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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.
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.
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.
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.
1
Non-GAAP
Measures
ProAssurance:
Quick Facts
Fifth
largest1 writer of
medical liability
Writing
business in 491
jurisdictions
Approximately
55,0002
individual
policyholders
policyholders
42,000
physicians and dentists
8,000
ancillary and other healthcare professionals
4,800
attorneys
Majority
in small or solo practice
500
hospitals and facilities
Highly
rated by A. M. Best and Fitch
2
1 Includes PICA 2 Includes PICA and
Georgia
Lawyers
Lawyers
Recent
Highlights
Completion
of three M&A transactions in 2009
Potential
new premium
is approximately
$100 million on an annualized basis
$100 million on an annualized basis
Restoring
growth to the top line
Existing
markets grew modestly in Q2 2009
Maintaining
profitability
Successful
performance in a challenging
financial market and a demanding line of
insurance
financial market and a demanding line of
insurance
3
Successful
Performance: Book Value
|
Book
Value Growth
|
||
|
|
Cumulative
|
CAGR
|
|
10
year
|
222%
|
12%
|
|
5
year
|
127%
|
18%
|
|
1
year
|
10%
|
10%
|
|
Measured
through Year-End 2008
|
||
Successful
Performance: Stock Price
|
Share
Price Growth
|
||
|
|
Cumulative
|
CAGR
|
|
10
year
|
84%
|
6%
|
|
5
year
|
64%
|
10%
|
|
1
year
|
-5%
|
-5%
|
|
Measured
through Year-End 2008
|
||
5
Share
Price at Year End Since Inception
Recent
Business Highlights
Again
recognized as one of
the 50 top performing
property casualty insurance
companies by The Ward Group
the 50 top performing
property casualty insurance
companies by The Ward Group
Top 3% of
all P&C companies
Our third
straight year
Upgrade to
“A” (Excellent)
by A. M. Best
by A. M. Best
Positive
outlook
assigned by S & P
assigned by S & P
6
Recent
Employee Highlights
Named The
Best Mid-Size
Insurance Employer
in America by
Business Insurance
Insurance Employer
in America by
Business Insurance
Named one
of America’s
Top Ten Companies for
Employee Financial Security
by The Principal
Top Ten Companies for
Employee Financial Security
by The Principal
7
Operational
Strategies
Spreading
Risk is Vital
Broad
geographic diversification provides an
unmatched spread of risk
unmatched spread of risk
9
Our spread
of risk provides
better market awareness and
more data points to gauge loss
trends
better market awareness and
more data points to gauge loss
trends
Our
internal
actuarial
depth
allows us to assess emerging
trends and respond quickly
allows us to assess emerging
trends and respond quickly
Corporate
Headquarters
Corporate
Headquarters
Claims
Offices
Claims
Offices
Claims
/ Underwriting Offices
Claims
/ Underwriting Offices
PICA
and/or E&S States
PICA
and/or E&S States
PICA
Headquarters
PICA
Headquarters
(Birmingham)
(Nashville)
We
Dare to Defend
Our
balance sheet strength and deep expertise
ensures our insureds have the option of an
uncompromising defense of their claim
ensures our insureds have the option of an
uncompromising defense of their claim
We defend
our insureds at trial more often
than any other company in our line
than any other company in our line
Provides a
long-term financial and marketing
advantage
advantage
A key
differentiating factor in the market
as claims data becomes public
as claims data becomes public
10
Respond
to Transparency
Malpractice
judgments/settlements now
disclosed in 18 states
disclosed in 18 states
Public
access to the
National Practitioner
Data Bank is the
next step
National Practitioner
Data Bank is the
next step
Disciplinary
actions
now disclosed in
almost every state
