECTOR COMPENSATION

DIRECTOR COMPENSATION – NARRATIVE DESCRIPTION

Remuneration of Directors

The Corporation’s director compensation is designed to attract and retain the most qualified people to serve on the Board and its committees, and to provide appropriate compensation for the time devoted to serving as a director, recognizing the responsibilities of being an effective director. Only non-employee directors of the Board are remunerated for serving as directors of the Corporation. The disclosure of dollar amounts paid to directors in the Director Compensation Table and the Narrative Description are in Canadian dollars.

Structure in 2009

During 2009, and until the compensation structure was simplified in 2010, members of the Board received compensation in the form of retainers for being members of the Board, a chairman of a committee of the Board and for sitting on the board of subsidiaries of the Corporation. In addition, members of the Board received Board and committee meeting attendance fees, including for meetings of subsidiaries of the Corporation. The retainers and the meeting fees were paid in the currency of the director’s country of residence, and are set out below:

Description of Fee(1) Amount Annual Director retainer $35,000 Chairman of the Board retainer $200,000 Board meeting fee: $2,000 per meeting if attended in person

$1,500 per meeting if attended telephonically Committee meeting fee: $2,000 per meeting if attended in person

$1,500 per meeting if attended telephonically Committee Chair retainers

Corporate Governance and Nominating

Compensation

Investment and Capital

Audit Committee

$6,000

$6,000

$6,000

$15,000

Annual Director Retainer for non-management directors sitting on boards of subsidiaries:

$5,000

Board meeting Fees for outside directors sitting on boards of subsidiaries:

$2,000 per meeting if attended in person $1,500 per meeting if attended telephonically

Committee meeting fee for outside directors sitting on committees of subsidiaries

$1,000 per meeting if attended in person or telephonically

Note:

(1) In January 2010, the Board elected to move to a simplified fee structure of a flat fee per fiscal year of CAD$100,000 for each director and CAD$200,000 for the Chairman. Meeting fees and Deferred Share Units, and other fees, were eliminated. See discussion in the section entitled “Director Compensation – Director Compensation Table for 2009 – Revised Structure”.

DIRECTOR COMPENSATION TABLE FOR 2009

The total compensation amount of retainer and meeting fees paid to directors of the Corporation who were not employees of the Corporation for the year ended December 31, 2009 was CAD$840,133, as follows:

Current Non-Employee Directors

Name Feesearned

(CAD$)

Option-based awards

(CAD$)

Share-based awards (DSUs)

(CAD$)


(CAD$)

Pension value

(CAD$)

All other compensation

(CAD$)

Total

(CAD$) Gregory Hannon 38,945 NIL 10,400 NIL NIL NIL 49,685

Terence M. Kavanagh

91,000 NIL 17,500 NIL NIL NIL 108,500

Spencer L. Schneider

551,194 NIL 23,254 NIL NIL NIL 574,448(1)

Joseph Stilwell 90,000 NIL 17,500 NIL NIL NIL 107,500

Note:

(1) Please also refer to the discussion under the heading entitled “Compensation of the Chairman of the Board of Directors”, below.

Previous Non-Employee Directors

Name Feesearned

(CAD$)

Option-based awards

(CAD$)


(CAD$)


(CAD$)

Pension value

(CAD$)


(CAD$)

Total

(CAD$) William Andrus(1) 77,019 NIL 17,500 NIL NIL NIL 94,519

David H. Atkins(2) 92,568 NIL NIL NIL NIL NIL 92,568

John L. Beamish(3) 7,500 NIL NIL NIL NIL NIL 7,500

Robert Cassels(4) 123,411 NIL 17,500 NIL NIL NIL 140,911

Peter Copestake(5) 2,000 NIL NIL NIL NIL NIL 2,000

Thomas A. DiGiacomo(6)

29,000 NIL NIL NIL NIL NIL 29,000

J. Peter Eccleton(7) 43,609 NIL 5,610 NIL NIL NIL 49,219

Walter E. Farnam(8)


Robert T.E. Gillespie(9)


J. Brian Reeve(10) 103,243 NIL 184,000 NIL NIL NIL 287,243

Jack Sullivan(11) 5,272 NIL 86,536 NIL NIL NIL 91,808

Name Feesearned

(CAD$)

Option-based awards

(CAD$)


(CAD$)


(CAD$)

Pension value

(CAD$)


(CAD$)

Total

(CAD$) Larry G. Swets(12) 72,417 NIL 5,754 NIL NIL NIL 78,171

F. Michael Walsh(13)


Notes:

(1) Mr. Andrus ceased to be a director of the Corporation on August 2, 2009. (2) Mr. Atkins ceased to be a director of the Corporation on April 23, 2009. (3) Mr. Beamish ceased to be a director of the Corporation on January 10, 2009. (4) Mr. Cassels ceased to be a director of the Corporation on September 11, 2009. (5) Mr. Copestake ceased to be a director of the Corporation on April 24, 2009. (6) Mr. DiGiacomo ceased to be a director of the Corporation April 23, 2009. (7) Mr. Eccleton ceased to be a director of the Corporation April 23, 2009. (8) Mr. Farnam ceased to be a director of the Corporation September 11, 2009. (9) Mr. Gillespie ceased to be a director of the Corporation on February 5, 2009. (10) Mr. Reeve ceased to be a director of the Corporation November 3, 2009. (11) Mr. Sullivan ceased to be a director of the Corporation on May 7, 2009. (12) Mr. Swets ceased to be a director of the Corporation on April 23, 2009. (13) Mr. Walsh ceased to be a director of the Corporation on April 23, 2009.

Revised Structure

In 2010, the Board determined that the director fee structure that was in place was not ideal given the number of required meetings and effort involved in directing the Corporation through its survival. The Board simplified the structure by eliminating committee membership and committee chair fees, eliminating board and committee meeting attendance fees, eliminating the DSU program, eliminating attendance fees for directors merely attending subsidiary board meetings as attendees, and replacing this with a single retainer fee, payable quarterly, in the amount of CAD$100,000 annually. The fee for the Chairman was set at CAD$200,000 annually.

