Goran Capital Reports 1998 Results; Positioned for Growth in 1999
3 March 1999
Goran Capital Reports 1998 Results; Positioned for Growth in 1999 (All Amounts in U.S. Dollars)
INDIANAPOLIS, March 2 -- Goran Capital, Inc.
, a leading specialty insurer, the fourth largest crop and
twelfth largest nonstandard auto insurer, reported the 1998 results today and
discussed the Company's program to improve results and to maintain growth.
In the fourth quarter of 1998, gross written premiums were $103.2 million
compared to $73.2 million for the corresponding period of 1997, and a net loss
of $9.7 million or $1.66 per diluted share, compared with net earnings of
$973,000 or $0.16 per diluted share for the fourth quarter of 1997. For the
year ended December 31, 1998, the Company reported a net loss of $11.6 million
or $1.99 per diluted share compared with 1997 net earnings of $12.4 million or
$2.12 per diluted share.
Contributing to a 22% increase in gross written premiums from $449.0
million in 1997 to $546.8 million in 1998 was the acquisition of CNA's crop
business. While the Company welcomed this growth in its business, it didn't
come in a year when the profitability in the crop niche of our business was at
its best. Weather related losses in 1998 hit historic proportions and
affected most property and casualty companies. The insurance industry total
losses for the entire 1998 year exceeded the total losses for the entire 1980
decade.
The 1998 results included a loss related to discontinued commercial lines
insurance operations amounting to $2.9 million or $0.50 per diluted share.
This discontinued operation produced a $3.5 million loss in 1997 or $0.58 per
share. Those operations were sold on January 1, 1999.
During 1998, the Company suffered weather related catastrophic losses of
$16.0 million. During the same year, the integration cost of the CNA crop
acquisition, such as closing offices, reducing head count, legal and
transaction related expenses, amounted to over $3.5 million dollars. The
nonstandard auto business is completing the migration from an old legacy,
non-Y2K compliant system to a fourth generation Y2K compliant system. The
cost of the transition to the new operating systems for 1998 including running
duplicate systems, extra employees, consultants and surplus tech support were
well in excess of $5.0 million. The Company, responding to increased costs of
auto repairs, higher liability settlements, personal injury protection claims
escalating and general inflation of litigation, increased reserves for
automobile insurance claims to a much higher level for years prior to 1998,
adding $12.0 million to its reserves or 4.5% to the combined loss ratio for
1998. The total of the 1998 non-recurring operation costs were in excess of
$36.5 million.
"We have made major changes to the organization which we believe will
improve results in 1999 and reduce reserve and catastrophic exposures," said
Alan G. Symons, CEO. "Last year was the largest year for Federal crop damage
payouts in United States history, which led to record claims. The year 1998
also was the first year we can remember that the auto insurance market had
rate reductions in major markets such as California and Florida. Despite
these difficulties, the company continues to meet its obligations from
existing cash flow."
Crop Insurance Results
For 1998, the Company's crop business realized $243.0 million in gross
written premiums compared with $126.4 million in 1997. The company's crop
results for 1998 aggregated a $8.4 million loss which takes into account
approximately $16 million of catastrophic losses and approximately
$3.5 million of nonrecurring charges related to the acquisition of CNA's crop
insurance business. The exposure for catastrophic loss experienced in 1998
has been materially reduced for 1999, through a new Quota Share Reinsurance
Agreement that replaces 80% of the exposure with fee income.
Non-Standard Auto Insurance Results
Gross written premiums were down from $323.9 million for 1997 to
$303.7 million in 1998 due to competitive markets and repositioning the
Company into more profitable markets, however, total auto insurance net
revenue of $296.5 million in 1998 exceeded the $287.0 million net revenue for
the prior year, the result of retaining more of our business and increased fee
income. The Company's 1998 combined ratio was 104.5% compared with 100.7% in
1997; however, the combined ratio for 1998 would have been 100.0% absent the
4.5% reserve strengthening attributable to prior years. Goran noted that
significant new operational and actuarial improvements are now in place which
are designed to reduce loss ratio in the coming year. Symons said that the
company's 1999 goal is to achieve a combined ratio of 95% or better. The
company's recent actuarial and technological improvements strongly support
this goal.
