EX-99.1 2 presentation.htm EXHIBIT WHICH IS THE SUBJECTC OF THIS FILING presentation.htm
March 8-10, 2010
W. Stancil Starnes Chairman and Chief Executive Officer
Edward L. Rand, Jr. Chief Financial Officer
Frank B. O’Neil Investor Relations Officer
Raymond James & Associates
Raymond James & Associates
31st Annual Institutional Investors Conference
31st Annual Institutional Investors Conference
 
 
 
2
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.
Non-GAAP Measures
 
 
 

Year-to-Year Success Comes From
Taking a Long-Term View

Year-to-Year Success Comes From
Taking a Long-Term View
Edward L. Rand, Jr.
Chief Financial Officer
 
 
 
ProAssurance: Quick Facts
4
 
 
 
Success Continued in 2009
  23% Increase in Book Value per Share in 2009
  19% Increase in Revenue vs. 2008
  28% Increase in Diluted EPS
  Top Line Growth
  $28 million of new business in our historical book
  $95 million from completed M&A transactions
  Three transactions completed in 2009
  Outstanding performance in a challenging
 financial market and a demanding line of
 insurance
5
 
 
 
Book Value Growth
EVERY
Year Since Inception
 
Cumulative
CAGR
10 year
 278%
 14%
5 year
 151%
 20%
1 year
 23%
 23%
Measured through Year-End 2009
6
Book Value per Share at Year End
 
 
 
Share Prices Since Inception
 
Cumulative
CAGR
10 year
 166%
 10%
5 year
 37%
 7%
1 year
 2%
 2%
Measured through Year-End 2009
7
Share Price at Year End
 
 
 
Prime Time to Invest in PRA
8
Price to Book Multiple by Month
 
 
 
Outstanding Performance vs Industry
  Moody’s rankings of the top 100 P&C
 insurance companies by premium volume
9
1 by Direct Written Premium Source: 2008 Data from Moody’s Statistical Handbook October
2009
Category
Ranking
Direct Written Premiums
95
Operating Ratio
1
Combined Ratio
2
Loss Ratio
5
ROE
5
 
 
 
2009 Financial Highlights
10
in millions, except per share data
  Year-End
 All data includes acquired entities since date of acquisition only. PICA was acquired on April 1, 2009.
1Excludes discontinued operations.
2Includes a loss on extinguishment of debt of $2.8 million for the year ended December 31, 2009 and a gain on
 extinguishment of debt of $4.6 million for the year ended December 31, 2008
Gross Premiums Written1 $ 554 $ 471 $ 549
Net Investment Income1  151  158  171
Total Revenue1   673  567  706
Net Income (Includes Investment Losses)2 $ 222 $ 178 $ 168
Operating Income $ 215 $ 207 $ 172
Net Income/Diluted Share $ 6.70 $ 5.22 $4.78
Operating Income/Diluted Share $ 6.49 $ 6.07 $4.90
Total Assets $4,647 $ 4,281 $ 4,441
Shareowners’ Equity $1,705 $ 1,424 $ 1,255
 2009 2008  2007
 
 
 
 
Conservative Use of Debt
  Low Debt to Cap Ratio
  No strain on cash flow
 
 
 
Capital Management
  Active in prudent share repurchase
  1.1 million shares in 2009
  Board examination of capital management
 alternatives
12
 
 
 
Investments Balance Risk vs. Return
  Key Investment Actions in Q4 09
  Reduced cash and short-term
 balances
  Added to corporate and municipal
 bond holdings
  CUSIP-level portfolio disclosure
 on our website:
 www.proassurance.com/investorrelations/supplemental.aspx
$3.8 Billion
Portfolio
$3.8 Billion
Portfolio
Fixed Income: 90%
Short Term: 5%
Short Term: 5%
Equity and Other Investments: 3%
Equity and Other Investments: 3%
BOLI: 2%
BOLI: 2%
13
12/31/09
 
 
 
Fixed Income Breakdown
14
12/31/09
 
 
 

Our Disciplined Approach Produces
Operational Excellence

Our Disciplined Approach Produces
Operational Excellence
W. Stancil Starnes, Esq.
Chairman & CEO
 
 
 
Producing Sustainable Results
  Building on growth opportunities
  Using our unparalleled market knowledge
  Leveraging our unique claims expertise
  Employing our not so secret weapon
16
 
 
 
