We issued an updated research report on ProAssurance Corporation PRA on Dec 10, 2015.
The company’s inorganic growth strategies, solid competitive market position, prudent operating and financial leverage, responsible pricing, loss reserve practice and conservative investments in assets will likely generate growth. ProAssurance’s core business has been witnessing substantial improvement over the past few quarters, thereby driving premiums. Acquisitions and mergers have also helped in this regard. We expect the addition of new profitable businesses to expand the company’s key business lines and hence, drive growth.
Moreover, the company’s secure capital position enables it to engage in share buybacks and dividend payouts. In Dec 2014, ProAssurance approved a $100 million extension to its existing share repurchase program, thus taking the authorization to $198 million. Also, the insurer’s special dividend history remains impressive with the same being declared twice in the last three years. Last week, the company’s board of directors declared a special dividend of $1.00 per share.
However, the company has been facing volatility in premium retention in its physician business for quite some time now mainly due to increased competition. Another major risk is associated with ProAssurance’s investment portfolio, which primarily consists of fixed income securities. The declining interest rate forces the company to reinvest its matured investments at comparatively lower interest rates, which leads to declining investment income, thereby weighing on the top line.
Moreover, ProAssurance has been consistently suffering from higher underwriting, policy acquisition and operating expenses. ProAssurance needs a strong expense management program as any substantial elevation in operating expenses could weigh heavily on both the margins and the bottom line going ahead.
Last month, the company reported third-quarter 2015 earnings that were in line with the Zacks Consensus Estimate but decreased year over year on high expenses.
ProAssurance currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the property and casualty insurance space are Cincinnati Financial Corp. CINF, Hallmark Financial Services Inc. HALL and Heritage Insurance Holdings, Inc. HRTG. All three stocks sport a Zacks Raank #1 (Strong Buy).
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