State Farm Makes First Acquistion, Buying GAINSCO For $400M | WGLT

State Farm Makes First Acquistion, Buying GAINSCO For $400M

Sep 17, 2020

State Farm is acquiring insurance company GAINSCO Inc. in a $400 million agreement announced Thursday.

The acquisition is the first of its kind in State Farm’s 98-year history, according to a company press release. The deal is expected to close in 2021, after approval by GAINSCO’s shareholders, as well as regulatory approval.

Under the agreement, State Farm Mutual will acquire 100% of the stock in GAINSCO Inc., with shareholders receiving approximately $107.38 per share.

GAINSCO will continue to operate as a separate company, focusing on non-standard auto insurance products and specializing in minimum-limits personal policies.

Over time, State Farm agents will be able to sell these products alongside their own, said company spokesperson Chris Pilcic.

“GAINSCO operates in 12 states (Arizona, Florida, Georgia, New Mexico, Oklahoma, South Carolina, Tennessee, Texas, Utah, Virginia, Ohio, and Alabama) with plans to expand to other states in future years,” Pilcic said in an email. “In those states, we expect to offer the opportunity for State Farm agents to market, solicit and service GAINSCO products.”

Jim Lynch, chief actuary with the Insurance Information Institute, said these types of products have shown signficant growth in the insurance market over the past decade.

"That’s because insurance companies have gotten more and more sophisticated in how they can price customers," Lynch said. "If you went back 20 or 30 years, companies had a hard time figuring out exactly how to rate the kind of person who ... has had a couple of tickets. Now, companies have gotten a lot better at that.”

Lynch said offering these products allows insurance companies to take on a broader customer base. Those who have a complicated driving record with severe speeding tickets or accidents, for example, may not fit into standard policies. Even if they do, Lynch said, the premiums are likely to be high.

Lynch said minimum-limits auto insurance policies keep premiums affordable for drivers by reducing the amount the insurance company would need to pay out.

Whereas the standard insurance industry is dominated by a small number of carriers, Lynch said, a lot of companies offer non-standard products. He said it’s not unusual for larger companies to keep separate standard and non-standard portfolios.

"A standard auto provider will acquire a non-standard auto carrier because it complements the line of business they've already got,” Lynch said. “It gives them the opportunity to have a policy and a quote in place for a larger population."

GAINSCO executives, in the press release announcing the acquisition, said they look forward to partnering with State Farm and maintaining existing channels with the long-term goal of becoming a nationwide leader in non-standard policies.

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