Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (December 2009)
79 slides from Proassurance's investor presentation, Dec 1, 2009
Slide 1: 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 2: ProAssurance: Quick Facts
ProAssurance: Quick Facts Fifth largest 1 writer of medical liability Writing business in 49 1 jurisdictions Approximately 55,000 2 individual policyholders 42,000 physicians and dentists 8,000 ancillary and other healthcare professionals 4,800 attorneys Majority in small or solo practice hospitals
Slide 3: Recent Highlights
Recent Highlights Completion of three M&A transactions in 2009 Potential new premium is approximately $100 million on an annualized basis Restoring growth to the top line Existing markets grew modestly in Q2 2009 Maintaining profitability Successful performance in a challenging financial market and
Slide 4: Successful Performance: Book Value
Book Value Growth Cumulative CAGR 10 year 222% 12% 5 year 127% 18% 1 year 10% 10% Measured through Year-End 2008 Successful Performance: Book Value
Slide 5: Successful Performance: Stock Price
Share Price Growth Cumulative CAGR 10 year 84% 6% 5 year 64% 10% 1 year -5% -5% Measured through Year-End 2008 Successful Performance: Stock Price Share Price at Year End Since Inception
Slide 6: Recent Business Highlights
Recent Business Highlights Again recognized as one of the 50 top performing property casualty insurance companies by The Ward Group Top 3% of all P&C companies Our third straight year Upgrade to “A” (Excellent) by A. M. Best Positive outlook assigned by S & P
Slide 7: Recent Employee Highlights
Recent Employee Highlights Named The Best Mid-Size Insurance Employer in America by Business Insurance Named one of America’s Top Ten Companies for Employee Financial Security by The Principal
Slide 8: ProAssurance
PROASSURANCE. “rested Faly
Slide 9: Spreading Risk is Vital
Spreading Risk is Vital 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 Headquarters Corp
Slide 10: We Dare to Defend
We Dare to Defend 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 differentiating
Slide 11: Respond to Transparency
Respond to Transparency Malpractice judgments/settlements now disclosed in 18 states Public access to the National Practitioner Data Bank is the next step Disciplinary actions now disclosed in almost every state Board / Discipline / Med Mal Med Mal disclosure legislation proposed P
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 Trends are much the same in states with or without Tort Reform ProAssurance Claims Tried to a Verdict
Slide 13: Health Care Reform & Tort Reform
Health Care Reform & Tort Reform No major changes in the tort system based on currently written legislation Demonstration projects do not provide meaningful reform or immediate data Signals a desire to leave the tort system in the hands of each state We set prices and reserves as if there is no tort
Slide 14: Maintaining Pricing Discipline
Maintaining Pricing Discipline Pricing developed using multiple years Using credits allows us to maintain existing rate filings Not unduly influenced by current market conditions Rates on renewing physician business down less than 12% from peak pricing in 2006
Slide 15: Annual & Cumulative
170% 150% 130% ; Annual @ Cumulative 110% 90% 70% 50% 30% 10% -10% 2001 2002 2003 2004 2005 2006 2007 2008 2009 @ Annual 23% 28% 28% 19% 11% 3% -2% ~6% ~4% Cumulative) 23% 57% 102% 140% 166% 174% 169% 153% 142% PROASSURANCE, Tres
Slide 16: Pricing in a Low Interest Environment
Pricing in a Low Interest Environment Pricing Discipline is Even More Critical Combined ratio required to generate a 13% after-tax ROE
Slide 17: Strategy: Actuarial Conservatism
$ 2.4 $ 2.6 $ 2.6 $ 2.2 $ 1.8 Strategy: Actuarial Conservatism
Slide 18: Combined Ratio Comparison
Combined Ratio Comparison Source: A. M. Best Aggregates and Averages 2009 Medical Malpractice Lines of Business Net
Slide 19: Strategy: Treated Fairly
Strategy: Treated 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 20: ProAssurance
PROASSURANCE. “rested Faly
Slide 21: Key Opportunities
