NEWS RELEASE
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For More Information Contact:
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Frank B. O’Neil, 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
(in thousands, except per share data)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2011
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2010
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2011
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2010
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Gross Premiums Written
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$ | 115,302 | $ | 98,522 | $ | 276,115 | $ | 255,699 | ||||||||
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Net Premiums Written
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$ | 107,011 | $ | 88,868 | $ | 256,894 | $ | 234,089 | ||||||||
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Net Premiums Earned
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$ | 137,063 | $ | 125,398 | $ | 269,140 | $ | 248,825 | ||||||||
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Net Investment Income
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$ | 36,297 | $ | 37,081 | $ | 72,457 | $ | 74,709 | ||||||||
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Equity in Earnings (Loss) of
Unconsolidated Subsidiaries
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$ | (2,416 | ) | $ | 839 | $ | (3,780 | ) | $ | 3,825 | ||||||
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Net Investment Result
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$ | 33,881 | $ | 37,920 | $ | 68,677 | $ | 78,534 | ||||||||
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Net Realized Investment Gains (Losses)
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$ | 2,200 | $ | (3,501 | ) | $ | 6,324 | $ | (5,905 | ) | ||||||
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Other Income
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$ | 1,685 | $ | 1,683 | $ | 4,273 | $ | 4,005 | ||||||||
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Total Revenues
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$ | 174,829 | $ | 161,500 | $ | 348,414 | $ | 325,459 | ||||||||
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Guaranty Fund Assessments (Recoupments)
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$ | (15 | ) | $ | (616 | ) | $ | (58 | ) | $ | (750 | ) | ||||
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Interest Expense
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$ | 918 | $ | 827 | $ | 1,713 | $ | 1,640 | ||||||||
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Total Expenses
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$ | 98,142 | $ | 100,993 | $ | 205,067 | $ | 211,711 | ||||||||
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Tax Expense
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$ | 21,591 | $ | 20,126 | $ | 40,557 | $ | 35,255 | ||||||||
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Net Income
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$ | 55,096 | $ | 40,381 | $ | 102,790 | $ | 78,493 | ||||||||
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Operating Income
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$ | 53,656 | $ | 42,256 | $ | 98,642 | $ | 81,844 | ||||||||
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Net Cash Provided by Operating Activities
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$ | 28,191 | $ | 28,143 | $ | 53,052 | $ | 75,919 | ||||||||
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Earnings per Share
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Three Months Ended June 30,
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Six Months Ended June 30,
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2011
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2010
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2011
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2010
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Weighted average number of
common shares outstanding (in 000’s)
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Basic
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30,583 | 32,322 | 30,600 | 32,385 | ||||||||||||
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Diluted
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30,856 | 32,721 | 30,855 | 32,743 | ||||||||||||
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Operating Income per share (Basic)
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$ | 1.75 | $ | 1.31 | $ | 3.22 | $ | 2.53 | ||||||||
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Operating Income per share (Diluted)
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$ | 1.74 | $ | 1.29 | $ | 3.20 | $ | 2.50 | ||||||||
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Net Income per share (Basic)
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$ | 1.80 | $ | 1.25 | $ | 3.36 | $ | 2.42 | ||||||||
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Net Income per share (Diluted)
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$ | 1.79 | $ | 1.23 | $ | 3.33 | $ | 2.40 | ||||||||
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Reconciliation of Net Income to Operating Income
(in thousands, except per share data)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2011
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2010
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2011
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2010
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Net Income
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$ | 55,096 | $ | 40,381 | $ | 102,790 | $ | 78,493 | ||||||||
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Items Excluded in the Calculation
of Operating Income:
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Net Realized Investment (Gains) Losses
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$ | (2,200 | ) | $ | 3,501 | $ | (6,324 | ) | $ | 5,905 | ||||||
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Guaranty Fund (Recoupments) Assessments
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$ | (15 | ) | $ | (616 | ) | $ | (58 | ) | $ | (750 | ) | ||||
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Pre-Tax Effect of Exclusions
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$ | (2,215 | ) | $ | 2,885 | $ | (6,382 | ) | $ | 5,155 | ||||||
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Tax Effect at 35%
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$ | 775 | $ | (1,010 | ) | $ | 2,234 | $ | (1,804 | ) | ||||||
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Operating Income
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$ | 53,656 | $ | 42,256 | $ | 98,642 | $ | 81,844 | ||||||||
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Per Diluted Common Share:
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Net Income
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$ | 1.79 | $ | 1.23 | $ | 3.33 | $ | 2.40 | ||||||||
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Effect of Adjustments
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$ | (0.05 | ) | $ | 0.06 | $ | (0.13 | ) | $ | 0.10 | ||||||
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Operating Income Per Diluted Common Share
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$ | 1.74 | $ | 1.29 | $ | 3.20 | $ | 2.50 | ||||||||
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Key Ratios
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Three Months Ended June 30,
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Six Months Ended June 30,
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2011
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2010
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2011
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2010
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Current Accident Year Loss Ratio
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83.6 | % | 84.5 | % | 83.6 | % | 84.3 | % | ||||||||
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Effect of Prior Accident Year
Reserve Development
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(36.6 | %) | (29.9 | %) | (33.5 | %) | (25.1 | %) | ||||||||
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Net Loss Ratio
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47.0 | % | 54.6 | % | 50.1 | % | 59.2 | % | ||||||||
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Expense Ratio
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24.0 | % | 24.5 | % | 24.9 | % | 24.6 | % | ||||||||
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Combined Ratio
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71.0 | % | 79.1 | % | 75.0 | % | 83.8 | % | ||||||||
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Operating Ratio
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44.5 | % | 49.5 | % | 48.1 | % | 53.8 | % | ||||||||
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Return on Equity
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11.4 | % | 9.1 | % | 10.8 | % | 9.0 | % | ||||||||
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Gross Premiums Written were $115 million in the second quarter of 2011, compared to $99 million in the same quarter a year ago—a 17% increase. Our acquisition of American Physicians Services (APS) accounted for $10 million of this $16 million increase in the quarter and we also added $5 million in new premium from our Certitude program with Ascension Health. For the year-to-date, the additional premium from APS and the Ascension Health program are the primary reasons that Gross Premiums Written were up 8% from $256 million to $276 million.
