NEWS RELEASE
| For More Information: |
| Frank B. O’Neil |
| Sr. Vice President, Corporate Communications & Investor Relations |
| 800-282-6242 • 205-877-4461 • foneil@ProAssurance.com |
ProAssurance Reports Second Quarter 2013 Results
BIRMINGHAM, AL – (PRNewswire) – August 5, 2013 – ProAssurance Corporation (NYSE: PRA) today reported Net Income of $50.5 million for the second quarter of 2013, and $163.3 million for the six months ended June 30, 2013. Operating Income was $44.9 million for the quarter and $104.9 million for the six months. Net Income per diluted share was $0.81 for the quarter and $2.63 for the six months. Operating Income for the same periods was $0.72 and $1.69 per diluted share respectively. Book Value per Share is now $37.79.
Unaudited Consolidated Financial Summary (in thousands) | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| Gross Premiums Written | | $ | 122,816 | | | $ | 102,228 | | | $ | 286,025 | | | $ | 272,676 | |
| Net Premiums Written | | $ | 110,120 | | | $ | 91,870 | | | $ | 260,172 | | | $ | 249,868 | |
| Net Premiums Earned | | $ | 130,352 | | | $ | 131,266 | | | $ | 264,930 | | | $ | 267,925 | |
| Net Investment Income | | $ | 33,267 | | | $ | 34,510 | | | $ | 65,393 | | | $ | 68,003 | |
| Equity in Earnings (Loss) of Unconsolidated Subsidiaries | | $ | (2,972 | ) | | $ | (2,227 | ) | | $ | (3,195 | ) | | $ | (4,293 | ) |
| Net Investment Result | | $ | 30,295 | | | $ | 32,283 | | | $ | 62,198 | | | $ | 63,710 | |
| Net Realized Investment Gains (Losses) | | $ | 8,471 | | | $ | (1,548 | ) | | $ | 35,151 | | | $ | 9,130 | |
| Other Income | | $ | 1,687 | | | $ | 1,868 | | | $ | 3,500 | | | $ | 3,675 | |
| Total Revenues | | $ | 170,805 | | | $ | 163,869 | | | $ | 365,779 | | | $ | 344,440 | |
| Net Losses and Loss Adjustment Expenses | | $ | 70,609 | | | $ | 48,084 | | | $ | 128,235 | | | $ | 118,283 | |
| Underwriting, Policy Acquisition and Operating Expenses | | $ | 34,959 | | | $ | 35,405 | | | $ | 72,244 | | | $ | 69,803 | |
| Interest Expense | | $ | 392 | | | $ | 826 | | | $ | 763 | | | $ | 1,651 | |
| Total Expenses | | $ | 105,960 | | | $ | 84,315 | | | $ | 201,242 | | | $ | 189,737 | |
| Gain on Acquisition | | $ | - | | | $ | - | | | $ | 35,492 | | | $ | - | |
| Tax Expense | | $ | 14,394 | | | $ | 21,101 | | | $ | 36,728 | | | $ | 40,605 | |
| Net Income | | $ | 50,451 | | | $ | 58,453 | | | $ | 163,301 | | | $ | 114,098 | |
| Operating Income | | $ | 44,930 | | | $ | 59,459 | | | $ | 104,946 | | | $ | 107,683 | |
| Net Operating Cash Flow | | $ | 835 | | | $ | 4,605 | | | $ | (12,272 | ) | | $ | 32,705 | |
Earnings per Share (in thousands, except for per share data) | |
| Weighted average number of common shares outstanding | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| Basic | | | 61,825 | | | | 61,317 | | | | 61,766 | | | | 61,247 | |
| Diluted | | | 62,046 | | | | 61,832 | | | | 62,005 | | | | 61,767 | |
Net Income per share (Basic) | | $ | 0.82 | | | $ | 0.95 | | | $ | 2.64 | | | $ | 1.86 | |
Net Income per share (Diluted) | | $ | 0.81 | | | $ | 0.95 | | | $ | 2.63 | | | $ | 1.85 | |
Operating Income per share (Diluted) | | $ | 0.72 | | | $ | 0.96 | | | $ | 1.69 | | | $ | 1.74 | |
| Key Ratios | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| Current Accident Year Loss Ratio | | | 83.70 | % | | | 82.40 | % | | | 83.00 | % | | | 84.30 | % |
| Effect of Prior Accident Years’ Reserve Development | | | -29.50 | % | | | -45.80 | % | | | -34.60 | % | | | -40.20 | % |
| Net Loss Ratio | | | 54.20 | % | | | 36.60 | % | | | 48.40 | % | | | 44.10 | % |
| Expense Ratio | | | 26.80 | % | | | 27.00 | % | | | 27.30 | % | | | 26.10 | % |
| Combined Ratio | | | 81.00 | % | | | 63.60 | % | | | 75.70 | % | | | 70.20 | % |
| Operating Ratio | | | 55.50 | % | | | 37.30 | % | | | 51.00 | % | | | 44.80 | % |
Return on Equity (Excludes Gain on Acquisition) | | | 8.60 | % | | | 10.40 | % | | | 11.10 | % | | | 10.30 | % |
In the first quarter of 2013, we recognized a gain of $35.5 million in connection with our acquisition of Medmarc Casualty Insurance Company, formerly Medmarc Mutual Insurance Company, (Medmarc) because the fair value of the net assets we acquired exceeded our purchase price.
