Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (March 2019)
103 slides from Proassurance's investor presentation, Mar 4, 2019
Slide 1: Table of Contents
Table of Contents The Latest News Investments Key Themes & Topics (w/ Capital Management) 2-8 Investment Strategy 94 Management Changes 9-11 2018 Net Investment Result 95 Corporate Update / Overview 12-15 PRA Performance vs. Benchmark 96 Capital Management (Expanded) 16-21 Detailed Breakout of Inves
Slide 2: Topics of Importance and Key Themes March 2019
Topics of Importance and Key Themes March 2019
Slide 3: Key Update: Dividends and Capital Management
Key Update: Dividends and Capital Management Special dividend of $0.50/share paid on January 9, 2019 Special dividend of $4.69/per common share paid in 2018 and 2017 Regular quarterly dividends of $0.31/per common share Dividends declared in 2018 and 2017 returned $317 million of capital to sharehol
Slide 4: Key Update: Positives in 2018
Key Update: Positives in 2018 *Some InovaRe business included in HCPL †Includes alternative markets Continued Operating Profitability Non-GAPP Operating Income: $79.5 million, $1.48 per share Renewal Pricing Momentum Continues in Specialty P&C Despite Competition Facilities up 7%, Physicians up 3% O
Slide 5: Key Update: Major Topics for Q4 2018
Key Update: Major Topics for Q4 2018 Net Loss for the Quarter Net Loss: $24.5 million, $0.46 per share Realized Net Investment Losses of $46.1 Million Due to Equity Market Performance $36.7 million were unrealized losses carried as trading Investments portfolio recovered $30 million as of February 1
Slide 6: Key Update: Confronting the Challenges Ahead
Key Update: Confronting the Challenges Ahead Strategic review of our Lloyd’s Investment Increase profitability Reduce volatility Asses our degree of participation Profitable growth Increasing market discipline allows us to add new HCPL business at higher rates Specialization is profitable markets an
Slide 7: Key Update: The Current State of the Markets We Serve
Key Update: The Current State of the Markets We Serve Healthcare Professional Liability: Signs of increasing severity and greater scrutiny from regulators and rating agencies should bring rationality back to the market Likely to provide new growth opportunities as weakness among smaller, less capabl
Slide 8: 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 9: Management Changes
Management Changes March 2019
Slide 10: Changes in Leadership
Changes in Leadership Howard Friedman is retiring from his role as President of Healthcare Professional Liability Will remain with ProAssurance focusing on the actuarial function Mike Boguski will become President of ProAssurance Specialty P&C Will include all professional and product liability oper
Slide 11: Corporate Leadership Structure as of May 13th
Corporate Leadership Structure as of May 13th
Slide 12: Corporate Leadership Structure as of May 13th
Corporate Leadership Structure as of May 13th BD PHOASSURANCE. PPmAsoce Board of Directors H f f f f f ~-----------------------41 | I I I I L I Tr r I I Wine Bogent | [Ravin hook owaveccnae] | gutucemy erent | Soaciaty PAC Workers Compensation Cnet ran Sener Count Resources Officer | orators ne a
Slide 13: 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 14: Premiums, Policyholders & Distribution for 2018
Premiums, Policyholders & Distribution for 2018 All Data as of 12/31/2018 YTD Policyholder Count: ~75,508 YTD 2018 Gross Premium: $957.3 mln Premium Allocated by Line Does Not Reflect Inter-Segment Eliminations Subject to Rounding Our Distribution Sources HCPL LPL Life Sciences Workers’ Comp Agent/B
Slide 15: 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 16: Additional Capital Management Discussion Points
