Proassurance Corporation · NYSE:PRA
Proassurance — NYSSA 2012 Insurance Conference
68 slides from Proassurance's conference presentation, Mar 19, 2012
Slide 1: New York Society of Security Analysts
New York Society of Security Analysts March 20, 2012 Investor Presentation NYSSA 2012 Insurance Conference W. Stancil Starnes Chairman and Chief Executive Officer New York Society of Security Analysts
Slide 2: Forward Looking Statements and Non-GAAP Measures
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 presentation. The principal ris
Slide 3: We differentiate by our specialization in Healthcare Professional Liability
We differentiate by our specialization in Healthcare Professional Liability (HCPL). We are the only pure-play HCPL writer. Handout Slides 2-7
Slide 4: We differentiate through performance that delivers value for investors
Handout slides 8-14 We differentiate through performance that delivers value for our investors.
Slide 5: We differentiate by delivering superior value for our insureds
Handout slides 15-28 We differentiate by delivering superior value for our insureds. We create customers for life.
Slide 6: We differentiate through a long-term view
Handout slides 29-36 We differentiate through a long-term view that produces consistent results.
Slide 7: New York Society of Security Analysts
New York Society of Security Analysts March 20, 2012 Investor Presentation NYSSA 2012 Insurance Conference W. Stancil Starnes Chairman and Chief Executive Officer New York Society of Security Analysts
Slide 8: Investor Meetings at the NYSSA 2012 Insurance Conference
March 19-20, 2012 Investor Meetings at the NYSSA 2012 Insurance Conference W. Stancil Starnes Chairman and Chief Executive Officer Howard H. Friedman Chief Underwriting & Actuarial Officer Frank B. O’Neil Investor Relations Officer
Slide 9: Forward Looking Statements and Non-GAAP Measures
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 presentation. The principal ris
Slide 10: ProAssurance
ProAssurance We are the only pure-play, publicly-traded healthcare professional liability (HCPL) insurance company in America
Slide 11: ProAssurance Corporate Profile
ProAssurance Corporate Profile Specialty writer of professional liability insurance Primarily Healthcare Professional Liability (HCPL) Only pure play public company writing predominately HCPL Market Cap: ~2.7 billion Shareholders’ Equity: $2.0 billion Total Assets: $5 billion Annualized dividend yie
Slide 12: ProAssurance Corporate Profile: Policyholders and Premium
2011 Policyholders: ~71,500 2011 Gross Written Premium: $566 million ProAssurance Corporate Profile Evolving strategy is successfully adding business across the risk spectrum as the delivery of healthcare changes Distribution is Independent Agent (64%) and Direct (34%) Direct in Alabama, Florida and
Slide 13: ProAssurance Footprint
ProAssurance Footprint ProAssurance Geographic Profile Broad geographic diversification Locally-based decision differentiates ProAssurance by addressing each state’s unique medical/legal challenges Corporate Headquarters Corporate Headquarters (Birmingham) 2010 Market Share: Six-Ten 2010 Market Shar
Slide 14: Local Knowledge and National Reach
Local Knowledge and National Reach Medical/Legal environment varies by state Often varies within states Regulatory environment differs greatly May limit the ability to ensure that rates accurately reflect loss trends Can affect the ability to introduce policy or procedural changes Overall business c
Slide 15: HCPL Stands Apart in Insurance
HCPL Stands Apart in Insurance Long-tail vs. short tail Prolonged period of “benign profitability” Premiums levels remain well above levels of 2000 Significant policyholder retention No large commercial carriers have entered the market in a meaningful manned Significant barriers to entry in underwri
Slide 16: The Performance of ProAssurance
The Performance of ProAssurance We ensure that we deliver an unparalleled level of service and financial stability that truly differentiates our coverage and our Company
Slide 17: Consistent Success in All Financial Climates
Consistent Success in All Financial Climates Historical Book Value Per Share Inception to 12/30/11 CAGR: 16% Cumulative:1832% 10 Year Summary (2002 -2011) CAGR: 16% Cumulative: 342%
Slide 18: Consistent Success in All Financial Climates
Consistent Success in All Financial Climates Share price rewards long term holders with a variety of investing styles Historical Book Value Per Share Inception to 3/15/12 CAGR: 15% Cumulative:1604% 10 Year Summary (2002 -2011) CAGR: 16% Cumulative: 354%
Slide 19: ProAssurance: Investment Profile
