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Why Should You Stay Away From ProAssurance (PRA) Right Now?

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ProAssurance Corporation (PRA - Free Report) has been suffering escalating operating expenses and a weak investment portfolio.

The company's earnings missed estimates in two of the trailing four trailing quarters (beating the mark in the other two), the average negative surprise being 35.9%.

Return on equity (ROE) of a company reflects its growth potential. ProAssurance’s ROE undermines the same. The company’s trailing 12-month ROE stands at -1.9% against the industry average of 5.7%, indicating that it is less efficient in utilizing its shareholders’ funds.

What’s Bothering the Stock?

This company has been facing volatility in premium retention in its physician business for a while now due to stiff competition. In 2020, the retention rate fell 7% year over year due to a large workers’ compensation alternative market program. The volatility in premium retention continues to bother the company.

The investment portfolio of the company has also been affected by the poor interest environment in the recent past. This consists of fixed income securities. The net investment income declined 7.4%, on average, from 2014 to 2018, primarily due to softness in the fixed income portfolio, which is a major concern for the company. Although net investment income increased marginally 0.8% year over year in 2019, the metric slumped 22.8% in 2020 due to a decrease in allocation to equities and lower yields from short-term investments and corporate debt securities.

This property & casualty insurer has been facing escalating expenses over the past few years. In 2020, expenses rose 6.2% year over year, which persists to drain its margins.

Being a P & C insurer, ProAssurance is exposed to catastrophic events, which in turn, weighs on its underwriting results.

Moreover, the company’s gross premiums declined 11.7% year over year in 2020 due to lower premiums across the Specialty P&C segment, Workers’ Compensation Insurance segment and the Segregated Portfolio Cell Reinsurance segment. Premiums are also expected to remain under pressure due to changes in payroll estimates.

Zacks Rank and Price Performance

Shares of this presently Zacks Rank #4 (Sell) company have gained 19.8% in a year’s time, underperforming its industry’s growth of 32.7%. However, headwinds looming on the company will likely keep the stock stressed.

Other companies in the same space, such as American Financial Group, Inc. (AFG - Free Report) , RLI Corp. (RLI - Free Report) and Kinsale Capital Group, Inc. (KNSL - Free Report) have also surged 66.7%, 31.3% and 58.8%, respectively, in the same time frame. All these companies hold a Zacks Rank #2 (Buy) currently.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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