Proassurance Corporation · NYSE:PRA
Proassurance — Raymond James & Associates 25th Annual Institutional Investors Conference (March 2005)
41 slides from Proassurance's conference presentation, Mar 7, 2005
Slide 1: Raymond James 25th Annual Institutional Investors Conference
March 7, 2005 Victor T. Adamo President & COO Howard H. Friedman Chief Financial Officer Frank B. O'Neil Investor Relations Officer Raymond James & Associates 25th Annual Institutional Investors Conference
Slide 2: Caution Regarding Forward Looking Statements
Caution Regarding Forward Looking Statements This presentation contains historical information as well as forward-looking statements that are based upon our estimates and anticipation of future events, including our proposed transaction with NCRIC Group, Inc. These estimates and events are subject t
Slide 3: ProAssurance Overview
ProAssurance Overview Market Cap: $1 Billion Gross Premiums: $790 million Assets: $3.2 billion Specialty insurer diversified by product and geography Experienced, invested management 73% of Premiums Fourth Largest Writer of Med Mal The Industry's Blue Chip Company 27% of Premiums Targeting the Michi
Slide 4: Experienced, Stable Management
Experienced, Stable Management Name Position Years at Company Years in Industry Derrill Crowe, M.D. Chairman & CEO 28 28 Victor Adamo President & COO 19 24 Jeff Bowlby Sr. Vice President / Marketing 6 20 Paul Butrus Vice Chairman 27 27 Howard Friedman Chief Financial Officer 8 24 Lynn Kalinowski Pre
Slide 5: Professional Liability: The Core of ProAssurance
Professional Liability The Core of ProAssurance
Slide 6: Creating a Leader Through Acquisitions
Creating a Leader Through Acquisitions 1994: Purchased: West Virginia Hosp. Ins Co. 1995: Acquisition of; Physicians Ins Co of Indiana Assumed business of: Physicians Ins Co of Ohio 1996: Acquisition of: Missouri Medical Ins Co 1995: Assumed business of: Associated Physicians Ins Co. (IL) 1998: Cons
Slide 7: Regional Operating Structure
Regional Operating Structure Corporate strategy applied locally to underwriting & claims Local knowledge crucial to understanding legal environment Local presence preserves long-term customer relationships Consolidated Financial Strength With Local Operating Model Corporate Headquarters States of Or
Slide 8: Regional Operating Structure: NCRIC
Regional Operating Structure Strengthening our business model by merging NCRIC into our operations Adds Mid-Atlantic presence Consolidated Financial Strength With Local Operating Model Corporate Headquarters States of Origin or Acquisition Expansion States Professional Liability + ? ? ? NCRIC transa
Slide 9: NCRIC Transaction
NCRIC Transaction Stock-for-stock transaction to close early in Q3 Exchange ratio: One NCRIC share receives 0.25 PRA shares, within collar Transaction consideration will vary within a 10% collar The exchange ratio will float outside of the 10% collar
Slide 10: Strategic Advantages
Strategic Advantages Ease of Integration Similar backgrounds and operating models Transaction is expected to be accretive in 2005 Strengthens our business in states we had targeted for growth Strengthens PRA's position as the market leader 9
Slide 11: Professional Liability Snapshot
Insuring physicians, hospitals, dentists and other healthcare providers Majority of insureds are smaller groups and solo practitioners Superior results through careful underwriting, proper pricing and effective claims handling Professional Liability Snapshot Three Year Average 2001-2003 Incurred LAE
Slide 12: Professional Liability Snapshot: Gross Premiums Written
2000 2001 2002 2003 2004 Gross Premiums Written 316 349.221 462 542.982 574 Gross Written Premiums* (millions) 4 Year CAGR: 18.0% We focus on bottom line results but have been growing our top line as well Confident in current reserve levels Rated "A-" by A. M. Best, S & P and Fitch Professional Liab
Slide 13: Market Leadership
Market Leadership Proven M& A capability NCRIC transaction We have advantages of size and scope Ability to raise capital on a stand alone basis to support growth $ 198.5 million since 2002 Capital permits cost-effective use of reinsurance Professional Liability
Slide 14: Market Leadership: Local Operations
