Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (March 2021)
50 slides from Proassurance's investor presentation, Mar 1, 2021
Slide 1: Investor Update Fourth Quarter and FY 2020
Investor Update Fourth Quarter and FY 2020 March 2021
Slide 2: Overview
ProAssurance Overview
Slide 3: Mission, Vision, & Values
ProAssurance Investor Briefing | March 2021 3 Mission, Vision, & Values The ProAssurance Mission We exist to Protect Others. Our Shared Vision We will be the best in the world at understanding and providing solutions for the risks our customers encounter as healers, innovators, employers, and profes
Slide 4: At a Glance
4ProAssurance Investor Briefing | March 2021 At a Glance Figures as of 12/31/20 Business Unit Principal Offices Employees Lines of Business HCPL 9 371 Healthcare Professional Liability Medmarc 1 27 Medical Technology Liability Innovative Specialty Team 1 101 Professional Liability for Podiatrists, C
Slide 5: ProAssurance Brand Profile
ProAssurance Investor Briefing | March 2021 5 ProAssurance Brand Profile Specialty P&C Healthcare Professional Liability Workers’ Comp Alternative Risk Transfer Medical Technology & Life Sciences Products Liability Legal Professional Liability
Slide 6: ProAssurance Executive Leadership
ProAssurance Investor Briefing | March 2021 6 ProAssurance Executive Leadership Ned Rand - President & Chief Executive Officer Mr. Rand, who assumed this position at ProAssurance on July 1, 2019, was formerly Chief Operating Officer, and has served as Chief Financial Officer, Executive Vice Presiden
Slide 7: Specialty Property & Casualty: Lines of Business & Gross Premiums Written
7ProAssurance Investor Briefing | March 2021 • Deep expertise and broad product spectrum in healthcare and related sciences • Consolidation in HCPL → demand for comprehensive insurance solutions • Innovative Specialty Team (Small Business Unit) → strategy to deliver product and related services effi
Slide 8: Workers' Compensation Insurance
8ProAssurance Investor Briefing | March 2021 Disciplined individual account underwriting with focus on rate adequacy in rural territories • Guaranteed Cost Policies • Loss-Sensitive Dividend Plans • Deductible Plans • Retrospective Rating Plans • ParallelPay–“Pay as you Go” • Specialty Risk (high ha
Slide 9: Segregated Portfolio Cell Reinsurance
9ProAssurance Investor Briefing | March 2021 Segregated Portfolio Cell Reinsurance ProAssurance Fronting Arrangement Agency Group or Association establishes/funds a cell Underwriting Claims Administration Risk Management Reinsurance Audit Asset Management Services + Cell Rental Fees + Participation
Slide 10: Lloyd's of London Syndicates
10ProAssurance Investor Briefing | March 2021 Lloyd’s of London Syndicates ProAssurance Funds at Lloyd’s (FAL) $106.2 Million 1 Property Insurance (All Other - Mainly US) 31% Casualty (US) 24% Catastrophe Reinsurance - XS of Loss (US) 15% Facility (US) 9% General Liability (US) 5% All Other Reinsura
Slide 11: Premiums, Policyholders & Distribution for 2020
ProAssurance Investor Briefing | March 2021 11 Specialty P&C 57% Workers' Comp 34% Standard Physicians 23% ($217.3M) Specialty 14% ($134.4M) Small Business Unit 11% ($100.1M) Tail Coverages + Other 4% ($35.6M) Medical Technology Liability 4% ($35.6M) Segregated Portfolio Cell Reinsurance 8% ($72.8M)
Slide 12: Financial Ratings & Balance Sheet Highlights
12ProAssurance Investor Briefing | March 2021 • ProAssurance is recognized for our financial strength by top rating agencies • We maintain a balance sheet that ensures stability and security for our customers • Our conservative reserving philosophy enables success over the insurance cycles Financial
Slide 13: ProAssurance Leverage Update
13ProAssurance Investor Briefing | March 2021 • $285 million debt at 12/31/2020 o $250 million 10-year notes due 11/15/2023 5.30% Coupon o $36 million in office building mortgages • $250 million revolving credit facility, $50 million "accordion" option o No outstanding borrowings ProAssurance Leve
Slide 14: Investment Philosophy & Portfolio
