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| 8-K - FILING TO DISCLOSE MATERIALS WHICH WILL WE WILL USE DURING INVESTOR MEETINGS THROUGHOUT THE REMAINDER OF SEPTEMBER 2012. - PROASSURANCE CORP | bodyoffiling.htm |
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-announced transactions involving
Medmarc Insurance group and Independent Nevada Doctors Insurance Exchange as forward
looking statements and direct your attention to our news releases issued on June 27, 2012 and our
Current Report on Form 8K, issued on June 28, 2012 for a discussion of risk factors pertaining to
these transactions and subsequent integration into ProAssurance
Medmarc Insurance group and Independent Nevada Doctors Insurance Exchange as forward
looking statements and direct your attention to our news releases issued on June 27, 2012 and our
Current Report on Form 8K, issued on June 28, 2012 for a discussion of risk factors pertaining to
these transactions and subsequent integration into ProAssurance
This presentation contains Non-GAAP measures, and we may reference Non-GAAP measures in
our remarks and discussions. 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 and discussions. 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.
FORWARD LOOKING STATEMENTS
1
NON-GAAP MEASURES
ProAssurance General Update
We are the only pure-play, publicly-traded
healthcare professional liability (HCPL)
insurance company in America.
healthcare professional liability (HCPL)
insurance company in America.
ProAssurance Corporate Profile
Specialty liability insurance writer
Primarily Healthcare Professional Liability (HCPL)
Only pure play public company writing predominately
HCPL
HCPL
Market Cap: ~$2.8 billion
Shareholders’ Equity: $2.3 billion
Total Assets: $5.0 billion
Annualized dividend yield is 1.1% ($0.25/share/qtr.)
Rated “A” by Fitch and A. M. Best
3
ProAssurance Corporate Profile
Successfully adding business across the risk spectrum as the
delivery of healthcare changes
delivery of healthcare changes
Distribution is Independent Agent (62%) and Direct (38%)
Direct in Alabama, Florida and in all states for Podiatric business
Dual distribution in DC, Texas and parts of Missouri
Q2 2012 Policyholders: ~68,700
2011 Gross Written Premium: $566 million
ProAssurance Geographic Profile
Broad geographic diversification
Locally-based decision-making differentiates ProAssurance by
addressing each state’s unique medical/legal challenges
addressing each state’s unique medical/legal challenges
5
ProAssurance Footprint
Corporate Headquarters
Corporate Headquarters
Claims Offices
Claims Offices
(Birmingham)
2011 Market Share: Top Five
2011 Market Share: Top Five
2011 Market Share: Six-Ten
2011 Market Share: Six-Ten
Six Months Ended
June 30, 2012
Success Throughout the Insurance Cycle
6
Historical Book Value Per Share
Historical Stock Price
to 8/31/12
to 8/31/12
Inception to 6/30/12
CAGR: 16%
CAGR: 16%
Cumulative:1926%
10 Year Summary (2002-2011)
CAGR: 16%
CAGR: 16%
Cumulative: 342%
Our Commitment to Treated Fairly
Unwavering dedication to the defense of
non-meritorious lawsuits
non-meritorious lawsuits
Allows our insureds the right to an unfettered defense of
their claims where permitted by law
their claims where permitted by law
Steadfast dedication to in-depth underwriting and
adequate pricing
adequate pricing
An unsurpassed level of customer service
Unquestioned financial strength consistently
delivering value for insureds and shareholders
delivering value for insureds and shareholders
7
Today’s Healthcare Professional Liability Market
ProAssurance delivers an unparalleled level of
service and financial stability that truly
differentiates our coverage and our Company in an
evolving, competitive market
service and financial stability that truly
differentiates our coverage and our Company in an
evolving, competitive market
HCPL Stands Apart in Insurance
HCPL claims may not be filed for years after an
incident and may take years to resolve: Long-tail
incident and may take years to resolve: Long-tail
Personal lines are short tail
Introduces long periods of uncertainty
Loss trends may change expected severity from time of
initial pricing
initial pricing
Can be mitigated by the use of the claims-made policy form
Can provide a false sense of security for start-ups and
companies seeking to aggregate market share based on price
companies seeking to aggregate market share based on price
Float can be meaningful
HCPL claims are almost always lawsuits
High cost to defend, even if you win
9
The HCPL Market Today
Prolonged period of “benign profitability”
Premiums levels remain well above levels of 2000
Significant policyholder retention by all companies
despite fierce competition
despite fierce competition
No large commercial carriers have entered the market
in a meaningful manned
in a meaningful manned
Significant barriers to entry in underwriting and claims
handling
handling
Psychological barriers exist—failures in the past
No Catastrophe exposure
10
The HCPL Market Today
11
The HCPL Market Today
Changes in healthcare delivery are changing the
underlying dynamics
