On the back of strong first-quarter results, we recently upgraded ProAssurance Corporation (PRA) to Outperform.
The company reported its first-quarter earnings on the heels of enhanced shareholder value through share buybacks. Further, the company's financial strength, unrivaled expertise in claims handling, skilled underwriting, and innovative risk management has provided significant support in the changing healthcare scenario.
ProAssurance recently completed the acquisition of the second largest writer of medical professional liability, American Physicians Service Group Inc. (APS) in an all-cash transaction of $32.50 per share. As a result of the merger, APS is now a wholly-owned subsidiary of ProAssurance.
Excluding one-time transaction and restructuring costs, ProAssurance expects the transaction to be accretive to its 2011 earnings.
We also anticipate the acquisition to provide superior quality insurance protection for the policyholders of APS. ProAssurance also believes that this will prove to be a strategic expansion, which will , in turn, help to grow both its business and top line in 2011.
Further, the acquisition will help ProAssurance to immediately expand its footprint in Texas, an important part of its growth strategy. Given American Physicians’ track record of operating profitably in Texas, ProAssurance expects to accrue immediate tangible benefits.
Additionally, ProAssurance’s better-than-expected result was attributable to growth in net premiums written and a decline in total expenses also resulted in top-line growth.
At the end of the first quarter, gross written premiums of ProAssurance inched up 2.0% from $157.2 million to $160.8 million, while net premiums written increased from $145.2 million to $149.9 million. Revenues also surged slightly by 5.9% year over year to $173.6 million in the reported quarter.
These results were also reflected in ProAssurance’s return on equity, which increased to 10.2% in the first quarter of 2011 compared with 8.8% in the prior-year quarter.
In addition, ProAssurance’s loss severity trends continue to develop favorably compared to the previous expectations, which has helped in offsetting the continuing regulatory challenges and threats of price competition. Moreover, the benefits of geographic diversity and strong financial position are likely to have a positive impact over time.
Apart from this, ProAssurance has 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 repurchased 258,821 shares of its common stock in the reported quarter for about $15.0 million. At the end of the reported quarter, the company has approximately $194 million left under its $200 million authorization approved by the board in November 2010 and has fully utilized the share repurchase authorization of September 2009.
The quantitative Zacks #3 Rank (short term Hold rating) on the stock indicates no directional pressure on the shares over the near term.
Headquartered in Birmingham, Alabama, ProAssurance Corporation operates as a holding company for property and casualty insurance companies. With a single business segment principally in the Mid-Atlantic, Midwest and Southern U.S., the company provides professional liability insurance products primarily to physicians, dentists, other health care providers and health care facilities through its subsidiaries.
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