Proassurance Corporation · NYSE:PRA
Proassurance — Non-Deal Roadshow (March 2007)
38 slides from Proassurance's roadshow presentation, Mar 5, 2007
Slide 1: Florida Investor Meetings, March 5-6, 2007
March 5-6, 2007 March 5 March 5-6, 2007 6, 2007 A. Derrill Crowe, M.D. A. Derrill Crowe, M.D. Chairman & CEO Chairman & CEO Edward L. Rand, Jr. Edward L. Rand, Jr. Chief Financial Officer Chief Financial Officer Frank B. O Frank B. O’Neil Neil Investor Relations Officer Investor Relations Officer Fl
Slide 2: Caution Regarding Forward Looking Statements
1 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 his
Slide 3: ProAssurance: The Basics
2 ProAssurance: The Basics ProAssurance: The Basics Market Cap: $1.7 Billion Equity: $1.1 Billion Nation’s fourth largest writer of medical liability Over 40,000 policyholders* Almost 35,000* physicians & dentists Writing business in 26 states Highly rated by Best, Fitch and S&P Market Cap: $1.7 Bil
Slide 4: 2006 Starting With the Big Finish
2006 Starting With the Big Finish Starting With the Big Finish A proven track record at all stages of the cycle A proven track record at all stages of the cycle Edward L. Rand, Jr. Edward L. Rand, Jr. Chief Financial Officer Chief Financial Officer
Slide 5: 2006 Balance Sheet (Continuing Operations)
Officer 4 2006 Balance Sheet (Continuing Operations) 2006 Balance Sheet (Continuing Operations) Total Assets $4,343 $3,909 11.1% Total Investments $3,492 $2,615 33.6% Total Policy Liabilities $2,967 $2,572 15.4% Stockholders’ Equity $1,119 $ 765 46.2% in millions in millions Y-OVER-Y 2006 2005 CHANG
Slide 6: Management of Asset Risk
5 Corp 18% BOLI 2% TIPS Portfolio 1% Other 1% Asset Backed 30% Short Term/Cash 5% Govt/Agcy 8% State/Muni 35% Management of Asset Risk Management of Asset Risk Conservative portfolio risk offsets liability risk Average fixed maturity duration of 3.9 years Fixed income portfolio Weighted average rati
Slide 7: Capital Structure
6 Capital Structure Capital Structure Debt to Equity Ratio: 16.0% Debt to Capitalization: 13.8% Convertible debt exchangeable for 2.6 million shares Debt to Equity Ratio: 16.0% Debt to Capitalization: 13.8% Convertible debt exchangeable for 2.6 million shares Stockholder’s Equity 86% Stockholder’s E
Slide 8: Capital Structure
6 Capital Structure Capital Structure Debt to Equity Ratio: 16.0% Debt to Capitalization: 13.8% Convertible debt exchangeable for 2.6 million shares Debt to Equity Ratio: 16.0% Debt to Capitalization: 13.8% Convertible debt exchangeable for 2.6 million shares Stockholder’s Equity 86% Stockholder’s E
Slide 9: Capital Structure
6 Capital Structure Capital Structure Debt to Equity Ratio: 16.0% Debt to Capitalization: 13.8% Convertible debt exchangeable for 2.6 million shares Debt to Equity Ratio: 16.0% Debt to Capitalization: 13.8% Convertible debt exchangeable for 2.6 million shares Stockholder’s Equity 86% Stockholder’s E
Slide 10: Long-Term Success: Return to Shareholders
9 Long-Term Success: Return to Shareholders Long-Term Success: Return to Shareholders $21.00 $32.15 $39.11 $48.64 $49.92 $4.12 $7.43 $13.22 $23.20 $21.19 $17.58 $33.61 $24.59 $20.92 $18.77 $17.49 $16.02 $13.92 $11.57 $8.56 $6.27 $3.67 1991 1993 1995 1997 1999 2001 2002 2003 2004 2005 2006 Share Pric
Slide 11: 2006 Income Statement
10 Gross Premiums Written $ 579.0 $ 573.0 1.1% Net Investment Income 149.8 99.2 51.0% Net Income Continuing Operations $ 127.0 $ 80.0 58.7% Total $ 236.4 $ 113.5 108.4% Income Diluted Share Continuing Operations $ 3.72 $ 2.52 47.6% Total $ 6.85 $ 3.54 93.5% in millions, except per share data 2006 In
Slide 12: Cash Flow Is Strong
11 Cash Flow IS Strong Cash Flow IS Strong 2006 cash flow affected by taxes and investment decisions Cash flow is over $1.3 billion since the creation of ProAssurance in 2001 Helping fuel higher investment returns 2006 cash flow affected by taxes and investment decisions Cash flow is over $1.3 billi
