ProAssurance Reports Third Quarter 2012 Results

               ProAssurance Reports Third Quarter 2012 Results

PR Newswire

BIRMINGHAM, Ala., Nov. 6, 2012

BIRMINGHAM,Ala., Nov. 6, 2012 /PRNewswire/ -- ProAssurance Corporation
(NYSE:PRA) reports Net Income of $60.1 million, or $1.94 per diluted share for
the third quarter of 2012. Operating Income for the third quarter was $52.9
million, or $1.71 per diluted share. Gross Premiums Written were $156.5
million in the third quarter of 2012. At September 30, 2012, Book Value per
share was $76.47 and Shareholders' Equity was $2.3 billion.

(Logo: http://photos.prnewswire.com/prnh/20081024/PROASSURANCELOGO )

Unaudited Consolidated Financial Summary (in thousands)
                                     Three Months Ended   Nine Months Ended
                                     September 30,        September 30,
                                     2012      2011       2012      2011
Gross Premiums Written               $ 156,547 $ 174,680  $ 429,223 $ 450,795
Net Premiums Written                 $ 147,809 $ 164,798  $ 397,676 $ 421,692
Net Premiums Earned                  $ 127,125 $ 134,627  $ 395,050 $ 403,766
Net Investment Income                $ 33,910  $ 34,116   $ 101,912 $ 106,573
Equity in Earnings (Loss) of         $  211  $ (2,264)  $ (4,082) $ (6,044)
Unconsolidated Subsidiaries
Net Investment Result                $ 34,121  $ 31,852   $ 97,830  $ 100,529
Net Realized Investment Gains        $ 13,219  $ (11,972) $ 22,348  $ (5,648)
(Losses)
Other Income                         $ 1,529  $ 7,471   $ 5,207  $ 11,745
Total Revenues                       $ 175,994 $ 161,978  $ 520,435 $ 510,392
Net Losses and Loss Adjustment       $ 56,621  $ 63,176   $ 174,904 $ 197,951
Expenses
Underwriting, Policy Acquisition     $ 33,280  $ 34,954   $ 103,083 $ 103,534
and Operating Expenses
Interest Expense                     $  350  $  932   $ 2,002  $ 2,645
Loss on extinguishment of debt       $ 2,163  $   –   $ 2,163  $   –
Total Expenses                       $ 92,414  $ 99,062   $ 282,152 $ 304,130
Tax Expense                          $ 23,474  $ 19,211   $ 64,079  $ 59,768
Net Income                           $ 60,106  $ 43,705   $ 174,204 $ 146,494
Operating Income                     $ 52,946  $ 48,366   $ 160,630 $ 147,007
Net Cash Provided by Operating       $ 28,651  $ 53,366   $ 61,356  $ 106,418
Activities



Earnings per Share
                         Three Months Ended          Nine Months Ended
                         September 30,               September 30,
                         2012           2011         2012         2011
Weighted average number
of
common shares
outstanding (in 000's)
 Basic                30,674         30,557       30,641       30,577
 Diluted              30,938         30,847       30,902       30,844
Net Income per share     $  1.96       $  1.43     $  5.69     $  4.79
(Basic)
Net Income per share     $  1.94       $  1.42     $  5.64     $  4.75
(Diluted)
Operating Income per     $  1.71       $  1.57     $  5.20     $  4.77
share (Diluted)



Non-GAAP Financial Measures
Operating Income is a "Non-GAAP" financial measure that is widely used in our
industry to evaluate the performance of underwriting operations. Operating
Income excludes the after-tax net effects of confidential settlements, the
effects of Net Realized Investment (Gains) Losses, Debt Retirement (Gain) or
Loss, and Guaranty Fund (Recoupments) Assessments. We believe it presents a
useful view of the performance of our insurance operations.

