Slide 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 historical information are specifically identified
Slide 2: ProAssurance: The Basics
ProAssurance: The Basics Market Cap: $1.6 Billion Equity: $1.3 Billion Fifth largest writer of medical liability Approximately 34,000 policyholders Approximately 33,000 physicians & dentists Majority in small or solo practice Writing business in 28 jurisdictions Highly rated by A. M. Best and Fitch
Slide 3: A Brief History of ProAssurance
7 A Brief History of ProAssurance Created in 2001 When Medical Assurance Merged with Professionals Group We are the product of 13 M&A transactions Continued Growth by acquisition NCRIC (Washington, DC & surrounding states) PIC Wisconsin (upper Midwest and Nevada) Continued Organic Growth Kentucky Ok
Slide 4: National Scale...Local Focus
National Scale...Local Focus Corporate strategy applied locally to underwriting & claims Local knowledge crucial to understanding legal environment Local presence enhances long-term customer relationships Efficiencies gained from consolidated "back-room" operations Corporate Headquarters States of O
Slide 5: A Market Leader
? ? Leading Market Share Top 5 Market Share Top 10 Market Share Growing Market Share A Market Leader Market leaders in AL, DE, DC, OH, & WI Continuing to grow within our market footprint but not "forcing" top line growth Criteria: 2006 DPW ProAssurance is the foremost writer in its states of operati
Slide 6: ProAssurance Mission
ProAssurance Mission We will be the preferred source of professional liability protection by providing unparalleled claims defense, highly responsive customer service, and innovative risk management, while maintaining our commitment to long-term financial strength
Slide 7: ProAssurance Core Values
ProAssurance Core Values Integrity in all we do Commitment to the needs of insureds, employees and shareholders Respect for those we encounter Perpetuation of doctor involvement in our core activities Collaboration and Communication throughout our organization Enthusiasm every day
Slide 8: ProAssurance recognized as a top performing property casualty insurer
ProAssurance Recognized as one of the 50 top performing property casualty insurance companies in America by Ward's
Slide 9: The Medical Liability Market Today
The Medical Liability Market Today
Slide 10: Market Review
Market Review Frequency appears to have stabilized - no longer declining, severity manageable Large verdicts remain a reality Companies view loss trends differently Market pricing remains soft Not to the low levels of 1999 or 2000 Optimists see a "new" environment Realists know the cycle always swin
Slide 11: ProAssurance's Strategy
ProAssurance's Strategy Maintaining margin remains more important than top-line volume We apply an overall corporate strategy that recognizes state-by-state differences Loss trends allowing more aggressive strategies in long-term markets Geographical diversification spreads risk Targeting profitable
Slide 12: You Can't Hide from The Market Cycle But You Can Survive
You Can't Hide from The Market Cycle But You Can Survive
Slide 13: The Insurance Cycle in Med Mal
The Insurance Cycle in Med Mal Millions Source: A. M. Best Aggregates and Averages Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial R
Slide 14: ProAssurance vs. The Cycle: Book Value
ProAssurance vs. The Cycle Book Value '91 3.67 '92 4.58 '93 6.27 '94 6.63 '95 8.56 '96 9.81 '96 11.57 '98 13.24 '99 13.92 '00 15.22 '01 16.02 '02 17.49 '03 18.77 '04 20.92 '05 24.59 '06 33.61 '07 38.69 '08 Q1 39.8 Book Value CAGR: 15.9% Inception- 2007 Book Value Each Year End for ProAssurance and P
Slide 15: ProAssurance vs. The Cycle: Net Combined Ratio
