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Insuring Those The Others Ignore

Inside Wall Street


Most property-and-casualty insurers are plagued with financial woes. But not Texas-based Gainsco. For the eighth year in a row, the company has posted record earnings, with an annual per-share growth rate of 55% last year. And while many insurance stocks have been on the ropes, Gainsco's shares have been out there swinging. The stock has jumped from 8 in early 1992 to 15 5/8 on May 18. What's Gainsco's secret?

This "niche player" is in parts of the P&C business where others fear to tread, says investment manager Mary Sunderland at Skandia Investment Management, which owns nearly 5% of the stock. Gainsco takes on high-risk and nonstandard policies that are either too small or too specialized for other insurers to handle, she says.

Indeed, Gainsco's clients include owners of used-car lots and commercial vehicles, as well as coal haulers and building contractors. It does business mainly in Florida, Pennsylvania, Texas, and Virginia.

Gainsco has been able to raise rates in an environment that has stuck other insurers with soft insurance pricing. "Our insurance rates are firming," says Chairman and CEO Joe Macchia. The company focuses on widening profits rather than increasing its gross underwriting business. As a result, he notes, Gainsco's ratio of losses to premium income is 81%, vs. an industry average of 100%. (A ratio under 100% indicates an underwriting profit.)

Sunderland sees Gainsco earning 90 to 95 in 1993 and $1.15 in 1994, vs. 1992's 77 . Although the stock is trading at about 16 times Sunderland's 1993 earnings estimate, she expects it to hit much higher levels over the next 12 months.GENE G. MARCIAL

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