10-Q 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549-1004 FORM 10-Q Mark One [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 ---------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ____________ Commission File Number: 000-24366 --------- GORAN CAPITAL INC. ------------------ (Exact name of registrant as specified in its charter) CANADA Not Applicable ------ --------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2 Eva Road, Suite 200, Etobicoke, Ontario, M9C 2A8, Canada ---------------------------------------------------------- 4720 Kingsway Drive, Indianapolis, Indiana, 46205, USA ------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) (416) 622-0660 (Canada); (317) 259-6300 (USA) --------------------------------------------- Registrant's telephone number, including area code __________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X As of June 30, 2003, there were 5,393,698 shares of Registrant's no par value common stock issued and outstanding.

GORAN CAPITAL INC. CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) For the Three Months Ended March 31, 2003 1. BASIS OF PRESENTATION Goran Capital Inc. ("the Company") is the parent company of the Goran group of companies. The consolidated financial statements are prepared in accordance with Canadian Generally Accepted Accounting Principles ("CDN GAAP"). In addition, the consolidated financial statements are also used to satisfy the Company's financial filing requirements in the U.S. Consequently, the consolidated financial statements include disclosures that are not necessarily required under CDN GAAP and contain references to United States Generally Accepted Accounting Principles ("U.S. GAAP") accounting pronouncements. Note 6, United States Accounting Principles, presents a reconciliation of CDN GAAP and U.S. GAAP. The consolidated financial statements include the accounts, after intercompany eliminations, of the Company and its subsidiaries, which are as follows: 1. Symons International Group, Inc. ("SIG") is a 73.8% owned subsidiary of Goran. SIG's subsidiaries are as follows: - Superior Insurance Group Management, Inc ("Superior Group Management") a holding company for the nonstandard automobile operations which includes: - Superior Insurance Group, Inc. ("Superior Group") a management company for the nonstandard automobile operations; - Superior Insurance Company ("Superior") an insurance company domiciled in Florida; - Superior American Insurance Company ("Superior American") an insurance company domiciled in Florida; - Superior Guaranty Insurance Company ("Superior Guaranty") an insurance company domiciled in Florida; - Pafco General Insurance Company ("Pafco") an insurance company domiciled in Indiana; - IGF Holdings, Inc. ("IGFH") a holding company - IGF Insurance Company ("IGF") an insurance company domiciled in Indiana ; 2. Granite Reinsurance Company Ltd. ("Granite Re") a finite risk reinsurance company domiciled in Barbados. 3. Granite Insurance Company ("Granite") a Canadian federally licensed insurance company. 4. Symons International Group (Florida) Inc. ("SIGF") a Florida domestic corporation. As previously announced, SIG sold its crop insurance operations to Acceptance Insurance Companies Inc. ("Acceptance") on June 6, 2001. The crop insurance business was written through IGF, which is in runoff. Accordingly, the financial statements included in this report reflect the results of the crop insurance segment as "discontinued operations." The financial statements included in this report are the consolidated financial statements of the Company and its subsidiaries. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In management's opinion, these financial statements include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods presented. Pursuant to SEC rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles ("GAAP") have been condensed or omitted from these statements, unless significant changes have taken place since the end of the most recent fiscal year. For this reason, the accompanying consolidated financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2002 included in the Company's 2002 Annual Report on Form 10-K. Results for any interim period are not necessarily indicative of results to be expected for the year. 2. PREFERRED SECURITIES On August 12, 1997, SIG issued through a wholly owned trust subsidiary $135 million aggregate principal amount in trust originated preferred securities (the "Preferred Securities"). The Preferred Securities have a term of 30 years with semi-annual interest payments of $6.4 million that commenced February 15, 1998. SIG may redeem the Preferred Securities in whole or in part 10 years after the issue date. SIG elected to defer the semi-annual interest payments due in February and August 2000, 2001 and 2002 and in February 2003. SIG expects to continue this practice through 2003 and 2004. The unpaid interest installment amounts accrue interest at 9.5%. SIG may continue to defer semi-annual interest payments for up to an aggregate of five years as permitted by the indenture for the Preferred Securities. All of the deferred interest (approximately $84 million, if all payments due in 2003 and 2004 are deferred) will become due and payable in February 2005 along with the semi-annual interest due at that time. SIG relies on the payment of finance and service fees by its subsidiaries to fund its operations, including its payment of interest on the Preferred Securities. Certain state regulators, including the FDOI, have issued orders prohibiting SIG's subsidiaries from paying such fees to SIG. There can be no assurance that SIG will have sufficient revenue to fund its operations and pay the deferred interest on the Preferred Securities. Such failure to pay could result in default under the indenture and acceleration of the payment of the Preferred Securities. The trust indenture for the Preferred Securities contains certain restrictive covenants including covenants based upon SIG's consolidated coverage ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA"). If SIG's EBITDA falls below 2.5 times consolidated interest expense (including Preferred Security distributions) for the most recent four quarters, the following restrictions become effective: - SIG may not incur additional indebtedness or guarantee additional indebtedness. - SIG may not make certain restricted payments including making loans or advances to affiliates, repurchasing common stock or paying dividends in excess of a stated limitation. - SIG may not increase its level of non-investment grade securities defined as equities, mortgage loans, real estate, real estate loans and non-investment grade fixed income securities. These restrictions currently apply, as SIG's consolidated coverage ratio was (0.42) at March 31, 2003, and will continue to apply until SIG's consolidated coverage ratio complies with the terms of the trust indenture. SIG complied with these additional restrictions as of December 31, 2001 and 2002 and is in compliance as of June 30, 2003. 