ProAssurance vs. The Cycle PRA All Med Mal '91 80.4 103.7 '92 96.6 127.9 '93 94.3 108.1 '94 87.6 97.6 '95 98.4 99.7 '96 94.4 106 '96 92.6 107.9 '98 90.2 115.7 '99 88.1 129.5 '00 109.4 133.5 '01 124.6 153.3 '02 124.6 140.9 '03 111.5 136.9 '04 105.3 112.3 '05 97.6 100.2 '06 94.2 91.2 '07 85.8 '07 Q1 9
Slide 16: ProAssurance vs. The Cycle: Share Price
Share Price '91 4.12 '92 7.7 '93 7.43 '94 9.27 '95 13.22 '96 13.97 '96 23.2 '98 28.69 '99 21.19 '00 16.69 '01 17.58 '02 21 '03 32.15 '04 39.11 '05 48.64 '06 49.92 '07 55.67 '08 Q1 53.83 ProAssurance vs. The Cycle CAGR Stock Price: 17.7% Total Stock Return: 1,351% Five-Year Return: 173% Ten-Year Retu
Slide 17: Navigating The Cycle
Navigating The Cycle Experience IS the best teacher We have managed through several cycles and understand the challenges Average industry/related experience is 20 years Executives and VP's average PRA tenure is 12 years We are owners, not just managers Directors, officers and employees own approxima
Slide 18: Our Competitive Advantage
Our Competitive Advantage
Slide 19: Claims Defense Is Our Core
Claims Defense Is Our Core We offer our insureds the option of an unfettered defense of their claim Provides a long-term financial and marketing advantage A key differentiating factor in the market as claims data becomes public 2002 2003 2004 2005 2006 2007 ProAssurance 360 391 528 473 720 733 We tr
Slide 20: Transparency is Here
Transparency is Here From the Florida database
Slide 21: Transparency is Here
Transparency is Here From the Florida database
Slide 22: Why Claims Strategy Matters
Why Claims Strategy Matters Percetage of Closed Claims Dropped or Dismissed 0.69 Defense Verdict 0.17 Plaintiff Verdict 0.06 Settled 0.08 Percetage of Closed Claims Dropped or Dismissed: 0.65 Settled: 0.28 Plaintiff Verdict: 0.01 Defense Verdict: 0.05 Favorable Outcomes: 86% Favorable Outcomes: 70%
Slide 23: Why Claims Strategy Matters: Loss Ratios
Incurred Losses Loss Adjustment Expenses Total ProAssurance 0.416 0.534 0.95000000013148 ProAssurance 0.156 0.507 0.663 ProAssurance 0.204 0.433 0.637 Why Claims Strategy Matters Our ability and willingness to defend claims allows us to achieve better results Incurred Losses Loss Adjustment Expenses
Slide 24: Reinsurance Overview
Reinsurance Overview Renewed for 2007-2008 with no meaningful change in terms or conditions Good spread of risk Europe, Lloyds/London, Bermuda, Domestic We participate in the excess layers Continual evaluation of retention levels Risk pricing vs. our capacity and willingness to accept risk
Slide 25: Underwriting Discipline
Underwriting Discipline Pricing based on ROE and margin targets No market share or top line goals/incentives Focused on profitable business Selling from strength Balance sheet Defense of non-meritorious claims Risk management expertise Physician-involvement
Slide 26: Physician Heritage: Our Edge
Physician Heritage: Our Edge Physician involvement throughout promotes a direct relationship with our insureds Regional Advisory Boards involve more than 500 leadership physicians Physician Claims/Underwriting Committees in 16 key states Quarterly meetings, attended by senior management Provides cla
Slide 27: Financial Overview
Financial Overview
Slide 28: Balance Sheet Progression
Balance Sheet Progression 2005 2006 2007 YTD 2008 Total Assets 3.9 4.3 4.4 4.5 Total Investments 2.6 3.5 3.6 3.7 Total Policy Liabilities 2.6 3 2.9 2.9 Stockholders' Equity 0.8 1.1 1.3 1.3 All $ amounts in billions At Each Year-End
Slide 29: Balance Sheet Highlights
Balance Sheet Highlights Continuing growth in Book Value/Share Conservative investment strategy Seeking incremental additional return Prudent use of capital for share repurchase and debt reduction Repurchased 1.5 mln shares for $77.8 mln $56.7 million remaining in our authorization $16 million used