While we believe disclosure of certain Non-GAAP information is appropriate,
you should not consider this information without also considering the
information we present in accordance with GAAP, which includes the net effect
of confidential settlements, Net Realized Investment (Gains) Losses, Debt
Retirement (Gain) or Loss, and Guaranty Fund (Recoupments) Assessments during
the periods presented below. The following table reconciles Net Income to
Operating Income.

Reconciliation of Net Income to Operating Income (in thousands, except per
share data)
                               Three Months Ended      Nine Months Ended
                               September 30,           September 30,
                               2012         2011       2012        2011
Net Income                     $ 60,106     $ 43,705   $ 174,204   $ 146,494
Items Excluded in the
Calculation
of Operating Income:
(Gain) loss on extinguishment  $ 2,163     $   –   $ 2,163    $   –
of debt
Net Realized Investment        $ (13,219)   $ 11,972   $ (22,348)  $ 5,648
(Gains) Losses
Guaranty Fund (Recoupments)    $   41     $   99   $   16    $   41
Assessments
Effect of Confidential         $   –     $ (4,900)  $  (714)   $ (4,900)
Settlements (Net)
Pre-Tax Effect of Exclusions   $ (11,015)   $ 7,171   $ (20,883)  $  789
Tax Effect at 35%              $ 3,855     $ (2,510)  $ 7,309    $  (276)
Operating Income               $ 52,946     $ 48,366   $ 160,630   $ 147,007
Per Diluted Common Share:
 Net Income                   $  1.94     $  1.42   $  5.64    $  4.75
 Effect of Adjustments        $ (0.23)     $  0.15   $ (0.44)   $  0.02
Operating Income Per Diluted   $  1.71     $  1.57   $  5.20    $  4.77
Common Share



Key Ratios
                                Three Months Ended Nine Months Ended September
                                September 30,      30,
                                2012      2011     2012          2011
Current Accident Year Loss      83.9%     85.6%    84.1%         84.3%
Ratio
Effect of Prior Accident Years' (39.4%)   (38.7%)  (39.8%)       (35.3%)
Reserve Development
Net Loss Ratio                  44.5%     46.9%    44.3%         49.0%
Expense Ratio                   26.0%     25.8%    25.8%         25.2%
Combined Ratio                  70.5%     72.7%    70.1%         74.2%
Operating Ratio                 43.8%     47.4%    44.3%         47.8%
Return on Equity                10.4%     8.8%     10.3%         10.1%

Return on Equity is calculated by dividing annualized Net Income for the
period by the average of beginning and ending Shareholders' Equity.

Management Commentary
"We continue to focus on accepting and writing business that meets our risk
and pricing goals. While this may affect top-line growth in the current
market, in the end it best serves the long-term interests of our shareholders
and policyholders. We are producing strong results through the disciplined
execution of a long-term strategy that allows us to succeed in a historically
volatile line of business. We combine a strict focus on profitable
underwriting with a dedication to efficient, effective delivery of new
products and unparalleled service to our policyholders and agents, allowing us
to enhance the strength of our balance sheet while delivering meaningful value
for our shareholders," said W. Stancil Starnes, the Chairman and Chief
Executive Officer of ProAssurance. He added, "We are confident in our ability
to deliver on the promise of Treated Fairly, now and in the future, because of
our unique combination of operational discipline, financial strength and wide
experience in a broad range of healthcare delivery settings."

