ProAssurance Reports Second Quarter 2013 Results PR Newswire BIRMINGHAM, Ala., Aug. 5, 2013 BIRMINGHAM, Ala., Aug. 5, 2013 /PRNewswire/ --ProAssurance Corporation (NYSE: PRA) today reported Net Income of $50.5 million for the second quarter of 2013, and $163.3 million for the six months ended June 30, 2013. Operating Income was $44.9 million for the quarter and $104.9 million for the six months. Net Income per diluted share was $0.81 for the quarter and $2.63 for the six months. Operating Income for the same periods was $0.72 and $1.69 per diluted share respectively. Book Value per Share is now $37.79. (Photo: http://photos.prnewswire.com/prnh/20130506/CL08197) (Logo: http://photos.prnewswire.com/prnh/20081024/PROASSURANCELOGO) Unaudited Consolidated Financial Summary (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2013 2012 2013 2012 Gross Premiums Written $ $ $ $ 122,816 102,228 286,025 272,676 Net Premiums Written $ $ $ $ 110,120 91,870 260,172 249,868 Net Premiums Earned $ $ $ $ 130,352 131,266 264,930 267,925 Net Investment Income $ $ $ $ 33,267 34,510 65,393 68,003 Equity in Earnings (Loss) of $ $ $ $ Unconsolidated (2,972) (2,227) (3,195) (4,293) Subsidiaries Net Investment Result $ $ $ $ 30,295 32,283 62,198 63,710 Net Realized Investment $ $ $ $ Gains (Losses) 8,471 (1,548) 35,151 9,130 Other Income $ $ $ $ 1,687 1,868 3,500 3,675 Total Revenues $ $ $ $ 170,805 163,869 365,779 344,440 Net Losses and Loss $ $ $ $ Adjustment Expenses 70,609 48,084 128,235 118,283 Underwriting, Policy $ $ $ $ Acquisition and 34,959 35,405 72,244 69,803 Operating Expenses Interest Expense $ $ $ $ 392 826 763 1,651 Total Expenses $ $ $ $ 105,960 84,315 201,242 189,737 Gain on Acquisition $ $ $ $ - - 35,492 - Tax Expense $ $ $ $ 14,394 21,101 36,728 40,605 Net Income $ $ $ $ 50,451 58,453 163,301 114,098 Operating Income $ $ $ $ 44,930 59,459 104,946 107,683 Net Operating Cash Flow $ $ $ $ 835 4,605 (12,272) 32,705 Earnings per Share (in thousands, except for per share data) Weighted average Three Months Ended June 30, Six Months Ended June 30, number of common shares 2013 2012 2013 2012 outstanding Basic 61,825 61,317 61,766 61,247 Diluted 62,046 61,832 62,005 61,767 Net Income per share $ $ $ $ (Basic) 0.82 0.95 2.64 1.86 Net Income per share $ $ $ $ (Diluted) 0.81 0.95 2.63 1.85 Operating Income per $ $ $ $ share (Diluted) 0.72 0.96 1.69 1.74 Key Ratios Three Months Ended June 30, Six Months Ended June 30, 2013 2012 2013 2012 Current Accident Year 83.70% 82.40% 83.00% 84.30% Loss Ratio Effect of Prior Accident Years' Reserve -29.50% -45.80% -34.60% -40.20% Development Net Loss Ratio 54.20% 36.60% 48.40% 44.10% Expense Ratio 26.80% 27.00% 27.30% 26.10% Combined Ratio 81.00% 63.60% 75.70% 70.20% Operating Ratio 55.50% 37.30% 51.00% 44.80% Return on Equity (Excludes Gain on 8.60% 10.40% 11.10% 10.30% Acquisition) In the first quarter of 2013, we recognized a gain of $35.5 million in connection with our acquisition of Medmarc Casualty Insurance Company, formerly Medmarc Mutual Insurance Company, (Medmarc) because the fair value of the net assets we acquired exceeded our purchase price. Return on Equity is calculated by dividing annualized Net Income, excluding the gain on the acquisition of Medmarc, for the period by the average of beginning and ending Shareholders' Equity. Non-GAAP Financial Measures Operating income is a non-GAAP financial measure that is widely used to evaluate performance within the insurance sector. In calculating operating income, we have excluded the after-tax effects of net realized investment gains or losses, guaranty fund assessments or recoupments, a gain recognized as the result of an acquisition and the effect of confidential settlements that do not reflect normal operating results. We believe operating income presents a useful view of the performance of our insurance operations, but