Compensation of the Chairman of the Board of Directors

In August 2009, the Board increased the annual retainer paid to the Chairman by CAD$100,000 to better reflect the increased duties of the Chairman expended to assist in the survival of the Corporation. The Board further approved an additional one-time retainer of US$200,000 to be paid in September 2009, and US$200,000 to be paid in February 2010 in connection with a special project undertaken by the Chairman in his capacity as Chairman in consultation with management and the Board to assist the Corporation with overseeing U.S. non-claims litigation involving the Corporation’s subsidiaries. (The amounts which were paid in 2009 are included in the total fees as disclosed in the director compensation table for current non-employee directors.) The Chairman was also required to spend significant time assisting the corporation to address certain other critical issues, including the sale of certain assets of the Corporation, various U.S. regulatory matters, and the restructuring of the Corporation. The Corporation believes that the Chairman remained independent throughout these duties, and the increased retainer is a reflection of the additional time spent with respect to these duties as Chairman.

Deferred Share Units

In 2008, the legacy Board adopted a deferred share unit plan for all non-management directors (the “DSU Plan”). The DSU Plan was discontinued in January 2010 by the current board based on the determination that it was complicated and completely unnecessary. Under the terms of the DSU Plan, not less than 50% of a non-management director’s annual retainer from the Corporation was to be paid in deferred share units (each a “Deferred Share Unit” and collectively, “Deferred Share Units”). The allocation of director fees for 2009 in cash and DSUs is set forth below:

Current Non-Employee Directors

Name In Cash (CAD$)

In DSUs(1)

(CAD$) Total

(CAD$)

Gregory Hannon 38,945 10,400 49,685

Terence M. Kavanagh 91,000 17,500 108,500

Spencer L. Schneider 551,194 23,254 574,448

Joseph Stilwell 90,000 17,500 107,500

Previous Non-Employee Directors(2)

Name In Cash (CAD$)

In DSUs(1)

(CAD$) Total

(CAD$)

William Andrus 77,019 17,500 94,519

David H. Atkins 92,568 NIL 92,568

John L. Beamish 7,500 NIL 7,500

Robert Cassels 123,411 17,500 140,911

Peter Copestake 2,000 NIL 2,000

Thomas A. DiGiacomo 29,000 NIL 29,000

J. Peter Eccleton 43,609 5,610 49,219

Walter E. Farnam 133,044 NIL 133,044

Robert T.E. Gillespie 9,000 NIL 9,000

J. Brian Reeve 103,243 184,000 287,243

Jack Sullivan 5,272 86,536 91,808

Larry G. Swets 72,417 5,754 78,171

F. Michael Walsh 18,386 NIL 18,386

Notes:

(1) Based on the grant date fair value of the award. (2) For the date at which the following individuals ceased to be directors of the Corporation, please refer to the respective footnote under

the heading “Director Compensation Table for 2009 – Previous Directors”.

Director Share and DSU Ownership Policy

In 2009, the current non-employee directors of the Corporation held, in the aggregate, the following number of Common Shares and DSUs:

Common Shares held by Non-

EmployeeDirectors(1)

(#)(a)

Value of Common Shares held by Non-

Employee Directors(2)

(CAD$) (b)

DSUs held by Non-Employee Directors

(#)(c)

Value of DSUs held by Non-Employee

Directors(2)

(CAD$) (d)

Total(a) + (c)

(#)

Total(b) + (d)

(CAD$)

11,077,950 26,808,639 25,674 62,131 11,103,624 26,870,770

Notes:

(1) As of April 22, 2010. (2) Based on the closing price of the Common Shares on the TSX as of April 22, 2010: CAD$2.42.

Share-based Awards, Option-based Awards and Non-equity Incentive Plan Compensation

The Corporation previously adopted a policy whereby non-employee directors of the Corporation receive options to acquire Common Shares of the Corporation annually pursuant to the terms and conditions of the Stock Option Plan, however none were awarded in 2009 and there are currently no plans to award any further options

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

EQUITY COMPENSATION PLAN INFORMATION

Plan Category

Number of securities to be issued upon exercise of

outstanding options, warrants and rights

(a)

Weighted-average exercise price of outstanding options,

warrants and rights

(b)

Number of securities remaining available for future issuance under equity compensation plans (excluding securities

reflected in column (a))

(c) Equity compensation plans approved by security holders

2,024,084 16.77 2,513,142

Equity compensation plans not approved by security holders

N/A N/A N/A

Total 2,024,084 16.77 2,513,142

The Shareholders of the Corporation have approved all equity compensation plans under which securities may be issued. The Corporation has established a stock option incentive plan for directors, officers and key employees of the Corporation and its subsidiaries. The total number of Common Shares reserved for issuance under the Stock Option Plan may not exceed 4,800,000 Common Shares. As of December 31, 2009, 2,513,142 Common Shares were reserved for issuance pursuant to the Stock Option Plan. During 2009 a total of 441,500 options were granted to eligible employees, of which 125,000 were granted to NEOs as noted previously. For additional information concerning stock option grants to executive officers see the section entitled “Incentive Plan Awards – Outstanding Share-Based Awards and Option-Based Awards”. 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.

INDEBTEDNESS OF DIRECTORS AND OFFICERS

No current or former executive officer, director or employee of the Corporation or any of its subsidiaries and no associate of any current or proposed director or executive officer of the Corporation was indebted to the Corporation or any of its subsidiaries, or to another entity where such indebtedness was the subject of a

guarantee, support agreement, letter of credit, or other similar arrangement or understanding provided by the Corporation or any of its subsidiaries.

DIRECTORS’ AND OFFICERS’ INSURANCE

The Corporation has directors’ liability insurance for the directors and officers of the Corporation and its subsidiaries. The aggregate 2009 annual premium was CAD$5,361,367 no part of which is payable by the directors and officers. The annual insurance coverage under the policy is limited to CAD$100 million per policy year.

