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ProAssurance Reports Results for First Quarter 2013

             ProAssurance Reports Results for First Quarter 2013

PR Newswire

BIRMINGHAM, Ala., May 6, 2013

BIRMINGHAM, Ala., May 6, 2013 /PRNewswire/ --ProAssurance Corporation (NYSE:
PRA) today reported first quarter 2013 Net Income of $112.9 million, which
included a $35.5 million gain resulting from the acquisition of Medmarc Mutual
Insurance Company and a $16 million increase in net realized investment gains.
Operating Income was $60.0 million in the quarter, an increase of $12 million
year-over-year. Net Income per diluted share was $1.82 and Operating Income
was $0.97 per diluted share. Book Value per Share is now $38.19; Total Assets
now exceed $5 billion.

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Unaudited Consolidated Financial Summary (in thousands)
                                       Three Months Ended March 31,
                                       2013              2012
Gross Premiums Written                 $   163,210    $    170,448
Net Premiums Written                   $   150,053    $    157,998
Net Premiums Earned                    $   134,578    $    136,659
Net Investment Income                  $    32,126   $     33,492
Equity in Earnings (Loss) of
                                       $      (223) $     (2,066)
Unconsolidated Subsidiaries
Net Investment Result                  $    31,903   $     31,426
Net Realized Investment Gains (Losses) $    26,680   $     10,677
Other Income                           $     1,813  $      1,809
Total Revenues                         $   194,974    $    180,571
Net Losses and Loss Adjustment         $    57,626   $     70,199
Expenses
Underwriting, Policy Acquisition
                                       $    37,285    $     34,398
and Operating Expenses
Interest Expense                       $      371  $       825
Total Expenses                         $    95,282    $    105,422
Gain on Acquisition                    $    35,492    $        
                                                         –
Tax Expense                            $    22,334    $     19,504
Net Income                             $   112,850     $     55,645
Operating Income                       $    60,015    $     48,226
Net Operating Cash Flow                $   (13,107)   $     28,100

Earnings per Share
                                         Three Months Ended March 31,
                                         2013              2012
Weighted average number of

common shares outstanding (in
000's)
 Basic                         61,708            61,177
 Diluted                       61,963            61,703
 Net Income per share (Basic)         $      1.83 $      0.91
 Net Income per share (Diluted)       $      1.82 $      0.90
 Operating Income per share (Diluted) $      0.97 $      0.78

Key Ratios
                                   Three Months Ended March 31,
                                   2013           2012
Current Accident Year Loss Ratio   82.3%          86.1%
Effect of Prior Accident Years'
                                   (39.5%)        (34.7%)
Reserve Development
Net Loss Ratio                     42.8%          51.4%
Expense Ratio                      27.7%          25.2%
Combined Ratio                     70.5%          76.6%
Operating Ratio                    46.6%          52.0%
Return on Equity (Excludes Gain on
                                   13.4%          10.2%
Acquisition)



Return on Equity is calculated by dividing annualized Net Income, excluding
the gain on the acquisition of Medmarc Mutual Insurance Company, since renamed
Medmarc Casualty Insurance Company (Medmarc), for the period by the average of
beginning and ending Shareholders' Equity.

We recognized a gain of $35.5 million in connection with our acquisition of
Medmarc because the fair value of the net assets we acquired exceeded our
purchase price.

Non-GAAP Financial Measures

In addition to Net Income, we use Operating Income, which is a "Non-GAAP"
financial measure that is widely used in our industry to evaluate the
performance of underwriting operations. Our calculation of Operating Income
excludes the after-tax net effects of the gain on our acquisition of Medmarc,
confidential settlements, Net Realized Investment (Gains) Losses, and Guaranty
Fund (Recoupments) Assessments. We believe Operating Income, when considered
along with Net Income, 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 effects
of the gain on our acquisition of Medmarc, confidential settlements, Net
Realized Investment (Gains) Losses, 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 March 31,
                                  2013                 2012
Net Income                        $    112,850      $     55,645
Items Excluded in the Calculation

of Operating Income:
 Net Realized Investment        $    (26,680)     $    (10,677)
(Gains) Losses
 Guaranty Fund (Recoupments)    $        (1) $        (23)
Assessments
 Gain on Acquisition            $    (35,492)     $         
                                                       –
 Effect of Confidential         $         – $       (714)
Settlements (Net)
Pre-Tax Effect of Exclusions      $    (62,173)     $    (11,414)
Tax Effect at 35%, Exclusive of
Non-Taxable                       $     9,338     $      3,995

