Attached files
February 8, 2011
Investor Presentation
NYSSA 2011 Insurance Conference
NYSSA 2011 Insurance Conference
W. Stancil Starnes Chairman and Chief Executive Officer
New York Society of Security Analysts
New York Society of Security Analysts
Forward Looking Statements
This presentation contains Forward Looking Statements and other information designed to convey
our projections and expectations regarding future results. There are a number of factors which
could cause our actual results to vary materially from those projected in this presentation. The
principal risk factors that may cause these differences are described in various documents we file
with the Securities and Exchange Commission, such as our Current Reports on Form 8-K, and our
regular reports on Forms 10-Q and 10-K, particularly in “Item 1A, Risk Factors.” Please review
this presentation in conjunction with a thorough reading and understanding of these risk factors.
our projections and expectations regarding future results. There are a number of factors which
could cause our actual results to vary materially from those projected in this presentation. The
principal risk factors that may cause these differences are described in various documents we file
with the Securities and Exchange Commission, such as our Current Reports on Form 8-K, and our
regular reports on Forms 10-Q and 10-K, particularly in “Item 1A, Risk Factors.” Please review
this presentation in conjunction with a thorough reading and understanding of these risk factors.
We especially identify statements concerning our recently-completed acquisition of American
Physicians Service Group (NASDAQ: AMPH) as Forward Looking Statements and direct
your attention to our news release and Current Report on Form 8K, issued on November 30,
2010 for a discussion of risk factors pertaining to this transaction and subsequent integration
into ProAssurance.
Physicians Service Group (NASDAQ: AMPH) as Forward Looking Statements and direct
your attention to our news release and Current Report on Form 8K, issued on November 30,
2010 for a discussion of risk factors pertaining to this transaction and subsequent integration
into ProAssurance.
This presentation contains Non-GAAP measures, and we may reference Non-GAAP measures in
our remarks. A reconciliation of these measures to GAAP measures is available in our latest
quarterly news release, which is available in the Investor Relations section of our website,
www.ProAssurance.com, and in the related Current Reports on Form 8K disclosing that release.
our remarks. A reconciliation of these measures to GAAP measures is available in our latest
quarterly news release, which is available in the Investor Relations section of our website,
www.ProAssurance.com, and in the related Current Reports on Form 8K disclosing that release.
2
Non-GAAP Measures
ProAssurance: Corporate Profile
Specialty writer of professional liability insurance,
primarily Medical Professional Liability (MPL)
primarily Medical Professional Liability (MPL)
Fourth largest writer overall
Historical Book Value Per Share
Since Inception
CAGR: 16%
CAGR: 16%
Cumulative:1334%
10 Year Summary
CAGR: 14%
CAGR: 14%
Cumulative: 276%
Historical Stock Price
Since Inception
CAGR: 14%
CAGR: 14%
Cumulative:1059%
10 Year Summary
CAGR: 14%
CAGR: 14%
Cumulative: 263%
Consistently Successful Throughout the Insurance Cycle
Up 13%
Y-O-Y
Y-O-Y
ProAssurance: Corporate Profile
Market Cap : ~$1.9 billion
Total Assets: $4.8 billion
Shareholders’ Equity: $1.8 billion
Historical Book Value Per Share
Since Inception
CAGR: 16%
CAGR: 16%
Cumulative:1334%
10 Year Summary
CAGR: 14%
CAGR: 14%
Cumulative: 276%
Historical Stock Price
Since Inception
CAGR: 14%
CAGR: 14%
Cumulative:1059%
10 Year Summary
CAGR: 14%
CAGR: 14%
Cumulative: 263%
Consistently Successful Throughout the Insurance Cycle
Up 13%
Y-O-Y
Y-O-Y
ProAssurance: Geographic Profile
Writing throughout the United States
2009 market share of 5% by DPW
Maintaining local knowledge and expertise
5
Corporate Headquarters
Corporate Headquarters
(Birmingham)
Top States (2009 Premium)
ProAssurance Footprint
ProAssurance: Risk and Distribution Profile
We insure a broad range of healthcare risks, from
home health providers to 800 bed hospitals
home health providers to 800 bed hospitals
6
Q3 2010 Premium: $415 million
Direct: 40% / Agents: 60%
Q3 2010 Policyholders: ~63,000
Direct: 35% / Agents: 65%
Presentation Overview
Year-end and Q4 Results reported February 23, 2011
Updates
M&A
Medical / Legal environment
