Proassurance Corporation · NYSE:PRA
Proassurance — Association of Insurance and Financial Analysts 2005 Mid-Winter Conference
42 slides from Proassurance's conference presentation, Mar 8, 2005
Slide 1: Association of Insurance and Financial Analysts 2005 Mid-Winter Conference
March 8, 2005 Association of Insurance and Financial Analysts 2005 Mid-Winter Conference A. Derrill Crowe, M.D. Edward L. Rand Frank B. O’Neil Chairman & CEO Senior VP, Finance Investor Relations Officer
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
Market Cap: $1 Billion Gross Premiums : $790 million Assets: $3.2 billion Specialty insurer diversified by product and geography Experienced, invested management ProAssurance Overview PROFESSIONAL LIABILITY PERSONAL LINES Overview 73% of Premiums Fourth Largest Writer of Med Mal The Industry’s Blue
Slide 4: Experienced, Stable Management
12 0 Sr. Vice President / Finance Ned Rand Years in Industry Years at Company Position Name 22 14 Average 20 10 Sr. Vice President / Claims Darryl Thomas 25 12 Chief Financial Officer / MEEMIC Christine Schmitt 17 17 Sr. Vice President / IR Frank O'Neil 21 21 Chief Accounting Officer James Morello 3
Slide 5: Professional Liability
Professional Liability The Core of ProAssurance
Slide 6: 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: Consolidation with: Physicians Protective T
Slide 7: 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 States of Origin or Acquisition Expansion States Corporate Headq
Slide 8: Regional Operating Structure (with NCRIC)
Strengthening our business model by merging NCRIC into our operations Adds Mid-Atlantic presence Consolidated Financial Strength With Local Operating Model Corporate Headquarters States of Origin or Acquisition Expansion States Claims Offices Claims / Underwriting Offices Regional Operating Structur
Slide 9: NCRIC Transaction
Stock-for-stock transaction to close early in Q3 Exchange ratio: One NCRIC share receives 0.25 PRA shares, within collar Transaction consideration will vary within a 10% collar The exchange ratio will float outside of the 10% collar NCRIC Transaction
Slide 10: Strategic Advantages
Ease of Integration Similar backgrounds and operating models Transaction is expected to be accretive in 2005 Strengthens our business in states we had targeted for growth Strengthens PRA’s position as the market leader Strategic Advantages
Slide 11: Professional Liability Snapshot
Insuring physicians, hospitals, dentists and other healthcare providers Majority of insureds are smaller groups and solo practitioners Three Year Average 2001-2003 US Industry 124.3% PRA 109.7% Superior results through careful underwriting, proper pricing and effective claims handling Professional L
Slide 12: Professional Liability Snapshot: Gross Written Premiums
$349 $462 $543 $574 2001 2002 2003 2004 We focus on bottom line results but have been growing our top line as well Confident in current reserve levels Rated “A-” by A. M. Best, S & P and Fitch Gross Written Premiums* (millions) 4 Year CAGR: 18.0% Professional Liability Snapshot
Slide 13: Market Leadership
Proven M& A capability NCRIC transaction 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 Market Leadership Professional Liability
Slide 14: Market Leadership: Specialty insurance with local operations
Venue-specific claims management and underwriting knowledge Proven track record of regional operating success Experienced management at all levels of the organization Market Leadership Specialty insurance with local operations Professional Liability
Slide 15: 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 90% of closed claims resolved with no indemnity payments Generates lower costs and higher loyalty Aggressive Claims Defense Profession
Slide 16: Closed Claim Outcome Comparison
Favorable Outcomes: 83.3% Favorable Outcomes: 74.8% 4.4% 69.3% 0.8% 69.7% Dropped or Dismissed Defense Verdict Plaintiff Verdict Settled ProAssurance 2004 Physician Insurers Association, 2003 Latest Available Data Closed Claim Outcome Comparison 14.0% 12.3% 24.4% 5.1%
Slide 17: Closed Claim Cost Comparison
$1,018,110 $153,145 $322,544 $430,601 Avg. Verdict Avg. Settlement ProAssurance 2004 Physician Insurers Association, 2003 Latest Available Data Closed Claim Cost Comparison Reflects Results in All States with Various Policy Limits
Slide 18: Average Indemnity Comparison
Weighted Average Indemnity Per Closed Claim Latest Available Data $63,399 $82,146 ProAssurance PIAA 2003 2004 Average Indemnity Comparison
Slide 19: Three-Year Loss Ratio Comparisons
Our focus on claims defense allows us to achieve better results US Industry 124.3% PRA 109.7% LEGAL INDEMNITY 55.8% 36.0% Three-Year Loss Ratio Comparisons Average Statutory Loss Ratio 2001-2003 *Source:A. M. Best Aggregates & Averages 53.9% 88.3% Medial Malpractice Predominating
Slide 20: Professional Liability Combined Ratio
PRA PL Only A. M. Best Estimate 1999 2000 2001 2002 2003 2004 129.7% 133.8% 142.5% 135.2% 128.1% 154.2% Professional Liability Combined Ratio Financial Overview PL Industry Source: ProAssurance Statutory Filings and A. M. Best Statutory Results 88.2% 109.4% 125.2% 124.5% 111.6% 104.8%
Slide 21: 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 Pricing Remains Strong Professional Liability
Slide 22: 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 Looking Ahead to 2005
Slide 23: Looking Ahead to 2005: Acquisition Opportunities
The fragmented Professional Liability market will provide acquisition opportunities Pursuing opportunistic acquisitions Success not dependent on acquisitions ProAssurance will be invited to participate in any major opportunities Experienced consolidator Acquisitions formed our foundation Looking Ahe
Slide 24: Will History Repeat Itself —Again ?