Goran Poised for Growth in 1999
Symons reviewed recent actions and accomplishments of recent months to
position Goran for growth in 1999.
-- Completing the installation of a new company-wide management
information system to further improve operating efficiencies and
improve actuarial analysis. The Company already has one of the
nonstandard auto insurance industry's best expense ratios at 22%.
-- Presently launching an Internet information delivery system that will
enable independent agents to electronically obtain quotes from the
Company and issue coverage documents in the agents' offices.
-- Launched (in February 1999) with the independent agency system what
the Company believes is an extremely user-friendly Internet insurance
sales site for selling automobile insurance.
-- Hired a chief actuary.
-- Hired three experienced product development executives and an
experienced director of regulatory affairs to increase the Company's
nonstandard auto insurance product lines and expand into new markets
in 1999.
-- Established a crop underwriting committee to expand risk management
across all crop product lines.
-- Purchased an 80% reinsurance program from major reinsurance companies
that will reduce exposure for Hail and AgPI lines of business and
replace this with a fee based income to IGF.
-- Introduced new crop and agriculture insurance products designed to
provide additional premium growth and fee income. These products
include forest industry insurance products, policies to protect
agricultural commodity processors, and an innovative soil analysis
service utilizing the Global Positioning System (GPS) to provide fee
income.
-- Completed the integration of CNA's crop insurance business, acquired
in early 1998. Symons notes that IGF is ready to fully leverage its
size and scope as the nation's fourth-largest crop insurer.
-- Successfully launched the first-ever Spanish only automobile product
in Florida and has applications pending to expand into Texas and
California.
"Efficient operations are one of our greatest strengths, and we have
lowered our costs of operation in the crop division to reflect the reduced
reimbursement level, while still maintaining our target profit margins," said
Symons. "The government added $400.0 million and possibly up to $1.0 billion
of premium subsidy to encourage farmers to purchase more crop insurance
through increasing subsidies for insurance premium payments. This will
greatly improve the safety net for the American farmer. At the same time, it
will increase coverage levels for most farmers, thus significantly increasing
the total premium of the MPCI program.
"Our nonstandard auto insurance business has been growing in excess of
25% annually from 1995 through 1998. The auto insurance business remains
competitive, but we feel with one of the lowest costs of doing business in the
industry and our new in-house actuary and the Product Development team, we can
compete, grow and produce improved results in 1999.
"We are now a leading national provider of both crop and nonstandard auto
insurance. We have improved infrastructure and personnel to support growth
and run a lean, efficient operation. We believe this is the formula for
significantly increasing shareholder value."
Goran Capital, Inc. is the 12th largest
nonstandard automobile insurer in the United States. Nonstandard auto
insurance is sold through independent insurance agents. It generally carries
higher premiums and low limits of liabilities. The Company utilizes
proprietary systems and procedures to achieve operating efficiencies. Goran's
subsidiaries Pafco General Insurance Company and Superior Insurance Company
write nonstandard auto insurance in 22 states. Goran's IGF Insurance Company
is the fourth largest insurer of crops in the US. IGF Insurance Company
writes business in 42 states plus Canada. Visit the Company's Web site at
http://www.sigins.com. For free fax information on Goran and Symons International,
dial 1-800-PRO-INFO and enter the ticker: SIGC.
