Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (August 2018)
111 slides from Proassurance's investor presentation, Aug 30, 2018
Slide 1: Table of Contents
Table of Contents TOPIC PAGES The Latest News Key themes & topics 2 - 6 Corporate Update/Overview 7 - 12 Capital management discussion 13 - 1 9 Co rporate F inancial s & Performance 20 - 2 7 Stock performance & total return 28 - 36 Segment Report ing Overview O perating segments 3 7 - 38 Segment fin
Slide 2: Key Themes and Topics of Importance August 2018
Key Themes and Topics of Importance August 2018
Slide 3: Key Themes
Key Themes Long Term Success Consistent & disciplined focus on profitability Demonstrated track record of value creation for shareholders Proven Strategy World class knowledge & expertise Superior brand identity and reputation in the market Broad range of coverages address every significant need in
Slide 4: Positives in the Second Quarter
Positives in the Second Quarter Profitability and More Operating income grew 21.5% vs Q2 2017 Premium Growth in all segments Worker’s Compensation up 19.2% Growth in all operating regions, plus continued benefits from the Great Falls transaction and the inception of Eastern Specialty Risk Specialty
Slide 5: Addressing the Challenges Ahead
Addressing the Challenges Ahead Underwriting and pricing changes to improve profitability in our Lloyd’s Syndicates segment Cautiously reacting to increasing loss trends in healthcare professional liability Increasing Current Accident Year Loss picks to protect insureds, investors and our balance sh
Slide 6: Our View of the Markets We Serve
Our View of the Markets We serve Healthcare Professional Liability: Signs of severity increase are on the horizon Should bring rationality back to the market Likely to provide new growth opportunities Flight to quality Weakness among smaller, less capable/experienced competitors Demonstrated value t
Slide 7: Corporate Update August 2018
Corporate Update August 2018
Slide 8: ProAssurance Corporate Profile
ProAssurance Corporate Profile Healthcare-centric specialty insurance writer Healthcare Professional Liability (HCPL) Only public company writing predominantly HCPL Life sciences and medical device liability Workers' compensation Legal professional liability Alternative risk transfer (ART) Market Ca
Slide 9: Premiums, Policyholders & Distribution YTD 2018
Premiums, Policyholders & Distribution YTD 2018 All Data as of 6/302018 YTD Policyholder Count: ~75,450 YTD 2018 Gross Premium: $486 mln Premium Allocated by Line Does Not Reflect Inter-Segment Eliminations Subject to Rounding Our Distribution Sources HCPL LPL Life Sciences Workers’ Comp Agent/Broke
Slide 10: ProAssurance Brand Profile
ProAssurance Brand Profile Specialty P&C Healthcare Professional Liability Workers’ Comp Alternative Risk Transfer Medical Technology & Life Sciences Products Liability Legal Professional Liability
Slide 11: ProAssurance's Path to Success
ProAssurance’s Path to Success 1976-1991 Building financial strength Establishing a brand reputation for superior service Demutualized in 2001 1991-2012 Scope & size addressed by expansion through careful M&A and de novo expansion in traditional HCPL 2012-2016 Additional capabilities added in Life S
Slide 12: Management is Experienced & Invested
Management is Experienced & Invested Proven executive management remains in place Officer/SVP: 17 years average tenure / 30 years average total industry experience VP level: 16 years average experience /30 years average total industry experience Performance over our history demonstrates our understa
Slide 13: Capital Management Discussion August 2018
Capital Management Discussion August 2018
Slide 14: Capital Growth: 2009–Q2 2018
Capital Growth: 2009–Q2 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q2 2018 Beginning Equity* $ 1,424 $ 1,705 $ 1,856 $ 2,164 $ 2,271 $ 2,394 $ 2,158 $ 1,958 $ 1,799 $ 1,595 Cumulative-effect adjustments ̶ ̶ ̶ ̶ ̶ ̶ ̶ ̶ $ 149 $ 8,334 Stock Issued ̶ ̶ ̶ ̶ ̶ ̶ ̶ ̶ ̶ ̶ Employee Stock Transactions
Slide 15: Key Updates: Capital Management
Key Updates: Capital Management Regular quarterly dividends of $0.31/per common share Special dividend of $4.69/per common share paid on January 10, 2018. Following an identical special dividend paid in January 2017. Dividends declared in 2017 returned $317 million of capital to shareholders Dividen
Slide 16: Superb Track Record of Capital Management
Superb Track Record of Capital Management Current Management Team’s Tenure Began Q2 2007 At 8/15/18 $ in 000’s Year Dividends Declared Share Repurchase Strategic Acquisitions Total* Special Regular 2007 ̶ ̶ $ 54,201 ̶ $ 54,201 2008 ̶ ̶ 87,561 ̶ 87,561 2009 ̶ ̶ 52,045 $ 137,800 189,845 2010 ̶ ̶ 106,3