Additional Capital Management Discussion Points March 2019
Slide 17: Superb Track Record of Capital Management
Superb Track Record of Capital Management Current Management Team’s Tenure Began Q2 2007 At 12/31/18 $ 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 18: 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 19: Key Source of Capital: Subsidiary Dividends to Corporate
Key Source of Capital: Subsidiary Dividends to Corporate Subsidiary Dividend History (in Millions) 2019 ORDINARY Dividend Capacity $128.4 Million Ordinary dividends are permitted without regulatory pre-approval Amounts and criteria vary by domiciliary state Extraordinary dividends require regulatory
Slide 20: 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 21: Capital Growth: 2009-2018
Capital Growth: 2009-2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 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 $ 7,2
Slide 22: Financial / Operating Performance
Financial / Operating Performance March 2019
Slide 23: Income Statement Highlights (12/31/18)
Income Statement Highlights (12/31/18) Strong results from a focused strategy Three Months Ended Twelve Months Ended December 31 2018 2017 2018 2017 Gross Premiums Written $ 211.7 $ 191.7 $ 957.3 $ 874.9 Net Investment Result $ 20.9 $ 25.6 $ 100.8 $ 103.7 Total Revenues $ 179.5 $ 209.1 $ 886.0 $ 866
Slide 24: Corporate Segment Financial Highlights (12/31/18)
Corporate Segment Financial Highlights (12/31/18) Three Months Ended Twelve Months Ended December 31 2018 2017 2018 2017 Net investment income $ 22.8 $ 25.2 $ 87.0 $ 92.9 Equity in earnings (loss) of unconsolidated subsidiaries $ (3.3) $ (0.5) $ 8.9 $ 8.0 Net realized investment gains (losses) $ (42
Slide 25: Strong Operational Results / Long-Term Profitability
Strong Operational Results / Long-Term Profitability Combined ratio average 2009-2018: 77.8% Operating ratio average 2009-2018: 57.4% Combined Ratio and Operating Ratio History 69.1% 68.0% 52.5% 57.3% 70.6% 82.1% 90.5% 91.4% 95.4% 101.5% 38.8% 39.8% 27.6% 32.6% 46.1% 64.2% 74.8% 77.8% 82.4% 90.3% 20
Slide 26: Disciplined Approach to Reserves
Recognizing loss trends as they appear No change in reserving philosophy or process Disciplined Approach to Reserves $ in millions *Subject to rounding 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
Slide 27: Inside ProAssurance's Income Statement (12/31/18)
Inside ProAssurance’s Income Statement (12/31/18) 12/31/18 Subject to Rounding Net Premiums Earned 92.4% Net Investment Income 10.4% Net Realized Investment Gains (Losses) (4.9%) Other 2.1% Net Losses and Loss Adjustment Expenses 67.0% Underwriting, Policy Acquisitions, Operating, SPC Dividend, and
Slide 28: Ceded Premiums Written (Year Ended 12/31/18)
Ceded Premiums Written (Year Ended 12/31/18) Specialty P&C Workers’ Compensation Insurance (1) Segregated Portfolio Cell Reinsurance Lloyd’s (3) HCPL(2) including Podiatry Products Lawyers 12/31/18 12/31/17 12/31/18 12/31/17 12/31/18 12/31/17 12/31/18 12/31/17 12/31/18 12/31/17 12/31/18 12/31/17 Gro
Slide 29: Balance Sheet Highlights
Balance Sheet Highlights Maintaining the financial strength required to keep our insurance promise and creating value for our shareholders Dec 31, 2018 2017 2016 2015 2014 Shareholders’ Equity $1.5 $1.6 $1.8 $2.0 $2.2 Total Investments $3.3 $3.7 $3.9 $3.7 $4.0 Total Assets $4.6 $4.9 $5.1 $4.9 $5.2 T
Slide 30: Inside ProAssurance's Balance Sheet: (12/31/18)
Inside ProAssurance’s Balance Sheet: (12/31/18) Cash & Investments 74.6% Insurance Receivables 14.3% Goodwill & Intangible Assets 6.2% Other Assets 4.9% Retained Earnings 34.2% Loss Reserves 46.1% Reinsurance Payable & Other Liabilities 11.8% Unearned Premiums 9.0% Other Equity - 1.1% Assets: $4.6 b
