ProAssurance Beats Earnings on Higher Top Line


ProAssurance Corporation (PRA) reported third-quarter operating earnings per share of 88 cents that beat the Zacks Consensus Estimate of 82 cents by 7.3%. Earnings improved 2.3% year over year. Operating earnings stood at $54.8 million, up 3.5% year over year.

Operating income excludes the effects of net realized investment gains, guaranty fund assessment or recoupment, gain on acquisitions and taxable gain on acquisitions. These items led to a positive adjustment of 14 cents per share to net income in the reported quarter against 11 cents in the year-ago quarter.

Including non-recurring items, ProAssurance’s net income amounted to $63.4 million or $1.02 per share, increasing from $60.1 million or 97 cents per share in the year-ago quarter. An improved top line aided the outperformance.

Total revenues of ProAssurance grew 3.1% to $181.5 million from $176 million in the prior-year quarter. Revenues also surpassed the Zacks Consensus Estimate of $170 million.

Gross premiums written by ProAssurance increased 6% year over year to $165.8 million. Contribution from Legal Professional Liability as well as Medical Technology and Life Sciences Products Liability mainly led to the upside.

The company garnered $49.4 million of net favorable reserve development in the reported quarter versus $50 million a year ago.

Total expenses amounted to $95.3 million, up from $92.4 million in the year-ago quarter. Higher expenses were driven by higher losses and loss adjustment costs.

Net investment income of ProAssurance was $33.9 million, sliding 0.1% year over year. Net investment result (sum of net investment income and equity in earnings of unconsolidated subsidiaries) amounted to $33.6 million, down 1.7% from $34.1 million in the year-ago quarter. However, net realized investment gains stood at $12.5 million in the reported quarter, compared to $13.2 million in the year-ago quarter.

Financial Position

In the reported quarter, ProAssurance witnessed net cash inflow from operating activities of $12.3 million, compared to $28.6 million in the prior-year quarter. Total assets of the company at the end of the quarter were $4.96 billion, up from $4.88 billion as of Dec 30, 2012.

Meanwhile, ProAssurance’s shareholder equity was $2.37 billion, reflecting an increase from $2.27 billion as of Dec 31, 2012. Book value per share also improved 4.4% to $38.48 from $36.85 as of Dec 31, 2012.

Financial Ratios

ProAssurance’s net loss ratio for the quarter came in at 46.1%, compared with 44.5% in the prior-year quarter. Expense ratio improved to 25% from 26.2% in the prior-year quarter. The combined ratio of ProAssurance deteriorated to 71.1% from 70.7% in the comparable quarter last year, while operating ratio increased to 45.7% from 44% in the prior-year quarter. Return on equity (:ROE) for the reported quarter was 10.7%, improving from 10.4% in the third quarter of 2012.

Share Repurchase and Dividend Update

ProAssurance spent $8 million to buy back 0.175 million shares in the quarter and is left with $127 million under its authorization.

In Oct 2013, ProAssurance paid a quarterly cash dividend of 25 cents per share.

Acquisition Update

On Sep 25, ProAssurance announced an agreement to acquire a domestic casualty insurance company, Eastern Insurance Holdings Inc. (EIHI) for a cash consideration of $205 million or $24.50 per share.

The deal is expected to culminate by Jan 1, 2014 pending regulatory and Eastern shareholder approval.

On closing, Eastern Insurance will merge with a newly formed subsidiary of ProAssurance to form an entity that will enhance the medically-focused product lines of ProAssurance. Post the merger, Eastern Insurance will become a wholly owned subsidiary of ProAssurance. However, the corporate offices of Eastern Insurance in Lancaster, Pa., and its existing regional and satellite offices will be retained.

Performances of Other Insurers

Allied World Assurance Company Holdings, AG (AWH) reported its third-quarter 2013 operating net income of $2.93 per share, surpassing the Zacks Consensus Estimate by 37.5%. The results also surged 35.6% from the year-ago quarter results.

Aspen Insurance Holdings Ltd. (AHL) reported third-quarter 2013 operating net income of $1.05 per share, which exceeded the Zacks Consensus Estimate of 80 cents by 31.2%. However, the results lagged the year-ago quarter number by 21.6%.

Zacks Rank

ProAssurance currently carries a Zacks Rank #3 (Hold).

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