There is a CAD$1,000,000 deductible provision for any claim made by the Corporation but no such deductible provision for claims if made for claims by any director or officer.

INTERESTS OF INFORMED PERSONS AND OTHERS IN MATERIAL TRANSACTIONS

No director, executive officer or person who is a proposed nominee for election as a director of the Corporation, and no associate or affiliate of any such director, executive officer or proposed nominee, nor, to the best knowledge of the directors and executive officers of the Corporation after having made reasonable inquiry, any person or company who beneficially owns, controls or directs, directly or indirectly, voting securities of the Corporation carrying more than ten (10%) percent of the voting rights attached to all outstanding voting securities of the Corporation at the date hereof, or any associate or affiliate thereof, has any material interest, direct or indirect, in any transaction since the commencement of the Corporation’s most recently completed financial year or in any proposed transaction which has materially affected or would materially affect the Corporation or any of its subsidiaries, except as described below.

In the fourth quarter of 2009, American Physicians Assurance Corporation (“AP Assurance”) agreed to provide the Corporation with up to $20 million to finance the potential repurchase of senior debt. Two of the members of the Board, Spencer Schneider and Joseph Stilwell, are also members of the board of American Physicians Capital Inc., of which AP Assurance is a subsidiary. Neither of these individuals participated in the negotiation of the facility or the discussion or approval of the facility at the board level of the Corporation or AP Assurance. At the time of these negotiations, Mr. Stilwell had not yet been appointed to the Board. No funds were ever drawn on this facility and it was withdrawn on February 25, 2010.

INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON

No person who was a director or executive officer of the Corporation at any time since the beginning of the Corporation’s last financial year, no person who is a proposed nominee for election as a director of the Corporation and no associate or affiliate of any such director, executive officer or proposed nominee has any material interest, direct or indirect, in any matter to be acted upon at the Meeting other than the election of directors.

APPROVAL

The contents and the sending of this Circular have been approved by the directors of the Corporation.

OTHER MATTERS

Management knows of no amendment, variation or other matter to come before the Meeting other than the matters referred to in the Notice. However, if any other matter properly comes before the Meeting, the accompanying proxy will be voted on such matter with the best judgment of the person or persons voting the proxy.

ADDITIONAL INFORMATION

Financial information about the Corporation is contained in its comparative financial statements and Management’s Discussion and Analysis for fiscal year ended December 31, 2009, and additional information relating to the Corporation is on SEDAR at www.sedar.com. If you would like to obtain, at no cost to you, a copy of any of the following documents:

1) the latest Annual Information Form of the Corporation together with any document, or the pertinent pages of any document, incorporated by reference therein;

2) the comparative financial statements of the Corporation for the fiscal year ended December 31, 2009 together with the accompanying report of the auditors thereon and Management’s Discussion and Analysis with respect thereto; or

3) this Circular

please send your request to:

Kingsdale Shareholder Services Inc. Attention: Carol Dixon Corporate Actions Exchange Tower 130 King Street West Suite 2950 P.O. Box 361 Toronto, Ontario M5X 1E2

DATED at Toronto, Ontario this 26th day of April, 2010.

By Order of the Board of Directors

“Spencer L. Schneider”

Spencer L. Schneider Chairman of the Board

A-1

SCHEDULE “A”

Shareholder Resolution related to confirmation of New by-laws

CONFIRMATION OF BY-LAW NO. 5

RESOLVED:

That By-Law No. 5, being the general administrative by-law, enacted and made by the directors of the Corporation, in the form annexed hereto as Schedule “B”, is hereby confirmed as a by-law of the Corporation.

B-1

SCHEDULE “B”

BY-LAW No. 5

KINGSWAY FINANCIAL SERVICES INC.(the “Corporation”)

MEETINGS OF SHAREHOLDERS.

Place, Time and Notice. Meetings of shareholders of the Corporation shall be held at the registered office of the Corporation or at such other place and at such time as the Board of Directors, the Chair, the Chief Executive Officer or the President may determine, from time to time.

Electronic Meetings. If the directors or the shareholders of the Corporation call a meeting of shareholders pursuant to the laws governing the Corporation, those directors or shareholders, as the case may be, may determine that the meeting shall be held in accordance with the regulations, if any, governing the Corporation entirely by means of telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting.

Chair. Subject to the provisions of any resolution of the Board of Directors, the Chair of the Board or, in his absence or inability or refusal or failure to act, the President or, in his absence or inability or refusal or failure to act, the Vice-President or, if there be more than one Vice-President, that one of them who may have been designated for the purpose by the Board of Directors, may preside at all meetings of shareholders. All of the foregoing officers may attend such meetings but no Vice-President shall act as chair if the Board of Directors shall have determined that he shall not so act. If all of the foregoing officers be absent or unable or refuse or fail to act, the persons present may choose a chair.

Quorum. Two (2) shareholders personally present and representing, either in their own right or by proxy, not less than twenty five percent (25%) of the issued shares of the Corporation shall constitute a quorum of any meetings of shareholders.

MEETINGS OF DIRECTORS.

Place, Time and Notice. Immediately after the annual meeting of shareholders in each year, a meeting of such of the newly elected directors as are then present may be held, provided that they shall constitute a quorum, without notice, for the appointment of officers of the Corporation and the transaction of such other business as may come before the meeting.

Subject to the provisions of any resolution of the Board of Directors, meetings of the Board of Directors may be called at any time by the Chair of the Board or any two directors and notice of the time and place for holding any meeting of the Board of Directors shall be given at least twenty-four (24) hours prior to the time fixed for the meeting. Any meeting so called may be held at the registered office of the Corporation or any other place which shall have been fixed by the Board of Directors.

Chair. Subject to the provisions of any resolution of the Board of Directors, the Chair of the Board or, in his absence or inability or refusal or failure to act, the President or, in his absence or inability or refusal or failure to act, the Vice-President or, if there be more than one Vice-President, that one of them who may have been designated for the purpose by the Board of Directors, shall preside at all meetings of the Board of Directors; provided that neither the President nor any Vice-President shall so act unless he is a director. If all of the foregoing officers be absent or unable or refuse or fail to act, the directors present may choose a chair from among their number. The chair at any meeting of directors may vote as a director.

