Proassurance Corporation · NYSE:PRA
Proassurance — Keefe, Bruyette & Woods Insurance Conference 2005
43 slides from Proassurance's conference presentation, Sep 8, 2005
Slide 1: 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 2: ProAssurance Overview
ProAssurance Overview o Market Cap: $1.4 Billion o Gross Premiums: $790 million in 2004 o Assets: $3.4 billion o Specialty insurer diversified by product & geography o Experienced, invested management PROFESSIONAL LIABILITY PERSONAL LINES o 73% of Premiums o Fourth Largest Writer of Med Mal o The In
Slide 3: Experienced, Stable Management
Experienced, Stable Management Name Position Years at Company(1) Years in Industry(1) Derrill Crowe, M.D. Chairman & CEO 28 28 Victor Adamo President & COO 20 25 Jeff Bowlby Sr. Vice President / Marketing 7 21 Paul Butrus Vice Chairman 26 26 Howard Friedman Chief Underwriting Officer / Actuarial 9 2
Slide 4: Professional Liability: The Core of ProAssurance
Professional Liability The Core of ProAssurance ProAssurance(R) Medial Assurance ProNational Insurance Company NCRIC, Inc. Red Mountain Casualty 4
Slide 5: Professional Liability
Professional Liability Medial Assurance ProNational Insurance Company NCRIC, Inc. Red Mountain Casualty o Insuring 30,000 physicians and dentists in 22 states and DC o Majority of insureds are smaller groups and solo practitioners o Also insuring hospitals and other healthcare providers o Superior r
Slide 6: Professional Liability: Gross Written Premiums
Professional Liability Medial Assurance ProNational Insurance Company NCRIC, Inc. Red Mountain Casualty o Our focus is on the bottom line o We grow through M&A and careful expansion o Confident in current reserve levels o Rated "A-" by A. M. Best, S & P and Fitch Gross Written Premiums (millions) 4
Slide 7: Regional Operating Structure
Regional Operating Structure National Scale...Regional Orientation States of Origin or Acquisition Expansion States Claims Offices Claims / Underwriting Offices Corporate Headquarters o Consolidated financial strength is unmatched in our niche o Corporate strategy applied locally to underwriting & c
Slide 8: Regional Operating Structure: NCRIC
Regional Operating Structure NCRIC is an ideal fit in the ProAssurance operating model States of Origin or Acquisition Expansion States Claims Offices Claims / Underwriting Offices Corporate Headquarters o Adding NCRIC strengthens our mid-Atlantic presence o ~4,000 policyholders o We retain local kn
Slide 9: Market Leadership
Market Leadership We are the foremost writer in our states of operation Leading Market Share Top 5 Market Share Top 10 Market Share Growing Market Share o We are market leaders in AL, DE, DC, OH and VA o We continue to grow within our market footprint o Opportunities for M&A will present themselves
Slide 10: We Created a Leader Through Consolidation
We Created a Leader Through Consolidation 1995: Consolidation of; Physicians Ins Co of Indiana Assumed business of: Physicians Ins Co of Ohio 1996: Consolidation of: Missouri Medical Ins Co 1999: Assumed business of: Medical Defense Associates (MO) 1994: Consolidation of: West Virginia Hosp. Ins Co.
Slide 11: Claims Defense Drives Us
Claims Defense Drives Us We try more cases than any company in our line of business 2002 2003 2004 360 391 528 o Driven from the top of the organization o Our long-term competitive advantage o Aggressive defense of non-meritorious claims o Generates lower costs and higher loyalty 11
Slide 12: Closed Claim Outcome Comparison
Closed Claim Outcome Comparison Dropped or Dismissed Defense Verdict Plaintiff Verdict Settled Favorable Outcomes: 83.3% 69.3% 14.0% 12.3% 4.4% ProAssurance, 2004 Favorable Outcomes: 76.4% 70.8% 5.6% 1.1%% 22.5% Industry Data, 2004* *Source: Physician Insureres Association Data Sharing Project 12
Slide 13: Average Indemnity Comparison
Average Indemnity Comparison Weighted Average Indemnity Per Closed Claim $63,399 $76,809 ProAssurance, 2004 Industry Data, 2004* *Source: Physician Insurers Association Data Sharing Project 13
Slide 14: Three-Year Loss Ratio Comparisons
Three-Year Loss Ratio Comparisons Average Statutory Loss Ratio 2001-2003 Our ability and willingness to defend claims allows us to achieve better results PRA 109.7% US Industry 124.3% Legal Payments Loss Payments 55.8% 36.0% 53.9% 88.3% 14