Business Detail

  oThird quarter 2012 Gross Premiums Written were $157 million, a 10%
    decrease compared to the year-ago quarter; third quarter Net Premiums
    Earned were $127 million, a 6% decline over the year-ago quarter. The
    competitive marketplace, the effect of prior years' improved loss trends
    and the normal renewal pattern of our two-year policies reduced our top
    line, but we are committed to writing only that business that meets our
    pricing objectives. For the first nine months of 2012, Gross Premiums
    Written were $429 million, a year-over-year decrease of 5%. Net Premiums
    Earned for the first nine months of 2012 were $395 million, down 2% over
    the prior year's nine-month period.
  oPremium retention for our standard physician business was 89% in 2012's
    third quarter, unchanged from the same period a year ago. Through the
    first nine months of 2012, premium retention in our standard physician
    business was 90%, a one point improvement year-over-year.
  oAverage renewal pricing on our physician medical professional liability
    book was 2% higher than expiring premium, comparing the third quarter of
    2012 to the third quarter a year ago. This is partially due to higher
    rates in our podiatric line of business, where renewals are concentrated
    in the third quarter. Comparing the first nine months of 2012 to the first
    nine months of 2011, average renewal pricing on our physician medical
    professional liability book was higher by 1%.
  oWe recognized $50 million in net favorable loss reserve development in the
    third quarter of 2012, compared to $52 million in the same period a year
    ago. For the nine months ended September 30, 2012, net favorable loss
    reserve development was $158 million, compared to $142 million in 2011.
    This net favorable development continues to come primarily from accident
    years 2004 to 2010 and is significantly attributable to loss severity that
    has proven to be lower than previously expected. The decline in claims
    frequency we, and the industry, experienced from 2004 to 2010 has
    generally not resulted in higher average loss payments (i.e., increasing
    severity), despite expectations to the contrary. Management is now
    assuming the moderate severity trend to be more sustainable and thus is
    giving it more credibility in the more recent accident years even though
    these accident years are not as fully developed. However, given the
    long-tailed nature of our claims, we continue to be mindful of the
    potential for severity to increase when recognizing favorable development
    in accident years that are not mature.

Investment Commentary

  oIn the third quarter of 2012, our Net Investment Result (Net Investment
    Income plus Equity in Earnings (Loss) of Unconsolidated Subsidiaries) was
    $34 million, a 7% increase from the same period a year ago. In the third
    quarter, average yields on fixed income investment balances were
    marginally higher than in 2011. Additionally, we did see higher earnings
    from our interests in certain limited partnerships and lower amortization
    of our tax credit partnership investments. For the nine months ended
    September 30, 2012, our Net Investment Result was $98 million, down 3%
    compared to the same period in 2011.
  oNet Investment Income was $34 million in the third quarter of 2012,
    essentially unchanged from a year ago. For the nine months ended September
    30, 2012, Net Investment Income was $102 million, a 4% decline from the
    same period in the prior year. Our average tax equivalent income yield for
    both the quarter and nine months ended September 30, 2012 was 4.5%,
    compared with 4.4% in third quarter 2011 and 4.6% for the nine months
    ended September 30, 2011.
  oThe CUSIP-level disclosure of our investment holdings as of September 30,
    2012 is available under Supplemental Investor Information in the Investor
    Relations section of our website, www.ProAssurance.com.



Balance Sheet Highlights (in thousands, except per share data)
                                          September 30, 2012 December 31, 2011
Shareholders' Equity                      $ 2,349,398        $ 2,164,453
Total Investments                         $ 4,125,634        $ 4,090,541
Total Assets                              $ 4,972,666        $ 4,998,878
Policy Liabilities                        $ 2,497,256        $ 2,580,966
Accumulated Other Comprehensive Income    $ 158,936          $ 130,037
(Loss)
Goodwill                                  $ 159,625          $ 159,625
Book Value per Share                      $ 76.47            $ 70.84



Capital Management

  oIn the third quarter of 2012 we completed the repayment of all of our
    long-term debt. The debt retirement used $53 million of funds previously
    authorized by our Board for the repurchase of stock and retirement of
    debt. This leaves us with $135 million available in that Board
    authorization. As part of the debt retirement, we recognized a loss of
    $2.2 million in the third quarter.
  oOur Board approved quarterly cash dividends of $0.25 per common share,
    paid in April, July and October of 2012. Please see the Investor Relations
    section of our website, www.ProAssurance.com, for a comprehensive history
    of our dividend payments.

