Proassurance Corporation · NYSE:PRA
Proassurance — Non-Deal Roadshow (December 2010)
38 slides from Proassurance's roadshow presentation, Dec 6, 2010
Slide 1: New York Investor Meetings, December 6-8, 2010
December 6-8, 2010 New York Investor Meetings W. Stancil Starnes Chairman & CEO Edward L. Rand, Jr. Chief Financial Officer Frank B. O’Neil Investor Relations Officer arranged by Stifel, Nicolaus & Co.
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: Corporate Profile
Historical Book Value Per Share Historical Stock Price ProAssurance: Corporate Profile Specialty writer of professional liability insurance, primarily Medical Professional Liability (MPL) Market Cap : ~$1.9 billion Total Assets: $4.8 billion Shareholders’ Equity: $1.8 billion Founded in 1975 / Demut
Slide 4: ProAssurance: Business Profile
Company 2009 DPW (000’s) Share Comments 1 Medical Liability Mutual $ 756,844 7.0% 78% in NY, 22% in NJ 2 Medical Protective $ 727,160 6.8% Berkshire subsidiary Direct competitor 3 Doctors Company $ 601,223 5.6% Non-public Direct competitor 4 ProAssurance $ 541,033 5.0% 5 AIG $ 524,252 4.9% Not a dir
Slide 5: ProAssurance: Geographic Profile
Top States (2009 Premium) ProAssurance Footprint ProAssurance: Geographic Profile Writing in 49 states and DC, ProAssurance has broad geographic diversification 2009 market share of 5% by DPW Each state presents unique medical and legal challenges Local offices provide the local knowledge that diffe
Slide 6: ProAssurance: Risk and Distribution Profile
Premium: $415 million Policyholders: ~63,000 ProAssurance: Risk and Distribution Profile We insure a broad range of healthcare risks, from individual providers to 800 bed hospitals Rated “A” by A.M. Best and Fitch Direct in Alabama, Florida and in all states for Podiatric business Dual distribution
Slide 7: M & A Update
M & A Update Financial Highlights Acquisition of American Physicians Services Group (APS) closed November 30, 2010 Announced September 1, 2010 Valued AMPH at $32.50/share / Approximately $233 million payments to AMPH shareholders 1.3x Book Value or 11x First Call EPS estimate Modestly accretive to e
Slide 8: We Expect to Continue Growing Through M&A
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 9: De Novo vs. Acquisition M&A and the Insurance Cycle
De Novo vs. Acquisition M&A and the Insurance Cycle The Case for Growing Through M&A Legal and regulatory environment must be favorable Not all M&A opportunities should be pursued The key is understanding why companies are available We don’t “bet the farm” and can acquire without “breaking the bank”
Slide 10: Strategy & Operations: Differentiation is the Key
Strategy & Operations: Differentiation is the Key
Slide 11: Current Industry Status
Current Industry Status We are in a period of “benign profitability” Prices have been falling yet profitability remains at attractive levels We have seen no new large scale market entry from larger commercial competitors Some consolidation among “mid-decade” start-ups
Slide 12: Differentiate Through Claims Defense
ProAssurance: 81% Favorable Outcomes Industry: 74% Favorable Outcomes Differentiate Through Claims Defense Our deep expertise in claims defense has always set us apart Our financial strength gives our insureds the opportunity for an uncompromising defense of their claim Our successful approach to cl
Slide 13: The Ohio Example: 2005 - 2008 Data
Fewer Claims Closed With Indemnity More Claims Defended in Court Lower Average Indemnity Payment per Closed Claim The Ohio Example: 2005 - 2008 Data Exhaustive, reliable data provided by the Ohio Department of Insurance Broad range of competitors and business approaches www.insurance.ohio.gov/Legal/
Slide 14: Claims Trends Remain Favorable
ProAssurance Claims Tried to a Verdict New Claims Opened Each Year Claims Trends Remain Favorable With frequency down compared to mid-decade the result is fewer cases to try Severity trends steady and manageable Trends are much the same in states with or without Tort Reform
Slide 15: Loss Trends and Rate Actions
Rate Change History Insured Retention History Loss Trends and Rate Actions Rates on renewing physician business down less than 12% from peak pricing in 2006 Improved frequency trends are reflected in recent rate declines Improvement in frequency has outweighed a steady, manageable rise in severity o
Slide 16: Demonstrated Underwriting Performance
Demonstrated Underwriting Performance We enforce stringent underwriting standards to maintain rate structure and enhance profitability Underwriting process driven by individual risk selection and assessment of loss history, areas of practice, and location Rate filings consider the results of the pas
Slide 17: Conservative Approach to Reserves
Net Reserve Development Average Reserve per Open MPL Claim Conservative Approach to Reserves No change in the historic reserving practices that have produced favorable net reserve development in each of the last seven years and YTD 2010 Conservative reserve strategy provides protection against a los
Slide 18: The Effect of Legislative Changes
The Effect of Legislative Changes National: Healthcare Reform No immediate effect—no meaningful Tort Reform in the bill Demonstration projects do not provide meaningful reform or immediate data More patients will ultimately require more physicians and ancillary providers Known: More customers for us
