Goran 1-Q Paints Bleak Picture

Although Toronto-based Goran Capital Inc. (TSE: GNCN) managed to cut its net loss in almost half for the first quarter of this year, the company’s bleeding continues. The insurer’s net loss for the latest quarter amounted to $3.6 million compared with the $6.0 million loss reported for the same period last year. This equates to a loss of 67 a share.

The insurer predicts that a loss position will likely continue as the company moves forward. “The financial condition of the company’s U.S. insurance subsidiaries continues to be of concern to the insurance regulators and has resulted in heightened regulatory oversight. Although the company continues to take a number of actions to address factors contributing to these past losses, there can be no assurance that operating losses will not continue,” states the company’s “10-K filing” to the U.S. Securities Exchange Commission. The company says if it cannot “resolve issues” with U.S. regulators, it may not be able to turn its financial picture around.

For example, the company’s Pafco subsidiary has been told to reduce its monthly auto insurance premium writings in the absence of additional capital or surplus that would bolster its surplus to premium ratio. The company has also been stopped from selling assets or business in force, lend funds, incur debt, or make certain kinds of investments, without written permission from insurance regulators. It is also limited in its ability to merge or consolidate with another company, enter into new reinsurance contracts or modifying existing contracts. Fellow subsidiary Superior is also facing restrictions in certain states.

The company’s gross written premiums dropped for the first quarter of this year to $28 million versus the $45.1 million reported a year prior. Net written premiums were similarly halved to $7.0 million from $14.1 million. Net earned premiums were $6.2 million for the most recent quarter compared with the $13.1 million made for the first quarter of 2002. Net investment income dropped to almost a quarter of its previous level, down to $337,000 for the latest reporting period. The insurer was, however, able to reduce its loss to $5.9 million for the most recent quarter, versus the $14.0 million reported 12 months previously.

Goran’s problems are compounded by the fact that it is engaged in several pending civil proceedings. “Although the company believes that many of the allegations of wrongdoing are without merit and intends to vigorously defend the claims brought against it, there can be no assurance that such proceedings will not have a material adverse effect on the company’s financial position or results of operations.”