Overall business climate
Business initiatives
Long term performance
M & A Update: Texas / AMPH
Acquisition of American Physicians Services Group
(APS) closed November 30, 2010
(APS) closed November 30, 2010
Modestly accretive to earnings in 2011, after one-time
charges and restructuring costs
charges and restructuring costs
We are now the second leading writer in Texas
Also adds to business in Arkansas and Oklahoma
Adds high quality premium in a challenging market
8
We Expect to Continue Growing Through M & A
We are industry leaders in M & A
We understand that not all M & A opportunities should
be pursued
be pursued
We prefer “healthcare centric” but we look for
closely related liability lines to leverage expertise
(attorneys E & O for example)
closely related liability lines to leverage expertise
(attorneys E & O for example)
Our strategy adapts to the available opportunities for
profitable growth
profitable growth
9
The Potential Effects of Healthcare Reform
No meaningful Tort Reform in the bill
Known
More customers for us
We have acquired companies to expand our reach
Unknown
Effect on the medical / legal environment
Long-term effects on the business we write and who
purchases that coverage
purchases that coverage
We have unique advantages in this new environment
10
Tort Reform Resurfaces
Tort Reform has reappeared in Washington
Passage is far from certain
State Tort Reforms
Now being tested
We set prices and reserve levels as if there is no tort
reform, until results reflect otherwise
reform, until results reflect otherwise
11
Claims Trends Remain Favorable
12
ProAssurance Claims Tried to a Verdict
ProAssurance New Claims Opened Each Year
Claims Defense Remains at Our Core
Our insureds increasingly value reputational defense
as claims data becomes public
as claims data becomes public
13
ProAssurance: 81% Favorable Outcomes
Industry: 74% Favorable Outcomes
Five Year Average
2005-2009
2005-2009
The Ohio Example: 2005 - 2009 Data
Comprehensive, reliable data provided by the Ohio Department of Insurance
14
www.insurance.ohio.gov/Legal/Reports/Documents/MedMal_Closed_Claim_2009.pdf
Fewer Claims Closed With Indemnity
More Claims Defended in Court
2.5x Lower Average Indemnity Payment per Closed Claim
Solid Retention of Well-Underwritten Risks
15
ProAssurance Insured Retention History
Combined Ratio: ProAssurance Consistently Outperforms
Demonstrated Underwriting Performance
ProAssurance Average: 95.3% Industry Average: 108.8%
Source: A.M. Best Aggregates and Averages, Medical Malpractice Lines of Business
16
New Products for a Changing Market
Insurance partnership with Ascension Health
Pilot project in Michigan
Joint physician / hospital insurance product: ProControl
Alternative risk and self-insurance mechanisms
17
Performance Recognition
Leading industry operating
performance in 2009 in
Moody’s top 100
property & casualty insurers
performance in 2009 in
Moody’s top 100
property & casualty insurers
ProAssurance ranks 79th by
premium, but outperforms in
many key financial measures
premium, but outperforms in
many key financial measures
Fourth straight year in the
Ward’s 50
Ward’s 50
Top 3% of all P&C
companies
companies
18
Source: Moody’s - Statistical Handbook, Ward Group’s - 2010 Ward’s 50
Lower is better
Operating Ratio
PRA 2008 Rank: #1
Combined Ratio
PRA 2008 Rank: #2
Loss & LAE Ratio
PRA 2008 Rank: #5
Return on Core Premium
Return on Surplus
PRA 2008 Rank: #1
PRA 2008 Rank: #5
Driven to Excel / Focused on Shareholder Value
Current Prices Present a Compelling Buying Opportunity
Current Price to Book: ~1.0x Average Since Inception: 1.4x
February 8, 2011
Investor Meetings at the
NYSSA 2011 Insurance Conference
NYSSA 2011 Insurance Conference
W. Stancil Starnes Chairman and Chief Executive Officer
Edward L. Rand, Jr. Chief Financial Officer
Frank B. O’Neil Investor Relations Officer
Forward Looking Statements
This presentation contains Forward Looking Statements and other information designed to convey
our projections and expectations regarding future results. There are a number of factors which
could cause our actual results to vary materially from those projected in this presentation. The
principal risk factors that may cause these differences are described in various documents we file
with the Securities and Exchange Commission, such as our Current Reports on Form 8-K, and our
regular reports on Forms 10-Q and 10-K, particularly in “Item 1A, Risk Factors.” Please review
this presentation in conjunction with a thorough reading and understanding of these risk factors.