Return on Equity is calculated by dividing annualized Net Income, excluding the gain on the acquisition of Medmarc, for the period by the average of beginning and ending Shareholders’ Equity.
Non-GAAP Financial Measures
Operating income is a non-GAAP financial measure that is widely used to evaluate performance within the insurance sector. In calculating operating income, we have excluded the after-tax effects of net realized investment gains or losses, guaranty fund assessments or recoupments, a gain recognized as the result of an acquisition and the effect of confidential settlements that do not reflect normal operating results. We believe operating income presents a useful view of the performance of our insurance operations, but should be considered in conjunction with net income computed in accordance with GAAP.
The following table is a reconciliation of Net Income to Operating Income:
Reconciliation of Net Income to Operating Income (in thousands, except per share data) | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| Net Income | | $ | 50,451 | | | $ | 58,453 | | | $ | 163,301 | | | $ | 114,098 | |
| Items Excluded in the Calculation of Operating Income: | | | | | | | | | | | | | | | | |
| Net Realized Investment (Gains)Losses | | $ | (8,471 | ) | | $ | 1,548 | | | $ | (35,151 | ) | | $ | (9,130 | ) |
| Guaranty Fund Assessments (Recoupments) | | $ | (23 | ) | | $ | (1 | ) | | $ | (23 | ) | | $ | (25 | ) |
| Gain on Acquisition | | $ | - | | | $ | - | | | $ | (35,492 | ) | | $ | - | |
| Effect of Confidential Settlements, Net | | $ | - | | | $ | - | | | $ | - | | | $ | (714 | ) |
| Pre-Tax Effect of Exclusions | | $ | (8,494 | ) | | $ | 1,547 | | | $ | (70,666 | ) | | $ | (9,869 | ) |
| Tax Effect at 35%, Exclusive of Non-Taxable Gain on Acquisition | | $ | 2,973 | | | $ | (541 | ) | | $ | 12,311 | | | $ | 3,454 | |
| Operating Income | | $ | 44,930 | | | $ | 59,459 | | | $ | 104,946 | | | $ | 107,683 | |
| Per Diluted Common Share: | | | | | | | | | | | | | | | | |
| Net Income | | $ | 0.81 | | | $ | 0.95 | | | $ | 2.63 | | | $ | 1.85 | |
| Effect of Adjustments | | $ | (0.09 | ) | | $ | 0.01 | | | $ | (0.94 | ) | | $ | (0.11 | ) |
| Operating Income Per Diluted Common Share | | $ | 0.72 | | | $ | 0.96 | | | $ | 1.69 | | | $ | 1.74 | |
Management Commentary
“We are encouraged by our ability to grow our top line by adding well underwritten, adequately priced business that we expect to meet our return targets,” said W. Stancil Starnes, the Chairman and Chief Executive Officer of ProAssurance. He also highlighted the success of newly acquired insurers. He said, “We are seeing the benefits of a successful M&A strategy that added $14 million of gross premium to our top line in the quarter and $26 million year-to-date. The purchase of Independent Nevada Doctors Insurance Exchange (IND) solidified our position as the top medical professional liability writer in Nevada. Our acquisition of Medmarc added significant volume to our lawyers’ professional liability line and, most importantly, broadened our medically-related coverage to include products liability for medical technology and life sciences. We are especially encouraged by Medmarc’s ability to attract new business and retain existing accounts by leveraging its expertise and the financial strength of ProAssurance.”
