State Farm Mutual Automobile Insurance Co. is acquiring Dallas-based nonstandard auto insurer, GAINSCO, in a $400 million cash transaction. It will be the first time in State Farm’s 98-year history that it has acquired an insurance company, the company said.

The acquisition, which is expected to close in early 2021, is subject to the approval of GAINSCO’s shareholders, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, obtaining regulatory approvals, and satisfaction of other customary closing conditions.

GAINSCO, founded in 1978, specializes in minimum-limits personal auto coverage and actively distributes its nonstandard personal auto products through independent retail agents in Arizona, Florida, Georgia, New Mexico, Oklahoma, South Carolina, Tennessee, Texas, Utah, Virginia, Ohio and Alabama. Its insurance operations are conducted through its subsidiary, MGA Insurance Company Inc., a Texas corporation.

Headquartered in Dallas, GAINSCO also has a regional office in Miami, Florida.

“We believe this acquisition positions both our company and GAINSCO well for future growth,” Michael Tipsord, State Farm president, chairman, and CEO said in the company’s media release. He added that the acquisition “will help us further toward our goal of serving more customers in more ways.”

“This transaction creates value for GAINSCO’s shareholders and is especially opportunistic for our GAINSCO team, agency base, policyholders and plans for future growth,” GAINSCO Executive Chairman Bob Stallings said in a prepared statement.

Transaction Details

Under the definitive merger agreement, upon closing State Farm Mutual will acquire 100% GAINSCO Inc. stock; GAINSCO shareholders will receive approximately $107.38 per share in cash.

GAINSCO will continue to operate as a separate company and brand with continued focus on its current objectives. Over time, the parties expect to provide State Farm agents the opportunity to distribute GAINSCO products in addition to State Farm products and services.

Barclays Capital Inc. was the financial adviser to State Farm, and Mayer Brown LLP served as legal counsel for State Farm. Sherman & Company was the financial adviser to GAINSCO, and Hunton Andrews Kurth LLP served as legal counsel for GAINSCO.

MGA Insurance Company

In June, AM Best revised from stable to positive the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb” of GAINSCO’s MGA Insurance Co. The outlook for the FSR remains stable, AM Best said.

The ratings agency categorized MGA’S balance sheet strength as “strong” and said the revision in the Long-Term ICR outlook reflects improvement in underwriting and operating performance in recent years, driven by management’s focus on underwriting discipline, rate adjustments to counter rising industry loss costs, proactive management of open claims and other risk management actions.

The company’s combined and operating ratios compare favorably with the private passenger standard and non-standard automobile composites, AM Best said.

Source: State Farm, AM Best