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ProAssurance Corporation (PRA - Analyst Report) reported fourth-quarter operating earnings per share of 99 cents, which missed the Zacks Consensus Estimate of $1.03 by 3.9%. Earnings also decreased 36.5% year over year.

Operating income excludes the effects of net realized investment gains, guaranty fund assessment or recoupment and reduction to gain on acquisitions. These items led to a positive adjustment of 15 cents per share to net income in the reported quarter against 8 cents in the year-ago quarter.

Including non-recurring items, ProAssurance’s net income stood at $1.14 per share, down from $1.64 in the year-ago quarter.

ProAssurance’s total revenue declined 1.3% to $192.9 million from $195.4 million in the prior-year quarter. However, the figure surpassed the Zacks Consensus Estimate of $175 million.

Gross premiums written by ProAssurance rose 7.9% year over year to $115.7 million. Solid contributions from Legal Professional Liability, and Medical Technology and Life sciences Products Liability mainly led to the upside.

The company recorded $81.8 million of net favorable reserve development in the reported quarter.

Total expenses amounted to $78.8 million, up from $37.7 million in the year-ago quarter. Higher expenses were driven by increased losses and loss adjustment costs.

Net investment income of ProAssurance came in at $29.98 million, declining from $34.18 million in the year-ago quarter. Net investment result (sum of net investment income and equity in earnings of unconsolidated subsidiaries) amounted to $41.02 million, up 30.7% from $31.4 million in the year-ago quarter. However, net realized investment gains stood at $20.3 million in the reported quarter, compared with $6.5 million in the prior-year quarter.

Full-Year Highlights

For full-year 2013, ProAssurance reported operating earnings of $3.56 per share against $4.16 earned in 2012. Earnings also missed the Zacks Consensus Estimate of $3.60 per share.
Including non-recurring items, ProAssurance’s net income for 2013 amounted to $4.80 per share, up from $4.46 per share in 2012. The Medmarc and IND Nevada acquisitions mainly favored the results.

For full-year 2013, total revenue of ProAssurance improved to $740.2 million from $715.9 million in 2012.

Financial Position

ProAssurance’s cash flow from operations stood at $38.6 million in 2013, down from $91.3 million in 2012. Transaction-related costs associated with takeovers completed in 2012 and 2013, decline in investment income receipts, expenses related to the establishment of Syndicate 1729 and higher tax payments led to the decline.

Meanwhile, ProAssurance’s shareholder equity was $2.39 billion as of Dec 31, 2013, reflecting an increase from $2.27 billion as of Dec 31, 2012. Book value per share also improved 6.2% to $39.13 as of Dec 31, 2013 from $36.85 as of Dec 31, 2012.

Financial Ratios

ProAssurance’s net loss ratio for the quarter came in at 27%, compared with 3.2% in the prior-year quarter. Expense ratio deteriorated to 32.6% from 20.9% in the year-earlier quarter. The combined ratio of ProAssurance deteriorated to 59.6% from 24.1% in the comparable quarter last year, while operating ratio increased to 36.4% from 2.1% in the prior-year quarter. Return on equity (ROE) for the reported quarter was 12.5%, deteriorating from 17.5% in the fourth quarter of 2012.

Share Repurchase and Dividend Update

ProAssurance spent $24.5 million to buy back 0.51 million shares in the fourth quarter of 2013. Additionally, the company used $38 million to repurchase 0.82 million shares from Jan 1, 2014 through Feb 19, 2014. Currently, ProAssurance is left with $165 million under its authorization.

On Dec 4, 2013, the board of directors of ProAssurance approved a 20% hike in its quarterly cash dividend. Consequently, the quarterly dividend stood at 30 cents per share.

In Jan 2014, ProAssurance paid its quarterly cash dividend of 30 cents per share.

Notes Update

On Nov 19, 2013, ProAssurance issued 5.3% senior unsecured notes worth $250 million. These notes are scheduled to expire on Nov 15, 2023.

Business Update

On Jan 1, 2014, ProAssurance completed the buyout of the domestic casualty insurance company, Eastern Insurance Holdings Inc., for a cash consideration of $205 million.

ProAssurance also becomes the largest capital provider to the new Syndicate 1729 at Lloyd's of London established on Jan 1, 2014.

Performances of Other Insurers

Old Republic International Corporation (ORI - Snapshot Report) reported fourth-quarter 2013 operating net income of 33 cents per share, which breezed past the Zacks Consensus Estimate of 18 cents by 83.3%.

The Travelers Companies Inc. (TRV - Analyst Report) declared operating net earnings of $2.68 per share in the fourth quarter of 2013, surpassing the Zacks Consensus Estimate by 23.5%.

ACE Limited (ACE - Analyst Report) reported operating net earnings of $2.39 per share in the fourth quarter of 2013, outpacing the Zacks Consensus Estimate by 19.5%.

Zacks Rank

ProAssurance currently carries a Zacks Rank #2 (Buy).


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