Slide 1: Forward Looking Statements; 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 2: ProAssurance Transaction Discussion
ProAssurance Transaction Discussion On June 27, 2012 we announced two proposed acquisitions Medmarc will broaden our product offerings and capabilities in protecting the delivery of healthcare Independent Nevada Doctors Insurance Exchange (IND) will make ProAssurance the leading medical professional
Slide 3: Two Announced Transactions
Two Announced Transactions A leading products liability writer in medical technology and life sciences Meaningful legal professional liability book IND is the leading medical professional liability writer in Nevada
Slide 4: Medmarc Details
Medmarc Details Founded in 1979 by the medical technology and life science industry Proven legal professional liability book Management will remain in place at corporate offices in Virginia Transaction value: $154 million in cash $146.2 direct payments to eligible members $7.5 million in future prem
Slide 5: Medmarc Metrics
Top Five States by Direct Written Premium (2011) California $5.8 mil (14%) Florida $5.3 mil (13%) Texas $4.4 mil (10%) Massachusetts $3.8 mil (6%) New Jersey $2.0 mil (5%) 2011 Policyholder Breakdown MedTech / LfSci 958 Legal Professional 2,535 Medmarc Metrics Data Sources: Medmarc Insurance Group,
Slide 6: Medmarc Strengths / ProAssurance Answers Challenges for Medmarc
Medmarc Strengths ProAssurance Answers Challenges for Medmarc Experienced board of directors and management team Strong surplus position relative to business written Profita ble operations Conservative business philosophy Strategic relationship with AdvaMed Leading medical technology trade associati
Slide 7: Advantages ProAssurance Gains from Medmarc
Advantages ProAssurance Gains from Medmarc Transaction Analysis Buying at a discount to tangible book value Will increase ProAssurance book value per share Experienced management team has committed to ProAssurance ProAssurance adds Broader product offerings and capabilities in protecting the deliver
Slide 8: Medmarc Profitability Drives Surplus Growth
Medmarc Profitability Drives Surplus Growth Surplus at highest level in company history
Slide 9: Recent Events at Medmarc
Significantly reduced exposure to accounts with sales greater than $100 million (2011) Recent Events at Medmarc
Slide 10: IND Details
IND Details Founded in 2006 by Nevada physicians Proven history Gained market leadership without competing on price Solid customer service philosophy mirrors ProAssurance ProAssurance and IND will combine offices in Las Vegas Transaction value not material to ProAssurance
Slide 11: IND Metrics
Pro Forma Nevada Market Share ProAssurance + IND $21.8 mil NORCAL Mutual $10.8 mil Nevada Mutual $10.5 mil Premier Physicians $7.2 mil Fairfax Financial $6.6 mil Total Market $85.6 mil 2011 Direct Written Premium 12/31/2011 12/31/2010 12/31/2009 Total Assets $ 51.8 $ 50.6 $ 47.2 Loss & LAE Reserves
Slide 12: IND Strengths and Advantages ProAssurance Gains
IND Strengths Advantages ProAssurance Gains from IND ProAssurance Answers Challenges for IND Recognized leader in Nevada Conservative operating philosophy Physician-founded Corporate culture values high levels of customer service Strong brand recognition Strong surplus position relative to business
Slide 13: ProForma Premiums / Policyholders
2011 Actual PRA GPW: $566 million 2011 ProForma GPW: $619 million 2011 Actual Policyholders: ~71,500 2011 ProForma Policyholders: ~75,500 ProForma Premiums / Policyholders ProForma: ProAssurance + Medmarc + IND
Slide 14: Next Steps
Next Steps State regulatory approval of Plans of Conversion Approval of eligible policyholders/members HSR approval Expected closings by January 1, 2013
Slide 15: ProAssurance General Update
ProAssurance General Update We are the only pure-play, publicly-traded healthcare professional liability (HCPL) insurance company in America.