Slide 13: Investment Income an Important Factor
12 Investment Income an Important Factor Investment Income an Important Factor Net Investment Income as a Percentage of Net Earned Premium 19% 16% 11% 16% 17% 19% 24% 26% 26% 27% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 9/30/2001 9/30/2002 9/30/2003 9/30/2004 9/30/2005 12/31/2005 3/31/2006 6/30/2006
Slide 14: Consistently Improving Combined Ratio
13 Consistently Improving Combined Ratio Consistently Improving Combined Ratio 108% 97% 89% 81% 76% 18% 15% 14% 16% 16% 2002 2003 2004 2005 2006 108% 97% 89% 81% 76% 18% 15% 14% 16% 16% 2002 2003 2004 2005 2006 Each one-point improvement equals $5.5 million Each one-point improvement equals $5.5 mil
Slide 15: Created More Than $1 Billion in Shareholder Value Since July 2001
14 Consistently Improving Combined Ratio Consistently Improving Combined Ratio Created More Than $1 Billion in Shareholder Value Since July, 2001
Slide 16: Reviewing the Cycle: Setting the Stage
Reviewing the Cycle Reviewing the Cycle Setting the Stage Setting the Stage Frank B. O Frank B. O’Neil Neil
Slide 17: There is always a cycle to contend with
Officer Investor Relations Officer There is always a cycle to contend with in our business
Slide 18: Will History Repeat Itself—Again?
17 $0 $2,000 $4,000 $6,000 $8,000 $10,000 1976 1981 1986 1991 1996 2001 Will History Repeat Itself—Again? Will History Repeat Itself—Again? Millions Source: A. M. Best Aggregates and Averages 1976 – 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined 2005 Industry Data 1
Slide 19: Will History Repeat Itself—Again?
18 $0 $2,000 $4,000 $6,000 $8,000 $10,000 1976 1981 1986 1991 1996 2001 Will History Repeat Itself—Again? Will History Repeat Itself—Again? Millions Source: A. M. Best Aggregates and Averages 1976 – 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined 2005 Industry Data 1
Slide 20: Will History Repeat Itself—Again?
19 Will History Repeat Itself—Again? Will History Repeat Itself—Again? Millions Source: A. M. Best Aggregates and Averages 1976 – 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined 2005 $0 $2,000 $4,000 $6,000 $8,000 $10,000 1976 1981 1986 1991 1996 2001 Industry Data 1
Slide 21: Will History Repeat Itself—Again?
20 $0 $2,000 $4,000 $6,000 $8,000 $10,000 1976 1981 1986 1991 1996 2001 Will History Repeat Itself—Again? Will History Repeat Itself—Again? Millions Source: A. M. Best Aggregates and Averages 1976 – 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined 2005 Industry Data 1
Slide 22: Will History Repeat Itself—Again?
21 Will History Repeat Itself—Again? Will History Repeat Itself—Again? Millions Source: A. M. Best Aggregates and Averages 1976 – 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined 2005 $0 $2,000 $4,000 $6,000 $8,000 $10,000 1976 1981 1986 1991 1996 2001 Industry Data 1
Slide 23: Will History Repeat Itself—Again?
22 Will History Repeat Itself—Again? Will History Repeat Itself—Again? Millions Source: A. M. Best Aggregates and Averages 1976 – 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined 2005 $0 $2,000 $4,000 $6,000 $8,000 $10,000 1976 1981 1986 1991 1996 2001 Industry Data 1
Slide 24: A proven track record at all stages of the cycle
A proven track record at all stages of the cycle A proven track record at all stages of the cycle
Slide 25: The Medical Liability Market in 2007
24 The Medical Liability Market in 2007 The Medical Liability Market in 2007 Frequency and severity appear to be moderating Optimism abounds in the Boardrooms Overall pricing is softening Terms and conditions are holding Frequency and severity appear to be moderating Optimism abounds in the Boardroo
Slide 26: Where is ProAssurance Now?