Key Opportunities New insurance buyers will emerge as healthcare reform evolves New products will respond to physician/hospitals combinations The outcome of medical liability claims will become more transparent Financial issues will highlight the need for successful, long-term companies with superio
Slide 22: We Created a Leader Through Consolidation
Physicians Ins. Co. of Michigan 2009: Consolidation of: Mid-Continent General Agency 2009: Consolidation of: Mid-Continent General Agency Georgia Lawyers Insurance Co. Georgia Lawyers Insurance Co. 2004: Purchased Selected Renewal Rights from: OHIC Insurance Company 2004: Purchased Selected Renewal
Slide 23: Experienced Management Team
Name Position Years at Company Years Affiliated With The Industry Stan Starnes Chairman & CEO 2 31 Victor Adamo President 24 29 Jeff Bowlby Chief Marketing Officer 11 25 Howard Friedman Liability Group President / Chief Underwriting Officer 13 29 Jeff Lisenby Corporate Counsel 8 8 Frank O'Neil Inves
Slide 24: Recent M&A Transactions
Recent M & A Transactions Significant growth in our core business Geographical expansion Extends our core business Broadens our medically-related range Geographical expansion Adds to our lawyers’ book Geographical expansion Affirms our interest in this line
Slide 25: Extending our Reach in MPL
Extending our Reach in MPL Podiatry Insurance Company of America (PICA) Dominant (70%), profitable, national company ~$96 million Direct Premium in 2008 Renewals at expected levels in 2009 $13.7 million added to PRA premium in Q2 2009 Podiatry is growing in importance as a specialty Involved in trea
Slide 26: With PICA We Are a National Carrier
With PICA We Are a National Carrier Leveraging the benefits of our many M & A transactions through long-term customer relationships and local and specialty knowledge Corporate Headquarters Corporate Headquarters Claims Offices Claims Offices Claims / Underwriting Offices Claims / Underwriting Office
Slide 27: Opening New Avenues in MPL
Opening New Avenues in MPL Mid-Continent General Agency Large writer of ancillary healthcare Healthcare reform will emphasize care delivery from a larger array of lower-cost providers Home health care Physician-extenders ~$26 million in total premium in 2008 $20 million healthcare related PRA will w
Slide 28: Adding to our Legal E&O Book
Adding to our Legal E&O Book Georgia Lawyers Insurance Company A leading insurer of Georgia attorneys Premium: $5.7 million Highlights our desire to grow in this line Sets the stage for expansion in the southeast Our existing legal professional business is primarily in the midwest Approximately 2,65
Slide 29: ProAssurance Growth Strategy
ProAssurance Growth Strategy 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 acquire without “breaking the bank” Ability to use our stock in transactions Attractive because of
Slide 30: ProAssurance Growth Strategy
ProAssurance Growth Strategy The current market environment favors growth by acquisition DE NOVO GROWTH vs. GROWTH BY ACQUISITION DE NOVO GROWTH vs. GROWTH BY ACQUISITION - Must price your way into the market + Pricing can be adjusted - Must price your way into the market + Pricing can be adjusted -
Slide 31: ProAssurance
PROASSURANCE. “rested Faly
Slide 32: YTD Income Statement Highlights
We have reversed the decline in premiums with new business from PICA, Mid-Continent and Georgia Lawyers YTD Income Statement Highlights in millions, except per share data Gross Premiums Written $ 435 $ 374 $ 472 Net Investment Income 113 122 158 Total Revenue 489 431 567 Total Expenses 295 294 470 O
Slide 33: Strategy: Enduring Financial Strength
Strategy: Enduring Financial Strength Emphasizing an appropriate balance of risk vs. return Committed to enduring balance sheet strength Responding to the low interest rate environment Stockholder’s Equity Up Over 16% Since 12/31/07
Slide 34: Strategy: Use Capital Prudently
Strategy: Use Capital Prudently Using capital to build through M&A Preserving capital for future opportunities Enhancing shareholder value by repurchasing shares at prices that build Book Value Source: SNL Financial
Slide 35: Our Strong Capital/Low Leverage Position
