Proassurance Corporation · NYSE:PRA
Proassurance — Investor Presentation (November 2020)
50 slides from Proassurance's investor presentation, Nov 9, 2020
Slide 1: Investor Update Third Quarter 2020
Investor Update Third Quarter 2020 November
Slide 2: ProAssurance Overview
ProAssurance Overview
Slide 3: Mission, Vision, & Values
Mission, Vision, & Values The ProAssurance Mission We exist to Protect Others. Our Shared Vision We will be the best in the world at understanding and providing solutions for the risks our customers encounter as healers, innovators, employers, and professionals. Through an integrated family of compa
Slide 4: At a Glance
At a Glance Principal • Healthcare-centric specialty insurance writer Business Unit Offices Employees Lines of Business ◦ Specialty Property & Casualty Healthcare Professional HCPL 10 357 Liability ▪ Healthcare Professional Liability (HCPL) ▪ Life Sciences and Medical Technology Liability Medmarc 1
Slide 5: ProAssurance Brand Profile
ProAssurance Brand Profile Specialty P&C Workers’ Comp Healthcare Professional Liability Medical Technology & Legal Professional Liability Life Sciences Products Liability Alternative Risk Transfer ProAssurance Investor Briefing | November 2020 5
Slide 6: ProAssurance Executive Leadership
ProAssurance Executive Leadership Ned Rand - President & Chief Executive Officer Mr. Rand, who assumed this position at ProAssurance on July 1, 2019, was formerly Chief Operating Officer, and has served as Chief Financial Officer, Executive Vice President, and Senior Vice President of Finance since
Slide 7: Specialty Property & Casualty
Specialty Property & Casualty • Deep expertise and broad product spectrum in healthcare and related sciences • Consolidation in HCPL → demand for comprehensive insurance solutions • Innovative Specialty Team (Small Business Unit) → strategy to deliver product and related services efficiently to the
Slide 8: Workers' Compensation Insurance
Workers’ Compensation Insurance Top 10 Classes of Business by Payroll Exposure (Traditional Business*) Retirement & Life Care Community Hospitals 4% 3% Physicians & Dentists Banks 10% 2% Disciplined individual account Fast Food underwriting with focus on rate 2% Dedicated to effective adequacy in ru
Slide 9: Segregated Portfolio Cell Reinsurance
Segregated Portfolio Cell Reinsurance • HCPL and workers’ compensation captive insurance solutions provided through Inova Re (Cayman Islands) • SPCs are a high ROE product with significant retention • Low capital requirement by not assuming risk ProAssurance Fronting Arrangement Underwriting Claims
Slide 10: Lloyd's of London Syndicates
Lloyd’s of London Syndicates • Opportunity to invest alongside a recognized leader in Duncan Dale • ProAssurance Funds at Lloyd’s (FAL) Lloyd’s provides universal distribution and licensures • Westernization of international healthcare professional liability provides $105.8 Million 1 opportunities i
Slide 11: Premiums, Policyholders & Distribution for 2020
Premiums, Policyholders & Distribution for 2020 YTD 2020 Gross Premium: $692.6 mln Inforce 2020 Policyholder Count: 75,982* Specialty P&C Small Business Specialty P&C Standard Physician Premium 57% Unit 82% Specialty 9% 12‐Month Policies: $169M 7% ($81.6) 24‐Month Policies: $8M† Medical Specialty Te
Slide 12: Financial Ratings & Balance Sheet Highlights
Financial Ratings & Balance Sheet Highlights • ProAssurance is recognized for our financial strength by top rating agencies • We maintain a balance sheet that ensures stability and security for our customers •Our conservative reserving philosophy enables success over the insurance cycles Financial S
Slide 13: ProAssurance Leverage Update
ProAssurance Leverage Update Financial Leverage Operating Leverage Ten-Year Debt to Capital Ten-Year Premiums to Equity Debt Capital Debt to Capital Net Premiums Written Equity Premiums to Equity $ in billions $ in billions $2.4 $2.4 21% 18% $1.6 20% 16% 16% $1.6 15% 0.6 9% 0.5 0.5 0.6 10% $0.8 $0.8
Slide 14: Investment Philosophy & Portfolio
Investment Philosophy & Portfolio • We maintain a conservative, highly-liquid investment philosophy • Effective stewardship of capital ensures a position of financial strength through turbulent market cycles • Allowing cash to build to support business operations and our current acquisition AA+ BBB‐
Slide 15: COVID-19 and the Markets We Serve