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Quorum. Except where the Corporation has only one director and subject to the laws governing the Corporation, the Board of Directors may, from time to time, fix by resolution the quorum for meetings of the Board of Directors but in no case shall a quorum be less than a majority of directors then in office.

REPEAL

Repeal. Upon this by-law coming into force, By-laws Nos. 2, 3 and 4 of the Corporation are repealed provided that such repeal shall not affect the previous operation of such by-laws so repealed or affect the validity of any act done or right, privilege, obligation or liability acquired or incurred under the validity of any contract or agreement made pursuant to any such by-law prior to its repeal. All officers and persons acting under such by-law so repealed shall continue to act as if appointed under the provisions of this by-law and all resolutions of the shareholders or board with continuing effect passed under such repealed by-law shall continue good and valid except to the extent inconsistent with this by-law and until amended or repealed.

SCHEDULE “C”

The Former By-laws of the Corporation

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SCHEDULE “D”

Shareholder Resolution related to approval of Articles of Amendment

Approval of Articles of Amendment

RESOLVED:

That the articles of amendment, amending the restrictions on the business that the Corporation may carry on, in the form annexed hereto as Schedule “E”, are hereby approved.

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SCHEDULE “E”

Articles of Amendment

Restrictions on the business that the Corporation may carry on.

The Corporation is restricted to carrying on the business of buying, selling, operating, controlling, managing, supervising management of, investing in, holding and establishing by incorporation or otherwise, companies and other business organizations, including, but not limited to, share capital corporations, non-share capital corporations, unlimited liability companies, limited liability companies, limited partnerships, limited liability partnerships, general partnerships, and trusts both in and outside Canada. For greater certainty, the powers that the Corporation may exercise are unrestricted.

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SCHEDULE “F”

Section 185 of the OBCA Rights of dissenting shareholders

185. (1) Subject to subsection (3) and to sections 186 and 248, if a corporation resolves to,

(a) amend its articles under section 168 to add, remove or change restrictions on the issue, transfer or ownership of shares of a class or series of the shares of the corporation;

(b) amend its articles under section 168 to add, remove or change any restriction upon the business or businesses that the corporation may carry on or upon the powers that the corporation may exercise;

(c) amalgamate with another corporation under sections 175 and 176;

(d) be continued under the laws of another jurisdiction under section 181; or

(e) sell, lease or exchange all or substantially all its property under subsection 184 (3),

a holder of shares of any class or series entitled to vote on the resolution may dissent. R.S.O. 1990, c. B.16, s. 185 (1).

Idem

(2) If a corporation resolves to amend its articles in a manner referred to in subsection 170 (1), a holder of shares of any class or series entitled to vote on the amendment under section 168 or 170 may dissent, except in respect of an amendment referred to in,

(a) clause 170 (1) (a), (b) or (e) where the articles provide that the holders of shares of such class or series are not entitled to dissent; or

(b) subsection 170 (5) or (6). R.S.O. 1990, c. B.16, s. 185 (2).

One class of shares

(2.1) The right to dissent described in subsection (2) applies even if there is only one class of shares. 2006, c. 34, Sched. B, s. 35.

Exception

(3) A shareholder of a corporation incorporated before the 29th day of July, 1983 is not entitled to dissent under this section in respect of an amendment of the articles of the corporation to the extent that the amendment,

(a) amends the express terms of any provision of the articles of the corporation to conform to the terms of the provision as deemed to be amended by section 277; or

(b) deletes from the articles of the corporation all of the objects of the corporation set out in its articles, provided that the deletion is made by the 29th day of July, 1986. R.S.O. 1990, c. B.16, s. 185 (3).

Shareholder’s right to be paid fair value

(4) In addition to any other right the shareholder may have, but subject to subsection (30), a shareholder who complies with this section is entitled, when the action approved by the resolution from which the shareholder dissents becomes effective, to be paid by the corporation the fair value of the shares held by the shareholder in

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respect of which the shareholder dissents, determined as of the close of business on the day before the resolution was adopted. R.S.O. 1990, c. B.16, s. 185 (4).

No partial dissent

(5) A dissenting shareholder may only claim under this section with respect to all the shares of a class held by the dissenting shareholder on behalf of any one beneficial owner and registered in the name of the dissenting shareholder. R.S.O. 1990, c. B.16, s. 185 (5).

Objection

(6) A dissenting shareholder shall send to the corporation, at or before any meeting of shareholders at which a resolution referred to in subsection (1) or (2) is to be voted on, a written objection to the resolution, unless the corporation did not give notice to the shareholder of the purpose of the meeting or of the shareholder’s right to dissent. R.S.O. 1990, c. B.16, s. 185 (6).

Idem

(7) The execution or exercise of a proxy does not constitute a written objection for purposes of subsection (6). R.S.O. 1990, c. B.16, s. 185 (7).

Notice of adoption of resolution

(8) The corporation shall, within ten days after the shareholders adopt the resolution, send to each shareholder who has filed the objection referred to in subsection (6) notice that the resolution has been adopted, but such notice is not required to be sent to any shareholder who voted for the resolution or who has withdrawn the objection. R.S.O. 1990, c. B.16, s. 185 (8).

Idem

(9) A notice sent under subsection (8) shall set out the rights of the dissenting shareholder and the procedures to be followed to exercise those rights. R.S.O. 1990, c. B.16, s. 185 (9).

Demand for payment of fair value

(10) A dissenting shareholder entitled to receive notice under subsection (8) shall, within twenty days after receiving such notice, or, if the shareholder does not receive such notice, within twenty days after learning that the resolution has been adopted, send to the corporation a written notice containing,

(a) the shareholder’s name and address;

(b) the number and class of shares in respect of which the shareholder dissents; and

(c) a demand for payment of the fair value of such shares. R.S.O. 1990, c. B.16, s. 185 (10).