our projections and expectations regarding future results. There are a number of factors which
could cause our actual results to vary materially from those projected in this presentation. The
principal risk factors that may cause these differences are described in various documents we file
with the Securities and Exchange Commission, such as our Current Reports on Form 8-K, and our
regular reports on Forms 10-Q and 10-K, particularly in “Item 1A, Risk Factors.” Please review
this presentation in conjunction with a thorough reading and understanding of these risk factors.
We especially identify statements concerning our recently-completed acquisition of American
Physicians Service Group (NASDAQ: AMPH) as Forward Looking Statements and direct
your attention to our news release and Current Report on Form 8K, issued on November 30,
2010 for a discussion of risk factors pertaining to this transaction and subsequent integration
into ProAssurance.
Physicians Service Group (NASDAQ: AMPH) as Forward Looking Statements and direct
your attention to our news release and Current Report on Form 8K, issued on November 30,
2010 for a discussion of risk factors pertaining to this transaction and subsequent integration
into ProAssurance.
This presentation contains Non-GAAP measures, and we may reference Non-GAAP measures in
our remarks. A reconciliation of these measures to GAAP measures is available in our latest
quarterly news release, which is available in the Investor Relations section of our website,
www.ProAssurance.com, and in the related Current Reports on Form 8K disclosing that release.
our remarks. A reconciliation of these measures to GAAP measures is available in our latest
quarterly news release, which is available in the Investor Relations section of our website,
www.ProAssurance.com, and in the related Current Reports on Form 8K disclosing that release.
21
Non-GAAP Measures
ProAssurance: Corporate Profile
Specialty writer of professional liability insurance, primarily Medical Professional Liability (MPL)
Market Cap : ~$1.9 billion
Total Assets: $4.8 billion
Shareholders’ Equity: $1.8 billion
Founded in 1975 / Demutualized to a public company in 1991
Historical Book Value Per Share
Since Inception
CAGR: 16%
CAGR: 16%
Cumulative:1334%
10 Year Summary
CAGR: 14%
CAGR: 14%
Cumulative: 276%
Historical Stock Price
Since Inception
CAGR: 14%
CAGR: 14%
Cumulative:1059%
10 Year Summary
CAGR: 14%
CAGR: 14%
Cumulative: 263%
Consistently Successful Throughout the Insurance Cycle
ProAssurance: Business Profile
Largest independent publicly traded writer of MPL insurance
Fourth largest overall writer
Fragmented market
Top 20 writers have just 64% of the market
More than 100 writers with some share of the market
Majority of companies are mutual or similar
Few operate in more than two or three states
23
|
|
Company
|
2009 DPW
(000’s) |
Share
|
Comments
|
|
1
|
Medical Liability Mutual
|
$ 756,844
|
7.0%
|
78% in NY, 22% in NJ
|
|
2
|
Medical Protective
|
$ 727,160
|
6.8%
|
Berkshire subsidiary
Direct competitor |
|
3
|
Doctors Company
|
$ 601,223
|
5.6%
|
Non-public
