Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (August 2019)
107 slides from Proassurance's investor presentation, Aug 26, 2019
Slide 1: Q3 2019 Investor Update
August 2019 Q3 2019 Investor Update
Slide 2: Table of Contents
Table of Contents The Latest News Investments Investment Strategy Q1 2019 Net Investment Result PRA Performance vs. Benchmark Detailed Breakout of Investments Tax Credits Key Themes & Topics (w/ Capital Management) Management Changes Corporate Update / Overview Capital Management (Expanded) Operatin
Slide 3: Topics of Importance and Key Themes
Topics of Importance and Key Themes August 2019
Slide 4: Key Update: Positives in Q2 2019
Key Update: Positives in Q2 2019 Consistent Top Line Revenue Gross Premiums Written of $221.3 million Excluding the 2018 Loss Portfolio Transfer (refer to the next slide for details) and 24 month policy renewal cycle, flat Q-o-Q. Renewal Pricing Momentum Continues in Specialty P&C Despite Competitio
Slide 5: Key Update: One-Time Events Affecting Quarter over Quarter Comparability
Key Update: One-Time Events Affecting Quarter over Quarter Comparability $10 Million Reserve on an Errors & Omissions (“E&O”) Policy Segregated Portfolio Cell, assumed by Eastern Re ProAssurance has no ownership or participation interest in the cell Reserve increased net losses and loss adjustment e
Slide 6: Key Update: Responding to Perceived Severity Trends
Key Update: Responding to Perceived Severity Trends Net Favorable Development of $16.0 million Down from $22.8 million in 2018 (-29.8% Q-o-Q) Reserve development continues to be affected by perceived worsening loss trends in the broader medical professional liability industry Operating Profit for th
Slide 7: Key Update: Confronting the Challenges Ahead
Key Update: Confronting the Challenges Ahead Continued review of our Lloyd’s Investment Increase profitability Reduce volatility Assess our degree of exposure for 2020 Profitable growth Increasing market discipline allows us to add new HCPL business at higher rates Specialization in profitable marke
Slide 8: Key Update: The Current State of the Markets We Serve
Key Update: The Current State of the Markets We Serve Healthcare Professional Liability Signs of increasing severity and greater scrutiny from regulators and rating agencies should bring rationality back to the market • Likely to provide new growth opportunities as weakness among smaller, less capab
Slide 9: Key Themes
Key Themes Consistent & disciplined focus on profitability Firm commitment to disciplined underwriting Demonstrated track record of value creation for shareholders Long Term Success World class knowledge & expertise Superior brand identity and reputation in the market Broad range of coverages addres
Slide 10: Management Changes
Management Changes August 2019
Slide 11: Changes in Leadership
Changes in Leadership* Ned Rand became CEO effective July 1, 2019 Stan Starnes became Executive Chairman of the Board Mike Boguski became President of ProAssurance Specialty P&C Includes all professional and product liability operations Kevin Shook became President of Eastern Alliance Howard Friedma
Slide 12: Corporate Update August 2019
Corporate Update August 2019
Slide 13: ProAssurance Corporate Profile
ProAssurance Corporate Profile Healthcare-centric specialty insurance writer Healthcare Professional Liability (HCPL) • Largest public company writing predominantly HCPL Life sciences and medical device liability Legal professional liability Workers' compensation Market Cap: $2.1 billion Shareholder
Slide 14: Premiums, Policyholders & Distribution for 2019
Premiums, Policyholders & Distribution for 2019 Ancillary 2% Specialty P&C 82% Ancillary Healthcare 8% Life Sciences 3% Life Sciences & Medical Tech 2% Physicians & Dentists 38% Hospitals & Facilities 7% Physicians & Dentists 57% Hospitals & Facilities 2% Attorneys 3% Attorneys 14% Lloyd's 9% Worker
Slide 15: ProAssurance Brand Profile
ProAssurance Brand Profile Liability ProAssurance Investor Briefing | August 2019 14 Legal Professional Medical Technology & Life Sciences Products Liability Alternative Risk Transfer Healthcare Professional Liability Workers’ Comp Specialty P&C
