Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (July 2009)
58 slides from Proassurance's investor presentation, Jul 21, 2009
Slide 1: Forward Looking Statements
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 projected in this pres
Slide 2: ProAssurance: Quick Facts
ProAssurance: Quick Facts Market Cap: $1.5 Billion / Equity: $1.4 Billion Fifth largest 1 writer of medical liability Writing business in 49 1 jurisdictions More than 60,000 2 policyholders 45,000 physicians and dentists 7,000 ancillary and other healthcare professionals 8,100 attorneys Majority in
Slide 3: ProAssurance: Long-Term Success
ProAssurance: Long-Term Success Successful performance in a challenging financial market and a difficult line of insurance Maintaining profitability Completion of three M&A transactions in 2009 that will allow us to grow the top line
Slide 4: Long-Term Success: Balance Sheet Remains Strong
ProAssurance: Long-Term Success Our Balance Sheet remains strong Conservative investments Little debt Low leverage Solid stock performance over time Growing organically and through M & A Adding over $100 million in annualized premium to our top line in 2009 through M & A Diversifying our risk profil
Slide 5: Book Value Growth
Book Value Growth ProAssurance: Long-Term Success Book Value per Share Cumulative CAGR year 222% 12% year 127% 18% year 10% 10% Measured through Year-End 2008
Slide 6: Market Cycle Factors Status and Impact
ctor Status Cycle Impact Frequency Stabilizing Neutral Severity Moderate Neutral — Harden Investment Returns Low Harden Capital Excess Capacity Soften Cash Flow Becoming Strained Neutral— Harden Reserves Modestly Redundant Soften Reinsurance Sufficient Capacity Neutral PROASSURANCE,
Slide 7: Opportunities & Strategies
Opportunities & Strategies
Slide 8: Key Opportunities
Key Opportunities New insurance buyers will emerge as healthcare reform evolves The outcome of medical liability claims will become more transparent Financial issues will highlight the need for successful, long-term companies with superior balance sheets strength and outstanding ratings
Slide 9: Strategy: Targeted M&A - Podiatry Insurance Company of America
Strategy: Targeted M & A Podiatry Insurance Company of America (PICA) Dominant (70%), profitable, national company ~$96 million Direct Premium in 2008 Podiatry is growing in importance as a specialty Involved in treating complications in a population with an increasing prevalence of diabetes Increas
Slide 10: Strategy: Targeted M&A - Mid-Continent General Agency
Strategy: Targeted M & A Mid-Continent General Agency Large writer of ancillary healthcare Healthcare reform will emphasize care delivery from a larger array of lower-cost providers Home health care Physician-extenders ~$26 million in total premium in 2008 $20 million healthcare related PRA will wri
Slide 11: Local Strategy on a National Scale
Local Strategy on a National Scale Local knowledge remains the key to our business We leverage the benefits of our many M & A transactions through long-term customer relationships and enhanced local knowledge
Slide 12: Spreading Risk is Vital
Spreading Risk is Vital Broad geographic diversification provides an unmatched spread of risk Our spread of risk provides better market awareness and more data points to gauge loss trends Our internal actuarial depth allows us to assess emerging trends and respond quickly
Slide 13: Strategy: We Dare to Defend
Strategy: We Dare to Defend Our balance sheet strength and deep expertise ensures our insureds have the option of an uncompromising defense of their claim We defend our insureds at trial more often than any other company in our line Provides a long-term financial and marketing advantage A key differ
Slide 14: Claims Trends Remain Favorable
Claims Trends Remain Favorable Frequency trends are stable after declining since 2005/2006 The results is fewer cases to try Severity trends also stable Trends are much the same in states with or without Tort Reform ProAssurance Claims Tried
Slide 15: The Tort Reform Question
The Tort Reform Question Obama signaled a willingness to consider limited reforms in his recent speech to the AMA Unlikely that Washington will provide the full reforms physicians seek Major decisions likely left up to each state Illinois, Florida and Ohio rulings expected this year We set prices an