25 Where is ProAssurance Now? Where is ProAssurance Now? Pricing based on targeted returns, not market share or top line goals Focused on profitable business Selling from strength Balance sheet Defense of non-meritorious claims Risk management expertise Physician-connections Pricing based on targete
Slide 27: Where is ProAssurance Now? Loss trends
connections 26 Where is ProAssurance Now? Where is ProAssurance Now? Why are loss trends moderating? Are lawsuits becoming more targeted as legal costs mount? Was 2006 a down year after a pre-Tort Reform rush? Will higher shock losses counteract loss trends in the working layers? Why are loss trends
Slide 28: Where is ProAssurance Now? Answers differ by state
27 Where is ProAssurance Now? Where is ProAssurance Now? Answers differ by state Variation even between territories in states Our unmatched geographical diversification spreads risk Targeting profitable states as the market evolves Answers differ by state Variation even between territories in states
Slide 29: How is ProAssurance Responding?
28 How is ProAssurance Responding? How is ProAssurance Responding? Concentrating on shareholder value Growing Book Value per Share Up $9.02/share in 2006 Focused on the long-term Maintaining leading market position Protecting the balance sheet Building strength for the next turn Evaluating all M & A
Slide 30: ProAssurance: Still the Leader
29 ProAssurance is the foremost writer in its states of operation ProAssurance is the foremost writer in its states of operation ProAssurance: Still the Leader ProAssurance: Still the Leader Market leaders in AL, DE, DC, OH, & WI Continuing to grow within our market footprint but not “forcing” top l
Slide 31: Experience Counts More Than Ever
30 Experience Counts More Than Ever Experience Counts More Than Ever Experience IS the best teacher We have managed through several cycles and understand the pitfalls Management’s average tenure is 16 years Average industry experience is 21 years We are owners, not just managers Directors, officers
Slide 32: Underwriting Discipline
31 Underwriting Discipline Underwriting Discipline Disciplined pricing must reflect loss history Maintaining our margins Pricing must be actuarially-based Local knowledge remains the key to success Terms and conditions are holding No rush to new occurrence coverage options Disciplined pricing must r
Slide 33: Claims Defense Is Still at Our Core
32 Claims Defense Is Still at Our Core Claims Defense Is Still at Our Core Key differentiating factor in the market Provides a long-term financial and marketing advantage Key differentiating factor in the market Provides a long-term financial and marketing advantage 725 473 528 391 360 2002 2003 200
Slide 34: Closed Claim Outcome Comparison
33 Closed Claim Outcome Comparison Closed Claim Outcome Comparison 18.5% 5.7% 8.0% 71.8% Dropped or Dismissed Defense Verdict Plaintiff Verdict Settled 18.5% 5.7% 8.0% 71.8% Dropped or Dismissed Defense Verdict Plaintiff Verdict Settled 22.5% 1.1% 5.6% 70.8% 22.5% 1.1% 5.6% 70.8% Favorable Outcomes:
Slide 35: Closed Claim Outcome Comparison
34 18.5% 5.7% 8.0% 71.8% Dropped or Dismissed Defense Verdict Plaintiff Verdict Settled 18.5% 5.7% 8.0% 71.8% Dropped or Dismissed Defense Verdict Plaintiff Verdict Settled 10.7% 4.2% 13.3% 71.8% 10.7% 4.2% 13.3% 71.8% Closed Claim Outcome Comparison Closed Claim Outcome Comparison Favorable Outcome
Slide 36: Five-Year Loss Ratio Comparisons
% 35 Five-Year Loss Ratio Comparisons Five-Year Loss Ratio Comparisons Our ability and willingness to defend claims allows us to achieve better results Our ability and willingness to defend claims allows us to achieve better results 41.6% 74.5% 56.6% 53.4% 33.9% 24.9% 56.6% 53.4% 33.9% Average Statu
Slide 37: Long-Term Success: Return to Shareholders
36 Long-Term Success: Return to Shareholders Long-Term Success: Return to Shareholders $21.00 $32.15 $39.11 $48.64 $49.92 $4.12 $7.43 $13.22 $23.20 $21.19 $17.58 $33.61 $24.59 $20.92 $18.77 $17.49 $16.02 $13.92 $11.57 $8.56 $6.27 $3.67 1991 1993 1995 1997 1999 2001 2002 2003 2004 2005 2006 Share Pri
Slide 38: Playing to Our Strengths
2006 37 Playing to Our Strengths Playing to Our Strengths Successful track record of market leadership We plan, execute and deliver Our plan for the future Proven platform with regional operating approach Organic growth and M&A expansion Our experienced and invested management team is focused on dri