A month has gone by since the last earnings report for ProAssurance (
PRA Quick Quote PRA - Free Report) . Shares have lost about 4.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is ProAssurance due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
ProAssurance’s Q2 Earnings Beat on Strong Investment Income
ProAssurance reported a second-quarter 2023 adjusted operating income of 16 cents per share, which beat the Zacks Consensus Estimate by 100%. However, the bottom line dropped 46.7% year over year.
Operating revenues amounted to $282 million, which grew 2.5% year over year in the quarter under review. The top line outpaced the consensus mark by 6.4%.
The quarterly results benefited on the back of solid investment returns and the uptrend in the metric is likely to sustain in the days ahead. New business growth across the healthcare professional liability, life sciences and traditional workers compensation businesses lines also contributed to the quarterly results. However, the upside was partly offset by an elevated expense level.
Gross premiums written of $237.9 million inched up 1% year over year in the second quarter and surpassed our estimate of $222.8 million. Net premiums earned came in at $247.9 million, up 0.2% year over year and were higher than our estimate of $216.8 million.
Net investment income of $31.7 million soared 44.2% year over year, attributable to increased average book yields from fixed maturity investments. The reported figure outpaced our estimate of $24.2 million.
Total expenses escalated 7.3% year over year to $278.3 million in the quarter under review due to increased net losses and loss adjustment expenses, significant rise in segregated portfolio cell (SPC) U.S. federal income tax as well as SPC dividend expense. The metric came higher than our estimate of $244 million.
The combined ratio of 108.2% deteriorated 500 basis points (bps) year over year in the second quarter.
Segmental Performance Specialty P&C Segment
The segment recorded total revenues of $179.9 million, which declined 3% year over year but outpaced our estimate of $160 million. Gross premiums written inched up 1.4% year over year to $170.2 million in the second quarter on the back of renewal pricing increases, new business growth and strong customer retention rates. The reported figure surpassed our estimate of $157.5 million.
Total expenses of $192.5 million increased 4% year over year in the quarter under review. The unit incurred a loss of $12.6 million against the prior-year quarter’s profit of $0.4 million. The metric was wider than our estimate of a loss of $11.5 million. The combined ratio deteriorated 680 bps year over year to 107.6%.
Workers' Compensation Insurance Segment
Revenues came in at $41.7 million, which dipped 1.3% year over year in the second quarter and missed our estimate of $42.3 million. Gross premiums written decreased 1.4% year over year to $62.8 million due to reduced renewal premiums. Yet, the reported figure marginally beat our estimate of $62.4 million.
Total expenses escalated 6.1% year over year to $44.2 million. A segmental loss of $2.5 million was incurred in the quarter under review against the prior-year quarter’s profit of $0.6 million and our estimate of $0.5 million. The combined ratio deteriorated 790 bps year over year to 107.7% due to an elevated net loss ratio, increased expenses and lower net premiums earned.
Segregated Portfolio Cell Reinsurance Segment
In the second quarter, gross premiums written of the segment surged 51% year over year to $25.1 million on the back of contributions from healthcare professional liability tail premium earned and new business growth.
The unit recorded a profit of $0.8 million against the prior-year quarter’s loss of $0.4 million. Underwriting, policy acquisition and operating expenses escalated 24.8% year over year to $6.5 million, higher than our estimate of $5.4 million. The combined ratio of 84.4% improved 510 bps year over year in the quarter under review.
Lloyd's Syndicates Segment
Gross premiums written improved 22.4% year over year to $5 million in the second quarter. The segment’s operating profit of $0.2 million declined four-fold year over year. The combined ratio deteriorated 1,510 bps year over year to 100.6% in the quarter under review due to catastrophe losses. The metric also came higher than our estimate of 99.3%.
Net investment income of $30.9 million climbed 43.2% year over year in the second quarter on the back of higher interest rates. The reported figure outpaced our estimate of $23.7 million. The unit reported a segmental profit of $22.7 million against the prior-year quarter’s loss of $2.4 million. Operating expenses of $8.3 million declined 8.2% year over year on the back of reduced compensation-related costs. Interest expenses increased 11.9% year over year to $5.5 million in the quarter under review.
Financial Position (as of Jun 30, 2023)
ProAssurance exited the second quarter with cash and cash equivalents of $46 million, which soared 53.7% from the figure at 2022 end. Total investments of $4,315.4 million slid 1.6% from the 2022-end level.
Total assets of $5,657.4 million dipped 0.7% from the figure at 2022 end.
Debt-less unamortized debt issuance costs came in at $426 million, down 0.2% from the figure as of Dec 31, 2022.
Total shareholders’ equity of $1,119.7 million increased 1.4% from the 2022-end level.
In the first half of 2023, net cash used in operating activities of PRA stood at $61.8 million, higher than the prior-year quarter’s figure of $3.7 million.
Book value per share came in at $21.24, which grew 3.8% from the 2022-end level. Non-GAAP operating return on equity deteriorated 230 bps year over year to 3% at the second-quarter end.
Share Repurchase Update
ProAssurance bought back common shares worth $20 million in the second quarter. As of Jun 30, 2023, a leftover capacity of $86.4 million remained in place to be utilized for common share repurchases or retirement of outstanding debt.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
Currently, ProAssurance has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. It comes with little surprise ProAssurance has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
ProAssurance belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, American Financial Group (
AFG Quick Quote AFG - Free Report) , has gained 0.6% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.
American Financial reported revenues of $1.73 billion in the last reported quarter, representing a year-over-year change of +8.6%. EPS of $2.38 for the same period compares with $2.85 a year ago.
American Financial is expected to post earnings of $2.47 per share for the current quarter, representing a year-over-year change of +10.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -2.1%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for American Financial. Also, the stock has a VGM Score of F.