Total Assets: $297 million (1996)
Stock Exchanges: New York
SICs: 6331 Fire, Marine & Casualty Insurance; 6719 Offices of Holding Companies, Not Elsewhere Classified; 7372 Prepackaged Software
Gainsco, Inc. is a holding company for subsidiaries that write property and casualty insurance, concentrating on specialty excess and surplus markets within the commercial auto, auto garage, and general liability markets. Its customers for general liability are small businesses such as car washes, janitorial services, and contractors. Those for commercial auto coverage include short-haul truckers, local haulers of specialized freight, artisans, and tradepersons. Auto garage liability insurance is sold primarily to car and recreational vehicle dealers, auto repair shops, and wrecker/towers. These clients are avoided by most insurance companies as too hazardous to qualify for coverage. Because of this, companies like Gainsco are allowed by state insurance authorities to charge higher premiums for their excess and surplus policies. All of the company’s 203 agents in 1996 were independent.
Private Company, 1978-86
Gainsco was founded in 1978 by Joseph D. Macchia, the son of a New York City milkman. Macchia graduated from Fairfield University in 1957 and after serving in the Marines, became first a salesman, then an executive, for a series of insurance companies. In 1975 he became president of deficit-ridden Early American Insurance Co., a small insurer of automobiles. Macchia moved the company out of the highly competitive, regulated personal auto business and into serving small businesses, such as offering commercial auto policies to contractors, fire and theft policies to used car and mobile home dealers, and general liability to dry cleaners. Early American began turning a profit within 18 months.
Macchia left Early American to found Gainsco in 1978, borrowing $500,000 from a bank and setting up offices in Fort Worth, Texas. By then he had honed his strategy: to identify various types of risks where his company could price its coverages favorably and maximize the potential for profitable underwriting. At first, in order to minimize his risk, Macchia had to sell the policies he had written to reinsurers, keeping only a small commission. In order to accumulate enough capital so that he could accept more risk, and hence increase his profit, Macchia sold 70 percent of Gainsco to a Minneapolis-based company in 1979 for $2.5 million. Gainsco now was able to keep 30 cents of each premium dollar, selling the other 70 percent to a reinsurer and pocketing a commission of 25 to 30 percent on it. “You don’t have to be a rocket scientist to do what we do,” Gainsco’s founder told Forbes in 1991. “All you have to do is exercise discipline, not get greedy, and be patient as hell.”
In 1982, the first year for which figures were available to the public, Gainsco had net income of $670,000 on revenues of $12.1 million. In 1983 and 1984, however, the company lost $480,000 and $553,000, respectively. During 1984, which was Gainsco’s last unprofitable year, the company sharply curtailed its writing of personal lines of insurance. In 1985 it had net income of $774,000 on income of $21 million. The following year Gainsco went public, taking in $8 million by offering about one-fourth of its shares of common stock at $7 per share.
Rising Profits, 1986-92
By the end of 1986 Gainsco was writing property and casualty insurance in 26 states, concentrating its efforts on certain specialty excess and surplus markets within the commercial auto, general liability and auto garage lines. Commercial auto coverage underwritten by the company included risks associated with local haulers of specialized freight (such as sand and gravel), artisans’ and tradespersons’ vehicles, and trucking companies (other than long haulers). General liability insurance was underwritten to a liability limit of $500,000 for small businesses such as car washes, janitorial services, small contractors, apartment buildings, and grocery stores. The auto garage program included garage liability, garage keepers’ legal liability, and dealer open-lot coverage. Other property and liability insurance coverages offered included commercial multiperil insurance, monoline fire insurance, and a small amount of personal motor home and recreational vehicle insurance.
Some of Gainsco’s business was more exotic. By the end of 1991 it had insured an estimated 300 Christmas events, paying only one claim of any size: $5,000 to the parents of a child who took a fall running up a mall ramp to get a closer look at Santa Claus. The company also insured Thanksgiving Day turkey shoots, New Year’s Eve festivities, Easter Egg contests, Independence Day parades, and Halloween haunted houses. Gainsco even had its only reference guide, which it called the Easy Rater Fun Pak, for calculating the risks of insuring such celebrations.