Transaction Updates

  oDocuments have been mailed to Medmarc policyholders to provide details on
    the announced transaction that would demutualize Medmarc and bring it into
    ProAssurance. Regulatory hearings are scheduled for November 8, 2012,
    followed by a special meeting of eligible members on December 4, 2012. If
    the transaction is approved by regulators and eligible members of Medmarc,
    we expect to close the transaction effective January 1, 2013. Medmarc is
    one of the nation's leading underwriters of products liability insurance
    for medical technology and life sciences, and also underwrites a book of
    legal professional liability (LPL) insurance. The transaction will expand
    our core insurance offerings and position us to better respond to diverse
    needs in healthcare liability, while the legal professional business is an
    important addition to our expanding LPL book.
  oSubscribers of Independent Nevada Physicians Insurance Exchange (IND) have
    approved a transaction that would bring IND into ProAssurance and make
    ProAssurance the leading writer of medical professional liability
    insurance in Nevada. The transaction remains subject to regulatory
    approval, and hearings are scheduled for November 27, 2012, with a
    projected closing date shortly thereafter.

About ProAssurance
ProAssurance Corporation is the nation's largest independently traded
specialty writer of medical professional liability insurance. ProAssurance is
recognized as one of the top performing insurance companies in America by
virtue of our inclusion in the Ward's 50 for the past six years. ProAssurance
is rated "A" (Strong) by Fitch Ratings; ProAssurance Group is rated "A"
(Excellent) by A.M. Best.

Conference Call Information

  oLive: Wednesday, November 7, 2012, 10:00 AM ET. Investors may dial (800)
    723-6498 (toll free) or (785) 830-7989. The call will also be webcast on
    our website, www.ProAssurance.com, and on StreetEvents.com.
  oReplay: By telephone, through November 17, 2012, at (888) 203-1112 or
    (719) 457-0820, using access code 4431653. The replay will also be
    available on our website, www.ProAssurance.com, and on StreetEvents.com,
    through at least November 30, 2012.
  oPodcast: A replay, and other information about ProAssurance, is available
    on a free subscription basis through a link on the ProAssurance website or
    through Apple's iTunes.

Caution Regarding Forward-Looking Statements
Statements in this news release that are not historical fact orthat convey
our view of future business, events or trends are specifically identified as
forward-looking statements. Forward-looking statements are based upon our
estimates and anticipation of future events and highlight certain risks and
uncertainties that could cause actual results to vary materially from our
expected results. We expressly claim the safe harbor provisions of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, for any forward-looking statements in this
news release. Forward-looking statements represent our outlook only as of the
date of this news release. Except as required by law or regulation, we do not
undertake and specifically decline any obligation to publicly release the
result of any revisions that may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.

Forward-looking statements are generally identified by words such as, but not
limited to, "anticipate," "believe," "estimate," "expect," "hope," "hopeful,"
"intend," "may," "optimistic," "potential," "preliminary," "project,"
"should," "will," and other analogous expressions. When we address topics such
as liquidity and capital requirements, the value of our investments, return on
equity, financial ratios, net income, premiums, losses and loss reserves,
premium rates and retention of current business, competition and market
conditions, the expansion of product lines, the development or acquisition of
business in new geographical areas, the availability of acceptable
reinsurance, actions by regulators and rating agencies, court actions,
legislative actions, payment or performance of obligations under indebtedness,
payment of dividends, and other similar matters, we are making forward-looking
statements.

Risks that could adversely affect the proposed mergers of Medmarc Insurance
Group (Medmarc) and Independent Nevada Doctors Insurance Exchange (IND) into
ProAssurance include, but are not limited to, the following:

  othe businesses of ProAssurance and Medmarc or ProAssurance and IND may not
    be combined successfully, or such combination may take longer to
    accomplish than expected;
  othe cost savings from either transaction may not be fully realized or may
    take longer to realize than expected;
  ooperating costs, customer loss and business disruption following either or
    both transactions, including adverse effects on relationships with
    employees, may be greater than expected;
  ogovernmental approvals of either or both transactions may not be obtained
    or adverse regulatory conditions may be imposed in connection with
    governmental approvals of either or both transactions;
  othere may be restrictions on our ability to achieve continued growth
    through expansion into other states or through acquisitions or business
    combinations;
  othe board of directors of Medmarc or the Subscriber Advisory Committee
    (SAC) of IND may withdraw their recommendation in favor of a competing
    acquisition proposal; and
  othose policyholders eligible to vote on the proposed Medmarc transaction
    may fail to approve it.

