NEWS RELEASE
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For More Information Contact:
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Frank B. O’Neil
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Sr. Vice President, Corporate Communications & Investor Relations
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800-282-6242 • 205-877-4461 • foneil@ProAssurance.com
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Unaudited Consolidated Financial Summary
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(in thousands, except per share data)
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2010
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2009
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2010
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2009
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Gross Premiums Written
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$ | 158,998 | $ | 168,559 | $ | 414,697 | $ | 434,714 | ||||||||
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Net Premiums Written
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$ | 149,693 | $ | 158,705 | $ | 383,783 | $ | 401,634 | ||||||||
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Net Premiums Earned
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$ | 130,300 | $ | 131,956 | $ | 379,124 | $ | 363,591 | ||||||||
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Net Investment Income
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$ | 35,639 | $ | 38,573 | $ | 110,348 | $ | 112,839 | ||||||||
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Equity in Earnings (Loss) of
Unconsolidated Subsidiaries
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$ | (1,281 | ) | $ | 1,637 | $ | 2,544 | $ | 328 | |||||||
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Net Investment Result
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$ | 34,358 | $ | 40,210 | $ | 112,892 | $ | 113,167 | ||||||||
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Net Realized Investment Gains (Losses)
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$ | 14,712 | $ | 7,275 | $ | 8,807 | $ | 4,822 | ||||||||
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Total Revenues
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$ | 181,134 | $ | 182,594 | $ | 506,592 | $ | 488,804 | ||||||||
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Guaranty Fund Assessments (Recoupments)
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$ | 91 | $ | (152 | ) | $ | (659 | ) | $ | (630 | ) | |||||
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Interest Expense
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$ | 832 | $ | 808 | $ | 2,472 | $ | 2,638 | ||||||||
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Total Expenses
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$ | 112,738 | $ | 103,118 | $ | 324,448 | $ | 295,081 | ||||||||
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Tax Expense
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$ | 17,344 | $ | 24,275 | $ | 52,599 | $ | 56,274 | ||||||||
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Net Income
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$ | 51,052 | $ | 55,201 | $ | 129,545 | $ | 137,449 | ||||||||
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Operating Income
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$ | 41,548 | $ | 52,219 | $ | 123,392 | $ | 135,751 | ||||||||
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Net Cash Provided by Operating Activities
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$ | 32,707 | $ | 2,570 | $ | 108,626 | $ | 15,941 | ||||||||
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Earnings per Share
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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| 2010 | 2009 | 2010 | 2009 | |||||||||||||
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Weighted average number of
common shares outstanding
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Basic
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31,642 | 32,701 | 32,135 | 32,988 | ||||||||||||
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Diluted
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32,047 | 33,023 | 32,508 | 33,267 | ||||||||||||
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Operating Income per share (Basic)
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$ | 1.31 | $ | 1.60 | $ | 3.84 | $ | 4.12 | ||||||||
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Operating Income per share (Diluted)
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$ | 1.30 | $ | 1.58 | $ | 3.80 | $ | 4.08 | ||||||||
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Net Income per share (Basic)
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$ | 1.61 | $ | 1.69 | $ | 4.03 | $ | 4.17 | ||||||||
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Net Income per share (Diluted)
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$ | 1.59 | $ | 1.67 | $ | 3.99 | $ | 4.13 | ||||||||
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Reconciliation of Net Income to Operating Income
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(in thousands, except per share data)
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2010
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2009
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2010
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2009
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Net Income
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$ | 51,052 | $ | 55,201 | $ | 129,545 | $ | 137,449 | |||||||
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Items Excluded in the Calculation
of Operating Income:
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(Gain) Loss on the Extinguishment of Debt
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$ | - | $ | 2,839 | $ | - | $ | 2,839 | |||||||
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Net Realized Investment (Gains) Losses