underlying dynamics
Physicians are combining into larger groups
Physician practices are being brought into hospitals through
purchase or affiliation
purchase or affiliation
Hospitals are combining into large networks requiring
greater insurance expertise and greater financial security
greater insurance expertise and greater financial security
Larger companies with geographical reach and
financial strength will have an advantage in attracting
new business and continuing to consolidate
financial strength will have an advantage in attracting
new business and continuing to consolidate
12
The HCPL Market Today
Market remains fragmented even after two
decades of consolidation
decades of consolidation
More than 100 writers
Largest market share is <8%
100 companies have <1%
13
ProAssurance’s Standing in the Market
ProAssurance is the largest independent
publicly traded writer of HCPL insurance
publicly traded writer of HCPL insurance
Fourth largest overall writer
14
DPW: SNL Data 2011
The Evolution of Healthcare and the HCPL Market
Our successful experience and deep expertise
uniquely qualify ProAssurance to insure the
widest range of healthcare risks
uniquely qualify ProAssurance to insure the
widest range of healthcare risks
Healthcare Reform
Known: More customers for us
May accelerate the growth of hospital-owned practices and
consolidation into larger groups
consolidation into larger groups
Provides an opportunity for us due to our geographic reach,
long-term experience in hospitals and our financial strength
long-term experience in hospitals and our financial strength
We have enhanced our ability to write new classes of
business through acquisitions
business through acquisitions
May hasten the need for consolidation of smaller insurers
Unknown: Effect on the medical/legal environment
Increased patient frustration with the system
Possibility of more unexpected outcomes
16
ProAssurance’s Evolving Strategy
Shaped by a healthcare landscape that will
change—with or without federal healthcare
reform
change—with or without federal healthcare
reform
Enhancing our commitment to individual
providers and small groups
providers and small groups
Expanding our hospital capabilities and
commitment
commitment
Building on two decades of hospital experience
17
ProAssurance’s Evolving Strategy
Leverage our reach, expertise and financial
strength with larger accounts
strength with larger accounts
Largest non-profit healthcare
system in the US
system in the US
Now in Michigan, Florida,
Indiana and Texas
Indiana and Texas
Insuring Ascension-affiliated
physicians through coordinated,
jointly insured programs
physicians through coordinated,
jointly insured programs
Financial involvement of both entities creates incentive to reduce risk
18
*www.ascensionhealth.org/index.php?option=com_locations&view=locations&Itemid=148
Ascension Health’s Ministry Locations*
ProAssurance’s Evolving Strategy
Joint physician/hospital insurance product:
ProControlsm
ProControlsm
Addresses the unique risk tolerance and claims-
handling expectation of each insured
handling expectation of each insured
Physicians largely seek claims defense to protect their reputation
Hospitals/facilities seek to protect their reputation in different ways
Hospitals can set their risk tolerance with a full retention level,
a consultative level and a full risk transfer level
a consultative level and a full risk transfer level
Pricing varies with risk and financial levels
Broad interest in the market with several policies in
force
force
19
ProAssurance’s Evolving Strategy
Ongoing interest in alternative risk and self-
insurance mechanisms
insurance mechanisms
Captive insurance and sophisticated risk sharing
programs
programs
Risk Retention Groups for specific specialties or
regions
regions
20
ProAssurance’s Successful M&A Strategy
Consolidation will continue and will remain episodic
Fewer significant targets
Remaining companies of size are in important strategic areas
We prefer “health care centric” but will consider closely related
liability lines
liability lines
Legal/regulatory environment must be favorable
Not all M&A opportunities should be pursued
We do not “bet the company” on any transaction
21
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
ProAssurance’s Successful M&A History
22
Original
Companies
Companies
Purchased Company
Demutualization
OHIC
HOSPITALS ONLY
HOSPITALS ONLY
2
1
1
1
1
1
1
1
1
3
4
4
1
4
Renewal Rights
Assumed Business
Proposed / Expected Close Prior to 1/1/13
2
2
†
2
3
1
3
3
1
SERTA
ProAssurance Operational Review
ProAssurance delivers an unparalleled level of
service and financial stability that truly
differentiates our coverage and our Company in an
evolving, competitive market
service and financial stability that truly
differentiates our coverage and our Company in an
evolving, competitive market
Underwriting for Profitability Not Market Share
Underwriting process driven by individual risk
selection and assessment of loss history, areas
of practice, and location
selection and assessment of loss history, areas
of practice, and location