Direct competitor |
|
4
|
ProAssurance
|
$ 541,033
|
5.0%
|
|
|
5
|
AIG
|
$ 524,252
|
4.9%
|
Not a direct competitor
Primarily excess writer |
|
Total DPW: $10.2 billion
|
||||
|
ProAssurance as Top Overall Writer
|
||
|
State
|
2009 Share
|
2009 Rank
|
|
Alabama
|
60%
|
1
|
|
Delaware
|
42%
|
1
|
|
DC
|
50%
|
1
|
|
Wisconsin
|
32%
|
1
|
|
ProAssurance as Overall Writer 2 - 4
|
||
|
State
|
2009 Share
|
2009 Rank
|
|
Indiana
|
24%
|
2
|
|
Texas1
|
19%
|
2
|
|
Ohio
|
17%
|
2
|
|
Iowa
|
16%
|
2
|
|
Maryland
|
5%
|
2
|
|
Michigan
|
15%
|
3
|
|
Kentucky
|
12%
|
3
|
|
Missouri
|
8%
|
3
|
|
Nevada
|
11%
|
4
|
|
Nebraska
|
8%
|
4
|
|
Arkansas
|
7%
|
4
|
|
Illinois
|
5%
|
4
|
|
Kansas
|
5%
|
4
|
|
1 Proforma, ProAssurance and American Physicians
|
||
Source: DPW: SNL; Market Share and Rank: Highline Data 2009
ProAssurance: Geographic Profile
Writing across the United States, ProAssurance has broad geographic diversification
Each state presents unique medical and legal challenges
Regional structure provides the local knowledge that differentiates ProAssurance
24
Corporate Headquarters
Corporate Headquarters
(Birmingham)
Top States (2009 Premium)
ProAssurance Footprint
ProAssurance: Risk and Distribution Profile
We insure a broad range of healthcare risks, from home health providers to large hospitals
Focus on individual physicians and physician groups
Rated “A” by A.M. Best and Fitch
Direct in Alabama, Florida and in all states for Podiatric business
Dual distribution in DC, Texas and parts of Missouri
25
Q3 2010 Premium: $415 million
Direct: 40% / Agents: 60%
Q3 2010 Policyholders: ~63,000
Direct: 35% / Agents: 65%
M & A Update
Financial Highlights
Acquisition of American Physicians Services Group (APS) closed November 30, 2010
Announced September 1, 2010
Valued AMPH at $32.50/share—approximately $233 million paid to AMPH shareholders
1.3x Book Value or 11x First Call EPS estimate
Insurance Highlights
We are now the second leading writer in Texas
Adds high quality premium and
~6,700 well-underwritten policyholders
in a challenging market
~6,700 well-underwritten policyholders
in a challenging market
Texas Highlights
Stable, constitutional Tort Reform / Attractive legal environment
One of the fastest growing medical populations
Strong, resilient economy
APS headquarters becomes our Texas regional office
26
We are skilled at finding M & A opportunities, conducting in-depth due diligence and integrating
resulting acquisitions
resulting acquisitions
2009: Consolidation of:
Mid-Continent General Agency
Mid-Continent General Agency
2009: Consolidation of:
Mid-Continent General Agency
Mid-Continent General Agency
Georgia Lawyers Insurance Co.
Georgia Lawyers Insurance Co.
2004: Purchased Selected Renewal Rights from:
OHIC Insurance Company
OHIC Insurance Company
2004: Purchased Selected Renewal Rights from:
OHIC Insurance Company
OHIC Insurance Company
We Expect to Continue Growing Through M & A
27
1994: Consolidation of:
West Virginia Hosp. Ins Co.
West Virginia Hosp. Ins Co.
1994: Consolidation of:
West Virginia Hosp. Ins Co.
West Virginia Hosp. Ins Co.