COVID-19 and the Markets We Serve • Healthcare Professional Liability (HCPL) ◦ Primary exposures in broader markets: misdiagnoses, complications from delayed elective procedures, and failure to prevent infection in Senior Care settings . May be mitigated by growing support at state and federal level
Slide 16: Why We Will Be Successful
Why We Will Be Successful
Slide 17: A Foundation in Excellence
A Foundation in Excellence Superior brand identity and reputation in the market Experienced & Collaborative Leadership Average executive Specialization leadership tenure Deep expertise and History of Successful M&A of 18 years with “From our earliest days, PRA or subsidiaries commitment to Scope & S
Slide 18: Strategic Initiatives
Strategic Initiatives We seek constantly to be more efficient and effective as an organization Here’s how we’re doing it Enhanced •First year of re‐underwriting our HCPL Specialty book of business is complete Underwriting •Strategic focus on rural territories in Workers’ Compensation Insurance Stron
Slide 19: Strategic Initiatives: Enhanced Underwriting
Strategic Initiatives We seek constantly to be more efficient and effective as an organization Here’s how we’re doing it Enhanced •First year of re‐underwriting our HCPL Specialty book of business is complete Underwriting •Strategic focus on rural territories in Workers’ Compensation Insurance • Spe
Slide 20: Strategic Initiatives: Strong Rate Gains
Strategic Initiatives We seek constantly to be more efficient and effective as an organization Here’s how we’re doing it Strong • Hardening HCPL Specialty market, with our renewal rate gains outpacing severity •Improved product structure, terms and conditions for complex risks Rate Gains • Maintaini
Slide 21: Strategic Initiatives: Organizational Excellence
Strategic Initiatives We seek constantly to be more efficient and effective as an organization Here’s how we’re doing it Organizational • Enhanced organizational structure to improve operating results Excellence •Leveraging new and existing technology for effectiveness gains • Implemented adjustment
Slide 22: Cyclicality in Insurance
Cyclicality in Insurance Availability crisis Loss Pricing outpaces losses Catalyst Trends Mergers & acquisitions Combined ratios improve Decelerate Tort reform Favorable reserve development For over forty years, ProAssurance and its predecessors have successfully navigated the peaks and valleys Mark
Slide 23: Planned Acquisition of NORCAL Group
Planned Acquisition of NORCAL Group
Slide 24: Overview of NORCAL Group
Overview of NORCAL Group NORCAL Group Overview Select NORCAL Group Companies • Established in 1975 as a policyholder-owned • NORCAL is one of the leading providers of medical professional and physician directed medical professional insurance companies in the country with more than 30,000 liability i
Slide 25: ProAssurance + NORCAL = A Stronger HCPL Specialty Insurer
ProAssurance + NORCAL = A Stronger, Better Positioned HCPL Specialty Insurer 1 Enhanced Scale and Capabilities • Positions company as #3 player in the industry • Enhances ProAssurance’s HCPL business: adds additional scale, capabilities and strong California presence • Ability to underwrite larger r
Slide 26: Strategic Alignment and Rationale
Strategic Alignment and Rationale Provides a Strong, Shared Foundation In addition to the scale benefits of large HCPL players, ProAssurance and NORCAL bring complementary skills, history, and a shared vision to the combined entity to create the leading organization in the HCPL industry + • Physicia
Slide 27: Appendix
Appendix
Slide 28: NORCAL Acquisition Transaction Details
NORCAL Acquisition Transaction Details Transaction • ProAssurance will offer to purchase all of the outstanding stock of NORCAL Group following the demutualization • $450 million in cash, expected to include $250 million in external funding¹ • Up to $150 million of additional consideration contingen
Slide 29: Combination with NORCAL Creates the #3 HCPL Insurer in the U.S.
Combination with NORCAL Creates the #3 HCPL Insurer in the U.S. Pro Forma Top Ten Market Share by DPW $1,800 ($ in millions) $1,660 $1,600 16.9% $1,400 $1,200 $1,000 $920 1 $861 9.4% $800 8.8% $559 $600 $490 $488 5.7% $399 $371 $400 5.0% 5.0% $313 4.1% 3.8% $218 3.2% $170 $200 2.2% 1.7% $‐ • NORCAL
Slide 30: Combination with NORCAL Creates the #3 HCPL Insurer in the U.S.
