Proassurance Corporation · NYSE:PRA
Proassurance — Sandler O'Neill Financial Services Conference 2005
40 slides from Proassurance's conference presentation, Jun 9, 2005
Slide 1: Sandler O'Neill Financial Services Conference
June 9, 2005 Sandler O’Neill Financial Services Conference President & COO Chief Financial Officer Investor Relations Officer Mr. Victor T. Adamo Mr. Ned Rand Mr. Frank O’Neil
Slide 2: Caution Regarding Forward Looking Statements
Caution Regarding Forward Looking Statements This presentation contains historical information as well as forward-looking statements that are based upon our estimates and anticipation of future events, including our proposed transaction with NCRIC Group, Inc. These estimates and events are subject t
Slide 3: ProAssurance Overview
ProAssurance Overview Market Cap: $1 Billion Gross Premiums: $790 million Assets: $3.2 billion Specialty insurer diversified by product & geography Experienced, invested management 73% of Premiums Fourth Largest Writer of Med Mal The Industry’s Blue Chip Company 27% of Premiums Targeting the Michiga
Slide 4: Experienced, Stable Management
Experienced, Stable Management Chief Financial Officer Ned Rand Years in Industry Years at Company Position Name Average Sr. Vice President / Claims Darryl Thomas Chief Financial Officer / MEEMIC Christine Schmitt Sr. Vice President / IR Frank O'Neil Chief Accounting Officer James Morello President
Slide 5: The Core of ProAssurance: Professional Liability
The Core of ProAssurance Professional Liability
Slide 6: Creating a Leader Through Acquisitions
Creating a Leader Through Acquisitions 1994: Purchased: West Virginia Hosp. Ins Co. 1995: Acquisition of; Physicians Ins Co of Indiana Assumed business of: Physicians Ins Co of Ohio 1996: Acquisition of: Missouri Medical Ins Co 1995: Assumed business of: Associated Physicians Ins Co. (IL) 1998: Cons
Slide 7: Professional Liability Snapshot: Loss Ratio
Three Year Average 2001-2003 Insuring physicians, hospitals, dentists and other healthcare providers Majority of insureds are smaller groups and solo practitioners Superior results through careful underwriting, proper pricing and effective claims handling Professional Liability Snapshot Statutory Ad
Slide 8: Professional Liability Snapshot: Gross Written Premiums
$349 $462 $543 $574 Gross Written Premiums* (millions) 4 Year CAGR: 18.0% We focus on bottom line results while growing our top line Confident in current reserve levels Rated “A-” by A. M. Best, S & P and Fitch Professional Liability Snapshot
Slide 9: Regional Operating Structure
Regional Operating Structure Corporate strategy applied locally to underwriting & claims Local knowledge crucial to understanding legal environment Local presence preserves long-term customer relationships Consolidated Financial Strength With Local Operating Model Corporate Headquarters States of Or
Slide 10: Market Leadership
Market Leadership We have advantages of size and scope Ability to raise capital on a stand alone basis to support growth $ 198.5 million since 2002 Capital permits cost-effective use of reinsurance Proven M& A capability NCRIC transaction
Slide 11: Regional Operating Structure: NCRIC Transaction
Regional Operating Structure Strengthening our business model by merging NCRIC into our operations Adds Mid-Atlantic presence + + + + + NCRIC transaction subject to regulatory approvals and approval by NCRIC shareholders Corporate Headquarters States of Origin or Acquisition Expansion States Claims
Slide 12: Strategic Advantages
Strategic Advantages Stock-for-stock transaction to close early in Q3 Ease of Integration Similar backgrounds and operating models Strengthens our business in states we had targeted for growth Strengthens PRA’s position as the market leader
Slide 13: Aggressive Claims Defense
Aggressive Claims Defense Driven from the top of the organization Our long-term competitive advantage Aggressive defense of non-meritorious claims Cases Tried in 2004: 528 2002: 360; 2003: 391 Generates lower costs and higher loyalty
Slide 14: Closed Claim Outcome Comparison
69.3% 69.7% Favorable Outcomes: 83.3% Favorable Outcomes: 74.8% Closed Claim Outcome Comparison 14.0% 4.4% 12.3% Dropped or Dismissed Defense Verdict Plaintiff Verdict Settled 24.4% 0.8% 5.1% ProAssurance 2004 Physician Insurers Association, 2003 Latest Available Data