Slide 31: Shareholder Return & ROE
Shareholder Return & ROE March 2019
Slide 32: Book Value per Share History to December 31, 2018
Book Value per Share History to December 31, 2018 Growth in Book Value + Dividends Since Inception (Sep 1991) Cumulative: 2,754% / CAGR: 13% Initial dividend declared in Q4 2011 $51.67 $1.84 $3.14 $4.28 $5.79 $6.96 $8.01 $9.39 $12.30 $19.35 $26.30 $35.67 $43.56 $47.41 $ 52.52 $36.85 $38.17 $33.78 $2
Slide 33: Leverage Update: $289 million debt at 12/31/18
$289 million debt at 12/31/18 $250.0 million 10-year notes due 11/15/2023 5.30% Coupon $39 million in office building mortgages $250 million revolving credit facility No outstanding borrowings ProAssurance Leverage Update Ten-Year Premiums to Equity Ten-Year Debt to Capital Moving closer to our mini
Slide 34: 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 2.69% at 12/31/18*, implying a revised ROE Target of approximately 9.7% Prior long-term return target of 12%-14% is unrealistic in the current interest rate environ
Slide 35: 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 2/15/19 Total Return CAGR Since Inception (Sep 1991) 2646% 13% Ten Year (2/15/09 – 2/15/19) 190% 11% Five Year (2/15/14 – 2/15/19) 37% 7% YTD 2019 10% Stock Price Total Re
Slide 36: Segment Highlights Specialty P&C
Segment Highlights Specialty P & C, March 2019
Slide 37: Specialty P&C Financial Highlights (12/31/18)
Current Accident Year Net Loss Ratio 100.3% 93.4% 93.8% 89.9% Effect of Prior Accident Year Reserve Development (19.5%) (33.2%) (15.6%) (26.5%) Net Loss Ratio 80.8% 60.2% 78.2% 63.4% Underwriting Expense Ratio 25.2% 26.1% 22.9% 24.0% Combined Ratio 106.0% 86.3% 101.1% 87.4% Specialty P&C Financial H
Slide 38: Q4 2018 Specialty P&C Gross Written Premium
Total Gross Written Premiums decreased $0.2M (0.2%) from $121.3M to $121.1M Physician decrease is due to retention losses (88%) and timing differences, partially offset by new business of $4.8M Facilities increase is due to new business of $6.6M and timing differences, partially offset by retention
Slide 39: 2018 Specialty P&C Gross Written Premium
Total Gross Written Premiums increased $27.9M (5.1%) from $549.3M to $577.2M Physician decrease is due to decrease in twenty-four month policies, retention losses (90%) and timing differences largely offset by new business of $19.8M Facilities increase is due to new business of $19.8M and timing dif
Slide 40: 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 41: Physician Liability Pricing Trend
Physician Liability Pricing Trend PICA excluded to facilitate accurate comparisons over time December 31, 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
Slide 42: State Rate Comparison: Annual Premium for $1M/$3M Policy
Annual Premium for a $1M / $3M Policy Filed or Approved at 9/30/18 Key State Rate Comparison Birmingham Indianapolis Denver Dallas St Louis Atlanta Cleveland Detroit New York, NY Miami Washington Chicago Family Practice (No Surgery) $7,484 $9,351 $11,100 $11,345 $17,960 $19,320 $20,593 $28,263 $23,2
Slide 43: 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 44: The Bottom Line Benefits of Strong Defense
Source: 2013-2017, 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 (2013-2017 / Calendar Year) ProAssurance vs. Industry
Slide 45: ProAssurance Outperforms in Insurance
Source: A.M. Best Aggregates and Averages for Each Line of Business (1991-2017) ProAssurance Outperforms in Insurance Average Combined Ratio 103.8% 101.4% 99.2% 106.5% 92.4% 100.6% 87.2% 67.4% 76.6% 88.3% 70.7% 80.0% 1991-2017 10-Year 2008-2017 5-Year 2013-2017 Overall P&C Overall HCPL PRA - MPL Onl
