PRESS RELEASE
Contacts: Stephen A. Crane
Robert P. Cuthbert
(212) 825-1200
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GRYPHON HOLDINGS REPORTS CONSUMMATION OF ACQUISITION;
RESERVE STRENGTHENING AND RESTRUCTURING CHARGE TO BE
INCLUDED IN SECOND QUARTER RESULTS
New York, New York, July 14, 1998 -- Gryphon Holdings Inc. announced today that
it has closed its previously announced acquisition of The First Reinsurance
Company of Hartford and its affiliate, Oakley Underwriting Agency (collectively
"Oakley/First Re") form Dearborn Risk Management, Inc. ("Dearborn") for a
combination of cash and preferred stock valued at $43.6 million, plus certain
other performance-driven contingent consideration.
The purchase consideration of $43.6 million consists of $31.9 million of cash
and $11.7 fair value of a new issue of Gryphon perpetual convertible preferred
stock. The preferred stock, which will have a face amount of $14.4 million, will
be convertible into 643,672 shares of Gryphon common stock, reflecting a
conversion price of $22.44 per share. No cash dividends will be paid or owed
during the first four and one-half years; a cash dividend at the rate of 4.0% of
the face amount will be paid thereafter. Gryphon has borrowed $55.0 million from
a group of banks to finance the case portion of the purchase price and repay
previously existing bank debt.
Oakley/First Re, which is based in Chicago, is a specialty insurer of
professional liability risks. It provides Directors & Officers and Errors &
Omissions coverages for corporations, professional firms, not-for-profit
institutions, and public entities. John A. Dore, President of Oakley/First Re,
will retain that position and become Executive Vice President of Gryphon and
Vice Chairman of Gryphon's main operating unit, Gryphon Insurance Group ("GIG").
Mr. Dore will also be elected to Gryphon's Board of Directors, as will John K.
Castle, Chairman of Castle Harlan, Inc., which manages a limited partnership
that is the majority shareholder of Dearborn.
In making the announcement, Stephen A. Crane, President & Chief Executive
Officer of Gryphon, stated, "We are thrilled to consummate this transaction,
which fits perfectly with our strategy of developing expertise in highly focused
niches within the specialty property and casualty insurance business. John
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Dore and his team are accomplished professionals and will add significantly to
our strength and depth."
The Company reiterated its expectation that the transaction will add
substantially to Gryphon's earnings per share.
Gryphon also reported today on the results of a formal review of operations and
reserves that it had conducted during the second quarter of 1998. The Company
indicated that second quarter results, which will be released early in August,
will include a pre-tax charge of approximately $10.6 million pertaining to
prior-year reserve strengthening. The Company also reported that it will incur a
restructuring charge of $750,000 in its second- quarter results in connection
with the staff reduction effected during the quarter.
The reserve strengthening followed a thorough and rigorous review that was
occasioned by the installation of a new senior operating management team in GIG.
GIG appointed new CEOs in each of its two profit centers this year, as well as a
new Senior Vice President -- Claims. These individuals were encouraged to
identify reserving issues pertaining to previous years in an effort to relieve
future reporting periods from the burden of past losses.
The reserve strengthening of $10.6 million before taxes includes case reserves
as well as reserves for incurred but not reported losses for various lines of
business, including pre-1985 casualty coverages with environmental impairment
and asbestos-related exposures, nursing home liability, commercial automobile,
artisan contractors, and liquor liability in two states. Almost all of this
business had been previously discontinued.
The restructuring charge of $750,000 before taxes relates to the elimination of
16 positions during the second quarter, as well as the related write-off of
future office lease obligations on certain space that is not longer necessary.
The Company reported that it was able to streamline the organization as a result
of the acquisition of Oakley/First Re, and also because of the installation of a
new computer system. The Company estimated that the actions taken will reduce
annualized expenses by approximately $1.3 million.
Mr. Crane added, "It is important for Gryphon and its shareholders that we start
life together with Oakley/First Re without the burden of past problems. Although
in our business one can never speak with total certainty regarding the adequacy
of reserves to cover future claims, we believe we have addressed a substantial
majority of reserving issues. Now that we have closed the Oakley/First Re
transaction, we hope to report consolidated results that are unencumbered to
prior-year adverse development," Mr. Crane concluded.
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Gryphon Holdings operates through its main subsidiary, Gryphon Insurance Group,
as a specialty property and casualty underwriting organization. The Company's
wholly owned insurance company subsidiaries are Associated International
Insurance Company, Calvert Insurance Company, and The First Reinsurance
Company of Hartford.
Forward-Looking Information: The Private Securities Litigation Reform Act of
1995 provides a "safe harbor" for forward-looking statements. This press release
or any other written or oral statements made by or on behalf of Gryphon may
include forward- looking statements which reflect Gryphon's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain uncertainties and other factors that could
cause actual results to differ materially from such statements. These
uncertainties and other factors (which are described in more detail elsewhere in
documents filed by Gryphon with the Securities and Exchange Commission) include,
but are not limited to, uncertainties relating to general economic conditions
and cyclical industry conditions, uncertainties relating to governmental and
regulatory policies, volatile and unpredictable developments (including storms
and catastrophes), the legal environment, the uncertainties of the reserving
process, and the competitive environment in which Gryphon operates. The words
"believe", "expect", "anticipate", "project", "plan", and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. Gryphon undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
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