should be considered in conjunction with net income computed in accordance with GAAP. The following table is a reconciliation of Net Income to Operating Income: Reconciliation of Net Income to Operating Income (in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2013 2012 2013 2012 Net Income $ $ $ $ 50,451 58,453 163,301 114,098 Items Excluded in the Calculation of Operating Income: Net Realized $ $ $ $ Investment (8,471) 1,548 (35,151) (9,130) (Gains)Losses Guaranty Fund $ $ $ $ Assessments (23) (1) (23) (25) (Recoupments) Gain on Acquisition $ $ $ $ - - (35,492) - Effect of Confidential $ $ $ $ Settlements, Net - - - (714) Pre-Tax Effect of $ $ $ $ Exclusions (8,494) 1,547 (70,666) (9,869) Tax Effect at 35%, Exclusive of $ $ $ $ Non-Taxable 2,973 (541) 12,311 3,454 Gain on Acquisition Operating Income $ $ $ $ 44,930 59,459 104,946 107,683 Per Diluted Common Share: Net Income $ $ $ $ 0.81 0.95 2.63 1.85 Effect of Adjustments $ $ $ $ (0.09) 0.01 (0.94) (0.11) Operating Income Per $ $ $ $ Diluted Common Share 0.72 0.96 1.69 1.74 Management Commentary "We are encouraged by our ability to grow our top line by adding well underwritten, adequately priced business that we expect to meet our return targets," said W. Stancil Starnes, the Chairman and Chief Executive Officer of ProAssurance. He also highlighted the success of newly acquired insurers. He said, "We are seeing the benefits of a successful M&A strategy that added $14 million of gross premium to our top line in the quarter and $26 million year-to-date. 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." Business Detail Gross Premium Written (in thousands, premium for reporting endorsements allocated by line) Three Months Ended June 30, Six Months Ended June 30, 2013 2012 2013 2012 Healthcare Professional $ $ $ $ Liability 105,805 97,943 254,440 262,174 Legal Professional $ $ $ $ Liability 7,221 3,953 15,385 9,723 Medical Technology and $ $ $ $ Life Sciences Products 9,394 - 15,289 - Liability Other $ $ $ $ 396 332 911 779 $ $ $ $ 122,816 102,228 286,025 272,676 oGross Premiums Written were $123 million in the second quarter of 2013 compared to $102 million in the same quarter of 2012. Gross Premiums Written also increased, year-over-year for the first six months of 2013, to $286 million. Net Premiums Earned for the second quarter of 2013 were $130 million, essentially unchanged from the same quarter in 2012, and for the six months ended June 30, 2013, Net Premiums Earned were $265 million, a decline of approximately 1%. Healthcare Professional Liability Gross Premiums Written increased $7.9 million, or 8%, quarter-over-quarter. This primarily reflects $4.6 million due to our shifting of renewal dates and will have no effect on future earned premium. Our acquisition of IND added $1.7 million in premium in the second quarter, and $5.2 million year-to-date. Our acquisition of Medmarc resulted in $9.4 million of new premium in medical technology and life sciences products liability in the quarter and added $15.3 million for the six months ended June 30, 2013. Medmarc also added $2.7 million of new premium in our legal professional liability line in the second quarter and $5.4 million in new legal professional liability premium year-to-date. oPremium retention for our standard physician business was 91% in the second quarter, compared to 88% in the year-ago quarter, and year-to-date, is 89% compared to 90% in 2012. oRenewal pricing on our physician professional liability book averaged 1% higher for the second quarter of 2013 and is unchanged, on average, for the year-to-date. Loss and Loss Adjustment Expenses Net Losses (in millions) Three Months Ended June 30, Six Months Ended June 30, 2013 2012 2013 2012 Current Accident Year $ 109.1 $ 108.2 $ $ Net Losses 219.8 225.8 Prior Accident Year $ $ $ $ Net Losses (38.5) (60.1) (91.6) (107.5) Net