Slide 17: Capital and Liquidity Decisions
Capital and Liquidity Decisions All decisions must recognize that we hold significant capital at the subsidiary level to maintain operating company ratings and satisfy regulatory requirements. Dividends from subsidiaries to the holding company are our primary source of liquidity and are paid as allo
Slide 18: Key Source of Capital: Subsidiary Dividends to Corporate
Key Source of Capital: Subsidiary Dividends to Corporate Subsidiary Dividend History (in Millions) 2018 ORDINARY Dividend Capacity $137 Million Ordinary dividends are permitted without regulatory approval Amounts and criteria vary by domiciliary state Extraordinary dividends require regulatory appro
Slide 19: Capital Management Priorities
Capital Management Priorities “A+” Rating Threshold The manner in which capital is used has an effect on financial ratings Excess Capital vs. Excess Capacity Conceptual Model of Projected A. M. Best BCAR Scores if Increase Premium Reduce Surplus
Slide 20: Financial / Operating Performance August 2018
Financial / Operating Performance August 2018
Slide 21: Income Statement Highlights (6/30/18)
Income Statement Highlights (6/30/18) Strong results from a focused strategy Three-Months Ended Six-Months Ended June 30 2018 2017 2018 2017 Gross Premiums Written $ 242.9 $ 206.2 $ 485.9 $ 437.6 Net Investment Result $ 27.8 $ 25.2 $ 51.4 $ 50.2 Total Revenues $ 256.2 $ 205.6 $ 457.2 $ 428.6 Net Los
Slide 22: Disciplined Approach to Reserves
Recognizing loss trends as they appear No change in reserving philosophy or process Disciplined Approach to Reserves $ in millions 15-Year Reserve Development History by Quarter by Year HCPL Predominating 2004—2018 $20 $19 $25 $40 $48 $53 $48 $34 $29 $29 $23 $31 $37 $38 $50 $60 $39 $42 $35 $37 $29 $
Slide 23: Inside ProAssurance's Income Statement (6/30/18)
Inside ProAssurance’s Income Statement (6/30/18) 06/30/18 Subject to Rounding Net Premiums Earned 89.8% Net Investment Income 9.7% Net Realized Investment Losses - 2.1% Other 2.6% Net Losses and Loss Adjustment Expenses 63.8% Underwriting, Policy Acquisitions, Operating, SPC Dividend, and Interest E
Slide 24: Ceded Premiums Written (YTD 6/30/18)
Ceded Premiums Written (YTD 6/30/18) Specialty P&C Workers’ Compensation Lloyd’s HCPL including Podiatry Products Lawyers Traditional Alternative Markets 6/30/18 6/30/17 6/30/18 6/30/17 6/30/18 6/30/17 6/30/18 6/30/17 6/30/18 6/30/17 6/30/18 6/30/17 Gross written premium $ 124.5 $ 121.4 $ 8.2 $ 7.5
Slide 25: Ceded Premiums Written (Q2 18)
Ceded Premiums Written (Q2 18) Specialty P&C Workers’ Compensation Lloyd’s HCPL including Podiatry Products Lawyers Traditional Alternative Markets 6/30/18 6/30/17 6/30/18 6/30/17 6/30/18 6/30/17 6/30/18 6/30/17 6/30/18 6/30/17 6/30/18 6/30/17 Gross written premium $ 131.4 $ 108.4 $ 9.8 $ 9.9 $ 6.7
Slide 26: Balance Sheet Highlights
Balance Sheet Highlights Maintaining the financial strength required to keep our insurance promise while continuing to create value for our shareholders June 30, 2018 2017 2016 2015 2014 Shareholders’ Equity $1.6 $1.6 $1.8 $2.0 $2.2 Total Investments $3.4 $3.7 $3.9 $3.7 $4.0 Total Assets $4.6 $4.9 $
Slide 27: Inside ProAssurance's Balance Sheet: (6/30/18)
Inside ProAssurance’s Balance Sheet: (6/30/18) Cash & Investments 74.6% Insurance Receivables 14.5% Goodwill & Intangible Assets 6.3% Other Assets 4.6% Retained Earnings 35.5% Loss Reserves 45.4% Reinsurance Payable & Other Liabilities 11.0% Unearned Premiums 9.2% Other Equity - 1.1% Assets: $4.6 bl
Slide 28: Shareholder Return & ROE August 2018
Shareholder Return & ROE August 2018
Slide 29: Book Value per Share History to June 30, 2018
Book Value per Share History to June 30, 2018 Growth in Book Value + Dividends Since Inception (Sep 1991) Cumulative: 2,747% / CAGR: 13.4% Initial dividend declared in Q4 2011 $51.67 $21.35 $26.30 $30.17 $35.42 $36.85 $39.13 $38.17 $36.88 $33.78 $29.37 $20.80 $23.13 $25.29 $29.80 $30.98 $34.67 $31.6
Slide 30: Book Value per Share Q2 2018 Roll Forward
Book Value per Share Q2 2018 Roll Forward Components 6/30/18 12/31/17 Change Total Book Value $29.37 $29.83 $(0.46) Less: Goodwill & Intangible Assets 5.42 5.49 (0.07) Tangible Book Value $23.95 $24.34 $(0.39) Less: Unrealized Gain / Loss (0.30) 0.28 $(0.58) Tangible Book Value excluding Unrealized
Slide 31: Corporate Segment Financial Highlights (6/30/18)
Corporate Segment Financial Highlights (6/30/18) Three Months Ended Year Ended June 30 2018 2017 2017 2016 Net investment income $ 21.3 $ 22.8 $ 93.9 $ 98.6 Equity in earnings (loss) of unconsolidated subsidiaries $ 1.6 $ 1.8 $ 8.0 $ (5.6) Net realized investment gains (losses) $ (12.5) $ 13.3 $ 16.
