Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (September 2020)
50 slides from Proassurance's investor presentation, Sep 3, 2020
Slide 1: Second Quarter 2020 Investor Update
September 2020 Second Quarter 2020 Investor Update
Slide 2: ProAssurance Overview
ProAssurance Overview September 2020
Slide 3: Mission, Vision, & Values
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 professionals. Through an integrated family of compa
Slide 4: At a Glance
At a Glance Business Unit Principal Employees Lines of Business • Healthcare-centric specialty insurance writer Offices ◦ Specialty Property & Casualty Healthcare Professional HCPL 11 396 Liability ▪ Healthcare Professional Liability (HCPL) Workers’ Compensation & ▪ Life Sciences and Medical Device
Slide 5: ProAssurance Brand Profile
ProAssurance Brand Profile Specialty P&C Workers’ Comp Healthcare Professional Liability Medical Technology & Legal Professional Liability Life Sciences Products Liability Alternative Risk Transfer ProAssurance Investor Briefing | September 2020 5
Slide 6: ProAssurance Executive Leadership
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 President, and Senior Vice President of Finance since
Slide 7: Specialty Property & Casualty
Specialty Property & Casualty • Deep expertise and broad product spectrum in healthcare and related sciences • Consolidation in HCPL → demand for comprehensive insurance solutions • Increasing competitive advantages for companies able to achieve scope and scale • Innovative Specialty Team (Small Bus
Slide 8: Workers' Compensation Insurance
Workers’ Compensation Insurance Top 10 Classes of Business by Payroll Exposure (Traditional Business*) Retirement & Life Care Community Hospitals 2% 4% Physicians & Banks Dentists 2% 10% Fast Food Disciplined individual account 2% underwriting with focus on rate Dedicated to effective adequacy in ru
Slide 9: Segregated Portfolio Cell Reinsurance
Segregated Portfolio Cell Reinsurance • HCPL and workers’ compensation captive insurance solutions provided through Inova Re (Cayman Islands) • SPCs are a high ROE product with significant retention • Low capital requirement by not assuming risk ProAssurance Fronting Arrangement Underwriting Claims
Slide 10: Lloyd's of London Syndicates
Lloyd’s of London Syndicates • Opportunity to invest alongside a recognized leader in Duncan Dale • ProAssurance Funds at Lloyd’s (FAL) Lloyd’s provides universal distribution and licensures • $137.5 Million* Westernization of international healthcare professional liability provides opportunities in
Slide 11: Premiums, Policyholders & Distribution for 2020
Premiums, Policyholders & Distribution for 2020 YTD 2020 Gross Premium: $447.5 mln Inforce 2020 Policyholder Count: 76,063* Medical Specialty P&C Technology Standard Physician Premium Specialty P&C 55% Liability 82% 12-Month Policies: $96.3M 3% Specialty ($43.4M) 7% 24-Month Policies: $8.3M Medical
Slide 12: Financial Ratings & Balance Sheet Highlights
Financial Ratings & Balance Sheet Highlights • ProAssurance is recognized for our financial strength by top rating agencies • We maintain a balance sheet that ensures unquestioned stability and security for our customers • Our conservative reserving philosophy enables success over the insurance cycl
Slide 13: ProAssurance Leverage Update
ProAssurance Leverage Update Financial Leverage Operating Leverage Ten-Year Debt to Capital Ten-Year Premiums to Equity Debt Capital Debt to Capital Net Premiums Written Equity Premiums to Equity $ in billions $ in billions $2.4 $2.4 21% $1.6 20% 16% $1.6 16% 15% 15% 9% 0.5 0.5 0.6 10% 0.5 $0.8 $0.8
Slide 14: Investment Philosophy & Portfolio
Investment Philosophy & Portfolio • We maintain a conservative, highly-liquid investment philosophy • Effective stewardship of capital ensures a position of financial strength through turbulent market cycles • Allowing cash to build to support business operations and our customers. AA+ BBB- Below In