Slide 16: Additional Capital Management Discussion Points
Additional Capital Management Discussion Points August 2019
Slide 17: Superb Track Record of Capital Management
Superb Track Record of Capital Management Successfully expanded PRA to meet new challenges of an evolving insurance market $2.0 billion returned to shareholders through share repurchase and dividends since 2009* Share repurchase balances share price vs. book value/share $110 mln authorized for buyba
Slide 18: Capital and Liquidity Decisions
Capital and Liquidity Decisions for operating expenses for organic growth and quarterly dividends Share repurchase at prices with a reasonable payback period Options for deploying remaining capital Recurring regular dividend Decreasing tax efficiency ProAssurance Investor Briefing | August 2019 17 S
Slide 19: Dividends and Capital Management
Dividends and Capital Management Balancing our proven dedication to effective capital management with the desire to retain capital to pursue business emerge opportunities and potential transactions that may ProAssurance Investor Briefing | August 2019 18 Special dividend of $0.50/share paid on Janua
Slide 20: Key Source of Capital: Subsidiary Dividends to Corporate
Key Source of Capital: Subsidiary Dividends to Corporate Subsidiary dividends are our primary source of liquidity Subsidiary capital requirements play a major role Ordinary $360 Extraordinary YTD 2019* 2018 2017 2016 2015 2014 *As of 7/31/19 ProAssurance Investor Briefing | August 2019 19 Extraordin
Slide 21: Capital Management Priorities
Capital Management Priorities ProAssurance Investor Briefing | August 2019 20 Conceptual Model of Projected A. M. Best BCAR Scores if “A+” Rating Threshold Increase Premium Reduce Surplus Excess Capital vs. Excess Capacity The manner in which capital is used has an effect on financial ratings
Slide 22: Change in Capital: 2009 - Q2 2019
Change in Capital: 2009 - Q2 2019 * Equity shown in millions; all other data shown in thousands ProAssurance Investor Briefing | August 2019 21 2009201020112012201320142015201620172018Q2 2019 Beginning Equity*$1,424 $1,705 $1,856 $2,164 $2,271 $2,394 $2,158 $1,958 $1,799 $ 1,595 $ 1,523 Cumulative-e
Slide 23: Financial / Operating Performance
Financial / Operating Performance August 2019
Slide 24: Income Statement Highlights (6/30/19)
Income Statement Highlights (6/30/19) In millions, except per share data ProAssurance Investor Briefing | August 2019 23 Three Months Ended Six Months Ended June 30 2019 2018 2019 2018 Gross Premiums Written $ 221.3 $ 242.9 $ 501.2 $ 485.9 Net Premiums Earned $ 209.1 $ 223.6 $ 417.3 $ 410.8 Net Inve
Slide 25: Corporate Segment Financial Highlights (6/30/19)
Corporate Segment Financial Highlights (6/30/19) In millions ProAssurance Investor Briefing | August 2019 24 Three Months Ended Six Months Ended June 30 2019 2018 2019 2018 Net investment income $ 22.0 $ 21.2 $ 43.3 $ 42.1 Equity in earnings (loss) of unconsolidated subsidiaries $ (5.2) $ 5.4 $ (6.0
Slide 26: Operational Results / Long-Term Profitability
Operational Results / Long-Term Profitability Combined ratio average 2009 – Q2 2019: 80.6% Operating ratio average 2009 – Q2 2019: 61.1% Combined Ratio Operating Ratio 108.3% 97.2% .3% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q2 2019 ProAssurance Investor Briefing | August 2019 25 101.5% 95
Slide 27: Disciplined Approach to Reserves
Disciplined Approach to Reserves Recognizing loss trends as they appear No change in reserving philosophy or process $326 $272 $223 $182 $161 $144 $134 $92* $26 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 HCPL Predominating 2004 — Q2 2019 $ in millions *Subject to
Slide 28: Inside ProAssurance's Income Statement (6/30/19)
Inside ProAssurance’s Income Statement (6/30/19) Provision for Income Taxes 1.3% Loss Adjustment Other -0.2% Revenues: $508.5 mln Expenses: $458.6 mln Tax Expense: $6.7 mln Net Income: $43.2 mln Subject to Rounding ProAssurance Investor Briefing | August 2019 27 Net Income 8.5% Net Investment Income
