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On May 17, shares of ProAssurance Corporation PRA hit 52-week low of $39.65. The stock seems to have fallen out of favor with investors, following disappointing first-quarter results.
Shares of ProAssurance have also underperformed the industry. The stock has lost nearly 24% in a year’s time versus the industry’s rally of 18%
The company’s first-quarter 2018 operating earnings per share of 40 cents missed the Zacks Consensus Estimate by 6.9%. The bottom line declined 35.5% year over year. Results suffered from increase in expenses that outweighed premium growth.
Factors Weighing On the Stock
Volatility in Premium Retention: ProAssurance has been facing volatility in premium retention in its physician business, mainly due to increased competition. Retention rate has been declining from past many years and the first quarter was no exception with the same declining 300 basis points. Continuous reduction in insured client base might weigh on premiums, dragging top-line growth going forward.
Deteriorating Investment Portfolio: The sustained soft interest rate environment in the recent past kept the investment income in a lower level for long. Net investment income declined at an average rate of 6.3% over the past six years (2011-17), primarily due to a fall in the fixed income portfolio. Despite the recent interest-rate hikes during 2017, the company witnessed a 5% drop in net investment income.
Growing Expenses: ProAssurance has been consistently suffering higher underwriting, policy acquisition and operating expenses. On an average, these expenses increased at a rate of nearly 8% in the past six years inducing deterioration in the company’s margin. An increase in net loss and loss adjustment expenses as well as underwriting, policy acquisition and operating expenses induced 5.4% increase in expenses in the first quarter of 2018.
Any Respite Going Forward
The Zacks Consensus Estimate for 2018 earnings has been revised 6% downward over the past 30 days. For 2019, the same has decreased 9.5%. This reflects analysts pessimism over the stock, which should keep the stock under pressure in the coming quarters.
Zacks Rank and Stocks to Consider
ProAssurance carries a Zacks Rank #5 (Strong Sell). Some other stocks in the same space are Alleghany Corp. Y, The Progressive Corp. PGR and RLI Corp. RLI. Each of these stocks carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Alleghany beats estimates in three of the four reported quarters with average positive surprise of 17.6%
The Progressive Corp. surpassed estimates in three of the four reported quarters with average positive surprise of 6.23%.
RLI Corp. surpassed estimates in each of the four reported quarters with average positive surprise of 33.7%.
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