Certificates to be sent in

(11) Not later than the thirtieth day after the sending of a notice under subsection (10), a dissenting shareholder shall send the certificates representing the shares in respect of which the shareholder dissents to the corporation or its transfer agent. R.S.O. 1990, c. B.16, s. 185 (11).

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Idem

(12) A dissenting shareholder who fails to comply with subsections (6), (10) and (11) has no right to make a claim under this section. R.S.O. 1990, c. B.16, s. 185 (12).

Endorsement on certificate

(13) A corporation or its transfer agent shall endorse on any share certificate received under subsection (11) a notice that the holder is a dissenting shareholder under this section and shall return forthwith the share certificates to the dissenting shareholder. R.S.O. 1990, c. B.16, s. 185 (13).

Rights of dissenting shareholder

(14) On sending a notice under subsection (10), a dissenting shareholder ceases to have any rights as a shareholder other than the right to be paid the fair value of the shares as determined under this section except where,

(a) the dissenting shareholder withdraws notice before the corporation makes an offer under subsection (15);

(b) the corporation fails to make an offer in accordance with subsection (15) and the dissenting shareholder withdraws notice; or

(c) the directors revoke a resolution to amend the articles under subsection 168 (3), terminate an amalgamation agreement under subsection 176 (5) or an application for continuance under subsection 181 (5), or abandon a sale, lease or exchange under subsection 184 (8),

in which case the dissenting shareholder’s rights are reinstated as of the date the dissenting shareholder sent the notice referred to in subsection (10), and the dissenting shareholder is entitled, upon presentation and surrender to the corporation or its transfer agent of any certificate representing the shares that has been endorsed in accordance with subsection (13), to be issued a new certificate representing the same number of shares as the certificate so presented, without payment of any fee. R.S.O. 1990, c. B.16, s. 185 (14).

Offer to pay

(15) A corporation shall, not later than seven days after the later of the day on which the action approved by the resolution is effective or the day the corporation received the notice referred to in subsection (10), send to each dissenting shareholder who has sent such notice,

(a) a written offer to pay for the dissenting shareholder’s shares in an amount considered by the directors of the corporation to be the fair value thereof, accompanied by a statement showing how the fair value was determined; or

(b) if subsection (30) applies, a notification that it is unable lawfully to pay dissenting shareholders for their shares. R.S.O. 1990, c. B.16, s. 185 (15).

Idem

(16) Every offer made under subsection (15) for shares of the same class or series shall be on the same terms. R.S.O. 1990, c. B.16, s. 185 (16).

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Idem

(17) Subject to subsection (30), a corporation shall pay for the shares of a dissenting shareholder within ten days after an offer made under subsection (15) has been accepted, but any such offer lapses if the corporation does not receive an acceptance thereof within thirty days after the offer has been made. R.S.O. 1990, c. B.16, s. 185 (17).

Application to court to fix fair value

(18) Where a corporation fails to make an offer under subsection (15) or if a dissenting shareholder fails to accept an offer, the corporation may, within fifty days after the action approved by the resolution is effective or within such further period as the court may allow, apply to the court to fix a fair value for the shares of any dissenting shareholder. R.S.O. 1990, c. B.16, s. 185 (18).

Idem

(19) If a corporation fails to apply to the court under subsection (18), a dissenting shareholder may apply to the court for the same purpose within a further period of twenty days or within such further period as the court may allow. R.S.O. 1990, c. B.16, s. 185 (19).

Idem

(20) A dissenting shareholder is not required to give security for costs in an application made under subsection (18) or (19). R.S.O. 1990, c. B.16, s. 185 (20).

Costs

(21) If a corporation fails to comply with subsection (15), then the costs of a shareholder application under subsection (19) are to be borne by the corporation unless the court otherwise orders. R.S.O. 1990, c. B.16, s. 185 (21).

Notice to shareholders

(22) Before making application to the court under subsection (18) or not later than seven days after receiving notice of an application to the court under subsection (19), as the case may be, a corporation shall give notice to each dissenting shareholder who, at the date upon which the notice is given,

(a) has sent to the corporation the notice referred to in subsection (10); and

(b) has not accepted an offer made by the corporation under subsection (15), if such an offer was made,

of the date, place and consequences of the application and of the dissenting shareholder’s right to appear and be heard in person or by counsel, and a similar notice shall be given to each dissenting shareholder who, after the date of such first mentioned notice and before termination of the proceedings commenced by the application, satisfies the conditions set out in clauses (a) and (b) within three days after the dissenting shareholder satisfies such conditions. R.S.O. 1990, c. B.16, s. 185 (22).

Parties joined

(23) All dissenting shareholders who satisfy the conditions set out in clauses (22)(a) and (b) shall be deemed to be joined as parties to an application under subsection (18) or (19) on the later of the date upon which the application is brought and the date upon which they satisfy the conditions, and shall be bound by the decision rendered by the court in the proceedings commenced by the application. R.S.O. 1990, c. B.16, s. 185 (23).

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Idem

(24) Upon an application to the court under subsection (18) or (19), the court may determine whether any other person is a dissenting shareholder who should be joined as a party, and the court shall fix a fair value for the shares of all dissenting shareholders. R.S.O. 1990, c. B.16, s. 185 (24).

Appraisers

(25) The court may in its discretion appoint one or more appraisers to assist the court to fix a fair value for the shares of the dissenting shareholders. R.S.O. 1990, c. B.16, s. 185 (25).

Final order

(26) The final order of the court in the proceedings commenced by an application under subsection (18) or (19) shall be rendered against the corporation and in favour of each dissenting shareholder who, whether before or after the date of the order, complies with the conditions set out in clauses (22) (a) and (b). R.S.O. 1990, c. B.16, s. 185 (26).

Interest

(27) The court may in its discretion allow a reasonable rate of interest on the amount payable to each dissenting shareholder from the date the action approved by the resolution is effective until the date of payment. R.S.O. 1990, c. B.16, s. 185 (27).