Slide 29: Ceded Premiums Written (6/30/19)
Ceded Premiums Written (6/30/19) Ceded Premium Components Subject to rounding (1) All other reinsurance arrangements primarily represent alternative market business ceded under a 100% quota share reinsurance agreement, net of a ceding commission, to SPCs in our Segregated Portfolio Cell Reinsurance
Slide 30: Balance Sheet Highlights 2014 – Q2 2019
Balance Sheet Highlights 2014 – Q2 2019 $1.5 bln Returned to Shareholders Through Dividends and Share Repurchase Shareholders’ Equity: 25% Increase (2007 – Q2 2019) $2.39 $2.27 $2.16 $2.16 $1.96 $1.86 $1.80 $1.70 $1.59 $1.58 $1.52 $1.42 $1.26 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20
Slide 31: Inside ProAssurance's Balance Sheet (6/30/2019)
Inside ProAssurance’s Balance Sheet (6/30/2019) 14.6% Assets: $4.8 bln Liabilities: $3.2 bln Equity: $1.6 bln Subject to Rounding ProAssurance Investor Briefing | August 2019 30 Other Assets 5.1% Retained Earnings 33.0% Goodwill & Intangible Assets 5.9% Insurance Receivables Cash & Investments 74.4%
Slide 32: Shareholder Return & ROE
Shareholder Return & ROE August 2019
Slide 33: Book Value per Share History to June 30, 2019
Book Value per Share History to June 30, 2019 2016 and 2017 each includes a $4.69/share special dividend $26.30 declared in Q4 2011 $6.96 $4.28 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 ProAssurance Investor Briefing | August 2019 32 $47.41 2018 includes
Slide 34: ProAssurance Leverage Update
ProAssurance Leverage Update Debt Capital Debt to Capital Net Premiums Written Equity Premiums to Equity $ in billions $ in billions $2.4 $2.4 $1.6 $1.6 0.5 0.5 $0.8 $0.8 9% $-$- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD* $2
Slide 35: Return on Equity & Future Goals
Return on Equity & Future Goals ROE target is seven points above the ten-year Treasury rate (risk-free rate) Ten year treasury rate was 1.9% at 8/1/19*, implying a revised ROE Target of approximately 8.9% Prior long-term return target of 12%-14% is unrealistic in the current interest rate environmen
Slide 36: Total Return & Stock Price
Total Return & Stock Price Total Return 3270% Return Since Inception (Sep 1991) 2437% 12% Ten Year (7/31/09 – 7/31/19) 152% 10% Five Year (7/31/14 – 7/31/19) 31% 6% YTD 2019 0.2% 160% 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Stock Price $57.15 $57.05 Sin
Slide 37: Segment Highlights: Specialty P&C
Segment Highlights Specialty P&C, August 2019
Slide 38: Specialty P&C Financial Highlights (6/30/19)
Specialty P&C Financial Highlights (6/30/19) In millions, except ratios ProAssurance Investor Briefing | August 2019 37 Current Accident Year Net Loss Ratio 94.0% 91.8% 93.6% 91.2% Effect of Prior Accident Year Reserve Development (9.9%) (14.1%) (8.2%) (15.7%) Net Loss Ratio 84.1% 77.7% 85.4% 75.5%
Slide 39: Specialty P&C Financial Highlights – Adjusted (6/30/19)
Specialty P&C Financial Highlights – Adjusted (6/30/19) In millions, except ratios *Excludes the effect of the Q2 2018 Loss Portfolio Transfer, which added $26.6 million in one-time premium written and fully earned, and was booked at a 95% loss ratio ProAssurance Investor Briefing | August 2019 38 C
Slide 40: Q2 2019 Specialty P&C Gross Written Premium
Q2 2019 Specialty P&C Gross Written Premium $ in millions Q2 2018 Q2 2019 Physician 12-mo Physician 24-mo $83.4 $14.1 $14.1 $80.5 $4.6 $7.3 $6.7 $6.7 $6.8 Healthcare facilities Other healthcare providers Legal professionals Tail & other professional liability Medical Technology Q2 2018 Q2 2019 Total
Slide 41: YTD 2019 Specialty P&C Gross Written Premium
YTD 2019 Specialty P&C Gross Written Premium $ in millions 2018 2019 Physician 12-mo Physician 24-mo $197.8 $36.3 $200 $12.8 $150 $16.0 $14.8 $100 $14.5 $50 $0 Healthcare facilities Other healthcare providers Legal professionals Tail & other professional liability Medical Technology Q2 2018 Q2 2019
Slide 42: Strong Retention Despite Competition
