Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (May 2020)
47 slides from Proassurance's investor presentation, May 19, 2020
Slide 1: Q1 2020 Investor Update
May 2020 Q1 2020 Investor Update
Slide 2: ProAssurance Overview
ProAssurance Overview May 2020
Slide 3: Mission, Vision, & Values
Mission, Vision, & Values The ProAssurance Mission We exist to Protect Others. Our Shared Vision We will be the best in the world at understanding and providing solutions for the risks our customers encounter as healers, innovators, employers, and professionals . Through an integrated family of comp
Slide 4: At a Glance
At a Glance Business Unit Principal Employees Lines of Business • Healthcare-centric specialty insurance writer Offices ◦ Specialty Property & Casualty Healthcare Professional HCPL 11 400 Liability ▪ Healthcare Professional Liability (HCPL) Corporate functions ▪ Life Sciences and Medical Device Liab
Slide 5: ProAssurance Brand Profile
ProAssurance Brand Profile Specialty P&C Workers’ Comp Healthcare Professional Liability Medical Technology & Legal Professional Liability Life Sciences Products Liability Alternative Risk Transfer ProAssurance Investor Briefing | May 2020 5
Slide 6: ProAssurance Executive Leadership
ProAssurance Executive Leadership Ned Rand - President & Chief Executive Officer Mr. Rand, who assumed this position at ProAssurance on July 1, 2019, was formerly Chief Operating Officer, and has served as Chief Financial Officer, Executive Vice President, and Senior Vice President of Finance since
Slide 7: Specialty Property & Casualty
Specialty Property & Casualty • Deep expertise and broad product spectrum in healthcare and related sciences • Consolidation in HCPL → demand for comprehensive insurance solutions • Increasing competitive advantages for companies able to achieve scope and scale • Innovative Specialty Team (transacti
Slide 8: Workers' Compensation Insurance
Workers’ Compensation Insurance Top 10 Classes of Business by Payroll Exposure (Traditional Business *) Auto Service Centers Hospitals 2% 4% Banks Physicians & 2% Dentists 10% Fast Food Disciplined individual account 2% underwriting with focus on rate Dedicated to effective adequacy in rural territo
Slide 9: Segregated Portfolio Cell Reinsurance
Segregated Portfolio Cell Reinsurance • HCPL and workers’ compensation captive insurance solutions provided through Inova Re (Cayman Islands) • SPCs are a High ROE product with significant retention • Low capital requirement by not assuming risk ProAssurance Fronting Arrangement Underwriting Claims
Slide 10: Lloyd's of London Syndicates
Lloyd’s of London Syndicates • Westernization of international healthcare professional lia�ility provides opportunities in new markets ProAssurance Investment • Lloyd’s provides universal distribution and licensures $136.2 Million * • Opportunity to invest alongside a recognized leader in Duncan Dal
Slide 11: Premiums, Policyholders & Distribution for 2020 YTD
Premiums, Policyholders & Distribution for 2020 YTD 2020 Gross Premium: $262.4 mln 2020 Policyholder Count: 76,445 * Ancillary Specialty P&C Healthcare 54% 3% ($7.3M) Specialty P&C Ancillary 82% Healthcare 8% Life Sciences & Physicians & Medical Tech Life Sciences & 2% Dentists Medical Tech ($6.2M)
Slide 12: COVID-19 and the Markets We Serve
COVID-19 and the Markets We Serve • Healthcare Professional Liability (HCPL) ◦ Primary exposures in broader markets: misdiagnoses, complications from delayed elective procedures, and failure to prevent infection in Senior Care settings . May be mitigated by growing support at state and federal level
Slide 13: Why We Will Be Successful
Why We Will Be Successful
Slide 14: Cyclicality in Insurance