$4.1 Billion Overall Portfolio $3.7 Billion Fixed Income Portfolio ProAssurance: Investment Profile Average duration: 3.9 years Average tax-equivalent Income yield: 4.5% Investment grade: 96% Weighted average: AA- 12/31/11 Key portfolio actions in Q4 Added dividend-paying equities Added to high yiel
Slide 20: Share Repurchase History
Share Repurchase History Committed to Effective Capital Management Balancing future needs with current market reality Dividend is current $1.00/share/year Complements our prudent share repurchase program $315 million spent to repurchase 6.0 million shares since 2005 Enhancing shareholder value by re
Slide 21: Components of Return on Equity
Components of Return on Equity (in millions) Steady Return in an Unfavorable Environment Meeting our long-term ROE target of 12% -14%
Slide 22: Current Prices Continue to Offer a Compelling Buying Opportunity
Current Prices Continue to Offer a Compelling Buying Opportunity Current Price to YE 2011 Book: ~1.3x Average Since Inception: 1.4x Driven to Excel / Focused on Shareholder Value Maintaining profitability Sustaining book value growth Producing sustainable shareholder value Focusing on long-term—read
Slide 23: The Passion of ProAssurance
The Passion of ProAssurance We ensure that we deliver an unparalleled level of service and financial stability that truly differentiates our coverage and our Company
Slide 24: The Promise of Treated Fairly
The Promise of Treated Fairly The touchstone for every decision and interaction at ProAssurance Affirms our existing, enduring commitment to every stakeholder Insureds Agents Investors The public Employees
Slide 25: Underwriting for Profitability Not Market Share
Underwriting for Profitability Not Market Share Underwriting process driven by individual risk selection and assessment of loss history, areas of practice, and location Rates contemplate specific ROE expectations Frequent rate/loss reviews ensure adequate prices Rate filings consider the results of
Slide 26: MD/DO Rate Change History
MD/DO Rate Change History ProAssurance and Today’s Market Peak pricing was in 2006 Improved frequency trends are reflected in recent rate declines Improvement in frequency has outweighed the steady, manageable rise in severity Loss trends have improved in states with and without tort reforms Rate ch
Slide 27: ProAssurance and Today's Market
ProAssurance and Today’s Market ProAssurance’s retention remains at historically high levels Continued underwriting vigilance is being used today to ensure future success
Slide 28: Calendar Year Combined Ratio: ProAssurance Consistently Outperforms
Calendar Year Combined Ratio: ProAssurance Consistently Outperforms ProAssurance Outperforms the Industry Five Years: ProAssurance Average: 73.5% / Industry Average: 83.3% Ten Years: ProAssurance Average: 94.2% / Industry Average: 106.3% All Years: ProAssurance Average: 93.6% / Industry Average: 109
Slide 29: Consistent Approach to Reserves
Net Favorable Reserve Development Net Reserve per Open MPL Claim 1 Consistent Approach to Reserves Consistent reserving practices provide protection against a loss trend reversal and capital erosion 1 Statutory basis; Loss & LAE Acquired company data included at end of acquiring year
Slide 30: Differentiate Through Claims Defense
ProAssurance: 79% Favorable Outcomes Industry: 72% Favorable Outcomes Differentiate Through Claims Defense We leverage our financial strength to gives our insureds the opportunity for an uncompromising defense of their claim Differentiates our product Provides long-term financial and marketing advan
Slide 31: The Ohio Example: 2005-2009 Data
Fewer Claims Closed With Indemnity More Claims Defended in Court Lower Average Indemnity Payment per Closed Claim The Ohio Example: 2005 - 2009 Data Comprehensive, reliable data provided by the Ohio Department of Insurance Broad range of competitors and business approaches www.insurance.ohio.gov/Leg
Slide 32: The Bottom Line Benefits of Strong Defense
Loss Payments The Bottom Line Benefits of Strong Defense Our ability and willingness to defend claims allows us to achieve better results Source: Statutory Basis, A.M. Best Aggregates & Averages Some totals may not agree due to rounding ProAssurance vs. Industry Average Loss Ratio (2006-2010) Legal
Slide 33: Malpractice Made Public
Malpractice Made Public Malpractice judgments/settlements now disclosed in 26 states Disciplinary actions now disclosed in all states Board / Discipline / Med-Mal Med-Mal disclosure legislation proposed P Source: Federation of State Medical Boards National Clearinghouse and ProAssurance research
Slide 34: The Residual Cost of a Plaintiff Verdict