3. REGULATORY ACTIONS On June 6, 2001 IGF sold substantially all of its crop insurance assets to Acceptance. On June 24, 2001, following the sale of IGF's crop insurance assets and as a result of losses experienced by IGF in its crop insurance operations, the IDOI and IGF entered into a Consent Order (the "Consent Order") relating to IGF. IGF has discontinued writing new business and its operations are presently in run off. The IDOI has continued to monitor the status of IGF. The Consent Order prohibits IGF from taking any of the following actions without prior written consent of the IDOI: - Sell or encumber any of its assets, property, or business in force; - Disburse funds, except to pay direct unaffiliated policyholder claims and normal operating expenses in the ordinary course of business (which does not include payment to affiliates except for the reimbursement of costs for running IGF by SIG, and does not include payments in excess of $10,000); - Lend its funds or make investments, except in specified types of investments; - Incur debts or obligations, except in the ordinary course of business to unaffiliated parties; - Merge or consolidate with another company; - Enter into new, or amend existing, reinsurance agreements; - Complete, enter into or amend any transaction or arrangement with an affiliate, and - Disburse funds or assets to any affiliate. The Consent Order also requires IGF to provide the IDOI with monthly written updates and immediate notices of any material change regarding the status of litigation with Continental Casualty Company, statutory reserves, number of non-standard automobile insurance policies in-force by state, and reports of all non-claims related disbursements. IGF's failure to comply with the Consent Order could cause the IDOI to begin proceedings to have a rehabilitator or liquidator appointed for IGF to extend the provisions of the Consent Order. Pafco has been subject to an agreed to order of the IDOI since February 17, 2000 that requires Pafco, among other matters, to: 1. Refrain from doing any of the following without the IDOI's prior written consent: - Selling assets or business in force or transferring property, except in the ordinary course of business; - Disbursing funds, other than for specified purposes or for normal operating expenses and in the ordinary course of business (which does not include payments to affiliates, other than under written contracts previously approved by the IDOI, and does not include payments in excess of $10,000); - Lending funds; - Making investments, except in specified types of investments; - Incurring debt, except in the ordinary course of business and to unaffiliated parties; - Merging or consolidating with another company; or - Entering into new, or modifying existing, reinsurance contracts. 2. Reduce its monthly auto premium writings, or obtain additional statutory capital or surplus, such that the ratio of gross written premium to surplus and net written premium to surplus does not exceed 4.0 and 2.4, respectively; and provide the IDOI with regular reports demonstrating compliance with these monthly writings limitations. 3. Continue to comply with prior IDOI agreements and orders to correct business practices under which Pafco must provide monthly financial statements to the IDOI, obtain prior IDOI approval of reinsurance arrangements and affiliated party transactions, submit business plans to the IDOI that address levels of surplus and net premiums written, and consult with the IDOI on a monthly basis. Pafco's inability or failure to comply with any of the above could result in the IDOI requiring further reductions in Pafco's permitted premium writings or in the IDOI instituting future proceedings against Pafco. Restrictions on premium writings result in lower premium volume. Management fees payable to Superior Group are based on gross written premium; therefore lower premium volume results in reduced management fees paid by Pafco to Superior Group. Pafco is in regular contact with the IDOI regarding its financial condition. At March 31, 2003, Pafco's gross written premium to surplus and net written premium to surplus exceeded the ratios allowed under the agreed order. SIG has reduced written premium and will be in compliance at December 31, 2003. Pafco has agreed with the IDOI to maintain its surplus above $2.5 million through August 2003. In March 2000, Pafco agreed with the Iowa Department of Insurance ("IADOI") that it would not write any new non-standard business in Iowa, until such time as Pafco has reduced its overall non-standard automobile policy counts in the state or: - as increased surplus, or - Has achieved a net written premium to surplus ratio of less than three to one, or - Has surplus reasonable to its risk. Pafco has continued to service existing policyholders and renew policies in Iowa and provide policy count information on a monthly basis in conformance with IADOI requirements. On June 30, 2003 the Missouri Department of Insurance instituted proceedings to suspend Pafco's certificate of authority in Missouri. Pafco had previously ceased writing new business in Missouri and has initiated discussions with the Missouri Department of Insurance intended to identify alternatives to the pending proceeding. Superior and Pafco provide monthly financial information to the departments of insurance in certain states in which they write business at the states' request(s). On July 7, 2000, the FDOI issued a notice of its intent to issue an order (the "Notice") which principally addressed certain policy and finance fee payments by Superior to Superior Group. A formal administrative hearing to review the Notice and a determination that the order contemplated by the Notice not be issued was held in February 2001. The administrative law judge entered a recommended order on June 1, 2001 that was acceptable to SIG. On August 30, 2001, the FDOI rejected the recommended order and issued its final order which SIG believes improperly characterized billing and policy fees paid by Superior to Superior Group. On September 28, 2001, Superior filed an appeal of the final order to the Florida District Court of Appeal. On March 4, 2002, the FDOI filed a petition in the Circuit Court of the Second Judicial Circuit in and for Leon County, Florida seeking court enforcement of the FDOI's final order. Superior filed a motion with the FDOI for stay of the FDOI's final order. Superior also filed a motion for stay with the District Court of Appeal, which was denied pending a ruling from the FDOI. On April 5, 2002 the FDOI granted a stay of the final order that was conditional upon the cessation of the payment of billing fees by Superior to Superior Group and the posting of a $15 million appeal bond. Superior did not agree to the conditions imposed by the FDOI's conditional stay. On May 6, 2002 Superior filed a motion with the District Court of Appeal seeking a stay of the final order pending Superior's appeal or, in the alternative, a consolidation of the FDOI's enforcement action with the pending appeal. On June 19, 2002, the District Court of Appeal entered an order which struck the FDOI's conditional requirement for the stay that Superior post a $15 million appeal bond. However, the order denied Superior's request to consolidate the appeal with the enforcement action. On September 26, 2002, the District Court of Appeal affirmed the final order of the FDOI. On October 31, 2002 the Circuit Court entered a final order which granted the FDOI's petition for enforcement of the FDOI's final order and which requires Superior to comply with the FDOI final order. In accordance with the FDOI's final order, Superior ceased payment of finance and service fees as of October 1, 2002 and has requested repayment from Superior Group of $15 million of finance and service fees paid from 1997 through 1999 and additional finance and service fees paid thereafter in the approximate amount of $20 million. Without the payment of finance and service fee income to Superior Group or an amendment to the management agreement or reallocation of operational responsibilities, Superior Group could not operate profitably. Accordingly, on October 1, 2002, Superior Group discontinued the provision of certain claims services to Superior. Superior provided a number of proposals to the FDOI in an effort to establish an acceptable repayment plan in accordance with the final