GAINSCO announces restructuring actions and 2nd quarter loss communicates improved underwriting performance outlook for 2002
FORT WORTH, Texas, August 9, 2001 -- GAINSCO, INC. (NYSE: GNA) today reported a net loss for the second quarter 2001 of $7.9 million (net loss applicable to common shareholders of $8.6 million), or $0.41 per common share, basic and diluted. This compares to a second quarter 2000 net loss of $1.1 million (net loss applicable to common shareholders of $1.3 million), or $0.06 per common share, basic and diluted.
The Company recorded significant one-time pre-tax charges in the 2001 second quarter of approximately $9 million related to restructuring actions discussed below. A very significant portion of these charges relates to write downs of existing assets at the holding company level, while the total of the charges is non-cash related.
The combined statutory surplus of GAINSCO’s insurance companies at the end of the second quarter 2001 is approximately $74.7 million and compares to combined statutory surplus at the end of the first quarter 2001 of approximately $73.4 million. The annualized net premium to surplus ratio is approximately 1 to 1 as of the second quarter.
For the six months ended June 30, 2001, the Company reported a net loss of $9.1 million (net loss applicable to common shareholders of $9.9 million), or $0.47 per common share, basic and diluted. This compares to first six months 2000 net loss of $1.2 million (net loss applicable to common shareholders of $1.6 million), or $0.08 per share, basic and diluted. For the second quarter and six months 2001 and 2000, the effects of common stock equivalents and convertible preferred stock are antidilutive due to the net losses. As a result, basic loss per share and diluted loss per share are reported as the same number.
“GAINSCO today announced significant restructuring actions that are designed to advance its return to profitability,” said Glenn W. Anderson, president and chief executive officer of GAINSCO.
“Since encountering significant operating and financial difficulties in 2000, GAINSCO has been focused on repositioning the Company to profitable footing. The cumulative actions we have taken in this regard have been substantial, including those taken in the second quarter. We are at the halfway point in our 2001 transition year and we believe we are now on track to demonstrate improved underwriting performance in 2002, supported by strong capital adequacy levels.”
The restructuring actions are focused on three areas: a) a narrowed operational scope to concentrate on those core businesses with the greatest expected profit potential; b) adjustments in the Company’s investment strategy and portfolio; and c) continuing actions to further improve our capital adequacy position.
Operational Scope Narrowed to Target Core Business Profit Niches
GAINSCO plans to concentrate its underwriting activities on businesses that have the greatest potential for future profit.
As a result, GAINSCO is selling the agency operations of Tri-State, Ltd. (“Tri-State”), a producer of nonstandard private passenger automobile insurance in Minnesota, North Dakota and South Dakota. The transaction is a consequence of the decision by the Company to no longer pursue a long-term geographic expansion strategy in personal automobile, beyond that of its core operation in Florida. Under terms of the transaction, GAINSCO has agreed to sell Tri-State, a subsidiary acquired in 2000, to its current president, and previous owner, for approximately $0.9 million. In conjunction with the decision to exit nonstandard private passenger automobile insurance in the upper Midwest, GAINSCO wrote off in the second quarter approximately $5.1 million in remaining goodwill from its original investment in the agency operations of Tri-State of approximately $6.0 million. GAINSCO will retain Midwest Casualty Insurance Company, the insurance subsidiary acquired in the 2000 Tri-State transaction.
As a result of the geographic refocus, the Company also wrote off approximately $1 million in personal automobile systems costs.
Additionally, GAINSCO is exiting several lines of business, including personal umbrella, personal property, directors and officers, lawyers insurance, educators insurance and its Pro-Reach professional liability product. These lines accounted for approximately $14 million in annual gross premiums written for GAINSCO in 2000. The Company previously announced in 2000 that it was exiting $25 million in annual gross premiums of commercial trucking business.
As a result of the planned restructuring and resizing activities, and upon close of the Tri-State transaction, total employee count at GAINSCO will have been reduced approximately 24% from yearend 2000 levels. Costs will continue to be aligned in the future appropriate to our operating environment.
The Company believes that the current outlook for its ongoing commercial and Florida nonstandard private passenger automobile businesses is positive. Double-digit rate increases are being achieved in both businesses. Additionally, new legislation enacted in Florida during the second quarter of 2001 and dealing with personal injury protection (PIP) issues in the state is expected to positively impact results in future periods.
Investment Strategy Adjustments
The Company has made several changes in its current investment strategy to increase its weighting in fixed income investments. GAINSCO has sold, at a gain, all equity investments in the insurance subsidiaries and invested the proceeds primarily in higher quality corporate bonds. The Company additionally wrote down due to impairment in the second quarter certain holding company investments to the level of the “put” value of those investments as defined in a March 2001 agreement with Goff Moore Strategic Partners, L.P. The pre-tax write down is approximately $2 million. GAINSCO expects no additional loss on these holding company investments.
In addition, a cumulative effect of change in accounting principle of approximately $0.5 million (after-tax) was recorded in the second quarter 2001. This amount represents the write down of an investment that was considered temporarily impaired and was written down in the first quarter of 2001 through accumulated other comprehensive income. Effective April 1, 2001, the definition of impairment was changed which resulted in this asset being reclassified as other than temporarily impaired which requires recognition through the statement of operations.
The Company’s restructuring actions are expected to further increase its capital adequacy levels by reducing the overall risk profile and demands against the Company’s capital. The Company’s annualized net premium to surplus level is approximately 1 to 1, as of the second quarter 2001.