1995: Consolidation of;
1995: Consolidation of;
Physicians Ins Co of Indiana
Physicians Ins Co of Indiana
Assumed business of:
Physicians Ins Co of Ohio
Physicians Ins Co of Ohio
Assumed business of:
Physicians Ins Co of Ohio
Physicians Ins Co of Ohio
1996: Consolidation of:
1996: Consolidation of:
Missouri Medical Ins Co
Missouri Medical Ins Co
1995: Assumed business of:
Associated Physicians Ins Co. (IL)
Associated Physicians Ins Co. (IL)
1995: Assumed business of:
Associated Physicians Ins Co. (IL)
Associated Physicians Ins Co. (IL)
1998: Consolidation of:
Physicians Protective Trust Fund (FL)
Physicians Protective Trust Fund (FL)
1998: Consolidation of:
Physicians Protective Trust Fund (FL)
Physicians Protective Trust Fund (FL)
1996: Assumed business of:
American Medical Ins Exchange (IN)
American Medical Ins Exchange (IN)
1996: Assumed business of:
American Medical Ins Exchange (IN)
American Medical Ins Exchange (IN)
Founding in the 1970s
Founding in the 1970s
1999: Assumed business of:
Medical Defense Associates (MO)
Medical Defense Associates (MO)
1999: Assumed business of:
Medical Defense Associates (MO)
Medical Defense Associates (MO)
Mutual Assurance
Physicians Ins. Co. of Michigan
Professionals Group
Creation of:
Creation of:
2005: Consolidation of:
NCRIC Group
NCRIC Group
2005: Consolidation of:
NCRIC Group
NCRIC Group
2006: Consolidation of:
PIC Wisconsin Group
PIC Wisconsin Group
2006: Consolidation of:
PIC Wisconsin Group
PIC Wisconsin Group
2007: PRI renewal rights deal
2002: SERTA renewal rights deal
2001: OUM renewal rights deal
2000: DPM Merger
1999: PACO Acquisition
Completed
11/30/10
11/30/10
The Case for Growing Through M & A
Legal and regulatory environment must be favorable
Not all M & A opportunities should be pursued
The key is understanding why companies are available
We don’t “bet the farm” and can acquire without “breaking the bank”
We prefer “healthcare centric” but look for closely related liability lines to leverage expertise
(attorneys E & O for example)
(attorneys E & O for example)
Our strategy adapts to the available opportunities for profitable growth
De Novo vs. Acquisition
Soft Market
Hard Market
M & A
de novo
Expansion
Expansion
Internal
Growth
Growth
All avenues
open
because of
pricing
power
open
because of
pricing
power
M & A is
preferable
because of
pricing
pressure
preferable
because of
pricing
pressure
M & A and the Insurance Cycle
Strategy & Operations: Differentiation is the Key
Current Industry Status
We are in a period of “benign profitability”
Prices have been falling yet profitability remains at attractive levels
We have seen no new large scale market entry from larger commercial competitors
Some consolidation among “mid-decade” start-ups
30
Differentiate Through Claims Defense
Our deep expertise in claims defense has always set us apart
Our financial strength gives our insureds the opportunity for an uncompromising defense of their
claim
claim
Our successful approach to claims establishes a unique competitive advantage
Differentiates our product
Provides long-term financial and marketing advantages
A significant factor in our high retention rate
Helps deter future lawsuits
Our insureds increasingly value reputational defense as claims data becomes public
31
ProAssurance: 81% Favorable Outcomes
Industry: 74% Favorable Outcomes
Source: The PIAA
Five Year Average
2005-2009
2005-2009
The Ohio Example: 2005 - 2009 Data
Comprehensive, reliable data provided by the Ohio Department of Insurance
Broad range of competitors and business approaches
32
www.insurance.ohio.gov/Legal/Reports/Documents/MedMal_Closed_Claim_2008.pdf
Fewer Claims Closed With Indemnity
More Claims Defended in Court
Lower Average Indemnity Payment per Closed Claim
Claims Trends Remain Favorable
With frequency down compared to mid-decade the result is fewer cases to try
Severity trends steady and manageable
Trends are much the same in states with or without Tort Reform
33
ProAssurance Claims Tried to a Verdict
New Claims Opened Each Year
Loss Trends and Rate Actions
Rates on renewing physician business down less than 12% from peak pricing in 2006
Improved frequency trends are reflected in recent rate declines
Improvement in frequency has outweighed a steady, manageable rise in severity of 3%-5% per year
Loss trends have improved in states with and without tort reforms
Rate changes (up or down) in 2011 will likely be low-to-mid single digits
Despite competitors’ concessions on pricing and terms, we are retaining existing business and
writing some new business that meets our long-term profitability goals
