Proassurance Corporation · NYSE:PRA
Proassurance — Non-Deal Roadshow (November 2006)
37 slides from Proassurance's roadshow presentation, Nov 30, 2006
Slide 1: West Coast Investor Meetings
West Coast Investor Meetings Mr. Edward L. Rand, Jr. Chief Financial Officer Mr. Frank B. O'Neil Investor Relations Offier November 28-30,2006
Slide 2: ProAssurance Contacts Traveling
ProAssurance Contacts Traveling Available
Slide 3: Caution Regarding Forward Looking Statements
ProAssurance Contacts Caution Regarding Forward Looking Statements This presentation communicates historical information as well as forward-looking statements that are based upon our estimates and anticipation of future events; any items in this presentation that are not historical information are s
Slide 4: ProAssurance Strategic Overview Highlights
ProAssurance Strategic Overview Highlights Professional Liability Specialist Proven Track Record of Planning and Execution Market Leadership
Slide 5: Setting The Stage
Setting The Stage • Specialty insurance focus • Growing the top and bottom line through careful growth and effective management Positioned for long-term success
Slide 6: Setting The Stage
Setting The Stage Superior results through careful underwriting, proper pricing and effective claims handling Confident in current reserves Rated “A-” by A. M. Best, S & P and Fitch
Slide 7: Setting The Stage
Setting The Stage Nation’s fourth largest writer of medical liability Insuring over 31,500 policyholders* More than 24,000 physicians PIC Wisconsin adds almost 11,000 policyholders* More than 7,500 physicians Retention at 87% YTD 2006 • PIC Wis, NCRIC and new insureds balance out non-renewals
Slide 8: ProAssurance: Market Leadership
ProAssurance: Market Leadership ProAssurance is the foremost writer in its states of operation With NCRIC and PIC Wisconsin: market leaders in AL, DE, DC, OH & WI Strong Position in other states Continuing to grow within its market footprint But not forcing top line growth
Slide 9: ProAssurance: Market Leadership National Scale Local Focus
ProAssurance: Market Leadership National Scale Local focus Corporate strategy applied locally to underwriting & claims Local Knowledge crucial to understanding legal environment Local presence enhances long-term customer relationships Efficiencies gained from consolidated “back-room” operations
Slide 10: We Created a Leader Through Consolidation
We Created a Leader Through Consolidation
Slide 11: Experienced & Integrated at the Top
Experienced & Integrated at the top name postion Years at company Years in Industry Derrill Crowe, M.D. Chairman & CEO 29 29 Victor Adamo President & COO 21 26 Jeff Blowlby Chief Marketing Officer 8 22 Paul Butrus Vice Chairman 27 27 Howard Friedman Liability Group President/Chief Underwriting Offic
Slide 12: ProAssurance Growth Strategy
ProAssurance Growth Strategy • We grow only when opportunities arise for profitable growth de novo expansion M&A All avenues open because of pricing pwoer Hard Market Internal Growth Hard Market Soft Market M&A is perferable because of pricing pressure
Slide 13: ProAssurance Growth Strategy
ProAssurance Growth Strategy We must have a strategic fit in medical liability Doctor-founded companies with similar culture The legal and regulatory environment must be favorable Understanding why companies are available Not all M&A opportunities should be pursed We don’t “bet the farm” and can acq
Slide 14: Focusing on Success in 2006
Focusing on Success in 2006 Maintaining adequate pricing, strict underwriting and claims defense Targeting profitable states in an evolving market Taking advantage of our geographic diversification 2006 is a pivotal year in evaluating frequency and severity data
Slide 15: Focusing on Success in 2006
Focusing on Success in 2006 Physician involvement promotes a direct relationship with our insureds Claims/Underwriting Committees in 16 key states Quarterly meetings, attended by senior management Provides claims and underwriting insight Creates physician “Ambassadors” Regional Advisory Boards invol
Slide 16: Operational Overview
Operational Overview Pricing and Underwriting Review Operation Discipline Across all Stages of the Insurance cycle
Slide 17: Pricing and Underwriting Review
Pricing and Underwriting Review Rates are adequate in all states We are maintaining the pricing needed to meet our ROE and margin targets Increases are slowing but margins are steady Premium levels affected by: Purchase of lower limits Adding exposures in lower-cost, but lower premium states
Slide 18: Reinsurance Review
Reinsurance Review Our Treaties Renew October 1st Each Year Continual evaluation of proper retention levels Risk pricing vs. our capacity and willingness to accept risk Anticipating no meaningful change in renewal terms or conditions for 2006-2007 treaty