order. None of the proposals were acceptable to the FDOI. On March 21, 2003 the FDOI filed a Motion for Enforcement of Final Order Granting Petition to Enforce Agency Action (the "Motion for Enforcement") in the Circuit Court which seeks to hold Superior in contempt for failing to obtain the immediate repayment of approximately $15 million from Superior Group. Superior Group presently does not have the ability to make a $15 million repayment, and Superior believes that this petition seeks to fashion a remedy not intended by the Circuit Court's November 1, 2002 order and contravenes the spirit of numerous discussion between the FDOI and Superior to resolve the issues during the pendency of Superior's appeal to the District Court of Appeal and the original enforcement action. On May 7, 2003 a hearing was held on the Motion for Enforcement, and an order has not yet been issued. On September 10, 2002, the FDOI filed a petition in the Circuit Court of the Second Judicial Circuit in and for Leon County, Florida for an order to show cause and notice of automatic stay which sought the appointment of a receiver for the purpose of rehabilitation of Superior. The court entered an order to show cause, temporary injunction and notice of automatic stay on September 13, 2002 and a hearing was held on October 24, 2002. On November 1, 2002, the court entered an order that denied the FDOI's petition for appointment of a receiver. On November 8, 2002, the FDOI filed a motion for rehearing, which was denied on December 17, 2002. On November 20, 2002, the FDOI issued a notice and order to show cause which seeks to suspend or revoke Superior's certificate of authority principally based upon allegations that Superior did not comply with the FDOI's August 30, 2001 final order during the pendency of the appeal of the order to the District Court of Appeal. Superior believes that it has fully and timely complied with the final order and that the action brought by the FDOI is barred by res judicata. A formal administrative hearing to review the notice and a determination that the order or administrative action contemplated by the notice not be issued was held in May 2003. A recommended order, which the FDOI may accept or reject, has not been issued. The FDOI has engaged an actuary to perform a review of Superior's reserves as of May 31, 2003. On October 9, 2001, the State Corporation Commission of Virginia ("Virginia Commission") issued an order to take notice regarding an order suspending Superior's license to write business in that state. An administrative hearing for a determination that the suspension order not be issued was held March 5, 2002. On May 3, 2002, the hearing examiner issued his report and recommended that Superior's license not be suspended and that Superior file its risk based capital plans and monthly and quarterly financial information with the Virginia Bureau of Insurance ("Bureau"). On June 19, 2002 the Virginia Commission entered an order which adopted the findings of the hearing examiner, continued the matter until such time as the Bureau requests further action and requires the continued monitoring of the financial condition of Superior by the Bureau. On October 11, 2002, the Virginia Commission filed an administrative Rule to Show Cause. A hearing was scheduled for November 18, 2002 to determine whether Superior's license to transact insurance business in Virginia should be suspended. The Virginia Commission continued the hearing indefinitely. Superior has provided additional financial information to and continues to be in contact with the Virginia Commission. On July 10, 2003, the Virginia Commission entered an order which directs Superior to stop writing business in Virginia until its surplus is at least $3 million. Although Superior's surplus as of May 31, 2003 is above $3 million, the order also requires Superior to provide the Virginia commission with an interim audited financial statement. Superior anticipates that it will meet the conditions set forth in the order prior to July 31, 2003. The nonstandard automobile insurance policies written in Virginia by Superior accounted for approximately 16.0% and 14.5% of SIG's total gross written premiums through March 31, 2003 and December 31, 2002, respectively. On April 21, 2003 the Alabama Department of Insurance issued an order to show cause to Superior for suspension of Superior's certificate of authority in Alabama due to the decline in Superior's surplus. Superior is in communication with and providing additional financial information to the Alabama Department of Insurance. An administrative hearing has not been scheduled. Policies of insurance written in Alabama account for less than 1% of Superior's gross written premiums. Due to the losses experienced by Superior, it is in regular ongoing contact with the departments of insurance of Florida, Virginia and California and insurance regulators in other states in which it writes business. Superior closely monitors its risk based capital based upon its financial projections. 4. COMMITMENTS AND CONTINGENCIES Superior is a defendant in a case filed June 16, 2003 in the Superior Court of Muscogee County, Georgia entitled Kenneth P. Chung v. Superior Insurance Company. The case purports to be brought on behalf of former and current insureds of Superior who presented first party physical damage coverage claims during the six year period preceding June 16, 2003. The plaintiff seeks recovery of alleged diminution in vehicle value from physical damage. Superior believes that the allegations of wrongdoing as alleged in the complaint were without merit and intends to vigorously defend the claims brought against it. IGF, which is a wholly owned subsidiary of SIG, had been a party to a number of pending legal proceedings and claims relating to agricultural production interruption insurance policies (the "AgPI Program") which were sold during 1998. All of the policies of insurance which were issued in the AgPI Program were issued by and under the name of Mutual Service Casualty Insurance Company ("MSI"), a Minnesota corporation with its principal place of business located in Arden Hills, Minnesota. Sales of this product resulted in large underwriting losses by IGF. Approximately $29 million was paid through December 31, 2002 in settlement of legal proceedings and policyholder claims related to the AgPI Program. All AgPI policyholder claims were settled during 2000. However, on January 12, 2001 a case was filed in the Superior Court of California, County of Fresno, entitled S&W Seed Company, Dudley Silveira, Ric Blanchard and Darrell Silveira v. Mutual Service Casualty Insurance Company, IGF Insurance Company, and Dibuduo & Defendis Insurance Agency, Inc.; Case No. OICE CG 00137. The case was brought by four AgPI policyholders who had previously settled their AgPI claims pursuant to binding settlement agreements who sought additional compensation by asserting through litigation that IGF and the third party carrier paid less than the policy limits they were promised when they purchased the policy and that each settling policyholder was forced to accept the lesser amount due to their economic duress. IGF filed a motion for summary judgment to dismiss the claims in the plaintiff's fourth amended complaint on the basis that releases previously executed by the plaintiffs are binding, which was granted. The cross claims between the selling brokers and MSI and IGF remain pending. The trial is scheduled to begin in August 2003. The Company is a defendant in a case filed on February 23, 2000, in the United States District Court for the Southern District of Indiana entitled Robert Winn, et al. v. Symons International Group, Inc., et al., Cause No. IP 