Where corporation unable to pay

(28) Where subsection (30) applies, the corporation shall, within ten days after the pronouncement of an order under subsection (26), notify each dissenting shareholder that it is unable lawfully to pay dissenting shareholders for their shares. R.S.O. 1990, c. B.16, s. 185 (28).

Idem

(29) Where subsection (30) applies, a dissenting shareholder, by written notice sent to the corporation within thirty days after receiving a notice under subsection (28), may,

(a) withdraw a notice of dissent, in which case the corporation is deemed to consent to the withdrawal and the shareholder’s full rights are reinstated; or

(b) retain a status as a claimant against the corporation, to be paid as soon as the corporation is lawfully able to do so or, in a liquidation, to be ranked subordinate to the rights of creditors of the corporation but in priority to its shareholders. R.S.O. 1990, c. B.16, s. 185 (29).

Idem

(30) A corporation shall not make a payment to a dissenting shareholder under this section if there are reasonable grounds for believing that,

(a) the corporation is or, after the payment, would be unable to pay its liabilities as they become due; or

(b) the realizable value of the corporation’s assets would thereby be less than the aggregate of its liabilities. R.S.O. 1990, c. B.16, s. 185 (30).

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Court order

(31) Upon application by a corporation that proposes to take any of the actions referred to in subsection (1) or (2), the court may, if satisfied that the proposed action is not in all the circumstances one that should give rise to the rights arising under subsection (4), by order declare that those rights will not arise upon the taking of the proposed action, and the order may be subject to compliance upon such terms and conditions as the court thinks fit and, if the corporation is an offering corporation, notice of any such application and a copy of any order made by the court upon such application shall be served upon the Commission. 1994, c. 27, s. 71 (24).

Commission may appear

(32) The Commission may appoint counsel to assist the court upon the hearing of an application under subsection (31), if the corporation is an offering corporation. 1994, c. 27, s. 71 (24).

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SCHEDULE “G”

Corporate Governance Procedures

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

The Board of Directors (the "Board") of Kingsway Financial Services Inc. (the "Corporation") has developed and adopted this Statement of Corporate Governance Practices after consideration of the corporate governance guidelines set forth in National Policy 58-201. The Corporation's corporate governance practices are comprised of a number of policies and resolutions adopted by the Board from time to time. These policies include the mandate for the Board of Directors set out in this Statement of Corporate Governance Practices, the charter for each of the Board Committees, the Code of Ethics and the Whistleblower Policy adopted by the Board.

Canadian securities regulatory authorities have adopted National Instrument 58-101 – Disclosure of Corporate Governance Practices (“NI 58-101”) which requires disclosure of the approach of the Corporation to corporate governance. National Policy 58-201 – Corporate Governance Guidelines (“NP 58-201”), the United States Sarbanes-Oxley Act of 2002 as well as listing standards and corporate governance requirements of the New York Stock Exchange have been considered in determining these policies.

Many of the items for which disclosure is required by Form 58-101F1 are dealt with in the mandate of the Board of Directors of the Corporation.

MANDATE OF THE BOARD OF DIRECTORS

1. General

The Board of Directors (the "Board") either directly or through board committees is responsible for the management or supervision of the management of the business and affairs of the Corporation with the objective of enhancing shareholder value. The Board believes that sound corporate governance is essential to the well-being of the Corporation, and the promotion and protection of its interests.

The Board has adopted this mandate, which reflects the Corporation's commitment to high standards of corporate governance, to assist the Board in supervising the management of the business and affairs of the Corporation as required under applicable law and the rules and regulations of the stock exchanges upon which the Corporation's stock is listed. The Board regularly monitors the financial performance of the Corporation, including receiving and reviewing detailed financial information contained in management reports. The Board promotes fair reporting, including financial reporting, to shareholders of the Corporation and other interested persons as well as ethical and legal corporate conduct through an appropriate system of corporate governance, internal controls and disclosure controls. The Board believes that the Corporation is best served by a Board of Directors which functions independently of management and is informed and engaged.

The Board has explicitly delegated to the Audit Committee the obligation to periodically review and provide recommendations, from time to time, on such changes to corporate governance policies as it deems appropriate in light of the Corporation's needs and legal and regulatory developments. These recommendations are reviewed and considered by the Board.

2. Board Composition

(a) Board Membership Criteria

The Corporate Governance and Nominating Committee of the Board is responsible for establishing the skills and competencies that the Board considers to be necessary for the Board as a whole to possess. The Corporate Governance and Nominating Committee is also responsible for reviewing the competencies and skills that the Board considers each existing director to possess, and the competencies and skills of each

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new candidate for the Board. It annually recommends nominees to the Board for nomination at the annual meeting of the Corporation's shareholders. The Board seeks members who have an owner mindset. Directors are considered based upon contributions they can make and must have sufficient time to carry out their duties, and not assume other obligations which would materially interfere or be incompatible with board membership.

(b) Director Independence

A majority of the directors shall satisfy the independence requirements of the Toronto Stock Exchange and other regulatory authorities. The Board will determine whether a director is an independent director within the meaning of each of Multilateral Instrument 52-110 and the listing standards of the New York Stock Exchange as the same are amended or replaced from time to time.

The Board will review the independence of all directors on an annual basis and its determinations will be disclosed in the management information circular relating to the annual meeting of the Corporation. To facilitate this review, directors will be asked to provide full information regarding their business and other relationships with the Corporation, its affiliates and with senior management and their affiliates. Directors have an obligation to inform the Board of any material changes in their circumstances or relationships which may affect the Board's determination as to their independence.

(c) Board Size

The Board considers a range from five (5) to seven (7) members as the optimum size for effective decision making and committee work given the size and scope of the Corporation's operations.

(d) Term

All directors are elected at the annual meeting of shareholder's of the Corporation for a term of one (1) year. The Board does not favour term limits for directors as a forced retirement may deprive the Corporation, and its shareholders, of the contributions of members that have been able to develop valuable insights into the Corporation, its strategy and business operations. Management directors shall offer to resign from the Board upon their resignation, removal or retirement as an officer of the Corporation. The Corporation's Chief Executive Officer may, provided the Board on an annual basis approves, continue to serve as a director after his or her resignation or retirement.