We Are a National Company
  Broad geographic diversification provides an
 unmatched spread of risk
17
Corporate Headquarters
Corporate Headquarters
Claims Offices
Claims Offices
Claims / Underwriting Offices
Claims / Underwriting Offices
PICA and/or E&S States
PICA and/or E&S States
(Birmingham)
 
 
 
2009 M & A Transactions
18
2009 Premium: $77 million
Significant growth in our core business
Nationwide geographical expansion
Extends our core business
Broadens our medically-related range
Geographical expansion
2009 Premium: $4.0 million
Adds to our lawyers’ book
Geographical expansion
Affirms our interest in this line
 
 
 
2009:  Consolidation of:
 Mid-Continent General Agency
2009:  Consolidation of:
 Mid-Continent General Agency
 Georgia Lawyers Insurance Co.
 Georgia Lawyers Insurance Co.
2004: Purchased Selected Renewal Rights from:
 OHIC Insurance Company
2004: Purchased Selected Renewal Rights from:
 OHIC Insurance Company
Growth Through M&A
  We’ve built a leading platform through M&A
19
1994: Consolidation of:
  West Virginia Hosp. Ins Co.
1994: Consolidation of:
  West Virginia Hosp. Ins Co.
1995: Consolidation of;
1995: Consolidation of;
 Physicians Ins Co of Indiana
 Physicians Ins Co of Indiana
 Assumed business of:
 Physicians Ins Co of Ohio
 Assumed business of:
 Physicians Ins Co of Ohio
1996: Consolidation of:
1996: Consolidation of:
 Missouri Medical Ins Co
 Missouri Medical Ins Co
1995: Assumed business of:
 Associated Physicians Ins Co. (IL)
1995: Assumed business of:
 Associated Physicians Ins Co. (IL)
1998: Consolidation of:
 Physicians Protective Trust Fund (FL)
1998: Consolidation of:
 Physicians Protective Trust Fund (FL)
1996: Assumed business of:
 American Medical Ins Exchange (IN)
1996: Assumed business of:
 American Medical Ins Exchange (IN)
Founding in the 1970’s
Founding in the 1970’s
1999: Assumed business of:
  Medical Defense Associates (MO)
1999: Assumed business of:
  Medical Defense Associates (MO)
Mutual Assurance
Physicians Ins. Co. of Michigan
Professionals Group
Creation of:
Creation of:
2005: Consolidation of:
 NCRIC Group
2005: Consolidation of:
 NCRIC Group
2006:  Consolidation of:
 PIC Wisconsin Group
2006:  Consolidation of:
 PIC Wisconsin Group
2007: PRI renewal rights deal
2002: SERTA renewal rights deal
2001: OUM renewal rights deal
2000: DPM Merger
1999: PACO Acquisition
 
 
 
Growth Brings Size and Scope
  Broad geographic diversification provides an
 unmatched spread of risk
20
  Our spread of risk provides
 better market awareness and
 more data points to gauge
 loss trends
  Our internal actuarial depth
 allows us to assess emerging
 trends and respond quickly
Corporate Headquarters
Corporate Headquarters
Claims Offices
Claims Offices
Claims / Underwriting Offices
Claims / Underwriting Offices
PICA and/or E&S States
PICA and/or E&S States
(Birmingham)
 
 
 
Claims Handling Sets Us Apart
  Our effective approach to handling claims sets
 us apart
  We price our product to offered an unfettered
 defense of claims to the extent permitted by
 law
  Claims handling is a key to policyholder
 loyalty and long-term financial success
21
 
 
 
Claims Trends Remain Favorable
22
ProAssurance Claims Tried
to a Verdict
(includes PICA)
  We try cases
  Frequency trends are
 stable after declining
 since 2005/2006
  The result is fewer
 cases to try
  Severity trends also
 stable
  Trends are much the
 same in states with or
 without Tort Reform
 
 
 
The Ohio Example
  Exhaustive, reliable data provided by the Ohio
 Department of Insurance
  Broad range of competitors and business
 approaches
  Pricing
  Underwriting
  Claims handling
23
www.insurance.ohio.gov/Legal/Reports/Documents/MedMal_Closed_Claim_2008.pdf
 
 
 
  ProAssurance closes more claims
 with NO indemnity payments
Ohio Closed Claims 2005-2008
Source: Ohio Department of Insurance: www.insurance.ohio.gov/Legal/Reports/Documents/MedMal_Closed_Claim_2008.pdf
 
