Proassurance Corporation · NYSE:PRA
Proassurance — Non-Deal Roadshow (November 2005)
46 slides from Proassurance's roadshow presentation, Nov 10, 2005
Slide 1: ProAssurance Midwest Investor Meetings November 9-10, 2005
ProAssurance Midwest Investor Meetings November 9-10, 2005 A. Derrill Crowe, M.D. Chairman & Chief Executive Officer Mr. Frank B. O’Neil Investor Relations Officer
Slide 2: ProAssurance Contacts Travelling Available
ProAssurance Contacts Travelling Available ProAssurance 1
Slide 3: 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 4: ProAssurance Overview
ProAssurance Overview o Market Cap: $1.4 Billion o Gross Premiums: $790 million in 2004 o Assets: $3.8 billion o Nation's fourth-largest medical professional liability insurer o Geographically diversified o Experienced, invested management o Sale of personal lines business expected to be complete in
Slide 5: 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 6: Professional Liability The Core of ProAssurance
Professional Liability The Core of ProAssurance ProAssurance (R)
Slide 7: Professional Liability
Professional Liability 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 results through careful underwriting, proper pricing and effective claims handling
Slide 8: Professional Liability
Professional Liability 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 Year CAGR: 18.0% 2001 2002 2003 2004 $349 $462 $543 $574 ProAssurance 7
Slide 9: Regional Operating Structure
Regional Operating Structure National Scale...Regional Orientation o Consolidated financial strength is unmatched in our niche o Corporate strategy applied locally to underwriting & claims o Local knowledge crucial to understanding legal environment o Local presence preserves long-term customer rela
Slide 10: NCRIC is an ideal fit in the ProAssurance operating model
NCRIC is an ideal fit in the ProAssurance operating model o Adding NCRIC strengthens our mid-Atlantic presence o ~4,000 policyholders o We retain local knowledge in key operational positions o Similar corporate culture eases integration States of Origin or Acquisition Expansion States NCRIC States C
Slide 11: Market Leadership
Market Leadership We are the foremost writer in our states of operation 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 Leading Market Share Top 5 Market Share Top 10 Market Share Growing Market Share
Slide 12: 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 1994: Consolidation of: West Virginia Hosp. Ins Co. 1999: Assumed business of: Medical Defense Associates (MO)
Slide 13: Claims Defense Drives Us
Claims Defense Drives Us 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 We try more cases than any company is our line of business 2002 2003 2004 360 391 528 12
Slide 14: Closed Claim Outcome Comparison
Closed Claim Outcome Comparison Favorable Outcomes: 83.3% Favorable Outcomes: 76.4% ProAssurance, 2004 Industry Data, 2004* Dropped or Dismissed 69.3% Defense Verdict 14.0% Plaintiff Verdict 4.4% Settled 12.3% 70.80% 22.50% 1.10% 5.60% ProAssurance *Source: Physician Insurers Association Data Sharin
Slide 15: 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 ProAssurance 14
Slide 16: 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 53.90% 55.80% 88.30% 36.00% *Source: A. M. Best Aggregates & Averages Medial Malpractic
Slide 17: Professional Liability Combined Ratio
Professional Liability Combined Ratio PL Industry PRA PL Only Combined Ratio 1999-2004 Measures overall Operating Success A. M. Best Estimate 1999 2000 2001 2002 2003 2004 129.7% 133.8% 154.2% 142.5% 135.2% 128.1% 88.2% 109.4% 125.2% 124.5% 111.6% 104.8% Source: ProAssurance Statutory Filings and A.
Slide 18: 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 19: 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 ProAssurance 18
Slide 20: Looking Ahead
Looking Ahead o Federal tort reform remains uncertain o State-by-state reforms o Passed in many forms 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 21: 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 ProAssurance 20
Slide 22: Behind the Sale of Our Personal Lines Business
Behind the Sale of Our Personal Lines Business ProAssurance MEEMIC
Slide 23: MEEMIC Transaction Background
MEEMIC Transaction Background o Personal Lines business is near its peak o MEEMIC's outstanding margins may erode as larger competitors target affinity markets o Our choice: o Current earnings vs. a premium valuation o Our decision: o Think long-term o Focus on core competency in med mal ProAssuranc
Slide 24: MEEMIC Transaction Structure
MEEMIC Transaction Structure o GMAC pays $327 million cash for MEEMIC and its internal insurance agency o MEEMIC "upstreams" $73 million prior to closing o ProAssurance will replace the capital now at MEEMIC o Remainder will be available for general corporate purpose ProAssurance 23
Slide 25: MEEMIC Transaction Timing
MEEMIC Transaction Timing o Completion expected in Q1, 2006 o No anti-trust concerns in our view o State regulators have indicated support ProAssurance 24
Slide 26: Financial Overview The Heart of ProAssurance
Financial Overview The Heart of ProAssurance ProAssurance
Slide 27: Financial Highlights