Slide 46: 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 - 2017 Avg Since Inception 1991-2017 10
Slide 47: Segment Strategic Review Specialty P&C
Segment Strategic Review Specialty P & C, March 2019
Slide 48: New Market Conditions Emerging
New Market Conditions Emerging 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 professional liability busines
Slide 49: New Market Conditions Emerging: Higher Severity
New Market Conditions Emerging Data Source: TransRe Unmistakable trend to higher severity evident in the broader industry Not evident in ProAssurance paid losses Prompting greater conservatism in ProAssurance reserves on larger risks where deeper pockets may have been created by consolidation Greate
Slide 50: Mega Verdicts at Record Highs in 2018
Mega Verdicts at Record Highs in 2018 Data Source: TransRe 0 5 10 15 20 25 30 35 40 45 50 02 04 06 08 10 12 14 16 18 $ Millions Year Largest (10 th /25 th /50 th ) Verdicts, 2001 - 2018 10th 25th 50th
Slide 51: Cost vs. Care: How Healthcare Costs Force Changes
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 almost 18% of GDP on healthcare and the percentage is increasing How Healthcare Costs Will Force Changes in Our Market Healthcare Cost control remains
Slide 52: We Are Approaching a Tipping Point
We Are Approaching a Tipping Point Average Annual Healthcare Spending per Working Household Includes Out-of-Pocket Expenses and Insurance Premiums Median Compensation (Wages + Health Benefits) $68,600 $105,800 $149,000 Health Spending as a Percentage of Compensation 13.4% 24.4% 33.9% $9,200 $ 25,800
Slide 53: 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 54: Strategy Update: Traditional Practices are Fading
More physicians than ever are employees 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: 2018 Physicians Foundat
Slide 55: 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 56: 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 2017 Statutory Data, >50% HCPL, Direct Written Premiums >$80 mi
Slide 57: 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 58: Strategy Update: Successes in the Evolving Market
The Certitudetm program in partnership with Ascension Health Shared risk through quota share participation by Ascension’s captive on first $1M ~1,600 insured physicians ~$31.3 mln inforce Certitude direct premium in year-ended 12/31/18 Active in AL, D.C., FL, IL, IN, KS, MD, MI, NY, OK, PA, TN, TX,
Slide 59: 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 60: 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 61: Leveraging Existing Expertise in New Ways
Leveraging Existing Expertise in New Ways Syndicate 1729 at Lloyds Our 61% 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 62: Segment Highlights Workers' Compensation
Segment Highlights Workers’ Compensation, March 2019
Slide 63: Workers' Compensation Financial Highlights (12/31/18)
Workers’ Compensation Financial Highlights (12/31/18) Three Months Ended Twelve Months Ended December 31 2018 2017 2018 2017 Gross Premiums Written $ 65.0 $ 60.3 $ 293.2 $ 264.0 Net Premiums Earned $ 50.8 $ 41.1 $ 186.1 $ 163.3 Total Revenues $ 51.4 $ 41.4 $ 188.5 $ 165.4 Net Losses & Loss Adjustmen
Slide 64: Broad Workers' Compensation Product Spectrum
Traditional Markets Guaranteed Cost Policies Loss-Sensitive Dividend Plans Deductible Plans Retrospective Rating Plans ParallelPay–“Pay as you Go” Eastern Specialty Risk (high hazard) TPA Services Claims Administration and Risk Management 11,067 active policies as of 12/31/2018 Broad Workers’ Compen
Slide 65: 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 378 Contracts / 915 Locations Workers’ Compensation Business Profile & Overview Southeast Regio