The Residual Cost of a Plaintiff Verdict Financial Effects Higher MPL premiums May affect quality scoring under new payment regimes Credentialing Implications Disclosure required when applying for licensing, privileges and treatment panels throughout their medical career Reputational Damage May affe
Slide 35: Effective Risk Management
Effective Risk Management Online and in-person risk management showcase our expertise and differentiates our Company Over 70% of insured physicians were touched by risk management in 2011 Over 84,000 specialty-specific risk management publications delivered each year
Slide 36: Involving Insureds
Involving Insureds Claims & Underwriting Committees in key states 45 meetings in 15 states for 2012 Representation by specialty and geography Regional Advisory Boards Hundreds of meetings each year involve our insureds at the county level in key states Ensures that we stay close to our risk and know
Slide 37: Prospects for ProAssurance
Prospects for ProAssurance We are confident that our deep expertise and solid financial strength have prepared us for the challenges of the evolving healthcare market
Slide 38: ProAssurance's Growth Outlook
ProAssurance’s Growth Outlook Growth opportunities will be shaped by a healthcare landscape that will see enormous changes—with or without federal healthcare reform We are expanding our hospital capabilities and commitment Building on two decades of hospital experience We continue to enhance our com
Slide 39: ProAssurance's Growth Strategy
ProAssurance’s Growth Strategy Leverage our reach, expertise and financial strength with larger accounts Largest non-profit healthcare system in the US Now in Michigan, expanding into other states throughout 2012 Insuring Ascension-affiliated physicians through coordinated, jointly insured programs
Slide 40: ProAssurance's Growth Strategy
ProAssurance’s Growth Strategy Joint physician/hospital insurance products to addresses the unique risk tolerance and claims- handling expectation of each insured Already creating broad interest in the market with several policies in force Providing sophisticated alternative risk programs for organi
Slide 41: ProAssurance's M&A Strategy
ProAssurance’s M&A Strategy Consolidation will continue and will remain episodic Fewer significant targets Remaining companies of size are in important strategic areas We prefer “health care centric” but will consider closely related liability lines Legal/regulatory environment must be favorable Not
Slide 42: ProAssurance Operational Strategy
ProAssurance Operational Strategy Maintain our profitability and book value growth Ensure outstanding performance in a challenging financial market and a demanding line of insurance Focus on long-term Maintaining balance sheet strength and institutional expertise to prepare for a changing market Lev
Slide 43: Healthcare Reform
Healthcare Reform Known: More customers for us May accelerate the growth of hospital-owned practices and consolidation into larger groups Provides an opportunity for us due to our geographic reach, long-term experience in hospitals and our financial strength We have enhanced our ability to write new
Slide 44: Tort Reform
Tort Reform No meaningful Tort Reform in healthcare reform laws No prospect for Federal Tort Reform State Tort Reform battles now being fought in the courts with mixed results We do not depend on Tort Reform for success Our results are solid in states with and without Tort Reforms Prices are set, an
Slide 45: Further Discussion Materials
Further Discussion Materials 1. Investment Portfolio Detail (40-45) 2. Additional Financial Data (46-52) 3. Additional Claims, Trend and Market Data (53-59)
Slide 46: Current Prices Continue to Offer a Compelling Buying Opportunity
Current Prices Continue to Offer a Compelling Buying Opportunity Current Price to YE 2011 Book: ~1.3x Average Since Inception: 1.4x Driven to Excel / Focused on Shareholder Value Maintaining profitability Sustaining book value growth Producing sustainable shareholder value Focusing on long-term—read
Slide 47: Investment Portfolio Detail & Financial Disclosure
Investment Portfolio Detail & Financial Disclosure ProAssurance remains conservatively invested, to ensure our ability to keep our long-term promise of insurance protection
Slide 48: ProAssurance Portfolio Detail: Asset Backed
Asset Backed: $717 Million Weighted Average Rating: “AA+” Breakdown of Agency MBS Holdings Sub-Prime: $8.1 mil Market Value (AFS) $1.2 mil net unrealized loss ProAssurance Portfolio Detail: Asset Backed 12/31/11 Subject to Rounding Key CMBS Details Provided on Following Page
Slide 49: ProAssurance Portfolio Detail: CMBS