Slide 15: COVID-19 and the Markets We Serve
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 by growing support at state and federal level
Slide 16: Why We Will Be Successful
Why We Will Be Successful
Slide 17: Success in Evolving Markets
Success in Evolving Markets Superior brand identity and reputation in the market Experienced & Collaborative Leadership Average executive Specialization leadership tenure Deep expertise and History of Successful M&A of 18 years with “From our earliest days, PRA or subsidiaries commitment to Scope &
Slide 18: Strategic Initiatives
Strategic Initiatives We seek constantly to be more efficient and effective as an organization Here’s how we’re doing it Selective • First year of re-underwriting our HCPL Specialty book of business will be complete Q3 2020 Underwriting • Strategic focus on rural territories in Workers’ Compensation
Slide 19: Strategic Initiatives: Selective Underwriting
Strategic Initiatives We seek constantly to be more efficient and effective as an organization Here’s how we’re doing it Selective • First year of re-underwriting our HCPL Specialty book of business will be complete Q3 2020 Underwriting • Strategic focus on rural territories in Workers’ Compensation
Slide 20: Strategic Initiatives: Rate Changes
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 Rate Changes • Improved product structure, terms and conditions for complex risks • Maintaining p
Slide 21: Strategic Initiatives: Expense Management
Strategic Initiatives We seek constantly to be more efficient and effective as an organization Here’s how we’re doing it Expense • Enhanced organizational structure and improved operating efficiencies Management • Leveraging new and existing technology for efficiency gains • Implemented adjustments
Slide 22: Cyclicality in Insurance
Cyclicality in Insurance Availability crisis Loss Pricing outpaces losses Trends Mergers & acquisitions Catalyst Combined ratios improve Decelerate Tort reform Favorable reserve development For over forty years, ProAssurance and its predecessors have successfully navigated the peaks and valleys Mark
Slide 23: Planned Acquisition of NORCAL Group
Planned Acquisition of NORCAL Group
Slide 24: Overview of NORCAL Group
Overview of NORCAL Group NORCAL Group Overview Select NORCAL Group Companies • Established in 1975 as a policyholder-owned • NORCAL is one of the leading providers of medical professional and physician directed medical professional insurance companies in the country with more than 32,000 liability i
Slide 25: ProAssurance + NORCAL = A Stronger, Better Positioned HCPL Specialty Insurer
ProAssurance + NORCAL = A Stronger, Better Positioned HCPL Specialty Insurer 1 Enhanced Scale and Capabilities • 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 r
Slide 26: Strategic Alignment and Rationale
Strategic Alignment and Rationale Provides a Strong, Shared Foundation In addition to the scale benefits of large HCPL players, ProAssurance and NORCAL bring complementary skills, history, and a shared vision to the combined entity to create the leading organization in the HCPL industry + • Physicia
Slide 27: Appendix
Appendix
Slide 28: NORCAL Acquisition Transaction Details
NORCAL Acquisition Transaction Details Transaction • ProAssurance will offer to purchase all of the outstanding stock of NORCAL Group following the demutualization • $450 million in cash, expected to include $250 million in external funding¹ • Up to $150 million of additional consideration contingen
Slide 29: Combination with NORCAL Creates the #3 HCPL Insurer in the U.S.
Combination with NORCAL Creates the #3 HCPL Insurer in the U.S. Pro Forma Top Ten Market Share by DPW $1,800 ($ in millions) $1,660 $1,600 16.9% $1,400 $1,200 $1,000 $920 1 $861 9.4% $800 8.8% $559 $600 $490 $488 5.7% $399 $371 $400 5.0% 5.0% $313 4.1% 3.8% $218 3.2% $170 $200 2.2% 1.7% $- • NORCAL
Slide 30: Combination with NORCAL Creates the #3 HCPL Insurer in the U.S.