Slide 66: Opportunities in Workers' Compensation
Opportunities in Workers’ Compensation $51.5 million in new business written in 2018 Traditional: $43.2 million Alternative Market: $8.3 Launched Eastern Specialty Risk in 2017 High Hazard product offering Construction, Forestry, and Transportation markets As of 12/31/2018, DWP of $8.2 million and u
Slide 67: Wide diversification by class code and market segment
Wide diversification by class code and market segment 11,067 active policies in Traditional Programs Over 600 class codes actively written in Traditional business Diversified Book of Business Top 10 Classes of Business by Payroll Exposure as of December 31, 2018 Healthcare Related Non-Healthcare Phy
Slide 68: Healthcare as a Percentage of Traditional Workers' Comp Writings
Healthcare as a Percentage of Traditional Workers’ Compensation Writings Direct Written Premium YTD at 12/31/18 Significant Healthcare Profile - Traditional 2018 Healthcare premiums grew 2.2% vs. 2017 $ = DPW in millions Non - Healthcare 83% Healthcare 17% $35.4 $34.7 2018 2017 Healthcare Premiums
Slide 69: Consistent Profitability in Workers' Comp
Consistent Profitability in Workers' Comp Historical Combined Ratio Average 89% 2006 - 2018 *2018 ratios include Workers’ Compensation Insurance segment only. 79.1% 65.6% 80.2% 87.7% 96.0% 89.7% 91.8% 93.0% 96.0% 95.9% 95.5% 91.1% 93.6%* 92.7% 94.3% 93.7% 89.1% 93.1%* 2006 2007 2008 2009 2010 2011 2
Slide 70: Eastern Outperforms in Workers' Compensation
Source: 1996-2017 A.M. Best Aggregates and Averages, Workers’ Compensation. Policyholder Dividends Included. Data is inclusive of Segregated Portfolio Cell Reinsurance results as of 12/31/2017. Eastern Outperforms in Workers’ Compensation Eastern consistently outperforms in a volatile line of busine
Slide 71: Eastern's proactive claim-closing strategies
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 56 net claims open from 2014 and prior Workers’ Comp Claim Closing Pattern: Traditional 12/31/2018 536 590 573 687 590 717 778 890 957 1,078 1
Slide 72: 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 73: 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 74: Segment Highlights Segregated Portfolio Cell Reinsurance
Segment Highlights Segregated Portfolio Cell Reinsurance, March 2019
Slide 75: Segregated Portfolio Cell Program Structure
Segregated Portfolio Cell Program Structure Inova Re Underwriting Claims Administration Risk Management Reinsurance Tax Audit Asset Management Services + Cell Rental Expenses + Participates in profits/losses of carefully selected cells Fee Income to ProAssurance ProAssurance/Eastern participates in
Slide 76: Segregated Portfolio Cell Reinsurance Financial Highlights (12/31/18)
Segregated Portfolio Cell Reinsurance Financial Highlights (12/31/18) Three Months Ended Twelve Months Ended December 31 2018 2017 2018 2017 Gross Premiums Written $ 16.8 $ 16.2 $ 85.1 $ 77.7 Net Premiums Earned $ 19.7 $ 17.5 $ 73.9 $ 68.2 Net Investment Income $ 0.5 $ 0.3 $ 1.6 $ 1.1 Net Realized G
Slide 77: Segregated Portfolio Cell Direct Written Premium Trends
Segregated Portfolio Cell Direct Written Premium Trends DPW in 000’s 20 year track record of growth and profitability 2018 DWP = $84.4 million Year-over-year growth of 4.8%
Slide 78: Wide diversification by class code and market segment
Wide diversification by class code and market segment 2,699 active policies in Segregated Portfolio Cell Market Programs Over 400 actively written in Segregated Portfolio Cell Programs Segregated Portfolio Cell Diversified Book of Business Top 10 Classes of Business by Payroll Exposure as of Decembe
Slide 79: Healthcare as a Percentage of SPCR Workers' Compensation Writings