now disclosed in
almost every state
11
Board /
Discipline / Med Mal
Med Mal
disclosure
legislation proposed
legislation proposed
P
Claims
Trends Remain Favorable
Frequency
trends are
stable after declining
since 2005/2006
stable after declining
since 2005/2006
The
results is fewer
cases to try
cases to try
Severity
trends also
stable
stable
Trends are
much the
same in states with or
without Tort Reform
same in states with or
without Tort Reform
12
ProAssurance
Claims Tried
to a Verdict
to a Verdict
Health
Care Reform & Tort Reform
No major
changes in the tort system based on
currently written legislation
currently written legislation
Demonstration
projects do not provide meaningful
reform or immediate data
reform or immediate data
Signals a
desire to leave the tort system in
the hands of each state
the hands of each state
We set
prices and reserves as if there is no tort
reform, until results reflect otherwise
reform, until results reflect otherwise
We are
prepared, operationally and financially, if
reforms are struck down in our states
reforms are struck down in our states
13
Maintaining
Pricing Discipline
14
Pricing
developed using multiple years
Using
credits allows us to maintain existing
rate filings
rate filings
Not unduly
influenced by current market
conditions
conditions
Rates on
renewing physician business down
less than 12% from peak pricing in 2006
less than 12% from peak pricing in 2006
Rate
Change History
15
Pricing
in a Low Interest Environment
Pricing
Discipline is Even More Critical
Combined
ratio
required to generate
a 13% after-tax ROE
required to generate
a 13% after-tax ROE
Strategy:
Actuarial Conservatism
|
$
2.4
|
|
|
$
2.6
|
|
|
$
2.6
|
|
|
$
2.2
|
|
|
$
1.8
|
|
Combined
Ratio Comparison
18
Source: A.
M. Best Aggregates and Averages 2009
Medical Malpractice Lines of Business Net
Medical Malpractice Lines of Business Net
Strategy:
Treated Fairly
Treated
Fairly is our brand enhancement initiative
Affirms
our existing, enduring commitment to
every stakeholder
every stakeholder
Insureds
Agents
Investors
The
public
We run our
business as owners who are
rewarded for long-term success
rewarded for long-term success
19
Growth
Strategies
Key
Opportunities
New
insurance buyers will emerge as
healthcare reform evolves
healthcare reform evolves
New
products will respond to physician/hospitals
combinations
combinations
The
outcome of medical liability claims will
become more transparent
become more transparent
Financial
issues will highlight the need for
successful, long-term companies with superior
balance sheets strength and outstanding ratings
successful, long-term companies with superior
balance sheets strength and outstanding ratings
21
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
Created a Leader Through Consolidation
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
1970’s
Founding
in the
1970’s
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
22
Experienced
Management Team
|
Name
|
Position
|
Years
at
Company |
Years
Affiliated
With The Industry |
|
Stan
Starnes
|
Chairman
& CEO
|
2
|
31
|
|
Victor
Adamo
|
President
|
24
|
29
|
|
Jeff
Bowlby
|
Chief
Marketing Officer
|
11
|
25
|
|
Howard
Friedman
|
Liability
Group President / Chief Underwriting Officer
|
13
|
29
|
|
Jeff
Lisenby
|
Corporate
Counsel
|
8
|
8
|
|
Frank
O'Neil
|
Investor
Relations Officer
|
22
|
22
|
|
Ned
Rand
|
Chief
Financial Officer
|
5
|
17
|
|
Darryl
Thomas
|
Liability
Group President / Chief Claims Officer
|
12
|
22
|
|
Hayes
Whiteside
|
Chief
Medical Officer
|
6
|
6
|
|
|
Average
|
11
|
21
|
|
Our
Team Understands Integration
|
|
Joined PRA
from Medical Assurance
|
|
Joined PRA
From Professionals Group
|
|
Joined PRA
after merger
|
Officers,
