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On Nov 22, 2013, we upgraded ProAssurance Corporation (PRA - Analyst Report) to Neutral, based on its growth in premiums, strong capital management and geographic expansion. ProAssurance currently carries a Zacks Rank #3 (Hold).  

Why the Upgrade?

ProAssurance’s third quarter 2013 operating earnings of 88 cents surpassed the Zacks Consensus Estimate of 82 cents and also improved 2.3% from the year-ago period. Revenues of $181.5 million also increased 3.1% from the year-ago period and surpassed the Zacks Consensus Estimate of $170 million.

ProAssurance’s core business has been witnessing substantial improvement over the past few quarters, mainly driven by strategic acquisitions and geographic expansion. Further, the launch of a new liability protection product – CAPAssurance – in California, in association with the Cooperative of American Physicians Inc. (CAP) should increase the premiums written, thus boosting revenues in the upcoming quarters.

Meanwhile, the pending acquisition of Eastern Insurance Holdings Inc. that is expected to culminate in the first quarter of 2014 should be accretive to 2014 earnings. Strong financial position has helped ProAssurance to successfully acquire and integrate companies and boost its operating efficiency. The strong financial position is also reflected by ProAssurance’s effective capital management.

In the long run, ProAssurance’s solid competitive market position, prudent operating and financial leverage, dependable pricing and loss reserve practice will generate fundamental growth. The company also scores strongly with credit rating agencies.

However, amid the positives, volatility in premium retention in ProAssurance’s physician business, declining investment income, higher underwriting, policy acquisition and operating expenses remain matters of concern. Moreover, time delays between premium collection and payment of losses are affecting cash flows adversely. As a result, ProAssurance’s capital deployment and deleveraging activities are liable to deterioration going forward.

Other Stocks to Consider

Some better-ranked insurers include ACE Limited (ACE - Analyst Report), The Allstate Corporation (ALL - Analyst Report) and Allied World Assurance Company Holdings, AG (AWH - Snapshot Report). All these stocks hold a Zacks Rank #2 (Buy). 

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