Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (January 2010)
61 slides from Proassurance's investor presentation, Jan 25, 2010
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 1 9/30/2009 Statutory Filings
Slide 3: Highlights
Highlights Three M&A transactions completed Provides potential premium growth of approximately $100 million on an annualized basis G R O W I N G the top line Existing markets grew modestly through Q3 2009 Maintaining our profitability Outstanding performance in a challenging financial market and a d
Slide 4: Outstanding Performance: Stock Price
Share Price Growth Cumulative CAGR 10 year 149% 10% 5 year 35% 7% 1 year 2% 2% Measured through Year-End 2009 Outstanding Performance: Stock Price Share Price at Year End Since Inception
Slide 5: Outstanding Performance: Book Value
Book Value Growth Cumulative CAGR 10 year 222% 12% 5 year 127% 18% 1 year 10% 10% Measured through Q3 2009 Outstanding Performance: Book Value
Slide 6: Outstanding Performance vs Industry
Category Ranking Direct Written Premiums 95 Operating Ratio 1 Combined Ratio 2 Loss Ratio 5 ROE 5 Outstanding Performance vs Industry Moody’s rankings of the top 100 P&C insurance companies by premium volume 1 by Direct Written Premium Source: 2008 Data from Moody’s Statistical Handbook October
Slide 7: Recent Business Highlights
Recent Business Highlights Third straight year as one of the 50 top performing property casualty insurance companies Top 3% of all P&C companies Upgrade to “A” (Excellent) by A. M. Best Positive outlook assigned by S & P
Slide 8: Success Through M&A
Physicians Ins. Co. of Michigan 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 Company 2004: Purchased Selected Renewal
Slide 9: M&A Transactions
M & A Transactions Premium: $98 million Significant growth in our core business Nationwide geographical expansion Healthcare Premium: $20 million Extends our core business Broadens our medically-related range Geographical expansion Premium: $5.7 million Adds to our lawyers’ book Geographical expansi
Slide 10: Responding to Changes in HealthCare
Responding to Changes in HealthCare Projected sector growth through 2018 1 Podiatrists 9% Physician’s Assistants 39% Physicians and Surgeons 22% Chiropractors 31% Medical Assistants 36% Licensed Nurses 34% 1 Bureau of Labor Statistics 2008 to 2018 Projections
Slide 11: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 12: Maintain Profitability
Maintain Profitability Ensure pricing discipline Rates based on loss data across multiple years Not unduly influenced by current market conditions Using credits allows us to maintain existing rate filings Rates on renewing physician business down less than 12% from peak pricing in 2006
Slide 13: Spread Risk
Spread Risk 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 Corporate Headquarters Corporate Headqu
Slide 14: Claims Trends Drive the Business
Claims Trends Drive the Business Frequency Stabilized in After Three Years of Decline Our operational plans leverage our financial strength, spread of risk and expertise to address potential changes Severity Rising at 4%-5% per Year An Expected, Manageable Level Driven by: Unexpected outcomes Patien
Slide 15: Differentiate In Claims Management
Differentiate In Claims Management Claims management has always set us apart We combine financial strength with deep expertise Give our insureds the option of an uncompromising defense of their claim Allows us to defend our insureds at trial more often than any other company in our line Provides lon
Slide 16: Keep an Eye on Washington
Keep an Eye on Washington Health care reform is in limbo We expect no major changes in the tort system Demonstration projects do not provide meaningful reform or immediate data Signals a desire to leave the tort system in the hands of each state