All statements, trend analyses, and other information contained in this
release and elsewhere (such as in other filings by the Company or its
affiliates with the Securities and Exchange Commission, press releases,
presentations by the Company or its management or oral statements) relative to
markets for the Company's products and/or trends in the Company's operations
or financial results, as well as other statements including words such as
"anticipate," "could," "feel(s)," "believe," "believes," "designed", "plan,"
"estimate," "expect," "should," "intend" and other similar expressions,
constitute forward-looking statements under the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are subject to known and
unknown risks, uncertainties and other factors which may cause actual results
to be materially different from those contemplated by the forward-looking
statements. Such factors include, among other things: (i) general economic
conditions, including prevailing interest rate levels and stock market
performance; (ii) factors affecting the Company's crop operations such as
weather-related events, final harvest results, commodity price levels,
governmental program changes, new product acceptance and commission levels
paid to agents; and (iii) factors affecting the Company's nonstandard
automobile operations such as premium volume, levels of operating expenses as
compared to premium volume, ultimate development of loss reserves and
implementation of the Company's operating system.
GORAN CAPITAL INC.
Consolidated Financial Highlights
(unaudited)
(Stated in US$)
Year Ending Three Months Ending
December 31, December 31,
STATEMENT OF EARNINGS 1998 1997 1998 1997
$ $ $ $
REVENUE
Gross premiums written 546,771,000 448,982,000 103,183,000 73,168,000
Net premiums written 362,059,000 281,896,000 81,500,000 53,596,000
Premiums earned 342,130,000 276,540,000 76,459,000 62,544,000
Fee income 20,203,000 17,821,000 5,000,000 5,319,000
Net investment income 13,565,000 12,777,000 3,388,000 2,324,000
Net realized capital
gain 4,104,000 9,393,000 145,000 3,927,000
380,002,000 316,531,000 84,992,000 74,114,000
EXPENSES
Loss and loss
adjustment expenses 282,965,000 210,999,000 63,986,000 50,475,000
Operating expenses 101,399,000 63,344,000 33,665,000 15,553,000
Amortization of
intangibles 2,379,000 1,197,000 660,000 510,000
Interest expense 132,000 3,087,000 (229,000) 96,000
386,875,000 278,627,000 98,082,000 66,634,000
Income (loss) before
income taxes, minority
interest and
distributions on
preferred securities (6,873,000) 37,904,000 (13,090,000) 7,480,000
Provision for income
taxes (1,885,000) 11,596,000 (4,421,000) 1,491,000
Minority interest (4,703,000) 7,205,000 (3,813,000) (104,000)
Distributions on Pref
Sec, net of tax 8,411,000 3,120,000 2,084,000 2,433,000
Earnings from continuing
operations (8,696,000) 15,983,000 (6,940,000) 3,660,000
Loss from discontinued
operations (2,937,000) (3,545,000) (2,752,000) (2,687,000)
NET EARNINGS (LOSS) (11,633,000) 12,438,000 (9,692,000) 973,000
Earnings per share
from continuing
operations-basic ($1.49) $2.86 ($1.19) $0.65
Earnings per share
from continuing
operations-fully diluted ($1.49) $2.70 ($1.19) $0.60
Net earnings per share ($1.99) $2.22 ($1.66) $0.16
Net earnings per
share-fully diluted ($1.99) $2.12 ($1.66) $0.16
December 31, December 31,
BALANCE SHEETS (US$) 1998 1997
$ $
ASSETS
Cash and investments 253,756,000 247,124,000
Due from insured and reinsurers 216,518,000 232,435,000
Other receivables 17,231,000 2,658,000
Property and equipment 19,350,000 12,230,000
Deferred acquisition costs 16,332,000 11,849,000
Intangible assets 46,298,000 42,562,000
Other assets 12,496,000 8,408,000
581,981,000 557,266,000
LIABILITIES
Loss and loss adjustment expenses 209,739,000 152,871,000
Unearned premiums 110,665,000 118,616,000
Notes payable 13,712,000 4,182,000
Other payables 42,906,000 61,034,000
