exhibit991.htm

EX-99.1 2 exhibit991.htm PRESENTATION SLIDES exhibit991.htm

Non-GAAP Measures

Forward Looking Statements

This presentation contains Forward Looking Statements and other information designed
to convey our projections and expectations regarding future results. There are a number
of factors which could cause our actual results to vary materially from those projected in
this presentation. The principal risk factors that may cause these differences are
described in various documents we file with the Securities and Exchange Commission,
such as our current reports on Form 8-K, and our regular reports on Forms 10-Q and 10-
K, particularly in “Item 1A, Risk Factors.” Please review this presentation in
conjunction with a thorough reading and understanding of these risk factors.

This presentation contains Non-GAAP measures, and we may reference
Non-GAAP measures in our remarks. A reconciliation of these measures to GAAP
measures is available in our latest quarterly news release, which is available in the
Investor Relations section of our website, www.ProAssurance.com, and in
the related Current Reports on Form 8K disclosing that release.

ProAssurance: Quick Facts

Market Cap: $1.9 Billion / Equity: $1.3 Billion

Fifth largest writer of medical liability

Writing business in 30 jurisdictions

Approximately 39,000 policyholders

Approximately 33,000 physicians & dentists

Approximately 5,400 attorneys

Majority in small or solo practice

Highly rated by A. M. Best and Fitch

ProAssurance: Our Challenges

The soft market

Finding profitable growth opportunities

Maintaining operational discipline in the face of
irrational competitors

The financial markets

Balancing risk vs. return

Ensuring enduring balance sheet strength

The Soft Market Challenge:
Finding Profitable Growth

Finding Profitable Growth

The Challenges

We take a long-term view

We focus on the bottom line

We will reluctantly turn away unprofitable business

We understand Wall Street’s expectation
for top line growth

But not at any price

ProAssurance was
formed by the
combination of two
successful companies
with a history of M & A

Profitable Growth Through M & A

ProAssurance has been built through M & A

Each company brought
multiple transactions
into ProAssurance at
our founding in 2001

Profitable Growth Through M & A

ProAssurance has been built through M & A

We have continued to
grow through M & A

NCRIC in the mid-
Atlantic

PIC-Wisconsin in the
upper Midwest

Profitable Growth Through M & A

ProAssurance has been built through M & A

We carefully evaluate
the medical and legal
climate of each state
before entering

We are the market
leaders in AL, DE, DC,
OH, & WI

Denovo Growth Also Plays a Role

We have added states as opportunities arose

New Transactions Strengthen Us

The PICA Group

Leading insurer of podiatric physicians nationwide

Market share: approximately 70%

2007 Premiums: $99 million

Profitable

Well managed

Low integration risk

Joining PRA through a sponsored demutualization

Will operate as a stand-alone subsidiary

9,800 DPMs

6,800 other providers

93% Direct

Largest States:

CA, FL, NY, IL, TX

11%

PICA’s Business Profile

Adding the PICA Group

Expands our footprint nationwide

Adds ~$99 mln premium and 16,600 insureds

New Transactions Strengthen Us

Georgia Lawyers Insurance Company

A leading insurer of Georgia attorneys

2007 Premiums: $5.5 million

Solidifies our presence in the legal professional
liability market

GLIC: 2,700 lawyers

Most small and
mid-size firms

Existing legal book is
5,400 attorneys in 2,8oo
law firms

2007 Premium:
$10.4 million

Adding Georgia Lawyers Insurance

Greyhawk (Phoenix)

AZ, CA, CO, NV,
WA

ProLawyer (Philadelphia)

DE, DC, MD, NJ,
PA, VA

Adding Dedicated Agents for Lawyers

The Soft Market Challenge:
Maintaining Operational Discipline

Maintain Operational Discipline

The Challenge

Irrational competitors price their product to protect
their top line and market share

Mortgaging their future for the status quo

We compete by offering real service and solid
financial security

Our local presence
retains the benefits of
our M & A transactions
through long-term
customer relationships

Efficiencies gained
from consolidated
“back-room” operations

Claims / Underwriting Offices

Operational Discipline: Strategy

Local knowledge remains the key to profitable
professional liability insurance

Operational Discipline: Strategy

Apply an overall corporate strategy that
recognizes state-by-state differences

Loss trends allowing more aggressive strategies in
long-term markets

Spread risk through geographical
diversification

Maintain margin

More important than top-line volume

Protect the balance sheet

Operational Discipline: Strategy

Charge adequate an adequate premium for
every risk

Loss-trends drive rates

Retain historical reserving practices

Be prepared when the cycle turns

Insureds

Reserves in millions

Strict Underwriting as Claims Peaked.
The Hard Market

NCRIC
Policyholders

PIC Wis
Policyholders

Market Softening

Maintaining Historical Reserving

We try more claims
than any company in
our line of business

Focus on Claims Defense: Our Core

We offer our insureds the
option of an unfettered defense
of their claim

Provides a long-term financial
and marketing advantage

A key differentiating factor in
the market as claims data
becomes public

Favorable
Outcomes:
83%

Favorable
Outcomes:
74%

ProAssurance Industry Data

Source: The PIAA

Five Year Average
2003 - 2008

Why Claims Strategy Matters

Average Statutory Loss Ratio

2003-2007

Industry
85.9%

Legal
Payments

Loss
Payments

PRA:
81.8%

2005

81.4%

ProAssurance Stand Alone

2005 - 2007

2006

76.0%

*Source: A. M. Best Aggregates & Averages, Medical Malpractice Predominating

2007

64.3%

Why Claims Strategy Matters

Our ability and willingness to defend claims
allows us to achieve better results

Board / Discipline

Board / Discipline / Med Mal

Med Mal disclosure
legislation proposed

The Age of Transparency

http://12.150.185.184/dca/simple_search.jsp

The Age of Transparency

The Financial Challenge:
Balancing Risk vs. Return

Navigating the Financial Markets

The Challenges

Balancing risk vs. return

Ensuring enduring balance sheet strength

AT
9/30/2008

Stockholder’s Equity

96%

Other
Debt

Balancing Risk vs. Return

$3.5 Billion

Portfolio

Fixed Income: 86%

Short Term: 9%

Equity and Other
Investments: 3%

BOLI: 2%

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9/30/2008

Balancing Risk vs. Return

Asset
Backed:

