Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (May 2009)
56 slides from Proassurance's investor presentation, May 14, 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 57,000 2 policyholders 45,000 physicians and dentists 7,000 ancillary and other healthcare professionals 8,100 attorneys Majority in
Slide 3: ProAssurance: Recent Highlights
ProAssurance: Recent Highlights Increasing Shareholders’ Equity and Book Value per Share in a challenging market Maintaining profitability Completion of three M&A transactions that will allow us to grow the top line in 2009
Slide 4: ProAssurance: Long-Term Success
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: Stock Price Performance
Stock Price Performance ProAssurance: Long-Term Success NYSE Closing Price at Each year-End Cumulative CAGR year 249% 10% year 135% 6% year -5% -5% Measured through Year-End 2008
Slide 6: Book Value Growth
Book Value Growth ProAssurance: Long-Term Success Book Value per Share Cumulative CAGR year 67% 13% year 51% 10% year 10% 10% Measured through Year-End 2008
Slide 7: ProAssurance: Recent Transactions
ProAssurance: Recent Transactions Podiatry Insurance Company of America (PICA) Dominant (70%), profitable, national company ~$96 million Direct Premium in 2009 Mid-Continent General Agency Large writer of ancillary healthcare ~$26 million in total premium in 2008 $20 million healthcare related—most
Slide 8: Operational Discipline: Strategy
Operational Discipline: Strategy * Local strategies with national scale * Local knowledge remains the key to our business ¥ We leverage the benefits of our many M & Atransactions through long-term customer relationships and enhanced local knowledge BB Picaonly states WClaims Offices @ Claims / Under
Slide 9: Operational Discipline: Strategy
Operational Discipline: Strategy * 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 BB Picaonly
Slide 10: Operational Discipline: Claims
Operation Discipline: Claims 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 diffe
Slide 11: 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 ProAssurance Claims Tried
Slide 12: The Age of Transparency
The Age of Transparency Board / Discipline / Med Mal Med Mal disclosure legislation proposed P
Slide 13: Operational Discipline: Underwriting
Operational Discipline: Underwriting 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 business down less than 10% from the peak of pricing in 2006 Rates down 2% in
Slide 14: Operational Discipline: Actuarial
Operational Discipline: Actuarial Consistent and conservative reserving practices throughout the market cycle Initial Accident Year Loss Ratios Industry is A. M. Best Data Through Q3 2008
Slide 15: Reserve History (billions)
Reserve History (billions) Operational Discipline: Actuarial $ 2.4 $ 2.6 $ 2.6 $ 2.2 $ 1.8
Slide 16: Growth Opportunities in 2009
Growth Opportunities in 2009 We have closed three transactions that diversify our risk profile and add significant premium We are incrementally expanding our footprint Wyoming and South Carolina Taking advantage of improving conditions in selected markets within our footprint
Slide 17: The Promise of Treated Fairly
The Promise of 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 18: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 19: We Remain in a Strong Position
We Remain in a Strong Position 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 20: ProAssurance Q1 2009 Highlights
ProAssurance Q1 2009 Highlights in millions, except per share data Gross Premiums Written $ 155 $ 160 Net Investment Income 35 41 Total Revenue 131 160 Total Expenses 94 110 Operating Income $ 33 $ 37 Net Income (Includes Investment Losses) $ 28 $ 36 Operating Income/Diluted Share $ 0.99 $ 1.06 Oper
Slide 21: ProAssurance 2008 Highlights
ProAssurance 2008 Highlights in millions, except per share data Gross Premiums Written $ 472 $ 549 Net Investment Income 158 171 Total Revenue 567 Total Expenses 319 Operating Income $ 207 $ 172 Net Income (Includes Investment Losses) $ 178 $ 168 Operating Income/Diluted Share $ 6.07 $ 4.90 Operatin
Slide 22: Responding to Low Interest Rates
Responding to Low Interest Rates 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 23: 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 24: Premiums to Surplus
( in millions) Prepared for an improving market Prudent capital management Premiums to Surplus for Each year
Slide 25: 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 26: Little Dependence on Debt
Little Dependence on Debt Low Debt to Cap Ratio Little strain on cash flow Repurchased additional $22 million of debt in Q4 $18 million debt added in the PICA transaction $7 million in surplus notes Evaluating potential call later this year 3/31/2009
Slide 27: $3.6 Billion Portfolio: Balancing Risk vs. Return
$3.6 Billion Portfolio Fixed Income: 83% Short Term: 10% Equity and Other Investments: 3% BOLI: 2% Balancing Risk vs. Return Our conservative investment philosophy balances risk and return Reducing cash and short-term balances as we see improving credit environment Low equity allocation helps mute t
Slide 28: Fixed Income: $3.1 Billion
Fixed Income: $3.1 Billion 3/31/2009
Slide 29: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 30: ProAssurance: Concentrating on shareholder value
ProAssurance 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 31: Proven success throughout the cycles
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
Slide 32: Appendix: Claims
Appendix: Claims Appendix: Claims
Slide 33: Why Claims Strategy Matters
Favorable Outcomes: 82% Favorable Outcomes: 74% Why Claims Strategy Matters Favorable Outcomes: 82% Favorable Outcomes: 74%
Slide 34: 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 35: Appendix: Investments
Appendix: Investments Appendix: Investments
Slide 36: Portfolio Overview: Equities
Portfolio Overview: Equities $106 million in Equities & Other Investments 3/31/09
Slide 37: Equities & Other Investments
Equities & Other Investments $ in 000’s Performance Q1, 2005 - Q1, 2009
Slide 38: 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 39: 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 40: 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 41: 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 42: Portfolio Overview: CMBS
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 43: 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 44: 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 45: Portfolio: Treasury/GSE
Portfolio: Treasury/GSE $209 million Average Rating: AAA 3/31/09
Slide 46: Portfolio: FRE and FNM
Portfolio: FRE and FNM $476 million Average Rating: AAA 3/31/09
Slide 47: Portfolio Overview: Short Term
Portfolio Overview: Short Term 3/31/09
Slide 48: Portfolio Overview: BOLI
Portfolio Overview: BOLI % $64 million ® Weighted average rating % Moody’s: AA3 & A.M. Best: At Py PROASSURANCE. Tread Fa
Slide 49: Appendix: Industry History
Appendix: Industry History Appendix: Industry History
Slide 50: Medical Malpractice
Source: A. M. Best Aggregates and Averages 1976 - 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined (Estimated) (Actual)
Slide 51: Appendix: M & A History
Appendix: M & A History Appendix: M & A History
Slide 52: We Created a Leader Through Consolidation
We Created a Leader Through Consolidation .Y PROASSURANCE.
Slide 53: Profitable Growth Through M&A
Profitable Growth Through Ma A % ProAssurance has been built through M & A ¥ ProAssurance was formed by the combination of two successful companies with a history of M&A Py PROASSURANCE.
Slide 54: Profitable Growth Through M&A
Profitable Growth Through Ma A * ProAssurance has been built through M & A ¥ We have continued to grow through M&A ¥ NCRIC in the mid-Atlantic ¥ PlC-Wisconsin in the upper Midwest ¥ PICA Nationwide PROASSURANCE. Tested Faily
Slide 55: Denovo 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 ¥ Weare the market leaders in AL, DE, DC, OH, & WI 56 » PROASSURANCE.
Slide 56: Denovo 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