377,022,000 336,703,000
MINORITY INTEREST
Preferred securities 135,000,000 135,000,000
Equity in net assets of subsidiary 19,931,000 25,231,000
SHAREHOLDERS' EQUITY 50,028,000 60,332,000
581,981,000 557,266,000
End of period shares o/s 5,876,398 5,730,276
Book value per share $8.51 $10.53
December 31, December 31,
STATEMENT OF CASH FLOWS (US$) 1998 1997
$ $
OPERATING ACTIVITIES
From operations (11,633,000) 12,438,000
Change in net assets 20,857,000 1,589,000
Cash provided by operations 9,224,000 14,027,000
INVESTING ACTIVITIES
Purchase of minority interest (1,229,000) (61,000,000)
Net purchase of investments 3,621,000 (34,535,000)
Net purchase of fixed assets (9,921,000) (5,803,000)
Cash paid for NACU (3,000,000) --
Other -- 1,130,000
Cash used in investing (10,529,000) (100,208,000)
FINANCING ACTIVITIES
Proceeds from minority interest -- 2,354,000
Increase (decrease) in notes payable 9,530,000 (43,818,000)
Proceeds from preferred securities, net -- 129,877,000
Loans to related parties (1,600,000) --
Cost of shares acquired (748,000) --
Additional paid-in capital 356,000 594,000
Cash provided by financing 7,538,000 89,007,000
Change in cash resources 6,233,000 2,826,000
Cash resources beginning of period 36,557,000 33,731,000
Cash resources end of period 42,790,000 36,557,000
Cash resources are comprised of cash and short-term investments
GORAN CAPITAL INC.
Consolidated Financial Highlights
(unaudited)
(Stated in US$)
Three Months Ended December 31, 1998
AUTO CROP CORPORATE TOTAL
Gross premiums written 72,695,000 32,408,000 (1,920,000) 103,183,000
Net premiums written 62,895,000 (5,700,000) 24,305,000 81,500,000
Premiums earned 60,412,000 3,110,000 12,937,000 76,459,000
Fee income 3,896,000 1,102,000 2,000 5,000,000
Net investment income 3,064,000 55,000 269,000 3,388,000
Net realized capital gain 362,000 -- (217,000) 145,000
TOTAL REVENUE 67,734,000 4,267,000 12,991,000 84,992,000
Loss and loss adjustment
expenses 53,679,000 1,573,000 8,734,000 63,986,000
Operating expenses 17,933,000 11,623,000 4,109,000 33,665,000
Amortization of intangibles -- 180,000 480,000 660,000
Interest expense -- (229,000) -- (229,000)
TOTAL EXPENSES 71,612,000 13,147,000 13,323,000 98,082,000
Income (loss) before
income taxes and
distributions on
preferred securities (3,878,000) (8,880,000) (332,000) (13,090,000)
Provision for income taxes (4,421,000)
Minority interest (3,813,000)
Distributions on preferred
securities, net of tax 2,084,000
Earnings from continuing operations (6,940,000)
Loss from discontinued operations (2,752,000)
NET EARNINGS (9,692,000)
Loss ratio 88.85%
Expense ratio, net of
billing fees 23.24%
Combined ratio 112.09%
Three Months Ended December 31, 1997
AUTO CROP CORPORATE TOTAL
Gross premiums written 80,863,000 (5,952,000) (1,743,000) 73,168,000
Net premiums written 61,113,000 (460,000) (7,057,000) 53,596,000
Premiums earned 61,717,000 2,041,000 (1,214,000) 62,544,000
Fee income 3,931,000 1,358,000 30,000 5,319,000
Net investment income 3,173,000 47,000 (896,000) 2,324,000
Net realized capital
gain (loss) 3,941,000 37,000 (51,000) 3,927,000
TOTAL REVENUE 72,762,000 3,483,000 (2,131,000) 74,114,000
Loss and loss adjustment
expenses 52,003,000 2,886,000 (4,414,000) 50,475,000
Operating expenses 18,801,000 (2,916,000) (332,000) 15,553,000
Amortization of intangibles -- -- 510,000 510,000
Interest expense -- 169,000 (73,000) 96,000
TOTAL EXPENSES 70,804,000 139,000 (4,309,000) 66,634,000
Income (loss) before
income taxes and
minority interest 1,958,000 3,344,000 2,178,000 7,480,000
Provision for income taxes 1,491,000
Minority interest (104,000)
Distributions on preferred
securities, net of tax 2,433,000
Earnings from continuing operations 3,660,000
Loss from discontinued operations (2,687,000)
NET EARNINGS 973,000
Loss ratio 84.26%
Expense ratio, net of
billing fees 24.09%
Combined ratio 108.35%
GORAN CAPITAL INC.
