Proassurance Corporation · NYSE:PRA
Proassurance — Non-Deal Roadshow (April 2009)
56 slides from Proassurance's roadshow presentation, Apr 16, 2009
Slide 1: Boston Roadshow Arranged by Stifel Nicolaus
Boston Roadshow Arranged by Stifel Nicolaus W. Stancil Starnes Chairman and Chief Executive Officer Edward L. Rand, Jr. Chief Financial Officer Frank B. O’Neil Investor Relations Officer April 15-16, 2009 Boston Roadshow Arranged by Stifel Nicolaus
Slide 2: 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 3: ProAssurance: Quick Facts
ProAssurance: Quick Facts Market Cap: $1.6 Billion / Equity: $1.4 Billion Fifth largest 1 writer of medical liability Writing business in 49 1 jurisdictions More than 57,000 2 policyholders 45,000 physicians and dentists 7,000 ancillary and other healthcare professionals 8,100 attorneys Majority in
Slide 4: ProAssurance: 2008 Highlights
ProAssurance: 2008 Highlights Increased Shareholders’ Equity and Book Value per Share Significantly increased profits Announced three M&A transactions Major brand enhancement project
Slide 5: ProAssurance: Long-Term Success
ProAssurance: Long-Term Success Our Balance Sheet remains strong Conservative investments Little debt Low leverage Solid stock performance over time Growing organically and through M & A Adding over $100 million in annualized premium to our top line in 2009 through M & A Diversifying our risk profil
Slide 6: Long-Term Success: NYSE Closing Price at Each Year-End
ProAssurance: Long-Term Success NYSE Closing Price at Each year-End
Slide 7: Long-Term Success: NYSE Closing Price at Each Year-End
ProAssurance: Long-Term Success NYSE Closing Price at Each year-End
Slide 8: ProAssurance: Recent Transactions
ProAssurance: Recent Transactions Podiatry Insurance Company of America (PICA) Dominant (70%), profitable, national company ~$96 million Direct Premium in 2009 Mid-Continent General Agency Large writer of ancillary healthcare ~$26 million in total premium in 2008 $20 million healthcare related—most
Slide 9: Operational Discipline: Strategy
Operational Discipline: Strategy Local strategies with national scale Local knowledge remains the key to our business We leverage the benefits of our many M & A transactions through long-term customer relationships and enhanced local knowledge Corporate Headquarters Corporate Headquarters Claims / U
Slide 10: Operational Discipline: Strategy
Operational Discipline: Strategy 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 Headquar
Slide 11: Operation Discipline: Claims
Operation Discipline: Claims Our balance sheet strength and deep expertise ensures our insureds have the option of an uncompromising defense of their claim We defend our insureds at trial more often than any other company in our line Provides a long-term financial and marketing advantage A key diffe
Slide 12: Claims Trends Remain Favorable
Claims Trends Remain Favorable Frequency trends are stable after declining since 2005/2006 The results is fewer cases to try Severity trends also stable ProAssurance Claims Tried
Slide 13: The Age of Transparency
The Age of Transparency Board / Discipline / Med Mal Med Mal disclosure legislation proposed P
Slide 14: Operational Discipline: Underwriting
Operational Discipline: Underwriting Pricing Discipline Using credits allows us to maintain existing rate filings Pricing developed using multiple years Not unduly influenced by current market conditions Rates on renewing business down less than 10% from the peak of pricing in 2006 Rates down 2% in
Slide 15: Operational Discipline: Actuarial
Operational Discipline: Actuarial Initial Accident Year Loss Ratios Industry is A. M. Best Data Through Q3 2008
Slide 16: Reserve History (billions)
Reserve History (billions) Operational Discipline: Actuarial $ 2.7 $ 2.9 $ 2.6 $ 2.2 $ 1.8
Slide 17: Growth Opportunities in 2009
