Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (November 2008)
60 slides from Proassurance's investor presentation, Nov 18, 2008
Slide 1: Forward Looking Statements and Non-GAAP Measures
Non-GAAP Measures Forward Looking Statements This presentation contains Forward Looking Statements and other information designed to convey our projections and expectations regarding future results. There are a number of factors which could cause our actual results to vary materially from those proj
Slide 2: ProAssurance: Quick Facts
ProAssurance: Quick Facts Market Cap: $1.9 Billion / Equity: $1.3 Billion Fifth largest writer of medical liability Writing business in 30 jurisdictions Approximately 39,000 policyholders Approximately 33,000 physicians & dentists Approximately 5,400 attorneys Majority in small or solo practice High
Slide 3: ProAssurance: Our Challenges
ProAssurance: Our Challenges The soft market Finding profitable growth opportunities Maintaining operational discipline in the face of irrational competitors The financial markets Balancing risk vs. return Ensuring enduring balance sheet strength
Slide 4: The Soft Market Challenge: Finding Profitable Growth
The Soft Market Challenge: Finding Profitable Growth The Soft Market Challenge: Finding Profitable Growth
Slide 5: Finding Profitable Growth
Finding Profitable Growth The Challenges We take a long-term view We focus on the bottom line We will reluctantly turn away unprofitable business We understand Wall Street’s expectation for top line growth But not at any price
Slide 6: ProAssurance has been built through M&A
ProAssurance was formed by the combination of two successful companies with a history of M & A Profitable Growth Through M & A ProAssurance has been built through M & A
Slide 7: Profitable Growth Through M&A: Founding Transactions
Each company brought multiple transactions into ProAssurance at our founding in 2001 Profitable Growth Through M & A ProAssurance has been built through M & A
Slide 8: We have continued to grow through M&A
We have continued to grow through M & A NCRIC in the mid- Atlantic PIC-Wisconsin in the upper Midwest Profitable Growth Through M & A ProAssurance has been built through M & A
Slide 9: De Novo Growth Also Plays a Role
We carefully evaluate the medical and legal climate of each state before entering We are the market leaders in AL, DE, DC, OH, & WI Denovo Growth Also Plays a Role We have added states as opportunities arose
Slide 10: New Transactions Strengthen Us: The PICA Group
New Transactions Strengthen Us The PICA Group Leading insurer of podiatric physicians nationwide Market share: approximately 70% Premiums: $99 million Profitable Well managed Low integration risk Joining PRA through a sponsored demutualization Will operate as a stand-alone subsidiary
Slide 11: Adding the PICA Group
9,800 DPMs 6,800 other providers 93% Direct Largest States: CA, FL, NY, IL, TX 11% 7% 9% 7% 8% PICA’s Business Profile PICA’s Business Profile Adding the PICA Group Expands our footprint nationwide Adds ~$99 mln premium and 16,600 insureds
Slide 12: New Transactions Strengthen Us: Georgia Lawyers Insurance Company
New Transactions Strengthen Us Georgia Lawyers Insurance Company A leading insurer of Georgia attorneys Premiums: $5.5 million Solidifies our presence in the legal professional liability market
Slide 13: Adding Georgia Lawyers Insurance
GLIC: 2,700 lawyers Most small and mid-size firms Existing legal book is 5,400 attorneys in 2,8oo law firms Premium: $10.4 million Adding Georgia Lawyers Insurance
