ProAssurance (PRA) Down 9.6% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for ProAssurance (PRA). Shares have lost about 9.6% 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 Q3 Loss Due to Weak Underwriting Results
ProAssurance incurred a third-quarter 2023 adjusted operating loss of seven cents per share against the Zacks Consensus Estimate of earnings of 15 cents per share. The figure was wider than the prior-year quarter’s loss of six cents per share.
Operating revenues slid 3.1% year over year to $279 million in the quarter under review. The top line missed the consensus mark by 1.4%.
The quarterly results suffered a blow due to competitive market conditions and judicial trends across PRA’s business lines. A decline in net premiums earned across its segments, feeble underwriting results, as well as an elevated expense level, also hurt its performance. Nevertheless, the downside was partly offset by strong investment returns resulting from higher interest rates.
Quarterly Operational Update
Gross premiums written improved 3.7% year over year to $319.8 million, higher than our estimate of $273.9 million. The metric benefited from new business growth. Net premiums earned of $242.4 million fell 6.2% year over year but outpaced the Zacks Consensus Estimate of $238 million as well as our estimate of $235.2 million.
Net investment income climbed 32.4% year over year to $32.8 million in the third quarter. The reported figure beat the consensus mark of $32.5 million but fell short of our estimate of $33.5 million.
Total expenses of $329.8 million escalated 15.8% year over year and came higher than our estimate of $257.2 million. The year-over-year increase was due to higher net losses and loss adjustment expenses.
ProAssurance incurred a net loss of $49.4 million in the quarter under review, wider than the prior-year quarter’s loss of $9.1 million. The combined ratio deteriorated 880 basis points (bps) year over year to 116.7%.
Segmental Update
ProAssurance decided to withdraw its participation in the results of Syndicate 1729 from the 2024 underwriting year. It inked a deal to divest its leftover ownership stake in the underwriting and operations entity linked with Syndicate 1729 to an unrelated third party.
As a result, its segments underwent reorganization in the third quarter of 2023 and the company’s reportable segments were lowered to four from five, namely Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance and Corporate. The underwriting results of Lloyd’s Syndicates, as a result of PRA’s participation prior to 2024, are presently reported in the Specialty P&C segment. Meanwhile, the investment results of assets related to its Lloyd's Syndicate operations and U.K. income taxes are reported within the Corporate segment.
Specialty P&C Segment
The segment’s revenues slid 1.3% year over year to $196.9 million in the third quarter, higher than the Zacks Consensus Estimate of $177 million and our estimate of $170.7 million. Net premiums earned of $195.8 million fell 1.4% year over year due to market conditions that prevailed during the preceding twelve months. The reported figure surpassed the consensus mark of $181 million and our estimate of $169.7 million.
Total expenses inched up 0.2% year over year to $212.1 million. The unit incurred a loss of $15.2 million in the quarter under review, wider than the prior-year quarter’s loss of $12.2 million. The combined ratio of 108.3% deteriorated 160 bps year over year.
Workers' Compensation Insurance Segment
In the third quarter, revenues in the unit declined 5.6% year over year to $40.2 million, lower than our estimate of $42.6 million. Net premiums earned of $39.9 million tumbled 5.2% year over year due to persistent competitive market conditions. The figure lagged the Zacks Consensus Estimate of $41.2 million and our estimate of $42.1 million.
Total expenses were $54.8 million, which escalated 29.5% year over year. The unit incurred a loss of $14.5 million against the prior-year quarter’s profit of $0.3 million. The combined ratio of 137.3% deteriorated 3,680 bps year over year due to higher-than-expected loss trends.
Segregated Portfolio Cell Reinsurance Segment
The segment recorded gross premiums written of $7.9 million, which plunged 55.6% year over year. Net premiums earned dropped 62% year over year to $6.8 million in the quarter under review due to a decline in workers’ compensation renewal premiums resulting from rate decreases and lower retention rates.
Underwriting, policy acquisition and operating expenses totaled $3.7 million, which fell 34.5% year over year and came lower than our estimate of $6.1 million. The unit recorded a profit of $0.9 million against the prior-year quarter’s loss of $0.2 million. The combined ratio deteriorated 3,280 bps year over year to 128.2% in the third quarter.
Corporate Segment
Net investment income advanced 31.5% year over year to $32.2 million but missed our estimate of $32.8 million. The year-over-year increase stemmed from improved average book yields from PRA’s fixed maturity investments. The segment’s profit of $22.1 million increased more than seven-fold year over year in the quarter under review. Operating expenses decreased 6.5% year over year to $8.3 million on the back of lower compensation-related expenses. Interest expenses of $5.5 million remained flat year over year.
Financial Position (as of Sep 30, 2023)
ProAssurance exited the third quarter with cash and cash equivalents of $62.1 million, which more than doubled from the 2022-end figure. Total investments of $4.2 billion slipped 3.6% from the level at 2022 end.
Total assets of $5.6 billion decreased 2.2% from the figure at 2022 end.
Debt-less unamortized debt issuance costs were $426.6 million, which dipped 0.1% from the figure as of Dec 31, 2022.
Total shareholders’ equity of $1 billion fell 8.3% from the 2022-end level.
Net cash used in operating activities amounted to $46.6 million in the first nine months of 2023. It generated net cash from operations of $6.7 million in the prior-year comparable period.
Book value per share was $19.85, which declined 3% from the 2022-end level. Non-GAAP operating return on equity was a negative figure of 1.4% in the quarter under review.
Share Repurchase Update
ProAssurance bought back common shares worth $30.5 million in the third quarter. A leftover capacity of $55.9 million remained in place to be utilized for common share repurchases or retirement of outstanding debt as of Sep 30, 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 -78.02% 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, Allstate (ALL), has gained 7.8% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.
Allstate reported revenues of $14.58 billion in the last reported quarter, representing a year-over-year change of +9%. EPS of $0.81 for the same period compares with -$1.56 a year ago.
Allstate is expected to post earnings of $2.85 per share for the current quarter, representing a year-over-year change of +309.6%. Over the last 30 days, the Zacks Consensus Estimate has changed +2.9%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Allstate. Also, the stock has a VGM Score of B.
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