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Analyst Blog

On Mar 5, 2013, we upgraded our recommendation on ProAssurance Corp. (PRA - Analyst Report) to Outperform based on strong credit ratings, prudent capital management and inorganic growth.

Why the Upgrade?

Despite a soft cycle in the medical liability business, ProAssurance has significantly expanded its geographic footprint through successful acquisitions and integration of companies. The financial size and strength have helped this Zacks Rank #3 (Hold) stock to become an attractive acquirer. Furthermore, its commitment to local market needs and personal service differentiates the company from its competitors, both in organic growth and acquisition opportunities.

Prudent capital management is another key strength for ProAssurance, which is reflected in the low-risk balance sheet and healthy loss reserves. All of the subsidiaries of ProAssurance exceed the minimum risk-based capital (RBC) requirements specified by National Association of Insurance Commissioners (NAIC).

Further, the company deploys capital in an effective manner mainly through its stock buyback program and dividend payment.The company deployed $38.4 million on quarterly dividends in 2012, along with a special dividend of $154.1 million in Dec 2012. Moreover, the company authorized a 2:1 stock split in Dec 2012, which will double the total dividend payment in the future due to the twofold increase in outstanding shares.

Moreover, ProAssurance enjoys Insurer Financial Strength (IFS) rating of “A” from both A.M. Best and Fitch. The ratings reflect the company’s high claims paying ability, financial strength and ability to meet its debt obligations.

Other Stocks to Consider

Apart from ProAssurance, other stocks worth considering in the property and casualty insurance business are XL Group plc (XL - Analyst Report), Navigators Group Inc. (NAVG - Snapshot Report) and Cincinnati Financial Corp. (CINF - Analyst Report). All these companies carry a Zacks Rank #1 (Strong Buy).

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