Gain on Acquisition
Operating Income                  $    60,015      $     48,226
Per Diluted Common Share:
 Net Income                   $       1.82   $       0.90
 Effect of Adjustments        $      (0.85)   $      (0.12)
Operating Income Per Diluted
Common                            $       0.97   $       0.78

Share



Management Commentary

"We continue to see the benefits of a disciplined application of a long-term
strategy that enhances security for our insureds while creating value for our
investors," said W. Stancil Starnes, the Chairman and Chief Executive Officer
of ProAssurance. He added, "We are also seeing the benefits of a successful
M&A strategy that added $12 million of gross premium to our top line. The
purchase of Independent Nevada Doctors Insurance Exchange (IND) solidified our
position as the top medical professional liability writer in Nevada. Our
acquisition of Medmarc added significant volume to our lawyers' professional
liability line and, most importantly, broadened our medically-related coverage
to include products liability for medical technology and life sciences. We are
especially encouraged by Medmarc's ability to attract new business and retain
existing accounts by leveraging its expertise and the financial strength of
ProAssurance."



Gross Written Premium (in thousands)
                                    Three Months Ended March 31,
                                    2013               2012
Healthcare Professional Liability   $    142,416    $    151,106
Legal Professional Liability        $      8,072  $      5,699
Medical Technology and Life         $      5,885  $          –
Sciences
Extended Reporting Endorsements     $      6,319  $     13,197
(All Lines)
Other                               $       518 $        446
                                    $    163,210    $    170,448



Business Detail

  oGross Premiums Written were $163 million in the first quarter of 2013
    compared to $170 million in the same quarter of 2012. First quarter 2013
    Net Premiums Earned were $135 million, a decline of 2% compared to the
    same quarter in 2012.
    Healthcare professional liability premiums declined primarily as a result
    of the pressures of the competitive market and rates that have declined in
    response to favorable loss trends over the past five years. That decline
    was offset somewhat by $3.5 million of new premium from our acquisition of
    IND. Healthcare professional liability also benefited from $6.4 million of
    renewal premium related to our twenty-four month policies, a 17% increase
    from their last renewal in 2011.
    First quarter 2013 extended reporting endorsement premium (tail coverage)
    returned to a more expected level. In the first quarter of 2012, we wrote
    a single large tail coverage policy which distorts the comparison of
    current and prior year results.
    Our acquisition of Medmarc resulted in $5.9 million of new premium in
    medical technology and life sciences products liability and $2.7 million
    of new premium in our legal professional liability line.
  oPremium retention for our standard physician business was 87% in the
    quarter, compared to 92% in the year-ago quarter.
  oAverage renewal pricing on our physician professional liability book was
    down 1% during the first quarter of 2013 compared to flat renewal pricing
    in the first quarter of 2012.
  oOur current accident year loss ratio was 82.3%, a decline of almost four
    points from the first quarter of 2012. Driving this change was a $4.8
    million increase in Net earned premium for the quarter due to a reduction
    in ceded premiums resulting from the re-estimation of the losses and
    premiums tied to prior years' reinsurance treaties.
  oWe recognized $60.0 million of gross favorable reserve development and
    $53.1 million in net favorable loss reserve development in 2013's first
    quarter. In the first quarter of 2012, net favorable reserve development
    was $47.5 million. The 2013 net favorable development comes primarily from
    accident years 2005 to 2010 and is significantly attributable to loss
    severity that has proven to be lower than previously expected. None of the
    net favorable development came from Medmarc or IND.
  oThe year-over-year decline in first quarter cash flow is due to the timing
    of tax and reinsurance payments.



