We have retained our Neutral recommendation on ProAssurance Corporation ( PRA - Analyst Report ) as core business volatility and sustained low interest rates will likely weigh on the positives. This liability insurance provider currently carries a Zacks Rank #3 (Hold).

Why Reiterate?

Over the last 30 days, one out of six estimates moved north while one was nudged down. The Zacks Consensus Estimate for the fourth quarter thus remains unchanged at $1.41, also suggesting a 34% year over year decline.

ProAssurance has experienced core business instability over the past several years. The incumbent volatility is further stressed by the current low interest environment. The investment income metrics are moving downwards as the low interest rate compels the company to reinvest its matured investments at comparatively lower interest rates. Moreover, although operating expenses declined in the third quarter of 2012, the recent acquisition of Medmarc and adoption of FASB guidance is expected to weigh on future numbers.

Nevertheless, ProAssurance’s continuous efforts to expand its operations, penetrate into newer markets and merge its subsidiaries to simplify its business structure have increased its operational efficiency despite the volatility in the medical liability business. The positives are also reflected in the company’s return on equity which is consistent with the increasing trend since 2010. The rising ROE and the company’s future prospect to generate higher returns are expected to boost shareholders’ value. The company also scores strongly with the credit rating agencies.

ProAssurance continues to increase shareholders’ value. The strong cash position enabled management to initiate a cash dividend policy in Sep 2011. In Dec 2012, the Board also authorized a special dividend of $2.50 per share.

ProAssurance is scheduled to release its fourth quarter and full year 2012 results on Feb 19, after the closing bell.

Other Stocks to Consider

Among others from the industry, Fidelity National Financial ( FNF - Snapshot Report ) , HCC Insurance Holdings ( HCC - Snapshot Report ) and First American Financial Corporation ( FAF - Snapshot Report ) carry Zacks Rank #1 (Strong Buy) and are worth considering.