Losses $ 70.6 $ 48.1 $ $ 128.2 118.3 oWe recognized $38.5 million of net favorable reserve development in the second quarter, compared to $60.1 million in the year-ago quarter. Based upon an analysis of trends in our detailed review of loss data through the first six months of the year, we are recognizing a lower level of favorable development for the second quarter of 2013 than indicated by the data available in this year's first quarter. Year-to-date net favorable reserve development has been $91.6 million, compared to $107.5 million in 2012. oOur current accident year loss ratio was 83.7% for the quarter, and 83.0% for the year-to-date. The modest difference from prior year periods is due to slightly higher estimates for unallocated loss adjustment expenses partially offset by changes in the geographic mix of insured risks. Cash Flow oApproximately $5 million of the decline in operating cash flows is attributable to acquisitions and reflects both the payment of transaction expenses and the timing of expense payments. Exclusive of acquisitions, 2013 cash flows reflect the effect of significantly higher tax payments, lower premium receipts and increased underwriting and operating expense payments. Investment Commentary oNet Investment Income was $33.3 million in the second quarter, down 3.6% compared to second quarter 2012 primarily due to the continuing effect of lower yields on our fixed income portfolio. Year-to-date Net Investment Income is $65.4 million, down 3.8% due to the same factors. Our average tax equivalent income yield for the six months ended June 30, 2013 was 4.3% compared with 4.5% during the first six months of 2012. oThe CUSIP-level disclosure of our investment holdings as of June 30, 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) 6/30/2013 12/31/2012 Shareholders' Equity $2,336,788 $2,270,580 Total Investments $4,156,888 $3,926,902 Total Assets $5,112,045 $4,876,578 Policy Liabilities $2,495,113 $2,334,446 Accumulated Other Comprehensive Income (Loss) $75,062 $145,380 Goodwill $161,115 $163,055 Book Value per Share $37.79 $36.85 oBook Value per share, while up 2.6% year-to-date, declined from March 31, 2013 due to a reduction in the fair value of our available-for-sale securities. Capital Management oOur Board declared a $0.25 per share regular dividend in May 2013 which was paid on July 12, 2013. Rating Actions oIn the second quarter A. M. Best upgraded many of our subsidiary insurance companies. The claims-paying rating of the ProAssurance Group was upgraded to "A+" (Superior) and Medmarc was upgraded to "A" (Excellent). 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 seven years and is consistently ranked as a top performing property casualty insurer in Moody's Yearly Statistical Handbook. ProAssurance Group is rated "A+" (Superior) by A.M. Best and ProAssurance is rated "A" (Strong) by Fitch Ratings. Conference Call Information oLive: Tuesday, August 6, 2013, 10:00 AM ET. Investors may dial (888) 503-8175 (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 August 30, 2013, at (888) 203-1112 or (719) 457-0820, using access code 5336851. The replay will also be available on our website, www.ProAssurance.com, and on StreetEvents.com, through at least August 30, 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; 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 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 the financial services industry, the property and casualty insurance industry, or particular insurance lines underwritten by our subsidiaries.; 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; ochanges in the availability, cost, quality, or collectability of insurance/reinsurance; othe 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
ProAssurance Reports Second Quarter 2013 Results
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