Market Leadership Specialty insurance with local operations Venue-specific claims management and underwriting knowledge Proven track record of regional operating success Experienced management at all levels of the organization Professional Liability
Slide 15: Aggressive Claims Defense
Aggressive Claims Defense Driven from the top of the organization Our long-term competitive advantage Aggressive defense of non-meritorious claims Cases Tried in 2004: 528 2002: 360; 2003:391 90% of closed claims resolved with no indemnity payments Generates lower costs and higher loyalty Profession
Slide 16: Closed Claim Outcome Comparison
Closed Claim Outcome Comparison Percetage of Closed Claims Dropped or Dismissed 0.693 Defense Verdict 0.14 Plaintiff Verdict 0.044 Settled 0.123 Percetage of Closed Claims Dropped or Dismissed: 0.697 Settled: 0.244 Plaintiff Verdict: 0.008 Defense Verdict: 0.051 Favorable Outcomes: 83.3% Favorable O
Slide 17: Average Indemnity Comparison
Average Indemnity Comparison PRA PIAA Favorable Outcomes 0 Avg. Indemnity 1018110 Avg. Settlement 153145 Weighted Average Indemnity 63399 82146 ProAssurance PIAA 2003 2004 Weighted Average Indemnity Per Closed Claim Latest Available Data $63,399 $82,146
Slide 18: Three-Year Loss Ratio Comparisons
Three-Year Loss Ratio Comparisons Incurred Losses Loss Adjustment Expenses Total ProAssurance 0.539 0.558 1.097 Industry 0.883 0.36 1.243 Public Cos Avg 0.697 0.412 1.109 Our focus on claims defense allows us to achieve better results Average Statutory Loss Ratio 2001-2003 US Industry 124.3% PRA 109
Slide 19: Pricing Remains Strong
Pricing Remains Strong Rate increases ensured higher premium per unit of risk 19% in 2004 28% in 2003 28% in 2002 23% in 2001 Continuous re-underwriting of our book New insureds balance out non-renewals Professional Liability
Slide 20: Looking Ahead to 2005
Looking Ahead to 2005 Continued growth at adequate rates Ensures proper margins on each policy Adding insureds through growth in existing markets and through M&A Competitors' capacity remains constrained Growth in Red Mountain Casualty Our E & S market
Slide 21: Looking Ahead to 2005: Acquisition Opportunities
Looking Ahead to 2005 The fragmented Professional Liability market will provide acquisition opportunities ProAssurance will be invited to participate in any major opportunities Experienced consolidator Acquisitions formed our foundation Pursuing opportunistic acquisitions Success not dependent on ac
Slide 22: Looking Ahead: Tort Reform
Looking Ahead: Tort Reform Federal tort reform faces Senate roadblock even after Republican gains State-by-state reforms Passed in many states (GA,FL, OH, PA, TX & WV) Long-term effectiveness yet to be proven No judicial review yet-could be found unconstitutional Organizational efforts in many other
Slide 23: Personal Lines: The Overlooked Gem
Personal Lines The Overlooked Gem
Slide 24: Personal Lines Snapshot
Personal Lines Snapshot MEEMIC targets teachers and the educational community Primarily personal auto (81%) Also homeowners and boat Overview 1999 2000 2001 2002 2003 2004 Gross Premiums Written 122 130 142 174 197 216 Direct Written Premiums (millions) 5 Year CAGR: 13.5%
Slide 25: Personal Lines Snapshot: Superior Results
Personal Lines Snapshot Careful underwriting in a preferred market Peer-to-peer selling model provides a solid foundation Incremental expansion underway Rated "A-" Overview MI Industry 86.9% MEEMIC 68.2% *Source: A. M. Best Statutory Adjusted Loss Ratio* Private Passenger Auto Superior Results MEEMI
Slide 26: MEEMIC's Importance
MEEMIC's Importance 2004 accomplishments Combined ratio of 83.4% Tenth straight year of underwriting profitability Growth in Premiums and Policyholders Consistent results Personal Lines
Slide 27: Industry-Leading Results
Industry-Leading Results Loss Expense Total 1999 0.676 0.205 0.881 2000 0.652 0.237 0.889 2001 0.703 0.238 0.941 2002 0.646 0.231 0.877 2003 0.658 0.221 0.879 2004 0.613 0.221 0.834 GAAP Combined Ratio Expense Ratio Loss Ratio 88.9% 94.1% 87.7% 87.9% Personal Lines Source: A. M. Best 83.4% 5 Year Av
Slide 28: MEEMIC: Steady Growth