Strong Retention Despite Competition Retention gains are holding Continued underwriting vigilance is being used today to ensure future success o o Market share is important, but NOT as important as profitability We emphasize adequate pricing over retention Premium Retention – Physicians 91% 90% 90%
Slide 43: Physician Liability Pricing Trend
Physician Liability Pricing Trend Accelerating changes on renewed business 110% 70% 30% -10% 2019 PICA excluded to facilitate accurate comparisons over time | June 30, 2019 ProAssurance Investor Briefing | August 2019 42 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Slide 44: Key Area Rate Comparison
Key Area Rate Comparison $375,000 Annual Premium for a $1M / $3M Policy Filed or Approved at 6/30/19 ProAssurance Investor Briefing | August 2019 43 $350,000 $325,000 $300,000 $275,000 $250,000 $225,000 $200,000 $175,000 $150,000 $125,000 $100,000 $75,000 $50,000 $25,000 $0 Birmingham Indianapolis D
Slide 45: The Bottom Line Benefits of Strong Defense
The Bottom Line Benefits of Strong Defense Five-Year Average Loss Ratio (2013-2017) 66.7% 71.6% On average, 18 points better than the industry Adjustment Expenses Premium 2013 2014 2015 2016 2017 PRA Industry Source: 2013-2017, Statutory Basis, A.M. Best Aggregates & Averages ProAssurance Investor B
Slide 46: ProAssurance Outperforms in Insurance Overall
ProAssurance Outperforms in Insurance Overall P&C Overall HCPL PRA - MPL Only PRA - All Lines 106.5% 103.8% 101.4% 99.2% 100.6% 80.0% 76.6% 1991-2017 10-Year 2008-2017 5-Year 2013-2017 Source: A.M. Best Aggregates and Averages for Each Line of Business (1991-2017) ProAssurance Investor Briefing | Au
Slide 47: ProAssurance Outperforms in HCPL
ProAssurance Outperforms in HCPL 2017 ProAssurance HCPL HCPL P&C 160% 140% 120% 93.9% 100% 80% -2017 101.9% 60% 40% 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 PRA HCPL Source: 1991-2016 A.M. Best Aggregates and Averages, Medical Malpractice Lines of Business. Po
Slide 48: Segment Strategic Review: Specialty P&C
Segment Strategic Review Specialty P&C, August 2019
Slide 49: New Market Conditions Emerging
New Market Conditions Emerging Greater uncertainty in the market creates an environment where ProAssurance outperforms long-term due to superior financial strength and operational expertise Perceived trends have led a handful of commercial carriers to exit all or part of their healthcare professiona
Slide 50: Driving Forces Behind Severity Trends: Before a Lawsuit
Driving Forces Behind Severity Trends: Before a Lawsuit Healthcare Advances Longer life expectancies More expensive and complex procedures increased risk of complications High Deductible Health Plans Patients pay more out of pocket Higher expectations lower tolerance for unexpected outcomes Increasi
Slide 51: Driving Forces Behind Severity Trends: After a Lawsuit
Driving Forces Behind Severity Trends: After a Lawsuit Jury Sentiment Angry with perceived social inequality (“Haves” vs. “Have-Nots”) Increasingly interested in Compensation over Causation Institutional defendants rather than an individual Value of a dollar is distorted by high-earning public figur
Slide 52: Large Verdicts at Record Highs in 2018
Large Verdicts at Record Highs in 2018 Unmistakable trend to higher severity evident in the broader industry Not evident in ProAssurance paid losses Prompting greater conservatism in ProAssurance reserves on larger risks where deeper pockets may have been created by consolidation Greater conservatis
Slide 53: Large Verdicts at Record Highs in 2018
Large Verdicts at Record Highs in 2018 Largest (10th/25th/50th) Verdicts, 2001-2018 50 45 40 35 30 25 10th 25th 50th 20 15 10 5 0 02 04 06 08 10 Year 12 14 16 18 Data Source: TransRe ProAssurance Investor Briefing | August 2019 52 $ Millions
Slide 54: How Healthcare Costs Will Force Changes in Our Market
How Healthcare Costs Will Force Changes in Our Market The question is cost vs. care—we can deliver more care than we can afford Healthcare Cost control remains the real driver of change in the delivery of care Care being pushed down to lower cost providers Current spending levels are unsustainable T