Slide 32: ProAssurance Leverage Update
$290 million debt at 6/30/18 $250.0 million 10-year notes due 11/15/2023 5.30% Coupon $39.8 in office building mortgages $250 million revolving credit facility No current borrowings ProAssurance Leverage Update Ten-Year Premiums to Equity Ten-Year Debt to Capital Moving closer to our minimum target
Slide 33: Return on Equity & Future Goals
Return on Equity & Future Goals ROE target is seven points above the ten-year Treasury rate (risk-free rate) Ten year treasury rate was 3.0% at 8/1/18*, implying a revised ROE Target of approximately 10.0% Prior long-term return target of 12%-14% is unrealistic in the current interest rate environme
Slide 34: Components of Return on Equity
Components of Return on Equity Ten Year Average ROE (2008 - 2017) 10.7% Five Year Average ROE (2013 - 2017) 8.0% 1.1% 6.5% - 1.1% 0.5% - 1.9% Pre-Tax Underwriting Profit $9 Pre-Tax Investment Result $51 Non-Operating Gains (Losses) ($9) Taxes $4 Interest, SPC Dividend, & Intangibles ($15) YTD 2018 R
Slide 35: Strong Operational Results / Consistent Profitability
Strong Operational Results / Consistent Profitability Combined ratio average 2009-2017: 75.2% Operating ratio average 2009-2017: 53.8% Combined Ratio and Operating Ratio History 69.1% 68.0% 52.5% 57.3% 70.6% 82.1% 90.5% 91.4% 95.4% 99.5% 38.8% 39.8% 27.6% 32.6% 46.1% 64.2% 74.8% 77.8% 82.4% 88.7% 20
Slide 36: Total Return and Stock Price
Total Return and Stock Price Reflects all stock splits and includes all dividends in the year declared. Source: SNL Scorecard at 8/15/18 Total Return CAGR Since Inception (Sep 1991) 2698% 13% Ten Year (8/15/08 – 8/15/18) 165% 10% Five Year (8/15/13 – 8/15/18) 36% 6% YTD 2018 -17% Stock Price Total R
Slide 37: Total Return and Stock Price
Total Return and Stock Price PROASSURANCE. 2270% scorecard at8/15/18 |, Since Inception (Sep 1991) 2698% 13% Ten Year (8/15/08 - 8/15/18) 165% 10% Five Year (8/15/13 - 8/15/18) 36% += 6% YTD 2018 717% Total Return CAGR 91 493° «95° «9799s isi Sa Scorecard at 8/15/18 $97.15 ‘Since Inception (Sep 1991
Slide 38: Our Four Reporting Segments
Our Four Reporting Segments ProAssurance Consolidated Specialty P&C Workers’ Compensation Lloyd’s Corporate / Other Healthcare Professional Liability Products Liability Lawyers’ Professional Liability Traditional Captive Market Facility Syndicate 1729 (62%) Syndicate 6131 (100%) Including investment
Slide 39: Condensed Results by Segment Q2 2018
Condensed Results by Segment Q2 2018 Second Quarter 2018 Specialty P&C Specialty P&C Workers' Comp Workers' Comp Lloyd's Syndicates Lloyd's Syndicates Corporate / Other Corporate / Other Elimination Elimination As Reported 2018 As Reported 2018 2018 Excluding LPT 2018 Excluding LPT As Reported 2017
Slide 40: Condensed Results by Segment YTD 2018
Condensed Results by Segment YTD 2018 YTD at 6/30/18 Specialty P&C Specialty P&C Workers' Comp Workers' Comp Lloyd's Syndicates Lloyd's Syndicates Corporate / Other Corporate / Other Elimination Elimination As Reported 2018 As Reported 2018 2018 Excluding LPT 2018 Excluding LPT As Reported 2017 As R
Slide 41: Segment Highlights Specialty P&C, August 2018
Segment Highlights Specialty P & C, August 2018
Slide 42: Specialty P&C Financial Highlights (6/30/18)
Specialty P&C Financial Highlights (6/30/18) Three Months Ended Six Months Ended June 30 2018 2017 2018 2017 Gross Premiums Written $ 148.0 $ 124.9 $ 288.5 $ 261.7 Net Premiums Earned $ 143.8 $ 109.0 $ 260.1 $ 222.1 Total Revenues $ 145.1 $ 110.5 $ 262.6 $ 224.7 Net Losses & Loss Adjustment Expenses
Slide 43: New Market Conditions Emerging
New Market Conditions Emerging Data Source: TransRe Unmistakable trend to higher severity evident in the broader industry Not evident in average ProAssurance paid losses Prompting greater conservatism in ProAssurance reserves on larger risks where deeper pockets may have been created by consolidatio
Slide 44: New Market Conditions Emerging
New Market Conditions Emerging Data Source: TransRe Greater uncertainty in the market creates an environment where ProAssurance outperforms due to superior financial strength and operational expertise Perceived trends have led two commercial carriers to exit all or part of their healthcare professio