Slide 19: Long-Term Financial Strength Sets Us Apart
Long-Term Financial Strength Sets Us Apart Ensuring the strength of our balance sheet is our top financial priority Financial strength differentiates us in the market The claims defense philosophy that differentiates us in the market leverages our financial strength Up Over >60% Since 12/31/06
Slide 20: Financial Performance and Investments
Financial Performance and Investments
Slide 21: Performance Recognition
Operating Ratio Combined Ratio Loss & LAE Ratio Return on Core Premium Return on Surplus Performance Recognition Leading industry operating performance in 2009, ranked by Moody’s top 100 property & casualty insurers ProAssurance ranks 79th by premium, but outperforms in key financial measures Fourth
Slide 22: Operating Net Income, Investment Income, Premiums Written
Consolidated Operating Net Income 1 Net Investment Income Net Premiums Written 1 Excludes the after-tax effects of net realized gains or losses and guaranty fund assessments or recoupments
Slide 23: Investment Portfolio Overview
$4 Billion Overall Portfolio $3.5 Billion Fixed Income Portfolio CUSIP-level portfolio disclosure on our website: www.proassurance.com/investorrelations/supplemental.aspx Investments Balance Risk vs. Return Average duration: 4.1 years Average tax-equivalent yield: 5.0% Investment grade: 97% Weighted
Slide 24: The Importance of Investment Income
Trial and Appeals Life Cycle of a Typical Claim The Importance of Investment Income Investment income compounds significantly due to the long-tail nature of the MPL claims cycle Lower investment results place greater emphasis on quality underwriting to achieve a combined ratio below 100% Year Year Y
Slide 25: Return on Equity and Investment Returns
Long-Term ROE Target is 13% The Yield Trap Pricing discipline becomes even more critical in a low interest rate environment Lack of investment yield may be a hard market catalyst Return on Equity and Investment Returns Assumes a 1:1 premium to surplus ratio for physicians professional liability clai
Slide 26: Conservative Use of Debt and Low Leverage
Debt to Equity Strong Capital Position Conservative Use of Debt and Low Leverage Low Debt to Cap Ratio No strain on cash flow No Debt Prior to 2001 Prepared for an improving market
Slide 27: Capital Management
Share Repurchase History Excess Capital vs. Excess Capacity Capital Management Dividends No current dividend to shareholders Regular evaluation by Board/Management Ongoing commitment of cash is a key consideration Uncertainty about future tax treatment Share Repurchase $105 million spent to date in
Slide 28: ProAssurance
PROASSURANCE. “rested Faly
Slide 29: Current Prices Present a Compelling Buying Opportunity
Current Prices Present a Compelling Buying Opportunity Current Price to Book: ~1.0x Average Since Inception: 1.4x Driven to Excel / Focused on Shareholder Value Maintaining our profitability and book value growth Outstanding performance in a challenging financial market and a demanding line of insur
Slide 30: Supplemental Discussion Materials
Supplemental Discussion Materials
Slide 31: Management Team
W. Stancil Starnes, J.D. Chairman & Chief Executive Officer sstarnes@proassurance.com (205) 877-4400 Company Tenure: 3 Years Prior MPL Experience: 29 Years Industry & Related Experience: 32 Years Formerly in the private practice of law in MPL defense and complex corporate litigation. Victor T. Adamo
Slide 32: YTD 2010 Financial Highlights
YTD 2010 Financial Highlights in millions, except per share data Q3 12/31 2010 2009 2009 2008 Gross Premiums Written $ 415 $ 435 $ 554 $ 471 N et Investment Income 110 113 151 158 Net Income (Includes Investment Losses) 130 137 222 178 Operating Income 123 136 215 207 Net Income/Diluted Share $ 3.99
Slide 33: ProAssurance Portfolio Detail: Asset Backed
Asset Backed: $719 Million Weighted Average Rating: “AA+” Breakdown of Agency MBS Holdings Sub-Prime: $12.3 Market Value (AFS) $826,000 unrealized loss ProAssurance Portfolio Detail: Asset Backed Bloomberg Data 9/30/10 CMBS Details Provided on Page 33
Slide 34: ProAssurance Portfolio Detail: CMBS
ProAssurance Portfolio Detail: CMBS $105 million Fair Value in non-agency CMBS Book Value: $100 million (3% of fixed income portfolio) No cumulative losses in our CMBS portfolio 9/30/10
Slide 35: ProAssurance Portfolio Detail: Municipals
Municipals: $1.3 Billion Sources of Revenue Backing Municipals ProAssurance Portfolio Detail: Municipals 9/30/10 Investment policy has always required investment grade rating prior to applying the effect of insurance
Slide 36: ProAssurance Portfolio Detail: Equities & Other
Equities & Other: $142 Million Return by Quarter Cumulative Return ProAssurance Portfolio Detail: Equities & Other 9/30/10 Does not sum to 100% due to rounding In millions In millions
Slide 37: ProAssurance Portfolio Detail: Corporate
Corporates: $1.1 Billion ProAssurance Portfolio Detail: Corporate 9/30/10 Weighted Average Rating: A
Slide 38: ProAssurance Portfolio Detail: Various
ProAssurance Portfolio Detail: Various All 9/30/10 Rated A1/P1 or better Money Markets: Moody’s: Aaa S&P: AAA Weighted average rating Moody’s: AA3 S&P: AA- A. M. Best: A+