Proassurance Corporation · NYSE:PRA
Proassurance — Non-Deal Roadshow (June 2006)
47 slides from Proassurance's roadshow presentation, Jun 8, 2006
Slide 1: Boston & New York Investor Meetings
June 6-8, 2006June 6June 6--8, 20068, 2006Mr. Victor T. AdamoMr. Victor T. AdamoPresident & Chief Operating OfficerPresident & Chief Operating OfficerMr. Edward L. Rand, Jr.Mr. Edward L. Rand, Jr. Chief Financial OfficerChief Financial OfficerMr. Frank O'NeilMr. Frank O'NeilInvestor Relations Office
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 that are subject to certain risks and uncertainties that could cause actual results to vary materia
Slide 3: ProAssurance Contacts
15 ProAssurance Contacts Trravelliing Avaiillablle
Slide 4: Professional Liability Statutory Adjusted Loss Ratio
Profesional Liability Statutory Adjusted Loss Ratio* Medical Malpractice Insuring more than 30,000 US Industry policyholders in 22 states and 117.4% PRA DC 100.7% 26,000 physicians in small groups and solo practice Also insuring hospitals and other healthcare providers effective claims handling Four
Slide 5: Professional Liability: Focus on the Bottom Line
Professional Liability Our focus is on the bottom line We grow through M&A and careful expansion Confident in current reserves Rated "A-" by A. M. Best, S & P and Fitch Gross Written Premiums (millions) 5 Year CAGR: 16.0% $543 $574 573 $462 $316 2001 2002 2003 2004 2005
Slide 6: Financial Overview Highlights
Financial Overview Financial Overview Highlights Highlights Cash Flow Balance Sheet Strength Ongoing Earnings Power Cash FlowBalance Sheet Strength Ongoing Earnings Power
Slide 7: Balance Sheet (Continuing Operations)
Balance Sheet (Continuing Operations) in millions 3/31/06 12/31/05 12/31/04 Total Assets $ 3,853 $ 3,342 $ 2,743 Cash & Invested Assets $ 3,141 $ 2,649 $ 2,166 Total Investments $ 3,105 $ 2,614 $ 2,146 Policy Liabilities $ 2,277 $ 2,224 $ 1,819 Shareholders' Equity $ 892 $ 765 $ 611 Balance Sheet St
Slide 8: Q1 2006 Income Statement Highlights
Q1 2006 Income Statement Highlights Premium Growth of 11.5% Primarily due to NCRIC acquisition Validates our strategy of growth by M&A Book Value Up $4.01 to $28.60 Primarily due to MEEMIC sale Cash flow from Continuing Operations: $115.8 million Rising Investment Income Q1 2006 Income Review 3/31/0
Slide 9: Income Statement Comparison
Income Statement Comparison Professional Liability Only, Personal Lines in millions, except per share dataReported as Discontinued Operations Y-OVER-Y 2005 2004 CHANGE Gross Premiums Written $ 573.0 $ 573.6 Net Investment Income 99.2 77.6 28% Total Revenue 648.0 605.2 7% Total Expenses 539.1 553.8 -
Slide 10: Combined Ratio Returning to Historic Norms
22 97.1% 104.8% 124.50% 87.4% 92.3% 88.1% 111.4% 125.2% 111.6% 1998 1999 2000 2001 2002 2003 2004 2005 Combined Ratio Returning to Historic NormsCombined Ratio Returning to Historic NormsUnderwriting Profitability in Q3, 2005 Underwriting Profitabilityin Q3, 2005Year-to-Date at each quarter-end, Med
Slide 11: Key Objective: Return on Equity
Key Objective: Return on Equity We price our policies to deliver an long-term average ROE of 12%-14% Assuming 1:1 premium-surplus Return on Equity Rises in 2005 ROE in 2006 will be a challenge because of the additional capital generated by the sale of MEEMIC Return on Equity 11.6% 7.4% 2004 2005
Slide 12: Key Objective: Combined Ratio
Key Objective: Combined Ratio Professional Liability Ratio History Combined Ratio 2006 Goal: less than 97.1% 2005: 97.1% 2004: 104.8% 2003: 111.6% 2002: 124.5% Operating Ratio 79.1% 90.2% 97.7% 104.1%
Slide 13: Key Objective: Strong Cash Flow
Key Objective: Strong Cash Flow Cash Flow $336.3 $323.6 Cash Flow Remains Strong Will benefit in 2006 from full-year NCRIC Additional benefit when PIC Wisconsin closes 2004 2005
Slide 14: Investments Earnings are Increasing
Investments Earnings are Increasing Cash flow is over $1 billion since 1/1/02 Helping fuel higher investment returns 21.5% Net Investment Income as a Percentage of Net Earned Premium 20.4% %13.9% 2001 2002 2003 2004 2005 20.18.0% 14.74% 18.0% 14.7%13.9% 20012002200320042005
Slide 15: Consistent Growth in Book Value per Share
27 Consistent Growth in Book Value per Share Consistent Growth in Book Value per Share$3.67 $6.27 $8.56 $11.57 $13.92 $16.02 $17.49 $18.77 $24.59 $28.60 $20.92 1991 1993 1995 1997 1999 2001 2002 2003 2004 2005 Q1 2006 $3.67$6.27$8.56$11.57$13.92$16.02$17.49$18.77$24.59$28.60 $20.92199119931995199719
Slide 16: Long-Term Return to Shareholders
Long-Term Return to Shareholders $52.00 11 $52. $21.19 $16.69 $4.12 $7.43 $13.22 $23.20 $28.69 $21.00 $32.15 $39. $48.64 00$21.19$16.69$4.12$7.43$13.22$23.20$28.69$21.00$32.15$39.11$48.64Compound Annual Growth Rate: 19.3% Inception (9/11/91) - 12/31/05 Compound Annual Growth Rate: 19.3% Inception (9