Slide 45: Q2 2018 Specialty P&C Gross Written Premium
Total Gross Written Premiums increased $23.1 million Q-o-Q—driven by the Loss Portfolio Transfer (LPT) LPT: $18.7 million written (and fully earned) in the quarter; $7.9 million of tail coverage = $26.6 million New business of $8.0 million. Physician new business: $3.7 million Facilities increased d
Slide 46: YTD 2018 Specialty P&C Gross Written Premium
Total Gross Written Premiums were $288.5 mil—increase of 10.2% Y-o-Y. Driven by the Loss Portfolio Transfer (LPT). See prior slide for details Physician decrease is due to decrease in twenty-four month policies. Retention: 91%. Physician new business: $8.7 mil Facilities increase is due to new busin
Slide 47: Retention gains are holding
Retention gains are holding Continued underwriting vigilance is being used today to ensure future success Market share is important, but NOT as important as profitability Strong Retention Despite Competition Year-over-Year Premium Retention – Physicians Trailing Four Quarters’ Premium Retention – Ph
Slide 48: Physician Liability Pricing Trend
Physician Liability Pricing Trend PICA excluded to facilitate accurate comparisons over time June 30, 2018 Current accident year loss ratio adjustments typically have been minor—in either direction Minimal changes on renewed business MD/DO Charged Rate History 2001 2002 2003 2004 2005 2006 2007 2008
Slide 49: Annual Premium for a $1M / $3M Policy
Annual Premium for a $1M / $3M Policy Filed or Approved at 1/01/17 Key State Rate Comparison Birmingham Indianapolis Denver Louisville Dallas St Louis Cleveland New York, NY Washington Miami Detroit Chicago Family Practice (No Surgery) $7,484 $8,461 $11,100 $12,066 $13,595 $17,960 $22,455 $23,216 $2
Slide 50: Thorough Claims Defense Remains Important
Strong defense still matters to individual physicians, even if they are in a hospital-owned practice or in a large group—it’s their reputation on the line We leverage our financial strength to give our insureds the opportunity for an uncompromising defense of each claim Differentiates our product Pr
Slide 51: The Bottom Line Benefits of Strong Defense
Source: 2012-2016, Statutory Basis, A.M. Best Aggregates & Averages The Bottom Line Benefits of Strong Defense Our ability and willingness to defend claims allows us to achieve better results ProAssurance Stand Alone Five-Year Average Loss Ratio (2012-2016 / Calendar Year) ProAssurance vs. Industry
Slide 52: ProAssurance Outperforms in Insurance
Source: A.M. Best Aggregates and Averages for Each Line of Business (1991-2016) ProAssurance Outperforms in Insurance Average Combined Ratio 103.8% 100.6% 99.1% 106.7% 90.7% 98.8% 87.2% 67.0% 69.9% 88.3% 70.5% 74.4% 1991-2016 10-Year 2007-2016 5-Year 2012-2016 Overall P&C MPL PRA - MPL Only PRA - Al
Slide 53: ProAssurance Outperforms in HCPL
Source: 1991-2016 A.M. Best Aggregates and Averages, Medical Malpractice Lines of Business. Policyholder Dividends Included. ProAssurance Outperforms in HCPL ProAssurance consistently outperforms in a volatile line of business Calendar Year Combined Ratio 1991 - 2016 '91-'16 Avg 10 Yr Avg 2007-2016
Slide 54: Segment Strategic Review Specialty P&C, August 2018
Segment Strategic Review Specialty P & C, August 2018
Slide 55: Cost vs. Care: Restructuring in Healthcare
The question is cost vs. care—we can deliver more care than we can afford Restructuring is producing profound changes in healthcare The U.S. spends a greater proportion of GDP on healthcare and the percentage is increasing How Healthcare Costs Will Force Changes in Our Market Healthcare Spending as
Slide 56: How Healthcare Costs Will Force Changes in Our Market
How Healthcare Costs Will Force Changes in Our Market Adapted from HBR: The Strategy that Will Fix Healthcare Greater reliance on a value-based payment system Providers shouldering more of the risk of costs Drives the need for efficiency in order to optimize limited resources Changing models of reim
Slide 57: Strategy Update: Traditional Practices are Fading
The fork in the road for traditional HCPL companies Their core markets are disappearing and they do not have the financial size and capability to insure large, more complex risks Strategy Update: Traditional Practices are Fading Source: 2016 Physicians Foundation Survey of America’s Physicians, and