Slide 14: Adding Dedicated Agents for Lawyers
Greyhawk (Phoenix) AZ, CA, CO, NV, WA ProLawyer (Philadelphia) DE, DC, MD, NJ, PA, VA Adding Dedicated Agents for Lawyers
Slide 15: The Soft Market Challenge: Maintaining Operational Discipline
The Soft Market Challenge: Maintaining Operational Discipline The Soft Market Challenge: Maintaining Operational Discipline
Slide 16: Maintain Operational Discipline: The Challenge
Maintain Operational Discipline The Challenge Irrational competitors price their product to protect their top line and market share Mortgaging their future for the status quo We compete by offering real service and solid financial security
Slide 17: Operational Discipline: Strategy – Local presence
Our local presence retains the benefits of our M & A transactions through long-term customer relationships Efficiencies gained from consolidated “back-room” operations Claims / Underwriting Offices Claims / Underwriting Offices Operational Discipline: Strategy Local knowledge remains the key to prof
Slide 18: Operational Discipline: Strategy
Operational Discipline: Strategy Apply an overall corporate strategy that recognizes state-by-state differences Loss trends allowing more aggressive strategies in long-term markets Spread risk through geographical diversification Maintain margin More important than top-line volume Protect the balanc
Slide 19: Operational Discipline: Strategy
Operational Discipline: Strategy Charge adequate an adequate premium for every risk Loss-trends drive rates Retain historical reserving practices Be prepared when the cycle turns
Slide 20: Strict Underwriting as Claims Peaked; Maintaining Historical Reserving
Insureds Reserves in millions Strict Underwriting as Claims Peaked. The Hard Market NCRIC Policyholders PIC Wis Policyholders Market Softening Maintaining Historical Reserving
Slide 21: Focus on Claims Defense: Our Core
We try more claims than any company in our line of business We try more claims than any company in our line of business Focus on Claims Defense: Our Core We offer our insureds the option of an unfettered defense of their claim Provides a long-term financial and marketing advantage A key differentiat
Slide 22: Why Claims Strategy Matters: Favorable Outcomes
Favorable Outcomes: 83% Favorable Outcomes: 74% Favorable Outcomes: 83% Favorable Outcomes: 74% ProAssurance Industry Data Source: The PIAA Five Year Average 2003 - 2008 Why Claims Strategy Matters
Slide 23: Why Claims Strategy Matters: Statutory Loss Ratio
Average Statutory Loss Ratio 2003-2007 Industry 85.9% Legal Payments Loss Payments PRA: 81.8% 81.4% ProAssurance Stand Alone - - 2007 76.0% *Source: A. M. Best Aggregates & Averages, Medical Malpractice Predominating 64.3% Why Claims Strategy Matters Our ability and willingness to defend claims allo
Slide 24: The Age of Transparency
Board / Discipline Board / Discipline / Med Mal Med Mal disclosure legislation proposed P P P P P The Age of Transparency
Slide 25: The Age of Transparency
http://12.150.185.184/dca/simple_search.jsp The Age of Transparency
Slide 26: The Financial Challenge: Balancing Risk vs. Return
The Financial Challenge: Balancing Risk vs. Return The Financial Challenge: Balancing Risk vs. Return
Slide 27: Navigating the Financial Markets
Navigating the Financial Markets The Challenges Balancing risk vs. return Ensuring enduring balance sheet strength
Slide 28: Balancing Risk vs. Return: Capital Structure
