DALLAS, Nov. 13 /PRNewswire-FirstCall/ — GAINSCO, INC. today reported net loss and net loss available to common shareholders for the third quarter 2007 of $4.3 million, or $0.17 per common share, basic and diluted. This compares to third quarter 2006 net income and net income available to common shareholders of $2.8 million, or $0.13 per common share, basic and diluted.
Net loss and net loss available to common shareholders for the nine months ended September 30, 2007 was $7.6 million, or $0.30 per common share, basic and diluted. This compares to net income of $6.3 million and net income available to common shareholders of $4.4 million for the nine months ended September 30, 2006, or $0.20 per common share, basic and diluted. Net income available to common shareholders for the first nine months of 2006 included an approximately $1.4 million write-off of the unaccreted discount on redeemable preferred stock that was fully redeemed during the first quarter 2006.
For the quarter ended September 30, 2007, the Company increased the amount of the valuation allowance for the tax benefit from its net operating loss carryforwards by $2.3 million to reflect that the 2007 taxable loss to date provides some negative objective evidence regarding utilization of the deferred tax asset, particularly in the short term. Subjectively, management continues to believe that the Company is likely to generate sufficient taxable income to utilize the deferred tax asset over its remaining life, although risks and uncertainties exist which could interfere with that realization. As of September 30, 2007, the net deferred tax asset before valuation allowance was $27.9 million and the valuation allowance was $19.0 million.
Gross premiums written during the third quarter 2007 were approximately 16% below gross premiums written in the comparable 2006 period. Gross premiums written by geographic region for the quarters and nine months ended September 30, 2007 and September 30, 2006, were as follows:
Quarter endedNine months ended(dollars in millions)September 30September 302007200620072006Regions:Southeast (Florida,South Carolina)$26.331.481.189.3South Central (Texas)$11.014.937.442.2Southwest (Arizona,Nevada, New Mexico)$8.57.526.519.6West (California)$0.81.92.96.7Total$46.655.7147.9157.8
GAAP ratios for the quarters and nine months ended September 30, 2007 and September 30, 2006, were as follows:
Quarter endedNine months endedSeptember 30September 302007200620072006Total Company:C & CAE Ratio (1)80.4%69.3%79.9%69.5%Expense Ratio (2)(3)27.1%26.9%25.2%27.4%Combined Ratio(2)107.5%96.2%105.1%96.9%Nonstandard PersonalAutomobile:C & CAE Ratio (1)80.5%70.6%81.5%71.0%(1) C & CAE is an abbreviation for Claims and claims adjustment expenses,stated as a percentage of net premiums earned.(2) The Expense Ratio and Combined Ratio do not reflect expenses of theholding company, which include interest expense on the note payableand subordinated debentures.(3) Commissions, change in deferred acquisition costs, underwritingexpenses and operating expenses (insurance subsidiaries only) areoffset by agency revenues and are stated as a percentage of netpremiums earned.
The Company continues to adjust and settle claims associated with its runoff lines. The Company’s estimates of ultimate liabilities for prior accident years were reduced during the third quarters of 2007 and 2006 by $0.1 million and $0.7 million, respectively. For the first nine months of 2007 and 2006, the estimates of ultimate liabilities for prior accident years for runoff lines were reduced $2.3 million and $2.1 million, respectively.
As regards the Company’s nonstandard personal automobile business, the Company’s estimate of ultimate liabilities for prior accident years was increased during the third quarter 2007 by $3.2 million, including $0.8 million for extra-contractual claims. For the first nine months of 2007, the estimate of ultimate liabilities for prior accident years for nonstandard personal automobile was increased $9.6 million, which includes $2.2 million for extra-contractual claims.
As of September 30, 2007, the Company had $61.9 million in net unpaid claims and claims adjustment expenses (“C&CAE”) (Unpaid C&CAE of $73.0 million less Ceded unpaid C&CAE of $11.1 million), compared to net unpaid C&CAE at June 30, 2007 of $60.0 million (Unpaid C&CAE of $71.1 million less Ceded unpaid C&CAE of $11.1 million). These amounts include net unpaid C&CAE in respect of the Company’s runoff lines of $11.0 million at September 30, 2007, and $11.6 million at June 30, 2007. As of September 30, 2007, the outstanding inventory of runoff claims was 51, compared to 57 at June 30, 2007.
As of September 30, 2007, the Company’s Shareholders’ equity was $77.2 million, Subordinated debentures were $43.0 million and Note payable was $2.0 million. These compare to Shareholders’ equity of $81.2 million, Subordinated debentures of $43.0 million and Note payable of $2.0 million at June 30, 2007.
The Company also announced today that its Board of Directors has authorized the repurchase of up to $5 million worth of the Company’s outstanding common stock. Repurchases may be made from time to time in both the open market and through negotiated transactions.
As previously announced on November 1, 2007, the Company and MGA Insurance Company, Inc. (“MGA”) completed the transaction to sell an affiliated insurance subsidiary, General Agents Insurance Company of America, Inc. (“General Agents”), to Montpelier Re U.S. Holdings Ltd., a subsidiary of Montpelier Re Holdings Ltd., for $4.75 million, plus policyholders’ surplus of $5 million that remained in General Agents at closing. The Company recorded a gain on sale from the transaction in the fourth quarter of 2007 of approximately $4.5 million, and the net proceeds were contributed to policyholders’ surplus of MGA. The Company’s ongoing nonstandard personal automobile business continues to be written through MGA.