14ProAssurance Investor Briefing | March 2021 Corporate 52% Asset Backed 27% State & Muni 13% Other 2% Govt & Agency 5% Fixed Trading 2% • We maintain a conservative, highly-liquid investment philosophy • Effective stewardship of capital ensures a position of financial strength through turbulent mar
Slide 15: COVID-19 and the Markets We Serve
15ProAssurance Investor Briefing | March 2021 COVID-19 and the Markets We Serve • Healthcare Professional Liability (HCPL) ◦ Primary exposures in broader markets: misdiagnoses, complications from delayed elective procedures, and failure to prevent infection in Senior Care settings May be mitigated
Slide 16: Why We Will Be Successful
Why We Will Be Successful
Slide 17: A Foundation in Excellence
17ProAssurance Investor Briefing | March 2021 A Foundation in Excellence Experienced & Collaborative Leadership Average executive leadership tenure of 18 years with PRA or subsidiaries Specialization Deep expertise and commitment to our customers throughout the insurance cycles enable us to outperfo
Slide 18: Strategic Initiatives
18ProAssurance Investor Briefing | March 2021 Strategic Initiatives We seek constantly to be more efficient and effective as an organization Here’s how we’re doing it • First year of re‐underwriting our HCPL Specialty book of business completed in 3Q 2020 • Strategic focus on rural territories in Wo
Slide 19: Strategic Initiatives: Enhanced Underwriting
19ProAssurance Investor Briefing | March 2021 Strategic Initiatives We seek constantly to be more efficient and effective as an organization Here’s how we’re doing it • First year of re‐underwriting our HCPL Specialty book of business completed in 3Q 2020 • Strategic focus on rural territories in Wo
Slide 20: Strategic Initiatives: Strong Rate Gains
20ProAssurance Investor Briefing | March 2021 Strategic Initiatives We seek constantly to be more efficient and effective as an organization Here’s how we’re doing it • Hardening HCPL Specialty market, with our renewal rate gains outpacing severity • Improved product structure, terms and conditions
Slide 21: Strategic Initiatives: Organizational Excellence
21ProAssurance Investor Briefing | March 2021 Strategic Initiatives We seek constantly to be more efficient and effective as an organization Here’s how we’re doing it • Enhanced organizational structure to improve operating results • Leveraging new and existing technology for effectiveness gains Org
Slide 22: Cyclicality in Insurance
22ProAssurance Investor Briefing | March 2021 Cyclicality in Insurance Loss Trends Decelerate Market Softens Loss Trends Accelerate Market Hardens Catalyst Availability crisis Mergers & acquisitions Tort reform Competitors withdraw Underwriting criteria tightens Prices increase Pricing outpaces loss
Slide 23: Planned Acquisition of NORCAL Group
Planned Acquisition of NORCAL Group
Slide 24: Overview of NORCAL Group
ProAssurance Investor Briefing | March 2021 24 • Established in 1975 as a policyholder-owned and physician directed medical professional liability insurance carrier • NORCAL Group’s surplus lines carrier, focusing on providing flexible coverage options that address the unique needs of complex accoun
Slide 25: Transaction Rationale
ProAssurance Investor Briefing | March 2021 25 Enhanced Scale and Capabilities1 • Positions company as #3 player in the industry • Enhances ProAssurance’s HCPL business: adds additional scale, capabilities and strong California presence • Ability to underwrite larger risks from integrated systems wi
Slide 26: Strategic Alignment and Rationale
ProAssurance Investor Briefing | March 2021 26 Strategic Alignment and Rationale Provides a Strong, Shared Foundation • Shared history provides solid foundation for shared future • Scaled platform to produce strong results driven by disciplined underwriting • Embrace the culture of service and innov
Slide 27: Appendix
Appendix
Slide 28: NORCAL Acquisition Transaction Details
ProAssurance Investor Briefing | March 2021 28 NORCAL Acquisition Transaction Details Transaction • ProAssurance will offer to purchase all of the outstanding stock of NORCAL Group following the demutualization Consideration • $450 million in cash, expected to include $250 million in external fundin
Slide 29: Combination with NORCAL Creates the #3 HCPL Insurer in the U.S.
