Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (September 2011)
43 slides from Proassurance's investor presentation, Sep 8, 2011
Slide 1: Forward Looking Statements and Non-GAAP Measures
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 presentation. The principal ris
Slide 2: ProAssurance: Corporate Profile
Consistently Successful Throughout the Insurance Cycle Specialty writer of professional liability insurance, primarily Medical Professional Liability (MPL) Market Cap : ~$2.1 billion Total Assets: $4.9 billion Shareholders’ Equity: $2.0 billion Annualized dividend yield is 1.4% - first dividend to b
Slide 3: ProAssurance: Business Profile
ProAssurance: Business Profile Largest independent publicly traded writer of MPL insurance Fourth largest overall writer Top 20 writers have just 65% of the market More than 100 writers with some share of the market Majority of companies are mutual or similar Few operate in more than two or three st
Slide 4: ProAssurance: Geographic Profile
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 ProAssurance Corporate Headquarters
Slide 5: ProAssurance: Risk and Distribution Profile
YTD 2011 Policyholders: ~71,000 2011 YTD Premium: $276 million 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 Premium & Policyh
Slide 6: M & A Update: ProAssurance & American Physicians
M & A Update: ProAssurance & American Physicians Financial Highlights Expected to be modestly accretive to earnings in 2011, after one-time charges and restructuring costs Insurance Highlights We are now the second leading writer in Texas Adds high quality premium and ~6,700 well-underwritten policy
Slide 7: M&A history and expected continued growth
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 8: 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 9: Strategy & Operations: Differentiation is the Key
Strategy & Operations: Differentiation is the Key
Slide 10: Medical Professional Liability Stands Apart
Medical Professional Liability Stands Apart Long-tail vs short tail Prolonged period of “benign profitability” Premiums remain well above levels of year 2000 No large commercial competitors have entered the market in a meaningful manner Significant barriers to entry in underwriting and claims handli
Slide 11: 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 Start-up pricing advantage has
Slide 12: Differentiate Through Claims Defense
ProAssurance: 82% Favorable Outcomes Industry: 73% 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 13: 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 14: Malpractice Made Public
Malpractice Made Public Malpractice judgments/settlements now disclosed in 26 states Disciplinary actions now disclosed in all states Board / Discipline / Med-Mal Med-Mal disclosure legislation proposed P Source: Federation of State Medical Boards National Clearinghouse and ProAssurance research
Slide 15: 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 16: Loss Trends and Rate Actions
Physician Rate Change History 1 Premium Retention History Loss Trends and Rate Actions Rates on renewing physician business down less than 14% from peak pricing in 2006 Improved frequency trends are reflected in recent rate declines Improvement in frequency has outweighed a steady, manageable rise i
Slide 17: Stringent underwriting standards
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 18: Conservative Approach to Reserves
Net Favorable Reserve Development Net Reserve per Open MPL Claim 1 Conservative Approach to Reserves No change in the historic reserving practices that have produced favorable net reserve development in each of the last eight years Conservative reserve strategy provides protection against a loss tre
Slide 19: Tort Reform Resurfaces
Tort Reform Resurfaces Federal Tort Reform has reappeared in Washington Lots of smoke, so far no fire in Washington Resurfaced during President Obama’s State of the Union Speech Multiple bills being pushed by Republicans in the House, at least on bill introduced in the Senate Democrats have offered
Slide 20: 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 More patients will ultimately require more physicians and ancillary providers Known: More custom
Slide 21: New Products for a Changing Market
