Proassurance Corporation · NYSE:PRA
Proassurance — Raymond James & Associates 29th Annual Institutional Investors Conference (March 2008)
41 slides from Proassurance's conference presentation, Mar 3, 2008
Slide 1: Raymond James 29th Annual Institutional Investors Conference
March 3, 2008 W. Stancil Starnes, Chief Executive Officer Edward L. Rand, Jr., Chief Financial Officer Frank B. O'Neil, Investor Relations Officer Raymond James & Associates 29th Annual Institutional Investors Conference
Slide 2: Caution Regarding Forward Looking Statements
Caution Regarding Forward Looking Statements This presentation communicates historical information as well as forward-looking statements that are based upon our estimates and anticipation of future events; any items in this presentation that are not historical information are specifically identified
Slide 3: ProAssurance 101
Pro\ssurance’ ProAssurance 101
Slide 4: ProAssurance: The Basics
ProAssurance: The Basics Market Cap: $1.8 Billion Equity: $1.3 Billion Fourth largest writer of medical liability Almost 34,000 policyholders More than 33,000 insured physicians & dentists Majority in small or solo practice Writing business in 28 jurisdictions Highly rated by A. M. Best and Fitch at
Slide 5: A Brief History of ProAssurance
4 A Brief History of ProAssurance Created in 2001 When Medical Assurance Merged with Professionals Group We are the product of 13 M&A transactions Continued Growth by acquisition NCRIC (Washington, DC & surrounding states) PIC Wisconsin (upper Midwest and Nevada) Continued Organic Growth Kentucky Ok
Slide 6: National Scale...Local Focus
National Scale...Local Focus Corporate strategy applied locally to underwriting & claims Local knowledge crucial to understanding legal environment Local presence enhances long-term customer relationships Efficiencies gained from consolidated "back-room" operations Corporate Headquarters States of O
Slide 7: A Market Leader
? ? Leading Market Share Top 5 Market Share Top 10 Market Share Growing Market Share A Market Leader Market leaders in AL, DE, DC, OH, & WI Continuing to grow within our market footprint but not "forcing" top line growth Criteria: 2005 DPW ProAssurance is the foremost writer in its states of operati
Slide 8: ProAssurance Mission
ProAssurance Mission We will be the preferred source of professional liability protection by providing unparalleled claims defense, highly responsive customer service, and innovative risk management, while maintaining our commitment to long-term financial strength
Slide 9: ProAssurance Core Values
ProAssurance Core Values Integrity in all we do Commitment to the needs of insureds, employees and shareholders Respect for those we encounter Perpetuation of doctor involvement in our core activities Collaboration and Communication throughout our organization Enthusiasm every day
Slide 10: ProAssurance Recognition
ProAssurance Recognized as one of the 50 top performing property casualty insurance companies in America by Ward's Recognized by The Principal as one of the Ten Best Companies for Employee Financial Security
Slide 11: The Medical Liability Market Today
The Medical Liability Market Today
Slide 12: Market Review
Market Review Frequency moderating, severity manageable Large verdicts remain a reality Companies view loss trends differently Market pricing has softened considerably Unrealistic pricing only in isolated areas Optimists see a "new" environment Realists know the cycle always swings 2007 Retention wa
Slide 13: ProAssurance's Strategy
ProAssurance's Strategy Maintaining margin remains more important than top-line volume We apply an overall corporate strategy that recognizes state-by-state differences Loss trends allowing more aggressive strategies in long-term markets Geographical diversification spreads risk Targeting profitable
Slide 14: You Can't Hide from The Market Cycle But You Can Survive
You Can't Hide from The Market Cycle But You Can Survive
Slide 15: The Insurance Cycle in Med Mal
The Insurance Cycle in Med Mal Millions Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reser
Slide 16: ProAssurance vs. The Cycle: Book Value
ProAssurance vs. The Cycle Book Value 1991 3.67 1992 4.58 1993 6.27 1994 6.63 1995 8.56 1996 9.81 1997 11.57 1998 13.24 1999 13.92 2000 15.22 2001 16.02 2002 17.49 2003 18.77 2004 20.92 2005 24.59 2006 33.61 2007 38.69 Book Value CAGR: 15.9% Since Inception Book Value Each Year End for ProAssurance
Slide 17: ProAssurance vs. The Cycle: Net Combined Ratio
ProAssurance vs. The Cycle PRA All Med Mal 1991 80.4 103.7 1992 96.6 127.9 1993 94.3 108.1 1994 87.6 97.6 1995 98.4 99.7 1996 94.4 106 1997 92.6 107.9 1998 86.4 115.7 1999 88.3 129.5 2000 110.8 133.5 2001 144.4 153.3 2002 123.2 140.9 2003 110.2 136.9 2004 100.7 112.3 2005 96.1 100.2 2006 93.5 91.2 N
Slide 18: ProAssurance vs. The Cycle: Share Price
Share Price 1991 4.12 1992 7.7 1993 7.43 1994 9.27 1995 13.22 1996 13.97 1997 23.2 1998 28.69 1999 21.19 2000 16.69 2001 17.58 2002 21 2003 32.15 2004 39.11 2005 48.64 2006 49.92 2007 55.67 ProAssurance vs. The Cycle CAGR Stock Price: 17.7% Total Stock Return: 1,351% Five-Year Return: 173% Ten-Year
Slide 19: Navigating The Cycle
