ProAssurance Corporation’s PRA shares rose 7.1% since it reported better-than-expected second-quarter earnings on Aug 8. While costs are decreasing, boosting profits, investors might want to see PRA gain heavily from higher interest rates.
ProAssurance reported second-quarter 2022 operating earnings of 30 cents per share, beating the Zacks Consensus Estimate of 7 cents. PRA’s bottom line, however, fell from 49 cents per share a year ago.
The quarterly operating revenues of ProAssurance increased from the prior-year level of $258.9 million to $274.5 million. However, the top line missed the Zacks Consensus Estimate of $315 million.
The company reported better-than-expected second-quarter 2022 earnings due to decreased expenses. Also, higher premiums, underwriting discipline in the Specialty P&C unit and a strong performance from investment income benefited the results. The NORCAL acquisition keeps supporting its year-over-year growth. This was partially offset by weakness in the Lloyd's Syndicate and Segregated Portfolio Cell Reinsurance businesses.
ProAssurance Corporation Price, Consensus and EPS Surprise
ProAssurance Corporation price-consensus-eps-surprise-chart | ProAssurance Corporation Quote
Gross premiums written were up 12.9% year over year to $235.5 million, mainly on the back of the Specialty P&C segment, aided by the NORCAL acquisition. This was partially offset by lower participation in Syndicates at Lloyd. Net premiums earned were up 3.5% year over year to $247.3 million but missed the Zacks Consensus Estimate of $269.7 million.
Net investment income rose 26% year over year to $21.9 million on increased profits from investments from the NORCAL acquisition and rising interest rates. It beat the Zacks Consensus Estimate of $19 million.
Total expenses decreased 3.1% year over year to $259.4 million due to lower SPC U.S. federal income tax expense, interest expense, and improved SPC dividend income. Net losses and loss adjustment expenses also fell 2.3% year over year in the quarter under review.
Combined ratio declined 520 basis points (bps) year over year to 103.2%. Operating ratio declined 680 bps to 94.3%. Non-GAAP return on equity plunged year over year to 5.3% for the second quarter.
ProAssurance did not engage in share buybacks in the second quarter. As of Jun 30, 2022, PRA had $110 million left under its authorization for repurchases and debt retirement.
Specialty P&C Insurance Segment
Total revenues of $185.5 million were up 9% from the prior-year figure. Gross premiums written rose 18.1% year over year to $167.8 million, mainly owing to the NORCAL acquisition. The segment reported a profit of $0.4 million, beating the Zacks Consensus Estimate of a loss of $6 million, but was down from the year-ago profit of $1 million. Total expenses of $185.1 million jumped 9.5% year over year. The combined ratio increased 60 bps year over year to 100.8%.
Workers' Compensation Segment
Total revenues of $42.2 million were up 1.7% year over year and beat the Zacks Consensus Estimate of $40 million. Gross premiums written were $63.6 million, up 10% from the year-earlier number. Increased audit premiums and renewal retention in traditional businesses helped the segment. On account of higher operating expenses, the segment reported a profit of $0.6 million for the second quarter, lower than the year-ago profit of $1.1 million. However, it beat the Zacks Consensus Estimate of a loss of $0.1 million. Total expenses of $41.6 million were up 2.8% year over year. The combined ratio increased 20 bps year over year to 99.8%.
Lloyd's Syndicate Segment
Gross premiums written were $4.1 million, down 52.7% from the figure recorded in the comparable quarter of last year due to decreased participation in Syndicates. Profits from the segment amounted to $0.6 million for the quarter under review, in line with the Zacks Consensus Estimate, but down from the year-ago figure of $4.3 million. Underwriting, policy acquisition and operating expenses declined 68.1% year over year to $1.5 million. Combined ratio increased 1,000 bps year over year to 85.5%.
Segregated Portfolio Cell Reinsurance Segment
Gross premiums written were $16.6 million, up 3.6% from the year-earlier number. It incurred a loss of $0.4 million for the second quarter, reflecting a downside of 136.9% year over year due to a higher net loss ratio and decline in equity and fixed income markets. It also missed the Zacks Consensus Estimate of a profit of $0.2 million. Combined ratio increased 510 bps year over year to 89.5%.
Net investment income of $21.6 million was up 29.3% year over year. Improved performance on investments from the NORCAL acquisition and other factors aided the segment. It generated $2.4 million of losses, down 108.8% from the year-ago reading. Operating expenses of $9 million increased 52.1% from the prior-year level. Interest expense of $4.9 million rose 5% year over year.
Financial Position (as of Jun 30, 2022)
ProAssurance’s total investments were $4,549 million, down from $4,828.3 million registered at the 2021 end. At the second-quarter-end, PRA’s total assets were $5,891.2 million, down from the 2021-end figure of $6,191.5 million. Cash and cash equivalents declined to $34.8 million in the second quarter from $143.6 million at the fourth-quarter-end. Debt-less unamortized debt issuance costs stood at $425.9 million, marginally up from $425 million at 2021-end.
The insurer’s shareholder equity declined to $1,169.9 million from $1,428.4 million as of Dec 31, 2021. Book value was $21.63 per share, down from $26.46 as of Dec 31, 2021.
Net cash used in operations in the first half of 2022 was $3.7 million against an operating cash flow of $31 million a year ago.
Zacks Rank & Other Key Picks
ProAssurance currently sports a Zacks Rank #1 (Strong Buy). Some other top-ranked stocks in the broader finance space are Berkshire Hathaway Inc. (BRK.B), SmartFinancial, Inc. SMBK and Paramount Group, Inc. PGRE, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Omaha, NE, Berkshire Hathaway is a holding company, which owns more than 90 subsidiaries in insurance, railroads, utilities, manufacturing services, retail and home building. The Zacks Consensus Estimate for Berkshire Hathaway’s 2022 bottom line indicates 5.3% year-over-year growth.
Based in Knoxville, TN, SmartFinancial is a leading financial services provider for individuals and corporate clients. The Zacks Consensus Estimate for SMBK’s 2022 earnings indicates 18% year-over-year growth.
New York-based Paramount Group works as a fully-integrated real estate investment trust. The Zacks Consensus Estimate for PGRE’s 2022 bottom line indicates 4.4% year-over-year growth.
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