Millions Source: A. M. Best Aggregates and Averages 1976 – 2001 At 12/31/2001 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 Premium Initial Reserve (Estimated) Developed Loss (Actual) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Will History Repeat Itself —Again ? Professional Liab
Slide 25: Will History Repeat Itself —Again ?
Millions (Estimated) (Actual) Source: A. M. Best Aggregates and Averages 1976 – 2003 12/31/2001 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Premium Initial Reserve Developed Loss Will History Repeat Itself —Again ? Professional Liabili
Slide 26: $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 Premiums In Millions $0 $1,000 $2,000
$1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 Premiums In Millions $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 At 12/31/2001 Premium Initial Reserve Developed Loss (Estimated) (Actual)
Slide 27: Looking Ahead: Tort Reform
Federal tort reform faces Senate roadblock even after Republican gains 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 busi
Slide 28: Personal Lines
Personal Lines The Overlooked Gem
Slide 29: Personal Lines Snapshot
MEEMIC targets teachers and the educational community Primarily personal auto (81%) Also homeowners and boat $130 $142 $174 $197 $216 2000 2001 2002 2003 2004 Personal Lines Snapshot Overview Direct Written Premiums (millions) 5 Year CAGR: 13.5%
Slide 30: Personal Lines Snapshot: Loss Ratio
Careful underwriting in a preferred market Peer-to-peer selling model provides a solid foundation Incremental expansion underway Rated “A-” MI Industry 86.9% MEEMIC 68.2% Superior Results Five Year Average 1999-2003 Personal Lines Snapshot Overview *Source: A. M. Best Statutory Adjusted Loss Ratio*
Slide 31: MEEMIC's Importance
2004 accomplishments Tenth straight year of underwriting profitability Growth in Premiums and Policyholders Consistent results MEEMIC’s Importance Combined ratio of 83.4% Personal Lines
Slide 32: Industry-Leading Results
23.7% 23.8% 23.1% 22.1% 22.1% 2000 2001 2002 2003 2004 Expense Ratio 88.9% 94.1% 87.7% 87.9% 83.4% Industry-Leading Results 65.2% 70.3% 64.6% 65.8% 61.3% GAAP Combined Ratio Loss Ratio Personal Lines Source: A. M. Best 5 Year Average of 88.4%
Slide 33: 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 MEEMIC: Steady Growth Personal Lines
Slide 34: Financial Overview
Financial Overview The Strength of ProAssurance
Slide 35: Financial Highlights
Cash flows at all time high Consolidated Combined Ratio below 100 for 2004 Solid bottom line growth Continued growth in top line as well $36.3 $61.3 $177.0 $282.8 $373.5 2000 2001 2002 2003 2004 Cash Flow from Operations Financial Highlights Merger Created ProAssurance in June 2001
Slide 36: Balance Sheet Comparison
in millions Total Assets $ 3,240 $ 2,879 Cash & Invested Assets $ 2,485 $ 2,103 Reserves for Losses and Loss Adjustment Expenses $ 2,413 $ 2,173 Shareholders’ Equity $ 611 $ 546 2004 2003 Balance Sheet Comparison Balance Sheet Strength Sets ProAssurance Apart December 31, 2004, Unaudited 13% 21% 11%
Slide 37: High Quality, Liquid Investment Portfolio
Cash 2% Equities 1% Other 2% Fixed Securities* 95% * Includes Preferred Stock and Business-Owned Life Insurance Conservative portfolio No derivatives Managed by outside advisors Average fixed maturity duration of 3.81 years High quality fixed income portfolio Weighted average rating of “AA” 99.5% in
Slide 38: 2004 Income Statement
in millions, except per share data Gross Premiums Written $ 573.6 $ 216.1 $ 789.7 Net Investment Income 75.0 10.9 87.2 Total Revenue 593.9 196.6 794.6 Total Expenses 537.6 153.0 697.1 Net Income 72.8 Professional Personal Liability Lines Consolidated Net Income/Share (diluted) $ 2.37 2004 Income Sta
Slide 39: 2004 Income Statement vs. 2003
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% 2004 2003 Change Net Income/Share (diluted) $ 2.37 $ 1.32 80% 2004 Income Statement vs. 2003 Finan
Slide 40: Consistent Growth in Book Value per Share
$3.67 $6.27 $8.56 $11.57 $13.92 $16.02 $18.77 $20.92 1991 1993 1995 1997 1999 2001 2003 2004 Consistent Growth in Book Value per Share Annual stock price performance of PRA and predecessors is 18.9% since inception in September, 1991 Financial Overview
Slide 41: 2004 Outlook: 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% Key Objective: 12%-14% ROE 2004 Outlook
Slide 42: 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 Our Opportunities
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