Slide 17: Prepare for State Changes
Prepare for State Changes Tort reforms under attack in many states We are prepared, operationally and financially, if reforms are struck down in our states We set prices and reserves as if there is no tort reform, until results reflect otherwise
Slide 18: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 19: YTD Income Statement Highlights
Premium is growing with new business from PICA, Mid-Continent and Georgia Lawyers YTD Income Statement Highlights in millions, except per share data Gross Premiums Written $ 435 $ 374 $ 472 Net Investment Income 113 122 158 Total Revenue 489 431 567 Total Expenses 295 294 470 Operating Income $ 136
Slide 20: 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 Stockholder’s Equity Up Over 16% Since 12/31/07
Slide 21: 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 22: 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 $567 $ 96 (PICA pro forma)
Slide 23: Excess Capital vs. Excess Capacity
Excess Capital vs. Excess Capacity Conceptual Model of Projected A. M. Best BCAR Scores if Premiums Increase Surplus is Reduced
Slide 24: Strategy: Balance Risk vs. Return
$3.9 Billion Portfolio Fixed Income: 91% Short Term: 4% Equity and Other Investments: 3% BOLI: 2% Strategy: Balance Risk vs. Return Key Investment Actions in Q3 09 Reduced cash and short-term balances Added to corporate bonds CUSIP-level portfolio disclosure on our website: www.proassurance.com/inve
Slide 25: Little Dependence on Debt
Little Dependence on Debt Low Debt to Cap Ratio Little strain on cash flow 9/30/2009
Slide 26: The Importance of Investment Income
The Importance of Investment Income Pricing discipline is even more critical Combined Ratio required to generate a 13% after-tax ROE
Slide 27: Life Cycle of a Typical Claim
Trial and Appeals The Importance of Investment Income Year Year Year Year Year Year Year Year Incident Occurs Discovery and Preparation Claim Reported Resolution 5-6 Years After Claim Reported Life Cycle of a Typical Claim
Slide 28: Typical Claims Payout Pattern
The Importance of Investment Income Typical Claims Payout Pattern
Slide 29: Fixed Income: $3.6 Billion
Fixed Income: $3.6 Billion 9/30/09
Slide 30: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 31: ProAssurance: Producing sustainable shareholder value
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 32: Appendix: Market Conditions
Appendix: Market Conditions
Slide 33: The State of the Market
The State of the Market Prices have been falling yet profitability remains high Continued low interest rates must enforce discipline sooner or later Frequency is no longer declining Only a matter of time before frequency moves higher But when? Severity is trending upward at expected, manageable rate
Slide 34: Factor Status Cycle Impact
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 35: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 36: Claims Trends Remain Favorable
Claims Trends Remain Favorable Frequency trends are stable after declining since 2005/2006 The result is fewer cases to try Severity trends also stable Trends are much the same in states with or without Tort Reform ProAssurance Claims Tried to a Verdict
Slide 37: Why Claims Strategy Matters
Favorable Outcomes: 84.0% Favorable Outcomes: 75.4% Why Claims Strategy Matters Favorable Outcomes: 84.0% Five Year Average 2004 - 2008 Favorable Outcomes: 75.4%
Slide 38: Why Claims Strategy Matters
Why Claims Strategy Matters Our ability and willingness to defend claims allows us to achieve better results ProAssurance vs. Industry Average Statutory Loss Ratio 2003-2008 Legal Payments Loss Payments Trend for ProAssurance Stand Alone Statutory Loss Ratio - - 2008 76.0% *Source: A. M. Best Aggreg
