GAINSCO Unveils Q3 Report

Texas-based GAINSCO INC. has reported net income for the third quarter 2004 of approximately $1.6 million.

After the accretion of the discount on the Redeemable Preferred Stock of approximately $0.9 million and the accrual of dividends on the Redeemable Preferred Stock of approximately $0.3 million, net income available to common shareholders for the third quarter 2004 was approximately $0.4 million, or $0.02 per common share, basic and diluted.

For the nine months ended Sept. 30, 2004, net income was approximately $3.7 million. After the accretion of the discount on the Redeemable Preferred Stock of approximately $2.5 million and the accrual of dividends on the Redeemable Preferred Stock of approximately $0.8 million, net income available to common shareholders for the nine months ended Sept. 30, 2004 was approximately $0.3 million, or $0.02 per common share, basic and diluted.

“This quarter we announced a proposed recapitalization transaction that simultaneously addresses the company’s capital issues and enables the company to move forward in pursuit of a long-term, multi-state growth plan in nonstandard personal automobile. The recapitalization is subject to the approval of our shareholders. The proxy materials for a special meeting of shareholders to consider and vote on the recapitalization will be mailed to shareholders after review thereof by the Securities and Exchange Commission has been completed,” said Glenn Anderson, GAINSCO’s president and CEO.

“Our insurance operations continued to be profitable for the quarter due to the company’s nonstandard personal automobile insurance business. Additionally, we continued to exit the commercial lines business through the ongoing process of settling and reducing our remaining inventory of commercial claims,” stated Anderson.

As of Sept. 30, 2004, approximately $1.6 million had been recognized for financial advisory and legal expenses and fees to those directors serving on the Special Committee in respect of the Special Committee’s consideration of alternatives for dealing with its obligations to the holders of its Preferred Stock, of which approximately $0.4 million was expensed in the quarter ended March 31, 2004 because the proposals to which the amount related had been withdrawn, and approximately $1.2 million was recorded as deferred expenses in Other assets at Sept. 30, 2004.

Net premiums written for the third quarter of 2004 were $11.8 million, compared to $8.8 million for the same period in 2003. Net premiums written for the nine months ended Sept. 30, 2004 were $31.5 million, compared to $25.0 million for the nine months ended 2003. Net premiums earned for the third quarter of 2004 were $10.1 million, compared to $8.0 million for the same period in 2003. Net premiums earned for the nine months ended Sept. 30, 2004 were $27.9 million, compared to $24.5 million for the nine months ended 2003. The increases in Net premiums written and earned for all periods relate to the nonstandard personal auto business in Florida and the startup nonstandard personal auto operations in Texas and Arizona.

The company’s net unpaid claims and claim adjustment expenses (Unpaid claims and claim adjustment expenses less Ceded unpaid claims and claim adjustment expenses) at Sept. 30, 2004 were $62.4 million, compared to approximately $64.8 million at June 30, 2004. These balances do not include the beneficial effect of ceded reserves to a reinsurer under a reserve reinsurance cover agreement in the amount of approximately $8.4 million at Sept. 30, 2004, and approximately $9.2 million at June 30, 2004 (the balances of which are included in Reinsurance balances receivable).

The principal components of the net reduction in the reserve balances from June 30, 2004 to Sept. 30, 2004 are the settlement of claims in the normal course of business and favorable development in 2004 for nonstandard personal auto and commercial estimated ultimate liabilities. As of Sept. 30, 2004, 327 commercial claims remained, compared to 356 at June 30, 2004 and 600 at Sept. 30, 2003.

The GAAP combined ratio for the third quarter of 2004 was 92.6%, compared to a combined ratio of 97.9% for the 2003 third quarter, in each case including both the commercial lines business from which the company is exiting and the continuing personal lines business. The GAAP claims and claim adjustment expenses ratio for the 2004 third quarter was 66.3%, compared with 63.0% for the third quarter of 2003. The GAAP expense ratio for the third quarter 2004 was 26.3%, compared to 34.9% for the 2003 third quarter.

For the nine months ended Sept. 30, 2004, the GAAP combined ratio was 95.6%, compared to 106.8% for the same period in 2003. The GAAP claims and claim adjustment expenses ratio for the nine months ended Sept. 30, 2004 was 67.9%, versus 70.9% for the same nine months ended 2003. The GAAP expense ratio for the nine months ended Sept. 30, 2004 was 27.7% versus 35.9% for the same period in 2003. The GAAP combined ratios and GAAP expense ratios presented above do not include expenses of the holding company.

For the third quarter 2003, net income was approximately $1.0 million. After the accretion of the discount on the Redeemable Preferred Stock of approximately $0.8 million and the accrual of dividends on the Redeemable Preferred Stock of approximately $0.2 million, net income available to common shareholders and net income per common share, basic and diluted, for the third quarter 2003 were approximately break-even.

For the nine months ended Sept. 30, 2003, net income was approximately $1.9 million. After including the effect of the accretion of the discount on the Redeemable Preferred Stock of approximately $2.2 million and the accrual of dividends on the Redeemable Preferred Stock of approximately $0.6 million, net loss available to common shareholders for the nine months ended Sept. 30, 2003 was approximately $0.9 million, or $0.04 per common share, basic and diluted. For all periods presented, the effects of common stock equivalents and convertible preferred stock are antidilutive. Therefore, basic and diluted per share results are reported as the same number.