00-0310-C-B/S. Other parties named as defendants are SIG, three individuals who were or are officers or directors of the Company or of SIG, PricewaterhouseCoopers LLP and Schwartz Levitsky Feldman, LLP. The case purports to be brought on behalf of a class consisting of purchasers of the Company's stock or SIG's stock during the period February 27, 1998, through and including November 18, 1999. Plaintiffs allege, among other things, that defendants misrepresented the reliability of the Company's reported financial statements, data processing and financial reporting systems, internal controls and loss reserves in violation of Section 10(b) of the Securities Exchange Act of 1934 (the "1934 Act") and SEC Rule 10b-5 promulgated thereunder. The individual defendants are also alleged to be liable as "controlling persons" under Sec.20 (a) of the 1934 Act. As previously reported in the Company's September 30, 2002 Form 10-Q, the Company, SIG and the individual defendants entered into an agreement with the plaintiffs for settlement. The settlement is subject to certain terms and conditions and court approval. SIG and two of its subsidiaries, IGFH and IGF, were parties to a "Strategic Alliance Agreement" dated February 28, 1998 (the "SAA") with Continental Casualty Company ("CNA"), pursuant to which IGF acquired certain crop insurance operations of CNA. The obligations of SIG, IGFH, IGF and CNA under the SAA are the subject of an action filed on June 4, 2001 and pending in United States District Court for the Southern District of Indiana, Indianapolis Division. Claims have also been asserted in the action against the Company, Granite Re, Pafco, Superior and certain members of the Symons family. Discovery is proceeding. Although the Company continues to believe that it has claims against CNA and defenses to CNA's claims which may offset or reduce amounts owing by the Company or its affiliates to CNA, there can be no assurance that the ultimate resolution of the claims asserted by CNA against the Company and its affiliates will not have a material adverse effect upon the Company's and its affiliates' financial condition or results of operations. Superior was a defendant in a case filed on May 8, 2001 in the United States District Court Southern District of Florida entitled The Chiropractic Centre, Inc. v. Superior Insurance Company, Case No. 01-6782. The case purported to be brought on behalf of a class consisting of healthcare providers improperly paid discounted rates on services to patients based upon a preferred provider contract with a third party. The plaintiff alleged that Superior breached a third party beneficiary contract, committed fraud and engaged in racketeering activity in violation of federal and Florida law by obtaining discounted rates offered by a third party with whom the plaintiff contracted directly. On September 30, 2002, the court issued an administrative order which dismissed the case. The court's order administratively closing the case could be temporary or permanent. Superior believes that the allegations of wrongdoing as alleged in the complaint were without merit and in the event the order is temporary, Superior intends to vigorously defend the claims brought against it. IGF is a defendant in a case filed on December 31, 2002 in the Circuit Court of Greene County, Missouri entitled Kevin L. Stevens v. Wilkerson Insurers, et al., Case No. 102CC5135. Other parties named as defendants are the Company, the Company's subsidiaries, Symons International Group (Florida), Inc. and Granite Re, Superior Group Management, Superior, Superior American, Superior Guaranty, Pafco and three individuals who were or are officers or directors of the Company and/or SIG. The Company, Granite Re, Symons International Group (Florida), Inc, Superior Group Management, Superior, Superior American, Superior Guaranty and certain individual defendants filed motions to dismiss for lack of personal jurisdiction which were denied. The case purports to be brought on behalf of an IGF insured seeking to recover alleged damages based on allegations of bad faith, negligent claims handling and breach of fiduciary duties with respect to a claim which arose from an accident caused by the IGF insured. IGF believes that the allegations of wrongdoing as alleged in the complaint are without merit and intends to vigorously defend the claims brought against it. See Note 3, "Regulatory Actions," for additional legal matters. The Company's insurance subsidiaries are parties to other litigation arising in the ordinary course of business which the Company does not believe will have a material adverse effect upon the Company's and its affiliates financial conditions or results. The Company, through its claims reserves, reserves for both the amount of estimated damages attributable to these lawsuits and the estimate costs of litigation.

The Company has 428,750 stock options outstanding as of March 31, 2003. Common stock equivalents are anti-dilutive. Therefore, fully diluted loss per share is the same as basic loss per share. 6. UNITED STATES ACCOUNTING PRINCIPLES These unaudited consolidated financial statements have been prepared in accordance with CDN GAAP. There are no differences between CDN GAAP and U.S. GAAP for both the net loss and the net loss per share. The differences between CDN GAAP and U.S. GAAP for stockholders' (deficit) are as follows (in thousands):

7. STOCK-BASED COMPENSATION The Company accounts for stock-based employee compensation using the intrinsic value method under APB Opinion 25, "Accounting for Stock Issued to Employees," and related interpretations as permitted under SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS 148"). Accordingly no compensation expense is recognized if the market price of the underlying stock does not exceed the exercise price at the date of grant. If the Company had applied the fair value recognition provisions of SFAS 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation and non-employee director compensation, the effect on net loss and net loss per share attributable to common stockholders would not be materially affected. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements All statements, trend analyses, and other information herein contained relative to markets for the Company's products and/or the Company's operations or financial results constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the Act). Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, which include words such "anticipate," "could," "feel(s)," "believes," "plan," "estimate," "expect," "should," "intend," "will," and other similar expressions . In addition, any statements concerning future financial performance, ongoing business strategies or prospects and possible future Company actions which may be provided by management are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are subject to known and unknown risks, uncertainties and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements. Such factors include, but are not limited to, the effect on customers, agents, employees and others due to SIG's and its subsidiaries' receipt of going concern opinions from their accountants; general economic conditions, including prevailing interest rate levels and stock market performance; factors affecting the Company's nonstandard automobile operations such as rate increase approval, policy renewals, new business written, and premium volume; and the factors described in this section and elsewhere in this report. These forward-looking statements are not guaranties of future performance and the Company has no specific intention to update these statements. Overview of Business Goran Capital Inc. ("Goran" or the "Company") is a Canadian