Stockholder’s Equity 96% AT 9/30/2008 Stockholder’s Equity 96% Other Debt 4% Balancing Risk vs. Return
Slide 29: Balancing Risk vs. Return: $3.5 Billion Portfolio
$3.5 Billion Portfolio Fixed Income: 86% Short Term: 9% Equity and Other Investments: 3% BOLI: 2% $3.5 Billion Portfolio Fixed Income: 86% Short Term: 9% Equity and Other Investments: 3% BOLI: 2% AT 9/30/2008 Balancing Risk vs. Return
Slide 30: Portfolio: Fixed Income
Asset Backed: 28% State/Muni: 44% Corporate: 19% BOLI: 2% Govt/Agency:7% AT 9/30/2008 Portfolio: Fixed Income $3.1 Billion is Fixed Income Average fixed maturity duration: 4.4 years Average tax-equivalent yield: 5.41% 97.6% investment grade Weighted average: AA
Slide 31: Portfolio Overview: Equities
Portfolio Overview: Equities ¥ $121 million in Equities and Other Investments an fan % —= Private oe wise gue Py PROASSURANCE. “rested Faly
Slide 32: The Financial Challenge: Ensuring Balance Sheet Strength
The Financial Challenge: Ensuring Balance Sheet Strength The Financial Challenge: Ensuring Balance Sheet Strength
Slide 33: Balance sheet amounts in billions
All $ amounts in billions AT 9/30/2008
Slide 34: 2008 Income Statement Highlights
Y - T - D 2008 Income Statement Highlights in millions, except per share data Gross Premiums Written $ 374 $ 440 -15% Net Investment Income 122 128 -5% Operating Income $ 127 $ 118 8% Operating Income /Diluted Share $ 3.73 $ 3.36 11% Operating Cash Flow $ 142 $ 207 -31% September 30, Y-OVER-Y 2008 2
Slide 35: Insurance Leverage
Insurance Leverage ( in millions) 0.9:1 0.9:1 Premiums to Surplus Premiums to Surplus 0.9:1 0.9:1 1:1 1:1 0.7:1 0.7:1 0.5:1 0.5:1 0.5:1 0.5:1 0.3:1 0.3:1
Slide 36: Steady Growth Throughout The Cycles
Book Value Each Year End for ProAssurance and Predecessor Companies Stock Price Book Value CAGR Since 1991: 14.4% As PRA: 12.5% Steady Growth Throughout The Cycles CAGR Since 1991: 15.7% As PRA: 15.8% Return Total: 1331% 5 Yr: 140% Yr: 240%
Slide 37: Summary: Prepared to Meet the Challenges
Summary: Prepared to Meet the Challenges Summary: Prepared to Meet the Challenges
Slide 38: ProAssurance: Concentrating on shareholder value
ProAssurance Concentrating on shareholder value Growing Book Value per Share Focused on the long-term Maintaining leading market position Protecting the balance sheet Building strength for the next cycle turn Evaluating all M & A opportunities
Slide 39: ProAssurance: Proven success throughout the cycles
ProAssurance Proven success throughout the cycles Disciplined pricing and underwriting Consistent reserving policy Proven claims strategy Balance sheet strength Significant share ownership throughout the company Demonstrated commitment to a long-term view of a complicated business
Slide 40: Appendix: Investments
Appendix: Investments Appendix: Investments
Slide 41: Equities & Other Investments Performance by Quarter
$ in 000’s Performance by Quarter Q1, 2005 - Q3, 2008 AT 9/30/2008 Equities & Other Investments
Slide 42: Portfolio: Municipals
AT 9/30/2008 Portfolio: Municipals $1.4B Current investment policy requires investment grade rating prior to apply the effect of insurance
Slide 43: Portfolio: Whole Loan and Alt-A
Whole Loan LTV: 59% Alt-A LTV: 63% Further Details Provided on Sub-Prime and CMBS in our handouts and today’s 8K AT 9/30/2008
Slide 44: Portfolio: Corporate
AT 9/30/2008 Further Details Provided on Sub-Prime and CMBS in our handouts and today’s 8K Portfolio: Corporate
Slide 45: Portfolio: Corporate-Financials Tax Notes