Year-to-date and second quarter recap
For the first six months of 2001, gross premiums written were $67.2 million compared to gross premiums written of $88.3 million in the first half of 2000. For the first six months of 2001, net premiums written were $37.5 million and net premiums earned were $33.8 million compared to net premiums written of $79.0 million and net premiums earned of $75.6 million in the first half of 2000. The decreases in net premiums written and earned between periods result largely from the Company’s previously communicated exit from the commercial trucking business and previously communicated reinsurance programs on our commercial and personal lines businesses.
The statutory combined ratio for the first six months of 2001 was 133.3%, and compares to a combined ratio of 106.8% for the 2000 first half. The statutory claim ratio for the 2001 first half was 95.0% compared with 77.8% for the first six months of 2000. This result for the first six months of 2001 includes a pre-tax increase in estimated ultimate liabilities related to accident years 2000 and prior totaling approximately $3.7 million. The 2001 first half expense ratio was 38.3% compared with 29.0% for the 2000 first half. This increase is mainly attributable to the decrease in premiums written, as discussed above.
For the 2001 second quarter, gross premiums written were $29.1 million and net premiums written were $18.7 million. For the second quarter of 2000, gross premiums written were $44.6 million and net premiums written were $37.6 million. Net premiums earned for the second quarter of 2001 were $17.2 million compared to net premiums earned for the second quarter of 2000 of $38.9 million.
The statutory combined ratio for the second quarter of 2001 was 138.0%, and compares to a combined ratio of 110.0% for the 2000 second quarter. The statutory claim ratio for the 2001 second quarter was 97.6% compared with 80.8% for the second quarter of 2000. The 2001 second quarter expense ratio was 40.4% compared with 29.2% for the 2000 second quarter. The conversion price for the Series B convertible redeemable preferred stock issued on March 23, 2001, and the exercise price of its related warrant are $2.25 per common share. The exercise price for the Series A Warrant is $2.25 per common share, and the exercise price for the Series B Warrant is $2.5875 per common share. The capital transaction agreements entered into in March 2001 provided for final preferred conversion price and warrant exercise price determinations using June 30, 2001 results.
GAINSCO, INC. is a nonstandard property and casualty insurance holding company. GAINSCO’s nonstandard commercial lines products are distributed primarily through wholesale general agents throughout the United States. The Company’s nonstandard personal lines products are primarily distributed through retail agents in the Southeast.
Statements made in this release that are qualified with words such as “outlook”, “expects”, “expected”, “will continue”, “demonstrate improved”, etc., are forward-looking statements. Investors are cautioned that important factors, representing certain risks and uncertainties, could cause actual results to differ materially from those contained in the forward-looking statements. These factors include, but are not limited to (a) the Company’s ability to effect the successful exit both from unprofitable lines, including trucking, and from lines that the Company believes cannot be counted on to produce future profit, while at the same time maintaining and growing profitable lines, (b) heightened competition from existing competitors and new competitor entrants into GAINSCO’s markets, (c) the extent to which market conditions firm up, the acceptance of higher prices in the market place and the Company’s ability to realize and sustain higher rates, (d) contraction of the markets for the Company’s various lines of business, (e) the Company’s ability to maintain its A.M. Best rating, and meet its obligations under its capital and debt agreements, (f) the ongoing level of claims and claims-related expenses and the adequacy of claim reserves, (g) the ability to implement operating plans which can achieve target performance levels and provide incremental value, (h) the effectiveness of investment strategies implemented by GAINSCO’s investment manager, (i) the ability of the Company to generate taxable income to support the recoverability of the deferred Federal income taxes, (j) continued justification of recoverability of goodwill in the future, (k) the ability to close the proposed sale of Tri-State, and (l) general economic conditions, including fluctuations in interest rates. A forward-looking statement is relevant as of the date the statement is made. The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which the statements are made. Please refer to the Company’s recent SEC filings for further information regarding factors that could affect the Company’s results.
[The GAINSCO, INC. and Subsidiaries Consolidated Statements of Operations for the quarters and six months ended June 30, 2001 and June 30, 2000 follow.]
Release Date: Thursday, August 9, 2001 – FOR IMMEDIATE RELEASE
Scott A. Marek, Asst. Vice President-Investor Relations 817.336.2500, ext. 7363
Richard M. Buxton, Senior Vice President 817.336.2500, ext. 7297
Email address: email@example.com
GAINSCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share data)
|Quarter ended June 30||Six months ended June 30|
|Gross premiums written
|Net premiums written
|Net investment income
|Realized gains (losses)
|Claims & CAE incurred
|Change in deferred acquisition costs||(1,105)||646||(2,658)||8|
|Underwriting and operating expenses
|Loss before Federal income taxes and cumulative effect
of change in accounting principle
|Federal income taxes
|Loss before cumulative effect of change in accounting principle||(7,390)||(1,104)||(8,578)||(1,238)|
|Cumulative effect of change in accounting principle, net of tax||(490)
|Net loss available to common shareholders||$||(8,603)||(1,299)||$||(9,879)||(1,628)|
|Loss per common share, basic and diluted:|
|Loss before cumulative effect of change in accounting principle, per common share||$||(0.39)||(0.06)||$
|Cumulative effect of change in accounting principle, per common share||(0.02)||0.00||(0.02)||0.00|
|Net loss per common share *
|Claim & CAE Ratio||97.6%||80.8%||95.0%||77.8%|
*The effects of common stock equivalents and convertible preferred stock are antidilutive due to the net loss. As a result, basic loss per share and diluted loss per share are reported as the same number.