Cyclicality in Insurance Availability crisis Loss Pricing outpaces losses Trends Mergers & acquisitions Catalyst Combined ratios improve Decelerate Tort reform Favorable reserve development For over forty years, ProAssurance and its predecessors have successfully navigated the peaks and valleys of t
Slide 15: Success in Evolving Markets
Success in Evolving Markets Superior brand identity and reputation in the market History of Successful M&A Nearly 20 Collaboration of Experts transactions in our Average executive 40 year history Scope & Scale leadership tenure Regional hubs “From our earliest days, of 18 years with Specialization w
Slide 16: Strategic Initiatives
Strategic Initiatives We constantly seek to be more efficient and effective as an organization Here’s how we’re doing it Selective • Re-underwriting our HCPL Specialty book of business • Securing terms and conditions appropriate for complex risks Underwriting • Strategic focus on rural territories i
Slide 17: Financial Ratings & Balance Sheet Highlights
Financial Ratings & Balance Sheet Highlights • ProAssurance is recognized for our financial strength by top rating agencies • We maintain a balance sheet that ensures unquestioned stability and security for our customers • Our conservative reserving philosophy enables success over the insurance cycl
Slide 18: ProAssurance Leverage Update
ProAssurance Leverage Update Financial Leverage Operating Leverage Ten-Year Debt to Capital Ten-Year Premiums to Equity Debt Capital Debt to Capital Net Premiums Written Equity Premiums to Equity $ in billions $ in billions $2.4 $2.4 21% 17% $1.6 20% $1.6 16% 15% 15% 0.7 9% 0.5 0.5 0.6 10% $0.8 $0.8
Slide 19: Investment Philosophy & Portfolio
Investment Philosophy & Portfolio • We maintain a conservative, highly-liquid investment philosophy • Effective stewardship of capital ensures a position of financial strength through turbulent market cycles • Named to the Ward’s 50 for thirteen consecutive years Below Investment Grade AA+ BBB- 2% o
Slide 20: ProAssurance Portfolio Detail
ProAssurance Portfolio Detail Corporate: $1.3 Billion (55% of Fixed Assets / 40% of Invested Assets) Sources of Liquidity Industrials 11% Statutory Deposits NOT LIQUID 3% Non US Sovrgn & Gov't Utilities/Energy 2% 12% BOLI SIX MONTHS Cash/Equities/Bonds Financials Basic 2% 40% Materials 84% Other 2%
Slide 21: Planned Acquisition of NORCAL Group
Planned Acquisition of NORCAL Group
Slide 22: Overview of NORCAL Group
Overview of NORCAL Group NORCAL Group Overview Select NORCAL Group Companies • Established in 1975 as a policyholder-owned • NORCAL is one of the leading providers of medical professional and physician directed medical professional insurance companies in the country with more than 32,000 liability i
Slide 23: A Stronger, Better Positioned HCPL Specialty Insurer
A Stronger, Better Positioned HCPL Specialty Insurer 1 Enhanced Scale and Capabilities • Positions company as #3 player in the industry • Enhances ProAssurance’s HCPL business: adds additional scale, capabilities and strong California presence • Ability to underwrite larger risks from integrated sys
Slide 24: NORCAL Acquisition Transaction Details
NORCAL Acquisition Transaction Details Transaction • ProAssurance will purchase all of the outstanding stock of NORCAL Group following the demutualization • $450 million in cash, expected to be funded by $200 million in debt and $250 million of excess capital¹ • Up to $150 million of additional cons
Slide 25: Combination Creates the #3 HCPL Insurer in the U.S.
1 2 Combination Creates the #3 HCPL Insurer in the U.S. Pro Forma Top Ten Market Share by DPW ($ in millions) 1 • NORCAL target market complements ProAssurance’s • Ability to attract and retain key talent existing HCPL footprint, especially in the California market • Specialized products focused on
Slide 26: Combination Creates the #3 HCPL Insurer in the U.S.