Growth Opportunities in 2009 We have closed three transactions that diversify our risk profile and add significant premium We are incrementally expanding our footprint Wyoming and South Carolina Taking advantage of improving conditions in selected markets within our footprint
Slide 18: The Promise of Treat Fairly
The Promise of Treat Fairly Treated Fairly is our brand enhancement initiative Affirms our existing, enduring commitment to every stakeholder Insureds Agents Investors The public We run our business as owners who are rewarded for long-term success
Slide 19: Financial Highlights
Financial Highlights Ned Rand CFO
Slide 20: Entering 2009 in a Strong Position
Entering 2009 in a Strong Position Emphasizing an appropriate balance of risk vs. return Committed to enduring balance sheet strength Responding to the low interest rate environment $ amounts in Billions
Slide 21: ProAssurance 2008 Highlights
ProAssurance 2008 Highlights in millions, except per share data Gross Premiums Written $ 472 $ 549 - 14% Net Investment Income 158 171 - 8% Total Revenue 567 706 - 20% Total Expenses 470 561 -16% Operating Income $ 207 $ 172 20% Net Income (Includes Investment Losses) $ 178 $ 168 6% Operating Income
Slide 22: Responding to Low Interest Rates
Responding to Low Interest Rates 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 23: Responding to Low Interest Rates
Responding to Low Interest Rates Loss ratio required to generate a 13% after-tax ROE Assumes a 1:1 premium to surplus ratio for physicians professional liability claims-made coverages
Slide 24: Prudent capital management: Premiums to Surplus
( in millions) Prepared for an improving market Prudent capital management Premiums to Surplus for Each year
Slide 25: Excess Capital vs. Excess Capacity
Excess Capital vs. Excess Capacity “A” Rating Threshold Projected A. M. Best BCAR Scores if Premiums Increase Surplus is Reduced
Slide 26: Little Dependence on Debt
Little Dependence on Debt Low Debt to Cap Ratio Little strain on cash flow Repurchased additional $22 million of debt in Q4 12/31/2008
Slide 27: Balancing Risk vs. Return
$3.6 Billion Portfolio Fixed Income: 83% Short Term: 13% Equity and Other Investments: 2% BOLI: 2% Balancing Risk vs. Return Our conservative investment philosophy balances risk and return We are building cash and short- term balances as we look to the future Low equity allocation helps mute the imp
Slide 28: Fixed Income: $3.0 Billion
Fixed Income: $3.0 Billion 12/31/2008
Slide 29: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 30: ProAssurance: Concentrating on shareholder value
ProAssurance Concentrating on shareholder value Growing Book Value per Share Focused on the long-term Maintaining leading market position Protecting the balance sheet Building strength for the next cycle turn Evaluating all M & A opportunities
Slide 31: ProAssurance: Proven success throughout the cycles
ProAssurance Proven success throughout the cycles Disciplined pricing and underwriting Consistent reserving policy Proven claims strategy Balance sheet strength Significant share ownership throughout the company Demonstrated commitment to a long-term view of a complicated business
Slide 32: Appendix: Claims
Appendix: Claims Appendix: Claims
Slide 33: Why Claims Strategy Matters
Favorable Outcomes: 82% Favorable Outcomes: 74% Why Claims Strategy Matters Favorable Outcomes: 82% Favorable Outcomes: 74%
Slide 34: Why Claims Strategy Matters
Why Claims Strategy Matters Our ability and willingness to defend claims allows us to achieve better results 81.4% ProAssurance Stand Alone - - 2007 76.0% 64.3%
Slide 35: Appendix: Investments
Appendix: Investments Appendix: Investments
Slide 36: Portfolio Overview
Portfolio Overview 12/31/2008
Slide 37: Portfolio Overview: Equities
Portfolio C iew: Equiti % $109 million in Equities & Other Investments FHLB Stock 5% _-Private Equity 4% Distressed Debt LP \ Mise Other 1% Long/Short Equity LP 16% Py PROASSURANCE. au
Slide 38: Equities & Other Investments