28%

State/Muni:

44%

Corporate:

19%

BOLI: 2%

Govt/Agency:7%

AT
9/30/2008

Portfolio: Fixed Income

$3.1 Billion is Fixed Income

Average fixed maturity
duration: 4.4 years

Average tax-equivalent
yield: 5.41%

97.6% investment grade

Weighted average: AA

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9/30/2008

The Financial Challenge:
Ensuring Balance Sheet Strength

All $ amounts in billions

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9/30/2008

Y-T-D 2008 Income Statement Highlights

in millions, except per share data

Gross Premiums Written $ 374 $ 440 -15%

Net Investment Income 122 128 -5%

Operating Income $ 127 $ 118 8%

Operating Income/Diluted Share $ 3.73 $ 3.36 11%

Operating Cash Flow $ 142 $ 207 -31%

September 30, Y-OVER-Y

2008 2007 CHANGE

Insurance Leverage

(in millions)

0.9:1

Premiums
to Surplus

0.9:1

1:1

0.7:1

0.5:1

0.3:1

Book Value Each Year End for ProAssurance and Predecessor Companies

Stock Price

Book Value

CAGR

Since 1991: 14.4%

As PRA: 12.5%

Steady Growth Throughout The Cycles

CAGR

Since 1991: 15.7%

As PRA: 15.8%

Return

Total: 1331%

5 Yr: 140%

10 Yr: 240%

Summary:
Prepared to Meet the Challenges

ProAssurance

Concentrating on shareholder value

Growing Book Value per Share

Focused on the long-term

Maintaining leading market position

Protecting the balance sheet

Building strength for the next cycle turn

Evaluating all M & A opportunities

ProAssurance

Proven success throughout the cycles

Disciplined pricing and underwriting

Consistent reserving policy

Proven claims strategy

Balance sheet strength

Significant share ownership throughout the
company

Demonstrated commitment to a long-term
view of a complicated business

Appendix: Investments

$ in 000’s

Performance by Quarter Q1, 2005 - Q3, 2008

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9/30/2008

Equities & Other Investments

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9/30/2008

Portfolio: Municipals $1.4B

Current investment policy
requires investment grade
rating prior to apply the
effect of insurance

Whole Loan LTV: 59%

Alt-A LTV: 63%

Further Details Provided
on Sub-Prime and
CMBS in our handouts
and today’s 8K

AT
9/30/2008

Further Details Provided
on Sub-Prime and
CMBS in our handouts
and today’s 8K

Portfolio: Corporate

Tax Notes are private
placements guaranteed by
banks & secured by Sec 42 tax
credits

AT
9/30/2008

Further Details Provided
on Sub-Prime and
CMBS in our handouts
and today’s 8K

Portfolio: Corporate-Financials

AT
9/30/2008

Portfolio: Treasury/GSE

$524 million

Average Rating:
AAA

AT
9/30/2008

Portfolio: FRE and FNM

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9/30/2008

Portfolio Overview: Short Term

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9/30/2008

Portfolio Overview: BOLI

At 9/30/08	Type	Quality
$8.7Mln	Mortgage-Backed	AA+ avg - LTV 73%
$6.1Mln	Home Equity	AA avg

At 09/30/08	Vintage
$7.2 Mln	2004 & Prior
$4.4 Mln	2005
$2.6 Mln	2006
$0.6 Mln	2007

Portfolio Overview: Sub-Prime

$13.4 million market value in AFS portfolio

$1.4 million market value in high-yield LP

At 9/30/08	Quality
$191 Mln	AAA
$2 Mln	AA

At 9/30/08	Wtd Avg LTV
85%	<70%
15%	<72%

At 9/30/08	Credit Support
80%	>20%
5%	15% - 20%
13%	10% - 15%
2%	Less than 10%

At 9/30/08	Deal Cumulative Delinquencies
45%	None
27%	0% - 0.5%
20%	0.5% - 1.0%
7%	1.0% - 2.0%
1%	2.0% - 2.2%

At 9/30/08	Debt Service Coverage
78%	>1.5x
22%	>1.3-1.5x

Portfolio Overview: CMBS

$193 million in non-agency CMBS

6% of fixed income portfolio

AT
9/30/2008

BofA/ML $25	NRUC $6
Wells/Wach $19	Depfa ACS $5
Morgan Stanley $16	DeutscheBk $5
Citigroup $14	BONY $5
GECC $13	Unilever Cap $4
American Exp $11	Deere Cap $4
JP Morgan $9	FMCC $3
Goldman $8	Boeing Cap $3
Hypotheken Essn $8	Met Life $3
Credit Suisse $7	Blackrock $3

Portfolio: Corporate-Financials

Top 20 Largest Banks & Financials

($ 171 million)

Appendix: Industry History