1 2 Combination Creates the #3 HCPL Insurer in the U.S. 2018 Total DPW: $830M $342M $1,172M Source: 2018 NAIC filings for all MPL lines, figures subject to rounding ProAssurance Investor Briefing | May 2020 26
Slide 27: Value Creation for Customers and Stakeholders
3 4 Value Creation for Customers and Stakeholders Protecting More Physicians Financial Benefits • Significant annual pre-tax synergies over $18mm • Combined company will serve 86k+ healthcare professionals • Synergies focused on removing redundancies and strengthening the business for go-forward str
Slide 28: Strategic Alignment and Rationale
5 Strategic Alignment and Rationale Provides a Strong, Shared Foundation In addition to the scale benefits of large HCPL players, ProAssurance and NORCAL bring complementary skills, history, and a shared vision to the combined entity to create the leading organization in the HCPL industry + • Physic
Slide 29: ProAssurance's Proven History of Successful Acquisitions
5 ProAssurance’s Proven History of Successful Acquisitions 1995 Acquisition 2005 2009 Acquisition Acquisition & 2014 Acquisition 1998 2008 Demutualization/Merger Acquisition 1996 Acquisition Forms ProNational 2012 Acquisition 2001 ProNational & Medical Assurance Merge to Form ProAssurance& OHiC 1995
Slide 30: Appendix
Appendix
Slide 31: Income Statement Highlights (3/31/20)
Income Statement Highlights (3/31/20) Three Months Ended March 31 2020 2019 Gross Premiums Written $ 262.4 $ 279.8 Net Premiums Earned $ 203.9 $ 208.1 Net Investment Result $ 19.3 $ 22.0 Net Realized Investment Gains (Losses) $ (28.7) $ 36.6 Total Revenues $ 196.7 $ 268.9 Net Losses and Loss Adjustm
Slide 32: Corporate Segment Financial Highlights
Corporate Segment Financial Highlights (3/31/20) Three Months Ended March 31 2020 2019 Net investment income $ 19.4 $ 21.4 Equity in earnings (loss) of unconsolidated subsidiaries $ (1.6) $ (0.8) Net realized investment gains (losses) $ (25.5) $ 34.3 Operating expenses $ 4.8 $ 4.6 Interest expense $
Slide 33: Specialty P&C Financial Highlights
Specialty P&C Financial Highlights (3/31/20) Three Months Ended March 31 2020 2019 Gross Premiums Written $ 155.4 $ 166.4 Net Premiums Earned $ 120.4 $ 124.1 Total Revenues $ 122.1 $ 125.3 Net Losses & Loss Adjustment Expenses $ (110.9) $ (107.7) Underwriting, Policy Acquisition & Operating Expenses
Slide 34: Workers' Compensation Insurance Financial Highlights
Workers’ Compensation Insurance Financial Highlights (3/31/20) Three Months Ended March 31 2020 2019 Gross Premiums Written $ 79.2 $ 89.4 Net Premiums Earned $ 44.5 $ 45.9 Total Revenues $ 45.3 $ 46.7 Net Losses & Loss Adjustment Expenses $ (29.8) $ (30.4) Underwriting, Policy Acquisition & Operatin
Slide 35: Segregated Portfolio Cell Reinsurance Financial Highlights
Segregated Portfolio Cell Reinsurance Financial Highlights ( 3/31/20 ) Three Months Ended March 31 2020 2019 Gross Premiums Written $ 27,140 $ 36,365 Net Premiums Earned $ 16,980 $ 19,502 Net Investment Income $ 254 $ 448 Net Realized Gains (Losses) $ (3,207) $ 2,141 Other Income (Loss) $ 136 $ 87 N
Slide 36: Lloyd's Segment Financial Highlights
Lloyd’s Segment Financial Highlights (3/31/20) Three Months Ended March 31 2020 2019 Gross Premiums Written $ 27.9 $ 23.6 Net Premiums Earned $ 22.0 $ 18.6 Total Revenues $ 23.0 $ 19.7 Net Losses & Loss Adjustment Expenses $ (14.8) $ (10.9) Underwriting, Policy Acquisition & Operating Expenses $ (9.