Slide 55: We Are Approaching a Tipping Point
We Are Approaching a Tipping Point $50,500 ProAssurance Investor Briefing | August 2019 54 4.9% Per U.S. Office of Actuary $25,800 $9,200 2002 2016 2030 Median Compensation (Wages + Health Benefits) $68,600 $105,800 $149,000 Health Spending as a Percentage of Compensation13.4% 24.4% 33.9% Average An
Slide 56: How Healthcare Costs Will Force Changes in Our Market
How Healthcare Costs Will Force Changes in Our Market Greater reliance on a value-based payment system Providers shouldering more of the risk of costs • Drives the need for efficiency in order to optimize limited resources Changing models of reimbursement Greater reliance on technology Increasing fo
Slide 57: Strategy Update: Traditional Practices are Fading
Strategy Update: Traditional Practices are Fading More physicians than ever are employees The fork in the road for traditional HCPL companies The HCPL Industry Traditional practices are fading Excess capital is being used to try to maintain market share at the expense of a sustainable future Capital
Slide 58: ProAssurance is Positioned to Succeed in HCPL
ProAssurance is Positioned to Succeed in HCPL Healthcare Team are driving PRA history (Q2 2016) through Lloyd’s syndicates ProAssurance Investor Briefing | August 2019 57 ProAssurance Responds with Strategies & Solutions Broker outreach and National higher submissions. Chosen by a large multi-state
Slide 59: ProAssurance is Positioned to Succeed in HCPL
ProAssurance is Positioned to Succeed in HCPL ProAssurance has the right combination of geographic scope, broad experience, and financial strength for success in the new world of healthcare liability Berkshire Hathaway (Specialty MPL Carriers Only) $1.27B Surplus billions $4.9B Bubble Size = 2017 Di
Slide 60: ProAssurance is Positioned to Succeed in HCPL
ProAssurance is Positioned to Succeed in HCPL Our long-term focus on financial strength and protecting the integrity of our balance sheet is central to our overall strategy and success ProAssurance has always evolved ahead of the curve We have proven our ability to thrive across insurance cycles We
Slide 61: Strategy Update: Successes in the Evolving Market
Strategy Update: Successes in the Evolving Market The Certitudetm program in partnership with Ascension Health Shared risk through quota share participation by Ascension’s captive on first $1M 2,382 insured physicians ~$10.3 mln Certitude direct premium in Q2 2019 • $17.0 mln for the through the fir
Slide 62: Addressing a Wide Spectrum of Risk Appetites
Addressing a Wide Spectrum of Risk Appetites workers’ compensation customers insurance programs programs ProAssurance Investor Briefing | August 2019 61 Coordinated sales & marketing efforts target insureds in these classes for additional products and services Alternative Risk Captive insurance prog
Slide 63: Leveraging Existing Expertise in New Ways
Leveraging Existing Expertise in New Ways continuum development efforts are a natural fit Segregated Portfolio Cell Reinsurance Allows any organization to control their own risk High ROE product with significant retention ProAssurance Mid-Continent Underwriters Focuses on ancillary healthcare market
Slide 64: Segment Highlights: Workers' Compensation
Segment Highlights Workers’ Compensation, August 2019
Slide 65: Workers' Compensation Insurance Financial Highlights (6/30/19)
Workers’ Compensation Insurance Financial Highlights (6/30/19) In millions, except ratios ProAssurance Investor Briefing | August 2019 64 Current Accident Year Net Loss Ratio 68.2% 67.0% 68.2% 66.5% Effect of Prior Accident Year Reserve Development (2.4%) (2.2%) (2.2%) (1.5%) Net Loss Ratio 65.8% 64
Slide 66: Broad Workers' Compensation Product Spectrum
Broad Workers’ Compensation Product Spectrum Traditional Markets Guaranteed Cost Policies Loss-Sensitive Dividend Plans Deductible Plans Retrospective Rating Plans ParallelPay–“Pay as you Go” Eastern Specialty Risk (high hazard) TPA Services o Claims Administration and Risk Management Guaranteed 77.