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$ | (14,712 | ) | $ | (7,275 | ) | $ | (8,807 | ) | $ | (4,822 | ) | |||
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Guaranty Fund (Recoupments) Assessments
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$ | 91 | $ | (152 | ) | $ | (659 | ) | $ | (630 | ) | ||||
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Pre-Tax Effect of Exclusions
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$ | (14,621 | ) | $ | (4,588 | ) | $ | (9,466 | ) | $ | (2,613 | ) | |||
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Tax Effect at 35%
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$ | 5,117 | $ | 1,606 | $ | 3,313 | $ | 915 | |||||||
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Operating Income
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$ | 41,548 | $ | 52,219 | $ | 123,392 | $ | 135,751 | |||||||
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Per Diluted Common Share:
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Net Income
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$ | 1.59 | $ | 1.67 | $ | 3.99 | $ | 4.13 | |||||||
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Effect of Adjustments
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$ | (0.29 | ) | $ | (0.09 | ) | $ | (0.19 | ) | $ | (0.05 | ) | |||
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Operating Income Per Diluted Common Share
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$ | 1.30 | $ | 1.58 | $ | 3.80 | $ | 4.08 | |||||||
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Key Ratios
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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| 2010 | 2009 | 2010 | 2009 | ||||||||||||
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Current Accident Year Loss Ratio
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86.9 | % | 84.9 | % | 85.2 | % | 83.5 | % | |||||||
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Prior Accident Year Loss Ratio
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(25.6 | %) | (32.2 | %) | (25.3 | %) | (26.9 | %) | |||||||
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Net Loss Ratio
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61.3 | % | 52.7 | % | 59.9 | % | 56.6 | % | |||||||
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Expense Ratio
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24.0 | % | 21.9 | % | 24.4 | % | 22.5 | % | |||||||
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Combined Ratio
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85.3 | % | 74.6 | % | 84.3 | % | 79.1 | % | |||||||
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Operating Ratio
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57.9 | % | 45.4 | % | 55.2 | % | 48.1 | % | |||||||
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Return on Equity
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11.3 | % | 13.9 | % | 9.8 | % | 11.9 | % | |||||||
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Gross Written Premium was $159 million for the quarter and $415 million for the nine month period ended September 30, 2010. This compares to $169 million and $435 million for the prior year periods. Sales of two year policies in 2010 accounted for approximately $6.9 million (72%) of the decline in the third quarter, and approximately $16.6 million (83%) of the decline for the year-to-date. Premium from two-year policies is recorded as written premium at inception but earned on a pro-rata basis over the full policy term.
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Retention in our consolidated medical professional liability physician book, which we calculate by comparing expiring premium on renewed risks against total expiring premium, reached 90% in the third quarter, two points higher than in 2009. Retention for the nine months ended September 30, 2010 was 89%, compared to 90% a year ago.
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Pricing on this book of business rose 2% on average during the third quarter of 2010, compared to an average decrease of 1% in 2009. For the first three quarters of 2010,
average renewal pricing was unchanged, compared to a reduction of 2% in 2009.
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Loss severity trends continue to develop favorably compared to our initial projections. We had $33.4 million of net favorable loss reserve development in the third quarter of 2010, compared to $42.5 million a year ago. For the nine months ended September 30, 2010, net favorable reserve development was $95.9 million, compared to $98.0 million a year-ago.
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Our net investment result (Net Investment Income, plus net income from our investment in unconsolidated subsidiaries) was $34.4 million compared to $40.2 million in the year-ago period. The decline in the yield on our fixed income portfolio accounts for approximately half of the decline in our investment result. In addition we saw a reduction in the equity in earnings of unconsolidated subsidiaries during the quarter. For the first nine months of 2010 our net investment result was essentially unchanged compared to the same period a year ago.
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Our CUSIP-level disclosure of our investment holdings as of September 30, 2010 as well as our Third Quarter 2010 Fact Sheet is available under Supplemental Investor Information in the Investor Relations section of our website, www.ProAssurance.com.
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We purchased approximately 975,000 shares of our common stock in the open market in the third quarter, spending a total of $55.3 million. For the nine months ended September 30, 2010 we have repurchased 1.6 million shares at a total cost of $94.4 million. From quarter-end through the close of trading on November 2, 2010, we purchased an additional 169,500 shares in our 10b5-1 plan at a cost of $9.7 million. We have approximately $11.2 million left in the share repurchase authorization granted by our Board in September 2009.