MEEMIC: Steady Growth Premiums continue to increase in a softening market Up 10% for 2004 Up 13% for 2003 Increasing value of cars and homes insured Sustained policyholder growth in all lines Personal Lines
Slide 29: Financial Overview: The Strength of ProAssurance
Financial Overview The Strength of ProAssurance
Slide 30: Financial Highlights
Financial Highlights Cash flows at all time high Consolidated Combined Ratio expected below 100 for 2004 Solid bottom line growth Continued growth in top line as well Year Cash Flow 1993 35647 1994 37989 1995 47235 1996 74836 1997 45986 1998 75653 1999 46411 2000 36.3 2001 61.3 2002 177 2003 282.8 2
Slide 31: Balance Sheet Comparison
Balance Sheet Comparison Total Assets $ 3,240 $ 2,879 13% Cash & Invested Assets $ 2,485 $ 2,103 21% Reserves for Losses and Loss Adjustment Expenses $ 2,413 $ 2,173 11% Shareholders' Equity $ 611 $ 546 12% in millions Y-to-Y 2004 2003 Change Balance Sheet Strength Sets ProAssurance Apart December 3
Slide 32: High Quality, Liquid Investment Portfolio
High Quality, Liquid Investment Portfolio Conservative portfolio No derivatives Managed by outside advisors Average fixed maturity duration of 3.81 years High quality fixed income portfolio Weighted average rating of "AA" 99.5% investment grade Avg. tax-equivalent yield: 4.72% Net unrealized gain: $
Slide 33: 2004 Income Statement
2004 Income Statement Gross Premiums Written $ 573.6 $ 216.1 $ 789.7 Net Investment Income 75.0 10.9 87.2 Total Revenue 593.9 196.6 794.6 Total Expenses 537.6 153.0 697.1 Net Income 72.8 Professional Personal Liability Lines Consolidated in millions, except per share data Cash from Operations $ 373.
Slide 34: 2004 Income Statement vs. 2003
2004 Income Statement vs. 2003 Gross Premiums Written $ 789.7 $ 740.1 7% Net Investment Income 87.2 73.6 19% Total Revenue 794.6 709.6 12% Total Expenses 697.1 659.3 6% Net Income $ 72.8 $ 38.7 88% 2004 2003 Change in millions, except per share data Financial Overview Cash from Operations $ 373.5 $
Slide 35: Professional Liability Combined Ratio
Professional Liability Combined Ratio 1999 2000 2001 2002 2003 2004 Industry combined ratio (1) 1.297 1.338 1.542 1.425 1.352 1.281 Expense ratio 0.245 0.217 0.225 0.191 0.167 Loss & LAE ratio 0.637 0.877 0.953 0.939 0.884 PRA Prof Liab 0.882 1.094 1.252 1.245 1.116 1.048 PRA Combined ratio 1.178 1.
Slide 36: Will History Repeat Itself-Again?
Will History Repeat Itself-Again? Professional Liability C/A Yr Premium Initial Reserve Developed Loss 1976 1100 950 950 1977 1142 960 960 1978 1148 1171 1171 1979 1141 1398 1398 1980 1184 1209 1659 1981 1268 1387 2032 1982 1333 1546 2166 1983 1509 1723 2464 1984 1911 1921 2676 1985 2448 2510 2784 1
Slide 37: Will History Repeat Itself-Again?
Will History Repeat Itself-Again? Professional Liability C/A Yr Premium Initial Reserve Developed Loss 1976 1100 950 950 1977 1142 960 960 1978 1148 1171 1171 1979 1141 1398 1398 1980 1184 1209 1659 1981 1268 1387 2032 1982 1333 1546 2166 1983 1509 1723 2464 1984 1911 1921 2676 1985 2448 2510 2784 1
Slide 38: $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 976 1979 1982 1985 1988
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Premium Initial Reserve Developed Loss Premiums In Millions (Estimated) (Actual) C/A Yr Premium Initial Reserve Developed Loss 1976 1100 950 950 1977 1142 960 960 1978 1148 1171 1171 1979 114
Slide 39: Consistent Growth in Book Value per Share
Consistent Growth in Book Value per Share Book Value 1991 3.67 1992 4.58 1993 6.27 1994 6.63 1995 8.56 1996 9.81 1997 11.57 1998 13.24 1999 13.92 2000 15.22 2001 16.02 2002 17.49 2003 18.77 2004 20.92 CAGR (9/91 - 2004) 14.3% Annual stock price performance of PRA and predecessors is 18.9% since ince
Slide 40: Key Objective: 12%-14% ROE
Key Objective: 12%-14% ROE ROE targets drive our ultimate consolidated combined ratio goals Professional Liability: 96% or lower Personal Lines: 94% or lower Combined Ratio History 2005: <99.2% (goal) 2004: 99.2% 2003: 105.1% 2002: 113.0% 2004 Outlook
Slide 41: Our Opportunities
Our Opportunities Leader in medical malpractice industry Organic growth and M&A expansion Proven platform with regional operating approach Attractive niche personal lines business Experienced management team focused on driving returns Conservative financial position