Rates contemplate specific ROE expectations
Frequent rate/loss reviews ensure adequate prices
Rate filings consider the results of the past five to
seven years to ensure a single year does not unduly
influence results
seven years to ensure a single year does not unduly
influence results
Stringent underwriting standards maintain rate
structure and enhance profitability
structure and enhance profitability
24
ProAssurance Business Outlook
We ARE writing new business that we believe
will meet our profitability goals
will meet our profitability goals
Major competitors continue to be largely
disciplined in pricing
disciplined in pricing
25
Calendar Year Combined Ratio: ProAssurance Consistently Outperforms
ProAssurance Outperforms the Industry
26
Five Years: ProAssurance Average: 73.5% / Industry Average: 83.3%
Ten Years: ProAssurance Average: 94.2% / Industry Average: 106.3%
All Years: ProAssurance Average: 93.6% / Industry Average: 109.7%
Source: A.M. Best Aggregates and Averages, Medical Malpractice Lines of Business
ProAssurance Pricing History
Peak pricing was in 2006
Improved frequency trends are reflected in recent rate declines
Improvement in frequency has outweighed the steady, manageable rise in severity
Loss trends have improved in states with and without tort reforms
Rate changes (up or down) through 2012 will likely be low-to-mid single digits
MD/DO Rate Change History
PICA excluded to facilitate accurate comparisons over time
ProAssurance Retention Remains High
Continued underwriting vigilance is being used today
to ensure future success
to ensure future success
Market share is important, but NOT as important as
profitability
profitability
28
Consistent Approach to Reserves
Consistent reserving practices provide protection
against a loss trend reversal and capital erosion
against a loss trend reversal and capital erosion
Net Favorable Reserve Development
Net Reserve per Open MPL Claim1
1 Statutory basis; Loss & LAE
Acquired company data included at end of acquiring year
Acquired company data included at end of acquiring year
Understanding Recent Loss Trends
Frequency stable after
historic declines
historic declines
Lawyers are the gatekeepers
Must weigh the cost of a trial vs.
chances of success
chances of success
Likelihood of success is affected
by many factors
by many factors
Societal perceptions of lawsuits
against physicians
against physicians
Effects of the overall tort reform
debate and headlines across the
country
debate and headlines across the
country
Reforms enacted in some states
Better quality of care reduces the
number of medical misadventures
number of medical misadventures
30
Severity uptrend remains
steady at 3%-4%
steady at 3%-4%
Closely tied to inflation
Primarily medical cost inflation
Jury sentiment in reaction to
headlines has moderated, but
not eliminated, runaway
verdicts in recent years
headlines has moderated, but
not eliminated, runaway
verdicts in recent years
Tort Reforms have limited
non-economic damages in a
number of states
non-economic damages in a
number of states
New Claims Opened Each Year
Claims Trends Remain Favorable
Fewer cases to try following significant decline in frequency
Severity trends steady and manageable
No observed effect from the economic downturn
Trends are much the same in states with or without Tort Reform
31
ProAssurance Claims Tried to a Verdict
Differentiate Through Claims Defense
We leverage our financial strength to gives our insureds the opportunity for
an uncompromising defense of their claim
an uncompromising defense of their claim
Differentiates our product
Provides long-term financial and marketing advantages
Retains business and deters future lawsuits
Increasingly important as claims data becomes public
Malpractice outcomes now public in 26 states
ProAssurance: 78% No Paid Losses
Industry: 72% No Paid Losses
Source: Preliminary PIAA 2011
Claim Trend Analysis,
ProAssurance Excluded
Claim Trend Analysis,
ProAssurance Excluded
Five Year Average
2007-2011
2007-2011
Source: ProAssurance,
as reported to
PIAA
as reported to
PIAA
The Ohio Example: 2005 - 2010 Data
Comprehensive, reliable data provided by the Ohio Department of Insurance
Broad range of competitors and business approaches
33
www.insurance.ohio.gov/Legal/Reports/Documents/2010ClosedClaimReport.pdf
More Claims Closed With No Indemnity
More Claims Defended in Court
2x Lower Average Indemnity Payment per Closed Claim
The Bottom Line Benefits of Strong Defense
Our ability and willingness to defend claims allows us
to achieve better results
to achieve better results
34
Source: Statutory Basis, A.M. Best Aggregates & Averages
Some totals may not agree due to rounding
Some totals may not agree due to rounding
ProAssurance vs. Industry
Average Loss Ratio (2006-2010)
Legal
Payments
Payments
Loss
Payments
Payments
64.3%
44.2%
61.5%
53.6%
41.6%
76.0%
36.8%
ProAssurance Stand Alone
Loss Ratio (2006-2011)
Calendar Year
Calendar Year
24.7%
Malpractice Made Public
Malpractice judgments/settlements now
disclosed in 26 states
disclosed in 26 states
Next: Public access to
the National Practitioner
Data Bank (NPDB)?