Directors & Employees Own ~9% of ProAssurance
23
Recent
M
& A
Transactions
24
Significant growth
in our core business
Geographical
expansion
Extends our core
business
Broadens our medically-related range
Geographical expansion
Broadens our medically-related range
Geographical expansion
Adds
to our lawyers’ book
Geographical
expansion
Affirms our
interest in this line
Extending
our Reach in MPL
Podiatry
Insurance Company of America (PICA)
Dominant
(70%), profitable, national company
~$96
million Direct Premium in 2008
Renewals
at expected levels in 2009
$13.7
million added to PRA premium in Q2 2009
Podiatry
is growing in importance as a specialty
Involved
in treating complications in a population with an
increasing prevalence of diabetes
increasing prevalence of diabetes
Increases
our understanding of policies that are
higher volume, lower cost
higher volume, lower cost
25
With
PICA We Are a National Carrier
Leveraging
the benefits of our many M &
A
transactions through
long-term customer relationships and local and specialty
knowledge
long-term customer relationships and local and specialty
knowledge
26
Corporate
Headquarters
Corporate
Headquarters
Claims
Offices
Claims
Offices
Claims
/ Underwriting Offices
Claims
/ Underwriting Offices
PICA
and/or E&S States
PICA
and/or E&S States
PICA
Headquarters
PICA
Headquarters
(Birmingham)
(Nashville)
Opening
New Avenues in MPL
Mid-Continent
General Agency
Large
writer of ancillary healthcare
Healthcare
reform will emphasize care delivery from a
larger array of lower-cost providers
larger array of lower-cost providers
Home
health care
Physician-extenders
~$26
million in total premium in 2008
$20
million healthcare related
PRA will
write most of this business
$3.6
million added to PRA premium in Q2 2009
Commission
derived from business we choose not to write
27
Adding
to our Legal E&O Book
Georgia
Lawyers Insurance Company
A leading
insurer of Georgia attorneys
2008
Premium: $5.7 million
Highlights
our desire to grow in this line
Sets the
stage for expansion in the southeast
Our
existing legal professional business is primarily in
the midwest
the midwest
Approximately
2,650 attorneys in 600 law firms
2008 Total
Legal E&O Premium: $7.8 million
New MGA’s
writing in the West and mid-Atlantic
28
ProAssurance
Growth Strategy
The legal
and regulatory environment must be
favorable
favorable
Understanding
why companies are available
Not all
M&A opportunities should be pursed
We don’t
“bet the farm” and can acquire
without “breaking the bank”
without “breaking the bank”
Ability to
use our stock in transactions
Attractive
because of strong book-value multiple
Cash flow
remains strong
29
30
ProAssurance
Growth Strategy
The
current market environment favors growth by
acquisition
acquisition
DE NOVO
GROWTH vs. GROWTH
BY ACQUISITION
DE NOVO
GROWTH vs. GROWTH
BY ACQUISITION
- Must
price your way into the market + Pricing
can be adjusted
- Must
price your way into the market + Pricing
can be adjusted
- No
prior history + Prior
history available
- No
prior history + Prior
history available
- Lack of
experienced personnel + Local
expertise available
- Lack of
experienced personnel + Local
expertise available
- Limited
access to key defense lawyers + Access
to proven defense lawyers
- Limited
access to key defense lawyers + Access
to proven defense lawyers
- Must
establish distribution + Utilize
existing distribution
- Must
establish distribution + Utilize
existing distribution
- Must
create brand awareness + Build on
existing relationships with
insureds and organized medicine, etc.
insureds and organized medicine, etc.
- Must
create brand awareness + Build on
existing relationships with
insureds and organized medicine, etc.
insureds and organized medicine, etc.
