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ProAssurance Q2 Earnings in Line, Down Y/Y on High Expenses

Zacks Equity Research

ProAssurance Corporation (PRA) reported second-quarter 2014 operating earnings per share of 69 cents, which was in line with the Zacks Consensus Estimate. However, the reported figure decreased from 72 cents per share earned in the year-ago quarter.

A strong competitive pricing environment and higher expenses mainly led to the year-over-year decline.

Operating income excluded the effects of net realized investment gains and guaranty fund assessment. These items resulted in a positive adjustment of 15 cents per share to net income in the reported quarter against 9 cents in the year-ago quarter.




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Including non-recurring items, ProAssurance’s net income was 84 cents per share, up from 81 cents in the year-ago quarter.

Operational Update

ProAssurance’s total revenue increased 30% to $222 million. The figure also surpassed the Zacks Consensus Estimate of $199 million. The upside was driven by the acquisition of Eastern Insurance Holdings, Inc.

Gross premiums written by ProAssurance rose 52.3% year over year to $187.1 million.

The company recorded $42 million of net favorable reserve development in the reported quarter, up 10% year over year. This brought the year-to-date net favorable reserve development to $90 million, down 1% year over year.

Total expenses amounted to $156.4 million, up 48% from the year-ago quarter. Higher expenses mainly resulted from the addition of Eastern and an increase in interest expenses associated with debts.

Net investment income of ProAssurance came in at $30.2 million, declining from $33.3 million in the prior-year quarter. The year-over-year decrease was due to a fall in average investment balances in the fixed maturities portfolio stemming from investment in asset classes other than the fixed maturities portfolio. Net investment result (sum of net investment income and equity in earnings of unconsolidated subsidiaries) amounted to $30.9 million, up 2.3% from $30.1 million in the year-earlier quarter. Net realized investment gains came in at $13 million in the reported quarter, up 54% from $8.5 million in the prior-year quarter. This improvement was largely due to higher unrealized gains in the trading security portfolio.

Financial Position

ProAssurance’s cash flow from operations increased $41 million on a year-over-year basis in the first six months of 2014 to $29 million. This was owing to a decline in tax-related payments.  

Meanwhile, the company’s shareholder equity was $2.36 billion as of Jun 30, 2014, lower than $2.39 billion as of Dec 31, 2013. Book value per share also improved approximately 2.8% to $40.23 as of Jun 30, 2014 from $39.13 as of Dec 31, 2013.

Financial Ratios

ProAssurance’s net loss ratio for the quarter came in at 56.1%, compared with 54.2% in the prior-year quarter. Expense ratio deteriorated to 29.6% from 26.8% in the year-earlier quarter. The combined ratio of ProAssurance deteriorated to 85.7% from 81.0% in the comparable quarter last year, while operating ratio increased to 68.6% from 55.5% in the prior-year quarter. Return on equity (:ROE) for the reported quarter was 8.5% against 8.6% in the second quarter of 2013.

Share Repurchase and Dividend Update

ProAssurance spent $38.6 million to buy back 0.9 million shares in the second quarter of 2014, taking the total share repurchase to 3.1 million for $141 million since Jan 1, 2014 through Aug 4, 2014. At present, the company has $162 million remaining under its authorization.

On May 28, 2014, ProAssurance declared a quarterly cash dividend of 30 cents per share that was paid on Jul 11, 2014 to shareholders of record as of Jun 27.

Performances of Other Insurers

XL Group plc (XL) reported second-quarter 2014 operating net income of $1.02 per share, which beat the Zacks Consensus Estimate by 22.9%.

Montpelier Re Holdings Ltd.’s (MRH) operating earnings of 76 cents per share in the second quarter missed the Zacks Consensus Estimate by 22%.

The Travelers Companies Inc. (TRV) posted operating earnings of $1.93 per share in the second quarter, which lagged the Zacks Consensus Estimate by 13 cents.

Zacks Rank

ProAssurance currently carries a Zacks Rank #4 (Sell).

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