writing some new business that meets our long-term profitability goals
34
Rate Change History
Insured Retention History
We enforce stringent underwriting standards to maintain rate structure and enhance profitability
Underwriting process driven by individual risk selection and assessment of loss history, areas of practice,
and location
and location
Rate filings consider the results of the past five to seven years to ensure a single year does not
unduly influence results
unduly influence results
Demonstrated Underwriting Performance
ProAssurance Average: 95.3% Industry Average: 108.8%
Source: A.M. Best Aggregates and Averages, Medical Malpractice Lines of Business
35
Conservative Approach to Reserves
No change in the historic reserving practices that have produced favorable net reserve
development in each of the last seven years and YTD 2010
development in each of the last seven years and YTD 2010
Conservative reserve strategy provides protection against a loss trend reversal
Reviewed at least quarterly by internal actuarial staff
Regular outside reviews
Independent consulting actuaries (Towers Watson) conduct full review twice per year
Actuaries associated with independent auditor (E&Y) review once per year
Net Reserve Development
Average Reserve per Open MPL Claim
Tort Reform Resurfaces
Federal Tort Reform has reappeared in Washington
Resurfaced during President Obama’s State of the Union Speech
Republicans are pushing The HEALTH Act which previously passed the House but died in the Senate
Democrats have offered to consider scaled-back reforms
Meaningful Tort Reform was not enacted when Republicans controlled Congress and the White House
State Tort Reforms
Reforms enacted in the early part of the decade are now being adjudicated before state Supreme Courts
Overturned in Georgia, Illinois and Louisiana
Upheld in Maryland
Split decision in Missouri
Whether federal or state, we never give advance credit for untested reforms unless required by
law or regulation
law or regulation
We are prepared, operationally and financially, if Tort Reforms are struck down in our states
Prices are set and reserves established as if there is no tort reform, until results reflect otherwise
37
The Potential Effects of Healthcare Reform
No meaningful Tort Reform in the bill
No immediate effect on the medical/legal climate
Demonstration projects do not provide meaningful reform or immediate data
Known: More customers for us
We have enhanced our ability to write new classes of business
through the acquisition of PICA and
ProAssurance Mid-Continent General Underwriters
through the acquisition of PICA and
ProAssurance Mid-Continent General Underwriters
Unknown: Effect on the medical/legal environment
Increased patient frustration with the system
Possibility of more unexpected outcomes
We are introducing new approaches and new products to take advantage
Likely to hasten M&A amongst smaller insurers that lack the capacity
or capability to insure hospitals or facilities
or capability to insure hospitals or facilities
38
1Bureau of Labor Statistics 2008 to 2018 Projections
New Products for a Changing Market
Insurance partnership with Ascension Health
Largest Catholic healthcare system in the US
38 ministry locations in 18 states
Pilot partnership in Michigan to offer coverage to 1,000 affiliated, non-employed physicians
Insurance operations performed by ProAssurance
PRA policies jointly marketed
Joint claims and risk management efforts
Financial involvement of both entities creates incentive to reduce risk
Now being rolled out, policies effective April 1, 2011
Joint physician/hospital insurance product: ProControl
Addresses the unique risk tolerance and claims-handling expectation of each insured
Physicians largely seek claims defense to protect their reputation
Hospitals/facilities seek to protect their reputation in different ways
Broad interest in the market
Alternative risk and self-insurance mechanisms
Captive insurance programs
Deductible programs
Risk Retention Groups for specific specialties or regions
39
Long-Term Financial Strength Sets Us Apart
Ensuring the strength of our balance sheet is our top financial priority
Financial strength differentiates us in the market
The claims defense philosophy that differentiates us in the market leverages our financial strength
40
Shareholders’ Equity
Up Over >60% Since 12/31/06
Financial Performance and Investments
Performance Recognition
Leading industry operating performance
in 2009, ranked by Moody’s top 100
property & casualty insurers
