ProAssurance Outperforms

ProAssurance Corp.’s (PRA - Analyst Report) third-quarter operating earnings of $1.58 per share was substantially ahead of the Zacks Consensus Estimate of $1.23. This also compares favorably with the earnings of $1.31 per share in the prior-year quarter.
 
The company’s earnings benefitted from a 54.6% year-over-year growth in revenues, primarily due to recent acquisitions. However, the better-than-expected top-line was partly offset by a 13.5% increase in total expenses.
 
Net income in the quarter was $55.2 million or $1.67 per share, compared to $22.2 million or 66 cents per share in the prior-year quarter.
 
Gross written premiums during the quarter increased 33.6% year over year to $168.6 million. The PICA Group, which writes approximately 50% of ProAssurance’s business in the third quarter, accounted for $43.1 million of new business. The improvement in income from investments in unconsolidated subsidiaries was principally driven by improved market conditions.
 
Net investment income for the quarter decreased 3.2% year over year to $38.6 million. The decrease in investment income was due primarily to lower interest rates on both short-term and fixed income securities. The PICA Group added $1.9 million to ProAssurance’s investment result in the quarter.
 
Retention, which is calculated on renewing physician policies, remained at 89% for the quarter. PICA's retention was also steady at 95% for the quarter.
 
Net loss ratio came in at 52.7%, compared to 57.5% in the prior-year quarter. Expense ratio during the quarter was 21.9%, improving slightly compared to 21.5% in the prior-year quarter. Combined ratio significantly improved to 74.6% from 79% in the prior-year quarter.
 
Return on equity (ROE) improved to 13.9% from 6.9% in the prior-year quarter. Book value increased to $50.50 per share at the end of Sept 30, 2009, compared to $42.69 at the end of Dec 31, 2008.
 
There are inherent threats associated with the medical professional liability insurance sector as a whole as they relate to price competition, legislative reform, loss cost trends, and regulatory challenges. However, we anticipate the results of ProAssurance to continue to benefit from its recent acquisitions, geographic diversity and strong financial position.