ProAssurance Portfolio Detail: CMBS $81.2 million Fair Value in non-agency CMBS Book Value: $76 million (2% of fixed income portfolio) We have experienced no losses on our CMBS positions 12/31/11
Slide 50: ProAssurance Portfolio Detail: Municipals
Municipals: $1.2 Billion / Average Rating is AA ProAssurance Portfolio Detail: Municipals Investment policy has always required investment grade rating prior to applying the effect of insurance Weighted Average Rating: AA 12/31/11
Slide 51: ProAssurance Portfolio Detail: Equities & Other
Equities & Other: $253 Million ProAssurance Portfolio Detail: Equities & Other 12/31/11
Slide 52: ProAssurance Portfolio Detail: Corporate
Corporates: $1.4 Billion ProAssurance Portfolio Detail: Corporate Weighted Average Rating: A 12/31/11
Slide 53: ProAssurance Portfolio Detail: Various
Treasury / GSE: $352 Million Short Term: $119 Million BOLI: $53 Million ProAssurance Portfolio Detail: Various Rated A1/P1 or better Money Markets: Moody’s: Aaa S&P: AAA Weighted average rating Moody’s: AA3 S&P: AA- A. M. Best: A+ 12/31/11
Slide 54: Debt to Equity Strong Capital Position
Debt to Equity Strong Capital Position Conservative Use of Debt and Low Leverage Low Debt to Cap Ratio No strain on cash flow No Debt Prior to 2001 Prepared for an improving market
Slide 55: Long-Term Financial Strength Sets Us Apart
Shareholders’ Equity Total Assets Long-Term Financial Strength Sets Us Apart Ensuring the strength of our balance sheet is our top financial priority Financial strength differentiates us in the market The claims defense philosophy that differentiates us in the market leverages our financial strength
Slide 56: Net Investment Income, Net Premiums Written, Net Income, Operating Income
Net Investment Income Net Premiums Written Net Income Operating Income 1 ($ in millions. Excludes discontinued operations) 1 Excludes the after-tax effects of net realized gains or losses, non-policyholder litigation results and guaranty fund assessments or recoupments
Slide 57: Long-Term ROE Target is 13% / The Yield Trap
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 58: Capital Growth: 2007-2011
Capital Growth: 2007-2011 in $000’s except total equity (000,000’s)
Slide 59: 2011 Financial Highlights
Year Ended December 31, 2011 2010 Gross Premiums Written $ 565,895 $ 533,205 Net Premiums Earned $ 558,507 $ 505,407 Net Investment Income $ 140,956 $ 146,380 Net Income (Includes Investment Losses) $ 287,096 $ 231,598 Operating Income $ 278,514 $ 219,457 December 31, 2011 December 31, 2010 Total As
Slide 60: Additional Discussion Materials
Additional Discussion Materials
Slide 61: Combined Ratios Must Be Lower in Today's Depressed Investment Environment
Combined Ratios Must Be Lower in Today’s Depressed Investment Environment to Generate Risk Appropriate ROEs Investment Effect on P&C Industry ROE Combined Ratio / ROE - a 100% Combined Ratio Isn’t What It Used to Be * 2009 and 2010 figures are return on average statutory surplus. 2008 -2011 figures
Slide 62: Claims Trends Remain Favorable
New Claims Opened Each Year ProAssurance Claims Tried to a Verdict Claims Trends Remain Favorable Fewer cases to try following significant decline in frequency Severity trends steady and manageable No observed effect from the economic downturn Trends are much the same in states with or without Tort
Slide 63: Understanding Recent Loss Trends
Understanding Recent Loss Trends Frequency stable after historic declines Lawyers are the gatekeepers Must weigh the cost of a trial vs. chances of success Likelihood of success is affected by many factors Societal perceptions of lawsuits against physicians Effects of the overall tort reform debate
Slide 64: ProAssurance: Business Profile
ProAssurance: Business Profile Largest independent publicly traded writer of MPL insurance Fourth largest overall writer DPW: SNL & Highline Data 2010
Slide 65: 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
Slide 66: ProAssurance and Today's Market
ProAssurance and Today’s Market 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 No expansion by mid-decade start-ups Consolidation beginning in that se
Slide 67: ProAssurance Business Outlook
ProAssurance Business Outlook We ARE writing new business that we believe will meet our profitability goals $68 million in new physician business in 2011 Approximately $48 million due to AMPH Includes approximately $6.5 million in first year claims-made premium in the Certitude tm program Major comp
Slide 68: Effective, Experienced & Invested Management
Effective , Experienced & Invested Management Average executive tenure through VP level is 17 years All subject to share ownership requirements