Business Detail | |
Gross Premium Written (in thousands, premium for reporting endorsements allocated by line) | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| Healthcare Professional Liability | | $ | 105,805 | | | $ | 97,943 | | | $ | 254,440 | | | $ | 262,174 | |
| Legal Professional Liability | | $ | 7,221 | | | $ | 3,953 | | | $ | 15,385 | | | $ | 9,723 | |
| Medical Technology and Life Sciences Products Liability | | $ | 9,394 | | | $ | - | | | $ | 15,289 | | | $ | - | |
| Other | | $ | 396 | | | $ | 332 | | | $ | 911 | | | $ | 779 | |
| | | $ | 122,816 | | | $ | 102,228 | | | $ | 286,025 | | | $ | 272,676 | |
- Gross Premiums Written were $123 million in the second quarter of 2013 compared to $102 million in the same quarter of 2012. Gross Premiums Written also increased, year-over-year for the first six months of 2013, to $286 million. Net Premiums Earned for the second quarter of 2013 were $130 million, essentially unchanged from the same quarter in 2012, and for the six months ended June 30, 2013, Net Premiums Earned were $265 million, a decline of approximately 1%.
- Healthcare Professional Liability Gross Premiums Written increased $7.9 million, or 8%, quarter-over-quarter. This primarily reflects $4.6 million due to our shifting of renewal dates and will have no effect on future earned premium. Our acquisition of IND added $1.7 million in premium in the second quarter, and $5.2 million year-to-date.
- Our acquisition of Medmarc resulted in $9.4 million of new premium in medical technology and life sciences products liability in the quarter and added $15.3 million for the six months ended June 30, 2013. Medmarc also added $2.7 million of new premium in our legal professional liability line in the second quarter and $5.4 million in new legal professional liability premium year-to-date.
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Premium retention for our standard physician business was 91% in the second quarter, compared to 88% in the year-ago quarter, and year-to-date, is 89% compared to 90% in 2012.
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Loss and Loss Adjustment Expenses | |
Net Losses (in millions) | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| Current Accident Year Net Losses | | $ | 109.1 | | | $ | 108.2 | | | $ | 219.8 | | | $ | 225.8 | |
| Prior Accident Year Net Losses | | $ | (38.5 | ) | | $ | (60.1 | ) | | $ | (91.6 | ) | | $ | (107.5 | ) |
| Net Losses | | $ | 70.6 | | | $ | 48.1 | | | $ | 128.2 | | | $ | 118.3 | |
We recognized $38.5 million of net favorable reserve development in the second quarter, compared to $60.1 million in the year-ago quarter. Based upon an analysis of trends in our detailed review of loss data through the first six months of the year, we are recognizing a lower level of favorable development for the second quarter of 2013 than indicated by the data available in this year’s first quarter. Year-to-date net favorable reserve development has been $91.6 million, compared to $107.5 million in 2012.
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Cash Flow |
Approximately $5 million of the decline in operating cash flows is attributable to acquisitions and reflects both the payment of transaction expenses and the timing of expense payments. Exclusive of acquisitions, 2013 cash flows reflect the effect of significantly higher tax payments, lower premium receipts and increased underwriting and operating expense payments.
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Investment Commentary |
Net Investment Income was $33.3 million in the second quarter, down 3.6% compared to second quarter 2012 primarily due to the continuing effect of lower yields on our fixed income portfolio. Year-to-date Net Investment Income is $65.4 million, down 3.8% due to the same factors. Our average tax equivalent income yield for the six months ended June 30, 2013 was 4.3% compared with 4.5% during the first six months of 2012.