Slide 16: 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: $2.2 billion Total Assets: $5 billion Annualized dividend yi
Slide 17: ProAssurance Corporate Profile
Q1 2012 Policyholders: ~71,000 2011 Gross Written Premium: $566 million ProAssurance Corporate Profile Successfully adding business across the risk spectrum as the delivery of healthcare changes Distribution is Independent Agent (62%) and Direct (38%) Direct in Alabama, Florida and in all states for
Slide 18: ProAssurance Footprint
ProAssurance Footprint ProAssurance Geographic Profile Broad geographic diversification Locally-based decision-making differentiates ProAssurance by addressing each state’s unique medical/legal challenges March 31, 2012 Corporate Headquarters Corporate Headquarters Claims Offices Claims Offices Clai
Slide 19: Success Throughout the Insurance Cycle
Historical Book Value Per Share Historical Stock Price to 6/30/12 Success Throughout the Insurance Cycle
Slide 20: Our Commitment to Treated Fairly
Our Commitment to Treated Fairly Unwavering dedication to the defense of non-meritorious lawsuits Allows our insureds the right to an unfettered defense of their claims where permitted by law Steadfast dedication to in-depth underwriting and adequate pricing An unsurpassed level of customer service
Slide 21: Today's Healthcare Professional Liability Market
Today’s Healthcare Professional Liability Market ProAssurance delivers an unparalleled level of service and financial stability that truly differentiates our coverage and our Company in an evolving, competitive market
Slide 22: HCPL Stands Apart in Insurance
HCPL Stands Apart in Insurance HCPL claims may not be filed for years after an incident and may take years to resolve: Long-tail Personal lines are short tail Introduces long periods of uncertainty Loss trends may change expected severity from time of initial pricing Can provide a false sense of sec
Slide 23: The HCPL Market Today
The HCPL Market Today Prolonged period of “benign profitability” Premiums levels remain well above levels of 2000 Significant policyholder retention by all companies despite fierce competition No large commercial carriers have entered the market in a meaningful manned Significant barriers to entry i
Slide 24: Factor Status Cycle Impact
Factor Status Cycle Impact Frequency Some Rann ae Neutral — Harden Severity Moderate Neutral Investment Returns Low Harden Capital Excess Capacity Soften | Cash Flow Becoming Strained Neutral — Harden Reserves Modestly Redundant Soften Reinsurance Sufficient Capacity Neutral PROASSURANCE. Tread Fa
Slide 25: The HCPL Market Today
The HCPL Market Today Changes in healthcare delivery are changing the underlying dynamics Physicians are combining into larger groups Physician practices are being brought into hospitals through purchase or affiliation Hospitals are combining into large networks requiring greater insurance expertise
Slide 26: The HCPL Market Today
The HCPL Market Today Market remains fragmented even after two decades of consolidation More than 100 writers Largest market share is <8% 100 companies have <1%
Slide 27: ProAssurance's Standing in the Market
ProAssurance’s Standing in the Market ProAssurance is the largest independent publicly traded writer of HCPL insurance Fourth largest overall writer DPW: SNL Data 2011
Slide 28: The Evolution of Healthcare and the HCPL Market
The Evolution of Healthcare and the HCPL Market Our successful experience and deep expertise uniquely qualify ProAssurance to insure the widest range of healthcare risks
Slide 29: 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 30: ProAssurance's Evolving Strategy
ProAssurance’s Evolving Strategy Shaped by a healthcare landscape that will change—with or without federal healthcare reform Enhancing our commitment to individual providers and small groups Expanding our hospital capabilities and commitment Building on two decades of hospital experience
Slide 31: ProAssurance's Evolving Strategy
ProAssurance’s Evolving Strategy Leverage our reach, expertise and financial strength with larger accounts Largest non-profit healthcare system in the US Now in Michigan, Florida, Indiana and Texas Insuring Ascension-affiliated physicians through coordinated, jointly insured programs Financial invol
Slide 32: ProAssurance's Evolving Strategy
ProAssurance’s Evolving Strategy Joint physician/hospital insurance product: ProControl sm Addresses the unique risk tolerance and claims- handling expectation of each insured Physicians largely seek claims defense to protect their reputation Hospitals/facilities seek to protect their reputation in
Slide 33: ProAssurance's Evolving Strategy
ProAssurance’s Evolving Strategy Ongoing interest in alternative risk and self- insurance mechanisms Captive insurance and sophisticated risk sharing programs Risk Retention Groups for specific specialties or regions
Slide 34: M & A and the Insurance Cycle
M & A and the Insurance Cycle ProAssurance’s Successful 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/reg
Slide 35: ProAssurance's Successful M&A History
Physicians Ins. Co. of Michigan Completed 11/30/10 ProAssurance’s Successful M&A History 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:
Slide 36: ProAssurance Operational Review
ProAssurance Operational Review ProAssurance delivers an unparalleled level of service and financial stability that truly differentiates our coverage and our Company in an evolving, competitive market
Slide 37: 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 38: 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 39: 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 com
Slide 40: MD/DO Rate Change History
MD/DO Rate Change History ProAssurance Pricing History 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 chang
Slide 41: ProAssurance Retention Remains High
