GAINSCO Reveals Q4 and Year 2003 Numbers

Dallas-based GAINSCO INC. reported net income for the fourth quarter 2003 of approximately $1.5 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 applicable to common shareholders was approximately $0.5 million, or $0.02 per common share, basic and diluted.

For the 12 months ended Dec. 31, 2003, net income was
approximately $3.4 million. After the accretion of the discount on the redeemable preferred stock of approximately $3.0 million and the accrual of dividends on the redeemable preferred stock of approximately $0.7 million, net loss applicable to common shareholders was approximately $0.4 million, or $0.02 per common share, basic and diluted.

“The company’s nonstandard personal automobile business in Florida continued to produce profitable operating results this quarter. Additionally, in furtherance of our strategic geographic diversification objective, the company began writing nonstandard personal automobile policies in Texas during the fourth quarter and has begun its market introduction in Arizona,” said Glenn Anderson, GAINSCO’s president and chief executive officer.

The company continued to exit the commercial lines business. As of Dec. 31, 2003, 525 commercial claims remained, compared to 600 at Sept. 30, 2003, and 1,062 at Dec. 31, 2002.
Combined statutory policyholders’ surplus at the end of the fourth quarter 2003 was $41.7 million and compares to combined statutory policyholders’ surplus at Sept. 30, 2003 of $40.6 million. The combined statutory policyholders’ surplus at the end of the fourth quarter 2003 does not include approximately $2.0 million of after-tax, unrealized capital gains that existed in the statutory bond portfolios. The company expects that a dividend from statutory policyholders’ surplus of a subsidiary to the holding company of
approximately $4.2 million will be paid on March 22, 2004.

The company’s net unpaid claims and claims adjustment expenses at Dec. 31, 2003 were $76.6 million, compared to approximately $79.0 million at Sept. 30, 2003. 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 $13.8 million at Dec. 31, 2003, and approximately $15.4 million at Sept. 30, 2003. The principal components of the net reduction in the reserve balances from Sept. 30, 2003 to Dec. 31, 2003 are the settlement of claims in the normal course and a decrease in ultimate expected liabilities in personal auto, which were partially offset by an increase in ultimate expected liabilities in commercial lines.

Net premiums earned for the fourth quarter of 2003 were $9.9 million, compared to $11.9 million for the same period in 2002. Net premiums earned for the 12 months ended Dec. 31, 2003 were $34.4 million, compared to $60.3 million for the 12 months ended 2002. The decreases in net premiums earned from 2002 to 2003, for the fourth quarter and 12 month period, relate primarily to the company’s exit from the commercial lines business. This decrease was partially offset by the company recording written and earned
premiums related to its commutation of a reinsurer’s participation on several reinsurance contracts.

The combined ratio under generally accepted accounting principles (“GAAP”) for the fourth quarter of 2003 was 100.8 percent, compared to a combined ratio of 121.5 percent for the 2002 fourth 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 claims adjustment expenses ratio for the 2003 fourth quarter was 82.4 percent, compared with 79.8 percent for the fourth quarter of 2002. The GAAP expense ratio for the fourth quarter 2003 was 18.4 percent, compared to 41.7 percent for the 2002 fourth quarter. For the 12 months ended 2003, the GAAP combined ratio was 105.1 percent, compared to 125.9 percent for the same period in 2002.

The GAAP claims and claims adjustment expenses ratio for the 12
months ended 2003 was 74.2 percent, versus 93.6 percent for the 12 months ended 2002. The GAAP expense ratio for the year ended 2003 was 30.9 percent versus 32.3 percent for the year ended 2002. The decreases in the expense ratio for the fourth quarter and year ended 2003, compared to the same periods in 2002, were due in large part to an increase in earned premiums and a decrease in the allowance for doubtful accounts for reinsurance balances receivable associated with the previously described reinsurance commutation.

For the fourth quarter 2002, net income was approximately break-even. After the accretion of the discount on the redeemable preferred stock of approximately $0.7 million and the accrual of dividends on the redeemable preferred stock of approximately $0.2 million, net loss applicable to common shareholders for the fourth quarter 2002 was approximately $0.8 million, or $0.04 per common share, basic and diluted.