Slide 67: Workers' Compensation Business Profile & Overview
Workers’ Compensation Business Profile & Overview Eastern Alliance Insurance Group Best-in-Class Claims, Risk Management and Underwriting Business Model Broad Product Spectrum 43 State/DC Licenses – Core Operations in 19 States Select Agency Partnerships 387 Contracts / 942 Locations Offices License
Slide 68: Opportunities in Workers' Compensation
Opportunities in Workers’ Compensation $6.6 million in new business written in Q2 2019 Traditional: $5.4 million Alternative Market: $1.2 million Launched Eastern Specialty Risk in 2017 High Hazard product offering • Construction, Forestry, and Transportation markets $3.4 million written in YTD 2019
Slide 69: Diversified Book of Business – Traditional Markets
Diversified Book of Business – Traditional Markets Wide diversification by class code and market segment 11,152 active policies in Traditional Programs • Over 600 class codes actively written Traditional Business Auto Service Centers 2% Hospitals 4% Physicians tists % Banks 2% Fast Food 2% Restauran
Slide 70: Significant Healthcare Profile – Traditional Markets
Significant Healthcare Profile – Traditional Markets Healthcare as a Percentage of Traditional Workers’ Compensation Writings Gross Premiums Written YTD at 6/30/19 Healthcare Premiums Non-Healthcare 80% Healthcare 20% $ = DPW in millions 2019 2018 YTD 2019 Healthcare premiums flat vs. YTD 2018 ProAs
Slide 71: Consistent Profitability in Workers' Comp
Consistent Profitability in Workers' Comp GAAP GAAP (excluding fair value adjustments, intangible asset amortization, transaction-related and other one-time charges) 95.9% 96.0% 95.5% 96.9% 96.5% 96.0% 93.6% 93.1% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD '19 *2018 and 201
Slide 72: Eastern Outperforms in Workers' Compensation
Eastern Outperforms in Workers’ Compensation 106.1% Eastern Industry P&C 90.1% 125% 115% Eastern WC 105% 104.4% 95% 90.7% 85% Eastern WC 75% 97.4% 92.5% 65% 55% 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Eastern WC Source: 1996-2017 A.M. Best Aggregates and Averages, Workers’
Slide 73: Workers' Comp Claim Closing Pattern: Traditional
Workers’ Comp Claim Closing Pattern: Traditional Eastern’s proactive claim-closing strategies are key to being recognized as a short-tail writer of workers’ compensation No claims open from 2004 and earlier 49 net claims open from 2014 and prior 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 Clos
Slide 74: Segment Strategic Review: Workers' Compensation
Segment Strategic Review Workers’ Compensation, August 2019
Slide 75: Strategy Update: How Eastern Differentiates
Strategy Update: How Eastern Differentiates to wellness ProAssurance Investor Briefing | August 2019 74 Dedicated to effective claims management and returning injured workers Disciplined individual account underwriting with focus on rate adequacy in rural territories Understands market dynamics and
Slide 76: Eastern Specialty Risk: Higher Risk But NOT High Risk
Eastern Specialty Risk: Higher Risk But NOT High Risk Business Overview Focusing on the next level of risk: higher hazard but not typical “high hazard” • Some classes previous written by Eastern in High Modification programs • $1.9 million in direct premiums in Q2 2019, $3.4 YTD 2019 • $8.2 million
Slide 77: Segment Highlights: Segregated Portfolio Cell Reinsurance
Segment Highlights Segregated Portfolio Cell Reinsurance, August 2019
Slide 78: Segregated Portfolio Cell Program Structure
Segregated Portfolio Cell Program Structure Fronting Arrangement Underwriting Claims Administration Risk Management Reinsurance Tax Audit Asset Management Individually-capitalized cells (companies) exist within the Inova Re structure. Services Agency group or Association establishes/funds a Cell Ass
Slide 79: Segregated Portfolio Cell Reinsurance Financial Highlights (6/30/19)
Segregated Portfolio Cell Reinsurance Financial Highlights (6/30/19) In millions, except ratios ProAssurance Investor Briefing | August 2019 78 Current Accident Year Net Loss Ratio 115.2% 66.1% 90.8% 66.7% Effect of Prior Accident Year Reserve Development (11.6%) (16.5%) (11.6%) (12.8%) Net Loss Rat
Slide 80: Segregated Portfolio Cell Reinsurance Financial Highlights - Adjusted
Segregated Portfolio Cell Reinsurance Financial Highlights - Adjusted (6/30/19) In millions, except ratios †Excludes the effect of a $10 million loss reserve established for the errors & omissions policy in which we do not participate or have ownership ProAssurance Investor Briefing | August 2019 79
Slide 81: Workers' Compensation Insurance – Alternative Market Written Premium Trends
Workers’ Compensation Insurance – Alternative Market Written Premium Trends 20 year track record of growth and profitability $15.8 million in alternative markets GWP 2018 GPW = $85.1 million during Q2 2019 $84,422 Year-over-year decline of (0.8%) $75,915 $50,306 1999 2000 2001 2002 2003 2004 2005 20
Slide 82: Diversified Book of Business - Segregated Portfolio Cell Programs
Diversified Book of Business - Segregated Portfolio Cell Programs Wide diversification by class code and market segment 2,589 active policies in Segregated Portfolio Cell Market programs • Over 400 actively written class codes in Segregated Portfolio Cell programs Alternative Markets Business Restau
Slide 83: Significant Healthcare Profile – Segregated Portfolio Cell Programs
Significant Healthcare Profile – Segregated Portfolio Cell Programs Healthcare as a Percentage of SPCR Workers’ Compensation Writings Direct Written Premium YTD at 6/30/19 Healthcare Premiums Healthcare 38% $ = DPW in millions Non-Healthcare 62% 2019 2018 YTD 2019 Healthcare premiums grew 13.4% vs.
