ProAssurance (PRA) Down 5.3% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for ProAssurance (PRA). Shares have lost about 5.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is ProAssurance due for a breakout? 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 Incurs Q1 Loss, Revenues Down Y/Y
ProAssurance incurred a first-quarter 2023 operating loss of 15 cents per share against the Zacks Consensus Estimate of earnings of 15 cents per share. Notably, earnings of 14 cents per share were reported in the prior-year quarter.
Operating revenues of $271 million fell 6.2% year over year in the quarter under review. The top line missed the consensus mark by 1.1% but came higher than our estimate of $258.1 million.
The quarterly results grappled with lower-than-expected claim costs that put a strain on workers’ compensation rates, thereby affecting the Workers’ Compensation Insurance unit. Cost headwinds, prevailing amid the medical professional liability market, have also impacted the Specialty Property and Casualty (P&C) segment. Nevertheless, the downside was partly offset by growing net investment income and a declining overall expense level.
Operational Update
Gross premiums written decreased 5.9% year over year to $315.8 million in the first quarter, higher than our estimate of $295.5 million. Net premiums earned of $239.8 million dropped 9.8% year over year in the first quarter and lagged the Zacks Consensus Estimate of $244 million. Yet, the figure surpassed our estimate of $229.9 million.
Net investment income surged 48.3% year over year to $30.3 million on the back of improved average book yields stemming from fixed maturity investments. The figure came higher than the consensus mark of $27.2 million and our estimate of $24.2 million.
Total expenses of $281 million declined 2.6% year over year in the quarter under review mainly due to reduced net losses and loss adjustment expenses, underwriting, policy acquisition and operating expenses coupled with the decline in SPC dividend expense. The reported figure stood higher than our estimate of $255.3 million.
The combined ratio deteriorated 810 basis points (bps) year over year to 113.9%.
Segmental Results
Specialty P&C Segment
Total revenues amounted to $180.3 million in the segment, which decreased 9.4% from the prior-year figure and matched the Zacks Consensus Estimate. Gross premiums written of $238.9 million slipped 7.3% year over year in the first quarter, due to prevalent competitive market conditions that called for rate hikes in the prior-year quarter. Yet, the reported figure beat our estimate of $221 million.
The segment incurred a loss of $24.7 million, wider than the prior-year quarter’s loss of $9.9 million and the consensus mark of a loss of $10.5 million. Total expenses inched up 1.8% year over year to $205 million in the quarter under review. The combined ratio of 114.3% deteriorated 880 bps year over year.
Workers' Compensation Insurance Segment
The segment’s revenues inched up marginally year over year to $41.4 million in the first quarter and came higher than the Zacks Consensus Estimate of $41.3 million. Gross premiums written of $73.4 million grew 1.8% year over year, thanks to improved audit premium and new business growth. The reported figure came higher than our estimate of $71.1 million.
A segmental loss of $2.4 million was incurred in the quarter under review against the prior-year quarter’s profit of $1.2 million. Total expenses escalated 9% year over year to $43.8 million. The combined ratio of 107.4% deteriorated 850 bps year over year.
Lloyd's Syndicates Segment
Gross premiums written of $3.5 million plunged 40% year over year in the first quarter but beat our estimate of $3.4 million. The unit recorded a profit of $0.9 million, which increased nearly four-fold year over year. Underwriting, policy acquisition and operating expenses of $1.7 million decreased 36.5% year over year. The combined ratio improved 1,130 bps year over year to 85.2% and came lower than the Zacks Consensus Estimate of 98%.
Segregated Portfolio Cell Reinsurance Segment
Gross premiums written tumbled 19.3% year over year to $22.9 million in the first quarter and fell short of our estimate of $26 million. The metric suffered due to a decline in healthcare professional liability premiums.
It reported a profit of $0.9 million against the prior-year quarter’s loss of $0.2 million. The combined ratio of 88% deteriorated 590 bps year over year in the quarter under review and stood higher than the Zacks Consensus Estimate of 86%.
Corporate Segment
The segment’s net investment income soared 47.6% year over year to $29.7 million, attributable to improved interest rates. The reported figure outpaced our estimate of $23.5 million. A segmental profit of $18.2 million increased more than three-fold year over year in the first quarter. Operating expenses decreased 6.1% year over year to $8.2 million. Interest expense of $5.5 million escalated 23% year over year.
Financial Position (as of Mar 31, 2023)
ProAssurance exited the first quarter with cash and cash equivalents of $56.4 million, which soared 88.4% from the 2022-end level. Total investments of $4,381.6 million dipped 0.1% from the figure at 2022-end.
Total assets of $5,747.9 million inched up 0.8% from the 2022-end figure.
Debt-less unamortized debt issuance costs came in at $427.5 million, up 0.1% from the figure as of Dec 31, 2022.
Total shareholder equity of $1,138.3 million grew 3.1% from the figure at 2022 end.
In the reported quarter, net cash used in operating activities stood at $29.8 million. Operating cash flows of $14.3 million were generated in the prior-year quarter.
Book value per share increased 3% from the 2022-end level to $21.07. Non-GAAP operating return on equity came in at a negative figure of 2.9% at the first-quarter end.
Capital Deployment Update
ProAssurance did not buy back shares in the first quarter. A leftover amount of $106.4 million could be utilized for common share repurchases or retirement of outstanding debt as of Mar 31, 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -67.77% due to these changes.
VGM Scores
Currently, ProAssurance has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise ProAssurance has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
ProAssurance belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Palomar (PLMR), has gained 19.2% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.
Palomar reported revenues of $89.06 million in the last reported quarter, representing a year-over-year change of +12.2%. EPS of $0.80 for the same period compares with $0.68 a year ago.
Palomar is expected to post earnings of $0.82 per share for the current quarter, representing a year-over-year change of +12.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.4%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Palomar. Also, the stock has a VGM Score of B.
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