Navigating The Cycle Experience IS the best teacher We have managed through several cycles and understand the challenges Average industry/related experience is 22 years Executives and VP's average tenure is 12 years We are owners, not just managers Directors, officers and employees own approximately
Slide 20: Our Competitive Advantages
Pro\ssurance’ Our Competitive Advantages
Slide 21: Claims Defense Is Our Core
Claims Defense Is 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 differentiating factor in the market as claims data becomes public 2002 2003 2004 2005 2006 2007 ProAssurance 360 391 528 473 720 733 We tr
Slide 22: Transparency is Here From the Florida Database
Transparency is Here From the Florida Database
Slide 23: Transparency is Here From the Florida Database
Transparency is Here From the Florida Database
Slide 24: Transparency is Here From the Florida Database
Transparency is Here From the Florida Database
Slide 25: Why Claims Strategy Matters
Why Claims Strategy Matters Percetage of Closed Claims Dropped or Dismissed 0.69 Defense Verdict 0.17 Plaintiff Verdict 0.06 Settled 0.08 Percetage of Closed Claims Dropped or Dismissed: 0.65 Settled: 0.28 Plaintiff Verdict: 0.01 Defense Verdict: 0.05 Favorable Outcomes: 86% Favorable Outcomes: 70%
Slide 26: Why Claims Strategy Matters
Why Claims Strategy Matters Our ability and willingness to defend claims allows us to achieve better results Incurred Losses Loss Adjustment Expenses Total ProAssurance 0.156 0.507 ProAssurance 0.249 0.566 0.815 ProAssurance 0.34 0.543 0.95000000013148 ACAP/FPIC/SKP 0.683 0.398 1.081 Industry 0.64 0
Slide 27: Reinsurance Overview
Reinsurance Overview Renewal for 2007-2008 with no meaningful change in terms or conditions PIC Wisconsin now in our "corporate" treaty Interest in our slip remains high Good spread of risk Europe, Lloyds/London, Bermuda, Domestic We now participate in the excess risk Continual evaluation of retenti
Slide 28: Underwriting Discipline
Underwriting Discipline Pricing based on ROE and margin targets No market share or top line goals/incentives Focused on profitable business Selling from strength Balance sheet Defense of non-meritorious claims Risk management expertise Physician-involvement
Slide 29: Physician Heritage: Our Edge
Physician Heritage: Our Edge Physician involvement throughout promotes a direct relationship with our insureds Regional Advisory Boards involve more than 500 leadership physicians Physician Claims/Underwriting Committees in 16 key states Quarterly meetings, attended by senior management Provides cla
Slide 30: Financial Overview
Pro\ssurance’ Financial Overview
Slide 31: Balance Sheet Progression
Balance Sheet Progression 2005 2006 2007 Total Assets 3.9 4.3 4.4 Total Investments 2.6 3.5 3.6 Total Policy Liabilities 2.6 3 2.9 Stockholders' Equity 0.8 1.1 1.3 All $ amounts in billions At Each Year-End
Slide 32: Balance Sheet Highlights
Balance Sheet Highlights Continuing growth in Book Value/Share Conservative investment strategy Seeking incremental additional return Prudent use of capital for share repurchase and debt reduction Repurchased 1.2 mln shares for $67.1 mln $67.4 million remaining in our authorization $16 million used
Slide 33: 2007 Income Statement Highlights
2007 Income Statement Highlights in millions, except per share data Gross Premiums Written $ 549 $ 579 - 5% Net Investment Income 171 147 16% Total Revenue 706 738 - 4% Total Expenses 470 561 -16% Net Income $ 168 $ 127 32% Net Income/Diluted Share $ 4.78 $ 3.72 29% Operating Cash Flow $ 244 $ 183 3
Slide 34: Income Statement Highlights
Income Statement Highlights Premiums trending down Growth from PIC Wisconsin helped to offset declining premiums Favorable Net Reserve Development Q4: $44.4 mln YTD: $105.0 mln Investment Income continues to be important Cash flow is strong, but has slowed
Slide 35: Insurance Leverage
Insurance Leverage Premium to Surplus Premiums (GPW) Stockholders' Equity Gross Reserves 2002 0.9149 462 505 1492 2003 1 543 546 1635 2004 0.93 574 611 1819 2005 0.749 573 765 2224 2006 0.5174 579 1119 2607 2007 0.4897 549 1255 2560 (in millions) 0.9:1 Premiums to Surplus 0.9:1 1:1 0.7:1 0.5:1 0.4:1
Slide 36: Capital Structure
Capital Structure Debt to Equity Ratio: 13% Debt to Capitalization: 12% Convertible debt exchangeable for 2.6 million shares Stockholders' Equity Convertible Debt Other Debt 9/30/2006 1255070 105973 58185 Stockholder's Equity 88% Convertible Debt 8% Other Debt 4% AT 12/31/2007
Slide 37: Portfolio Overview
Portfolio Overview Conservative portfolio offsets liability risk Invested Assets Fixed Income 0.89 Short Term & Cash 0.06 Equities & Equity Substitutes 0.03 BOLI 0.02 $3.6 Billion Portfolio AT 12/31/2007 Fixed Income: 89% Short Term: 6% Equity and Equity Substitutes: 3% BOLI: 2%
Slide 38: ProAssurance's Strategy
ProAssurance's Strategy 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: The Insurance Cycle in Med Mal
The Insurance Cycle in Med Mal Millions Source: A. M. Best Aggregates and Averages Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial R
Slide 40: C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial
C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss 1976 1100 950 950 11
Slide 41: The Case for ProAssurance
The Case for 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