Slide 84: Claim Closing Pattern – Segregated Portfolio Cell Programs
Claim Closing Pattern – Segregated Portfolio Cell Programs Eastern’s proactive claim-closing strategies are key to being recognized as a short-tail writer of workers’ compensation No claims open from 2009 and earlier 24 net claims open from 2015 and prior 2018 2017 2016 2015 2014 2013 2012 2011 2010
Slide 85: Segment Strategic Review: Segregated Portfolio Cell Reinsurance
Segment Strategic Review Segregated Portfolio Cell Reinsurance, August 2019
Slide 86: Strategy Update: How The SPC Segment Differentiates
Strategy Update: How The SPC Segment Differentiates ProAssurance Investor Briefing | August 2019 85 Successfully driving new business opportunities for healthcare professional liability business Segregated cell company based in Cayman Strategic partnerships with select independent agencies that shar
Slide 87: How Segregated Portfolio Cells Benefit ProAssurance
How Segregated Portfolio Cells Benefit ProAssurance Alternative market solutions are in high demand Fast growing sector of the Property and Casualty marketplace Segregated Portfolio Cells are a high ROE product with significant retention Low capital requirement by not assuming risk Fee-based revenue
Slide 88: How Segregated Portfolio Cells Benefit Insureds
How Segregated Portfolio Cells Benefit Insureds Highly Stable Rated Paper Off-Shore Facility Segregated portfolio cells statutorily protected from each other “Turn-key” Operation Provides simple and easy transition from start to finish Minimal start-up capitalization Flexible ownership Monthly and A
Slide 89: Advantages of the Cayman Islands Domicile
Advantages of the Cayman Islands Domicile Second largest captive domicile in the world Largest healthcare captive domicile in the world 90% of business from North America Healthcare captives represent 33.2% of all captives Medical professional liability is the largest primary line followed by worker
Slide 90: Segment Highlights: Lloyd's of London
Segment Highlights Lloyd’s of London, August 2019
Slide 91: Lloyd's Segment Financial Highlights (6/30/19)
Lloyd’s Segment Financial Highlights (6/30/19) In millions, except ratios ProAssurance Investor Briefing | August 2019 90 Current Accident Year Net Loss Ratio 69.7% 64.2% 61.8% 66.9% Effect of Prior Accident Year Reserve Development (1.3%) 7.3% 1.5% 3.2% Net Loss Ratio 68.4% 71.5% 63.3% 70.1% Underw
Slide 92: Business Detail YTD Lloyd's Syndicates
Business Detail YTD* Lloyd’s Syndicates Syndicate 1729 2019 maximum underwriting capacity: $162.5 million ProAssurance’s 61%† share is $99 million Syndicate 6131 2019 underwriting capacity: $15 million ProAssurance is the 100% capital provider General Liability (US) 9% Catastrophe Reinsurance - XS o
Slide 93: Segment Investment Thesis & Strategic Review: Lloyd's of London
Segment Investment Thesis & Strategic Review Lloyd’s of London, August 2019
Slide 94: Why Lloyd's? Our Investment Thesis
Why Lloyd’s? Our Investment Thesis Westernization of international healthcare professional liability Many countries are moving towards a contingency fee tort system ProAssurance’s expertise is adaptable Universal distribution & licensure Particularly appealing to Medmarc with Medical Technology & Li
Slide 95: The Future of Our Lloyd's Investment
The Future of Our Lloyd’s Investment Review of strategic options is ongoing The Syndicate is developing its proposed business plan for 2020 Will then allow for completion of a more fulsome review of future options • Improve profitability • Assess capital use and degree of participation Operational g
Slide 96: Investment Strategy & Detailed Holdings