Slide 58: Strategy Update: ProAssurance Can Meet the Challenges
The HCPL Industry Traditional practices are fading Excess capital is being used to try to maintain market share at the expense of a sustainable future Capital & geographic constraints challenge many small insurers Few companies are able to respond to new coverage demands from emerging delivery model
Slide 59: Emerging Issues in Healthcare
Emerging Issues in Healthcare Consolidation of providers into larger groups or within facilities/systems Evolution of new delivery systems to address cost pressures Multi-state expansion to achieve scale Challenges for HCPL Insurers Broker-driven purchasing requires new approaches to the market Larg
Slide 60: ProAssurance is Positioned to Succeed in HCPL
ProAssurance has the right combination of geographic scope, broad experience, and financial strength for success in the new world of healthcare liability ProAssurance is Positioned to Succeed in HCPL Size & Scope of Top HCPL Writers SNL 2016 Statutory Data, >50% HCPL, Direct Written Premiums >$80 mi
Slide 61: ProAssurance is Positioned to Succeed in HCPL
ProAssurance is Positioned to Succeed in HCPL Our long-term focus on financial strength is central to our overall strategy and success We have proven our ability to thrive across insurance cycles We have an unmatched combination of financial strength and deep experience ProAssurance has always evolv
Slide 62: Broad Experience Across the Healthcare Market
More than 30 year of experience insuring hospitals and other healthcare facilities Experience ranges from community-based hospitals to major medical centers Enhanced coverages (ProControl) and existing programs respond to today’s emerging trends Broad Experience Across the Healthcare Market Other He
Slide 63: Certitude Program in Partnership with Ascension Health
The Certitudetm program in partnership with Ascension Health Shared risk through quota share participation by Ascension’s captive on first $1M ~2,600 insured physicians ~$29.6 mln inforce Certitude direct premium YTD (12/31/17) Active in AL, CT, D.C., FL, IL, IN, KS, MD, MI, NY, OK, SC, TN, TX, WI $
Slide 64: Addressing a Wide Spectrum of Risk Appetites
Addressing a Wide Spectrum of Risk Appetites Traditional Policies Primarily agent-sold or direct Remains the majority of our business Proven performance supports discipline pricing Transitional Risk sharing/high deductible programs control cost and build “sticky” business Risk purchasing groups targ
Slide 65: Emerging Strategic Opportunities
Emerging Strategic Opportunities ProAssurance Risk Solutions sm Proven expertise to address complex risk financing challenges in both healthcare and workers’ compensation Run-off liabilities in M&A transactions Assumption of existing reserve liabilities for large organizations seeking to repurpose c
Slide 66: Leveraging Existing Expertise in New Ways
Leveraging Existing Expertise in New Ways Syndicate 1729 at Lloyds Our 58% participation provides potential access to international medical professional liability opportunities Increases flexibility for ProAssurance when working with complex risks Primary and excess business can be written We expect
Slide 67: Segment Highlights Workers' Compensation, August 2018
Segment Highlights Workers’ Compensation, August 2018
Slide 68: Workers' Compensation Financial Highlights (6/30/18)
Workers’ Compensation Financial Highlights (6/30/18) Three Months Ended Six Months Ended June 30 2018 2017 2018 2017 Gross Premiums Written $ 70.73 $ 59.3 $ 162.1 $ 143.6 Net Premiums Earned $ 62.3 $ 56.9 $ 120.7 $ 112.1 Total Revenues $ 62.5 $ 57.1 $ 121.2 $ 112.5 Net Losses & Loss Adjustment Expen
Slide 69: 2017: Expansion Completed—Opportunities Ahead
2017: Expansion Completed—Opportunities Ahead Eastern Alliance Insurance Group acquired the renewal rights to the workers’ compensation book of Great Falls Insurance Company Great Falls is headquartered in Auburn, Maine Transaction adds Maine and New Hampshire to Eastern’s footprint Sets the stage f
Slide 70: Eastern Specialty Risk: Higher Risk But NOT High Risk
