Proassurance Corporation · NYSE:PRA
Proassurance — Raymond James & Associates 26th Annual Institutional Investors Conference (March 2006)
46 slides from Proassurance's conference presentation, Mar 7, 2006
Slide 1: Raymond James & Associates 26th Annual Institutional Investors Conference
Raymond James & Associates 26th Annual Institutional Investors Conference Victor T. Adamo President & COO Edward L. Rand, Jr., CPA Chief Financial Officer March 6, 2006
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 that are subject to certain risks and uncertainties that could cause actual results to vary materia
Slide 3: Financial Overview Highlights
Financial OverviewFinancial OverviewHighlightsHighlightsCash Flow Balance Sheet Strength Ongoing Earnings Power Cash FlowBalance Sheet StrengthOngoing Earnings Power
Slide 4: 2005 Income Statement (Continuing Operations)
2005 Income Statement (Continuing Operations) Professional Liability Only, Personal Lines in millions, except per share dataReported as Discontinued Operations Y-OVER-Y 2005 2004 CHANGE Gross Premiums Written $ 573.0 $ 573.6 Net Investment Income 97.6 76.3 28% Total Revenue 645.3 605.2 7% Total Expe
Slide 5: 2005 Balance Sheet (Continuing Operations)
2005 Balance Sheet (Continuing Operations) in millions Y-OVER-Y 2005 2004 CHANGE Total Assets $ 3,342 $ 2,743 22% Total Investments $ 2,631 $ 2,162 22% Total Policy Liabilities $ 2,572 $ 2,135 20% Shareholders' Equity $ 765 $ 611 25% Balance Sheet Strength Sets ProAssurance Apart December 31, 2005,
Slide 6: Combined Ratio Returning to Historic Norms
5 Combined Ratio Returning to Historic NormsCombined Ratio Returning to Historic NormsUnderwriting ProfitabilityUnderwrin Q3, 2005 iting Profitabilityin Q3, 2005 Year-to-Date at each quarter-end, Medical Assurance, Inc. Data Prior to Q3, 2001 Results First Reflect Dramatic Increases in Losses and Lo
Slide 7: Key Objective: Return on Equity
Key Objective: Return on Equity We price our policies to deliver an average of 12%-14% long-term ROE Assuming 1:1 premium-surplus Return on Equity Rises in 2005 ROE in 2006 will be a challenge because of the additional capital generated by the sale of MEEMIC Return on Equity 11.6% 7.4% 2004 2005
Slide 8: Key Objective: Combined Ratio
Key Objective: Combined Ratio Professional Liability Ratio History Combined Ratio 2006 Goal: <97.1% 2005: 97.1% 2004: 104.8% 2003: 111.6% 2002: 124.5% Operating Ratio 79.1% 90.2% 97.7% 104.1%
Slide 9: Key Objective: Strong Cash Flow
Key Objective: Strong Cash Flow Cash Flow Remains Cash Flow $323.6 Strong $336.3 Will benefit in 2006 from full-year NCRIC Additional benefit when PIC Wisconsin closes 2004 2005
Slide 10: Investments Earnings are Increasing
Investments Earnings are Increasing Cash flow is over $1 billion since 1/1/02 Helping fuel higher investment returns 21.5% Net Investment Income as a Percentage of Net Earned Premium 20.4% %13.9% 2001 2002 2003 2004 2005 20.18.0% 14.74% 18.0% 14.7%13.9% 20012002200320042005 At December 31 Each Yea
Slide 11: Consistent Growth in Book Value per Share
10 Consistent Growth in Book Value per Share Consistent Growth in Book Value per Share$3.67 $6.27 $8.56 $11.57 $13.92 $16.02 $17.49 $18.77 $24.59 $20.92 1991 1993 1995 1997 1999 2001 2002 2003 2004 2005 $3.67$6.27$8.56$11.57$13.92$16.02$17.49$18.77$24.59$20. 92199119931995199719992001200220032004200
Slide 12: Long-Term Return to Shareholders
Long-Term Return to Shareholders $21.19 1 $21. $16.69 $4.12 $7.43 $13.22 $23.20 $28.69 $21.00 $32.15 $39.1$48.64 19$16.69$4.12$7.43$13.22$23.20$28.69$21.00$32.15$39.11$48.64Compound Annual Growth Rate of stock price since inception in September, 1991 is 19.3% Compound Annual Growth Rate of stock pri
Slide 13: Operational Overview Highlights
Operational OverviewOperational OverviewHighlightsHighlightsMarket Leadership Operational Discipline Unmatched Track Record of Planning and Execution Market LeadershipOperational DisciplineUnmatched Track Record of Planning and Execution
Slide 14: Professional Liability
Professional Liability Insuring 26,000 physicians and dentists in 22 states and DC Majority of insureds are smaller groups and solo practitioners Also insuring hospitals and other healthcare providers Superior results through careful underwriting, proper pricing and effective claims handling Statuto
Slide 15: Professional Liability
Professional Liability Our focus is on the bottom line We grow through M&A and careful expansion Confident in current reserve levels Rated "A-" by A. M. Best, S & P and Fitch Gross Written Premiums (millions) 5 Year CAGR: 16.0% $543 $574 573 $462 $316 2001 2002 2003 2004 2005