Certain prior year amounts have been reclassified to conform to current year presentation. In addition, some numbers may not add to totals shown due to rounding.
The effect of convertible preferred stock (fully redeemed in the first quarter 2006) caused diluted earnings per share to be antidilutive for the nine months ended September 30, 2006. Therefore, basic and diluted per common share amounts are reported as the same number. Additionally, per common share amounts for all periods presented have been adjusted for the rights offering in November 2006.
GAINSCO, INC. is a Dallas, Texas-based holding company. The Company’s nonstandard personal automobile insurance products are distributed through independent retail agents in Florida and South Carolina (Southeast Region), Texas (South Central Region) and Arizona, Nevada and New Mexico (Southwest Region), and through an independent managing general agency in California (West Region). Its insurance company subsidiary is MGA Insurance Company, Inc.
Some of the statements made in this release may be forward-looking statements. Forward-looking statements relate to future events or future financial performance and may involve known or unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements.
These forward-looking statements reflect current views but are based on assumptions and are subject to risks, uncertainties, and other variables which should be considered when making an investment decision, including, (a) operational risks and other challenges associated with rapid growth into new and unfamiliar markets and states, (b) adverse market conditions, including heightened competition, (c) factors considered by A.M. Best in the rating of our insurance subsidiaries, and the acceptability of our current rating, or a future rating, to agents and customers, (d) the Company’s ability to adjust and settle the remaining claims associated with its runoff business on terms consistent with its estimates and reserves, (e) the adoption or amendment of legislation, uncertainties in the outcome of litigation and adverse trends in litigation and regulation, (f) inherent uncertainty arising from the use of estimates and assumptions in decisions about pricing and reserves, (g) the effects on claims levels or business operations resulting from natural disasters and other adverse weather conditions, (h) the availability of reinsurance and the Company’s ability to collect reinsurance recoverables, (i) the availability and cost of capital, which may be required in order to implement the Company’s strategies, and (j) limitations on the Company’s ability to use net operating loss carryforwards. Please refer to the Company’s recent SEC filings, including the Annual Report on Form 10-K for the year ended December 31, 2006, for more information regarding factors that could affect the Company’s results.
Forward-looking statements are relevant only as of the dates made, and the Company undertakes no obligation to update any forward-looking statement to reflect new information, events or circumstances after the date on which the statement is made. All written or oral forward-looking statements that are made by or are attributable to the Company are expressly qualified in their entirety by this cautionary notice. Actual results may differ significantly from the results discussed in these forward-looking statements.
[The GAINSCO, INC. and Subsidiaries unaudited Consolidated Statements of Operations and Other Information for the quarters and nine months ended September 30, 2007 and September 30, 2006 follow.]
Company Contacts: Scott A. Marek, Asst. Vice President-IR 972.629.4493Richard M. Buxton, Senior Vice President 972.629.4408Email address:[email protected]:http://www.gainsco.com/GAINSCO, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)Quarter endedNine months endedSeptember 30,September 30,2007200620072006Net premiums earned$46,904 49,979 $149,337 136,099Net investment income2,2781,8506,9944,928Net realized gains (losses)–32(4)Agency revenues3,0383,1689,7528,949Other (expense) income , net(2)3(12)104Total revenues52,218 55,000166,103 150,076Claims & CAE incurred37,695 34,627119,37494,545Policy acquisition costs6,9817,84522,12222,181Underwriting and operating expenses9,5419,61327,67426,747Interest expense, net1,0366103,0771,633Income (loss) before Federal incometaxes(3,035) 2,305(6,144)4,970Federal income taxes1,247(537)1,424(1,284)Net (loss) income$(4,282) 2,842$(7,568)6,254Net (loss) income available tocommon shareholders$(4,282) 2,842$(7,568)4,416(Loss) income per common share:Basic$(0.17)0.13$(0.30)0.20Diluted*$(0.17)0.13$(0.30)0.20* The effect of convertible preferred stock (fully redeemed in the firstquarter 2006) caused diluted earnings per share to be antidilutive forthe nine months ended September 30, 2006; therefore, diluted income percommon share is reported the same as basic income per common share.GAINSCO, INC. AND SUBSIDIARIESOTHER INFORMATION(In thousands, except per share data)Quarter endedNine months endedSeptember 30,September 30,2007200620072006Gross premiums written$46,62555,738$147,923157,813GAAP RATIOS:C & CAE Ratio (1)80.4%69.3%79.9%69.5%Expense Ratio (2)(3)27.1%26.9%25.2%27.4%Combined Ratio (2)107.5%96.2%105.1%96.9%(1) C & CAE is an abbreviation for Claims and claims adjustment expenses,stated as a percentage of net premiums earned.(2) The Expense Ratio and Combined Ratio do not reflect expenses of theholding company, which include interest expense on the note payableand subordinated debentures.(3) Commissions, change in deferred acquisition costs, underwritingexpenses and operating expenses (insurance subsidiaries only) areoffset by agency revenues and are stated as a percentage of netpremiums earned.
CONTACT: Scott A. Marek, Asst. Vice President-IR, +1-972-629-4493, orRichard M. Buxton, Senior Vice President, +1-972-629-4408, both of GAINSCO,INC., [email protected]
Web site: http://www.gainsco.com/