Consolidated Financial Highlights
(unaudited)
(Stated in US$)
Year-to-date December 31, 1998
AUTO CROP CORPORATE TOTAL
Gross premiums written 303,737,000 243,026,000 8,000 546,771,000
Net premiums written 269,694,000 62,467,000 29,898,000 362,059,000
Premiums earned 263,975,000 60,901,000 17,254,000 342,130,000
Fee income 16,431,000 3,772,000 -- 20,203,000
Net investment income 11,958,000 275,000 1,332,000 13,565,000
Net realized capital gain4,124,000 217,000 (237,000) 4,104,000
TOTAL REVENUE 296,488,000 65,165,000 18,349,000 380,002,000
Loss and loss adjustment
expenses 217,916,000 54,623,000 10,426,000 282,965,000
Operating expenses 74,300,000 18,445,000 8,654,000 101,399,000
Amortization of intangibles -- 339,000 2,040,000 2,379,000
Interest expense -- 132,000 -- 132,000
TOTAL EXPENSES 292,216,000 73,539,000 21,120,000 386,875,000
Income (loss) before
income taxes and
distributions on
preferred securities 4,272,000 (8,374,000) (2,771,000) (6,873,000)
Provision for income taxes (1,885,000)
Minority interest (4,703,000)
Distributions on preferred
securities, net of tax 8,411,000
Earnings from continuing
operations (8,696,000)
Loss from discontinued operations (2,937,000)
NET EARNINGS (11,633,000)
Loss ratio 82.55%
Expense ratio, net of
billing fees 21.92%
Combined ratio 104.47%
Year-to-date December 31, 1997
AUTO CROP CORPORATE TOTAL
Gross premiums written 323,915,000 126,401,000 (1,334,000) 448,982,000
Net premiums written 256,745,000 20,796,000 4,355,000 281,896,000
Premiums earned 251,020,000 20,794,000 4,726,000 276,540,000
Fee income 15,515,000 2,276,000 30,000 17,821,000
Net investment income 10,969,000 191,000 1,617,000 12,777,000
Net realized capital
gain (loss) 9,462,000 (18,000) (51,000) 9,393,000
TOTAL REVENUE 286,966,000 23,243,000 6,322,000 316,531,000
Loss and loss adjustment
expenses 195,900,000 16,550,000 (1,451,000) 210,999,000
Operating expenses 72,463,000 (14,404,000) 5,285,000 63,344,000
Amortization of intangibles -- 2,000 1,195,000 1,197,000
Interest expense -- 233,000 2,854,000 3,087,000
TOTAL EXPENSES 268,363,000 2,381,000 7,883,000 278,627,000
Income (loss) before
income taxes and
minority interest 18,603,000 20,862,000 (1,561,000) 37,904,000
Provision for income taxes 11,596,000
Minority interest 7,205,000
Distributions on preferred
securities, net of tax 3,120,000
Earnings from continuing operations 15,983,000
Loss from discontinued operations (3,545,000)
NET EARNINGS 12,438,000
Loss ratio 78.04%
Expense ratio, net of
billing fees 22.69%
Combined ratio 100.73%