$471 Our Strong Capital/Low Leverage Position ( in millions) Prepared for an improving market Prudent capital management Premiums to Surplus for Each year $567 $ 96 (PICA pro forma)
Slide 36: Excess Capital vs. Excess Capacity
Excess Capital vs. Excess Capacity Conceptual Model of Projected A. M. Best BCAR Scores if Premiums Increase Surplus is Reduced
Slide 37: Strategy: Balance Risk vs. Return
$3.9 Billion Portfolio Fixed Income: 91% Short Term: 4% Equity and Other Investments: 3% BOLI: 2% Strategy: Balance Risk vs. Return Key Investment Actions in Q3 09 Reduced cash and short-term balances Added to corporate bonds CUSIP-level portfolio disclosure on our website: www.proassurance.com/inve
Slide 38: Little Dependence on Debt
Little Dependence on Debt Low Debt to Cap Ratio Little strain on cash flow 9/30/2009
Slide 39: Fixed Income: $3.6 Billion
Fixed Income: $3.6 Billion 9/30/09
Slide 40: ProAssurance
PROASSURANCE. “rested Faly
Slide 41: ProAssurance: Producing Sustainable Shareholder Value
ProAssurance Producing sustainable shareholder value Growing Book Value per Share Finding the right M & A opportunities Significant share ownership at all levels Focusing on long-term Preparing for a changing market Leveraging financial strength Protecting the balance sheet Maintain our leading mark
Slide 42: Appendix: Market Conditions
Appendix: Market Conditions
Slide 43: Market Cycle Factors
ctor Status Cycle Impact Frequency Stabilizing Neutral Severity Moderate Neutral — Harden Investment Returns Low Harden Capital Excess Capacity Soften Cash Flow Becoming Strained Neutral— Harden Reserves Modestly Redundant Soften Reinsurance Sufficient Capacity Neutral PROASSURANCE,
Slide 44: ProAssurance
PROASSURANCE. “rested Faly
Slide 45: Why Claims Strategy Matters
Favorable Outcomes: 84.0% Favorable Outcomes: 75.4% Why Claims Strategy Matters Favorable Outcomes: 84.0% Five Year Average 2004 - 2008 Favorable Outcomes: 75.4%
Slide 46: Why Claims Strategy Matters
Why Claims Strategy Matters Our ability and willingness to defend claims allows us to achieve better results ProAssurance vs. Industry Average Statutory Loss Ratio 2003-2008 Legal Payments Loss Payments Trend for ProAssurance Stand Alone Statutory Loss Ratio - - 2008 76.0% *Source: A. M. Best Aggreg
Slide 47: ProAssurance
PROASSURANCE. “rested Faly
Slide 48: Equities & Other: $136 Million
Equities & Other: $136 Million 9/30/09 Represents 3.5% of our Total Investments
Slide 49: Return by Quarter: Equities & Other
Return by Quarter: Equities & Other
Slide 50: Growth in Investment vs. Reserves
Growth in Investment vs. Reserves
Slide 51: Cumulative Return: Equities & Other
Cumulative Return: Equities & Other
Slide 52: Strategy: Investment Discipline
Strategy: Investment Discipline 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 53: Municipals: $1.5 Billion
Municipals: $1.5 Billion 9/30/09 Investment policy has always required investment grade rating prior to applying the effect of insurance
Slide 54: Asset Backed: $805 Million
Asset Backed: $805 Million Weighted average rating: “AAA” Bloomberg Data 9/30/09 Alt-A LTV 63% Prime MBS LTV 56% Further Details Provided on Sub-Prime and CMBS on following pages
Slide 55: Sub-Prime Detail
At 9/30/09 Vintage $4.8 Mln 2004 & Prior $1.9 Mln 2005 At 9/30/09 Type Quality $2.9 Mln Mortgage-Backed AA avg - LTV 68% $3.8 Mln Home Equity A+ avg Sub-Prime Detail $6.7 million market value in AFS portfolio $4.2 million unrealized loss $9.6 million market value in high-yield LP rated B LP’s focus
Slide 56: CMBS Detail
CMBS Detail Vintages 2005 & Prior- $136 million 2006- $23 million 2007- $3 million Top Property Types Retail-Anchored: 45% of CMBS portfolio Exposure: 19% - 44% of underlying occupancies Office: 44% of CMBS portfolio Exposure: 23% - 49% of underlying occupancies Multi Family: 4% of CMBS portfolio Mi
Slide 57: CMBS Detail
At 9/30/09 Quality $160 Mln AAA $ 2.0 Mln AA At 9/30/09 Wtd Avg LTV 24% <65% 43% =65-70% 21% <70-75% 12% =75-85% At 9/30/09 Credit Support 26% >30% 52% 20% - 30% 20% 10% - 20% 2% Less than 10% At 9/30/09 Deal Cumulative Delinquencies 27% 0% - 0.5% 3% 0.5% - 1.0% 32% 1.0% - 2.0% 4% 2.0% - 3.0% 22% 3.