Net Losses (in millions)
                                 Three Months Ended March 31,
                                 2013                2012
Current Accident Year Net Losses $      110.7  $      117.7
Prior Accident Year Net Losses   $      (53.1) $      (47.5)
Net Losses                       $       57.6 $       70.2



Investment Commentary

  oOur Net Investment Result (Net Investment Income plus Equity in Earnings
    (Loss) of Unconsolidated Subsidiaries) for the first quarter of 2013 was
    $32 million, essentially unchanged from a year-ago.
  oFirst quarter 2013 Net Investment Income was $32 million, down 4% compared
    to first quarter 2012 primarily due to lower yields on our fixed income
    portfolio, partially offset by higher income from our equity portfolio and
    stronger earnings from our investment limited partnerships. Our average
    tax equivalent income yield in the quarter was 4.2% compared with 4.4% at
    year-end 2012.
  oThe CUSIP-level disclosure of our investment holdings as of March 31, 2013
    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)
                                   March 31, 2013       December 31, 2012
Shareholders' Equity               $    2,361,043    $     2,270,580
Total Investments                  $    4,318,352    $     3,926,902
Total Assets                       $    5,218,746    $     4,876,578
Policy Liabilities                 $    2,540,053    $     2,334,446
Accumulated Other Comprehensive
Income                             $     137,626   $      145,380

(Loss)
Goodwill                           $     161,123   $      163,055
Book Value per Share               $       38.19 $        36.85



Capital Management

  oOur Board declared a $0.25 per share regular dividend in March 2013 which
    was paid on April 11, 2013.

About ProAssurance

ProAssurance Corporation is an industry-leading specialty insurance company
with extensive expertise in medical professional liability, products liability
for medical technology and life sciences and legal professional liability.
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 and
is consistently ranked as a top performing property casualty insurer in
Moody's Yearly Statistical Handbook. ProAssurance is rated "A" (Strong) by
Fitch Ratings; ProAssurance Group is rated "A" (Excellent) by A.M. Best.

Conference Call Information

  oLive: Tuesday, May 7, 2013, 10:00 am ET. Investors may dial (888) 395-3227
    (toll free) or (719) 325-2376. The call will also be webcast on our
    website, www.ProAssurance.com, and on StreetEvents.com.
  oReplay: By telephone, through May 31, 2013, at (888) 203-1112 or (719)
    457-0820, using access code 9602968. The replay will also be available on
    our website, www.ProAssurance.com, and on StreetEvents.com, through at
    least May 31, 2013.
  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 or that 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," "likely," "may," "optimistic," "possible," "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 mergers of Medmarc and IND into
ProAssurance include, but are not limited to, the following:

  oThe outcome of any potential claims from policyholders of Medmarc and IND
    relating to payments or other issues arising from their respective
    conversions to stock insurance companies and subsequent mergers into
    ProAssurance;
  othe businesses of ProAssurance and Medmarc or ProAssurance and IND may not
    be integrated successfully, or such integration may take longer to
    accomplish than expected;
  ocost savings from either transaction may not be fully realized or may take
    longer to realize than expected; and
  ooperating costs, customer loss and business disruption following either or
    both transactions, including adverse effects on relationships with
    employees, may be greater than expected.

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

  ochanges in general economic conditions;
  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;
  o●changes in the availability, cost, quality, or collectability of
    insurance/reinsurance;
  o●the results of litigation, including pre- or post-trial motions, trials
    and/or appeals we undertake;
  oallegation 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;
  oassessments from guaranty funds;
  oour ability to achieve continued growth through expansion into other
    states or through acquisitions 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 may impede 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 legal and accounting costs and, if our
    defense is not successful, additional tax costs, including interest and
    penalties;
  oinsurance market conditions may alter the effectiveness of our current
    business strategy and impact our revenues; and
  oexpected 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.

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 8-K, and regular reports on Forms 10-Q and 10-K,
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, 800-282-6242, 205-877-4461, foneil@ProAssurance.com
 
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