in 2009, ranked by Moody’s top 100
property & casualty insurers
ProAssurance ranks 79th by premium, but
outperforms in key financial measures
outperforms in key financial measures
Fourth straight year in the Ward’s 50
Recognition as one of the 50 top
performing Property & Casualty
insurance companies
performing Property & Casualty
insurance companies
42
Source: Moody’s - Statistical Handbook, Ward Group’s - 2010 Ward’s 50
Lower is better
Operating Ratio
PRA 2008 Rank: #1
Combined Ratio
PRA 2008 Rank: #2
Loss & LAE Ratio
PRA 2008 Rank: #5
Return on Surplus
PRA 2008 Rank: #1
PRA 2008 Rank: #5
43
Consolidated Operating Net Income1
Net Investment Income
Net Premiums Written
1 Excludes the after-tax effects of net realized gains or losses and guaranty fund assessments or recoupments
CUSIP-level portfolio disclosure on our website:
www.proassurance.com/investorrelations/supplemental.aspx
www.proassurance.com/investorrelations/supplemental.aspx
Investments Balance Risk vs. Return
44
$4 Billion Overall Portfolio
$3.5 Billion Fixed Income Portfolio
Average duration: 4.1 years
Average tax-equivalent yield: 5.0%
Investment grade: 97%
Weighted average: AA-
Key Actions in Q3
Reduced exposure to municipal bonds
Increased cash for APS purchase
9/30/10
The Importance of Investment Income
Investment income compounds significantly due to the long-tail nature of the MPL claims cycle
Lower investment results place greater emphasis on quality underwriting to achieve a combined
ratio below 100%
ratio below 100%
45
Year
1
1
Year
2
2
Year
3
3
Year
4
4
Year
5
5
Year
6
6
Year
7
7
Year
8
8
Incident
Occurs
Occurs
Discovery
and
Preparation
and
Preparation
Claim
Reported
Reported
Trial
and
Appeals
Appeals
Resolution
5-6 Years
After
Claim
Reported
After
Claim
Reported
Life Cycle of a Typical Claim
Pricing discipline becomes even more
critical in a low interest rate environment
critical in a low interest rate environment
Lack of investment yield may be a hard
market catalyst
market catalyst
Return on Equity and Investment Returns
46
Assumes a 1:1 premium to surplus ratio for physicians professional liability claims-made coverages
Combined Ration Required to
Generate a 13% Return on Equity
Generate a 13% Return on Equity
Long-Term ROE Target is 13%
The choice: chase yield or extend duration
We are maintaining duration, looking for
opportunities
opportunities
The Yield Trap
Conservative Use of Debt and Low Leverage
Low Debt to Cap Ratio
No strain on cash flow
47
Debt to Equity
No Debt Prior to 2001
Strong Capital Position
Prepared for an improving market
Capital Management
Dividends
No current dividend to shareholders
Regular evaluation by Board/Management
Ongoing commitment of cash is a key consideration
Uncertainty about future tax treatment
48
Share Repurchase
$105 million spent to date in 2010 to buy
1.8 million shares
1.8 million shares
$297 million spent to repurchase 5.7 million shares
since 2005
since 2005
Proven discipline in prudently deploying
capital
capital
Building the company and enhancing return
through M&A
through M&A
Enhancing shareholder value by repurchasing
shares at prices that build Book Value
shares at prices that build Book Value
Share Repurchase History
Conceptual Model of Projected A. M. Best BCAR Scores if
Premiums Increase
Surplus is Reduced
Excess Capital vs. Excess Capacity
Investing in ProAssurance
Driven to Excel / Focused on Shareholder Value
Maintaining our profitability and book value growth
Outstanding performance in a challenging financial market and a demanding line of insurance
Producing sustainable shareholder value
Finding the right M & A opportunities
Growing Book Value per Share
Significant share ownership at all levels
Focusing on long-term
Preparing for a changing market while maintaining our leading position in the current market
Protecting the balance sheet
Preparing for the market turn
50
Current Prices Present a Compelling Buying Opportunity
Current Price to Book: ~1.0x Average Since Inception: 1.4x
Supplemental Discussion Materials
Effective & Experienced Management
|
W. Stancil Starnes, JD
Chairman & Chief Executive Officer
sstarnes@proassurance.com
(205) 877-4400
Company Tenure: 3 Years
Prior MPL Experience: 29 Years
Industry & Related Experience: 32 Years
Formerly in the private practice of law in MPL defense and
complex corporate litigation. |
Victor T. Adamo, JD, CPCU
President
vadamo@proassurance.com
(205) 877-4400
Company Tenure: 25 Years
Prior MPL Experience: 5 Years
Industry & Related Experience: 30 Years
Formerly in the private practice of corporate law.
