ProAssurance Corporation (PRA) reported its first-quarter operating earnings of $45.0 million or $1.46 per share, surpassing the Zacks Consensus Estimate of $1.16. This also compares favorably with earnings of $39.6 million or $1.21 per share in the prior-year quarter.
Operating income excludes the after-tax effects of net realized gains or losses and guaranty fund assessments or recoupments and debt retirement loss.
During the reported quarter, the beneficial effect of adjustment to net income was 9 cents per share, while the negative effect of adjustment was 5 cents in the year-ago quarter.
Including these items, net income was $47.7 million or $1.55 per share, compared with $38.1 million or $1.16 per share in the year-ago quarter.
ProAssurance’s strong results were attributable to its ability to enhance shareholder value by executing a disciplined strategy.
Quarter in Detail
Total revenue of ProAssurance increased slightly by 5.9% year over year to $173.6 million, exceeding the Zacks Consensus Estimate of $173.0 million.
Gross written premiums for the quarter increased 2.0% from $157.2 million to $160.8 million in the reported quarter.
ProAssurance’s retention in its consolidated medical professional liability physician book, including APS, was 90% in the reported quarter, as opposed to 89% in the prior-year quarter.
ProAssurance experienced $40.0 million of net favorable loss reserve development in the reported quarter, which included $5 million from the acquisition of American Physicians Service Group (APS) on November 30. The company had $25.0 million of favorable development a year ago.
Net investment income for the quarter was $1.5 million lower than $37.6 million in the first quarter of 2010, primarily resulting from lower yields in the fixed income portfolio. ProAssurance’s net investment income plus net income from the company’s investment in unconsolidated subsidiaries resulted in a 14.0% decrease in the quarter to $35.0 million compared with $41.0 million in the prior-year quarter.
Financial Ratios
ProAssurance’s net loss ratio for the reported quarter came in at 53.3%, compared with 63.8% in the prior-year quarter. Expense ratio, on the other hand, jumped to 25.9% in the first quarter of 2011 from 24.6% in the prior-year quarter.
Combined ratio fell to 79.2% from 88.4% in the prior-year quarter, while operating ratio plummeted to 51.8% in the reported quarter as against 57.9% in the prior-year quarter.
However, return on equity (ROE) slightly improved in the quarter to 10.2% from 8.8% in the prior-year quarter. Book value of ProAssurance also increased 2% to $61.64 per share at the end of the first quarter of 2011.
Capital Management
In the first quarter of 2011, ProAssurance entered into a revolving credit facility, which allows borrowing up to $150 million from a consortium of five banks, on a secured or unsecured basis at an interest rate determined by the financial ratings at the time of borrowing. The credit facility will remain in place for three years.
Further, ProAssurance purchased 258,821 shares of its common stock in the reported quarter for about $15.0 million.
The company has approximately $194 million left under its $200 million authorization granted by the Board of Directors in November 2010 and has fully utilized the share repurchase authorization of September 2009.
ProAssurance has been purchasing shares in the open market since 2005 and has purchased 6.0 million shares for $316 million.
We believe that the strong capital position of ProAssurance has helped in optimizing shareholder value through comprehensive capital management strategies of prudently repurchasing shares, executing appropriate acquisitions and supporting strategic business expansion.
However, there are inherent threats associated with the medical professional liability insurance sector as a whole, stemming from price competition, legislative reform, loss cost trends and regulatory challenges.
Nevertheless, we believe that the acquisition has offered superior quality insurance protection for the policyholders of APS. ProAssurance also believes that this will prove to be a strategic expansion that will help grow both the business and top line in 2011.
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