Proassurance Corporation · NYSE:PRA
Proassurance — NYSSA 2011 Insurance Conference
59 slides from Proassurance's conference presentation, Feb 8, 2011
Slide 1: New York Society of Security Analysts
New York Society of Security Analysts February 8, 2011 Investor Presentation NYSSA 2011 Insurance Conference W. Stancil Starnes Chairman and Chief Executive Officer New York Society of Security Analysts
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: Consistently Successful Throughout the Insurance Cycle
Consistently Successful Throughout the Insurance Cycle ProAssurance: Corporate Profile Specialty writer of professional liability insurance, primarily Medical Professional Liability (MPL) Fourth largest writer overall Historical Book Value Per Share Since Inception CAGR: 16% Cumulative:1334% 10 Year
Slide 4: Consistently Successful Throughout the Insurance Cycle
Consistently Successful Throughout the Insurance Cycle ProAssurance: Corporate Profile Market Cap : ~$1.9 billion Total Assets: $4.8 billion Shareholders’ Equity: $1.8 billion Historical Book Value Per Share Since Inception CAGR: 16% Cumulative:1334% 10 Year Summary CAGR: 14% Cumulative: 276% Histor
Slide 5: ProAssurance Footprint: Top States (2009 Premium)
Top States (2009 Premium) ProAssurance Footprint ProAssurance: Geographic Profile Writing throughout the United States 2009 market share of 5% by DPW Maintaining local knowledge and expertise Corporate Headquarters Corporate Headquarters (Birmingham)
Slide 6: Risk and Distribution Profile
Q3 2010 Premium: $415 million Q3 2010 Policyholders: ~63,000 ProAssurance: Risk and Distribution Profile We insure a broad range of healthcare risks, from home health providers to 800 bed hospitals Direct: 40% / Agents: 60% Direct: 35% / Agents: 65%
Slide 7: Presentation Overview
Presentation Overview Year-end and Q4 Results reported February 23, 2011 Updates M&A Medical / Legal environment Overall business climate Business initiatives Long term performance
Slide 8: M & A Update: Texas / AMPH
M & A Update: Texas / AMPH Acquisition of American Physicians Services Group (APS) closed November 30, 2010 Modestly accretive to earnings in 2011, after one-time charges and restructuring costs We are now the second leading writer in Texas Also adds to business in Arkansas and Oklahoma Adds high qu
Slide 9: We Expect to Continue Growing Through M & A
We Expect to Continue Growing Through M & A We are industry leaders in M & A We understand that not all M & A opportunities should be pursued We prefer “healthcare centric” but we look for closely related liability lines to leverage expertise (attorneys E & O for example) Our strategy adapts to the
Slide 10: The Potential Effects of Healthcare Reform
The Potential Effects of Healthcare Reform No meaningful Tort Reform in the bill Known More customers for us We have acquired companies to expand our reach Unknown Effect on the medical / legal environment Long-term effects on the business we write and who purchases that coverage We have unique adva
Slide 11: Tort Reform Resurfaces
Tort Reform Resurfaces Tort Reform has reappeared in Washington Passage is far from certain State Tort Reforms Now being tested We set prices and reserve levels as if there is no tort reform, until results reflect otherwise
Slide 12: Claims Trends Remain Favorable
ProAssurance Claims Tried to a Verdict ProAssurance New Claims Opened Each Year Claims Trends Remain Favorable
Slide 13: Claims Defense Remains at Our Core
ProAssurance: 81% Favorable Outcomes Industry: 74% Favorable Outcomes Claims Defense Remains at Our Core Our insureds increasingly value reputational defense as claims data becomes public Five Year Average 2005-2009
Slide 14: The Ohio Example: 2005-2009 Data
Fewer Claims Closed With Indemnity More Claims Defended in Court Lower Average Indemnity Payment per Closed Claim The Ohio Example: 2005 - 2009 Data Comprehensive, reliable data provided by the Ohio Department of Insurance www.insurance.ohio.gov/Legal/Reports/Documents/MedMal_Closed_Claim_2009.pdf 2
Slide 15: ProAssurance Insured Retention History
ProAssurance Insured Retention History Solid Retention of Well-Underwritten Risks
