UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | ||
| [X] |
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2002 or __________ |
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| [ ] |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________ |
Commission file number 0-16533
ProAssurance Corporation
| Delaware | 63-1261433 | |
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| (State or other jurisdiction of incorporation of organization) |
(IRS Employer Identification No.) |
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| 100 Brookwood Place, Birmingham, AL | 35209 | |
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| (Address of principal executive offices) | (Zip Code) |
(205) 877-4400
Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
As of August 12, 2002, there were 25,851,178 shares of the registrant’s common stock outstanding.
Page 1 of 28
Table of Contents
| Part I — Financial Information | ||
| Item l. Condensed Consolidated Financial Statements (Unaudited) of ProAssurance Corporation and Subsidiaries | ||
| Condensed Consolidated Balance Sheets | 3 | |
| Condensed Consolidated Statements of Changes in Capital | 4 | |
| Condensed Consolidated Statements of Income | 5 | |
| Condensed Consolidated Statements of Comprehensive Income | 6 | |
| Condensed Consolidated Statements of Cash Flows | 7 | |
| Notes to Condensed Consolidated Financial Statements | 8 | |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 | |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk | 27 | |
| Part II - Other Information | ||
| Item 1. Legal Proceedings | 28 | |
| Item 4. Submission of Matters to a Vote of Security Holders | 28 | |
| Item 6. Exhibits and Reports on Form 8-K | 28 | |
| Signatures | 28 |
2
ProAssurance Corporation and Subsidiaries
(formerly Medical Assurance, Inc.)
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
| June 30 | December 31 | |||||||||
| 2002 | 2001 | |||||||||
Assets |
||||||||||
Investments: |
||||||||||
Fixed maturities available for sale, at fair value |
$ | 1,356,173 | $ | 1,270,285 | ||||||
Equity securities available for sale, at fair value |
99,796 | 97,044 | ||||||||
Real estate, net |
17,805 | 17,936 | ||||||||
Short-term investments |
125,148 | 136,014 | ||||||||
Total investments |
1,598,922 | 1,521,279 | ||||||||
Cash and cash equivalents |
83,601 | 53,163 | ||||||||
Premiums receivable |
87,190 | 77,766 | ||||||||
Receivable from reinsurers on unpaid losses and loss
adjustment expenses |
399,083 | 374,056 | ||||||||
Prepaid reinsurance premiums |
25,360 | 20,265 | ||||||||
Deferred taxes |
83,809 | 90,565 | ||||||||
Other assets |
93,920 | 101,231 | ||||||||
| $ | 2,371,885 | $ | 2,238,325 | |||||||
Liabilities and Stockholders’ Equity |
||||||||||
Liabilities: |
||||||||||
Policy liabilities and accruals: |
||||||||||
Reserve for losses and loss adjustment expenses |
$ | 1,507,401 | $ | 1,442,341 | ||||||
Unearned premiums |
224,285 | 188,630 | ||||||||
Reinsurance premiums payable |
59,365 | 48,704 | ||||||||
Total policy liabilities |
1,791,051 | 1,679,675 | ||||||||
Other liabilities |
52,184 | 40,431 | ||||||||
Long-term debt |
77,500 | 82,500 | ||||||||
Total liabilities |
1,920,735 | 1,802,606 | ||||||||
Minority interest |
24,319 | 22,488 | ||||||||
Commitments and contingencies |
— | — | ||||||||
Stockholders’ Equity: |
||||||||||
Common stock, par value $0.01 per share 100,000,000 shares authorized; 25,972,943 and 25,911,234 shares issued, respectively |
260 | 259 | ||||||||
Additional paid-in capital |
261,628 | 260,788 | ||||||||
Accumulated other comprehensive gain (loss), net of deferred tax expense of $4,293 and $2,208, respectively |
11,536 | 3,533 | ||||||||
Retained earnings |
153,463 | 148,707 | ||||||||
| 426,887 | 413,287 | |||||||||
Less treasury stock, at cost, 121,765 shares |
(56 | ) | (56 | ) | ||||||
Total stockholders’ equity |
426,831 | 413,231 | ||||||||
| $ | 2,371,885 | $ | 2,238,325 | |||||||
See accompanying notes.
3
ProAssurance Corporation and Subsidiaries
(formerly Medical Assurance, Inc.)