Gainsco owned a 3.38-acre tract of land in Fort Worth in 1986 and a 10,000-square-foot building on the lot, from which its operations were conducted, although the company later moved its headquarters to a larger building in another part of Fort Worth. The company had net income of $2.3 million during the year even though its revenues fell to $18.3 million. About 64 percent of its gross premiums of $32.6 million resulted from business done in Texas, Louisiana, and Mississippi. By the end of 1987 Gainsco was writing insurance in 37 states. Net income increased to $3.2 million on total revenue of $19.4 million. The company had no long-term debt. Gainsco gradually doubled the number of its outstanding shares through a series of stock dividends.
During 1988 Gainsco expanded its business to cover 43 states, and by the end of 1989 the company was writing insurance in 46 states. Commercial auto coverage showed the biggest increase, accounting for 48 percent of total premiums in 1989. That year the company completed a reinsurance arrangement that allowed its agents to double the general insurance liability limit to $1 million. Gainsco had net income of $3.8 million and $5.3 million on total revenues of $25.9 million and $36.6 million in 1988 and 1989, respectively. Macchia held 12.7 percent of the company’s stock in 1988.
By 1990 Gainsco’s record of rising profits was beginning to attract the interest of the business press. Barren’s noted that by taking on clients whom other insurers avoided as too risky, Gainsco typically charged premiums anywhere from 25 percent to 75 percent higher than standard rates for more conventional types of coverage. Its loss ratio—the amount paid out in claims—was averaging only about 45 cents on the premium dollar, compared to more than 80 cents for the property and casualty industry as a whole. By this time Gainsco had enough capital to make it unnecessary to sell more than small pieces of its policies to reinsurers. Net income kept rising, to $6.6 million and $8.5 million on total revenues of $48.3 million and $60.5 million in 1990 and 1991, respectively. During 1991 commercial auto policies reached a peak 63 percent of the company’s $68 million in premiums.
Gainsco enjoyed record results again in 1992, its net income rising to $13.2 million on total revenues of $85.7 million. Describing the business to a Chief Executive interviewer, Macchia said, “In the commercial auto area, we underwrite a lot of owner-operated truckers, pulp wood haulers, anything that rolls. The smaller the better. On the general liability side, we do a lot of small contractors—carpenters, plumbers, electricians, one-man grocery stores.” Most of the company’s considerable investment portfolio—$139.4 million at the end of 1993—was in high-quality, tax-exempt municipal bonds. Fearing hyperinflation as a result of the growing federal debt, Macchia had purchased several million dollars worth of gold and opened a Swiss bank account. Conservatism, he said, “runs in the family,” citing his grandfather, who converted everything he had to gold at the beginning of World War II and buried it.
Continued Prosperity, 1993-96
After eight consecutive years of rising profits, Gainsco stumbled for the first time in 1993. The company’s net income was down, although only slightly, to $13 million, and its total revenues dropped to $84.4 million. The following year saw renewed growth, to $15.2 million in net income and $93.5 million in total revenues, and the company now was writing policies in every state but Maine. The majority of gross premiums in 1994 came from California, Florida, Kentucky, Louisiana, Pennsylvania, and Texas. To prod the 150 agents selling its policies, Gainsco had a “Buddy Team” program requiring employees, from executives all the way down to receptionists and file clerks, to make calls. “I learned a long time ago that one of the main ways you get business is to ask for it,” Macchia told a reporter.
Esprit: The dictionary defines it simply as spirit. But true meaning surpasses mere definition. At GAINSCO, Esprit de Corps is synergistic. A winning team is always much more than the sum of its parts.