ProAssurance Investor Briefing | March 2021 29 Combination with NORCAL Creates the #3 HCPL Insurer in the U.S. Source: 2019 NAIC filings for all MPL lines Pro Forma Top Ten Market Share by DPW ($ in millions) • Ability to attract and retain key talent • Specialized products focused on healthcare pro
Slide 30: 2019 DPW: Combination with NORCAL Creates the #3 HCPL Insurer
ProAssurance Investor Briefing | March 2021 30 Physicians $697.1M Other HCP $103.2M Hospitals $48.5M Facilities $12.3M Physicians $336.4M Other HCP $96.3M Hospitals $48.1M Facilities 9.5M Physicians $360.7M Other HCP $6.9M Hospitals $366K Facilities $2.8M Source: 2019 NAIC filings for all MPL lines,
Slide 31: NORCAL Transaction Creates Value for Customers and Stakeholders
ProAssurance Investor Briefing | March 2021 31 NORCAL Transaction Creates Value for Customers and Stakeholders Protecting More Physicians Financial Benefits • Combined company will serve 86k+ healthcare professionals • Expanded product capabilities (admitted, E&S, and RRG capabilities) • Broader geo
Slide 32: ProAssurance's Proven History of Successful Acquisitions
ProAssurance Investor Briefing | March 2021 32 ProAssurance’s Proven History of Successful Acquisitions & 1995 Acquisition 1996 Acquisition OHiC 1994 Acquisition 1998 Demutualization/Merger Forms ProNational 1995 Acquisitions 1996 Acquisition 1999 Acquisition 2004 Hospital Renewal Rights Purchase 20
Slide 33: Income Statement Highlights (12/31/20)
ProAssurance Investor Briefing | March 2021 33 Income Statement Highlights (12/31/20) Three Months Ended Year Ended December 31 2020 2019 2020 2019 Gross Premiums Written $ 161.8 $ 200.8 $ 854.4 $ 967.5 Net Premiums Earned $ 187.0 $ 214.4 $ 792.7 $ 847.5 Net Investment Result $ 26.3 $ 20.4 $ 60.1 $
Slide 34: Corporate Segment Financial Highlights
34ProAssurance Investor Briefing | March 2021 Corporate Segment Financial Highlights (12/31/20) Three Months Ended Year Ended December 31 2020 2019 2020 2019 Net Investment Income $ 15.0 $ 21.6 $ 66.8 $ 87.1 Equity in Earnings (Loss) of Unconsolidated Subsidiaries $ 10.1 $ (2.8) $ (11.9) $ (10.1) Ne
Slide 35: Specialty P&C Financial Highlights
ProAssurance Investor Briefing | March 2021 35 Current Accident Year Net Loss Ratio 92.3 % 141.0 % 104.2 % 105.5 % Effect of Prior Accident Year Reserve Development (6.1%) 29.7% (5.7%) 1.2% Net Loss Ratio 86.2 % 170.7 % 98.5 % 106.7 % Underwriting Expense Ratio 23.8 % 25.2 % 23.0 % 24.1 % Combined R
Slide 36: Workers' Compensation Insurance Financial Highlights
ProAssurance Investor Briefing | March 2021 36 Workers’ Compensation Insurance Financial Highlights (12/31/20) Three Months Ended Year Ended December 31 2020 2019 2020 2019 Gross Premiums Written $ 47.3 $ 54.8 $ 246.8 $ 278.4 Net Premiums Earned $ 42.3 $ 47.3 $ 171.8 $ 189.2 Total Revenues $ 42.8 $
Slide 37: Segregated Portfolio Cell Reinsurance Financial Highlights
ProAssurance Investor Briefing | March 2021 37 Segregated Portfolio Cell Reinsurance Financial Highlights (12/31/20) Three Months Ended Year Ended December 31 2020 2019 2020 2019 Gross Premiums Written $ 14,775 $ 16,584 $ 72,843 $ 87,140 Net Premiums Earned $ 16,572 $ 19,997 $ 66,352 $ 78,563 Net In
Slide 38: Lloyd's Segment Financial Highlights
ProAssurance Investor Briefing | March 2021 38 Lloyd’s Segment Financial Highlights (12/31/20) Three Months Ended Year Ended December 31 2020 2019 2020 2019 Gross Premiums Written $ 12.3 $ 27.7 $ 84.7 $ 110.9 Net Premiums Earned $ 16.0 $ 23.5 $ 77.2 $ 80.7 Total Revenues $ 16.7 $ 24.5 $ 82.4 $ 85.4
Slide 39: Ceded Premiums Written (12/31/20)
39ProAssurance Investor Briefing | March 2021 Subject to rounding (1) All other reinsurance arrangements primarily represent alternative market business ceded under a 100% quota share reinsurance agreement, net of a ceding commission, to SPCs in our Segregated Portfolio Cell Reinsurance segment. (2)
