Kingsway Financial Services (KFS) returned to the black in the first quarter, despite a net operating loss and its combined ratio ballooning by 30.4 percentage points from a year earlier to 136.2 percent.
The Canadian-headquartered auto insurer booked net income of $24mn against a loss of $58mn for the first three months of 2009.
But the troubled firm faces an ongoing threat as a result of its controversial method for disposing of defunct subsidiary Lincoln General Insurance Company.
In October last year, KFS announced that all of the stock of Walshire Assurance Company (Lincoln's sole shareholder) had been donated to 20 different charities in the form of 5 percent stakes, which were given together with $20,000 cash donations.
The Pennsylvania Insurance Department filed a complaint in the Commonwealth Court of Pennsylvania against KFS, but lost its challenge to this disposal method for the loss-making unit on a technicality.
In its quarterly update, KFS said the Pennsylvania regulator filed an appeal on 30 April to the state's Supreme Court, which it intends to oppose.
However, the firm warned that if the court's ultimate decision is to overturn the first instance ruling, "the control of Lincoln may revert back to KFS, which would result in Lincoln's financial results being included in KFS' consolidated financial statements".
KFS is also facing fire from Rockwall Financial Advisors over the disposal of Lincoln.
Rockwall was to serve as the run-off manager for Lincoln in exchange for a minimum of $2.5mn by March 2014, but terminated the deal in March, claiming that KFS had breached their agreement.
Rockwall served KFS with a demand for arbitration, seeking damages "in excess of $26mn".
KFS intends to defend the arbitration vigorously and has accused Rockwall of "abandoning the Lincoln run-off without cause".
The charities targeted included the Children's Tumor Foundation, the National Down Syndrome Society, the Society for the Advance of Travel for the Handicapped and the Children's Aid Society.