Slide 58: CMBS Since September 30, 2009
CMBS Since September 30, 2009 Since 9/30/09: Sold $50.0 million CMBS Paydowns of $8.0 million As of November 30, 2009 CMBS: Market value: $108 million Book value: $110 million Expecting pay down of $19 million by year-end 2009 Projecting ~$90 million exposure at year-end
Slide 59: Corporates: $1.0 Billion
Corporates: $1.0 Billion 9/30/09
Slide 60: Corporate: Detail on Financials
BA $44 ($23) BNY Mellon $10 MS $27 ($6) Credit Suisse $9 BP Cap $25 Eurohypo $8 GECC $25 ($8) KEY $6 ($6) JPM $24 ($14) NRUC $6 CITI $20 ($7) Deutsche Bank $5 Wells $20 FMCC $5 GS $16 ($2) NY Commt’y Bank $5 ($5) PNC $15 ($2) Depfa ACS Covered $5 Amex $14 John Deere Cap $5 ($2) FDIC backed amounts l
Slide 61: Treasury/GSE: $228 Million
Treasury/GSE: $228 Million 9/30/09
Slide 62: FHLMC & FNMA Detail: $421 Million
FHLMC & FNMA Detail: $421 Million *® Average Rating: AAA Py PROASSURANCE. pone:
Slide 63: Portfolio Overview: Short Term
Portfolio Overview: Short Term $138 Million Rated A1/P1 or better Money Markets: Moody’s: Aaa S & P: AAA
Slide 64: BOLI: $65 Million
BOLI: $65 Million Weighted average rating Moody’s: AA3 S&P: AA A. M. Best: A+
Slide 65: Appendix: Industry History
Appendix: Industry History
Slide 66: The Medical Liability Industry Cycle
The Medical Liability Industry Cycle —Premium —Initial Reserve —Developed Loss millions: (Estimated) (Actual) $10,000 Industry Data 1976 Through 2000 $8,000 $6,000 $4,000 $2,000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 66 Medical 8 PRoAssu
Slide 67: The Medical Liability Industry Cycle
The Medical Liability Industry Cycle —Premium —Initial Reserve —Developed Loss millions: (Estimated) (Actual) $10,000 Industry Data 1976 Through 2001 $8,000 $6,000 $4,000 $2,000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 67 8 PRoAssu
Slide 68: The Medical Liability Industry Cycle
The Medical Liability Industry Cycle —Premium —Initial Reserve —Developed Loss millions: (Estimated) (Actual) $10,000 Industry Data 1976 Through 2002 $8,000 $6,000 $4,000 $2,000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 68 Medical 8 PRoAssu
Slide 69: The Medical Liability Industry Cycle
The Medical Liability Industry Cycle —Premium —Initial Reserve —Developed Loss millions: (Estimated) (Actual) $10,000 Industry Data 1976 Through 2003 $8,000 $6,000 $4,000 $2,000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 69 seca 8 PRoAssu
Slide 70: The Medical Liability Industry Cycle
The Medical Liability Industry Cycle —Premium —Initial Reserve —Developed Loss millions: (Estimated) (Actual) $10,000 Industry Data 1976 Through 2004 $8,000 $6,000 $4,000 $2,000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 70 seca 8 PRoAssu
Slide 71: The Medical Liability Industry Cycle
The Medical Liability Industry Cycle —Premium —Initial Reserve —Developed Loss millions: (Estimated) (Actual) $10,000 Industry Data 1976 Through 2005 $8,000 $6,000 $4,000 $2,000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 7 seca 8 PRoAssu
Slide 72: The Medical Liability Industry Cycle
The Medical Liability Industry Cycle —Premium —Initial Reserve —Developed Loss millions: (Estimated) (Actual) $10,000 Industry Data 1976 Through 2006 $8,000 $6,000 $4,000 $2,000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 W2 seca 8 PRoAssu
Slide 73: The Medical Liability Industry Cycle
The Medical Liability Industry Cycle —Premium —Initial Reserve —Developed Loss millions: (Estimated) (Actual) $10,000 Industry Data 1976 Through 2007 $8,000 $6,000 $4,000 $2,000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Ta seca 8 PRoAssu
Slide 74: The Medical Liability Industry Cycle
The Medical Liability Industry Cycle —Premium —Initial Reserve —Developed Loss millions: (Estimated) (Actual) $10,000 Industry Data 1976 Through 2008 $8,000 $6,000 $4,000 $2,000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Ta seca 8 PRoAssu
Slide 75: ProAssurance
PROASSURANCE. “rested Faly
Slide 76: Profitable Growth Through M&A
Profitable Growth Through MaA % ProAssurance has been built through M & A Te / \ ® ProAssurance was formed by 4g >, i ‘a the combination of two L - [Ss { ® : Pas successful companies with a L er on ae x} historyof M&A 76 8 PROASSURANCE. rel
Slide 77: Profitable Growth Through M&A
Profitable Growth Through Ma A % ProAssurance has been built through M & A *® Each company brought multiple transactionsinto ProAssurance at our founding in 2001 8 PROASSURANCE,
Slide 78: 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 * Weare the market leaders in AL, DE, DC, & WI 78 8 PROASSURANCE. Tra Fa
Slide 79: Profitable Growth Through M&A
Profitable Growth Through Ma A % ProAssurance has been built through M& A * We have continued to grow throughM & A ® NCRIC in the mid-Atlantic % PIC-Wisconsin in the upper Midwest % PICA Nationwide 79 PROASSURANCE. “rested Fatty