Disappointing 4Q for ProAssurance

Zacks

ProAssurance Corporation (PRA) reported fourth-quarter operating earnings per share of $1.56, striding ahead of the Zacks Consensus Estimate of $1.41 but missing the year-ago quarter’s earnings of $2.13. Operating earnings stood at $96.6 million, compared with $131.5 million in the prior-year quarter.

Operating income excludes the effects of net realized investment gains or losses, guaranty fund assessments or recoupments and confidential settlements. These items led to a positive adjustment of 8 cents per share to net income in the reported quarter against 15 cents in the year-ago quarter.

Including non-recurring items, net income was reported at $101.3 million or $1.64 per share, declining from $140.6 million or $2.28 per share in the year-ago quarter.

During the quarter under review, total revenue of ProAssurance decreased 5.3% to $195.4 million from $206.4 million in the year-ago quarter. Revenue, however, surpassed the Zacks Consensus Estimate of $173 million.

Gross premiums written declined 6.9% year over year to $107.2 million. Moreover, owing to the lower-than-expected loss severity, arising from accident years 2004 to 2010, the company garnered $115 million of net favorable loss reserve development in the reported quarter versus $184 million a year ago. Total expenses amounted to $37.7 million.

Net investment income in the quarter was $34.2 million, inching down 0.6% from $34.4 million in the prior-year quarter. Net investment result (sum of net investment income and equity in earnings of unconsolidated subsidiaries) amounted to $31.4 million, inching up 0.35% from $31.3 million in the year-ago quarter. However, net realized investment gains stood at $6.5 million in the reported quarter, declining 44% from $11.6 million in the fourth quarter of 2011.

Full-Year 2012 Highlights

For full-year 2012, ProAssurance reported operating income of $257.2 million or $4.16 per share, declining from $278.5 million or $4.65 per share in 2011. Earnings per share also lagged the Zacks Consensus Estimate of $4.52.

Operating income excludes the effects of net realized investment gains or losses, guaranty fund assessments or recoupments, confidential settlements and debt retirement gains or losses. These items led to a positive adjustment of 30 cents per share to net income in 2012 against 13 cents in 2011.

Including non-recurring items, net income came in at $275.5 million or $4.46 per share against $287.1 million or $4.65 per share in 2011. Moreover, gross premiums written during the year came in at $536.4 million, down 5.2% year over year from $565.9 million. The year-over-year fall was largely attributable to the normal renewal pattern of ProAssurance’s two-year policies and its stringent underwriting practices aimed at meeting long-term goals.

ProAssurance’s total revenue amounted to $715.9 million in 2012, inching down from $716.8 million. Additionally, total expenses increased to $319.9 million from $302.2 million.

Financial Position

In the reported quarter, ProAssurance generated net cash flow from operating activities of $29.9 million, which plummeted from $52.9 million in the prior-year quarter. Total assets of the company at the end of the quarter were $4.88 billion, dropping from $5.0 billion as of Dec 31, 2011, while shareholders’ equity was $2.27 billion, reflecting an increase from $2.16 billion as of Dec 31, 2011. Book value per share also grew 4.0% to $36.85 from $35.42 as on Dec 31, 2011.

Financial Ratios

ProAssurance’s net loss ratio for the reported quarter came in at 3.2%, compared with (22.1%) in the prior-year quarter. Additionally, expense ratio deteriorated slightly to 20.8% from 20.1% in the prior-year quarter.

The combined ratio surged to 24.0% from (2.0%) in the comparable quarter last year, while operating ratio expanded to 2.0% from (23.3%) in the prior-year quarter. Return on equity (:ROE) for the reported quarter was 17.5%, deteriorating from 26.9% in the fourth quarter of 2011.

Stock Split

On Dec 27, 2012, ProAssurance implemented a 2:1 stock split in the form of a stock dividend. The earnings for both the reported quarter and year reflect the impact of the stock split.

Business Update

On Jan 1, 2013, ProAssurance completed the acquisition of insurance underwriting company – Medmarc Insurance Group. The acquisition will help in the diversification of ProAssurance’s portfolio of insurance products. The addition of Medmarc’s legal professional liability business will also increase the size of the acquiring company’s legal professional liability business, which in turn will likely boost premiums.

On Nov 30, 2012, ProAssurance completed the acquisition of Independent Nevada Doctors Insurance Exchange (:INDIE) – a reciprocal exchange based in Nev. Following the completion of the deal, ProAssurance emerged as the leading writer of medical professional liability insurance in Nev.

Debt Update

During the reported quarter, ProAssurance borrowed $125 million under its secured credit facility.

Dividend Update

In Dec 2012, ProAssurance paid in advance, a quarterly cash dividend of 25 cents per share that was due in the first quarter of 2013. Concurrently, the company also paid a special dividend of $2.50 per share.

Zacks Rank

ProAssurance currently carries a Zacks Rank #1 (Strong Buy). Other property and casualty insurers carrying the same Zacks Rank are AmTrust Financial Services, Inc. (AFSI), Fidelity National Financial, Inc. (FNF) and Cincinnati Financial Corp. (CINF).

Read the Full Research Report on CINF

Read the Full Research Report on PRA

Read the Full Research Report on AFSI

Read the Full Research Report on FNF

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