Slide 30: Q1'08 Income Statement Highlights
Q1'08 Income Statement Highlights in millions, except per share data Gross Premiums Written $ 160 $ 185 Net Investment Income 41 43 Total Revenue 160 179 Total Expenses 110 129 Net Income $ 36 $ 36 Net Income/Diluted Share $ 1.04 $ 1.02 Operating Cash Flow $ 60 $ 87 CONTINUING OPERATIONS March 31, 2
Slide 31: 2007 Income Statement Highlights
2007 Income Statement Highlights in millions, except per share data Gross Premiums Written $ 549 $ 579 Net Investment Income 171 147 Total Revenue 706 738 Total Expenses 470 561 Net Income $ 168 $ 127 Net Income/Diluted Share $ 4.78 $ 3.72 Operating Cash Flow $ 244 $ 183 CONTINUING OPERATIONS Decemb
Slide 32: Income Statement Highlights
Income Statement Highlights Premiums trending down Growth from PIC Wisconsin helped to offset declining premiums Favorable Net Reserve Development Q1 2008: $20 mln 2007: $105 mln Investment Income continues to be important Cash flow is strong, but has slowed
Slide 33: Insurance Leverage
Insurance Leverage Premium to Surplus Premiums (GPW) Stockholders' Equity Gross Reserves 2002 0.9149 462 505 1492 2003 1 543 546 1635 2004 0.93 574 611 1819 2005 0.749 573 765 2224 2006 0.5174 579 1119 2607 2007 0.4897 549 1255 2560 YTD 2008 180 1276 2558 (in millions) 0.9:1 Premiums to Surplus 0.9:
Slide 34: Capital Structure
Capital Structure Debt to Equity Ratio: 13% Debt to Capitalization: 11.4% Convertible debt exchangeable for 2.6 million shares Stockholders' Equity Convertible Debt Other Debt 9/30/2006 1255070 105973 58185 Stockholder's Equity 89% Convertible Debt 7% Other Debt 4% AT 3/31/2008
Slide 35: Portfolio Overview
Portfolio Overview Conservative portfolio offsets liability risk Invested Assets Fixed Income 0.89 Short Term & Cash 0.06 Equities & Equity Substitutes 0.03 BOLI 0.02 $3.7 Billion Portfolio Fixed Income: 88% Short Term: 7% Equity and Other Investments: 3% BOLI: 2% AT 3/31/2008
Slide 36: Portfolio: Fixed Income
Portfolio: Fixed Income $3.3 Billion is Fixed Income Average fixed maturity duration: 4.3 years Average tax-equivalent yield: 5.45% 97.8% investment grade Weighted average: AA Fixed Income State/Muni 0.43 Asset Backed 0.28 Corporate 0.18 BOLI 0.02 Govt/Agcy 0.09 AT 3/31/2008 Asset Backed: 28% State/
Slide 37: Portfolio Overview: Equities
Portfolio Overview: Equities $122 million in Equities & Other Investments Asset Backed Equities 0.24 Long/Short Equity LP 0.189 Distressed Debt LP 0.249 High Yield Asset Backed 0.453 FHLB Stock 0.051 Private Equity 0.021 Misc Other 0.019 AT 3/31/2008
Slide 38: Equities & Other Investments
Equities & Other Investments Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q 07 Q3 07 Q4 07 Q1 08 $ in 000's Performance Q1, 2005 - Q1, 2008
Slide 39: ProAssurance's Strategy
ProAssurance's Strategy 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 40: The Insurance Cycle in Med Mal
The Insurance Cycle in Med Mal Millions Source: A. M. Best Aggregates and Averages Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial R
Slide 41: Insurance Cycle Data Table
C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss 1976 1100 950 950 11
Slide 42: The Case for ProAssurance
The Case for 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 43: Appendix
Appendix
Slide 44: Portfolio: Municipals
Portfolio: Municipals Current investment policy requires investment grade rating prior to apply the effect of insurance Municipal Insured w/Stand Alone 0.610013148 Stand Alone Rate 0.35 Collateral or Other 0.01 No Rating 0.01 AT 3/31/2008
Slide 45: Portfolio: Asset Backed