+ No
integration risk - Integration
risk
+ No
integration risk - Integration
risk
+ No
reserve risk - Reserve
risk—need for careful due diligence
+ No
reserve risk - Reserve
risk—need for careful due diligence
Financial
Highlights
2009
YTD Income Statement Highlights
32
in
millions, except per share data
Gross
Premiums Written $ 435
$ 374 $ 472
Net
Investment Income 113 122 158
Total
Revenue
489 431 567
Total
Expenses
295 294 470
Operating
Income $ 136 $ 127 207
Net
Income (Includes Investment Losses) $ 137 $ 101 178
Operating
Income/Diluted Share $ 2.50 $ 2.43 $ 6.07
September
30,
Year-End
2009 2008
2008
We
have reversed the decline in premiums with new
business from PICA, Mid-Continent and Georgia Lawyers
business from PICA, Mid-Continent and Georgia Lawyers
Strategy:
Enduring Financial Strength
33
Emphasizing
an appropriate balance of risk vs. return
Committed
to enduring balance sheet strength
Responding
to the low interest rate environment
Stockholder’s
Equity Up
Over 16% Since 12/31/07
Over 16% Since 12/31/07
Strategy:
Use Capital Prudently
Using
capital to build through M&A
Preserving
capital for future opportunities
Enhancing
shareholder value by repurchasing shares
at prices that build Book Value
at prices that build Book Value
34
Source: SNL
Financial
Our
Strong Capital/Low Leverage Position
35
(in
millions)
Prepared
for an
improving market
improving market
Prudent
capital
management
management
Premiums to
Surplus
for Each year
for Each year
$567
$
96 (PICA
pro
forma)
$471
Excess
Capital vs. Excess Capacity
36
Conceptual
Model of Projected
A. M. Best BCAR Scores if
A. M. Best BCAR Scores if
Premiums
Increase
Surplus
is Reduced
Strategy:
Balance Risk vs. Return
Key
Investment Actions in Q3 09
Reduced
cash and short-term
balances
balances
Added to
corporate bonds
CUSIP-level
portfolio disclosure
on our website:
www.proassurance.com/investorrelations/supplemental.aspx
on our website:
www.proassurance.com/investorrelations/supplemental.aspx
$3.9
Billion
Portfolio
Portfolio
$3.9
Billion
Portfolio
Portfolio
Fixed
Income: 91%
Short
Term: 4%
Short
Term: 4%
Equity
and Other Investments: 3%
Equity
and Other Investments: 3%
BOLI:
2%
BOLI:
2%
37
9/30/09
38
Little
Dependence on Debt
Low Debt
to Cap Ratio
Little
strain on cash flow
9/30/2009
Fixed
Income: $3.6 Billion
39
9/30/09
Summary
ProAssurance
Producing
sustainable shareholder value
Growing
Book Value per Share
Finding
the right M & A opportunities
Significant
share ownership at all levels
Focusing
on long-term
Preparing
for a changing market
Leveraging
financial strength
Protecting
the balance sheet
Maintain
our leading market position
Building
strength for the next cycle turn
41
Appendix:
Market Conditions
Current
Industry Status
43
Appendix:
Claims
Why
Claims Strategy Matters
Favorable
Outcomes:
84.0%
Outcomes:
84.0%
Favorable
Outcomes:
84.0%
Outcomes:
84.0%
Five
Year Average
2004 - 2008
2004 - 2008
Favorable
Outcomes:
75.4%
Outcomes:
75.4%
Favorable
Outcomes:
75.4%
Outcomes:
75.4%
Why
Claims Strategy Matters
Our
ability and willingness to defend claims
allows us to achieve better results
allows us to achieve better results
ProAssurance
vs. Industry
Average Statutory Loss Ratio
Average Statutory Loss Ratio
2003-2008
Legal
Payments
Payments
Loss
Payments
Payments
Trend
for ProAssurance
Stand Alone Statutory Loss Ratio
Stand Alone Statutory Loss Ratio
2006
- 2008
76.0%
*Source: A. M. Best
Aggregates & Averages, Medical Malpractice Predominating