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Net Premiums Earned were 9% higher in the quarter and 8% higher for the year-to-date principally due to the APS acquisition. In the second quarter, Net Premiums Earned were $137 million, compared to $125 million a year ago, and for the first six months of 2011, Net Premiums Earned were $269 million, compared to $249 million in 2010.
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Retention in our medical professional liability physician book (including APS) was 90% in both the first quarter and first six months of 2011. This compares to an 89% retention rate for the quarter and six-month period ended June 30, 2010. We calculate retention by comparing expiring premium on renewed risks against total expiring premium.
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During the second quarter of 2011, renewal pricing on our medical professional liability book (including APS) was, on average, 2% lower than expiring premium. In the same quarter a year ago, renewal pricing was unchanged from the prior year. For the year-to-date, average renewal pricing has decreased 3%, compared to a 1% decrease for the first six months of 2010.
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Loss severity trends are continuing to develop favorably compared to our previous expectations. Net favorable loss reserve development in the second quarter of 2011 was $50 million, compared to $38 million in the year-ago quarter. For the first six months of this year, net favorable reserve development was $90 million, compared to $63 million in 2010. Year-to-date, net favorable reserve development in the APS book of business has been $10 million, as claims severity has dropped below our year-end 2010 estimates for this business.
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Our Net Investment Result (Net Investment Income, plus Equity in Earnings (Loss) of Unconsolidated Subsidiaries) for the second quarter of 2011 was $34 million, $4 million less than in the second quarter of 2010. Year-to-date, our Net Investment Result was $69 million, down $10 million from the same period a year ago.
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Net Investment Income was $36 million for the second quarter of 2011, down $1 million from the year-ago quarter primarily due to lower earnings from private investment funds. For the first six months of 2011, Net Investment Income was $72 million compared to $75 million in the first half of 2010 due to the reduced earnings in the second quarter, and lower overall yield in our fixed income portfolio.
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The second quarter and six month losses of $2 million and $4 million respectively in our Equity in Earnings (Loss) of Unconsolidated Subsidiaries result primarily from normal amortization of tax credit limited partnerships we purchased in 2010 and the negative return during the quarter from one of our investments. The tax credit investments reduce our Net Investment Result, but have a favorable effect on our tax liabilities.
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The CUSIP-level disclosure of our investment holdings as of June 30, 2011 is available under Supplemental Investor Information in the Investor Relations section of our website, www.ProAssurance.com.
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We have purchased 258,821 shares of our common stock so far this year at a cost of $15 million, leaving us with $194 million in the authorization granted by our Board in November 2010. Since 2005 we have purchased 6.0 million shares of our stock at a cost of $316 million.
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June 30, 2011
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December 31, 2010
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Shareholders’ Equity
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$ | 1,966,364 | $ | 1,855,863 | ||||
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Total Investments
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$ | 4,004,702 | $ | 3,990,431 | ||||
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Total Assets
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$ | 4,926,607 | $ | 4,875,056 | ||||
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Policy Liabilities
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$ | 2,755,378 | $ | 2,781,830 | ||||
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Accumulated Other Comprehensive Income (Loss)
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$ | 99,057 | $ | 79,124 | ||||
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Goodwill
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$ | 161,453 | $ | 161,453 | ||||
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Book Value per Share
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$ | 64.28 | $ | 60.35 | ||||
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Live: Thursday, August 4, 2011, 10:00 am et. Investors may dial (888) 318-7470 (toll free) or (719) 457-2653. The call will also be webcast on our website, www.ProAssurance.com, and on StreetEvents.com.
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Replay: By telephone, through September 2, 2011 at (888) 203-1112 or (719) 457-0820, using access code 2432504. The replay will also be available through August 31, 2011 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 expected benefits from completed and proposed acquisitions may not be achieved or may be delayed longer than expected due to business disruption, loss of customers and employees, increased operating costs or inability to achieve cost savings, and assumption of greater than expected liabilities, among other reasons;
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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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changes in U.S. laws or government regulations regarding financial markets or market activity that may affect the U.S. economy and our business;
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changes in the ability of the U.S. government to meet its obligations that may affect 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 Company 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 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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an allegation of bad faith 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 recoveries from our reinsurers;
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assessments from guaranty funds;
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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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insurance market conditions may alter the effectiveness of our current business strategy and affect our revenues.
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