Slide 17: Operational Overview Highlights
Operational OverviewOperational OverviewHighlightsHighlightsMarket Leadership Operational Discipline Unmatched Track Record of Planning and Execution Market LeadershipOperational DisciplineUnmatched Track Record of Planning and Execution
Slide 18: Effective Regional Operations
Effective Regional Operations States of Origin or AcquisitionStates of Origin or AcquisitionExpansion StatesExpansion StatesooClaims OfficesClaims OfficesClaims / Underwriting OfficesClaims /Underwriting Offices++ ++ oooo ++ oo oo ++oo oooo ++ + oo+ ++ National Scale...Regional Orientation Consolida
Slide 19: We Created a Leader Through Consolidation
31 2004: Purchased Selected Renewal Rights from: OHIC Insurance Company 2004:Purchased SelectedRenewal Rightsfrom: OHIC Insurance CompanyWe Created a Leader Through ConsolidationWe Created a Leader Through Consolidation1994: Consolidation of:1994: f Idiana Assumed business of: icians Ins Co of Ohio
Slide 20: Experienced & Integrated at the Top
32 Experienced & Integrated at the TopExperienced & Integrated at the Top131Chief Financial OfficerNed Rand Years in Industry Years at Company PositionName 2216Average 2111Liability Group President /Chief Claims OfficerDarryl Thomas 1818Sr. Vice President / IRFrank O'Neil 2222Chief Accounting Office
Slide 21: ProAssurance Growth Strategy
33 ProAssurance Growth StrategyProAssurance Growth StrategyWe grow only when opportunities arise for profitable growth Hard Market Soft MarketM & A de novo Expansion Internal Growth M & A is preferable because of pricing pressure All avenues open because of pricing power
Slide 22: Growth Strategy: De Novo vs. Acquisition
ProAssurance Growth Strategy The current market environment favors growth by acquisition DE NOVO GROWTH vs. GROWTH BY ACQUISITION - - Must price your way into the market Must price your way into the market + Pricing can be adjusted - - No prior historyNo prior history + Prior history available - - L
Slide 23: Growth Strategy: Companies Are Available for Many Reasons
ProAssurance Growth Strategy Companies are available for many reasons Commitment to a shared vision of the future Medical Assurance & Professionals Group Financial challenges Example: NCRIC Shareholder value Example: PIC Wisconsin / liquidity Competitive pressures Capacity constraints
Slide 24: Growth Strategy: We Must Have a Strategic Fit
ProAssurance Growth Strategy We must have a strategic fit The legal and regulatory environments must be favorable Our preference is to grow in our footprint NCRIC in the mid-Atlantic PIC Wisconsin in the upper Midwest We are focused on medical liability Doctor-founded companies with similar culture
Slide 25: Growth Strategy: Acquire Without Breaking the Bank
ProAssurance Growth Strategy We can acquire without "breaking the bank" Stock trading at ~2x book value Cash flows at historically high levels Any realistic target companies would be far smaller than ProAssurance We don't "bet the farm"
Slide 26: NCRIC Integration All But Complete
++ oooo ++ oo oo ++oo oooo ++ + oo++ NCRIC Integration All But Complete NCRIC is prime example of our growth strategy Local knowledge retained in key operational positions Similar corporate culture has eased integration Reinsurance programs combined January 1, 2006 Projecting $5-$6 mil expense savin
Slide 27: PIC Wisconsin Transaction
PIC Wisconsin Transaction National Scale - Local Orientation States of Origin or AcquisitionStates of Origin or Acquisition++ oooo ++ oo oo ++oo oooo ++ + oo+ ++ Expansion States PIC Wis States oClaims Offices + Claims / Underwriting Offices Corporate Headquarters Local knowledge is crucial for our
Slide 28: Market Opportunities
Market Opportunities We are the foremost writer in our states of operation We are market leaders in AL, DE, DC, OH and VA Strong Position in other states We continue to grow within our market footprint but will not Leading Market Share "force" top line growth Top 5 Market Share Top 10 Market Share G
Slide 29: Pricing and Underwriting Review: Rates
Pricing and Underwriting Review Our Pricing and Underwriting Discipline Never Wavers Rates are adequate in all states Increases are slowing but margins are steady Rate increases have ensured higher premiums per unit of risk 5 % YTD 2006 11% in 2005 19% in 2004 28% in 2003 28% in 2002 23% in 2001
Slide 30: Pricing and Underwriting Review: Retention
Pricing and Underwriting Review Our Pricing and Underwriting Discipline Never Wavers Retention at 87% YTD 2006 New insureds balancing out non-renewals Pricing to meet our ROE and margin targets Premium levels affected by: Purchase of lower limits Change in mix of business - more exposures in lower-c
