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: $1.7 Billion / Equity: $1.5 Billion Fifth largest 1 writer of medical liability Writing business in 49 1 jurisdictions More than 60,000 2 policyholders 45,000 physicians and dentists 7,000 ancillary and other healthcare professionals 8,100 attorneys Majority in
Slide 3: Recent Highlights
Recent Highlights Completion of three significant transactions Again recognized as one of the top performing property casualty insurance companies by The Ward Group Our third straight year
Slide 4: ProAssurance: Long-Term Success
ProAssurance: Long-Term Success Successful performance in a challenging financial market and a demanding line of insurance Maintaining profitability Completion of three M&A transactions in 2009 that will allow us to grow the top line
Slide 5: 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 through M & A Diversifying our risk profile
Slide 6: Book Value Growth
Book Value Growth Cumulative CAGR 10 year 222% 12% 5 year 127% 18% 1 year 10% 10% Measured through Year-End 2008 ProAssurance: Long-Term Success
Slide 7: Opportunities & Strategies
Opportunities & Strategies
Slide 8: Key Opportunities
Key Opportunities New insurance buyers will emerge as healthcare reform evolves The outcome of medical liability claims will become more transparent Financial issues will highlight the need for successful, long-term companies with superior balance sheets strength and outstanding ratings
Slide 9: Strategy: Targeted M & A
Strategy: Targeted M & A Significant growth in our core business Geographical expansion Extends our core business Broadens our medically-related range Geographical expansion Adds to our lawyers’ book Geographical expansion Affirms our interest in this line
Slide 10: Strategy: Targeted M & A (PICA)
Strategy: Targeted M & A Podiatry Insurance Company of America (PICA) Dominant (70%), profitable, national company ~$96 million Direct Premium in 2008 Renewals at expected levels in 2009 $13.7 million added to PRA premium in Q2 2009 Podiatry is growing in importance as a specialty Involved in treati
Slide 11: With PICA We Are a National Carrier
With PICA We Are a National Carrier Leveraging the benefits of our many M & A transactions through long-term customer relationships and local and specialty knowledge Corporate Headquarters Corporate Headquarters Claims Offices Claims Offices Claims / Underwriting Offices Claims / Underwriting Office
Slide 12: Strategy: Targeted M & A (Mid-Continent)
Strategy: Targeted M & A Mid-Continent General Agency Large writer of ancillary healthcare Healthcare reform will emphasize care delivery from a larger array of lower-cost providers Home health care Physician-extenders ~$26 million in total premium in 2008 $20 million healthcare related PRA will wri
Slide 13: Strategy: We Dare to Defend
Strategy: We Dare to Defend 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 differ
Slide 14: 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 Trends are much the same in states with or without Tort Reform ProAssurance Claims Tried
Slide 15: Spreading Risk is Vital
Spreading Risk is Vital 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 Claims Offices Claims Offic
Slide 16: The Tort Reform Question
The Tort Reform Question Obama signaled a willingness to consider limited reforms in his recent speech to the AMA Unlikely that Washington will provide the full reforms physicians seek Major decisions likely left up to each state We set prices and reserves as if there is no tort reform, until result
Slide 17: Strategy: Respond to Transparency
Strategy: Respond to Transparency Malpractice judgments/settlements now disclosed in 17 states Public access to the National Practitioner Data Bank is the next step Disciplinary actions now disclosed in almost every state Board / Discipline / Med Mal Med Mal disclosure legislation proposed P
Slide 18: Strategy: Maintain Discipline