Slide 16: Effective Regional Operations
Effective Regional Operations States of Origin or AcquisitionStates of Origin or Acquisition Expansion StatesExpansion Statesoo Claims Offices Claims Offices Claims / Underwriting OfficesClaims /Underwriting Offices++ ++ oooo ++ oo oo ++oo oooo ++ + oo+ ++ National Scale...Regional Orientation Conso
Slide 17: We Created a Leader Through Consolidation
16 2004: Purchased Selected Renewal Rights from: OHIC Insurance Company 2004:Purchased SelectedRenewal Rightsfrom: OHIC Insurance CompanyWe Created a Leader Through ConsolidationWe Created a Leader Through Consolidation1994: Consolidation of:1994: f Idiana Assumed business of: icians Ins Co of Ohio
Slide 18: Experienced & Integrated at the Top
17 Experienced & Integrated at the TopExperienced & Integrated at the Top131 Chief Financial OfficerNed Rand Years in Industry Years at Company PositionName 2216Average 2111Sr. Vice President / ClaimsDarryl Thomas 1818Sr. Vice President / IRFrank O'Neil 2222Chief Accounting OfficerJames Morello 259C
Slide 19: ProAssurance Growth Strategy
18 ProAssurance Growth StrategyProAssurance Growth StrategyWe grow only when opportunities arise for profitable growth Hard Market Soft MarketM & A de novo Expansion Internal Growth M & A is preferable because of pricing pressure All avenues open because of pricing power
Slide 20: Growth Strategy: De Novo Growth vs. Growth by Acquisition
ProAssurance Growth Strategy The current market environment favors growth by acquisition DE NOVO GROWTH vs. GROWTH BY ACQUISITION Must price your way into the market Must price your way into the market + Pricing can be adjusted No prior historyNo prior history + Prior history available Lack of exper
Slide 21: Growth Strategy: Companies are Available for Many Reasons
ProAssurance Growth Strategy Companies are available for many reasons Commitment to a shared vision of the future Medical Assurance & Professionals Group Financial challenges Example: NCRIC Competitive pressures Capacity constraints Shareholder value Example: PIC Wisconsin / liquidity
Slide 22: Growth Strategy: We Must Have a Strategic Fit
ProAssurance Growth Strategy We must have a strategic fit The legal and regulatory environments must be favorable Our preference is to grow in our footprint NCRIC in the mid-Atlantic PIC Wisconsin in the upper Midwest We are focused on medical liability Doctor-founded companies with similar culture
Slide 23: Growth Strategy: Acquiring Without Breaking the Bank
ProAssurance Growth Strategy We can acquire without "breaking the bank" Stock trading at ~2x book value Cash flows at historically high levels Any realistic target companies would be far smaller than ProAssurance We don't "bet the farm"
Slide 24: NCRIC Integration All But Complete
++ oooo ++ oo oo ++oo oooo ++ + oo++ NCRIC Integration All But Complete NCRIC is prime example of our growth strategy Local knowledge retained in key operational positions Similar corporate culture has eased integration Reinsurance programs combined January 1, 2006 Projecting $5-$6 mil expense savin
Slide 25: PIC Wisconsin Transaction
PIC Wisconsin Transaction PIC Wisconsin fits our footprint--and our strategic goals States of Origin or AcquisitionStates of Origin or Acquisition++ oooo ++ oo oo ++oo oooo ++ + oo+ ++ Expands our presence in the Upper Midwest Local knowledge is crucial for our shared success PIC Wisconsin will rema
Slide 26: Market Leadership
Market Leadership We are the foremost writer in our states of operation We are market leaders in AL, DE, DC, OH and VA Strong Position in other states We continue to grow within our market footprint but will not "force" top line Leading Market Share Top 5 Market Share growth Top 10 Market Share Grow
Slide 27: Pricing and Underwriting Review
Pricing and Underwriting Review 11% average renewal rate increase for 2005 85% retention rate is slightly higher than 2004 New insureds balancing out non-renewals Pricing to meet our ROE and margin targets Premium levels affected by: Purchase of lower limits Change in mix of business--more exposures
Slide 28: Focusing on Success in 2006
Focusing on Success in 2006 Focus on adequate pricing, strict underwriting and claims defense Focus on profitable states in an evolving market Taking advantage of our geographic diversification 2006 is a pivotal year in evaluating frequency and severity data
Slide 29: Claims Defense Drives Us
