ProAssurance Corp. (PRA - Free Report) has been favored by investors on the back of its core business, strategic measures and solvency level.
Here we discuss the reasons for keeping this currently Zacks Rank #2 (Buy) company in your investment portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Given the company’s strong fundamentals, it is well-placed for long-term growth.
The company’s core business has been witnessing significant growth over the past many quarters on the back of buyouts that have been accretive to its premiums. It is also moving toward its joint marketing and shared risk programs. Gross premiums written witnessed a 2015-2019 CAGR of 5.1%, mainly owing to strategic acquisitions, segmental contributions and strength in the new physician business. Although premiums in the first half declined due to financial turmoil, triggered by the COVID-19 pandemic, we expect the same to bounce back going forward.
The company has been acquiring units over the past many quarters to boost its capabilities. Its financial size and strength helped it in this regard. In February 2020, the company inked a deal to buy NORCAL, which is expected to increase its concentration on Medical Professional Liability Insurance (MPLI), enhancing its size and scale in the same space The buyout is expected to make the combined entity the nation's third-largest specialty writer of liability insurance for healthcare professionals and facilities.
ProAssurance has been seeing substantial cash flow from operating activities on the back of its strong capital position. It effectively lowered its debt over the last few years. As of Jun 30, 2020, it had cash and cash equivalents worth $224 million and a revolving credit facility of up to $250 million (set to expire in November 2024), higher than its long-term debt obligation of $285.3 million. The company’s total debt to total capital of 16.2% is lower than the industry's average of 21.3%. Thus, the company's balance sheet remains impressive.
However, we are concerned about the company’s high expenses, which are likely to put pressure on its margins going forward. In the first six months of 2020, expenses for the company increased 11% year over year, primarily due to higher net loss and loss adjustment expenses and underwriting, policy acquisition and operating expenses.
Shares of this property and casualty (P&C) insurer have lost 61.1% in the past year compared with the industry’s decline of 3.9%.
Stocks to Consider
Some better-ranked stocks in the insurance space are Hallmark Financial Services, Inc. (HALL - Free Report) , Fidelity National Financial, Inc. (FNF - Free Report) and First American Financial Corporation (FAF - Free Report) . While Fidelity National sports a Zacks Rank #1 (Strong Buy), the other two have a Zacks Rank #2 (Buy) at present.
Hallmark Financial, Fidelity National Financial and First American Financial have a trailing four-quarter earnings surprise of 93.03%, 32.13% and 20.84%, on average, respectively.
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