Strategy: Maintain Discipline 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 physician business down less than 10% from peak pricing in 2006
Slide 19: Annual and Cumulative Returns
170% 150% 130% - @ Annual @ Cumulative 110% 90% 70% 50% 30% 10% -10% 2001 2002 2003 2004 2005 2006 2007 2008 2009 @ Annual 23% 28% 28% 19% 11% 3% “2% 6% -4% mCumulative| 23% 57% 102% 140% 166% 174% 169% 153% 142% PROASSURANCE, Tres
Slide 20: Strategy: Actuarial Conservatism
Strategy: Actuarial Conservatism Consistent and conservative reserving practices throughout the market cycle Initial Accident Year Loss Ratios 2008 Industry is A. M. Best Data Through Q3 2008
Slide 21: Reserve History
Reserve History (billions) 2008 $ 2.4 2007 $ 2.6 2006 $ 2.6 2005 $ 2.2 2004 $ 1.8 Strategy: Actuarial Conservatism
Slide 22: Pricing in a Low Interest Environment
Pricing in a Low Interest Environment 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 23: Strategy: Treated Fairly
Strategy: 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 24: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 25: 2009 YTD Income Statement Highlights
Gross Premiums Written $ 266 $ 248 7% We have reversed the decline in premiums with new business from PICA, Mid-Continent and Georgia Lawyers 2009 YTD Income Statement Highlights in millions, except per share data Net Investment Income 74 82 - 10% Total Revenue 306 313 - 2% Total Expenses 192 203 -5
Slide 26: Strategy: Enduring Financial Strength
Strategy: Enduring Financial Strength 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 27: Strategy: Use Capital Prudently
Strategy: Use Capital Prudently Using capital to build through M&A Preserving capital for future opportunities Enhancing shareholder value by repurchasing shares at prices that build Book Value Source: SNL Financial
Slide 28: Our Strong Capital/Low Leverage Position
$471 Our Strong Capital/Low Leverage Position ( in millions) Prepared for an improving market Prudent capital management Premiums to Surplus for Each year $ 96 (PICA pro forma) $567
Slide 29: 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 30: Little Dependence on Debt
Little Dependence on Debt Low Debt to Cap Ratio Little strain on cash flow $25 million debt added in the PICA transaction Includes $7 million in surplus notes Redemption expected in Q3 6/30/2009
Slide 31: $3.8 Billion Portfolio
$3.8 Billion Portfolio Fixed Income: 89% Short Term: 6% Equity and Other Investments: 3% BOLI: 2% Strategy: Balance Risk vs. Return Reduced cash and short-term balances in Q2 Added to fixed income and equities Equity investments added in the PICA transaction CUSIP-level portfolio disclosure on our w
Slide 32: Fixed Income: $3.4 Billion
Fixed Income: $3.4 Billion Average fixed maturity duration: 4.2 years Average tax-equivalent yield: 5.5% 97.8% investment grade Weighted average: AA 6/30/09
Slide 33: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 34: ProAssurance
ProAssurance Producing sustainable shareholder value Growing Book Value per Share Finding the right M & A opportunities Significant share ownership at all levels Focusing on long-term Preparing for a changing market Leveraging financial strength Protecting the balance sheet Maintain our leading mark
Slide 35: Appendix: Market Conditions
Appendix: Market Conditions
Slide 36: Market Cycle Factors
ctor Status Cycle Impact Frequency Stabilizing Neutral Severity Moderate Neutral — Harden Investment Returns Low Harden Capital Excess Capacity Soften Cash Flow Becoming Strained Neutral— Harden Reserves Modestly Redundant Soften Reinsurance Sufficient Capacity Neutral PROASSURANCE,
Slide 37: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 38: Why Claims Strategy Matters (Favorable Outcomes)
Favorable Outcomes: 82% Favorable Outcomes: 74% Why Claims Strategy Matters Favorable Outcomes: 82% Five Year Average 2003 - 2007 Favorable Outcomes: 74%
Slide 39: Why Claims Strategy Matters
Why Claims Strategy Matters Our ability and willingness to defend claims allows us to achieve better results Average Statutory Loss Ratio 81.4% ProAssurance Stand Alone 2005 - 2007 76.0% 64.3%