Claims Defense Drives Us Driven from the top of the organization Our long-term competitive advantage Aggressive defense of non-meritorious claims Generates lower costs and higher loyalty We try more cases than any company is our line of business 528 473 391 360 2002 2003 2004 2005
Slide 30: Closed Claim Outcome Comparison
Closed Claim Outcome Comparison Dropped or Dismissed i Plaintiff Verdict li i Defense Verdict Settled 14.0%14.0% 69.3% Favorable Outcomes: 83.3% FavorableOutcomes: 83.3% 12.3% 1.1% 4.4% ProAssurance, 2004 Industry Data, 2004* 22.5% 5.6% 70.8% Favorable Outcomes: 76.4% Favorable Outcomes: 76.4% Indus
Slide 31: Average Indemnity Comparison
Average Indemnity Comparison Weighted Average Indemnity Per Closed Claim $76,809 $63,399 ProAssurance, 2004 Industry Data, 2004* Industry Data, 2004* *Source: Physician Insurers Association Data Sharing Project 30
Slide 32: Four-Year Loss Ratio Comparisons
31 Four-Year Loss Ratio ComparisonsFour-Year Loss Ratio ComparisonsOur ability and willingness to defend claims allows us to achieve better results Our ability and willingness to defend claims allows us to achieve better results81.5% 53.1% 35.9% 47.5% Average Statutory Loss Ratio 2001-2004 Average S
Slide 33: What About Tort Reform?
What About Tort Reform? Federal tort reform remains uncertain State-by-state reforms Passed in many forms in many states FL, GA, IL, MO, OH, PA, TX & WV Long-term effectiveness yet to be proven Court challenges at all levels--could be found unconstitutional Wisconsin's were recently struck down afte
Slide 34: 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 driving returns
Slide 35: Raymond James & Associates 26th Annual Institutional Investors Conference
Raymond James & Associates 26th Annual Institutional Investors Conference Victor T. Adamo President & COO Edward L. Rand, Jr., CPA Chief Financial Officer March 6, 2006
Slide 36: Supplemental Financial Data
Supplemental Financial DataSupplemental Financial Data
Slide 37: Management of Asset Risk
Management of Asset Risk We limit risk in our portfolio because we recognize the risk in our business No derivatives Other Average fixed maturity duration 3.6% 1.8% 0.6% Fixed Cash Equities Fixed of 3.9 years Securities* Fixed income portfolio 94.0% Weighted average rating: "AA" 98.2% investment gra
Slide 38: Financial Effect of MEEMIC Sale
Financial Effect of MEEMIC Sale Total Transaction Value $ 400 million (at September 30, 2005) MEEMIC Total Investments $ 315 million MEEMIC Total Assets $ 530 million MEEMIC Total Liabilities $ 141 million MEEMIC Net Earned Premium $ 307 million MEEMIC will be a component of Discontinued Operations
Slide 39: PIC Wisconsin Overview
PIC Wisconsin Overview Total Transaction Value ~ $ 100 million (at 12/31/05--Statutory Basis) PIC Wis Total Investments1 $ 255 million PIC Wis Total Assets1 $ 283 million PIC Wis Policyholder Surplus1 $88 million PIC Wis Net Written Premium1 $61 million PIC Wisconsin is Rated "A-" (Excellent) by A.
Slide 40: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Millions $9,000 Premium Initial Reserve $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Developed Loss Industry Data 1976 Through 2000 (Estimated) (Actual) Source: A. M. Best Aggr
Slide 41: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Millions $9,000 Premium Initial Reserve $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Developed Loss Industry Data 1976 Through 2001 (Estimated) (Actual) Source: A. M. Best Aggr
Slide 42: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Millions $9,000 Premium Initial Reserve $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Developed Loss Industry Data 1976 Through 2002 (Estimated) (Actual) Source: A. M. Best Aggr
Slide 43: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Millions $9,000 Premium Initial Reserve $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998200020022004 Developed Loss Industry Data 1976 Through 2003 (Estimated) (Actual) Source: A. M. Best Aggrega
Slide 44: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Millions $9,000 Premium Initial Reserve $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1976 1978 1980 1982 1984 1986 1988 19901992199419961998200020022004 Developed Loss Industry Data 1976 Through 2004 (Estimated) (Actual) Source: A. M. Best Aggregates
Slide 45: Will History Repeat Itself--Again?
44 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004PremiumsIn Milli
Slide 46: ProAssurance Contacts
45 ProAssurance Contacts Trravelliing Avaiillablle