Combination with NORCAL Creates the #3 HCPL Insurer in the U.S. Facilities Hospitals $12.3M $48.5M Facilities Hospitals 9.5M $48.1M Facilities Hospitals $2.8M $366K Other HCP Other HCP $103.2M $6.9M Other HCP $96.3M Physicians Physicians $336.4M $360.7M Physicians $697.1M 2019 DPW: $490.3M $370.8M $
Slide 31: NORCAL Transaction Creates Value for Customers and Stakeholders
NORCAL Transaction Creates Value for Customers and Stakeholders Protecting More Physicians Financial Benefits • Significant annual pre-tax synergies over • Combined company will serve 86k+ healthcare professionals $18mm • Synergies focused on removing • Expanded product capabilities redundancies and
Slide 32: ProAssurance's Proven History of Successful Acquisitions
ProAssurance’s Proven History of Successful Acquisitions 1995 Acquisition 2005 2009 Acquisition Acquisition & 2014 Acquisition 1998 2008 Demutualization/Merger Acquisition 1996 Acquisition Forms ProNational 2012 Acquisition 2001 ProNational & Medical Assurance Merge to Form ProAssurance& OHiC 1995 A
Slide 33: Income Statement Highlights (6/30/20)
Income Statement Highlights (6/30/20) Three Months Ended Six Months Ended June 30 2020 2019 2020 2019 Gross Premiums Written $ 185.0 $ 221.3 $ 447.5 $ 501.2 Net Premiums Earned $ 207.3 $ 209.1 $ 411.1 $ 417.3 Net Investment Result $ (7.2) $ 18.4 $ 12.0 $ 40.4 Net Realized Investment Gains (Losses) $
Slide 34: Corporate Segment Financial Highlights (6/30/20)
Corporate Segment Financial Highlights (6/30/20) Three Months Ended Six Months Ended June 30 2020 2019 2020 2019 Net investment income $ 16.7 $ 22.0 $ 36.1 $ 43.3 Equity in earnings (loss) of unconsolidated subsidiaries $ (25.4) $ (5.2) $ (26.9) $ (6.0) Net realized investment gains (losses) $ 16.9
Slide 35: Specialty P&C Financial Highlights (6/30/20)
Specialty P&C Financial Highlights (6/30/20) Three Months Ended Six Months Ended June 30 2020 2019 2020 2019 Gross Premiums Written $ 107.1 $ 127.9 $ 262.4 $ 294.3 Net Premiums Earned $ 127.1 $ 126.0 $ 247.5 $ 250.1 Total Revenues $ 128.2 $ 127.5 $ 250.2 $ 252.8 Net Losses & Loss Adjustment Expenses
Slide 36: Workers' Compensation Insurance Financial Highlights (6/30/20)
Workers’ Compensation Insurance Financial Highlights (6/30/20) Three Months Ended Six Months Ended June 30 2020 2019 2020 2019 Gross Premiums Written $ 57.2 $ 64.2 $ 136.5 $ 153.6 Net Premiums Earned $ 42.4 $ 46.6 $ 86.9 $ 92.5 Total Revenues $ 42.9 $ 47.3 $ 88.2 $ 94.0 Net Losses & Loss Adjustment
Slide 37: Segregated Portfolio Cell Reinsurance Financial Highlights (6/30/20)
Segregated Portfolio Cell Reinsurance Financial Highlights (6/30/20) Three Months Ended Six Months Ended June 30 2020 2019 2020 2019 Gross Premiums Written $ 14,996 $ 16,910 $ 42,135 $ 53,274 Net Premiums Earned $ 16,748 $ 19,284 $ 33,728 $ 38,787 Net Investment Income $ 305 $ 368 $ 559 $ 815 Net Re
Slide 38: Lloyd's Segment Financial Highlights (6/30/20)
Lloyd’s Segment Financial Highlights (6/30/20) Three Months Ended Six Months Ended June 30 2020 2019 2020 2019 Gross Premiums Written $ 20.7 $ 29.2 $ 48.6 $ 52.8 Net Premiums Earned $ 21.0 $ 17.3 $ 43.0 $ 35.9 Total Revenues $ 22.7 $ 18.8 $ 45.7 $ 38.5 Net Losses & Loss Adjustment Expenses $ (15.3)
Slide 39: Ceded Premiums Written (6/30/20)
Ceded Premiums Written (6/30/20) Specialty P&C Segregated Workers’ HCPL Compensation Portfolio Cell including Podiatry(1) Products Lawyers Insurance (2) Reinsurance Lloyd’s (3) 6/30/20 6/30/19 6/30/20 6/30/19 6/30/20 6/30/19 6/30/20 6/30/19 6/30/20 6/30/19 6/30/20 6/30/19 Gross premiums written $ 23
Slide 40: Investment Strategy and 2020 Outlook