Slide 16: Combined Ratio: ProAssurance Consistently Outperforms
Combined Ratio: ProAssurance Consistently Outperforms Demonstrated Underwriting Performance ProAssurance Average: 95.3% Industry Average: 108.8% Source: A.M. Best Aggregates and Averages, Medical Malpractice Lines of Business
Slide 17: New Products for a Changing Market
New Products for a Changing Market Insurance partnership with Ascension Health Pilot project in Michigan Joint physician / hospital insurance product: ProControl Alternative risk and self-insurance mechanisms
Slide 18: Performance Recognition
Operating Ratio Combined Ratio Loss & LAE Ratio Return on Core Premium Return on Surplus Performance Recognition Leading industry operating performance in 2009 in Moody’s top 100 property & casualty insurers ProAssurance ranks 79th by premium, but outperforms in many key financial measures Fourth st
Slide 19: Current Prices Present a Compelling Buying Opportunity
Current Prices Present a Compelling Buying Opportunity Current Price to Book: ~1.0x Average Since Inception: 1.4x Driven to Excel / Focused on Shareholder Value
Slide 20: Investor Meetings at the NYSSA 2011 Insurance Conference
February 8, 2011 Investor Meetings at the NYSSA 2011 Insurance Conference W. Stancil Starnes Chairman and Chief Executive Officer Edward L. Rand, Jr. Chief Financial Officer Frank B. O’Neil Investor Relations Officer
Slide 21: 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 22: Consistently Successful Throughout the Insurance Cycle
Consistently Successful Throughout the Insurance Cycle ProAssurance: Corporate Profile Specialty writer of professional liability insurance, primarily Medical Professional Liability (MPL) Market Cap : ~$1.9 billion Total Assets: $4.8 billion Shareholders’ Equity: $1.8 billion Founded in 1975 / Demut
Slide 23: ProAssurance: Business Profile
Company 2009 DPW (000’s) Share Comments 1 Medical Liability Mutual $ 756,844 7.0% 78% in NY, 22% in NJ 2 Medical Protective $ 727,160 6.8% Berkshire subsidiary Direct competitor 3 Doctors Company $ 601,223 5.6% Non-public Direct competitor 4 ProAssurance $ 541,033 5.0% 5 AIG $ 524,252 4.9% Not a dir
Slide 24: ProAssurance: Geographic Profile
Top States (2009 Premium) ProAssurance Footprint ProAssurance: Geographic Profile Writing across the United States, ProAssurance has broad geographic diversification Each state presents unique medical and legal challenges Regional structure provides the local knowledge that differentiates ProAssuran
Slide 25: ProAssurance: Risk and Distribution Profile
Q3 2010 Premium: $415 million Q3 2010 Policyholders: ~63,000 ProAssurance: Risk and Distribution Profile We insure a broad range of healthcare risks, from home health providers to large hospitals Focus on individual physicians and physician groups Rated “A” by A.M. Best and Fitch Direct in Alabama,
Slide 26: M & A Update
M & A Update Financial Highlights Acquisition of American Physicians Services Group (APS) closed November 30, 2010 Announced September 1, 2010 Valued AMPH at $32.50/share—approximately $233 million paid to AMPH shareholders 1.3x Book Value or 11x First Call EPS estimate Insurance Highlights We are n
Slide 27: We Expect to Continue Growing Through M & A
Physicians Ins. Co. of Michigan Completed 11/30/10 We are skilled at finding M & A opportunities, conducting in-depth due diligence and integrating resulting acquisitions 2009: Consolidation of: Mid-Continent General Agency 2009: Consolidation of: Mid-Continent General Agency Georgia Lawyers Insuran
Slide 28: De Novo vs. Acquisition: M & A and the Insurance Cycle
De Novo vs. Acquisition M & A and the Insurance Cycle The Case for Growing Through M & A Legal and regulatory environment must be favorable Not all M & A opportunities should be pursued The key is understanding why companies are available We don’t “bet the farm” and can acquire without “breaking the
Slide 29: Strategy & Operations: Differentiation is the Key
Strategy & Operations: Differentiation is the Key
Slide 30: Current Industry Status
Current Industry Status We are in a period of “benign profitability” Prices have been falling yet profitability remains at attractive levels We have seen no new large scale market entry from larger commercial competitors Some consolidation among “mid-decade” start-ups