The following important factors are among those that could affect the actual
outcome of other future events:

  othe expected benefits from completed and proposed acquisitions may not be
    achieved or may be delayed longer than expected due to business
    disruption, loss of customers, employees and key agents, increased
    operating costs or inability to achieve cost savings, and assumption of
    greater than expected liabilities, among other reasons;
  ogeneral economic conditions, either nationally or in our market areas,
    that are different than
  oanticipated;
  oour ability to maintain our dividend payments;
  oregulatory, legislative and judicial actions or decisions that could
    affect our business plans or operations;
  othe enactment or repeal of tort reforms;
  oformation or dissolution of state-sponsored medical professional liability
    insurance entities that could remove or add sizable groups of physicians
    from or to the private insurance market;
  othe impact of deflation or inflation;
  ochanges in the interest rate environment;
  ochanges in U.S. laws or government regulations regarding financial markets
    or market activity that may affect the U.S. economy and our business;
  ochanges in the ability of the U.S. government to meet its obligations that
    may affect the U.S. economy and our business;
  operformance of financial markets affecting the fair value of our
    investments or making it difficult to determine the value of our
    investments;
  ochanges in accounting policies and practices that may be adopted by our
    regulatory agencies and the Financial Accounting Standards Board, the
    Securities and Exchange Commission, or the Public Company Accounting
    Oversight Board;
  ochanges in laws or government regulations affecting medical professional
    liability insurance or the financial community;
  othe effects of changes in the healthcare delivery system, including, but
    not limited to, the Patient Protection and Affordable Care Act;
  oconsolidation of healthcare providers and entities that are more likely to
    self insure and not purchase medical professional liability insurance;
  ouncertainties inherent in the estimate of loss and loss adjustment expense
    reserves and reinsurance, and changes in the availability, cost, quality,
    or collectability of insurance/reinsurance;
  oour ability to achieve continued growth through expansion into other
    states or through acquisitions or business combinations;
  othe results of litigation, including pre- or post-trial motions, trials
    and/or appeals we undertake;
  oan allegation of bad faith which may arise from our handling of any
    particular claim, including failure to settle;
  oloss of independent agents;
  ochanges in our organization, compensation and benefit plans;
  oour ability to retain and recruit senior management;
  oour ability to purchase reinsurance and collect recoveries from our
    reinsurers;
  oassessments from guaranty funds;
  oour ability to achieve continued growth through expansion into other
    states or through
  oacquisitions or business combinations;
  ochanges to the ratings assigned by rating agencies to our insurance
    subsidiaries, individually or as a group;
  oprovisions in our charter documents, Delaware law and state insurance law
    may impede attempts to replace or remove management or attempts to
    initiate a takeover;
  ostate insurance restrictions may prohibit assets held by our insurance
    subsidiaries, including cash and investment securities, from being used
    for general corporate purposes;
  otaxing authorities can take exception to our tax positions and cause us to
    incur significant amounts of defense costs and, if our defense is not
    successful, additional tax costs, including interest and penalties; and
  oinsurance market conditions may alter the effectiveness of our current
    business strategy and affect our revenues.

Additional risk factors that may cause outcomes that differ from our
expectations or projections are described in various documents filed by
ProAssurance Corporation with the Securities and Exchange Commission, such as
current reports on Form 8K, and regular reports on Forms 10Q and 10K,
particularly in "Item 1A, Risk Factors."

SOURCE ProAssurance Corporation

Website: http://www.proassurance.com
Contact: Frank B. O'Neil, Sr. Vice President, Corporate Communications &
Investor Relations, 1-800-282-6242, +1-205-877-4461, foneil@ProAssurance.com
 
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