Eastern Specialty Risk: Higher Risk But NOT High Risk Business Overview Focusing on the next level of risk: higher hazard but not typical “high hazard” Some classes previous written by Eastern in High Modification programs $5.2 million in direct premiums in 2017—includes $4.6 million of new business
Slide 71: Consistent Profitability in Workers' Comp
Consistent Profitability in Workers' Comp Historical Combined Ratio Average 88.6% 2006-Q2 2018 79.1% 65.6% 80.2% 87.7% 96.0% 89.7% 91.8% 93.0% 96.0% 95.9% 95.5% 91.1% 90.7% 92.7% 94.3% 93.7% 89.1% 90.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD 18 GAAP GAAP (excluding fair valu
Slide 72: Eastern Outperforms in Workers' Compensation
Source: 1996-2016 A.M. Best Aggregates and Averages, Workers’ Compensation. Policyholder Dividends Included. Eastern Outperforms in Workers’ Compensation Eastern consistently outperforms in a volatile line of business Calendar Year Combined Ratio 1996 - 2016 '96-'16 Avg 10 Yr Avg 2007-2016 5 Yr Avg
Slide 73: Eastern Alliance Insurance Group
Eastern Alliance Insurance Group Best-in-Class Claims, Risk Management and Underwriting Business Model Broad Product Spectrum 43 State/DC Licenses – Core Operations in 19 States Select Agency Partnerships 231 Contracts / 669 Locations Workers’ Compensation Business Profile & Overview 6/30/18 Subject
Slide 74: Broad Workers' Compensation Product Spectrum
Guaranteed Cost Policies Loss-Sensitive Dividend Plans Deductible Plans Retrospective Rating Plans Alternative Market Programs ParallelPay–“Pay as you Go” TPA Services Claims Administration and Risk Management Broad Workers’ Compensation Product Spectrum $162.1 mln Gross Written Premium YTD 2018 (+1
Slide 75: Wide diversification by class code and market segment
Wide diversification by class code and market segment 10,259 active policies in Traditional Programs Over 600 class codes actively written in Traditional business 2,775 active policies in Inova Alternative Market Programs Over 400 actively written in Inova Alternative Market Programs Diversified Boo
Slide 76: Workers' Comp Claim Closing Pattern: Traditional
Eastern’s proactive claim-closing strategies are key to being recognized as a short-tail writer of workers’ compensation No claims open from 2004 and earlier 77 net claims open from 2014 and prior Workers’ Comp Claim Closing Pattern: Traditional 6/30/2018 536 590 573 687 590 717 778 890 955 1,077 1,
Slide 77: Workers' Comp Claim Closing Pattern: Alternative
Workers’ Comp Claim Closing Pattern: Alternative 6/30/2018 Eastern’s proactive claim-closing strategies are key to being recognized as a short-tail writer of workers’ compensation No claims open from 2008 and earlier 37 net claims open from 2015 and prior 103 175 267 407 422 310 326 336 385 405 503
Slide 78: Segment Strategic Review Worker's Compensation, August 2018
Segment Strategic Review Worker’s Compensation, August 2018
Slide 79: Strategy Update: How Eastern Differentiates
Strategy Update: How Eastern Differentiates Understands market dynamics and regulatory concerns Use of local knowledge that has always differentiated ProAssurance Disciplined individual account underwriting with focus on rate adequacy in rural territories Dedicated to effective claims management and
Slide 80: Healthcare as a Percentage of Workers' Compensation Writings
Healthcare as a Percentage of Overall Workers’ Compensation Writings Direct Written Premium YTD at 6/30/18 Significant Healthcare Profile YTD 2018 Healthcare premiums grew 8.3% vs. 6/30/2017 2017 Healthcare premiums up 12.0% over 2016 The Majority of Healthcare-Related Premiums are Written in Altern
Slide 81: Strategy Update: Alternative Market Overview
Strategy Update: Alternative Market Overview Inova® is our alternative insurance brand Alternative insurance structure utilizes a segregated portfolio company (Eastern Re) with segregated portfolio cells housing captives Alternative market solutions are in high demand Fast growing sector of the Prop
Slide 82: Strategy Update: How Eastern RE Differentiates
Strategy Update: How Eastern RE Differentiates Captive insurance solutions provided through Eastern Re Value-added risk management services cements brand loyalty Strategic partnerships with select independent agencies that share philosophies on controlling workers’ compensation costs Segregated cell
