ProAssurance Reports Strong 1Q


ProAssurance Corporation (PRA) reported first-quarter operating earnings per share of $1.56, striding ahead of the Zacks Consensus Estimate of $1.41 and the year-ago quarter earnings of $1.46. Operating earnings stood at $48.2 million, compared with $44.9 million in the prior-year quarter.

Operating income excludes the effects of confidential settlements, net realized investment gains or losses and guaranty fund assessments or recoupments. The positive adjustment to net income was 24 cents per share compared with 9 cents in the year-ago quarter.

Including the non-recurring items, net income was $55.6 million or $1.80 per share, compared with $47.7 million or $1.55 per share in the year-ago quarter. Improved earnings in the quarter were aided by higher revenues, which were partially offset by lower net investment results.

During the quarter under review, total revenue of ProAssurance increased to $180.6 million from $173.6 million in the year-ago quarter, followed by an increase of 6% in gross premiums written to $170.4 million from $160.8 million in the year-ago quarter.

The increase in Gross Premium Written was attributable to three reporting endorsements, one of which was for a hospital that was discontinued due to a merger and the other two written for physician groups. Moreover, owing to lower loss severity, arising from accident years 2004 to 2009, the company garnered $48 million of net favorable reserve development in the reported quarter versus $40 million a year ago.

Net investment income in the quarter was $33.5 million, declined 7.5% from $36.2 million in the previous year quarter of 2011. Net investment result (sum of net investment income and equity in earnings of unconsolidated subsidiaries) amounted to $31.4 million, decreased 9.8% from $34.8 million in the year-ago quarter. However, net realized investment gains of $10.7 million in the reported quarter more than doubled from $4.1 million in the first-quarter 2011.

Financial Position

ProAssurance generated net cash flow from operating activities of $28.1 million in the reported quarter, up from $24.9 million in the prior-year quarter. Total assets of the company at the end of the quarter were $5.03 billion, up from $4.99 billion as of December 31, 2011, while shareholders’ equity was $2.22 billion, reflecting a 2.8% increase from $2.16 billion as of December 31, 2011. Book value per share also rose 2.1% to $72.33 from $70.84 as on December 31, 2011.

Financial Ratios

ProAssurance’s net loss ratio for the reported quarter came in at 51.4%, compared with 53.3% in the prior-year quarter. Additionally, expense ratio improved to 24.7% from 25.9% in the prior-year quarter.

The combined ratio improved to 76.1% from 79.2% in the prior-year quarter, while operating ratio contracted 20 basis points to 51.6% from 51.8% in the prior-year quarter. Return on equity (:ROE) for the reported quarter remained flat year over year.

Share Repurchase Update

ProAssurance did not initiate a share repurchase program in the reported quarter. The company has approximately $188 million left under its $200 million authorization granted by the board in November 2010. ProAssurance has been purchasing shares in the open market since 2005 and has repurchased 6.1 million shares for $321 million to date.

Dividend Update

Consistent with the company’s dividend policy, ProAssurance paid a quarterly cash dividend of 25 cents per share on April 12, 2012 to shareholders of record as of March 29, 2012.

Our Take

ProAssurance adopts a highly disciplined strategy toward all its businesses, which helps the company to improve its top line and reduce expenses consequently, thereby boosting the bottom-line results and operating dynamics. Operating cash flow and assets of the company have improved; book value of its shares has also increased on a year-over-year basis.

The company excels in prudent capital management that is reflected by a low-risk balance sheet and healthy loss reserves. ProAssurance and its subsidiaries received a rating of “A” from Fitch Ratings with a “Stable” outlook making it even more attractive to shareholders.

The company has a sound financial position that will help it survive the soft market conditions and also maintain its profitability and leadership position in the coming quarters. However, net investment income declined during the reported quarter due to the low interest rate environment. Also, with the relocation process starting in June 2012, the expenses of the company are expected to increase in the coming quarters.

Further, due to the company’s policy of inorganic growth through acquisitions, the risk of integration continues to hover in the forthcoming quarters. We believe that the company needs to improve its investment management, while maintaining its current approach toward its operations to further enhance profitability in the future.

ProAssurance’s rival Greenlight Capital Re, Ltd. (GLRE) reported its first quarter operating net income of $1.75 per share, lagging the Zacks Consensus Estimate of $1.88. However, results compare unfavorably with earnings per share of $1.89 in the year-ago quarter.

We retain our long term Outperform recommendation on ProAssurance. Currently, it carries a Zacks #1 Rank, implying a short-term Strong Buy rating. 

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