Slide 31: Claims Defense Drives Us
Claims Defense Drives Us Driven from the top of the organization Our long-term competitive advantage Aggressive defense of non-meritorious claims Generates lower costs and higher loyalty We try more cases than any company in our line of business 528 473 391 360 2002 2003 2004 2005
Slide 32: Closed Claim Outcome Comparison
Closed Claim Outcome Comparison Dropped or Dismissed i Plaintiff Verdict li i Defense Verdict Settled 14.0% 69.3% Favorable Outcomes: 83.3% FavorableOutcomes: 83.3% 12.3% 1.1% 4.4% ProAssurance, 2004 Industry Data, 2004* 22.5% 5.6% 70.8% Favorable Outcomes: 76.4% Favorable Outcomes: 76.4% Industry D
Slide 33: Average Indemnity Comparison
Average Indemnity Comparison Weighted Average Indemnity Per Closed Claim $76,809 $63,399 ProAssurance, 2004 Industry Data, 2004* Industry Data, 2004* *Source: Physician Insurers Association Data Sharing Project 45
Slide 34: Four-Year Loss Ratio Comparisons
46 Four-Year Loss Ratio ComparisonsFour-Year Loss Ratio ComparisonsOur ability and willingness to defend claims allows us to achieve better results Our ability and willingness to defend claims allows us to achieve better results81.5% 53.1% 35.9% 47.5% Average Statutory Loss Ratio 2001-2004 Average S
Slide 35: What About Tort Reform?
What About Tort Reform? Federal tort reform dead for 2006 The outlook is dismal at best State-by-state reforms passed in many forms FL, GA, IL, MO, OH, PA, TX & WV Long-term effectiveness yet to be proven Successful court challenges at all levels More could be found unconstitutional ProAssurance's b
Slide 36: Focusing on Success in 2006
Focusing on Success in 2006 Focus on adequate pricing, strict underwriting and claims defense Focus on profitable states in an evolving market Taking advantage of our geographic diversification 2006 is a pivotal year in evaluating frequency and severity data
Slide 37: Playing to Our Strengths
Playing to Our Strengths Successful track record of market leadership We plan, execute and deliver Our plan for the future Proven platform with regional operating approach Organic growth and M&A expansion Our experienced and invested management team is focused on driving returns
Slide 38: Supplemental Financial Data
Supplemental Financial DataSupplemental Financial Data
Slide 39: Management of Asset Risk
Management of Asset Risk We limit risk in our portfolio because werecognize the risk in our business No derivatives 1.5% Average fixed maturity duration Other Equities of 3.9 years Fixed income portfolio Weighted average rating: "AA" 98.4% investment grade Avg. tax-equivalent yield: 5.0% Net unreali
Slide 40: Financial Effect of MEEMIC Sale
Financial Effect of MEEMIC Sale Total Transaction Value $ 400 million (at September 30, 2005) MEEMIC Total Investments $ 315 million MEEMIC Total Assets $ 530 million MEEMIC Total Liabilities $ 141 million MEEMIC Net Earned Premium $ 307 million MEEMIC will be a component of Discontinued Operations
Slide 41: PIC Wisconsin Overview
PIC Wisconsin Overview Total Transaction Value ~ $ 100 million (at 12/31/05--Statutory Basis/Revised) PIC Wis Total Investments1 $ 255 million PIC Wis Total Assets1 $ 287 million PIC Wis Policyholder Surplus1 $ 76 million PIC Wis Written Premium1 $ 78 million PIC Wisconsin is Rated "A-" (Excellent)
Slide 42: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Millions $9,000 Premium Initial Reserve $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Developed Loss Industry Data 1976 Through 2000 (Estimated) (Actual) Source: A. M. Best Aggr
Slide 43: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Millions $9,000 Premium Initial Reserve $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Developed Loss Industry Data 1976 Through 2001 (Estimated) (Actual) Source: A. M. Best Aggr
Slide 44: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Millions $9,000 Premium Initial Reserve $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Developed Loss Industry Data 1976 Through 2002 (Estimated) (Actual) Source: A. M. Best Aggr
Slide 45: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Millions $9,000 Premium Initial Reserve $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Developed Loss Industry Data 1976 Through 2003 (Estimated) (Actual) Source: A. M. Best Aggr
Slide 46: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Millions $9,000 Premium Initial Reserve $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Developed Loss Industry Data 1976 Through 2004 (Estimated) (Actual) Source: A. M. Best Aggr
Slide 47: Will History Repeat Itself--Again?
59 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Premiums In Mil