Healthcare as a Percentage of SPCR Workers’ Compensation Writings Direct Written Premium YTD at 12/31/18 Significant Healthcare Profile – Segregated Portfolio Cell 2018 Healthcare premiums grew 6.9% vs. 2017 $ = DPW in millions Non - Healthcare 68% Healthcare 32% $27 $25 2018 2017 Healthcare Premium
Slide 80: Claim Closing Pattern: Segregated Portfolio Cells
Claim Closing Pattern: Segregated Portfolio Cells 12/31/2018 Eastern’s proactive claim-closing strategies are key to being recognized as a short-tail writer of workers’ compensation No claims open from 2009 and earlier 29 net claims open from 2015 and prior 103 175 267 407 422 310 326 336 385 405 50
Slide 81: Segment Strategic Review Segregated Portfolio Cell Reinsurance
Segment Strategic Review Segregated Portfolio Cell Reinsurance, March 2019
Slide 82: Strategy Update: How The SPC Segment Differentiates
Strategy Update: How The SPC Segment Differentiates Captive insurance solutions provided through Inova Re Value-added risk management services and claims/underwriting expertise cements brand loyalty Strategic partnerships with select independent agencies that share philosophies on controlling worker
Slide 83: How Segregated Portfolio Cells Benefit ProAssurance
How Segregated Portfolio Cells Benefit ProAssurance Alternative market solutions are in high demand Fast growing sector of the Property and Casualty marketplace Segregated Portfolio Cells are a high ROE product with significant retention Low capital requirement by not assuming risk Fee-based revenue
Slide 84: How Segregated Portfolio Cells Benefit Insureds
How Segregated Portfolio Cells Benefit Insureds Highly rated paper Stable Off-Shore Facility Over 30 years in operation (since 1987) Cayman Islands Monetary Authority regulation Segregated portfolio cells statutorily protected from each other Multi-State Coverage “Fully-Bundled” Approach No need for
Slide 85: Advantages of the Cayman Islands Domicile
Advantages of the Cayman Islands Domicile Second Largest captive domicile in the world Largest healthcare captive domicile in the world 90% of business from North America Healthcare captives represent 32% of all captives Medical professional liability is the largest primary line followed by workers’
Slide 86: Segment Highlights Lloyd's of London
Segment Highlights Lloyd’s of London, March 2019
Slide 87: Lloyd's Segment Financial Highlights (12/31/18)
Lloyd’s Segment Financial Highlights (12/31/18) Three Months Ended Twelve Months Ended December 31 2018 2017 2018 2017 Gross Premiums Written $ 25.8 $ 13.2 $ 88.7 $ 70.2 Net Premiums Earned $ 18.1 $ 11.8 $ 67.0 $ 57.2 Total Revenues $ 19.1 $ 12.5 $ 70.3 $ 57.6 Net Losses & Loss Adjustment Expenses $
Slide 88: Syndicate 1729 and Syndicate 6131
Syndicate 1729 2019 maximum underwriting capacity: $163.3 million ProAssurance’s 62% share is $99.5 million Syndicate 6131 2018 underwriting capacity: $15.3 million ProAssurance is the 100% capital provider Lloyd’s Syndicates Business Detail* *$ in millions and based on exchange rates at 12/31/2018
Slide 89: Segment Investment Thesis & Strategic Review Lloyd's of London
Segment Investment Thesis & Strategic Review Lloyd’s of London, March 2019
Slide 90: Why Lloyd's? Our Investment Thesis
Why Lloyd’s? Our Investment Thesis Universal distribution & licensure Particularly appealing to Medmarc with Medical Technology & Life Sciences developing and testing expands globally Westernization of international healthcare professional liability Many countries are moving towards a contingency fe
Slide 91: The Future of Our Lloyd's Investment