Investment Strategy and 2020 Outlook • Effective stewardship of capital ensures a position of financial strength through turbulent market cycles • Optimizing our allocations for better risk-adjusted returns ◦ Ensures non-correlation of returns • Duration management remains paramount ◦ We will not ex
Slide 41: YTD 2020 Net Investment Result
YTD 2020 Net Investment Result 6/30/2020 6/30/2019 Change Net Investment Income $ in thousands Fixed maturities $ 35,961 $ 35,792 $ 169 Equities 2,892 9,813 (6,921) Short-term investments including Other 1,981 3,454 (1,473) BOLI 913 912 1 Investment fees and expenses (2,793) (3,614) 821 Net investme
Slide 42: ProAssurance Recent Investment Performance
ProAssurance Recent Investment Performance Contribution to Returns 2016-2020 / PRA vs Benchmarks 2020 2019 2018 2017 2016 % of % of % of % of % of PRA Benchmark PRA Benchmark PRA Benchmark PRA Benchmark PRA Benchmark Assets Assets Assets Assets Assets Core Fixed 78% 2.52% 2.69% 67% 3.92% 4.14% 67% 1
Slide 43: ProAssurance Portfolio Detail: Corporate
ProAssurance Portfolio Detail Corporate: $1.3 Billion (55% of Fixed Assets / 39% of Invested Assets) Sources of Liquidity Industrials 9% Non US Sovrgn Utilities & Gov't BOLI /Energy 2% 11% SIX MONTHS Financials 2% 39% Basic Cash/Equities/Bonds Materials HFs/Privates 86% 2% 30-90 DAYS 2% Other LPs 4%
Slide 44: ProAssurance Portfolio Detail: Asset Backed
ProAssurance Portfolio Detail: Asset Backed Asset-Backed Securities: $568 Million (25% of Fixed Income / 17% of Invested Assets) CLOs Credit Cards 3% 5% Other 19% Auto 15% CMBS 16% Student Loans 2% RMBS 41% 6/30/2020 Subject to rounding Weighted Average Rating: “AA+” ProAssurance Investor Briefing |
Slide 45: ProAssurance Portfolio Detail: Fixed-Trading
ProAssurance Portfolio Detail: Fixed-Trading Fixed Maturities: $46 Million (2% of Fixed Income / 1% of Invested Assets) Utilities/Energy ABS & Other 3% 1% Technology 3% Consumer Oriented 16% Industrial 8% All Fixed Trading Securities are owned by Lloyd’s Syndicate 1729 Government Financial 39% 30% 6
Slide 46: ProAssurance Portfolio Detail: Municipals
ProAssurance Portfolio Detail: Municipals Municipals: $294 Million Top 10 Municipal Holdings (13% of Fixed Income / 9% Invested Assets) in millions New York, NY $14 Texas St A&M University $9 General Obligation New York State Urban Dev $9 18% Connecticut State Housing $9 Pre-refunded 6% Houston Tx U
Slide 47: ProAssurance Portfolio: Equities & Other
ProAssurance Portfolio: Equities & Other Equities & Other: $446 Million (14% of Invested Assets) Hedge Funds 1% Private Equity 31% Private Credit/Structured Credit Common Equities 26% 8% Tax Credits 9% Real Estate LP Bond Funds 7% Convertible Bonds 6/30/2020 Subject to Rounding 10% 8% ProAssurance I
Slide 48: Combined Tax Credits Portfolio Detail & Projections
Combined Tax Credits Portfolio Detail & Projections This column represents our current estimated schedule of tax credits that we expect to receive from our tax credit partnerships. The actual amounts of credits provided by the tax credit partnerships may prove to be different than our estimates. The
Slide 49: Change in Capital: 2010 - 2Q 2020
Change in Capital: 2010 ‒ 2Q 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD 2020 Beginning $1,424 $1,705 $1,856 $2,164 $2,271 $2,394 $2,158 $1,958 $1,799 $1,595 $1,512 Equity* Cumulative-effect adjustments — — — — — — — — 149 8,334 (4,076) Employee Stock Compensation 7,205 6,147 6,167 7,
Slide 50: Important Safe Harbor & Non-GAAP Notices
IMPORTANT SAFE HARBOR & NON-GAAP NOTICES Forward Looking Statements Non-GAAP Measures This presentation contains Forward Looking This presentation contains Non-GAAP Statements and other information designed measures, and we may reference Non-GAAP to convey our projections and expectations measures i
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