Condensed Consolidated Statements of Changes In Capital (Unaudited)
(In thousands)
| Accumulated | ||||||||||||||||
| Other | Other | |||||||||||||||
| Comprehensive | Retained | Capital | ||||||||||||||
| Total | Income (Loss) | Earnings | Accounts | |||||||||||||
Balance at December 31, 2001 |
$ | 413,231 | $ | 3,533 | $ | 148,707 | $ | 260,991 | ||||||||
Net income |
4,756 | — | 4,756 | — | ||||||||||||
Change in fair value of securities available for sale, net of deferred taxes and minority interest |
8,003 | 8,003 | — | — | ||||||||||||
Change
in minority interest |
(139 | ) | (139 | ) | ||||||||||||
Common stock issued for compensation |
969 | — | — | 969 | ||||||||||||
Stock options exercised |
11 | — | — | 11 | ||||||||||||
Balance at June 30, 2002 |
$ | 426,831 | $ | 11,536 | $ | 153,463 | $ | 261,832 | ||||||||
| Accumulated | ||||||||||||||||||
| Other | Other | |||||||||||||||||
| Comprehensive | Retained | Capital | ||||||||||||||||
| Total | Income (Loss) | Earnings | Accounts | |||||||||||||||
Balance at December 31, 2000 |
$ | 345,167 | $ | (854 | ) | $ | 136,257 | $ | 209,764 | |||||||||
Net income |
5,260 | — | 5,260 | — | ||||||||||||||
Change in fair value of securities available for sale, net of deferred taxes |
1,248 | 1,248 | — | — | ||||||||||||||
Common stock issued for compensation |
14 | — | — | 14 | ||||||||||||||
Equity issued in consolidation: |
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Common stock issued to Professionals |
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Group shareholders |
49,546 | — | — | 49,546 | ||||||||||||||
Fair value of options assumed |
2,952 | — | — | 2,952 | ||||||||||||||
Purchase of treasury stock |
(1,324 | ) | — | — | (1,324 | ) | ||||||||||||
Balance at June 30, 2001 |
$ | 402,863 | $ | 394 | $ | 141,517 | $ | 260,952 | ||||||||||
See accompany notes.
4
ProAssurance Corporation and Subsidiaries
(formerly Medical Assurance, Inc.)
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except share data)
| Three Months Ended | Six Months Ended | |||||||||||||||||
| June 30 | June 30 | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
Revenues: |
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Direct and assumed
premiums written |
$ | 123,075 | $ | 51,558 | $ | 304,188 | $ | 130,428 | ||||||||||
Premiums earned |
$ | 136,066 | $ | 60,985 | $ | 268,532 | $ | 123,145 | ||||||||||
Premiums ceded |
22,472 | 14,308 | 44,449 | 26,923 | ||||||||||||||
Net premiums earned |
113,594 | 46,677 | 224,083 | 96,222 | ||||||||||||||
Net investment income |
17,093 | 10,923 | 35,176 | 21,132 | ||||||||||||||
Other income |
2,023 | 387 | 3,624 | 1,047 | ||||||||||||||
Total revenues |
132,710 | 57,987 | 262,883 | 118,401 | ||||||||||||||
Expenses: |
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Losses and loss
adjustment expenses |
127,943 | 57,024 | 258,240 | 115,428 | ||||||||||||||
Reinsurance recoveries |
20,879 | 13,221 | 43,977 | 24,639 | ||||||||||||||
Net losses and loss
adjustment expenses |
107,064 | 43,803 | 214,263 | 90,789 | ||||||||||||||
Underwriting, acquisition
and insurance expenses |
23,500 | 11,230 | 44,482 | 23,246 | ||||||||||||||
Interest expense |
745 | 84 | 1,514 | 84 | ||||||||||||||
Total expenses |
131,309 | 55,117 | 260,259 | 114,119 | ||||||||||||||
Income before income taxes,
minority interest and cumulative effect
of accounting change |
1,401 | 2,870 | 2,624 | 4,282 | ||||||||||||||
Provision for income taxes: |
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Current expense (benefit) |
634 | (1,512 | ) | 1,635 | (1,385 | ) | ||||||||||||
Deferred expense (benefit) |
(1,341 | ) | 1,395 | (3,501 | ) | 407 | ||||||||||||
| (707 | ) | (117 | ) | (1,866 | ) | (978 | ) | |||||||||||
Income before minority interest and
cumulative effect of accounting change |
2,108 | 2,987 | 4,490 | 5,260 | ||||||||||||||
Minority interest |
1,024 | — | 1,428 | — | ||||||||||||||
Income before cumulative effect
of accounting change |
1,084 | 2,987 | 3,062 | 5,260 | ||||||||||||||
Cumulative effect of accounting
change, net of tax |
— | — | 1,694 | — | ||||||||||||||
Net income |
$ | 1,084 | $ | 2,987 | $ | 4,756 | $ | 5,260 | ||||||||||
Earnings per share (basic and diluted): |
||||||||||||||||||
Income before cumulative
effect of accounting change |
$ | 0.04 | $ | 0.13 | $ | 0.12 | $ | 0.23 | ||||||||||
Cumulative effect of accounting
change, net of tax |
— | — | 0.06 | — | ||||||||||||||
Net income |
$ | 0.04 | $ | 0.13 | $ | 0.18 | $ | 0.23 | ||||||||||
Weighted average number
of common shares outstanding |
||||||||||||||||||
Basic |
25,849 | 22,716 | 25,842 | 22,705 | ||||||||||||||
Diluted |
25,879 | 22,716 | 25,864 | 22,706 | ||||||||||||||
See accompanying notes.
5
ProAssurance Corporation and Subsidiaries
(formerly Medical Assurance, Inc.)
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30 | June 30 | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Comprehensive income: |
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Net income |
$ | 1,084 | $ | 2,987 | $ | 4,756 | $ | 5,260 | |||||||||
Change in fair value of securities
available for sale, net of deferred taxes
and minority interest |
13,104 | 751 | 4,225 | 2,442 | |||||||||||||
Reclassification adjustment for
realized (gains) losses included in
income, net of deferred taxes |
2,659 | (1,163 | ) | 3,778 | (1,194 | ) | |||||||||||
Comprehensive income |
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