Slide 31: Differentiate Through Claims Defense
ProAssurance: 81% Favorable Outcomes Industry: 74% Favorable Outcomes Differentiate Through Claims Defense Our deep expertise in claims defense has always set us apart Our financial strength gives our insureds the opportunity for an uncompromising defense of their claim Our successful approach to cl
Slide 32: The Ohio Example: 2005-2009 Data
Fewer Claims Closed With Indemnity More Claims Defended in Court Lower Average Indemnity Payment per Closed Claim The Ohio Example: 2005 - 2009 Data Comprehensive, reliable data provided by the Ohio Department of Insurance Broad range of competitors and business approaches www.insurance.ohio.gov/Leg
Slide 33: Claims Trends Remain Favorable
ProAssurance Claims Tried to a Verdict New Claims Opened Each Year Claims Trends Remain Favorable With frequency down compared to mid-decade the result is fewer cases to try Severity trends steady and manageable Trends are much the same in states with or without Tort Reform
Slide 34: Loss Trends and Rate Actions
Rate Change History Insured Retention History Loss Trends and Rate Actions Rates on renewing physician business down less than 12% from peak pricing in 2006 Improved frequency trends are reflected in recent rate declines Improvement in frequency has outweighed a steady, manageable rise in severity o
Slide 35: Stringent underwriting standards to maintain rate structure
We enforce stringent underwriting standards to maintain rate structure and enhance profitability Underwriting process driven by individual risk selection and assessment of loss history, areas of practice, and location Rate filings consider the results of the past five to seven years to ensure a sing
Slide 36: Conservative Approach to Reserves
Net Reserve Development Average Reserve per Open MPL Claim Conservative Approach to Reserves No change in the historic reserving practices that have produced favorable net reserve development in each of the last seven years and YTD 2010 Conservative reserve strategy provides protection against a los
Slide 37: Tort Reform Resurfaces
Tort Reform Resurfaces Federal Tort Reform has reappeared in Washington Resurfaced during President Obama’s State of the Union Speech Republicans are pushing The HEALTH Act which previously passed the House but died in the Senate Democrats have offered to consider scaled-back reforms Meaningful Tort
Slide 38: The Potential Effects of Healthcare Reform
The Potential Effects of Healthcare Reform No meaningful Tort Reform in the bill No immediate effect on the medical/legal climate Demonstration projects do not provide meaningful reform or immediate data Known: More customers for us We have enhanced our ability to write new classes of business throu
Slide 39: New Products for a Changing Market
New Products for a Changing Market Insurance partnership with Ascension Health Largest Catholic healthcare system in the US 38 ministry locations in 18 states Pilot partnership in Michigan to offer coverage to 1,000 affiliated, non-employed physicians Insurance operations performed by ProAssurance P
Slide 40: Long-Term Financial Strength Sets Us Apart
Shareholders’ Equity Long-Term Financial Strength Sets Us Apart Ensuring the strength of our balance sheet is our top financial priority Financial strength differentiates us in the market The claims defense philosophy that differentiates us in the market leverages our financial strength Up Over >60%
Slide 41: Financial Performance and Investments
Financial Performance and Investments
Slide 42: Performance Recognition
Operating Ratio Combined Ratio Loss & LAE Ratio Return on Surplus Performance Recognition Leading industry operating performance in 2009, ranked by Moody’s top 100 property & casualty insurers ProAssurance ranks 79th by premium, but outperforms in key financial measures Fourth straight year in the W
Slide 43: Operating Net Income, Investment Income, Net Premiums Written
Consolidated Operating Net Income 1 Net Investment Income Net Premiums Written 1 Excludes the after-tax effects of net realized gains or losses and guaranty fund assessments or recoupments