|
Jeffrey L. Bowlby, ARM
Sr. Vice-President & Chief Marketing Office
jbowlby@proassurance.com
(517) 347-6306
Company Tenure: 12 Years
Prior MPL Experience: -
Industry & Related Experience: 26 Years
Career-long experience in insurance sales and marketing,
most recently as SVP for Marketing with Meadowbrook. |
|
Howard H. Friedman, ACAS
Sr. Vice-President & Chief Underwriting Officer
hfriedman@proassurance.com
(205) 802-4796
Company Tenure: 14 Years
Prior MPL Experience: 16 Years
Industry & Related Experience: 30 Years
Career-long experience in MPL company operations
and management. Former ProAssurance CFO. |
Jeffrey P. Lisenby, JD
Sr. Vice-President, General Counsel &
Secretary jlisenby@proassurance.com
(205) 445-2668
Company Tenure: 9 Years
Prior MPL Experience: -
Industry & Related Experience: 9 Years
Formerly in the private practice of law.
|
Frank B. O’Neil
Sr. Vice-President & Chief Communications Officer
foneil@proassurance.com
(205) 877-4461
Company Tenure: 23 Years
Prior MPL Experience: -
Industry & Related Experience: 23 Years
Formerly a television news executive and anchor.
|
|
Edward L. Rand, Jr., CPA
Sr. Vice-President & Chief Financial Officer
erand@proassurance.com
(205) 802-4718
Company Tenure: 6 Years
Prior MPL Experience: -
Industry & Related Experience: 18 Years
Career-long experience in insurance finance and
accounting. Most recently Chief Accounting Officer for Partner Re. |
Darryl K. Thomas, JD
Sr. Vice-President & Chief Claims Officer
dthomas@proassurance.com
(205) 445-2668
Company Tenure: 12 Years
Prior MPL Experience: 10 Years
Industry & Related Experience: 22 Years
Career-long experience in MPL claims
management. |
Hayes V. Whiteside, MD, FACS
Sr. Vice-President & Chief Medical Officer
hwhiteside@proassurance.com
(205) 445-2670
Company Tenure: 6 Years
MPL Experience: -
Industry & Related Experience: 27 Years
Formerly in the private practice of Urology.
|
52
Average executive tenure through VP level is 16 years
YTD 2010 Financial Highlights
53
in millions, except per share data
Q3 12/31
2010 2009 2009 2008
Gross Premiums Written $ 415 $ 435 $ 554 $ 471
Net Investment Income 110 113 151 158
Net Income (Includes Investment Losses) 130 137 222 178
Operating Income 123 136 215 207
Net Income/Diluted Share $ 3.99 $ 4.13 $ 6.70 $ 5.22
Operating Income/Diluted Share $ 3.80 $ 4.08 $ 6.49 $ 6.07
Total Assets $ 4,771 $ 4,647 $ 4,281
Shareholders’ Equity $ 1,818 $ 1,705 $ 1,424
9/30/10 12/31/09 12/31/08
ProAssurance Portfolio Detail: Asset Backed
54
Bloomberg Data
9/30/10
9/30/10
Asset Backed: $719 Million
Weighted Average Rating: “AA+”
Breakdown of Agency MBS Holdings
CMBS Details Provided on Page 33
Sub-Prime: $12.3 Market Value (AFS)
$826,000 unrealized loss
$826,000 unrealized loss
ProAssurance Portfolio Detail: CMBS
$105 million Fair Value in non-agency CMBS
Book Value: $100 million (3% of fixed income portfolio)
No cumulative losses in our CMBS portfolio
55
9/30/10
ProAssurance Portfolio Detail: Municipals
56
9/30/10
Municipals: $1.3 Billion
Sources of Revenue Backing Municipals
Investment policy has always required
investment grade rating prior to applying the
effect of insurance
investment grade rating prior to applying the
effect of insurance
ProAssurance Portfolio Detail: Equities & Other
57
9/30/10
Equities & Other: $142 Million
Return by Quarter
Does not sum to 100% due to rounding
Cumulative Return
In millions
In millions
ProAssurance Portfolio Detail: Corporate
58
9/30/10
Corporates: $1.1 Billion
Weighted Average Rating: A
ProAssurance Portfolio Detail: Various
9/30/10
Rated A1/P1 or better
Money Markets:
Moody’s: Aaa
S&P: AAA
Weighted average rating
Moody’s: AA3
S&P: AA-
A. M. Best: A+