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Balance Sheet Highlights (in thousands, except per share data) | |
| | | 6/30/2013 | | | 12/31/2012 | |
| Shareholders’ Equity | | $ | 2,336,788 | | | $ | 2,270,580 | |
| Total Investments | | $ | 4,156,888 | | | $ | 3,926,902 | |
| Total Assets | | $ | 5,112,045 | | | $ | 4,876,578 | |
| Policy Liabilities | | $ | 2,495,113 | | | $ | 2,334,446 | |
| Accumulated Other Comprehensive Income (Loss) | | $ | 75,062 | | | $ | 145,380 | |
| Goodwill | | $ | 161,115 | | | $ | 163,055 | |
| Book Value per Share | | $ | 37.79 | | | $ | 36.85 | |
Book Value per share, while up 2.6% year-to-date, declined from March 31, 2013 due to a reduction in the fair value of our available-for-sale securities.
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Capital Management |
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Rating Actions |
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About ProAssurance
ProAssurance Corporation is an industry-leading specialty insurance company with extensive expertise in medical professional liability, products liability for medical technology and life sciences and legal professional liability. ProAssurance is recognized as one of the top performing insurance companies in America by virtue of our inclusion in the Ward’s 50 for the past seven years and is consistently ranked as a top performing property casualty insurer in Moody’s Yearly Statistical Handbook. ProAssurance Group is rated “A+” (Superior) by A.M. Best and ProAssurance is rated “A” (Strong) by Fitch Ratings.
Conference Call Information |
Live: Tuesday, August 6, 2013, 10:00 AM ET. Investors may dial (888) 503-8175 (toll free) or (719) 325-2376. The call will also be webcast on our website, www.ProAssurance.com,
and on StreetEvents.com.
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Replay: By telephone, through August 30, 2013, at (888) 203-1112 or (719) 457-0820, using access code 5336851. The replay will also be available on our website, www.ProAssurance.com,
and on StreetEvents.com, through at least August 30, 2013.
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Caution Regarding Forward-Looking Statements
Statements in this news release that are not historical fact or that convey our view of future business, events or trends are specifically identified as forward-looking statements. Forward-looking statements are based upon our estimates and anticipation of future events and highlight certain risks and uncertainties that could cause actual results to vary materially from our expected results. We expressly claim the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, for any forward-looking statements in this news release. Forward-looking statements represent our outlook only as of the date of this news release. Except as required by law or regulation, we do not undertake and specifically decline any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Forward-looking statements are generally identified by words such as, but not limited to, “anticipate,” “believe,” “estimate,” “expect,” “hope,” “hopeful,” “intend,” “likely,” “may,” “optimistic,” “possible,” “potential,” “preliminary,” “project,” “should,” “will,” and other analogous expressions. When we address topics such as liquidity and capital requirements, the value of our investments, return on equity, financial ratios, net income, premiums, losses and loss reserves, premium rates and retention of current business, competition and market conditions, the expansion of product lines, the development or acquisition of business in new geographical areas, the availability of acceptable reinsurance, actions by regulators and rating agencies, court actions, legislative actions, payment or performance of obligations under indebtedness, payment of dividends, and other similar matters, we are making forward-looking statements.
Risks that could adversely affect the mergers of Medmarc and IND into ProAssurance include, but are not limited to, the following:
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operating costs, customer loss and business disruption following either or both transactions, including adverse effects on relationships with employees, may be greater than expected.
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The following important factors are among those that could affect the actual outcome of other future events:
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changes in accounting policies and practices that may be adopted by our regulatory agencies and the Financial Accounting Standards Board,
the Securities and Exchange Commission, or the Public Company Accounting Oversight Board;
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the effects of changes in the healthcare delivery system, including, but not limited to, the Patient Protection and Affordable Care Act;
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- our ability to retain and recruit senior management;
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taxing authorities can take exception to our tax positions and cause us to incur significant amounts of legal and accounting costs and, if our defense is not successful,
additional tax costs, including interest and penalties;
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expected benefits from completed and proposed acquisitions may not be achieved or may be delayed longer than expected due to business disruption; loss of customers, employees and key agents; increased operating costs or inability to achieve cost savings; and assumption of greater than expected liabilities among other reasons.
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Additional risk factors that may cause outcomes that differ from our expectations or projections are described in various documents filed by ProAssurance Corporation with the Securities and Exchange Commission, such as current reports on Form 8-K, and regular reports on Forms 10-Q and 10-K, particularly in “Item 1A, Risk Factors. |
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