Slide 15: Professional Liability Combined Ratio
Professional Liability Combined Ratio PL Industry PRA PL Only Combined Ratio 1999-2004 Measures overall Operating Success 1999 2000 2001 2002 2003 2004 129.7% 133.8% 154.2% 142.5% 135.2% 128.1% 24.5% 21.7% 22.5% 19.1% 16.7% 63.7% 87.7% 95.3% 93.9% 88.4% 88.2% 109.4% 125.2% 124.5% 111.6% 104.8% *Sour
Slide 16: Pricing and Underwriting Review
Pricing and Underwriting Review o Average renewal rate increase: 12% YTD o Premium levels affected by: o Lower limits being purchased o Business mix changing, exposures growing in lower-cost states o New insureds balance out non-renewals o We are maintaining our margins at levels that meet our ROE t
Slide 17: Looking Ahead
Looking Ahead o Adding insureds through careful growth in existing markets o M&A opportunities are being created now o Start-ups are underpricing to win business o Many companies remain undercapitalized o We are generating capital to sustain expected growth 17
Slide 18: Looking Ahead: Tort Reform
Looking Ahead o Federal tort reform remains uncertain o State-by-state reforms o Passed in many form in many states o GA, FL, OH, PA, TX & WV) o Long-term effectiveness yet to be proven o No judicial review yet--could be found unconstitutional o Wisconsin's were recently struck down after ten years
Slide 19: Professional Liability Summary
Professional Liability Summary o Financial Strength o Permits cost-effective reinsurance decisions o Secures high ratings and customer confidence o Industry leading defense results o Proven reserve integrity o Management's experience o Demonstrated M & A capability 19
Slide 20: Personal Lines: Proven, Consistent Results
Personal Lines Proven, Consistent Results ProAssurance MEEMIC
Slide 21: Personal Lines: MEEMIC
Personal Lines: MEEMIC o Primarily personal auto (81%) o Also homeowners and boat o Targets teachers and the educational community o Careful underwriter in a preferred market o Peer-to-peer selling model provides a solid foundation Direct Written Premiums (millions) 5 Year CAGR: 13.5% 2000 2001 2002
Slide 22: Personal Lines Snapshot
Personal Lines Snapshot o Ten straight years of underwriting profitability o Consistently outperforms the industry in Michigan o Expansion into Wisconsin underway o Rated "A-" by A. M. Best Superior Results Statutory Adjusted Loss Ratio* Private Passenger Auto 85.3% MI Industry 69.8% MEEMIC Five Yea
Slide 23: Industry-Leading Results
Industry-Leading Results GAAP Combined Ratio 5 Year Average of 88.4% Expense Ratio Loss Ratio 65.2% 23.7% 70.3% 23.8% 64.6% 23.1% 65.8% 22.1% 61.3% 22.1% Source: A. M. Best 23
Slide 24: MEEMIC: Steady Growth
MEEMIC: Steady Growth o Sustaining premium growth in a softening market o Up 4.4% YTD o Up 10% for 2004 o Up 13% for 2003 o Increasing value of cars and homes insured o Sustained policyholder growth in all lines 24
Slide 25: Financial Overview
Financial Overview The Heart of ProAssurance ProAssurance(R) 25
Slide 26: Financial Highlights
Financial Highlights Cash Flow from Operations 2000 $36.3 2001 $61.3 2002 $177.0 2003 $282.8 2004 $373.5 o Consolidated Combined Ratio continues to decrease o 95.5% YTD o Return on Equity reaching our targets o 15.5% YTD o Solid bottom line growth o Cash flows at all time high Merger Created ProAssu
Slide 27: Key Objective: 12%-14% ROE
Key Objective: 12%-14% ROE o ROE targets drive our ultimate consolidated combined ratio goals o Professional Liability: 96% or lower o Personal Lines: 94% or lower o Combined Ratio History o 2005: <99.2% (goal) o 2004: 99.2% o 2003: 105.1% o 2002: 113.0% 27
Slide 28: Combined Ratio Returning to Historic Norms
Combined Ratio Returning to Historic Norms o Consolidated Underwriting Profitability in Q4, 2004 o Both Lines Reached Underwriting Profitability in Q2, 2005 Results First Reflect Dramatic Increases in Losses and Loss Costs 92.3% 89.6% 85.9% 102.8% 119.1% 116.0% 109.1% 101.2% 97.5% 93.5% 100% Q1, 199
Slide 29: Will History Repeat Itself-Again?
Will History Repeat Itself-Again? Premium Developed Loss Millions Industry Data 12/31/2001 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 29
Slide 30: Will History Repeat Itself-Again?
Will History Repeat Itself-Again? Premium Developed Loss Millions Industry Data 12/31/2001 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 30
Slide 31: Will History Repeat Itself-Again?