ProAssurance Retention Remains High Continued underwriting vigilance is being used today to ensure future success
Slide 42: 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 43: 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 44: 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 45: Differentiate Through Claims Defense
ProAssurance: 79% No Paid Losses Industry: 72% No Paid Losses 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 advantages Re
Slide 46: The Ohio Example: 2005 - 2010 Data
More Claims Closed With No Indemnity More Claims Defended in Court Lower Average Indemnity Payment per Closed Claim The Ohio Example: 2005 - 2010 Data Comprehensive, reliable data provided by the Ohio Department of Insurance Broad range of competitors and business approaches www.insurance.ohio.gov/L
Slide 47: 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 48: 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 49: 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 50: ProAssurance Performs
ProAssurance Performs Delivering meaningful value for our shareholders
Slide 51: Share Repurchase History
Share Repurchase History Committed to Effective Capital Management Balancing future needs with current market reality Dividend is currently $1.00/share/year Complements our prudent share repurchase program $321 million spent to repurchase 6.1 million shares since 2005 Enhancing shareholder value by
Slide 52: Steady Returns
Steady Returns Long-term ROE target: 12% -14%
Slide 53: Focused on Book Value
Focused on Book Value Book Value per Share captures our focus on long-term excellence Increased every year we have been public Inception to 3/31/12 CAGR: 16% Cumulative:1872% 10 Year Summary (2002 -2011) CAGR: 16% Cumulative: 342% Historical Book Value Per Share
Slide 54: Driving Share Prices Higher
Driving Share Prices Higher Share price reflects investor confidence in our business decisions and long-term strategy Historical Share Price Inception to 6/30/2012 CAGR: 15% Cumulative:1603% 10 Year Summary (2002 -2011) CAGR: 16% Cumulative: 280%
Slide 55: Current Prices Continue to Offer a Compelling Buying Opportunity
Current Prices Continue to Offer a Compelling Buying Opportunity Driven to Excel / Focused on Shareholder Value Maintaining profitability Sustaining book value growth Producing sustainable shareholder value Focusing on long-term—ready for the market turn
Slide 56: Management Team
W. Stancil Starnes, JD Chairman & Chief Executive Officer Company Tenure: 5 Years Prior MPL Experience: 29 Years Total Industry & Related Experience: 34 Years Formerly in the private practice of law in MPL defense and complex corporate litigation. Victor T. Adamo, JD, CPCU President Company Tenure:
Slide 57: Investment Portfolio Detail
Investment Portfolio Detail ProAssurance remains conservatively invested, to ensure our ability to keep our long-term promise of insurance protection
Slide 58: ProAssurance: Investment Profile
$4.1 Billion Overall Portfolio $3.7 Billion Fixed Income Portfolio ProAssurance: Investment Profile Average duration: 4.1 years Average tax-equivalent Income yield: 4.4% Investment grade: 96% Weighted average: AA- 3/31/12 Key portfolio actions in Q1 2012 Added dividend-paying equities Added to high
Slide 59: ProAssurance Portfolio Detail: Asset Backed
Asset Backed: $687 Million Weighted Average Rating: “AA+” Breakdown of Agency MBS Holdings Sub-Prime: $8.1 mil Market Value (AFS) $0.9 mil net unrealized loss ProAssurance Portfolio Detail: Asset Backed 03/31/12 Subject to Rounding Key CMBS Details Provided on Following Page
Slide 60: ProAssurance Portfolio Detail: CMBS
ProAssurance Portfolio Detail: CMBS $77.8 million Fair Value in non-agency CMBS Book Value: $72.3 million (2% of fixed income portfolio) We have experienced no losses on our CMBS positions 03/31/12
Slide 61: 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 03/31/12
Slide 62: ProAssurance Portfolio Detail: Equities & Other
Equities & Other: $276 Million ProAssurance Portfolio Detail: Equities & Other 3/31/12
Slide 63: ProAssurance Portfolio Detail: Corporate
Corporates: $1.4 Billion ProAssurance Portfolio Detail: Corporate Weighted Average Rating: A- 12/31/11
Slide 64: ProAssurance Portfolio Detail: Various
Treasury / GSE: $319 Million Short Term: $133 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+ 03/31/12
Slide 65: PROASSURANCE.
PROASSURANCE. “rested Faly
Slide 66: 2011 Financial Highlights
Year Ended December 31, 2011 2010 Gross Premiums Written $ 565,895 $ 533,205 Net Premiums Earned $ 565,415 $ 519,107 Net Investment Income $ 140,956 $ 146,380 Net Income (Includes Investment Losses) $ 287,096 $ 231,598 Operating Income $ 278,514 $ 219,457 Net Income per Diluted Share $ 9.31 $ 7.20 O
Slide 67: Q1 2012 Financial Highlights
Quarter Ended, 3/31/2012 3/31/2011 Gross Premiums Written $ 170,448 $ 160,813 Net Premiums Earned $ 136,659 $ 132,077 Net Investment Income $ 33,492 $ 36,161 Net Income (Includes Investment Losses) $ 55,645 $ 47,693 Operating Income $ 48,226 $ 44,984 Net Income per Diluted Share $ 1.80 $ 1.55 Operat
Slide 68: Debt to Equity Strong Capital Position
Debt to Equity Strong Capital Position Conservative Use of Debt / Low Leverage Low Debt to Cap Ratio No strain on cash flow No Debt Prior to 2001 Prepared for an improving market * Annualized 2012 premium for presentation purposes only. Specifically disclaimed as a projection of premiums
Slide 69: 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 70: 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 71: Net Investment Income, Net Premiums Written, Net 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, and, in 2012, the effect of $714,000 in confidential settlements that do not reflect normal operating results
Slide 72: Capital Growth: 2007-2012 YTD
Capital Growth: 2007-2012 YTD in $000’s except total equity (000,000’s)