Portfolio: Asset Backed $929 million Asset Backed Securities Weighted Average Rating: AAA Asset Backed Agency MBS: 59% 0.59 CMBS: 23% 0.23 Credit Card: 4% 0.04 Sub-Prime: 2% 0.02 Auto: 2% 0.02 Whole Loans: 6% 0.07 Alt-A: 2% 0.02 Other: 1% 0.01 Alt-A LTV: 63% Whole Loan LTV: 60% Further Details on th
Slide 46: Portfolio: Corporate
Portfolio: Corporate $626 million Weighted Average Rating: A Asset Backed Financials 0.42 Telcom 0.1 Consumer Non-Cyclical 0.09 Privates 0.08 Industrials 0.07 Utilities 0.06 Energy 0.05 Consumer Cyclical 0.04 Basic Materials 0.04 Other 0.05 AT 3/31/2008
Slide 47: Portfolio: Government/Agency
Portfolio: Government/Agency $840 million Average Rating: AAA Asset Backed Agency MBS 0.65 Agency Debentures 0.19 TIPS 0.07 Govt Bonds 0.08 Agency Preferreds 0.009 AT 3/31/2008
Slide 48: Portfolio Overview: Short Term
Portfolio Overview: Short Term $273 Million Rated A1/P1 or better Money Market rated Aaa by Moody's & AAA by S&P Short Term Government Money Market Fund 0.53 T-Bills 0.02 Commercial Paper 0.3 Discount Notes 0.01 Prime Money Market Fund 0.14 AT 3/31/2008
Slide 49: Portfolio Overview: BOLI
Portfolio Overview: BOLI $62.1 million Weighted average rating Moody's: AA2 A. M. Best: A+ BOLI Best Rating: A++ 0.33 Best Rating: A+ 0.67 AT 3/31/2008
Slide 50: Portfolio Overview: Sub-Prime
Portfolio Overview: Sub-Prime $18.4 million market value in AFS portfolio Two downgrades, both to BBB $2.6 million market value in high-yield LP At 3/31/08 Type Quality $ 12 Mln Mortgage-Backed AAA avg - LTV 73% $ 6 Mln Home Equity AA avg At 12/31/07 Vintage $8 Mln 2004 & Prior $6 Mln 2005 $4 Mln 20
Slide 51: Portfolio Overview: CMBS
Portfolio Overview: CMBS $214 million in non-agency CMBS 7% of fixed income portfolio At 3/31/08 Quality $212 Mln AAA $ 1 Mln AA $ 1 Mln A At 3/31/08 Wtd Avg LTV 86% <70% 14% <72% At 3/31/08 Credit Support 71% >20% 12% 15% - 20% 13% 10% - 15% 2%/2% Less than 10%/NA Cumulative Delinquencies 59% None
Slide 52: We Created a Leader Through Consolidation
105 2004: Purchased Selected Renewal Rights from: OHIC Insurance Company We Created a Leader Through Consolidation 1994: Consolidation of: West Virginia Hosp. Ins Co. 1995: Consolidation of; Physicians Ins Co of Indiana Assumed business of: Physicians Ins Co of Ohio 1996: Consolidation of: Missouri
Slide 53: The Insurance Cycle in Med Mal
The Insurance Cycle in Med Mal Millions Source: A. M. Best Aggregates and Averages 1976 - 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premi
Slide 54: The Insurance Cycle in Med Mal
The Insurance Cycle in Med Mal Millions Source: A. M. Best Aggregates and Averages 1976 - 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premi
Slide 55: The Insurance Cycle in Med Mal
The Insurance Cycle in Med Mal Millions Source: A. M. Best Aggregates and Averages 1976 - 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premi
Slide 56: The Insurance Cycle in Med Mal
The Insurance Cycle in Med Mal Millions Source: A. M. Best Aggregates and Averages 1976 - 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premi
Slide 57: The Insurance Cycle in Med Mal
The Insurance Cycle in Med Mal Millions Source: A. M. Best Aggregates and Averages 1976 - 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premi
Slide 58: The Insurance Cycle in Med Mal
The Insurance Cycle in Med Mal Millions Source: A. M. Best Aggregates and Averages 1976 - 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premi
Slide 59: The Insurance Cycle in Med Mal
The Insurance Cycle in Med Mal Millions Source: A. M. Best Aggregates and Averages 1976 - 2001 Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined C/A Yr Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premium Initial Reserve Developed Loss Premi