the National Practitioner
Data Bank (NPDB)?
Disciplinary actions
now disclosed in
all states
now disclosed in
all states
Board / Discipline
Board / Discipline / Med-Mal
Source: Federation of State Medical Boards National Clearinghouse and
ProAssurance research
ProAssurance research
35
The Residual Cost of a Plaintiff Verdict
Financial effects
Higher MPL premiums
May affect quality scoring under new payment regimes
Credentialing implications
Disclosure required when applying for licensing, privileges
and treatment panels throughout their medical career
and treatment panels throughout their medical career
Reputational damage
May affect referrals
Online disclosure can affect acquisition of new patients
Emotional stress before, during and after
Influences future treatment behavior and patient relationships
36
ProAssurance Performs
Delivering meaningful value for our shareholders
Committed to Effective Capital Management
Balancing future needs with current market reality
Dividend is currently $1.00/share/year
Complements our prudent share repurchase program
$321 million spent to repurchase 6.1 million shares since 2005
Enhancing shareholder value by repurchasing shares
at prices that build Book Value
at prices that build Book Value
38
Share Repurchase History
Steady Returns
Long-term ROE target: 12% -14%
Book Value per Share captures our focus on long-term
excellence
excellence
Increased every year we have been public
Focused on Book Value
40
Inception to 6/30/12
CAGR: 16%
CAGR: 16%
Cumulative:1926%
10 Year Summary (2002 -2011)
CAGR: 16%
CAGR: 16%
Cumulative: 342%
Historical Book Value Per Share
Driving Share Prices Higher
41
Historical Share Price
Inception to 8/31/2012
CAGR: 15%
CAGR: 15%
Cumulative: 1606%
10 Year Summary (2002 -2011)
CAGR: 16%
CAGR: 16%
Cumulative: 280%
Driven to Excel / Focused on Shareholder Value
Maintaining profitability
Sustaining book value growth
Producing sustainable shareholder value
Focusing on long-term—ready for the market turn
Current Prices Continue to Offer a Compelling Buying Opportunity
Current Price to Q2 2012 Book: 1.2x Average Since Inception: 1.4x
ProAssurance Transaction Discussion
On June 27, 2012 we announced two proposed acquisitions
Medmarc will broaden our product offerings and capabilities
in protecting the delivery of healthcare
in protecting the delivery of healthcare
Independent Nevada Doctors Insurance Exchange (IND)
will make ProAssurance the leading
medical professional liability writer in Nevada
will make ProAssurance the leading
medical professional liability writer in Nevada
Two Announced Transactions
44
A leading products
liability writer in
medical technology
and life sciences
liability writer in
medical technology
and life sciences
Meaningful legal
professional liability
book
professional liability
book
IND is the leading
medical professional
liability writer in
Nevada
medical professional
liability writer in
Nevada
Medmarc Details
Founded in 1979 by the
medical technology and
life science industry
medical technology and
life science industry
Proven legal professional liability book
Management will remain in place at corporate
offices in Virginia
offices in Virginia
Transaction value: $154 million in cash
$146.2 direct payments to eligible members
$7.5 million in future premium credits
45
Medmarc Metrics
|
Top Five States by
Direct Written Premium (2011) |
|
|
California
|
$5.8 mil (14%)
|
|
Florida
|
$5.3 mil (13%)
|
|
Texas
|
$4.4 mil (10%)
|
|
Massachusetts
|
$3.8 mil (6%)
|
|
New Jersey
|
$2.0 mil (5%)
|
46
Data Sources: Medmarc Insurance Group, SNL Financial, A. M. Best
Full statutory financial information:
www.medmarc.com/About-Us/Pages/Statutory-Statements.aspx
www.medmarc.com/About-Us/Pages/Statutory-Statements.aspx
|
2011 Policyholder Breakdown
|
|
|
MedTech / LfSci
|
958
|
|
Legal Professional
|
2,535
|
47
Experienced board of directors and management team
Strong surplus position relative to business written
Profitable operations
Conservative business philosophy
Strategic relationship with AdvaMed
