Proassurance Corporation · NYSE:PRA
Proassurance — Raymond James & Associates 30th Annual Institutional Investors Conference 2009
56 slides from Proassurance's conference presentation, Mar 10, 2009
Slide 1: Raymond James & Associates 30th Annual Institutional Investors Conference
Raymond James & Associates 30th Annual Institutional Investors Conference March 9-11, 2009 W. Stancil Starnes Chairman and Chief Executive Officer Edward L. Rand, Jr. Chief Financial Officer Frank B. O’Neil Investor Relations Officer Raymond James & Associates 30th Annual Institutional Investors Con
Slide 2: 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 3: ProAssurance: Quick Facts
ProAssurance: Quick Facts Market Cap: $1.4 Billion / Equity: $1.4 Billion Fifth largest writer of medical liability Writing business in 30 jurisdictions Approximately 39,000 policyholders 32,500 physicians & dentists 8,100 attorneys Majority in small or solo practice Highly rated by A. M. Best and F
Slide 4: 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 to our top line in 2009 through M & A Diversifying our risk profile
Slide 5: Stock Price Performance
Stock Price Performance ProAssurance: Long-Term Success NYSE Closing Price at Each year-End Cumulative CAGR year 249% 10% year 135% 6% year -5% -5%
Slide 6: Book Value Growth
Book Value Growth ProAssurance: Long-Term Success NYSE Closing Price at Each year-End Cumulative CAGR year 67% 13% year 51% 10% year 10% 10%
Slide 7: 2008 Highlights
ProAssurance: 2008 Highlights Increased Shareholders’ Equity and Book Value per Share Significantly increased profits Announced three M&A transactions Major brand enhancement project
Slide 8: Entering 2009 in a Strong Position
Entering 2009 in a Strong Position $ amounts in Billions
Slide 9: ProAssurance 2008 highlights
ProAssurance 2008 highlights in millions, except per share data Gross Premiums Written $ 472 $ 549 - 14% Net Investment Income 158 171 - 8% Total Revenue 567 706 - 20% Total Expenses 470 561 -16% Operating Income $ 207 $ 172 20% Net Income (Includes Investment Losses) $ 178 $ 168 6% Operating Income
Slide 10: Responding to Low Interest Rates
Responding to Low Interest Rates Loss in value assuming a 100 basis point shift in the yield curve Yields based on Single A composite corporate debt
Slide 11: Responding to Low Interest Rates
Responding to Low Interest Rates Loss ratio required to generate a 13% after-tax ROE Assumes a 1:1 premium to surplus ratio for physicians professional liability claims-made coverages
Slide 12: Premiums to Surplus
( in millions) Prepared for an improving market Prudent capital management Premiums to Surplus for Each year
Slide 13: Excess Capital vs. Excess Capacity
Excess Capital vs. Excess Capacity
Slide 14: Little Dependence on Debt
Little Dependence on Debt Low Debt to Cap Ratio Little strain on cash flow Repurchased additional $22 million of debt in Q4 12/31/2008
Slide 15: Balancing Risk vs. Return
$3.6 Billion Portfolio Fixed Income: 83% Short Term: 13% Equity and Other Investments: 2% BOLI: 2% Balancing Risk vs. Return Our conservative investment philosophy balances risk and return We are building cash and short- term balances as we look to the future Low equity allocation helps mute the imp
Slide 16: Fixed Income: $3.0 Billion
Fixed Income: $3.0 Billion 12/31/2008
Slide 17: Operational Discipline: Strategy
Operational Discipline: Strategy % Local strategies with national scale % Local knowledge remains the key to our business ¥ We leverage the benefits of our many M &A transactions through long-term customer relationships and enhanced local knowledge Claims offices claims 1 Underwriting Offices c ite
Slide 18: Operational Discipline: Strategy
Operational Discipline: Strategy % 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
Slide 19: Operational Discipline: Claims
Operation Discipline: Claims 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 diffe
Slide 20: Claims Trends Remain Favorable
Claims Trends Remain Favorable ProAssurance Claims Tried
Slide 21: The Age of Transparency
The Age of Transparency Board / Discipline / Med Mal Med Mal disclosure legislation proposed P
Slide 22: Operational Discipline: Underwriting
Operational Discipline: Underwriting Pricing Discipline Rates on renewing business down less than 10% from the peak of pricing in 2006 Rates down 2% in 2007 Rates down 7% in 2008 Use of credits allows us to maintain existing rate filings Pricing developed using multiple years Not unduly influenced b
Slide 23: Operational Discipline: Actuarial
Operational Discipline: Actuarial Initial Accident Year Loss Ratios Industry is A. M. Best Data Through Q3 2008
Slide 24: Reserve History (billions)
Reserve History (billions) Operational Discipline: Actuarial $ 2.7 $ 2.9 $ 2.6 $ 2.2 $ 1.8
Slide 25: Growth Opportunities in 2009
Growth Opportunities in 2009 We have announced three transactions that diversify and add significant premium We are incrementally expanding our footprint Wyoming and South Carolina Taking advantage of improving conditions in selected markets within our footprint
Slide 26: New Transactions to Strengthen Us: The PICA Group