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September 30, 2010
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December 31, 2009
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Shareholders’ Equity
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$ | 1,818,207 | $ | 1,704,595 | ||||
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Total Investments
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$ | 3,997,998 | $ | 3,838,222 | ||||
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Total Assets
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$ | 4,771,439 | $ | 4,647,414 | ||||
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Policy Liabilities
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$ | 2,773,550 | $ | 2,780,436 | ||||
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Accumulated Other Comprehensive Income (Loss)
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$ | 132,517 | $ | 59,254 | ||||
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Goodwill
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$ | 122,317 | $ | 122,317 | ||||
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Book Value per Share
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$ | 58.90 | $ | 52.59 | ||||
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Our proposed acquisition of American Physicians Service Group, Inc. (APS) is proceeding as expected. APS shareholders will vote on the transaction at a Special Meeting on November 29, 2010. Assuming a shareholder vote in favor of the transaction, and the receipt of final regulatory approval from the Texas Department of Insurance, closing will take place shortly after the Special Meeting of APS shareholders.
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Live: Thursday, November 4, 2010, 10:00 am et. Investors may dial (888) 778-9053 (toll free) or (913) 312-1472. The call will also be webcast on our website, www.ProAssurance.com, and on StreetEvents.com.
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Replay: By telephone, through November 26, 2010 at (888) 203-1112 or (719) 457-0820, using access code 4404532. The replay will also be available through November 30, 2010 on our website, www.ProAssurance.com, and on StreetEvents.com.
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Podcast: A replay, and other information about ProAssurance, is available on a free subscription basis through a link on the ProAssurance website or through Apple’s iTunes.
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the business of ProAssurance and American Physicians Service Group may not be combined successfully, or such combination may take longer to accomplish than expected;
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the cost savings from the merger may not be fully realized or may take longer to realize than expected;
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operating costs, customer loss and business disruption following the merger, including adverse effects on relationships with employees, may be greater than expected;
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governmental approvals of the merger may not be obtained, or adverse regulatory conditions may be imposed in connection with governmental approvals of the merger;
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there may be restrictions on our ability to achieve continued growth through expansion into other states or through acquisitions or business combinations;
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the board of directors of American Physicians Service Group may withdraw its recommendation and support a competing acquisition proposal; and
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the shareholders of American Physicians Service Group may fail to approve the merger.
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general economic conditions, either nationally or in our market areas, that are different than anticipated;
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regulatory, legislative and judicial actions or decisions that could affect our business plans or operations;
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the enactment or repeal of tort reforms;
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formation or dissolution of state-sponsored medical professional liability insurance entities that could remove or add sizable groups of physicians from the private insurance market;
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the impact of deflation or inflation;
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changes in the interest rate environment;
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the effect that changes in laws or government regulations affecting the U.S. economy or financial institutions, including the Emergency Economic Stabilization Act of 2008, the American Recovery and Reinvestment Act of 2009 and the Dodd-Frank Act of 2010, may have on the U.S. economy and our business;
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performance of financial markets affecting the fair value of our investments or making it difficult to determine the value of our investments;
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changes in accounting policies and practices that may be adopted by our regulatory agencies and the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Accounting Oversight Board;
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changes in laws or government regulations affecting medical professional liability insurance or the financial community;
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the effects of changes in the health care delivery system, including, but not limited to, the recently passed Patient Protection and Affordable Care Act;
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uncertainties inherent in the estimate of loss and loss adjustment expense reserves and reinsurance and changes in the availability, cost, quality, or collectability of insurance/reinsurance;
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the results of litigation, including pre- or post-trial motions, trials and/or appeals we undertake;
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bad faith litigation which may arise from our handling of any particular claim, including failure to settle;
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loss of independent agents;
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changes in our organization, compensation and benefit plans;
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our ability to retain and recruit senior management;
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our ability to purchase reinsurance and collect payments from our reinsurers;
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increases in guaranty fund assessments;
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our ability to achieve continued growth through expansion into other states or through acquisitions or business combinations;
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changes to the ratings assigned by rating agencies to our insurance subsidiaries, individually or as a group; and
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changes in competition among insurance providers and related pricing weaknesses in our markets.
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