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ProAssurance (PRA) Up 7.4% Since Last Earnings Report: Can It Continue?

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Zacks Equity Research
·5 min read
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It has been about a month since the last earnings report for ProAssurance (PRA). Shares have added about 7.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ProAssurance due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

ProAssurance's Q3 Earnings Miss Mark, Decrease Y/Y

ProAssurance reported third-quarter 2020 operating earnings of 5 cents per share, missing the Zacks Consensus Estimate of 14 cents by 64.3%. The company’s bottom line of 30 cents tumbled 83.3% year over year. This was mainly due to lower premiums and soaring expenses. Further, quarterly operating revenues of ProAssurance dropped 12% to $213 million from the prior-year quarter’s level, mainly due to lower premiums. Meanwhile, the top line met the Zacks Consensus Estimate.

Quarterly Operational Update

Gross premiums written were down 7.7% year over year to $245 million, primarily due to decreased participation in Syndicate 1729 along with re-underwriting efforts in Specialty business. Moreover, competitive conditions in the Workers Compensation Insurance and SPCR segments contributed to this downside. Moreover, net premiums earned were down 9.8% year over year to $194.6 million.

Net investment income fell 28.5% year over year to $16.9 million due to lower allocation to equity assets in the company’s portfolio as well as declining yields from short-term investments and corporate debt securities.

Total expenses increased 62% year over year to $374.7 million. This rise in costs mainly stemmed from higher goodwill impairment. Combined ratio expanded 170 basis points (bps) year over year to 105.3%.

Quarterly Segmental Results

Specialty P&C Insurance Segment

Total revenues of $118 million declined 6.7% from the prior-year quarter’s figure in the segment. Gross premiums written dipped 4.1% year over year to $158 million, reflective of the company’s strategy to boost rate levels in the Standard Physician business and re-underwriting efforts in the Specialty business along with timing differences. Combined ratio expanded 160 basis points year over year to 111.2%.

Workers' Compensation Segment

Total revenues of $42 million decreased 14% year over year, mainly due to lower premiums earned. Gross premiums written were $62.9 million, down 10.1% from the year-earlier period’s number, mainly due to reduction in renewal pricing and lower new business written along with weak audit premiums. Combined ratio expanded 190 basis points year over year to 97.4%.

Lloyd's Syndicate Segment

Total revenues of $20 million decreased 11.1% year over year on the back of reduced premiums. Gross premiums written were $23.8 million, down 21.6% from the figure acquired in the comparable quarter last year due to less participation in the operating results of Syndicate 1729. Combined ratio contracted 1050 basis points year over year to 89.6%.

Segregated Portfolio Cell Reinsurance Segment

Gross premiums written were $15.9 million, down 7.8% the year-earlier period’s number, mainly due to the premium retention for worker’s compensation business. Combined ratio contracted 540 basis points year over year to 74.1%.

Corporate Segment

Net investment income of $15.7 million declined 29.1% year over year due to softened allocation to equities and lower yields on short-term investments and corporate debt securities. Operating expenses of $5 million flared up 88.1% from the prior-year quarter’s level. Interest expense of $3.8 million fell 9.2% year over year.

Financial Position

As of Sep 30, 2020, ProAssurance’s total investments were $3.3 billion, down 0.7% from the number registered at 2019 end. At third-quarter end, the company’s total assets were $4.7 billion, down 2.4% from the figure at 2019 end. As of Sep 30, 2020, the insurer’s shareholder equity dropped 12% to $1.3 billion from the figure as of Dec 31, 2019. Return on equity was (8.8%) against the year-ago quarter’s return on equity of 4.3%. Book value was $24.68 per share as of Sep 30, 2020, down 12.2% from the figure as of Dec 31, 2019.

Share Repurchase & Dividend Update

The board of directors declared a regular dividend of 5 cents per share, which was paid out on Oct 9, 2020. The company did not repurchase any shares in 2019 and has not yet in 2020 either. As of Oct 30, 2020, it has $110 million remaining under its board-authorized stock repurchase program.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted 166.67% due to these changes.

VGM Scores

At this time, ProAssurance has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

ProAssurance has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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