The Future of Our Lloyd’s Investment Review of strategic options Improve profitability Reduce volatility Assess capital use and degree of participation Operational goals Refining the book of business to move beyond 2017 and 2018 significant CAT losses Mitigating risk through reinsurance Remaining di
Slide 92: Investment Strategy & Detailed Holdings
Investment Strategy & Detailed Holdings March 2019
Slide 93: Investment Strategy and 2019 Outlook
Investment Strategy and 2019 Outlook Duration management remains paramount We will not extend duration in search of incremental yield Optimizing our allocations for better risk-adjusted returns Ensures non-correlation of returns Effective stewardship of capital ensures a position of financial streng
Slide 94: 2018 Net Investment Result (12/31/18)
2018 Net Investment Result (12/31/18) 12/31/2018 12/31/2017 Change Net Investment Income Fixed maturities $ 64,523 $ 72,665 $ (8,142 ) Equities 21,418 17,198 4,220 Short-term investments including Other 5,351 7,643 (2,292) BOLI 1,983 1,979 4 Investment fees and expenses (6,315 ) (6,618 ) 303 Net inv
Slide 95: ProAssurance Recent Investment Performance
ProAssurance Recent Investment Performance As of December 31, 2018. Management reporting item which is ‘tax equivalent,’ unaudited, and non GIPS, may not equal 100% due to rounding Contribution to Returns 2014-2018 / PRA vs Benchmarks 2018 2017 2016 2015 2014 % of Assets PRA Benchmark % of Assets PR
Slide 96: ProAssurance Investment Profile
12/31/18 Full portfolio disclosure on our website: investor.proassurance.com/CustomPage/Index?KeyGenPage=305596 ProAssurance Investment Profile $2.1 Billion Fixed Income Portfolio (64% of Invested Assets) $3.3 Billion Overall Portfolio Sources of Liquidity Average duration: 3.0 years Average tax-equ
Slide 97: Portfolio Detail: Corporate
ProAssurance Portfolio Detail: Corporate Corporates: $1.2 Billion (58% of Fixed Assets / 37% of Invested Assets) Top 20 Banks/Financials: $223 million in millions Citi $21 Simon Properties $8 J.P. Morgan $20 MUFG $8 Goldman Sachs $19 Barclays $7 Bank of America $16 Huntington Bank $7 Wells Fargo $16
Slide 98: Portfolio Detail: Asset Backed
12/31/18 ProAssurance Portfolio Detail: Asset Backed Weighted Average Rating: “AAA” $421 Million (20% of Fixed Income / 13% of Invested Assets) RMBS 43% Other (Primarily Auto & Credit Card) 46% CMBS , 11%
Slide 99: Portfolio Detail: Fixed-Trading
12/31/18 ProAssurance Portfolio Detail: Fixed-Trading Weighted Average Rating: “AA” $38 Million (2% of Fixed Income / 1% of Invested Assets) Represents securities held in Syndicate 1729 ABS & Other 5% Consumer Oriented 2% Financial 18% Government 57% Industrial 11% Technology 5% Utilities 2%
Slide 100: Portfolio Detail: Municipals
12/31/18 ProAssurance Portfolio Detail: Municipals Municipals: $294 Million (14% of Fixed Income / 9% Invested Assets) Weighted Average Rating: AA Top 10 Municipal Holdings in millions North Carolina State Capital Improvement $10 New York State Urban Development $10 New York, NY $9 Connecticut State
Slide 101: Portfolio: Equities & Other
12/31/18 Subject to Rounding ProAssurance Portfolio: Equities & Other Equities & Other: $845 Million (25% of Invested Assets) Common Equities 24% Private Equity 14% Hedge Funds 8% BDC Stocks 4% Private Credit/Structured Credit 9% Real Estate LP 5% MLPs 4% Convertible Bonds 3% Bond Funds 16% Inflatio
Slide 102: Combined Tax Credits Portfolio Detail & Projections
Combined Tax Credits Portfolio Detail & Projections Year Capital Contributions GAAP Income/(Loss) from Operations, Disposition & Impairment Total Credits (Source IRR Schedule) Tax Provision after Impairment Impact on Earnings 2016 $ 8,701,852 $ (24,817,214) $ 27,549,158 $ (36,235,182) $ 11,417,968 2
Slide 103: 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