Combination with NORCAL Creates the #3 HCPL Insurer in the U.S. Facilities Hospitals $12.3M $48.5M Facilities Hospitals 9.5M $48.1M Facilities Hospitals $2.8M $366K Other HCP Other HCP $103.2M $6.9M Other HCP $96.3M Physicians Physicians $336.4M $360.7M Physicians $697.1M 2019 DPW: $490.3M $370.8M $
Slide 31: NORCAL Transaction Creates Value for Customers and Stakeholders
NORCAL Transaction Creates Value for Customers and Stakeholders Protecting More Physicians Financial Benefits • Combined company will serve 86k+ • Significant annual pre-tax synergies over healthcare professionals $18mm • Synergies focused on removing • Expanded product capabilities redundancies and
Slide 32: ProAssurance's Proven History of Successful Acquisitions
ProAssurance’s Proven History of Successful Acquisitions 1995 Acquisition 2005 2009 Acquisition Acquisition & 2014 Acquisition 1998 Demutualization/Merger 2008 Acquisition 1996 Acquisition Forms ProNational 2012 Acquisition 2001 ProNational & Medical Assurance Merge to Form ProAssurance& OHiC 1995 A
Slide 33: Income Statement Highlights (9/30/20)
Income Statement Highlights (9/30/20) Three Months Ended Nine Months Ended September 30 2020 2019 2020 2019 Gross Premiums Written $ 245.1 $ 265.5 $ 692.6 $ 766.7 Net Premiums Earned $ 194.6 $ 215.8 $ 605.7 $ 633.1 Net Investment Result $ 21.8 $ 22.4 $ 33.8 $ 62.8 Net Realized Investment Gains (Loss
Slide 34: Corporate Segment Financial Highlights (9/30/20)
Corporate Segment Financial Highlights (9/30/20) Three Months Ended Nine Months Ended September 30 2020 2019 2020 2019 Net investment income $ 15.7 $ 22.2 $ 51.8 $ 65.5 Equity in earnings (loss) of unconsolidated subsidiaries $ 4.9 $ (1.3) $ (22.1) $ (7.2) Net realized investment gains (losses) $ 6.
Slide 35: Specialty P&C Financial Highlights (9/30/20)
Specialty P&C Financial Highlights (9/30/20) Three Months Ended Nine Months Ended September 30 2020 2019 2020 2019 Gross Premiums Written $ 158.3 $ 165.0 $ 420.7 $ 459.3 Net Premiums Earned $ 117.8 $ 125.2 $ 365.3 $ 375.3 Total Revenues $ 118.6 $ 127.1 $ 368.8 $ 379.9 Net Losses & Loss Adjustment Ex
Slide 36: Workers' Compensation Insurance Financial Highlights (9/30/20)
Workers’ Compensation Insurance Financial Highlights (9/30/20) Three Months Ended Nine Months Ended September 30 2020 2019 2020 2019 Gross Premiums Written $ 63.0 $ 70.1 $ 199.4 $ 223.6 Net Premiums Earned $ 42.5 $ 49.5 $ 129.4 $ 142.0 Total Revenues $ 43.0 $ 50.0 $ 131.2 $ 143.9 Net Losses & Loss A
Slide 37: Segregated Portfolio Cell Reinsurance Financial Highlights (9/30/20)
Segregated Portfolio Cell Reinsurance Financial Highlights (9/30/20) Three Months Ended Nine Months Ended September 30 2020 2019 2020 2019 Gross Premiums Written $ 15,933 $ 17,281 $ 58,068 $ 70,556 Net Premiums Earned $ 16,052 $ 19,779 $ 49,780 $ 58,566 Net Investment Income $ 273 $ 445 $ 832 $ 1,26
Slide 38: Lloyd's Segment Financial Highlights (9/30/20)
Lloyd’s Segment Financial Highlights (9/30/20) Three Months Ended Nine Months Ended September 30 2020 2019 2020 2019 Gross Premiums Written $ 23.9 $ 30.4 $ 72.4 $ 83.2 Net Premiums Earned $ 18.1 $ 21.3 $ 61.2 $ 57.2 Total Revenues $ 20.0 $ 22.5 $ 65.7 $ 60.9 Net Losses & Loss Adjustment Expenses $ (
Slide 39: Ceded Premiums Written (9/30/20)
Ceded Premiums Written (9/30/20) Specialty P&C HCPL Workers’ Segregated including Compensation Portfolio Cell ($ in millions) Podiatry(2) Products Lawyers Insurance (1) Reinsurance Lloyd’s (3) 9/30/20 9/30/19 9/30/20 9/30/19 9/30/20 9/30/19 9/30/20 9/30/19 9/30/20 9/30/19 9/30/20 9/30/19 $ 372.2 $ 4
Slide 40: Investment Strategy and 2020 Outlook