Slide 15: Three-Year Loss Ratio Comparisons
55.8% 36.0% Three-Year Loss Ratio Comparisons Our focus on claims defense allows us to achieve better results 88.3% 53.9% Average Statutory Loss Ratio 2001-2003 US Industry 124.3% PRA 109.7% Legal Payments Loss Payments *Source: A. M. Best Aggregates & Averages Medial Malpractice Predominating
Slide 16: Average Indemnity Comparison
Average Indemnity Comparison ProAssurance PIAA 2003 Weighted Average Indemnity Per Closed Claim Latest Available Data $63,399 $82,146
Slide 17: Professional Liability Combined Ratio
PRA PL Only Professional Liability Combined Ratio Source: ProAssurance Statutory Filings and A. M. Best Statutory Results 129.7% 133.8% 142.5% 135.2% 128.1% 154.2% 88.2% 109.4% 125.2% 124.5% 111.6% 104.8% PL Industry A. M. Best Estimate Combined Ratio 1999-2004 Measures overall Operating Success
Slide 18: Pricing Remains Strong
Pricing Remains Strong Rate increases ensured higher premium per unit of risk 19% in 2004 28% in 2003 28% in 2002 23% in 2001 Continuous re-underwriting of our book New insureds balance out non-renewals
Slide 19: Looking Ahead to 2005
Looking Ahead to 2005 Continued growth at adequate rates Ensures proper margins on each policy Adding insureds through growth in existing markets and through M&A Competitors’ capacity remains constrained Growth in Red Mountain Casualty Our E & S market
Slide 20: Looking Ahead: Tort Reform
Looking Ahead: Tort Reform Federal tort reform remains uncertain State-by-state reforms Passed in many states (GA, FL, OH, PA, TX & WV) Long-term effectiveness yet to be proven No judicial review yet—could be found unconstitutional Organizational efforts in many other states ProAssurance’s business
Slide 21: Proven, Consistent Results: Personal Lines
Proven, Consistent Results Personal Lines
Slide 22: Personal Lines Snapshot
Personal Lines Snapshot MEEMIC targets teachers and the educational community Primarily personal auto (81%) Also homeowners and boat $130 $142 $174 $197 $216 Direct Written Premiums (millions) 5 Year CAGR: 13.5%
Slide 23: Personal Lines Snapshot: Superior Results
Careful underwriting in a preferred market Peer-to-peer selling model provides a solid foundation Incremental expansion underway Rated “A-” *Source: A. M. Best Five Year Average 1999-2003 MI Industry 86.9% MEEMIC 68.2% Statutory Adjusted Loss Ratio* Private Passenger Auto Superior Results Personal L
Slide 24: MEEMIC's Importance
MEEMIC’s Importance 2004 accomplishments Combined ratio of 83.4% Tenth straight year of underwriting profitability Growth in Premiums and Policyholders Consistent results
Slide 25: Industry-Leading Results
23.7% 23.8% 23.1% 22.1% 22.1% Expense Ratio Industry-Leading Results 65.2% 70.3% 64.6% 65.8% 61.3% GAAP Combined Ratio Loss Ratio 88.9% 94.1% 87.7% 87.9% Source: A. M. Best 83.4% 5 Year Average of 88.4%
Slide 26: MEEMIC: Steady Growth
MEEMIC: Steady Growth Premiums continue to increase in a softening market Up 10% for 2004 Up 13% for 2003 Increasing value of cars and homes insured Sustained policyholder growth in all lines
Slide 27: The Heart of ProAssurance: Financial Overview
The Heart of ProAssurance Financial Overview
Slide 28: Financial Highlights
Financial Highlights Consolidated Combined Ratio below 100 for 2004 Solid bottom line growth Continued growth in top line as well Cash flows at all time high $36.3 $61.3 $177.0 $282.8 $373.5 Merger Created ProAssurance in June 2001 Cash Flow from Operations
Slide 29: Balance Sheet Progression
Balance Sheet Progression in millions Q1 2005 2004 2003 Change Balance Sheet Strength Sets ProAssurance Apart March 31, 2005, Unaudited; December 31, 2004, Audited Y-to-Y Total Assets $ 3,341 $ 3,239 $ 2,879 Cash & Invested Assets $ 2,548 $ 2,485 $ 2,103 Total Policy Liabilities $ 2,503 $ 2,413 $ 2,
Slide 30: High Quality, Liquid Investment Portfolio
High Quality, Liquid Investment Portfolio Conservative portfolio No derivatives Managed by outside advisors Average fixed maturity duration of 3.9 years High quality fixed income portfolio Weighted average rating of “AA” 99.1% investment grade Avg. tax-equivalent yield: 4.8% Net unrealized gain: $1.