Equities & Other Investments $ in 000’s Performance Q1, 2005 - Q4, 2008
Slide 39: Portfolio: Municipals $1.4B
Portfolio: Municipals $1.4B % Current investment policy requires investment Insured with grade rating prior Sid ea siete: h to apply the effect Average Stand Alone Rating: of insurance "AA" No Underlying Rating: 1% Collateral or Other: 1% Py PROASSURANCE. au
Slide 40: Alt-A LTV and Whole Loan LTV
Alt-A LTV: 62% Whole Loan LTV: 57% Further Details Provided on Sub-Prime and CMBS on following pages Bloomberg Data 12/31/2008
Slide 41: Portfolio Overview: Sub-Prime
Portfolio Overview: Sub-Prime At 12/31/08 Type Quality $6.9Mln Mortgage-Backed AA+ avg - LTV 72% $4.7Mln Home Equity AA avg $11.7 million market value in AFS portfolio $2.5 million unrealized loss) $5.0 million market value in high-yield LP rated BB LP’s focus is distressed ABS) At 12/31/08 Vintage
Slide 42: Portfolio Overview: CMBS
Portfolio Overview: CMBS $171 million Fair Value in non-agency CMBS Book Value: $194 Book Value 6% of fixed income portfolio At 12/31/08 Quality $169 Mln AAA $2 Mln AA At 12/31/08 Wtd Avg LTV 85% <70% 15% <72% At 12/31/08 Credit Support 78% >20% 7% 15% - 20% 12% 10% - 15% 3% Less than 10% At 12/31/0
Slide 43: Portfolio: Corporate
Portfolio: Corporate % $594 million Financials ® Weighted Average Tech 48% Rating: A ay Other Basic 2%, Materials 5% Consumer Cyclical 4% Energy 5% FDIC Backed Banks Industrials_/ Consumer 8% 8% Non-Cyclical 8% Py PROASSURANCE.
Slide 44: Portfolio: Corporate-Financials
Portfolio: Corporate-Financials Top 20 Largest Banks/Financials: $ 200 million $17 mm FDIC BoA/ML $27 ($1) Credit Suisse $7 Wells/Wachovia $21 Depfa ACS $5 M Stanley $24 ($4) DeutscheBk $5 JPM Chase $20 ($10) BONY $5 GECC $13 Unilever Cap $4 Amer Exp $12 John Deere Cap $4 Citi $11 CIT $4 Goldman $9
Slide 45: Portfolio: Treasury/GSE
Portfolio: Treasury/GSE $177 million Average Rating: AAA 12/31/2008
Slide 46: Portfolio: FRE and FNM
Portfolio: FRE and FNM $499 million Average Rating: AAA 12/31/2008
Slide 47: Portfolio Overview: Short Term
Portfolio Ov erview: Sho rt Term 12/31/2008
Slide 48: Portfolio Overview: BOLI
Portfolio Overview: BOLI % $63 million ® Weighted average rating % Moody’s: AA2 & A.M. Best: At Py PROASSURANCE. Tread Fa
Slide 49: Appendix: Industry History
Appendix: Industry History Appendix: Industry History
Slide 50: Will History Repeat Itself—Again?
Source: A. M. Best Aggregates and Averages 1976 - 2001 Will History Repeat Itself—Again ? Medical Malpractice Industry, Net Basis Occurrence and Claims-Made Combined (Estimated) (Actual) Industry Data 1976 Through 2007
Slide 51: Appendix: M & A History
Appendix: M & A History Appendix: M & A History
Slide 52: We Created a Leader Through Consolidation
Physicians Ins. Co. of Michigan 2004: Purchased Selected Renewal Rights from: OHIC Insurance Company 2004: Purchased Selected Renewal Rights from: OHIC Insurance Company We Created a Leader Through Consolidation 1994: Consolidation of: West Virginia Hosp. Ins Co. 1994: Consolidation of: West Virgini
Slide 53: Profitable Growth Through M & A
Profitable Growth Through M & A ProAssurance has been built through M & A ProAssurance was formed by the combination of two successful companies with a history of M & A
Slide 54: Profitable Growth Through M & A
Profitable Growth Through M & A ProAssurance has been built through M & A Each company brought multiple transactions into ProAssurance at our founding in
Slide 55: Profitable Growth Through M & A
Profitable Growth Through M & A ProAssurance has been built through M & A We have continued to grow through M & A NCRIC in the mid-Atlantic PIC-Wisconsin in the upper Midwest PICA Nationwide
Slide 56: De Novo Growth Also Plays a Role
Denovo Growth Also Plays a Role We have added states as opportunities arose We carefully evaluate the medical and legal climate of each state before entering We are the market leaders in AL, DE, DC, OH, & WI