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Why Is ProAssurance (PRA) Down 10.3% Since the Last Earnings Report?

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It has been about a month since the last earnings report for ProAssurance Corporation (PRA - Free Report) . Shares have lost about 10.3% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

ProAssurance Corp Q2 Earnings Beat, Revenues Miss Estimates

ProAssurance Corp’s second-quarter 2017 operating earnings per share (EPS) of 40 cents surpassed the Zacks Consensus Estimate by 2.6%. The bottom line however, declined 40% year over year.
    
Quarterly Operational Update

ProAssurance’s second-quarter operating revenues declined 41.3% to $205.6 million from the prior-year quarter. Lower investment income led to the downside. The top line also missed the Zacks Consensus Estimate.

Gross premiums written grew 5.8% year over year to $206.2 million, primarily driven by Specialty P&C and Workers' Compensation segments.

Net premiums earned increased 2% from the prior-year quarter to $180.3 million due to gains in its three operating segments, particularly Workers' Compensation and Lloyd's.

Net investment income, however, decreased 7.8% year over year to $22.7 million.

Total expenses increased 12.1% year over year to $186.4 million. The rise in costs mainly stemmed from net losses and loss adjustment expenses as well as underwriting, policy acquisition and operating expenses.

Segment Results

Specialty P&C Insurance Segment

Total revenue of $110.5 million rose 0.6% year over year on the back of higher net premiums earned.

Gross premiums written were $125 million, up 7.6% from the year-ago quarter, primarily due to increased physician premiums.

Total expenses of $102 million grew 16.4% year over year.

Workers' Compensation Segment

Total revenue of $57 million rose 3.3% year over year on the back of higher net premiums earned.

Gross premiums written were $59 million, 5% higher than the year-ago quarter, primarily driven by an increase in new business writings and solid premium retention.

Total expenses of $53 million grew 2% year over year.

Lloyd's Syndicate Segment

Total revenue of $15 million grew 5.3% year over year on the back of higher net premiums earned.

Gross premiums written in the segment were $23.3 million, down 6.8% from the year-ago quarter, primarily driven by a reduction in the Syndicate's quota share reinsurance arrangement with the Specialty P&C Segment.

Total expenses of $17.6 million grew 28% year over year.

Corporate Segment

Total revenue of $23 million declined 35% year over year due to lower net investment income

Interest expenses of $4.1 million grew 7.6% year over year.

Financial Ratios for the Quarter

Net loss ratio deteriorated 360 basis points (bps) from the prior-year quarter to 64.1%.

Expense ratio deteriorated 150 bps year over year to 32.1%.

Combined ratio deteriorated 510 bps from the year-ago quarter to 96.2%.

Operating ratio also deteriorated 640 bps to 83.6% from the year-earlier quarter.

Return on equity deteriorated 430 bps to 4.3% from the year-ago quarter.

Financial Position

As of Jun 30, 2017, ProAssurance’s total investments were $3.7 billion, down 4.5% from year-end 2016.

As of Jun 30, 2017, the company’s total assets were $4.9 billion, down 3.8% from year-end 2016.

As of Jun 30, 2017, the insurer’s shareholder equity was $1.8 billion, up 1.5% from Dec 31, 2016.

Book value per share increased 1.9% to $34.41 as of Jun 30, 2017 from $33.78 as of Dec 31, 2016.

Share Repurchase & Dividend Update

The company did not repurchase any shares during the first half of 2017. As of Jul 31, 2017, it had approximately $110 million available in its board-authorized stock repurchase program.

Its regular dividend, declared in May 2017 and paid in Jul 2017, was $16.5 million, bringing the total capital returned to shareholders in the form of regular and special dividends to $1.7 billion.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 11.3% due to these changes.

VGM Scores

At this time, ProAssurance's stock has a poor Growth Score of F, however its Momentum is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile 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.

The company's stock is suitable solely for momentum based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift.  It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are looking for a below average return from the stock in the next few months.




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