federally incorporated holding company principally engaged in the business of underwriting property and casualty insurance through its nonstandard automobile insurance subsidiaries Pafco General Insurance Company ("Pafco") and Superior Insurance Company ("Superior"), which maintain their headquarters in Indianapolis, Indiana. Goran owns approximately 73.8% of a U.S. holding company, Symons International Group, Inc. ("SIG"). SIG owns IGF Holdings, Inc. ("IGFH") and Superior Insurance Group Management, Inc. ("Superior Management") which are the holding companies for the insurance subsidiaries. Superior Management owns Superior Insurance Group, Inc. ("Superior Group") which is the management company for the insurance subsidiaries. SIG's revenue represents approximately 90% of Goran's consolidated revenues. Goran's other subsidiaries are Granite Reinsurance Company Ltd. ("Granite Re"), Granite Insurance Company ("Granite"), and Symons International Group (Florida) Inc. ("SIGF"). Granite Re is a specialized reinsurance company that underwrites niche products such as nonstandard automobile, crop, property casualty reinsurance and offers (on a non-risk bearing, fee basis), rent-a-captive facilities for Bermudian, Canadian and U.S. reinsurance companies. Through a rent-a-captive program, Granite Re offers the use of its capital and its underwriting facilities to write specific programs on behalf of its clients, including certain programs ceded from IGF and Pafco. Granite Re alleviates the need for a client to establish its own insurance company and also offers this facility in an offshore environment. Granite, a Canadian federally licensed insurance company, sold its book of business in January 1990 to an affiliate which subsequently sold to third parties in June 1990. Granite currently has one outstanding claim and maintains an investment portfolio sufficient to support this claim liability. Goran anticipates that the outstanding claim will be resolved by 2004. SIGF, a Florida corporation, is primarily engaged in the operation of a property/casualty insurance brokerage and a flood insurance brokerage. Strategic Alignment As previously announced, in the fourth quarter of 2000, management initiated a strategic review of the Company's U.S. operations. This review resulted in a plan to divest of the Company's crop insurance segment, allowing management to focus on nonstandard automobile insurance. In June 2001, the Company sold its crop insurance segment and adopted a plan to wind-down the remaining crop insurance segment obligations. Accordingly, financial results of the crop insurance segment are presented as discontinued operations in the Company's financial statements. Continuing operations of the Company consist primarily of the nonstandard automobile insurance segment. Significant Losses Have Been Reported and are Likely to Continue The net loss from continuing operations for the three months ended March 31, 2003 was $(3,599,000). The net loss from continuing operations for the three months ended March 31, 2002 was $(5,967,000). The Company reported losses from continuing operations of $(29,745,000), $(31,937,000) and $(63,224,000) for 2002, 2001 and 2000, respectively. Losses from continuing operations increased in 2002 from 2001 due to significant adverse development on new business generated in the first quarter of 2002, primarily due to increased frequency of losses. The Company's losses continued for the period ending March 31,2003; however, the Company continues to work towards operational improvements. The financial condition of the company's U.S. insurance subsidiaries continues to be of concern to the insurance regulators and has resulted in heightened regulatory oversight. Although the Company has taken a number of actions to address factors contributing to these past losses, there can be no assurance that operating losses will not continue. Recent and Further Regulatory Actions May Affect the Company's Future Operations The Company's U.S. insurance company subsidiaries, their business operations, and their transactions with affiliates, including the Company, are subject to extensive regulation and oversight by the IDOI, the FDOI and the insurance regulators of other states in which the insurance company subsidiaries write business. Moreover, the U.S. insurance company subsidiaries' losses, adverse trends and uncertainties discussed in this report have been and continue to be matters of concern to the domiciliary and other insurance regulators of the Company's U.S. insurance company subsidiaries and have resulted in enhanced scrutiny and regulatory action by several regulators. (See Note 3, "Regulatory Actions," in the condensed notes to the consolidated financial statements above). The primary purpose of insurance regulation is the protection of policyholders rather than shareholders. Failure to resolve issues with the IDOI and the FDOI, and with other regulators, in a manner satisfactory to the Company could impair the Company's ability to execute its business strategy or result in future regulatory actions or proceedings that could otherwise materially and adversely affect the Company's operations. The Company is Subject to a Number of Pending Legal Proceedings As discussed elsewhere in this report, the Company and/or its subsidiaries are involved in a number of pending civil legal proceedings (see Part II, Item 1. "Legal Proceedings"). Although the Company believes that many of the allegations of wrongdoing are without merit and intends to vigorously defend the claims brought against it, there can be no assurance that such proceedings will not have a material adverse effect on the Company's financial position or results of operations. Furthermore, the existence of these lawsuits diverts the time and attention of management, and they are costly to defend, whether or not the Company is ultimately successful. The Terms of the Trust Preferred Securities May Restrict SIG's Ability to Act SIG has issued through a wholly owned trust subsidiary $135 million aggregate principal amount in trust originated preferred securities ("Preferred Securities"). The Preferred Securities have a term of 30 years with annual interest at 9.5% paid semi-annually. The obligations of the Preferred Securities were expected to be funded from SIG's nonstandard automobile insurance management company. SIG elected to defer the semi-annual interest payments due in February and August 2000, 2001 and 2002 and the payment due in February 2003 and may continue to defer such payments for up to an aggregate of five years as permitted by the indenture for the Preferred Securities. All of the deferred interest (if all payments due in 2003 and 2004 are deferred) approximating $84 million will become due and payable in February 2005. Although there is no present default under the indenture that would accelerate the payment of the Preferred Securities, the indenture contains a number of covenants that may restrict SIG's ability to act in the future. These covenants include restrictions on SIG's ability to incur or guarantee debt, make payment to affiliates, repurchase its common stock, pay dividends on common stock or increase its level of certain investments other than investment-grade, fixed-income securities. There can be no assurance that compliance with these restrictions and other provisions of the indenture for the Preferred Securities will not adversely affect the cash flow of SIG and the Company. Review Of Consolidated Operations Net Loss The net loss for the three months ended March 31, 2003 was $(3,599,000) or $(0.67) per share (basic and diluted). The net loss for the three months ended March 31, 2002 was $(5,967,000) or $(1.11) per share (basic and diluted). The