Slide 16: Strategy: Respond to Transparency
Strategy: Respond to Transparency Board / Discipline / Med Mal Med Mal disclosure legislation proposed P
Slide 17: Strategy: Maintain Discipline
Strategy: Maintain Discipline Pricing Discipline Using credits allows us to maintain existing rate filings Pricing developed using multiple years Not unduly influenced by current market conditions Rates on renewing physician business down less than 10% from peak pricing in 2006 Rates down 2% in 2007
Slide 18: Annual and Cumulative Rate Changes
170% 150% 130% - @ Annual @ Cumulative 110% 90% 70% 50% 30% 10% -10% 2001 2002 2003 2004 2005 2006 2007 2008 2009 @ Annual 23% 28% 28% 19% 11% 3% “2% 6% -4% mCumulative| 23% 57% 102% 140% 166% 174% 169% 153% 142% PROASSURANCE, Tres
Slide 19: Strategy: Actuarial Conservatism
Strategy: Actuarial Conservatism Consistent and conservative reserving practices throughout the market cycle Initial Accident Year Loss Ratios Industry is A. M. Best Data Through Q3 2008
Slide 20: Reserve History (billions)
Reserve History (billions) Strategy: Actuarial Conservatism $ 2.4 $ 2.6 $ 2.6 $ 2.2 $ 1.8
Slide 21: Strategy: Treated Fairly
Strategy: Treated Fairly Treated Fairly is our brand enhancement initiative Affirms our existing, enduring commitment to every stakeholder Insureds Agents Investors The public We run our business as owners who are rewarded for long-term success
Slide 22: Treated Fairly
PROASSURANCE. “rested Faly
Slide 23: Strategy: Enduring Financial Strength
Strategy: Enduring Financial Strength Emphasizing an appropriate balance of risk vs. return Committed to enduring balance sheet strength Responding to the low interest rate environment $ amounts in Billions
Slide 24: Strategy: Use Capital Prudently
Strategy: Use Capital Prudently Using capital to build through M&A Preserving capital for future opportunities Enhancing shareholder value by repurchasing shares at prices that build Book Value Source: SNL Financial
Slide 25: Strategy: Investment Discipline
Strategy: Investment Discipline The choice: Chase yield or extend duration We are maintaining duration, looking for opportunities Loss in value assuming a 100 basis point shift in the yield curve Yields based on Single A composite corporate debt
Slide 26: Responding to Low Interest Rates
Responding to Low Interest Rates Assumes a 1:1 premium to surplus ratio for physicians professional liability claims-made coverages Loss ratio required to generate a 13% after-tax ROE
Slide 27: Our Strong Capital/Low Leverage Position
$471 Our Strong Capital/Low Leverage Position ( in millions) Prepared for an improving market Prudent capital management Premiums to Surplus for Each year $ 96 (PICA pro forma) $567
Slide 28: Excess Capital vs. Excess Capacity
Excess Capital vs. Excess Capacity “A” Rating Threshold Projected A. M. Best BCAR Scores if Premiums Increase Surplus is Reduced
Slide 29: Little Dependence on Debt
Little Dependence on Debt Low Debt to Cap Ratio Little strain on cash flow Repurchased additional $23 million of debt in Q4 $25 million debt added in the PICA transaction Includes $7 million in surplus notes Evaluating potential call later this year 3/31/2009
Slide 30: Strategy: Balance Risk vs. Return ($3.6 Billion Portfolio)
$3.6 Billion Portfolio Fixed Income: 85% Short Term: 10% Equity and Other Investments: 3% BOLI: 2% Strategy: Balance Risk vs. Return We will reduce cash and short-term balances as we see improving credit environment Low equity allocation helps mute the impact of the volatile equity markets Complete
Slide 31: Fixed Income: $3.1 Billion
Fixed Income: $3.1 Billion 3/31/2009
Slide 32: Treated Fairly
PROASSURANCE. “rested Faly
Slide 33: ProAssurance: Producing Sustainable Shareholder Value
ProAssurance Producing sustainable shareholder value Growing Book Value per Share Finding the right M & A opportunities Significant share ownership at all levels Focusing on long-term Preparing for a changing market Leveraging financial strength Protecting the balance sheet Maintain our leading mark
Slide 34: Treated Fairly
PROASSURANCE. “rested Faly
Slide 35: Why Claims Strategy Matters: Favorable Outcomes