Leading medical technology trade association
Valuable life sciences brand developed over 32-year
history:
history:
Relationships with over 1,000 leading medical
technology companies
technology companies
Relationships with more than 380 brokers who control
the life sciences business
the life sciences business
National defense attorney network comprising 340
attorneys/firms domestically and internationally
attorneys/firms domestically and internationally
Recognized Web-based thought leadership
16-year strategic alliance with The Hartford to insure
other exposures for insureds
other exposures for insureds
Established lawyers’ professional liability program
Medmarc Strengths
ProAssurance Answers Challenges for Medmarc
ProAssurance balance sheet strength will ensure
Medmarc’s financial credibility
Medmarc’s financial credibility
Will allow Medmarc to again offer competitive
limits
limits
ProAssurance will extend its “A” (Excellent) rating to
Medmarc to reassure brokers
Medmarc to reassure brokers
Financial strength and higher rating may allow
Medmarc to recapture business it lost due to tighter
self-imposed underwriting guidelines
Medmarc to recapture business it lost due to tighter
self-imposed underwriting guidelines
Combined organization will have greater standing with
reinsurers
reinsurers
Transaction Analysis
48
Buying at a discount to tangible book value
Will increase ProAssurance book value per share
Experienced management team has committed to
ProAssurance
ProAssurance
ProAssurance adds
Broader product offerings and capabilities in
protecting the delivery of healthcare
protecting the delivery of healthcare
Expertise in medically-focused product liability
A recognizable brand
Premium growth at a reasonable price
Strengthens ties with shared brokers and creates new
relationships with desirable brokers
relationships with desirable brokers
Adds another strategic alliance as we gain name
recognition outside legacy MPL business
recognition outside legacy MPL business
Adds significant scale to our lawyers’ professional
liability program
liability program
Little or no overlap in key LPL states
Advantages ProAssurance Gains from Medmarc
Medmarc Profitability Drives Surplus Growth
Surplus at highest level in company history
49
Significantly reduced exposure to accounts with sales greater
than $100 million (2011)
than $100 million (2011)
Recent Events at Medmarc
50
IND Details
Founded in 2006 by
Nevada physicians
Nevada physicians
Proven history
Gained market leadership without competing on price
Solid customer service philosophy mirrors
ProAssurance
ProAssurance
ProAssurance and IND will combine offices in
Las Vegas
Las Vegas
Transaction value not material to ProAssurance
51
IND Metrics
|
Pro Forma Nevada Market Share
|
|
|
ProAssurance + IND
|
$21.8 mil
|
|
NORCAL Mutual
|
$10.8 mil
|
|
Nevada Mutual
|
$10.5 mil
|
|
Premier Physicians
|
$7.2 mil
|
|
Fairfax Financial
|
$6.6 mil
|
|
Total Market
|
$85.6 mil
|
|
2011 Direct Written Premium
|
|
52
|
|
12/31/2011
|
12/31/2010
|
12/31/2009
|
|
Total Assets
|
$
51.8 |
$
50.6 |
$
47.2 |
|
Loss & LAE Reserves
|
$
22.8 |
$
25.6 |
$
25.5 |
|
Surplus (Equity)
|
$
19.7 |
$
16.4 |
$
13.7 |
Balance Sheet Highlights (STAT data in millions)
|
|
2011
|
2010
|
2009
|
|
Combined Ratio
|
57.0%
|
81.9%
|
94.2%
|
Combined Ratio (STAT Data)
Source: IND
Full statutory financial information:
www.ind-insurance.com/documents-and-downloads
www.ind-insurance.com/documents-and-downloads
|
|
12/31/2011
|
12/31/2010
|
12/31/2009
|
|
Gross Premiums Written
|
$
12.1 |
$
12.6 |
$
11.5 |
|
Net Income
|
$
3.9 |
$
2.4 |
$
1.3 |
2009-2011 Income Statement Highlights (STAT data in millions)
|
2011 Actual Direct Written Premium
|
|
|
IND
|
$12.1 mil
|
|
NORCAL Mutual
|
$10.8 mil
|
|
Nevada Mutual
|
$10.5 mil
|
|
ProAssurance
|
$9.7 mil
|
|
Premier Physicians
|
$7.2 mil
|
|
|
2011
|
2010
|
2009
|
|
Policyholders
|
603
|
565
|
520
|
Policyholders at each year-end
Source; SNL Financial, Total MPL Premium for Nevada
53
Recognized leader in Nevada
Conservative operating philosophy
Physician-founded