decreased loss is due primarily to reduced loss and loss adjustment expenses (LAE). There was no loss on discontinued operations for the three months ended March 31, 2003 and 2002, respectively. Gross Premiums Written Gross premiums written decreased 38.0% for the first quarter of 2003 compared to the first quarter of 2002. The primary reasons for this decline in volume are the withdrawal from certain competitive markets and other underwriting initiatives intended to increase profitability. Net Premiums Written Net premiums written represent the portion of premiums that are being retained by the Company after consideration for risk sharing through reinsurance contracts. As a result of losses in the Company's U.S. insurance subsidiaries, the growth in retained deficit and to manage overall risk retention, SIG entered into a reinsurance agreement to cede a portion of its gross written premiums to National Union Fire Insurance Company of Pittsburgh, PA, an unrelated third party. For the three months ended March 31, 2003, SIG ceded approximately 75% of its gross written premiums. Net Premiums Earned Net premiums earned decreased 52.7% for the three months ended March 31, 2003, as compared to the same period in 2002. Premiums are earned ratably over the term of the underlying insurance contracts and the reduction in net premiums earned is a result of the decrease in written premiums and policies in force. Fee Income Fee income is derived from installment billings and other services provided to policyholders. Fee income decreased 4.5% for the three months ended March 31, 2003, as compared to the same period in 2002 . Net Investment Income Net investment income for the three months ended March 31, 2003 was 74.8% lower than for the three months ended March 31, 2002. This decrease reflects the decline in invested assets during a period of declining premiums and the liquidation of investments during 2002 to pay prior year losses settled in 2002. Net Realized Capital Gain (Loss) Net realized capital gain for the three months ended March 31, 2003 was $245,000. Net realized capital (loss) for the three months ended March 31, 2002 was $(722,000). The net capital gain for the three months ended March 31, 2003 resulted from a shift in management investing approach toward a secure and less risky bond market. Also in the first quarter of 2003, the fixed maturities investment portfolio generated net capital gain attributable to the fixed maturities' positive yields as opposed to the highly volatile stock market. The net capital loss for the three months ended March 31, 2002 resulted primarily from the liquidation of longer duration fixed income securities in order to rebalance the investment positions in the portfolio. These transactions resulted in higher cash proceeds that were reinvested in shorter duration investment instruments. The net capital loss was also caused by the continued liquidation of investments to fund operations and claim payments under unfavorable market conditions. Losses and LAE SIG's loss and LAE ratio for the three months ended March 31, 2003 was 90.1% of net premiums earned. SIG's loss and LAE ratio for the three months ended March 31, 2002 was 107.7% of net premiums earned. SIG's loss and LAE ratio for the twelve months ended December 31, 2002 was 127.9% of net premiums earned. Policy Acquisition and General and Administrative Expense Policy acquisition and general and administrative expenses for the three months ended March 31, 2003 were $5,803,000. Policy acquisition and general and administrative expenses for the three months ended March 31, 2002 were $7,293,000. This decrease reflects the decline in gross written premiums, an increase in ceding commissions associated with the quota share reinsurance contract, and overall operating expense reduction initiatives. Provision (Benefit) for Income Taxes At March 31, 2003 the Company's net deferred tax assets were fully offset by a 100% valuation allowance that resulted in no tax benefit for the three months ended March 31, 2003. At March 31, 2002 the Company's net deferred tax assets were fully offset by a 100% valuation allowance that resulted in no tax benefit for the three months ended March 31, 2002. Review Of Consolidated Financial Condition Cash and Investments Total cash and investments at March 31, 2003 and December 31, 2002 were $50,780,000 and $60,610,000, respectively. The decrease resulted from continued liquidations to fund claim payments and operating expenses, as well as the portfolio rebalancing discussed in PART I, Item 2, "Net Realized Capital Gain (Loss)" above. Reinsurance Receivables and Payables SIG negotiated a third-party quota share reinsurance agreement that became effective January 1, 2001. Under the quota share agreement, SIG may cede a portion of its non-standard automobile insurance premiums and related losses based on a variable percentage of up to 75% of Superior's and up to 75% of Pafco's earned premiums. SIG's ceding percentage for the first quarter of 2003 totaled 75% for Superior and 60% for Pafco. The decrease in the amount of premiums and losses ceded under this contract directly affect reinsurance balances due and payable on the face of the financial statements. Receivables Net receivables increased by $585,000, or 2.1%, from December 31, 2002. This increase is primarily attributable to an increase in billable premiums due to higher written premiums in the first quarter of 2003 versus the fourth quarter of 2002. The allowance for doubtful accounts increased by $433,000 from December 31, 2002. Loss and LAE Reserves Total loss and LAE reserves decreased from $72,809,000 as of December 31, 2002 to $69,339,000 as of March 31, 2003. This decrease is consistent with the Company's declining volume of business. Unearned Premiums Unearned premiums increased from $35,797,000 as of December 31, 2002 to $39,298,000 as of March 31, 2003. This increase is consistent with the increase in receivables discussed above. Deferred Income In connection with the sale of the crop insurance book of business to Acceptance on June 6, 2002, the Company and SIG each received a payment of $4.5 million for agreeing not to engage in the crop insurance business for three years from the sale date. The payment is being amortized to income on a straight-line basis over the three-year period. Stockholders' (Deficit) Stockholders' (deficit) was $(94,507,000) as of March 31, 2003. Stockholders' (deficit) was $(90,752,000) as of December 31, 2002. The increased deficit was primarily the result of the net loss of $(4,138,000) for the three months ended March 31, 2003. Liquidity And Capital Resources The primary source of funds for Goran is through dividend and loans from Granite Re. The primary sources of funds for SIG are fees from policyholders and management fees from its subsidiaries. Superior Insurance Group, Inc. ("Superior Group") collects billing fees charged to Pafco policyholders who elect to make their premium payments in installments, and managing general agent ("MGA") fees charged to Superior policyholders. Superior Group also receives management fees under its management agreement with its insurance subsidiaries. When the Florida Department of Insurance ("FDOI") approved the acquisition of Superior by Superior Group, it prohibited Superior from paying any dividends (whether extraordinary or not) for four years from the date of acquisition (May 1, 1996) without the prior written approval of the FDOI, which restriction expired in April 2000. As a result of regulatory actions taken by the Indiana Department of Insurance ("IDOI") with respect to Pafco and IGF, those subsidiaries may not pay dividends without prior approval by the IDOI. Pafco cannot pay extraordinary