Slide 83: How Inova Benefits Insureds
How Inova® Benefits Insureds “A” Rated Paper – WC / “A+” Rated Paper – MPL / GL Stable Off-Shore Facility Eastern Re Ltd, S.P.C. established in 1987 Cayman Islands Monetary Authority regulation Segregated portfolio cells statutorily protected from each other Multi-State Coverage “Fully-Bundled” Appr
Slide 84: Inova: Direct Written Premium Trends
Inova: Direct Written Premium Trends DPW in 000’s 19 year track record of growth and profitability 2017 DWP = $80.5 million Year-over-year growth of 6.1%
Slide 85: Segment Highlights Lloyds, August 2018
Segment Highlights Lloyds, August 2018
Slide 86: Lloyd's Segment Financial Highlights (6/30/18)
Lloyd’s Segment Financial Highlights (6/30/18) Three Months Ended Six Months Ended June 30 2018 2017 2017 2016 Gross Premiums Written $ 24.2 $ 23.3 $ 36.6 $ 36.0 Net Premiums Earned $ 17.5 $ 14.5 $ 30.0 $ 29.1 Total Revenues $ 17.6 $ 14.8 $ 31.1 $ 30.2 Net Losses & Loss Adjustment Expenses $ 12.5 $
Slide 87: Syndicate 1729 and Syndicate 6131
Syndicate 1729 2018 Underwriting capacity: $174.3 million ProAssurance’s 62% share is $108.3 million Syndicate 6131 2018 underwriting capacity: $10.6 million ProAssurance is the 100% capital provider Lloyd’s Syndicates Business Detail† †For the trailing twelve months as of March 31, 2018 and reporte
Slide 88: Segment Highlights & Strategic Review Lloyd's, August 2018
Segment Highlights & Strategic Review Lloyd’s, August 2018
Slide 89: Lloyd's Strategy Review
Lloyd’s Strategy Review ProAssurance now provides 62% of capital to Syndicate 1729 (increased from 58% at 1/1/18) Small ownership interest in the underlying underwriting arm, Dale Underwriting Partners $200 million capital commitment is best viewed as an investment Early stage costs elevated but in-
Slide 90: Key Lloyd's Opportunities
Key Lloyd’s Opportunities Special Purpose Arrangement (SPA) within Syndicate 1729 began writing business in 2018 Syndicate 6131 Four experienced underwriters with established books of business prior to joining Planned premium is $22 million Business focus is contingency & specialty property Continui
Slide 91: Syndicate 1729 Outlook for 2018
Syndicate 1729 Outlook for 2018 Little change in overall results expected for the next reported quarter Little or no exposure to Brexit and related issues Few UK risks written Improving market conditions Growth in a more profitable market More catastrophe risk, gross & net Addressed through addition
Slide 92: Investment Strategy and Detailed Holdings
Investment Strategy and Detailed Holdings
Slide 93: 2018 Investment Strategy
Proactively managing allocations for better risk-adjusted returns Reducing municipals due to changes in tax rates 2018 Investment Strategy Continuing capital management activities are reducing the size of the portfolio Duration management remains paramount We will not extend duration in search of in
Slide 94: YTD Net Investment Result (6/30/18)
YTD Net Investment Result (6/30/18) 6/30/2018 6/30/2017 Change Net Investment Income Fixed maturities $ 33,042 $ 38,152 $ (5,110 ) Equities 9,865 7,942 1,923 Short-term investments including Other 2,540 1,736 804 BOLI 904 897 7 Investment fees and expenses (3,527 ) (3,646 ) 119 Net investment income
Slide 95: 2017 Consolidated Net Investment Result
2017 Consolidated Net Investment Result $ in thousands Fixed income is down due to ~7% lower average balances and lower yields Excluding Capital Gains / (Losses) 12/31/17 12/31/16 Change Net Investment Income Fixed maturities $ 75,669 $ 85,818 $ (10,149 ) Equities 17,198 14,887 2,311 Short-term inve
Slide 96: ProAssurance Recent Investment Performance
ProAssurance Recent Investment Performance As of June 30, 2018 Management reporting item which is ‘tax equivalent,’ unaudited, and non GIPS, may not equal 100% due to rounding Contribution to Returns 2014-Q2 2018 / PRA vs Benchmarks 2018 2017 2016 2015 2014 % of Assets PRA Benchmark % of Assets PRA
Slide 97: ProAssurance Investment Profile
6/30/18 Full portfolio disclosure on our website: investor.proassurance.com/CustomPage/Index?KeyGenPage=305596 ProAssurance Investment Profile $2.2 Billion Fixed Income Portfolio (64% of Invested Assets) $3.4 Billion Overall Portfolio Sources of Liquidity Average duration: 3.4 years Average tax-equi