Corporate culture values high levels of customer
service
service
Strong brand recognition
Strong surplus position relative to business written
Proven, profitability
IND Strengths
Experienced management team has committed to
ProAssurance
ProAssurance
Deepens market share in a state with proven
profitability
profitability
Increased recognition as a brand leader
Advantages ProAssurance Gains from IND
ProAssurance Answers Challenges for IND
Additional balance sheet strength
ProAssurance will extend its “A” (Excellent) rating to
IND
IND
Ability to address emerging needs of new account
types:
types:
Large groups
Multi-state groups
Hospitals, clinic, health systems
Seamless integration into ProAssurance reinsurance
program will address issues surrounding the cost of
reinsurance
program will address issues surrounding the cost of
reinsurance
ProForma Premiums / Policyholders
2011 Actual PRA GPW: $566 million
2011 ProForma GPW: $619 million
2011 Actual Policyholders: ~71,500
2011 ProForma Policyholders: ~75,500
ProForma: ProAssurance + Medmarc + IND
Next Steps
55
State regulatory approval of Plans of Conversion
Approval of eligible policyholders/members
HSR approval
Expected closings by January 1, 2013
Investment Portfolio Detail
ProAssurance remains conservatively
invested, to ensure our ability to keep our
long-term promise of insurance protection
invested, to ensure our ability to keep our
long-term promise of insurance protection
ProAssurance: Investment Profile
57
$4.1 Billion Overall Portfolio
$3.7 Billion Fixed Income Portfolio
Average duration: 3.8 years
Average tax-equivalent Income yield: 4.5%
Investment grade: 95%
Weighted average: AA-
6/30/12
Key portfolio actions in Q2 2012
Added dividend-paying equities
Added to high yield investments
$89.3 million tax credit portfolio not reflected in
investment income—provides approximately
$10.5 million in tax credits and $8 million in
deductions in 2012.
investment income—provides approximately
$10.5 million in tax credits and $8 million in
deductions in 2012.
CUSIP-level portfolio disclosure on our website:
www.proassurance.com/investorrelations/supplemental.aspx
www.proassurance.com/investorrelations/supplemental.aspx
ProAssurance Portfolio Detail: Asset Backed
58
6/30/12
Subject to Rounding
Asset Backed: $641 Million
Weighted Average Rating: “AA+”
Breakdown of Agency MBS Holdings
Key CMBS Details Provided on Following Page
Sub-Prime: $7.8 mil Market Value (AFS)
$0.9 mil net unrealized loss
$0.9 mil net unrealized loss
ProAssurance Portfolio Detail: CMBS
$74.2 million Fair Value in non-agency CMBS
Book Value: $68.7 million (2% of fixed income portfolio)
We have experienced no losses on our CMBS positions
59
6/30/12
ProAssurance Portfolio Detail: Municipals
60
Municipals: $1.2 Billion / Average Rating is AA
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
Weighted Average Rating: AA
6/30/12
ProAssurance Portfolio Detail: Equities & Other
61
Equities & Other: $290 Million
6/30/12
ProAssurance Portfolio Detail: Corporate
62
Corporates: $1.4 Billion
Weighted Average Rating: A-
6/30/12
ProAssurance Portfolio Detail: Various
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+
Treasury / GSE: $303 Million
Short Term: $168 Million
BOLI: $54 Million
6/30/12
Additional Financial Data
Management is Experienced & Invested
Effective senior management remains in place—13 years average tenure
Average ProAssurance tenure through the VP level is 16 years, with an average of 25 years
industry experience
industry experience
Management and employees are invested, owning ~4% of ProAssurance stock
65
|
W. Stancil Starnes, JD
Chairman & Chief Executive Officer
Company Tenure: 5 Years
Prior MPL Experience: 29 Years
Total Industry & Related Experience: 34 Years
Formerly in the private practice of law in MPL defense and
complex corporate litigation. |
Victor T. Adamo, JD, CPCU
Vice-Chairman
Company Tenure: 27 Years
Prior MPL Experience: 5 Years
Total Industry & Related Experience: 32Years
Formerly in the private practice of corporate law. President of
