Goran paints bleak picture moving forward

Although Goran Capital Inc. (TSE; GNC, NYSE: GNCN), managed to cut its losses in almost half for the first quarter ending March 31, 2003, the bleeding has not stopped for the Toronto-based company.Net loss for the quarter is $3.6 million, versus $6.0 million during the same period a year prior. This works out to net loss per share of $0.67 for the most recent quarter, versus $1.11 a year ago.Nonetheless, the company is reporting that losses are expected to continue moving 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 $28.0 million, versus $45.1 million 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, versus $13.1 million for the first quarter 2002.Net investment income dropped to almost a quarter of its previous level, down to $337,000 for the first quarter 2003, from $1.4 million during the same period a year prior.The company was able to reduce its losses and loss adjustment expenses to $5.9 million for the most recent quarter, versus $14.0 million the year prior.However, the company is in the middle of 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.”