(e) Service on other Boards

The Board believes that the Corporation can benefit from the experience and insight its members may gain from serving as a director, or in other similar positions for other public companies, government agencies or other entities. In agreeing to assume such roles however, members of the Board must ensure that their commitments do not create inherent conflicts of interest or interfere with their ability to fulfill their duties as members of the Board. The directors must also be mindful of the number of other public company boards and committees on which they serve to ensure that they are able to devote the necessary time to the performance of their duties for the Corporation. Upon accepting an appointment to the Board or a similar position with another public company, a director must advise the Chair of the Corporate Governance and Nominating Committee.

(f) Directors Duties and Responsibilities

Directors must act honestly and in good faith with a view to the best interests of the Corporation and its shareholders. Directors must exercise the degree of care and diligence that a reasonably prudent person would exercise in comparable circumstances. To fulfill this responsibility, each director is expected to:

• develop and maintain an understanding of the operations of the Corporation, its financial position, objectives and performance, as well as the Corporation's performance relative to its principal competitors;

• prepare for each meeting including reviewing meeting materials distributed in advance;

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• actively and constructively participate in meetings of the Board and committees of which he or she is a member; and

• engage in continuing education programs for directors as appropriate.

(g) Directors’ Shareholdings

The Board believes that its members should own a meaningful amount of shares relative to their personal financial situation.

3. Board Duties and Responsibilities

In fulfilling its mandate, the Board is, among other things, responsible for the following matters:

(a) Management Oversight

The Board is responsible for the supervision of the management of the business and affairs of the Corporation. The Board, as permitted by applicable law, delegates to senior management the responsibility for the day-to-day operations of the Corporation.

(b) Strategic Plan

The approval and assessment of the Strategic Plan and major prospective decisions proposed by management. In furtherance of this obligation the Board will:

• adopt a Strategic Planning Process and review and approve on an ongoing basis a Business Plan developed by management, which includes realistic goals and takes into account the opportunities and risks of the Corporation's business;

• approve business and operational policies within which management will operate in relation to acquisitions and dispositions, capital expenditure, public disclosure, finance and investment, risk management, human resources, internal controls over financial reporting, disclosure controls and management information systems;

• review and adopt corporate and management performance targets consistent with the Corporation's strategic plans;

• consider whether or not management has a system in place to identify the principle risks facing the Corporation and its business and that appropriate procedures are in place to monitor and mitigate such risks where appropriate; and

• consider whether or not management has adopted processes to comply with applicable legal, regulatory, corporate securities and other compliance matters.

(c) Financial Reporting and Management

• review the report of the Audit Committee, which has primary carriage of such matters; • approve the Corporation's annual and interim financial statements and related

management's discussion and analysis; • review and oversee the integrity of the Corporation with respect to its applicable audit,

accounting and financial reporting matters; • review the integrity of the Corporation's internal controls over financial reporting and

management information systems; • approve annual operating and capital budgets; and • review operating and financial performance results relative to established strategies,

plans, budgets and objectives.

(d) Disclosure

The Board will satisfy itself that appropriate policies and procedures are established regarding public disclosure communications and insider trading. The Board will ensure that such policy establishes consistent guidelines for determining what information is material, how it is to be disclosed and to avoid

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selective disclosure, making all material disclosures on a widely disseminated basis. The Board will also establish policies aimed at:

• monitoring internal controls relating to news releases and other public disclosures made by or on behalf of the Corporation to ensure that they are in accordance with applicable disclosure policies, and comply with legal and regulatory requirements;

• informing all directors, officers and other employees of the Corporation about their obligation to preserve the confidentiality of undisclosed material information about the Corporation; and

• informing all directors, officers and other employees about prohibitions about illegal insider trading and tipping under applicable law and stock exchange rules.

(e) Corporate Governance

The Board will, with the advice of the Audit Committee or where applicable, its other committees:

• review and update corporate governance standards from time to time; • establish committees and approve their respective charters; • establish policies and procedure for limiting the authority delegated to each committee

and to members of management; • establish appropriate processes for the regular evaluation of the effectiveness of the

Board and its committees, individual directors and the Chief Executive Officer; • develop clear position descriptions for the Chair of the Board and Chief Executive

Officer; • approve the nomination of directors on the advice of the Corporate Governance and

Nominating Committee; • review the adequacy and form of directors compensation to confirm that it realistically

reflects the responsibilities and risk involved in being a director; and • provide an opportunity for the independent directors to meet separately at each

regularly scheduled Board meeting and at such other times as is appropriate.

(f) Other Matters

Notwithstanding the delegation to management of the authority to manage the business of the Corporation, the Board must approve the following:

• any material departure from an established strategy or budget or corporate policy approved by the Board;

• the entering into of any agreement or transaction the performance of which is material to the Corporation;

• any offering of securities by the Corporation; and • such other matters as the Board may from time to time determine require its approval.

ROLE OF MANAGEMENT

Senior management of the Corporation is responsible for the day-to-day operations of the Corporation. Senior management is responsible for developing strategies to be approved by the Board, and is directly responsible for implementing such approved strategies. Management is also responsible for safeguarding and developing the Corporation's assets with a view to enhancing shareholder value.

The Corporation's governance policies are designed to create autonomy and effective decision-making of management, and to ensure appropriate oversight by the Board and its committees. Senior management, through the Chief Executive Officer, reports to and is accountable to the Board. The Board's approval of the business plan provides a mandate for management to conduct the affairs of the Corporation. Material deviations from the plan must be reported to and considered by the Board.

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Management is responsible for developing a strategic plan and an annual business plan, including an annual operating and capital budget, for review and approval by the Board. The Board, in consultation with the Compensation Committee, is responsible for implementing a succession plan for the Chief Executive Officer and establishing objectives against which the Chief Executive Officer's performance is benchmarked. A portion of compensation is determined against defined corporate objectives and personal objectives which are established from time to time. Similar reviews and assessments are undertaken for other members of senior management in consultation with the Chief Executive Officer. When management performance is inadequate, the Board has the responsibility to bring about appropriate change. When management performance is effective, the Board has the responsibility to reward management accordingly.