Favorable Outcomes: 82% Favorable Outcomes: 74% Why Claims Strategy Matters Favorable Outcomes: 82% Favorable Outcomes: 74%
Slide 36: Why Claims Strategy Matters
Why Claims Strategy Matters Our ability and willingness to defend claims allows us to achieve better results 81.4% ProAssurance Stand Alone - - 2007 76.0% 64.3%
Slide 37: Treated Fairly
PROASSURANCE. “rested Faly
Slide 38: Portfolio Overview: Equities
Portfolio Overview: Equities $106 million in Equities & Other Investments 3/31/09
Slide 39: Equities & Other Investments
Equities & Other Investments $ in 000’s Performance Q1, 2005 - Q1, 2009
Slide 40: Portfolio: Municipals $1.4B
Portfolio: Municipals $1.4B % Investment policy has always required Insured with investment grade DeMiS arg Stale . : . h rating prior to applying Average Stand Alone Rating: the effect of insurance "AA" No Underlying Rating: 1% Collateral or Other: 1% Py PROASSURANCE. pone:
Slide 41: Alt-A
Alt-A LTV: 63% Whole Loan LTV: 56% Further Details Provided on Sub-Prime and CMBS on following pages Bloomberg Data 3/31/09
Slide 42: Portfolio Overview: Sub-Prime
Portfolio Overview: Sub-Prime $8.1 million market value in AFS portfolio $4.4 million unrealized loss $5.0 million market value in high-yield LP rated BB LP’s focus is distressed ABS) At 3/31/09 Vintage $4.8 Mln & Prior $2.4 Mln $0.9 Mln Quality & Vintage information only on direct holdings at 3/31/
Slide 43: Portfolio Overview: CMBS
Portfolio Overview: CMBS $163 million Fair Value in non-agency CMBS Book Value: $186 Book Value 5% of fixed income portfolio At 3/31/09 Quality $161 Mln AAA $2 Mln AA At 3/31/09 Wtd Avg LTV 94% <70% 6% <72% At 3/31/09 Credit Support 30% >30% 48% 20% - 30% 20% 10% - 20% 2% Less than 10% At 3/31/09 De
Slide 44: Portfolio Overview: CMBS Property Types
Portfolio Overview: CMBS Top Property Types Retail-Anchored: 47% of CMBS portfolio Exposure: 23% - 40% of individual security value Office: 39% of CMBS portfolio Exposure: 23% - 46% of individual security value Retail-Unanchored: 7% of CMBS portfolio Mixed Use: 3% of CMBS portfolio Multi Family: 2%
Slide 45: Portfolio: Corporate
Portfolio: Corporate * $692 million % Weighted Average Rating: A Financials 35% Basic Materials Consumer | Tom Cyclical Non-Cyclical Energy 2% 3% 6% Py PROASSURANCE. ne
Slide 46: Portfolio: Corporate-Financials
Portfolio: Corporate-Financials Top 20 Largest Banks/Financials: $ 210 million $52 mm FDIC backing M Stanley $26 ($6) Natl Rural Util $6 Amer Exp $23 ($12) HSBC $6 ($1) BoA/ML $20 ($1) Deutsche Bank $5 JPM Chase $20 ($13) John Deere Cap $5 ($1) Wells/Wachovia $19 BONY $5 Citi $15($5) Fifth Third $5
Slide 47: Portfolio: Treasury/GSE
Portfolio: Treasury/GSE $209 million Average Rating: AAA 3/31/09
Slide 48: Portfolio: FRE and FNM
Portfolio: FRE and FNM $476 million Average Rating: AAA 3/31/09
Slide 49: Portfolio Overview: Short Term
Portfolio Overview: Short Term 3/31/09
Slide 50: Portfolio Overview: BOLI
Portfolio Overview: BOLI % $64 million ® Weighted average rating % Moody’s: AA3 & A.M. Best: At Py PROASSURANCE. Tread Fa
Slide 51: Appendix: Industry History
Appendix: Industry History
Slide 52: Will History Repeat Itself—Again?
Source: A. M. Best Aggregates and Averages 1976 - 2001 Will History Repeat Itself—Again ? Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined
Slide 53: Treated Fairly
PROASSURANCE. “rested Faly
Slide 54: We Created a Leader Through Consolidation
We Created a Leader Through Consolidation
Slide 55: Profitable Growth Through M&A
Profitable Growth Through M & A ProAssurance has been built through M & A ProAssurance was formed by the combination of two successful companies with a history of M & A
Slide 56: Profitable Growth Through M&A
Profitable Growth Through M & A ProAssurance has been built through M & A Each company brought multiple transactions into ProAssurance at our founding in
Slide 57: Profitable Growth Through M&A
Profitable Growth Through M & A ProAssurance has been built through M & A We have continued to grow through M & A NCRIC in the mid-Atlantic PIC-Wisconsin in the upper Midwest PICA Nationwide
Slide 58: De Novo Growth Also Plays a Role
Denovo Growth Also Plays a Role We have added states as opportunities arose We carefully evaluate the medical and legal climate of each state before entering We are the market leaders in AL, DE, DC, OH, & WI