Slide 31: 2004 Income Statement vs. 2003
2004 Income Statement vs. 2003 2004 2003 Change December 31, 2004, Audited Y-to-Y in millions, except per share data Gross Premiums Written $ 789.7 $ 740.1 7% Net Investment Income 87.2 73.6 19% Total Revenue 794.6 709.6 12% Total Expenses 697.1 659.3 6% Net Income $ 72.8 $ 38.7 88% Net Income/Share
Slide 32: Q1 Income Statement Comparison
Q1 Income Statement Comparison March 31, 2005, Unaudited in millions, except per share data 3/31/05 3/31/04 Change Y-to-Y Gross Premiums Written $ 215.7 $218.7 -1% Net Investment Income 25.4 19.9 28% Total Revenue 202.2 192.4 5% Total Expenses 172.0 171.0 1% Net Income $ 21.9 $ 16.0 37% Net Income/S
Slide 33: Q1 2005 Income by Segment
Professional Personal Liability Lines Consolidated Q1, 2005 Income by Segment in millions, except per share data March 31, 2005, Unaudited Gross Premiums Written $ 163.4 $ 52.3 $ 215.7 Net Investment Income 21.9 3.0 25.4 Total Revenue 151.4 50.3 202.2 Total Expenses 130.2 39.6 172.0 Net Income $ 21.
Slide 34: Consistent Growth in Book Value per Share
Consistent Growth in Book Value per Share $3.67 $6.27 $8.56 $11.57 $13.92 $16.02 $18.77 $20.92 Annual stock price performance of PRA and predecessors is 18.9% since inception in September, 1991
Slide 35: Key Objective: 12%-14% ROE
Key Objective: 12%-14% ROE ROE targets drive our ultimate consolidated combined ratio goals Professional Liability: 96% or lower Personal Lines: 94% or lower Combined Ratio History 2005: <99.2% (goal) 2004: 99.2% 2003: 105.1% 2002: 113.0%
Slide 36: Will History Repeat Itself —Again?
Will History Repeat Itself —Again ? $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 Premium Initial Reserve Developed Loss (Estimated) (Actual) Source: A. M. Best Aggregates and Averages 1976 – 2001 12/31/2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined
Slide 37: Will History Repeat Itself —Again?
Will History Repeat Itself —Again ? $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 Premium Initial Reserve Developed Loss (Estimated) (Actual) 12/31/2001 Source: A. M. Best Aggregates and Averages 1976 – 2003 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined
Slide 38: Will History Repeat Itself —Again?
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 12/31/2001 Premium Initial Reserve (Estimate) Developed Loss (Actual) Will History Repeat Itself —Again ?
Slide 39: Our Opportunities
Our Opportunities Leader in medical malpractice industry Organic growth and M&A expansion Proven platform with regional operating approach Attractive niche personal lines business Experienced management team focused on driving returns Conservative financial position
Slide 40: Sandler O'Neill Financial Services Conference
June 9, 2005 Sandler O’Neill Financial Services Conference President & COO Chief Financial Officer Investor Relations Officer Mr. Victor T. Adamo Mr. Ned Rand Mr. Frank O’Neil
ProAssurance — Sandler O'Neill Financial Services Conference 2005 on 6ix