dividends, within the meaning of the Indiana Insurance Code, without the prior approval of the Indiana Insurance Commissioner. The management fees charged to Pafco, Superior and IGF are subject to review by the IDOI and FDOI. The nonstandard automobile insurance subsidiaries' primary source of funds is premiums, investment income and proceeds from the maturity or sale of invested assets. Such funds are used principally for the payment of claims, payment of claims settlement costs, operating expenses (primarily management fees), commissions to independent agents, premium taxes, dividends and the purchase of investments. There is variability in cash outflows because of uncertainties regarding settlement dates for liabilities for unpaid losses. Accordingly, the Company maintains investment programs intended to provide adequate funds to pay claims. Due to reduced premium volume during 2002 and 2001, SIG liquidated investments to pay claims. SIG historically has tried to maintain duration averages of 3.5 years. However, the reduction in new funds due to lower premium volume caused SIG to shorten the duration of its investments. SIG may incur additional costs in selling longer term bonds to pay claims, as claim payments tend to lag premium receipts. Due to the decline in premium volume, SIG experienced a reduction in its investment portfolio, but to date has not experienced any problems meeting its obligations for claims payments. On August 12, 1997, SIG issued through a wholly owned trust subsidiary $135 million aggregate principal amount in trust originated preferred securities (the "Preferred Securities"). The Preferred Securities have a term of 30 years with semi-annual interest payments of $6.4 million that commenced February 15, 1998. SIG may redeem the Preferred Securities in whole or in part 10 years after the issue date. SIG elected to defer the semi-annual interest payments due in February and August 2000, 2001 and 2002 and February 2003. SIG expects to continue this practice through 2003 and 2004. The unpaid interest installment amounts accrue interest at 9.5%. SIG may continue to defer the semi-annual interest payments for up to an aggregate of five years as permitted by the indenture for the Preferred Securities. All of the deferred interest (approximately $84 million, if all payments due in 2003 and 2004 are deferred) will become due and payable in February 2005 along with the semi-annual interest due at that time. SIG relies on the payment of finance and service fees by its subsidiaries to fund its operations, including its payment of interest on the Preferred Securities. Certain state regulators, including the FDOI, have issued orders prohibiting SIG's subsidiaries from paying such fees to SIG. In the event such orders continue, SIG may not have sufficient revenue to fund its operations or to pay the deferred interest on the Preferred Securities. Such failure to pay could result in default under the indenture and acceleration of the payment of the Preferred Securities. The trust indenture contains certain restrictive covenants based upon SIG's consolidated coverage ratio of earnings before interest, taxes, depreciation and amortization (EBITDA). If SIG's EBITDA falls below 2.5 times consolidated interest expense (including Preferred Securities distributions) for the most recent four quarters, the following restrictions become effective: - SIG may not incur additional indebtedness or guarantee additional indebtedness. - SIG may not make certain restricted payments including making loans or advances to affiliates, repurchasing common stock or paying dividends in excess of a stated limitation. - SIG may not increase its level of non-investment grade securities defined as equities, mortgage loans, real estate, real estate loans and non-investment grade fixed income securities. These restrictions currently apply, as SIG's consolidated coverage ratio was (0.42) at March 31, 2003, and will continue to apply until SIG's consolidated coverage ratio complies with the terms of the trust indenture. SIG complied with these additional restrictions as of December 31, 2001 and 2002 and was in compliance as of June 30, 2003. Net cash used by the Company's operating activities during the three months ended March 31, 2003 was $(10,019,000). Net cash used by the Company's operating activities during the three months ended March 31, 2002 was $(12,911,000). Net cash used by the Company's operating activities in 2002 and 2001was $(68,801,000) and $(23,490,000), respectively. As reported in the Company's December 31, 2002 Form 10-K, during 2002 SIG took a number of actions to improve its financial condition. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information related to Qualitative and Quantitative Disclosures about Market Risk was included under Part II, Item 7A " Quantitative And Qualitative Disclosures About Market Risk" in the Company's December 31, 2002 Form 10-K. No material changes have occurred in market risk since this information was disclosed in the Company's December 31, 2002 Form 10-K. ITEM 4. CONTROLS AND PROCEDURES Evaluation Of Disclosure Controls And Procedures The Company and SIG maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods. Within the 90 days prior to the date of filing this Quarterly Report on Form 10-Q, the Company and SIG carried out evaluations, under the supervision and with the participation of the Company's and SIG's management, including the Company's CEO, the Company's CFO and SIG's CFO, of the effectiveness of the design and operation of the Company's and SIG's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's CEO, the Company's CFO and SIG's CFO concluded that the Company's and SIG's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company and SIG (including their consolidated subsidiaries) required to be included in the Company's periodic SEC filings. Changes In Internal Controls There have been no significant changes in the Company's or SIG's internal controls, or in other factors that could significantly affect internal controls, subsequent to the date of the evaluation described above (Part I, Item 4 - "Evaluation Of Disclosure Controls And Procedures"). No corrective actions were required with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Superior is a defendant in a case filed June 16, 2003 in the Superior Court of Muscogee County, Georgia entitled Kenneth P. Chung v. Superior Insurance Company. The case purports to be brought on behalf of former and current insureds of Superior who presented first party physical damage coverage claims during the six year period preceding June 16, 2003. The plaintiff seeks recovery of alleged diminution in vehicle value from physical damage . Superior believes that the allegations of wrongdoing as alleged in the complaint were without merit and intends to vigorously defend the claims brought against it. IGF, which is a wholly owned subsidiary of the Company, had been a party to a number of pending legal proceedings and claims relating to agricultural production interruption insurance policies (the "AgPI Program") which were sold during 1998. All of the policies of insurance which were issued in the AgPI Program were issued by and under the name of Mutual Service Casualty Insurance Company ("MSI"), a Minnesota corporation with its principal place of business located in Arden Hills, Minnesota. Sales of this product resulted in large underwriting losses by IGF. Approximately $29 million was paid through December 31, 2002 in settlement of legal proceedings and policyholder claims related to the AgPI Program. All AgPI policyholder claims were settled during 2000. However, on January 12, 2001 a case was filed in the Superior Court of California, County