Slide 44: Overall Investment Portfolio
$4 Billion Overall Portfolio $3.5 Billion Fixed Income Portfolio CUSIP-level portfolio disclosure on our website: www.proassurance.com/investorrelations/supplemental.aspx Investments Balance Risk vs. Return Average duration: 4.1 years Average tax-equivalent yield: 5.0% Investment grade: 97% Weighted
Slide 45: The Importance of Investment Income
Trial and Appeals Life Cycle of a Typical Claim The Importance of Investment Income Investment income compounds significantly due to the long-tail nature of the MPL claims cycle Lower investment results place greater emphasis on quality underwriting to achieve a combined ratio below 100% Year Year Y
Slide 46: Long-Term ROE Target is 13% / The Yield Trap
Long-Term ROE Target is 13% The Yield Trap Pricing discipline becomes even more critical in a low interest rate environment Lack of investment yield may be a hard market catalyst Return on Equity and Investment Returns Assumes a 1:1 premium to surplus ratio for physicians professional liability clai
Slide 47: Conservative Use of Debt and Low Leverage
Debt to Equity Strong Capital Position Conservative Use of Debt and Low Leverage Low Debt to Cap Ratio No strain on cash flow No Debt Prior to 2001 Prepared for an improving market
Slide 48: Capital Management
Share Repurchase History Excess Capital vs. Excess Capacity Capital Management Dividends No current dividend to shareholders Regular evaluation by Board/Management Ongoing commitment of cash is a key consideration Uncertainty about future tax treatment Share Repurchase $105 million spent to date in
Slide 49: ProAssurance
PROASSURANCE. “rested Faly
Slide 50: Driven to Excel / Focused on Shareholder Value
Current Prices Present a Compelling Buying Opportunity Current Price to Book: ~1.0x Average Since Inception: 1.4x Driven to Excel / Focused on Shareholder Value Maintaining our profitability and book value growth Outstanding performance in a challenging financial market and a demanding line of insur
Slide 51: Supplemental Discussion Materials
Supplemental Discussion Materials
Slide 52: Management Team
W. Stancil Starnes, JD Chairman & Chief Executive Officer sstarnes@proassurance.com (205) 877-4400 Company Tenure: 3 Years Prior MPL Experience: 29 Years Industry & Related Experience: 32 Years Formerly in the private practice of law in MPL defense and complex corporate litigation. Victor T. Adamo,
Slide 53: YTD 2010 Financial Highlights
&# 160; YTD 2010 Financial Highlights in millions, except per share data Q3 12/31 2010 2009 2009 2008 Gross Premiums Written $ 415 $ 435 $ 554 $ 471 N et Investment Income 110 113 151 158 Net Income (Includes Investment Losses) 130 137 222 178 Operating Income 123 136 215 207 Net Income/Diluted Shar
Slide 54: Portfolio Detail: Asset Backed
Asset Backed: $719 Million Weighted Average Rating: “AA+” Breakdown of Agency MBS Holdings Sub-Prime: $12.3 Market Value (AFS) $826,000 unrealized loss ProAssurance Portfolio Detail: Asset Backed Bloomberg Data 9/30/10 CMBS Details Provided on Page 33
Slide 55: Portfolio Detail: CMBS
ProAssurance Portfolio Detail: CMBS $105 million Fair Value in non-agency CMBS Book Value: $100 million (3% of fixed income portfolio) No cumulative losses in our CMBS portfolio 9/30/10
Slide 56: Portfolio Detail: Municipals
Municipals: $1.3 Billion Sources of Revenue Backing Municipals ProAssurance Portfolio Detail: Municipals 9/30/10 Investment policy has always required investment grade rating prior to applying the effect of insurance
Slide 57: Portfolio Detail: Equities & Other
Equities & Other: $142 Million Return by Quarter Cumulative Return ProAssurance Portfolio Detail: Equities & Other 9/30/10 Does not sum to 100% due to rounding In millions In millions
Slide 58: Portfolio Detail: Corporate
Corporates: $1.1 Billion ProAssurance Portfolio Detail: Corporate 9/30/10 Weighted Average Rating: A
Slide 59: Portfolio Detail: Various
ProAssurance Portfolio Detail: Various 9/30/10 Rated A1/P1 or better Money Markets: Moody’s: Aaa S&P: AAA Weighted average rating Moody’s: AA3 S&P: AA- A. M. Best: A+