ProAssurance Corporation (PRA) reported second-quarter operating earnings per share of 72 cents that missed the Zacks Consensus Estimate of 90 cents per share by 20% as well as the year-ago quarter’s earnings of 96 cents per share by 25%. Operating earnings stood at $44.9 million, compared with $59.5 million in the prior-year quarter.
Operating income excludes the effects of net realized investment gains or losses, guaranty fund assessment or recoupment, gain on acquisition and confidential settlements. These items led to a negative adjustment of 9 cents per share to net income in the reported quarter against a positive adjustment of 1 cent in the year-ago quarter.
Including non-recurring items, ProAssurance’s net income was reported at $50.5 million or 81 cents per share, decreasing from $58.5 million or 95 cents per share in the year-ago quarter.
Substantial increase in expenses during the second quarter of 2013 that resulted from higher loss and loss adjustment expenses, mainly led to the decline.
During the quarter under review, total revenue of ProAssurance increased 4.2% to $170.8 million from $163.9 million in the year-ago quarter. Revenues also surpassed the Zacks Consensus Estimate of $168 million by 1.7%. The company’s mergers and acquisitions have added $14 million to the top line results dring the quarter and led to the upside.
Gross premiums written by ProAssurance increased 20.6% year over year to $123 million. Contribution from healthcare professional liability and legal professional liability mainly led to the upside. The company garnered $38.5 million of net favorable reserve development in the reported quarter versus $60.1 million a year ago. Total expenses amounted to $105.96 million, up from $84.3 million in the year-ago quarter. Higher expenses were driven by higher losses and loss adjustment costs.
Net investment income of ProAssurance in the quarter was $33.3 million, down 3.6% year over year mainly due to the impact of consistent lower yields on the company’s fixed income portfolio. Net investment result (sum of net investment income and equity in earnings of unconsolidated subsidiaries) amounted to $30.3 million, inching down 6.2% from $32.3 million in the year-ago quarter. However, net realized investment gains stood at $8.5 million in the reported quarter, compared to net realized investment losses of $1.5 million in the year-ago quarter.
Financial Position
In the reported quarter, ProAssurance witnessed net cash outflow from operating activities of $12.3 million, compared to an inflow of $32.7 million in the prior-year quarter. Total assets of the company at the end of the quarter were $5.1 billion, decreasing from $5.2 billion as of Mar 31, 2013.
Meanwhile, ProAssurance’s shareholder equity was $2.3 billion, reflecting a decrease from $2.4 billion as of Mar 31, 2013. Book value per share also declined 1% to $37.79 from $38.19 as of Mar 31, 2013 due to a decline in fair value of securities available for sale.
Financial Ratios
ProAssurance’s net loss ratio for the reported quarter came in at 54.2%, compared with 36.6% in the prior-year quarter. Expense ratio improved slightly to 26.8% from 27% in the prior-year quarter.
The combined ratio of ProAssurance deteriorated to 81% from 63.6% in the comparable quarter last year, while operating ratio increased to 55.5% from 37.3% in the prior-year quarter. Return on equity (ROE) for the reported quarter was 8.6%, deteriorating from 10.4% in the second quarter of 2012.
Dividend Update
In May 2013, ProAssurance declared a quarterly cash dividend of 25 cents per share which was paid on Jul 12, 2013 to shareholders of record as of Jun 27, 2013.
Performance of Other Insurers
On Jul 25, 2013, Chubb Corp. (CB) reported second-quarter operating earnings of $1.77 per share, significantly ahead of the Zacks Consensus Estimate of $1.38 per share. Earnings also increased 29% year over year.
On Jul 29, 2013, American Financial Group Inc. (AFG) reported second quarter adjusted earnings of 96 cents that breezed past the Zacks Consensus Estimate of 85 cents by 12.9%. Results were also up 5.5% year over year from 91 cents earned in the year-ago quarter.
On Jul 23, 2013, ACE Limited (ACE) reported second quarter 2013 operating net income of $2.29 per share, up 19.3% from the Zacks Consensus Estimate of $1.92. Results improved 5.5% from $2.17 earned in the year-ago quarter. Operating income was $790 million, up 6.3% over the prior-year quarter.
Zacks Rank
ProAssurance currently carries a Zacks Rank #2 (Buy).
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