BOARD COMMITTEES

1. General

The Board carries out its responsibilities directly and through the Audit Committee, the Corporate Governance and Nominating Committee, the Compensation Committee, the Investment and Capital Committee, and such other committees as it may establish from time to time.

2. Composition

All Board committees other than the Investment and Capital Committee will be composed solely of Independent Directors who are selected by the Board on the recommendation of the Corporate Governance and Nominating Committee. A majority of the members of the Investment and Capital Committee shall be Independent Directors. Members of the Audit Committee must be Independent Directors and meet the additional independence requirements prescribed by applicable securities laws. Each member of the Audit Committee will also be financially literate within the meaning of National Instrument 52-110.

3. Committee Chairs

Board committees will each be chaired by an Independent Director who is selected by the Board on the recommendation of the Corporate Governance and Nominating Committee. The chair of each Board committee will:

• in consultation with the Chief Executive Officer, and the committee members, as appropriate, determine the date, time and location of meetings of the committee;

• confirm that the committee's activities are consistent with, and fulfill, the duties and responsibilities set forth in its charter;

• confirm that the duties and responsibilities of the committee, as set forth in its charter, are well understood by the committee members and executed as effectively as possible;

• convene meetings of the committee as often as necessary to carry out its responsibilities effectively;

• in consultation with the Chief Executive Officer, and other committee members, as appropriate, review meeting agendas to ensure that required business is brought before the committee to enable the committee to carry out its responsibilities;

• chair all meetings of the committee; • communicate with appropriate members of senior management in fulfilling the duties

and responsibilities set forth in the committee's mandate; • with the assistance of senior management, ensure that agenda items for all committee

meetings are ready for presentation and that adequate information is distributed to committee members in advance of such meetings in order that committee members may properly inform themselves on matters to be acted upon;

• ensure that minutes are kept of all committee meetings and sign minutes once approved by the committee;

• report to the Board at its next meeting following any decision or recommendation arising from any meeting of the committee or the signing of a written resolution

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evidencing a decision or recommendation of the committee, including reporting on the considerations that led to such decision or recommendation; and

• provide leadership to enable the committee to act as an effective team in carrying out its responsibilities;

4. Committee Charter

Each committee has a charter which sets forth its duties and responsibilities, qualifications for membership, procedures for committee member appointment and removal and reporting to the Board. On an annual basis, each committee's charter is reviewed by both the committee itself and the Audit Committee, acting in its role of overseeing corporate governance activities.

5. Board and Committee Meetings

(a) Scheduling

Board meetings are scheduled in advance at appropriate intervals throughout the year. Board meetings shall be held not less that quarterly, and more often as is necessary. In addition to regularly scheduled Board meetings, additional Board meetings may be called upon proper notice at any time to address specific needs of the Corporation. The Board may also take action from time to time by unanimous written consent. A Board meeting may be called by the Chief Executive Officer or any director.

Each committee meets as often as it determines is necessary to fulfill its responsibilities. The Audit Committee meets not less than quarterly. A meeting of any committee may be called by the committee chair, the Chief Executive Officer or any committee member.

(b) Agenda

The Chair and the Chief Executive Officer establish the agenda for each Board meeting in consultation with the other directors. Any director may propose the inclusion of items on the agenda, request the presence of or a report by any member of senior management, or at any Board meeting raise subjects that are not on the agenda for that meeting.

Committee chairs establish the agenda for each committee meeting. Any committee member may propose the inclusion of items on the agenda, request the presence of or a report by any member of senior management, or at any committee meeting raise subjects that are not on the agenda for the meeting.

Management distributes an agenda and meeting materials in advance of each Board or committee meeting to allow Board or committee members, as the case may be, sufficient time to review and consider the matters to be discussed.

(c) Meetings of Independent Directors

To provide open discussion among the Independent Directors, Independent Directors meet separately at each regularly scheduled Board meeting without management present and at such other times as is deemed appropriate. Any Independent Director may request such a meeting.

(d) Distribution of Information

Information that is important to the Board's understanding of the business and its agenda is distributed to directors in advance of Board meetings. Sensitive subject matters may be discussed at a meeting without written materials being distributed in advance of or at the meeting.

(e) Preparation, Attendance and Participation

Each director is expected to be diligent in attending meetings of the Board, any committee of which he or she is a member and the annual meeting of the Shareholders. Meetings of the Board and its committees

G-8

9. Performance Assessment of the Board and its Committees

The Corporate Governance and Nominating Committee will continually review the effectiveness of the Board and its committees in fulfilling their duties and responsibilities. In addition, the Corporate Governance and Nominating Committee will evaluate individual directors to assess their suitability for nomination for re-election.

10. Code of Business Conduct and Ethics

The Board has adopted a Code of Business Conduct and Ethics (the "Code"). The purpose of the Code is to ensure that the Corporation maintains a high level of trust and integrity and meets high ethical standards. Copies of this Code is available on the Corporation’s website at www.kingsway-financial.com.

The Board monitors compliance with its Code and satisfies itself regarding compliance with its Code by requiring that executives and directors annually certify compliance with the Code.

To ensure that directors exercise independent judgement in considering transactions and agreements in respect of which a director or executive officer has a material interest, we require disclosure of all related party transactions and agreements and ask that directors recuse themselves when a conflict arises.

11. Feedback

The Board welcomes input and comments from shareholders of the Corporation. Input or comments for the Board or its committees should be directed to the Chair.

Any questions and requests for assistance may be directed to the

Proxy Solicitation Agent:

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130 King Street West, Suite 2950, P.O. Box 361

Toronto, Ontario

M5X 1E2

North American Toll Free Phone:

1-866-851-4179

Email: [email protected]

Facsimile: 416-867-2271

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Outside North America, Banks and Brokers Call Collect: 416-867-2272

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