Investment Strategy & Detailed Holdings August 2019
Slide 97: Investment Strategy and 2019 Outlook
Investment Strategy and 2019 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 extend durat
Slide 98: YTD 2019 Net Investment Result
YTD 2019 Net Investment Result $ in thousands Net Investment Income 32,832 9,813 3,116 912 (3,336) 32,206 9,865 2,519 904 (3,399) 626 (52) 597 8 63 Fixed maturities Equities Short-term investments including Other BOLI Investment fees and expenses $ $ $ Net investment income $ 43,337 $ 42,095 $ 1,242
Slide 99: ProAssurance Recent Investment Performance
ProAssurance Recent Investment Performance PRA Performance Over Benchmark 5% 3% 1% 2019 2018 2017 Benchmark 2016 2015 PRA As of June 30, 2019. Management reporting item which is ‘tax equivalent,’ unaudited, and non GIPS, may not equal 100% due to rounding ProAssurance Investor Briefing | August 2019
Slide 100: ProAssurance Investment Profile
ProAssurance Investment Profile Short Term (excluding cash) 9% Fixed Income 65% Fixed-Trading 2% Equities & Equity Substitutes 24% Corporate 59% Asset Back 20% d BOLI 2% State & Muni 12% MONTHS (Negotiated) LPs (Secondary Liquidity) 8% Govt & Agency 7% 30-90 DAYS HFs/Privates 3% DAILY Cash Equities
Slide 101: ProAssurance Portfolio Detail: Corporate
ProAssurance Portfolio Detail: Corporate (58% of Fixed Assets / 38% of Invested Assets) Industrials 9% Utilities/Energy 11% Non US Sovrgn & Gov't 3% Basic Materials 2% Financials 41% Other 4% Technology 4% Communications 6% Consumer Oriented 20 Weighted Average Rating: A-6/30/19 ProAssurance Investo
Slide 102: ProAssurance Portfolio Detail: Asset Backed
ProAssurance Portfolio Detail: Asset Backed Credi Card 10% CLOs 5% Other 10% Auto 21% CMBS 14% Student Loans 2% Weighted Average Rating: “AAA” 6/30/19 ProAssurance Investor Briefing | August 2019 101 $493 Million (22% of Fixed Income / 14% of Invested Assets)
Slide 103: ProAssurance Portfolio Detail: Fixed-Trading
ProAssurance Portfolio Detail: Fixed-Trading ABS & Other 2% Utilities/Energy 3% Technology 2% Industrial 4% Consumer Oriented 15% All Fixed Trading Securities are owned by Lloyd’s Syndicate 1729 Government 42% Financial 32% 6/30/19 Weighted Average Rating: “AA” ProAssurance Investor Briefing | Augus
Slide 104: ProAssurance Portfolio Detail: Municipals
ProAssurance Portfolio Detail: Municipals Weighted Average Rating: AA 6/30/19 ProAssurance Investor Briefing | August 2019 103 Municipals: $290 Million (12% of Fixed Income / 8% Invested Assets) Top 10 Municipal Holdings in millions New York, NY $10 NY St Urban Dev $10 CT St Hsg Fin $7 OR St $7 UT S
Slide 105: ProAssurance Portfolio: Equities & Other
ProAssurance Portfolio: Equities & Other Hedge Funds 10% Private Equity 14% BDC Stocks 3% Common Equities 21% Private Credit/Structured Credit 9% Real Estate LP 6% MLPs 3% B Tax Credits 8% Convertible Bonds 4% Inflation Focused Bond Fund 6% 6/30/19 Subject to Rounding ProAssurance Investor Briefing
Slide 106: Combined Tax Credits Portfolio Detail & Projections
Combined Tax Credits Portfolio Detail & Projections Contributions Disposition after Impairment Earnings ProAssurance Investor Briefing | August 2019 105 GAAP Income/(Loss) Year Capitalfrom Operations,Total CreditsTax Provision Impact on & Impairment 2019 $ 150,596(21,120,408) (18,537,352) (22,972,63
Slide 107: Important Safe Harbor & Non-GAAP Notices
IMPORTANT SAFE HARBOR & NON-GAAP NOTICES ProAssurance Investor Briefing | August 2019 106 Non-GAAP Measures This presentation contains Non-GAAP measures, and we may reference Non-GAAP measures in our remarks and discussions with investors. The primary Non-GAAP measure we reference is Non-GAAP operat