Slide 40: Investment Strategy and 2021 Outlook
40ProAssurance Investor Briefing | March 2021 Investment Strategy and 2021 Outlook • Duration management remains paramount ◦ We will not extend duration in search of incremental yield • Optimizing our allocations for better risk-adjusted returns ◦ Ensures non-correlation of returns • Effective stewa
Slide 41: FY 2020 Net Investment Result
41ProAssurance Investor Briefing | March 2021 ($ in millions) 12/31/2020 12/31/2019 Change Net Investment Income Fixed maturities $ 69,308 $ 72,593 $ (3,285) Equities 4,369 17,650 (13,281) Short-term investments including Other 2,683 7,493 (4,810) BOLI 2,023 2,017 6 Investment fees and expenses (6,3
Slide 42: ProAssurance Recent Investment Performance
42ProAssurance Investor Briefing | March 2021 ProAssurance Recent Investment Performance Contribution to Returns 2016-2020 / PRA vs Benchmarks 2020 2019 2018 2017 2016 % of Assets PRA Benchmark % of Assets PRA Benchmark % of Assets PRA Benchmark % of Assets PRA Benchmark % of Assets PRA Benchmark Co
Slide 43: ProAssurance Portfolio Detail: Corporate
43ProAssurance Investor Briefing | March 2021 Utilities /Energy 10% Non US Sovrgn & Gov't 2% Basic Materials 2% Other 4% Technology 5% Communications 7% Consumer Oriented 22% Financials 40% Industrials 8% 12/31/2020 Subject to Rounding ProAssurance Portfolio Detail Corporate: $1.3 Billion (52% of Fi
Slide 44: ProAssurance Portfolio Detail: Asset Backed
44ProAssurance Investor Briefing | March 2021 12/31/2020 Subject to rounding ProAssurance Portfolio Detail: Asset Backed Weighted Average Rating: “AA+” Asset-Backed Securities: $676 Million (27% of Fixed Income / 20% of Invested Assets) RMBS 40% Student Loans 1% Auto 15% Credit Cards 5% CLOs 3% Othe
Slide 45: ProAssurance Portfolio Detail: Fixed-Trading
45ProAssurance Investor Briefing | March 2021 12/31/2020 Subject to rounding ProAssurance Portfolio Detail: Fixed-Trading Weighted Average Rating: “AA” Fixed Maturities: $48 Million (2% of Fixed Income / 1% of Invested Assets) All Fixed Trading Securities are owned by Lloyd’s Syndicate 1729 ABS & Ot
Slide 46: ProAssurance Portfolio Detail: Municipals
46ProAssurance Investor Briefing | March 2021 General Obligation 22% Pre-refunded 7% Special Revenue 71% 12/31/2020 Subject to rounding ProAssurance Portfolio Detail: Municipals Municipals: $333 Million (13% of Fixed Income / 10% Invested Assets) Weighted Average Rating: AA Top 10 Municipal Holdings
Slide 47: ProAssurance Portfolio: Equities & Other
47ProAssurance Investor Briefing | March 2021 12/31/2020 Subject to Rounding ProAssurance Portfolio: Equities & Other Common Equities 5% Private Equity 28% Hedge Funds 3% Private Credit/Structured Credit 25% Real Estate LP 8% other 1% Bond Funds 15% Convertible Bonds 9% Tax Credits 6% Equities & Oth
Slide 48: Combined Tax Credits Portfolio Detail & Projections
ProAssurance Investor Briefing | March 2021 48 Combined Tax Credits Portfolio Detail & Projections Year CapitalContributions GAAP Income/(Loss) from Operations, Disposition & Impairment Total Credits Tax Provision after Operating Losses/Impairments and Tax Credits Impact on Earnings 2020 $ 149,693 (
Slide 49: Change in Capital: 2010 – Q4 2020
ProAssurance Investor Briefing | March 2021 49 * Equity shown in millions; all other data shown in thousands † Includes a pre-tax net underwriting loss of $45.7 million associated with a large national healthcare account tail policy and a pre-tax $10 million IBNR pandemic-related reserve, both of wh
Slide 50: Forward Looking Statements Non-GAAP Measures
ProAssurance Investor Briefing | March 2021 50 Forward Looking Statements Non-GAAP Measures 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 ac