Slide 40: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 41: Portfolio Overview: Equities
Portfolio Overview: Equities $130 million in Equities & Other Investments 6/30/09
Slide 42: Equities & Other Investments
Equities & Other Investments $ in 000’s Income/Performance Q1, 2005 - Q2, 2009
Slide 43: Strategy: Investment Discipline
Strategy: Investment Discipline 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 44: Portfolio: Municipals $1.4B
Portfolio: Municipals $1.4B 6/30/09
Slide 45: Portfolio: Asset Backed
Portfolio: Asset Backed $790 million Asset Backed Securities Weighted Average Rating: AAA Alt-A LTV: 62% Whole Loan LTV: 57% Further Details Provided on Sub-Prime and CMBS on following pages Bloomberg Data 6/30/09
Slide 46: Portfolio Overview: Sub-Prime
At 6/30/09 Vintage $4.5 Mln 2004 & Prior $1.9 Mln 2005 $0.3 Mln 2006 At 6/30/09 Type Quality $3.7 Mln Mortgage-Backed AA- avg - LTV 72% $3.9 Mln Home Equity AA avg Portfolio Overview: Sub-Prime $6.6 million market value in AFS portfolio $5.1 million unrealized loss $3.4 million market value in high-
Slide 47: Portfolio Overview: CMBS
At 6/30/09 Quality $176 Mln AAA $ 1.2 Mln AA $ 0.6 Mln A At 6/30/09 Wtd Avg LTV 48% <65% 44% =65% 8% <72% At 6/30/09 Credit Support 30% >30% 48% 20% - 30% 20% 10% - 20% 2% Less than 10% At 6/30/09 Deal Cumulative Delinquencies 26% 0% - 0.5% 13% 0.5% - 1.0% 26% 1.0% - 2.0% 18% 2.0% - 3.0% 17% >3.0% A
Slide 48: Portfolio Overview: CMBS
Portfolio Overview: CMBS Top Property Types Retail-Anchored: 47% of CMBS portfolio Exposure: 19% - 42% of individual security value Office: 32% of CMBS portfolio Exposure: 23% - 46% of individual security value Retail-Unanchored: 10% of CMBS portfolio Mixed Use: 4% of CMBS portfolio Multi Family: 4%
Slide 49: Portfolio: Corporate
Portfolio: Corporate 6/30/09
Slide 50: Portfolio: Corporate-Financials
BOA/ML $30 ($8) Goldman $8 ($2) M Stanley $27 ($6) Eurohypo AG $8 JPM Chase $24 ($13) NRUC $6 Amex $23 ($12) HSBC $6 ($1) GECC $23 ($7) BONY $5 Wells/Wach $19 Deutsche Bank $5 Citi $18 ($7) John Dear Cap $5 ($1) BP Capital Fin $15 Ford Motor Credit $5 Key Bank $13 ($13) NY Comm’ty Bank $5 ($5) Credi
Slide 51: Portfolio: Treasury/GSE
$231 million Portfolio: Treasury/GSE 6/30/09
Slide 52: Portfolio: FRE and FNM
Portfolio: FRE and FNM $462 million Average Rating: AAA 6/30/09
Slide 53: Portfolio Overview: Short Term
Portfolio Overview: Short Term $227 Million S & P: AAA 6/30/09
Slide 54: $64 million
$64 million Moody’s: AA3 S&P: AA A. M. Best: A+ 6/30/09
Slide 55: Appendix: Industry History
Appendix: Industry History
Slide 56: Will History Repeat Itself—Again?
Source: A. M. Best Aggregates and Averages 1976 - 2001 Will History Repeat Itself—Again ? Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined (Estimated) (Actual) Industry Data 1976 Through 2007
Slide 57: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 58: We Created a Leader Through Consolidation
Physicians Ins. Co. of Michigan We Created a Leader Through Consolidation 2009: Consolidation of: Mid-Continent General Agency 2009: Consolidation of: Mid-Continent General Agency Georgia Lawyers Insurance Co. Georgia Lawyers Insurance Co. 2004: Purchased Selected Renewal Rights from: OHIC Insurance
Slide 59: Profitable Growth Through M & A
Profitable Growth Through M & A ProAssurance has been built through M & A ProAssurance was formed by the combination of two successful companies with a history of M & A
Slide 60: Profitable Growth Through M & A
Profitable Growth Through M & A ProAssurance has been built through M & A Each company brought multiple transactions into ProAssurance at our founding in 2001
Slide 61: Profitable Growth Through M & A
Profitable Growth Through M & A ProAssurance has been built through M & A We have continued to grow through M & A NCRIC in the mid-Atlantic PIC-Wisconsin in the upper Midwest PICA Nationwide
Slide 62: 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