Slide 98: Portfolio Detail: Asset Backed
6/30/18 ProAssurance Portfolio Detail: Asset Backed Weighted Average Rating: “AAA” $421Million (20% of Fixed Income / 13% of Invested Assets) RMBS 49% Other (Primarily Auto & Credit Card) 40% CMBS , 11%
Slide 99: Portfolio Detail: Corporate
ProAssurance Portfolio Detail: Corporate Corporates: $1.2 Billion (56% of Fixed Assets / 36% of Invested Assets) Top 20 Banks/Financials: $193 million in millions J. P. Morgan $18 Simon Properties $8 Goldman Sachs $18 Barclays $7 Bank of America $18 Athene $7 Doctor’s Co $12 Key Banc $6 Morgan Stanl
Slide 100: Portfolio Detail: Municipals
6/30/18 ProAssurance Portfolio Detail: Municipals Municipals: $331 Million (16% of Fixed Income / 10% Invested Assets) Weighted Average Rating: AA Top 10 Municipal Holdings in millions North Carolina State Capital Improvement $10 Connecticut State Housing $7 Omaha Public Power $7 Pennsylvania State
Slide 101: Portfolio: Equities & Other
6/30/18 Subject to Rounding ProAssurance Portfolio: Equities & Other Equities & Other: $922 Million (26% of Invested Assets) Equities 22% Private Equity 14% Hedge Funds 8% BDC Stocks 4% Multi Asset Class Fund 6% Private Credit/Structured Credit 8% Real Estate LP 5% MLPs 4% Convertible Bonds 4% Bond
Slide 102: 2017 Consolidated Financial Data
2017 Consolidated Financial Data
Slide 103: 2017 Income Statement Highlights
2017 Income Statement Highlights Strong results from a focused strategy Three-Months Ended Year Ended December 31 2017 2016 2017 2016 Gross Premiums Written $191.8 $187.5 $874.9 $835.0 Net Investment Result $25.6 $25.6 $103.7 $94.3 Total Revenues $ 209.1 $237.7 $ 866.1 $870.2 Net Losses and LAE $ 10
Slide 104: 2017 Condensed Results by Segment
2017 Condensed Results by Segment 2017 Specialty P&C Specialty P&C Workers' Comp Workers' Comp Lloyd's Syndicate Lloyd's Syndicate Corporate / Other Corporate / Other Elimination Elimination 2017 2016 2016 2015 Gross premiums written $ 549,323 $ 263,391 $ 70,224 $ — $ (8,062 ) $ 874,876 $ 835,014 Ne
Slide 105: 2017 Specialty P&C Financial Highlights
2017 Specialty P&C Financial Highlights Three Months Ended Year Ended December 31 December 31 2017 2016 2017 2016 Gross Premiums Written $121.3 $125.5 $549.3 $535.7 Net Premiums Earned $113.5 $122.7 $453.9 $457.8 Total Revenues $115.3 $124.0 $459.6 $463.1 Net Losses & Loss Adjustment Expenses $68.6
Slide 106: 2017 Workers' Compensation Financial Highlights
2017 Workers’ Compensation Financial Highlights Three Months Ended Year Ended December 31 December 31 2017 2016 2017 2016 Gross Premiums Written $60.2 $53.5 $263.4 $247.9 Net Premiums Earned $57.6 $56.8 $227.4 $220.8 Total Revenues $57.8 $57.0 $228.1 $221.7 Net Losses & Loss Adjustment Expenses $33.
Slide 107: 2017 Lloyd's Segment Financial Highlights
2017 Lloyd’s Segment Financial Highlights Three Months Ended Year Ended December 31 December 31 2017 2016 2017 2016 Gross Premiums Written $13.2 $14.3 $70.2 $65.2 Net Premiums Earned $11.8 $14.1 $57.2 $54.7 Total Revenues $12.5 $14.8 $57.6 $57.6 Net Losses & Loss Adjustment Expenses $3.5 $8.1 $44.2
Slide 108: 2017 Corporate Segment Financial Highlights
2017 Corporate Segment Financial Highlights Three Months Ended Year Ended December 31 December 31 2017 2016 2017 2016 Net investment income $ 25.5 $24.3 $ 93.9 $ 98.6 Equity in earnings (loss) of unconsolidated subsidiaries $ (0.5) $ 0.8 $ 8.0 $ (5.6) Net realized investment gains (losses) $ (2.4) $
Slide 109: 2017 Ceded Premiums Written
2017 Ceded Premiums Written HCPL including Podiatry Products Lawyers Workers’ Compensation Lloyd’s Traditional Alternative Markets 12/31/17 12/31/16 12/31/17 12/31/16 12/31/17 12/31/16 12/31/17 12/31/16 12/31/17 12/31/16 12/31/17 12/31/16 Gross written premium $ 488.9 $ 476.8 $ 34.4 $ 33.3 $ 26.0 $
Slide 110: Forward Looking Statements Non-GAAP Measures
Forward Looking Statements Non-GAAP Measures 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 proj
Slide 111: Important Safe Harbor & Non-GAAP Notices
IMPORTANT SAFE HARBOR & NON-GAAP NOTICES 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 mat