ProAssurance Corporation (PRA) reported third-quarter 2014 operating earnings per share of 68 cents, which lagged the Zacks Consensus Estimate of 73 cents. The reported figure also decreased from 88 cents per share earned in the year-ago quarter.
A highly competitive pricing environment and increased expenses mainly led to the year-over-year decline.
Operating income excluded the effects of net realized investment gains and guaranty fund assessment.
Including non-recurring items, ProAssurance’s net income was 59 cents per share, down from $1.02 in the year-ago quarter.
Operational Update
ProAssurance’s total revenue increased 12% from the prior-year quarter to $204 million. The figure was in line with the Zacks Consensus Estimate. The upside was driven by the acquisition of Eastern Insurance Holdings, Inc.
Gross premiums written by ProAssurance rose 37% year over year to $226.7 million.
The company recorded $43 million of net favorable reserve development in the reported quarter, down 12% year over year. This brought the year-to-date net favorable reserve development to $90 million, down 1% from the year-ago quarter.
Total expenses amounted to $157 million, up 48% year over year. Higher expenses mainly resulted from the addition of Eastern and establishment of a reserve associated with discontinued operations.
Net investment income of ProAssurance came in at $32.8 million, declining from $33.9 million in the prior-year quarter. The year-over-year decrease was due to a fall in average investment balances in the fixed maturities portfolio and a low interest rate environment. Net investment result (sum of net investment income and equity in earnings of unconsolidated subsidiaries) amounted to $33.1 million, down 1.4% from $33.6 million in the year-earlier quarter. Net realized investment losses came in at $8.1 million in the reported quarter, comparing unfavorably with gain of $12.5 million a year ago.
Financial Position
ProAssurance’s cash flow from operations increased $36 million on a year-over-year basis in the quarter to $72 million. This was owing to a refund in tax payments and positive cash flow from the Eastern acquisition.
Meanwhile, the company’s shareholder equity was $2.32 billion as of Sep 30, 2014, lower than $2.39 billion as of Dec 31, 2013. Book value per share also improved approximately 2.8% to $40.24 as of Sep 30, 2014 from $39.13 as of Dec 31, 2013.
Financial Ratios
ProAssurance’s net loss ratio for the quarter came in at 56.0% against 46.1% in the prior-year quarter. Expense ratio deteriorated to 30.6% from 25.0% in the year-earlier quarter. The combined ratio of ProAssurance deteriorated to 86.6% from 71.1% in the comparable quarter last year, while operating ratio increased to 68.1% from 45.7% in the prior-year quarter. Return on equity (ROE) for the reported quarter was 5.9% versus 10.7% in the third quarter of 2013.
Share Repurchase and Dividend Update
ProAssurance spent $45 million to buy back 1 million shares in the third quarter of 2014, taking the total share repurchase to 4.3 million shares for $192 million since Jan 1, 2014 through Oct 31, 2014. At present, the company has $112 million remaining under its authorization.
On Sep 3, 2014, the company declared a quarterly cash dividend of 30 cents per share that was paid on Oct 9, 2014 to shareholders of record on Sep 26, 2014.
Performances of Other Insurers
Earnings of RLI Corporation (RLI), The Travelers Companies Inc. (TRV) and ACE Limited (ACE) have outperformed their respective Zacks Consensus Estimate in the third quarter.
Zacks Rank
ProAssurance currently carries a Zacks Rank #2 (Buy).
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