Investment Strategy and 2020 Outlook • Effective stewardship of capital ensures a position of financial strength through turbulent market cycles • Optimizing our allocations for better risk-adjusted returns ◦ Ensures non-correlation of returns • Duration management remains paramount ◦ We will not ex
Slide 41: YTD 2020 Net Investment Result
YTD 2020 Net Investment Result ($ in millions) 9/30/2020 9/30/2019 Change Net Investment Income Fixed maturities $ 52,863 $ 54,154 $ (1,291) Equities 3,598 13,755 (10,157) Short-term investments including Other 2,386 5,466 (3,080) BOLI 1,568 1,557 11 Investment fees and expenses (4,538) (4,894) 356
Slide 42: ProAssurance Recent Investment Performance
ProAssurance Recent Investment Performance Contribution to Returns 2016-2020 / PRA vs Benchmarks 2020 2019 2018 2017 2016 % of % of % of % of % of PRA Benchmark PRA Benchmark PRA Benchmark PRA Benchmark PRA Benchmark Assets Assets Assets Assets Assets Core Fixed 81% 3.29% 3.25% 67% 3.92% 4.14% 67% 1
Slide 43: ProAssurance Portfolio Detail: Corporate
ProAssurance Portfolio Detail Corporate: $1.3 Billion (53% of Fixed Assets / 39% of Invested Assets) Sources of Liquidity Industrials 9% Non US Sovrgn Utilities & Gov't /Energy 2% BOLI 10% SIX MONTHS Financials 2% Basic 39% Cash/Equities/Bonds Materials HFs/Privates 2% 30‐90 DAYS 86% 2% Other LPs 4%
Slide 44: ProAssurance Portfolio Detail: Asset Backed
ProAssurance Portfolio Detail: Asset Backed Asset-Backed Securities: $631 Million (25% of Fixed Income / 19% of Invested Assets) CLOs Credit Cards 3% 5% Other 20% Auto 17% CMBS 16% Student Loans 2% RMBS 38% 9/30/2020 Subject to rounding Weighted Average Rating: “AA+” ProAssurance Investor Briefing |
Slide 45: ProAssurance Portfolio Detail: Fixed-Trading
ProAssurance Portfolio Detail: Fixed-Trading Fixed Maturities: $53 Million (2% of Fixed Income / 2% of Invested Assets) Utilities/Energy ABS & Other 3% 2% Technology 3% Industrial 6% Consumer Oriented 15% All Fixed Trading Securities are owned by Lloyd’s Syndicate 1729 Financial 24% Government 46% 9
Slide 46: ProAssurance Portfolio Detail: Municipals
ProAssurance Portfolio Detail: Municipals Municipals: $319 Million Top 10 Municipal Holdings (13% of Fixed Income / 9% Invested Assets) in millions New York, NY $14 Texas St A&M University $9 General New York State Urban Dev $9 Obligation 24% Connecticut State Housing $9 Houston Tx Utility System $8
Slide 47: ProAssurance Portfolio: Equities & Other
ProAssurance Portfolio: Equities & Other Equities & Other: $483 Million (15% of Invested Assets) Hedge Funds 6% Private Equity 24% Private Credit/Structured Credit 26% Common Equities 7% Tax Credits 7% Real Estate LP 7% Convertible Bonds Bond Funds 9/30/2020 Subject to Rounding 8% 15% ProAssurance I
Slide 48: Combined Tax Credits Portfolio Detail & Projections
Combined Tax Credits Portfolio Detail & Projections This column represents our current estimated schedule of tax credits that we expect to receive from our tax credit partnerships. The actual amounts of credits provided by the tax credit partnerships may prove to be different than our estimates. The
Slide 49: Change in Capital: 2010 - Q3 2020
Change in Capital: 2010 ‒ Q3 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD 2020 Beginning Equity* $1,705 $1,856 $2,164 $2,271 $2,394 $2,158 $1,958 $1,799 $1,595 $1,523 $1,512 Cumulative-effect adjustments — — — — — — — 149 8,334 (444) (4,076) Employee Stock Transactions 6,147 6,167 7,78
Slide 50: Important Safe Harbor & Non-GAAP Notices
IMPORTANT SAFE HARBOR & NON-GAAP NOTICES Forward Looking Statements Non-GAAP Measures This presentation contains Forward Looking This presentation contains Non-GAAP Statements and other information designed measures, and we may reference Non-GAAP to convey our projections and expectations measures i