Professionals Group, prior to formation of ProAssurance. |
Ross E. Taubman, DPM
President of PICA
Company Tenure: 1 Year
Prior MPL Experience: -
Total Industry & Related Experience: 27 Years
Formerly in the private practice of podiatry . Leader in
organized podiatric medicine; former president and Trustee of the American Podiatric Medical Association. |
|
Jeffrey L. Bowlby, ARM
Sr. Vice-President & Chief Marketing Office
Company Tenure: 14 Years
Prior MPL Experience: -
Total Industry & Related Experience: 28 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
Company Tenure: 16 Years
Prior MPL Experience: 16 Years
Total Industry & Related Experience: 32 Years
Career-long experience in MPL company operations
and management. Former ProAssurance CFO. |
Jeffrey P. Lisenby, JD
Sr. Vice-President, General Counsel & Secretary
Company Tenure: 11 Years
Prior MPL Experience: -
Total Industry & Related Experience: 11 Years
Formerly in the private practice of law.
|
|
Duncan Y. Manley
Vice-President, Operations and Information Systems
Company Tenure: 12 Years
Prior MPL Experience: 7 Years
Total Industry & Related Experience: 19 Years
Career-long experience in MPL company operations as an
executive and consultant. |
Frank B. O’Neil
Sr. Vice-President & Chief Communications Officer
Company Tenure: 25 Years
Prior MPL Experience: -
Total Industry & Related Experience: 25 Years
Formerly a television news executive and anchor.
|
Edward L. Rand, Jr., CPA
Sr. Vice-President & Chief Financial Officer
Company Tenure: 8 Years
Prior MPL Experience: -
Total Industry & Related Experience: 20 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
Company Tenure: 17 Years
Prior MPL Experience: 10 Years
Total Industry & Related Experience: 27 Years
Career-long experience in MPL claims management.
|
Hayes V. Whiteside, MD, FACS
Sr. Vice-President & Chief Medical Officer
Company Tenure: 9 Years
Prior MPL Experience: -
Total Industry & Related Experience: 298 Years
Formerly in the private practice of Urology.
|
Adam P. Wilczek
Sr. Vice-President & Chief Operating Officer of PICA
Company Tenure: 16 Years
Prior MPL Experience: 20 Years
Total Industry & Related Experience: 36 Years
Former executive with Medical Inter-Insurance Exchange
(MIIX) and Chubb. |
Q2 2012 Financial Highlights
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in thousands, except per share data
Prepared for an improving market
Conservative Use of Debt / Low Leverage
Q2 2012: Low Debt to Cap Ratio
No strain on cash flow
ProForma Q3 2012: No debt
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Debt to Equity
No Debt Prior to 2001
Strong Capital Position
*
Annualized 2012 premium
for presentation purposes
only. Specifically disclaimed
as a projection of premiums
Annualized 2012 premium
for presentation purposes
only. Specifically disclaimed
as a projection of premiums
The choice: chase yield or extend duration
We are maintaining duration, looking for
opportunities
opportunities
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
68
Assumes a 1:1 premium to surplus ratio for physicians
professional liability claims-made coverages
professional liability claims-made coverages
Combined Ratio Required to
Generate a 13% Return on Equity
Generate a 13% Return on Equity
Long-Term ROE Target is 13%
The Yield Trap
Revised to reflect yields at 12/31/11
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
financial strength
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Shareholders’ Equity
81% Increase Since 12/31/07
Total Assets
Net Investment Income
Net Premiums Written
($ in millions. Excludes discontinued operations)
Net Income
Operating Income1
70
1 Excludes the after-tax effects of net realized gains or losses, and, in 2012, the effect of
$714,000 in confidential settlements that do not reflect normal operating results
$714,000 in confidential settlements that do not reflect normal operating results
YTD = Six months ended June 30th each period
Capital Growth: 2007-2012 YTD
71
in $000’s except total equity (000,000’s)