Will History Repeat Itself-Again? Premium Developed Loss Millions Industry Data 12/31/2001 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Premiums In Millions 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $
Slide 32: Consistent Growth in Book Value per Share
Consisten Growth in Book Value per Share Annual stock price performance of PRA and predecessors is 18.9% since inception in September, 1991 CAGR (9/91 - 2004) 14.3% 1991 $3.67 1993 $6.27 1995 $8.56 1997 $11.57 1999 $13.92 2001 $16.02 2003 $18.77 2004 $20.92 YTD 2005 $22.49 32
Slide 33: Consistent Growth in Our Asset Base
Consistent Growth in Our Asset Base Total Assets in Millions o Assets Increased Dramatically When ProAssurance Was Created in 2001 1991 $3.67 $381 1993 $6.27 $508 1995 $8.56 $720 1997 $11.57 $1,063 1999 $13.92 $1,118 2001 $16.02 $2,238 2003 $18.77 $3,239 2004 $20.92 $3,409 YTD 2005 $22.49 At Decembe
Slide 34: EPS Reflect Pricing and Underwriting Actions
EPS Reflect Pricing and Underwriting Actions Results First Reflect ProAssurance's Pricing and Underwriting Discipline Results First Reflect Dramatic Increases in Losses and Loss Costs Loss Attributable to One Time Securities Impairment $0.11 $0.14 -$0.18 $0.22 $0.52 $0.71 $0.88 Q3, 2001 Q1, 2002 Q1,
Slide 35: Returning Our ROE to Acceptable Levels
Returning Our ROE to Acceptable Levels o Cumulative ROE at each quarter end Attributable to One Time Securities Impairment Annualized Net Income / Average Shareholder's Equity 2.9% 3.6% 0.1% 5.0% 11.4% 14.4% 15.5% Q3, 2001 Q1, 2002 Q1, 2003 Q1, 2004 Q1, 2005 35
Slide 36: Our Opportunities
Our Opportunities o Leader in medical malpractice industry o Organic growth and M&A expansion o Proven platform with regional operating approach o Attractive niche personal lines business o Experienced management team focused on driving returns o Conservative financial position 36
Slide 37: Supplemental Financial Data
Supplemental Financial Data ProAssurance(R) 37
Slide 38: High Quality, Liquid Investment Portfolio
High Quality, Liquid Investment Portfolio o Conservative portfolio o No derivatives o Managed by outside advisors o Average fixed maturity duration of 3.8 years o High quality fixed income portfolio o Weighted average rating of "AA" o 98.4% investment grade o Avg. tax-equivalent yield: 4.9% o Net un
Slide 39: Balance Sheet Progression
Balance Sheet Progression in millions Y-Y Q2 2005 2004 2003 Change Total Assets $ 3,409 $ 3,239 $ 2,879 13% Cash & Invested Assets $ 2,653 $ 2,485 $ 2,103 18% Total Policy Liabilities $ 2,538 $ 2,413 $ 2,173 11% Shareholders' Equity $ 661 $ 611 $ 546 12% Balance Sheet Strength Sets ProAssurance Apar
Slide 40: 2004 Income Statement vs. 2003
2004 Income Statement vs. 2003 Y-over-Y 2004 2003 Change 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% Net Income/Share (diluted) $ 2.37 $ 1.32 80% Cash from Operations $ 373.5 $
Slide 41: Q2 Income Statement Comparison
Q2 Income Statement Comparison in millions, except per share data Y-over-Y 6/30/05 6/30/04 Change Gross Premiums Written $ 377.0 $ 382.5 -1% Net Investment Income 51.6 40.5 27% Total Revenue 403.3 380.8 6% Total Expenses 335.0 338.7 -1% Net Income $ 49.4 $ 31.8 55% Net Income/Share (diluted) $ 1.58
Slide 42: Q2, 2005 Income by Segment
Q2, 2005 Income by Segment in millions, except per share data Professional Personal Liability Lines Consolidated Gross Premiums Written $ 267.4 $ 109.6 $ 377.0 Net Investment Income 44.4 6.1 51.6 Total Revenue 300.0 102.2 403.3 Total Expenses 252.7 78.1 335.0 Net Income $ 49.4 Net Income/Share (dilu
Slide 43: Q2, 2005 Income by Segment
Q2, 2005 Income by Segment in millions, except per share data Professional Personal Liability Lines Consolidated Gross Premiums Written $267.4 $109.6 $ 377.0 Net Investment Income 44.4 6.1 51.6 Total Revenue 300.0 102.2 403.3 Total Expenses 252.7 78.1 335.0 Net Income $ 49.4 Net Income/Share (dilute
ProAssurance — Keefe, Bruyette & Woods Insurance Conference 2005 on 6ix