of Fresno, entitled S&W Seed Company, Dudley Silveira, Ric Blanchard and Darrell Silveira v. Mutual Service Casualty Insurance Company, IGF Insurance Company, and Dibuduo & Defendis Insurance Agency, Inc.; Case No. OICE CG 00137. The case was brought by four AgPI policyholders who had previously settled their AgPI claims pursuant to binding settlement agreements who now seek additional compensation by asserting through litigation that IGF and the third party carrier paid less than the policy limits they were promised when they purchased the policy and that each settling policyholder was forced to accept the lesser amount due to their economic duress - a legal theory recognized in California if certain elements can be established. The plaintiff's amended their complaint four times during 2002. A demurrer to the fourth amended complaint was filed by MSI and a motion to strike was filed by IGF, which were denied. IGF filed a motion for summary judgment to dismiss the claims in the plaintiff's fourth amended complaint on the basis that releases previously executed by the plaintiffs are binding, which was granted. The cross claims between the selling brokers and MSI and IGF remain pending. The trial is scheduled to begin in August 2003. The Company is a defendant in a case filed on February 23, 2000, in the United States District Court for the Southern District of Indiana entitled Robert Winn, et al. v. Symons International Group, Inc., et al., Cause No. IP 00-0310-C-B/S. Other parties named as defendants are SIG, three individuals who were or are officers or directors of the Company or of SIG, PricewaterhouseCoopers LLP and Schwartz Levitsky Feldman, LLP. The case purports to be brought on behalf of a class consisting of purchasers of the Company's stock or SIG's stock during the period February 27, 1998, through and including November 18, 1999. Plaintiffs allege, among other things, that defendants misrepresented the reliability of the Company's reported financial statements, data processing and financial reporting systems, internal controls and loss reserves in violation of Section 10(b) of the Securities Exchange Act of 1934 (the "1934 Act") and SEC Rule 10b-5 promulgated thereunder. The individual defendants are also alleged to be liable as "controlling persons" under Sec.20 (a) of the 1934 Act. As previously reported in the Company's December 31, 2002 Form 10-K, the Company, SIG and the individual defendants entered into an agreement with the plaintiffs for settlement. The settlement is subject to certain terms and conditions and court approval. SIG and two of its subsidiaries, IGFH and IGF, were parties to a "Strategic Alliance Agreement" dated February 28, 1998 (the "SAA") with Continental Casualty Company ("CNA"), pursuant to which IGF acquired certain crop insurance operations of CNA. The obligations of the Company, IGFH, IGF and CNA under the SAA are the subject of an action filed on June 4, 2001 and pending in United States District Court for the Southern District of Indiana, Indianapolis Division. Claims have also been asserted in the action against Goran, Granite Re, Pafco, Superior and certain members of the Symons family. Discovery is proceeding. Although SIG continues to believe that it has claims against CNA and defenses to CNA's claims which may offset or reduce amounts owing by SIG or its affiliates to CNA, there can be no assurance that the ultimate resolution of the claims asserted by CNA against SIG and its affiliates will not have a material adverse effect upon the Company's and its affiliates' financial condition or results of operations. Superior was a defendant in a case filed on May 8, 2001 in the United States District Court Southern District of Florida entitled The Chiropractic Centre, Inc. v. Superior Insurance Company, Case No. 01-6782. The case purported to be brought on behalf of a class consisting of healthcare providers improperly paid discounted rates on services to patients based upon a preferred provider contract with a third party. The plaintiff alleged that Superior breached a third party beneficiary contract, committed fraud and engaged in racketeering activity in violation of federal and Florida law by obtaining discounted rates offered by a third party with whom the plaintiff contracted directly. On September 30, 2002, the court issued an administrative order which dismissed the case. The court's order administratively closing the case could be temporary or permanent. Superior believes that the allegations of wrongdoing as alleged in the complaint were without merit and in the event the order is temporary, Superior intends to vigorously defend the claims brought against it. IGF is a defendant in a case filed on December 31, 2002 in the Circuit Court of Greene County, Missouri entitled Kevin L. Stevens v. Wilkerson Insurers, et al., Case No. 102CC5135. Other parties named as defendants are Goran, Goran's subsidiaries, Symons International Group (Florida), Inc. and Granite Re, Superior Group Management, Superior, Superior American, Superior Guaranty, Pafco and three individuals who were or are officers or directors of the Company. Goran, Granite Re, Symons International Group (Florida), Inc, Superior Group Management, Superior, Superior American, Superior Guaranty and certain individual defendants have filed motions to dismiss for lack of personal jurisdiction which are pending. The case purports to be brought on behalf of an IGF insured seeking to recover alleged damages based on allegations of bad faith, negligent claims handling and breach of fiduciary duties with respect to a claim which arose from an accident caused by the IGF insured. IGF believes that the allegations of wrongdoing as alleged in the complaint are without merit and intends to vigorously defend the claims brought against it. See Note 3, "Regulatory Actions," and Note 4, "Commitments and Contingencies," to the Company's consolidated financial statements in Part I, Item 1 of this report, incorporated herein by reference for additional legal matters. The Company's insurance subsidiaries are parties to other litigation arising in the ordinary course of business which the Company does not believe will have a material adverse effect upon the Company's and its affiliates financial conditions or results. The Company, through its claims reserves, reserves for both the amount of estimated damages attributable to these lawsuits and the estimated costs of litigation. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K The Exhibits set forth on the Index to Exhibits are incorporated herein by reference. (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on July 16, 2003. By: /s/ Douglas H. Symons ------------------------ Douglas H. Symons Chief Executive Officer (principal executive officer) By: /s/ John G. Pendl -------------------- John G. Pendl Chief Financial Officer (principal financial and accounting officer) CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Douglas H. Symons, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Goran Capital Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a014 and 15d-14) for the registrant, and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: July 16, 2003 By: /s/ Douglas H. Symons --------------- ------------------------ Douglas H. Symons Chief Executive Officer CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, John G. Pendl, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Goran Capital Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a014 and 15d-14) for the registrant, and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: July 16, 2003 By: /s/ John G. Pendl --------------- -------------------- John G. Pendl Chief Financial Officer

GORAN CAPITAL INC 10-Q