Slide 37: Ceded Premiums Written (3/31/20)
Ceded Premiums Written (3/31/20) Specialty P&C HCPL Workers’ Segregated including Compensation Portfolio Cell Podiatry (2) Products Lawyers Insurance (1) Reinsurance Lloyd’s (3) 3/31/20 3/31/19 3/31/20 3/31/19 3/31/20 3/31/19 3/31/20 3/31/19 3/31/20 3/31/19 3/31/20 3/31/19 Gross premiums written $ 1
Slide 38: Investment Strategy and 2020 Outlook
Investment Strategy and 2020 Outlook • Effective stewardship of capital ensures a position of financial strength through turbulent market cycles • Optimizing our allocations for better risk-adjusted returns ◦ Ensures non-correlation of returns • Duration management remains paramount ◦ We will not ex
Slide 39: YTD 2020 Net Investment Result
YTD 2020 Net Investment Result 3/31/2020 3/31/2019 Change Net Investment Income $ in thousands Fixed maturities $ 18,285 $ 17,517 $ 768 Equities 1,909 4,823 (2,914) Short-term investments including Other 1,472 1,835 (363) BOLI 456 453 3 Investment fees and expenses (1,292) (1,810) 518 Net investment
Slide 40: ProAssurance Recent Investment Performance
ProAssurance Recent Investment Performance ProAssurance Investor Briefing | May 2020 40
Slide 41: ProAssurance Portfolio Detail: Asset Backed
ProAssurance Portfolio Detail: Asset Backed Asset-Backed Securities: $560 Million (25% of Fixed Income / 17% of Invested Assets) 3/31/20 Subject to rounding Weighted Average Rating: “AAA” ProAssurance Investor Briefing | May 2020 41
Slide 42: ProAssurance Portfolio Detail: Fixed-Trading
ProAssurance Portfolio Detail: Fixed-Trading Fixed Maturities: $48 Million (2% of Fixed Income / 1% of Invested Assets) All Fixed Trading Securities are owned by Lloyd’s Syndicate 1729 3/31/20 Subject to rounding Weighted Average Rating: “AA” ProAssurance Investor Briefing | May 2020 42
Slide 43: ProAssurance Portfolio Detail: Municipals
ProAssurance Portfolio Detail: Municipals Municipals: $292 Million Top 10 Municipal Holdings (13% of Fixed Income / 9% Invested Assets) in millions New York, NY $10 New York St Urban Development Corp $9 Connecticut St Housing Fin Authority $9 Houston TX Utility Sys Revenue $8 Oregon State $7 Utah St
Slide 44: ProAssurance Portfolio: Equities & Other
ProAssurance Portfolio: Equities & Other Equities & Other: $498 Million (15% of Invested Assets) 3/31/20 Subject to Rounding ProAssurance Investor Briefing | May 2020 44
Slide 45: Combined Tax Credits Portfolio Detail & Projections
Combined Tax Credits Portfolio Detail & Projections GAAP Income/(Loss) Capital from Operations, Tax Provision Impact on Year Contributions Disposition Total Credits after Impairment Earnings & Impairment 2020 $ 150,596 (21,120,408) (18,537,352) (22,972,638) 1,852,230 2021 $ 136,251 (20,769,996) (17,
Slide 46: Change in Capital: 2010 - Q1 2020
Change in Capital: 2010 ‒ Q1 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Beginning $1,424 $1,705 $1,856 $2,164 $2,271 $2,394 $2,158 $1,958 $1,799 $1,595 $1,512 Equity* Cumulative-effect adjustments — — — — — — — — 149 8,334 (4,076) Employee Stock Transactions 7,205 6,147 6,167 7,780
Slide 47: Important Safe Harbor & Non-GAAP Notices
IMPORTANT SAFE HARBOR & NON-GAAP NOTICES Forward Looking Statements Non-GAAP Measures This presentation contains Forward Looking This presentation contains Non-GAAP Statements and other information designed measures, and we may reference Non-GAAP to convey our projections and expectations measures i