Slide 19: Reinsurance Review
Reinsurance Review • Secure, diversified roster of reinsurers Hannover RE A Europe Reinsurer Rating Base AXA RE A Europe Lloyd's Syndicates A London Partner RE A+ Bermuda Transatlantic Re A+ Domestic
Slide 20: Claims Defense Remains our Core
Claims Defense Remains our Core 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
Slide 21: Closed Claim Outcome Comparison
Closed Claim Outcome Comparison Dropped or Dismissted Defense Verdict Plaintiff Verdict Settled Favorable Outcomes 85.1% 71.8% 13.3% 10.7% ProAssurance 2005 Favorable Outcomes 76.4% 70.8% 1.1% 4.2% 22.5% Industry Data, 2004*
Slide 22: Five-Year Loss Ratio Comparisons
Five-Year Loss Ratio Comparisons Our ability and willingness to defend claims allows us to achieve better results Legal Payments Loss Payments PRA in 2005 81.5% PRA 95.0% US Industry 108.4% 56.6% 53.4% 33.9% 24.9% 41.6% 74.5% Average Statutory Loss Ratio * Source A.M. Best Aggregates & Averages Medi
Slide 23: Financial Overview Highlights
Financial Overview Hightlights Ongoing Earnings Power Balance Sheet Strength
Slide 24: Balance Sheet (Continuing Operations)
Balance Sheet (continuing Operations) in millions 9/30/06 12/31/05/12/31/04 Total Assets $4,330 $3,342 $2,743 Cash & Invested Assets $3,486 $2,649 $2,166 Policy Liabilities $2,589 $2,224 $1,819 Shareholders' Equity $1,082 $765 $611 Balance Sheet Strength Sets Pro Assurance Apart
Slide 25: YTD 2006 Income Statement Highlights
YTD 2006 Income Statement Highlights Premium Growth of 4% Primarily due to NCRIC acquisition PIC Wisconsin will add premium in coming quarters Validates our strategy of growth by M&A Book Value Up $7.99 to $32.58 $3.50 from MEEMIC sale, $1.22 from PIC Wisconsin transaction Cash Flow from Insurance O
Slide 26: Focused on Shareholder Return
Focused on Shareholder Return Five-year return to shareholders: 186% Annualized five-year return: 22.1% Steady increase in Return on Equity Created more than $1 billion in shareholder value Built Book Value per Share even as interest rates have risen Management incentives aligned with shareholders’
Slide 27: Five-Year Return to Shareholders
Five-Year Return to Shareholders Share Price Book Value 2001 2002 2003 2004 2005 YTD '06 NCRIC adds $0.95 in Q3, 2005 MEEMIC sales adds $3.51 in Q1, 2006 PIC Wisconsin adds $1.22 in Q3, 2006 $17.58 $21.00 $32.15 $39.11 $48.64 $52.11 $16.02 $17.49 $18.77 $20.92 $24.59 $32.58
Slide 28: Return to Shareholders Since Inception
Return to Shareholders Since Inception Book Value CAGR: 15.6% (to 9/30/06) Stock Return: 18.2% (to 11/15/06) Share Price Book Value Share value at November 15, 2006, Book Value at September 30, 2006
Slide 29: Investment Income a Factor Again
Investment Income a Factor Again Cash flow is over $1 billion since the creation of ProAssurance in 2001 Helping fuel higher investment returns
Slide 30: Key Objective: Return on Equity
Key Objective: Return on Equity We price our policies to deliver a long-term average ROE of 12%-14% Assuming 1:1 premium-surplus Meeting the ROE Challenge ROE in 2006 is higher than "05 despite having additional capital to put to work
Slide 31: Key Objective: Strong Cash Flow
Key Objective: Strong Cash Flow Cash flow remains strong will benefit in 2006 from full-year NCRIC Additional benefit when PIC Wisconsin cloes 2006 cash flow affected by investment stragegy and timing/taxes in Q2
Slide 32: Key Objective: Combined Ratio
Key Objective: Combined Ratio Professional Liability Ratio History Combined Ratio Operating Ratio 2006 Goal: 97.1% 2005: 97.1% 79.1% 2004: 104.8% 90.2% 2003: 111.6% 97.7%
Slide 33: Management Aligned with Shareholder
Management Aligned with Shareholder Annual Incentives Meaningful Percentage of total compensation paid primarily stock Based on: Combined Ratio Goals EPS Performance against peers Long-Term Incentives Moving away from options performance shares Three-year measurement period Based on: Total Return re
Slide 34: 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 35: Supplemental Data
Supplemental Data ProAssurance
Slide 36: ProAssurance 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 Pricing can be adjusted No prior history Prior history available Lack of experienced personnel Local expertise available Limited acces
Slide 37: Management of Asset Risk
Management of Asset Risk We limit risk in our portfolio because we recognize the risk in our business No derivatives Average fixed maturity duration of 3.8 years Fixed income portfolio Weighted average rating: AA+ 97.8% investement grade Avg. tax-equivalent yield: 5.5% Net unrealized gain: $1 millio