64.3%
80.8%
76.9%
44.2%
Appendix:
Investments
Equities
& Other: $136 Million
48
9/30/09
Represents
3.5% of our Total Investments
Return
by Quarter: Equities & Other
49
Growth
in Investment vs. Reserves
50
Cumulative
Return: Equities & Other
51
Strategy:
Investment Discipline
The
choice: Chase yield or extend duration
We are
maintaining duration, looking for opportunities
52
Loss
in value assuming a 100 basis point shift in the yield curve
Yields based on
Single A composite corporate debt
Municipals:
$1.5 Billion
53
9/30/09
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
Asset
Backed: $805 Million
Weighted
average rating: “AAA”
Bloomberg
Data
9/30/09
9/30/09
Alt-A
LTV 63%
LTV 63%
Prime
MBS
LTV 56%
LTV 56%
Further Details
Provided
on Sub-Prime and CMBS
on following pages
on Sub-Prime and CMBS
on following pages
54
Sub-Prime
Detail
55
$6.7
million market value in AFS portfolio
$4.2
million unrealized loss
$9.6
million market value in
high-yield LP rated B
high-yield LP rated B
LP’s focus
is distressed ABS
|
At
9/30/09
|
Vintage
|
|
$4.8
Mln
|
2004 &
Prior
|
|
$1.9
Mln
|
2005
|
Quality &
Vintage information only on direct holdings at 9/30/09
|
At
9/30/09
|
Type
|
Quality
|
|
$2.9
Mln
|
Mortgage-Backed
|
AA avg -
LTV 68%
|
|
$3.8
Mln
|
Home
Equity
|
A+
avg
|
CMBS
Detail
Vintages
2005 &
Prior- $136 million
2006- $23
million
2007- $3
million
Top
Property Types
Retail-Anchored:
45% of CMBS portfolio
Exposure:
19% - 44% of underlying occupancies
Office:
44% of CMBS portfolio
Exposure:
23% - 49% of
underlying occupancies
Multi
Family: 4% of CMBS portfolio
Mixed Use:
3% of CMBS portfolio
Other: 4%
of CMBS Portfolio
56
CMBS
Detail
$162
million Fair Value in non-agency CMBS
Book
Value: $164 million
5% of
fixed income portfolio
57
|
At
9/30/09
|
Quality
|
|
$160
Mln
|
AAA
|
|
$ 2.0
Mln |
AA
|
|
At
9/30/09
|
Wtd
Avg LTV
|
|
24%
|
<65%
|
|
43%
|
=65-70%
|
|
21%
|
<70-75%
|
|
12%
|
=75-85%
|
|
At
9/30/09
|
Credit
Support
|
|
26%
|
>30%
|
|
52%
|
20% -
30%
|
|
20%
|
10% -
20%
|
|
2%
|
Less than
10%
|
|
At
9/30/09
|
Deal
Cumulative Delinquencies
|
|
27%
|
0% -
0.5%
|
|
3%
|
0.5% -
1.0%
|
|
32%
|
1.0% -
2.0%
|
|
4%
|
2.0% -
3.0%
|
|
22%
|
3.0%-5.0%
|
|
12%
|
5.0%-9.0%
|
|
At 9/30/09
|
Debt
Service Coverage
|
|
69%
|
=>1.5x
|
|
25%
|
1.4x-1.5x
|
|
6%
|
1.3x-1.4x
|
AT
9/30/09
9/30/09
CMBS
Since September 30, 2009
Since
9/30/09:
Sold $50.0
million CMBS
Paydowns
of $8.0 million
As of
November 30, 2009 CMBS:
Market
value: $108
million
Book
value: $110
million
Expecting
pay down of $19 million
by year-end 2009
by year-end 2009
Projecting
~$90 million exposure at year-end
58
Corporates:
$1.0 Billion
59
9/30/09
Corporate:
Detail on Financials
Top 20
Largest Banks/Financials: $ 294 million
$75 mm
FDIC backing
|
BA $44
($23)
|
BNY Mellon
$10
|
|
MS $27
($6)
|
Credit
Suisse $9
|
|
BP Cap
$25
|
Eurohypo
$8
|
|
GECC $25
($8)
|
KEY $6
($6)
|
|
JPM $24
($14)
|
NRUC
$6
|
|
CITI $20
($7)
|
Deutsche
Bank $5
|
|
Wells
$20
|
FMCC
$5
|
|
GS $16
($2)
|
NY Commt’y
Bank $5 ($5)
|
|
PNC $15
($2)
|
Depfa ACS
Covered $5
|
|
Amex
$14
|
John Deere
Cap $5 ($2)
|
|
FDIC backed
amounts listed in parentheses
|
|
60
9/30/2009
Treasury/GSE:
$228 Million
9/30/09
62
9/30/09
Portfolio
Overview: Short Term
$138
Million
Rated
A1/P1 or better
Money
Markets:
Moody’s:
Aaa
S&P:
AAA
63
BOLI:
$65 Million
Weighted
average rating
Moody’s:
AA3
S&P:
AA
A. M.
Best: A+
64
Appendix:
Industry History
Appendix:
Growth Maps