New Products for a Changing Market Certitude tm program in conjunction with Ascension Health Largest Catholic healthcare system in the US 38 ministry locations in 18 states Initial offering to ~1,000 physicians insured by an Ascension affiliate Now expanding to Ascension-affiliated physicians insure
Slide 22: Financial Performance and Investments
Financial Performance and Investments
Slide 23: Components of Return on Equity
Components of Return on Equity (in millions) Steady Return in an Unfavorable Environment Meeting our long-term ROE target of 12% -14%
Slide 24: Long-Term Financial Strength Sets Us Apart
Shareholders’ Equity Total Assets 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
Slide 25: Operating Net Income, Investment Income, 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 26: Capital Growth: 2006-2010
Capital Growth: 2006-2010 in $000’s except total equity (000,000’s)
Slide 27: Capital Management
Share Repurchase History Excess Capital vs. Excess Capacity Capital Management Initial Dividend Announced September 7, 2011 $0.25/share, annualized yield 1.4% Record date: September 29, 2011 Payment date: October 13, 2011 Share Repurchase $106 million spent in 2010 to buy 1.9 million shares $315 mil
Slide 28: 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 29: Investments Balance Risk vs. Return
$4 Billion Overall Portfolio $3.6 Billion Fixed Income Portfolio Investments Balance Risk vs. Return Average duration: 4.1 years Average tax-equivalent yield: 4.7% Investment grade: 97% Weighted average: AA- 6/30/11 Key actions in Q2 Added short ABS Added Governments to mitigate concerns over spread
Slide 30: Return on Equity and Investment Returns
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 31: ProAssurance
PROASSURANCE. “Treated Faily
Slide 32: Effective, Experienced & Invested Management
Effective , Experienced & Invested Management All subject to share ownership requirements
Slide 33: Current Prices Present a Compelling Buying Opportunity
Current Prices Present a Compelling Buying Opportunity 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 insurance Producing sustainable shareholder value Finding the ri
Slide 34: Supplemental Discussion Materials
Supplemental Discussion Materials
Slide 35: 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 Fifth straight year in the Wa
Slide 36: 2011 Year-to-Date Financial Highlights
Six Months Ended June 30, 2011 2010 Gross Premiums Written $ 276,115 $ 255,699 Net Premiums Earned 269,140 248,825 Net Investment Income 72,457 74,709 Net Income (Includes Investment Losses) 102,790 78,493 Operating Income 98,642 81,844 Net Income per Diluted Share $ 3.33 $ 2.40 Operating Income per
Slide 37: 2010 Financial Highlights
December 31 2010 2009 Gross Premiums Written $ 533,205 $ 553,922 Net Premiums Earned 519,107 497,543 Net Investment Income 146,380 150,945 Net Income (Includes Investment Losses) 231,598 222,026 Operating Income 219,457 215,210 Net Income per Diluted Share $ 7.20 $ 6.70 Operating Income per Diluted
Slide 38: ProAssurance Portfolio Detail: Asset Backed
Asset Backed: $743 Million Weighted Average Rating: “AA+” Breakdown of Agency MBS Holdings Sub-Prime: $9.1 mln Market Value (AFS) $1.0 mln net unrealized loss ProAssurance Portfolio Detail: Asset Backed 6/30/11 CMBS Details Provided on Page 36
Slide 39: ProAssurance Portfolio Detail: CMBS
ProAssurance Portfolio Detail: CMBS $90.0 million Fair Value in non-agency CMBS Book Value: $86 million (2% of fixed income portfolio) We have experienced no losses on our CMBS positions. 6/30/11
Slide 40: ProAssurance Portfolio Detail: Municipals
Municipals: $1.2 Billion / Average Rating is AA ProAssurance Portfolio Detail: Municipals Investment policy has always required investment grade rating prior to applying the effect of insurance Weighted Average Rating: AA 6/30/11
Slide 41: ProAssurance Portfolio Detail: Equities & Other
Equities & Other: $189 Million ProAssurance Portfolio Detail: Equities & Other 6/30/11
Slide 42: ProAssurance Portfolio Detail: Corporate
Corporates: $1.4 Billion ProAssurance Portfolio Detail: Corporate Weighted Average Rating: A 6/30/11
Slide 43: ProAssurance Portfolio Detail: Various
Treasury / GSE: $368 Million Short Term: $129 Million BOLI: $51 Million ProAssurance Portfolio Detail: Various 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+ 6/30/11
ProAssurance — Investor Presentation (September 2011) on 6ix