New Transactions to Strengthen Us The PICA Group Leading insurer of podiatric physicians nationwide National market share: approximately 70% Premiums: $97 million Profitable Well managed Low integration risk Joining PRA through a sponsored demutualization
Slide 27: Adding the PICA Group
Adding the PICA Group Expands our footprint nationwide Adds ~16,600 insureds 9,800 DPMs 6,800 other providers 93% Direct Largest States: CA, FL, NY, IL, TX PICA’s Business Profile PICA’s Business Profile 11% 7% 9% 7% 8%
Slide 28: New Transactions to Strengthen Us
New Transactions to Strengthen Us Mid-Continent General Agency Growing market for ancillary healthcare professional liability Produced $26 million of premium in 2008 Georgia Lawyers Insurance Company A leading insurer of Georgia attorneys Premium: $5.7 million Solidifies our presence in the legal pr
Slide 29: Summary: Successfully Executing a Proven, Disciplined Strategy
Summary: Successfully Executing a Proven, Disciplined Strategy Summary: Successfully Executing a Proven, Disciplined Strategy
Slide 30: The Promise of Treat Fairly
The Promise of Treat 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 31: Concentrating on shareholder value
ProAssurance Concentrating on shareholder value Growing Book Value per Share Focused on the long-term Maintaining leading market position Protecting the balance sheet Building strength for the next cycle turn Evaluating all M & A opportunities
Slide 32: Proven success throughout the cycles
ProAssurance Proven success throughout the cycles Disciplined pricing and underwriting Consistent reserving policy Proven claims strategy Balance sheet strength Significant share ownership throughout the company Demonstrated commitment to a long-term view of a complicated business
Slide 33: Appendix: Claims Data
Appendix: Claims Data Appendix: Claims Data
Slide 34: Why Claims Strategy Matters
Favorable Outcomes: 82% Favorable Outcomes: 74% Why Claims Strategy Matters Favorable Outcomes: 82% Favorable Outcomes: 74%
Slide 35: Why Claims Strategy Matters
Why Claims Strategy Matters Our ability and willingness to defend claims allows us to achieve better results 81.4% ProAssurance Stand Alone - - 2007 76.0% 64.3%
Slide 36: Appendix: Investments
Appendix: Investments Appendix: Investments
Slide 37: Portfolio Overview
Portfolio Overview 12/31/2008
Slide 38: Portfolio Overview: Equities
Portfolio Overview: Equities % $109 million in Equities & Other Investments FHLB Stock 5% _-Private Equity 4% \ Mise Other 1% Distressed Debt P: Lp 21% Long/Short Equity LP 16% PROASSURANCE, s “Tresed Far
Slide 39: Equities & Other Investments
Equities & Other Investments $ in 000’s Performance Q1, 2005 - Q4, 2008
Slide 40: Portfolio: Municipals $1.4B
Portfolio: Municipals $1.4B % Current investment policy requires investment Insured with grade rating prior Sein ign UME l to apply the effect Average Stand Alone Rating: of insurance “AA” No Underlying Rating: 1% Collateral or Other: 1%
Slide 41: Alt-A LTV
Alt-A LTV: 62% Whole Loan LTV: 57% Further Details Provided on Sub-Prime and CMBS on following pages Bloomberg Data 12/31/2008
Slide 42: Portfolio Overview: Sub-Prime
Portfolio Overview: Sub-Prime $11.7 million market value in AFS portfolio $2.5 million unrealized loss) $5.0 million market value in high-yield LP rated BB LP’s focus is distressed ABS) At 12/31/08 Type Quality $6.9Mln Mortgage-Backed AA+ avg - LTV 72% $4.7Mln Home Equity AA avg At 12/31/08 Vintage
Slide 43: Portfolio Overview: CMBS
Portfolio Overview: CMBS $171 million Fair Value in non-agency CMBS Book Value: $194 Book Value 6% of fixed income portfolio At 12/31/08 Quality $169 Mln AAA $2 Mln AA At 12/31/08 Wtd Avg LTV 85% <70% 15% <72% At 12/31/08 Credit Support 78% >20% 7% 15% - 20% 12% 10% - 15% 3% Less than 10% At 12/31/0
Slide 44: Portfolio: Corporate
Portfolio: Corporate % $594 million Financials % Weighted Average Tech 48% Rating: A 2% Other Basic 2%, Materials 5% Consumer Cyclical 4% Energy 5% FDIC Backed Banks Industrials_/ Consumer 8% 8% Non-Cyclical 8% e PROASSURANCE Te
Slide 45: Portfolio: Corporate-Financials
Portfolio: Corporate-Financials Top 20 Largest Banks/Financials: $ 200 million $17 mm FDIC BoA/ML $27 ($1) Credit Suisse $7 Wells/Wachovia $21 Depfa ACS $5 M Stanley $24 ($4) DeutscheBk $5 JPM Chase $20 ($10) BONY $5 GECC $13 Unilever Cap $4 Amer Exp $12 John Deere Cap $4 Citi $11 CIT $4 Goldman $9
Slide 46: Portfolio: Treasury/GSE
Portfolio: Treasury/GSE 12/31/2008
Slide 47: Portfolio: FRE and FNM
Portfolio: FRE and FNM 12/31/2008
Slide 48: Portfolio Overview: Short Term
Portfolio Ov erview: Sho rt Term 12/31/2008
Slide 49: Portfolio Overview: BOLI
Portfolio Overview: BOLI % $63 million % Weighted average rating ® Moody’s: AA2 » A.M. Best: At e PROASSURANCE, Te
Slide 50: Appendix: Industry History
Appendix: Industry History Appendix: Industry History
Slide 51: 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
Slide 52: Appendix: M & A History
Appendix: M & A History Appendix: M & A History
Slide 53: 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 54: 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 55: 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
Slide 56: 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
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