Slide 39: Appendix: Underwriting/Actuarial
Appendix: Underwriting/Actuarial
Slide 40: Enforce Actuarial Conservatism
$ 2.4 $ 2.6 $ 2.6 $ 2.2 $ 1.8 Enforce Actuarial Conservatism
Slide 41: Annual @ Cumulative
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% Cumulative) 23% 57% 102% 140% 166% 174% 169% 153% 142% PROASSURANCE, Tres
Slide 42: Appendix: Moody's Rankings
Appendix: Moody’s Rankings
Slide 43: Moody's rankings of P&C insurance companies
ry gsth largest P&C insurance company in the US' Operating Ratio . . Rank: #1 Combined Ratio Rank: #2 Average Average 89.2% 99.7% Return on Core Premium Loss Ratio Rank: #4 Rank: #5 Average Return on Equity sre. Rank: #5 Average Averag 4% 43 1 by Direct 2009 emium Source: 2008 Data fr Py PROASSURANC
Slide 44: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 45: Equities & Other: $136 Million
Equities & Other: $136 Million 9/30/09 Represents 3.5% of our Total Investments
Slide 46: Return by Quarter: Equities & Other
Return by Quarter: Equities & Other
Slide 47: Growth in Investment vs. Reserves
Growth in Investment vs. Reserves
Slide 48: Cumulative Return: Equities & Other
Cumulative Return: Equities & Other
Slide 49: 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 50: Municipals: $1.5 Billion
Municipals: $1.5 Billion 9/30/09 Investment policy has always required investment grade rating prior to applying the effect of insurance
Slide 51: Asset Backed: $805 Million
Asset Backed: $805 Million Weighted average rating: “AAA” Bloomberg Data 9/30/09 Alt-A LTV 63% Prime MBS LTV 56% Further Details Provided on Sub-Prime and CMBS on following pages
Slide 52: Sub-Prime Detail
At 9/30/09 Vintage $4.8 Mln 2004 & Prior $1.9 Mln 2005 At 9/30/09 Type Quality $2.9 Mln Mortgage-Backed AA avg - LTV 68% $3.8 Mln Home Equity A+ avg Sub-Prime Detail $6.7 million market value in AFS portfolio $4.2 million unrealized loss $9.6 million market value in high-yield LP rated B LP’s focus
Slide 53: CMBS Detail
CMBS Detail Vintages 2005 & Prior- $136 million 2006- $23 million 2007- $3 million Top Property Types Retail-Anchored: 45% of CMBS portfolio Exposure: 19% - 44% of underlying occupancies Office: 44% of CMBS portfolio Exposure: 23% - 49% of underlying occupancies Multi Family: 4% of CMBS portfolio Mi
Slide 54: CMBS Detail
At 9/30/09 Quality $160 Mln AAA $ 2.0 Mln AA At 9/30/09 Wtd Avg LTV 24% <65% 43% =65-70% 21% <70-75% 12% =75-85% At 9/30/09 Credit Support 26% >30% 52% 20% - 30% 20% 10% - 20% 2% Less than 10% At 9/30/09 Deal Cumulative Delinquencies 27% 0.0% - 0.5% 3% 0.5% - 1.0% 32% 1.0% - 2.0% 4% 2.0% - 3.0% 22%
Slide 55: CMBS Since September 30, 2009
CMBS Since September 30, 2009 Since 9/30/09: Sold $50.0 million CMBS Paydowns of $8.0 million As of November 30, 2009 CMBS: Market value: $108 million Book value: $110 million Expecting pay down of $19 million by year-end 2009 Projecting ~$90 million exposure at year-end
Slide 56: Corporates: $1.0 Billion
Corporates: $1.0 Billion 9/30/09
Slide 57: Corporate: Detail on Financials
BA $44 ($23) BNY Mellon $10 MS $27 ($6) Credit Suisse $9 BP Cap $25 Eurohypo $8 GECC $25 ($8) KEY $6 ($6) JPM $24 ($14) NRUC $6 CITI $20 ($7) Deutsche Bank $5 Wells $20 FMCC $5 GS $16 ($2) NY Commt’y Bank $5 ($5) PNC $15 ($2) Depfa ACS Covered $5 Amex $14 John Deere Cap $5 ($2) FDIC backed amounts l
Slide 58: Treasury/GSE: $228 Million
Treasury/GSE: $228 Million 9/30/09
Slide 59: FHLMC & FNMA Detail: $421 Million
FHLMC & FNMA Detail: $421 Million *® Average Rating: AAA Py PROASSURANCE. pone:
Slide 60: Portfolio Overview: Short Term
Portfolio Overview: Short Term $138 Million Rated A1/P1 or better Money Markets: Moody’s: Aaa S & P: AAA
Slide 61: BOLI: $65 Million
BOLI: $65 Million Weighted average rating Moody’s: AA3 S&P: AA A. M. Best: A+