Financial Highlights o Consolidated Combined Ratio continues to decrease o 92.5% YTD(1) o Return on Equity exceeding our targets o 15.6% YTD(1) o Solid bottom line growth and strong cash flows Cash Flow from Operations Merger Created ProAssurance in June 2001 2000 $36.3 2001 $61.3 2002 $177.0 2003 $
Slide 28: 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% ProAssurance 27
Slide 29: Combined Ratio Returning to Historic Norms
Combined Ratio Returning to Historic Norms 1998 92.3% 89.2% 90.8% 87.4% 1999 89.6% 85.9% 88.7% 88.1% 2000 102.8% 107.7% 111.4% 111.4% 2001 119.1% 117.9% 117.7% 118.1% 2002 116.0% 114.9% 112.6% 109.1% 2003 108.2% 106.7% 104.1% 102.4% 2004 101.2% 100.1% 99.6% 96.2% 2005 97.5% 93.5% 92.5% Results First
Slide 30: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Industry Data 1976 Through 2000 Millions C/A Yr Premium Initial Reserve Developed Loss 1976 1,100 $950 $950 1977 1,142 $960 $960 1978 1,148 $1,171 $1,171 1979 1,141 $1,398 $1,398 1980 1,184 1,209 1,659 1981 1,268 1,387 2,032 1982 1,333 1,546 2,166 1983 1,509 1,723
Slide 31: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Industry Data 1976 Through 2001 Millions C/A Yr Premium Initial Reserve Developed Loss 1976 1,100 $950 $950 1977 1,142 $960 $960 1978 1,148 $1,171 $1,171 1979 1,141 $1,398 $1,398 1980 1,184 1,209 1,659 1981 1,268 1,387 2,032 1982 1,333 1,546 2,166 1983 1,509 1,723
Slide 32: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Industry Data 1976 Through 2002 Millions C/A Yr Premium Initial Reserve Developed Loss 1976 1,100 $950 $950 1977 1,142 $960 $960 1978 1,148 $1,171 $1,171 1979 1,141 $1,398 $1,398 1980 1,184 1,209 1,659 1981 1,268 1,387 2,032 1982 1,333 1,546 2,166 1983 1,509 1,723
Slide 33: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Industry Data 1976 Through 2003 Millions C/A Yr Premium Initial Reserve Developed Loss 1976 1,100 $950 $950 1977 1,142 $960 $960 1978 1,148 $1,171 $1,171 1979 1,141 $1,398 $1,398 1980 1,184 1,209 1,659 1981 1,268 1,387 2,032 1982 1,333 1,546 2,166 1983 1,509 1,723
Slide 34: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Industry Data 1976 Through 2004 Millions C/A Yr Premium Initial Reserve Developed Loss 1976 1,100 $950 $950 1977 1,142 $960 $960 1978 1,148 $1,171 $1,171 1979 1,141 $1,398 $1,398 1980 1,184 1,209 1,659 1981 1,268 1,387 2,032 1982 1,333 1,546 2,166 1983 1,509 1,723
Slide 35: Will History Repeat Itself--Again?
Will History Repeat Itself--Again? Premium Initial Reserve (Estimate) Developed Loss (Actual) Premiums In Millions 12/31/2000 ProAssurance 34
Slide 36: Consistent Growth in Book Value per Share
Consistent 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 $23.76 NCRIC adds $0.95 in Q3, 2
Slide 37: 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 1993 $6.27 1995 $8.56 1997 $11.57 1999 $13.92 2001 $16.02 2003 $18.77 2004 $20.92 YTD 2005 $23.76 Adds NCRIC At December 31 Each Year, Audited except for YTD
Slide 38: EPS Reflect Pricing and Underwriting Actions
EPS Reflect Pricing and Underwriting Actions o Results First Reflect Dramatic Increases in Losses and Loss Costs o Results First Reflect ProAssurance's Pricing and Underwring Discipline Q3, 2001 $0.11 Q1, 2002 $0.14 -$0.18 Q1, 2003 $0.22 Q1, 2004 $0.52 Q1, 2005 $0.71 $0.90 Attributable to One Time S
Slide 39: Returning Our ROE to Acceptable Levels
Returning Our ROE to Acceptable Levels o Cumulative ROE at each quarter end Q3, 2001 2.6% Q1, 2002 3.6% 0.1% Q1, 2003 5.0% Q1, 2004 11.4% Q1, 2005 14.4% 15.6% o Attributable to One Time Securities Impairment Annualized Net Income / Average Shareholder's Equity ProAssurance 38
Slide 40: 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 Divesting niche personal lines business in a $400 million transaction o Experienced management team focused on driving returns o Conservative financial p
Slide 41: Supplemental Financial Data
Supplemental Financial Data ProAssurance
Slide 42: 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 3.9 years o High quality fixed income portfolio o Weighted average rating of "AA" o 98.0% investment grade o Avg. tax-equivalent yield: 5.0% o Net un
Slide 43: Balance Sheet Progression
Balance Sheet Progression Balance Sheet Strength Sets ProAssurance Apart in millions Y-to-Y Q3 2005 2004 2003 Change Total Assets $ 3,833 $ 3,239 $ 2,879 13% Cash & Invested Assets $ 2,945 $ 2,485 $ 2,103 18% Total Policy Liabilities $ 2,825 $ 2,413 $ 2,173 11% Shareholders' Equity $ 738 $ 611 $ 546
Slide 44: 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 45: YTD Income Statement Comparison
YTD Income Statement Comparison in millions, except per share data Y-over-Y 9/30/05 9/30/04 Change Gross Premiums Written $ 601.6 $ 600.3 0% Net Investment Income 76.6 63.2 21% Total Revenue 622.6 582.7 7% Total Expenses 513.4 515.2 0% Net Income $ 78.7 $ 51.3 53% Net Income/Share (diluted) $ 2.49 $
Slide 46: Q3, 2005 Income by Segment
Q3, 2005 Income by Segment in millions, except per share data Professional Personal Liability Lines Consolidated Gross Premiums Written $ 167.3 $ 57.3 $ 224.6 Net Investment Income 24.3 3.2 28.1 Total Revenue 168.1 50.6 219.3 Total Expenses 139.4 36.8 178.5 Net Income $ 29.3 Net Income/Share (dilute