Esprit anticipates and overcomes. Esprit is quick and eager to crest the hill and go another mile. Esprit is the joy of being part of something bigger than yourself. Something big enough to include everyone and yet small enough to hear a single voice.
Esprit soars on the wings of a dream and yet remains anchored on the firm ground of what is.
Esprit dedicates itself to the common goals of the group and yet speaks to the needs of individuals. It is the spontaneous choreography of achievement, finding joy in a challenge and pleasure in the work.
Esprit seeks alternatives and finds opportunity at every turn.
Esprit begins with an open door, an open mind and an open hand that reaches out. See for yourself —Esprit is its own reward.
Net income advanced to a record $17.6 million in 1995 on total revenues of $108 million. That year, for the fifth time, Gainsco was named one of the 200 best small companies in America by Forbes. Interviewed for National Underwriter, Macchia credited his employees, whom he called “a well oiled marketing machine, calling agents asking how they can help and what they can do to make doing business with Gainsco easier.” He noted that they could earn up to 50 percent bonuses if they helped agents exceed their premium volume goals. The emphasis on working with agents resulted in an increase in average premium per agent/office, from $237,000 in 1987 to more than $600,000 in 1994. Macchia also noted that the company used a team approach in determining pricing.
During 1996 Gainsco’s net income dipped to $16 million on record revenues of $119 million. Of its gross premiums of $110 million, commercial auto insurance accounted for 57 percent, auto garage for 24 percent, general liability for 18 percent, and other lines for one percent. The company had no debt and an investment portfolio of $204.6 million, of which 90 percent was in bonds. Gainsco was doing business through 203 nonaffiliated general agents. Of its total in premiums, about 73 percent came from California, Florida, Georgia, Illinois, Kentucky, Louisiana, Pennsylvania, Tennessee, Texas, and West Virginia. Macchia held 11.4 percent of the company’s common stock in February 1997.
Commercial auto coverage was being written only for vehicles primarily operated within the state of garaging and one state beyond, or 1,000 miles, whichever was greater. Liability and physical damage coverages for these risks was limited to $1 million per accident and $100,000 per unit. The maximum liability for auto garage or general liability coverage also was $1 million. Gainsco also was issuing a variety of other policies, including monoline property insurance and restricted commercial property policies covering fire, extended coverage, vandalism, and malicious mischief for commercial establishments, with a limit of $200,000. A total of 35,903 policies were in force at the end of 1996. In order to reduce its liability on individual risks and to protect against catastrophe claims, Gainsco was purchasing reinsurance from three companies in 1997. Through a wholly owned subsidiary, Gainsco was also marketing a computer software package related to insurance agents.
Agents Processing System, Inc.; Gainsco County Mutual Insurance Company; Gainsco Service Corp.; General Agents Insurance Company of America, Inc.; General Agents Premium Finance Company; MGA Agency, Inc.; MGA Insurance Company, Inc.; MGA Premium Finance Company; Risk Retention Administrators Inc.
Bowers, Brent, “St. Nick’s Shopping List Includes Holiday Protection,” Wall Street Journal, December 20, 1991, p. B2.
Byrne, Harían S., “Gainsco Inc.,” Barron’s, April 16, 1990, p. 42.
_____, “Sound Policies,” Barron’s, February 27, 1995, p. 20.
Geer, Carolyn T., “Be Patient and Don’t Get Greedy,” Forbes, July 8, 1991, pp. 80-81.
Gilbert, Evelyn, “Forbes: Gainsco Among 200 Best Small U.S. Firms,” National Underwriter, November 20, 1995, p. 31.
Kimelman, John, “The Lloyd’s of Fort Worth,” Financial World, April 27, 1993, p. 57.
Marcial, Gene G., “Insuring Those the Others Ignore,” Business Week, May 31, 1993, p. 79.
McCarthy, Joseph L., “Joseph Macchia,” Chief Executive, January/February 1993, p. 18.
Slovak, Julianne, “Gainsco,” Fortune, May 21, 1990, p. 104.