Tax Notes are private placements guaranteed by banks & secured by Sec 42 tax credits AT 9/30/2008 Further Details Provided on Sub-Prime and CMBS in our handouts and today’s 8K Portfolio: Corporate-Financials
Slide 46: Portfolio: Treasury/GSE
AT 9/30/2008 Portfolio: Treasury/GSE
Slide 47: Portfolio: FRE and FNM
$524 million Average Rating: AAA AT 9/30/2008 Portfolio: FRE and FNM
Slide 48: Portfolio Overview: Short Term
AT 9/30/2008 Portfolio Overview: Short Term
Slide 49: Portfolio Overview: BOLI
AT 9/30/2008 Portfolio Overview: BOLI
Slide 50: Portfolio Overview: Sub-Prime
At 9/30/08 Type Quality $8.7Mln Mortgage-Backed AA+ avg - LTV 73% $6.1Mln Home Equity AA avg At 09/30/08 Vintage $7.2 Mln 2004 & Prior $4.4 Mln 2005 $2.6 Mln 2006 $0.6 Mln 2007 Portfolio Overview: Sub-Prime $13.4 million market value in AFS portfolio $1.4 million market value in high-yield LP
Slide 51: Portfolio Overview: CMBS
At 9/30/08 Quality $191 Mln AAA $2 Mln AA At 9/30/08 Wtd Avg LTV 85% <70% 15% <72% At 9/30/08 Credit Support 80% >20% 5% 15% - 20% 13% 10% - 15% 2% Less than 10% At 9/30/08 Deal Cumulative Delinquencies 45% None 27% 0% - 0.5% 20% 0.5% - 1.0% 7% 1.0% - 2.0% 1% 2.0% - 2.2% At 9/30/08 Debt Service Cove
Slide 52: Portfolio: Top 20 Largest Banks & Financials
BofA/ML $25 NRUC $6 Wells/Wach $19 Depfa ACS $5 Morgan Stanley $16 DeutscheBk $5 Citigroup $14 BONY $5 GECC $13 Unilever Cap $4 American Exp $11 Deere Cap $4 JP Morgan $9 FMCC $3 Goldman $8 Boeing Cap $3 Hypotheken Essn $8 Met Life $3 Credit Suisse $7 Blackrock $3 AT 9/30/2008 Portfolio: Corporate-F
Slide 53: Appendix: Industry History
Appendix: Industry History Appendix: Industry History
Slide 54: Will History Repeat Itself—Again?
Will History Repeat Itself—Again? $10,000 | ——Premium —Initial Reserve © — Developed Loss (Estimated) (Actual) $8,000 Industry Data 1976 Through 2001 $6,000 $4,000 $2,000 $0 17s 197919821985 1988191 ted = 19897 = 000» 2003208 54 Py PROASSURANCE,
Slide 55: Will History Repeat Itself—Again?
Will History Repeat Itself—Again? $10,000 —Premium --Initial Reserve —Developed Loss (Estimated) (Actual) $0,000 Industry Data 1976 Through 2002 $6,000 $4,000 $2,000 $0 tm 1973882 180S~= SONOS sek? 20] m0 55 Py PROASSURANCE.
Slide 56: Will History Repeat Itself—Again?
Will History Repeat Itself—Again? $10,000 — Premium ——Initial Reserve — Developed Loss Estimated) (actual) $9,000 Industry Data 1976 Through 2003 $6,000 $4,000 $2,000 $0 rn ee ee ee ee ee ae 56 8 PROASSURANCE.
Slide 57: Will History Repeat Itself—Again?
Will History Repeat Itself—Again? $10,000 $8,000 $6,000 $4,000 $2,000 $0 —Premium —Initial Reserve — Developed Loss (Estimated) (Actual) Industry Data 1976 Through 2004 1978 57 sso 1982 mS OBB teats? = mn 2008 a0. Py PROASSURANCE.
Slide 58: Will History Repeat Itself—Again?
Will History Repeat Itself—Again? $10,000 | —Premium —Initial Reserve ©— Developed Loss (Estimated) (Actual) | $8,000 Industry Data 1976 Through 2005 $6,000 $4,000 $2,000 $0 sme 179882 tS tHE 18g t987] © 2000200920 58 s PROASSURANCE.
Slide 59: Will History Repeat Itself—Again?
Will History Repeat Itself—Again? $10,000 — Premium -Initial Reserve — Developed Loss Estimated) (actual $8,000 Industry Data 1976 Through 2006 $6,000 $4,000 $2,000 $0 we 1973821865 t8E]SSC HOST SHS? | 2e0] | m0 59 Py PROASSURANCE,
Slide 60: Will History Repeat Itself—Again?
Will History Repeat Itself—Again? $10,000 » —Premium —Initial Reserve — Developed Loss (Estimated) (Actual) $8,000 $6,000 Mitions $4,000 $2,000 $0 = wre 1979192198590 tam 8OT = 2000 ame 2008 7 B PROAsSUR ANCE,