 
 
  ProAssurance spends more, on average, to
 defend cases—leveraging our strength
Ohio Closed Claims 2005-2008
Source: Ohio Department of Insurance: www.insurance.ohio.gov/Legal/Reports/Documents/MedMal_Closed_Claim_2008.pdf
 
 
 
  ProAssurance closes more claims at trial,
 offering our insureds the chance for vindication
Ohio Closed Claims 2005-2008
 Excludes Trials that Ended with a Directed Verdicts
Source: Ohio Department of Insurance: www.insurance.ohio.gov/Legal/Reports/Documents/MedMal_Closed_Claim_2008.pdf
 
 
 
  ProAssurance spends far less in average
 indemnity payments
Ohio Closed Claims 2005-2008
Source: Ohio Department of Insurance: www.insurance.ohio.gov/Legal/Reports/Documents/MedMal_Closed_Claim_2008.pdf
 
 
 
The Importance of Treated Fairly®
  Treated Fairly® affirms our existing, enduring
 commitment to every stakeholder
  Insureds
  Agents
  Investors
  The public
  Provides a touchstone that guides every interaction
  Helps ensure that we run our business as owners
 who are rewarded for long-term success
28
 
 
 
Producing Sustainable Results
  Building on growth opportunities
  Using our unparalleled market knowledge
  Leveraging our unique claims expertise
  Employing our not so secret weapon
29
 
 
 
SUPPLEMENTAL
DISCUSSION
SLIDES
SUPPLEMENTAL
DISCUSSION
SLIDES
 
 
 
Financial
 
 
 
The Importance of Investment Income
  Pricing discipline is even more critical
Combined Ratio
required to generate
a 13% after-tax ROE
 
 
 
The Importance of Investment Income
33
Year
1
Year
2
Year
3
Year
4
Year
5
Year
6
Year
7
Year
8
Incident
Occurs
Discovery
and
Preparation
Claim
Reported
Trial
and
Appeals
Resolution
5-6 Years
After
Claim
Reported
Life Cycle of a Typical Claim
 
 
 
The Importance of Investment Income
34
Typical Claims Payout Pattern
 
 
 
Using Capital Prudently
  Using capital to build through M&A
 
 
 
Our Strong Capital/Low Leverage Position
36
(in millions)
  Prepared for an
 improving market
  Prudent capital
 management
Premiums to Surplus
for Each year
$567
$ 96
$471
($96 mil PICA pro forma in 2008)
 
 
 
Excess Capital vs. Excess Capacity
37
Conceptual Model of Projected
A. M. Best BCAR Scores if
  Premiums Increase
  Surplus is Reduced
 
 
 
Market Conditions
 
 
 
The State of the Market
  Prices have been falling yet profitability
 remains high
  Continued low interest rates must enforce
 discipline sooner or later
  Frequency is no longer declining
  Only a matter of time before frequency moves
 higher
  But when?
  Severity is trending upward at expected,
 manageable rates (4%-5%) in most states
39
 
 
 
The State of the Market
40
 
 
 
Responding to Changes in HealthCare
  Projected sector growth through 20181
  Physician’s Assistants 39%
  Medical Assistants  36%
  Licensed Nurses  34%
  Chiropractors   31%
  Physicians and Surgeons 22%
  Podiatrists   9%
41
1Bureau of Labor Statistics 2008 to 2018 Projections
 
 
 
Claims
 
 
 
Why Claims Strategy Matters
Favorable
Outcomes:
84.0%
Favorable
Outcomes:
84.0%
Five Year Average
2004 - 2008
Favorable
Outcomes:
75.4%
Favorable
Outcomes:
75.4%
 
 
 
Why Claims Strategy Matters
  Our ability and willingness to defend claims
 allows us to achieve better results
ProAssurance vs. Industry
Average Statutory Loss Ratio
2003-2008
Legal
Payments
Loss
Payments
Trend for ProAssurance
Stand Alone Statutory Loss Ratio
2006 - 2008
76.0%
*Source: A. M. Best Aggregates & Averages, Medical Malpractice Predominating
64.3%
80.8%
76.9%
44.2%
 
 
 
Appendix: Underwriting/Actuarial
 
 
 
Enforce Actuarial Conservatism
 
 
 $ 2.4
 
 $ 2.6
 
 $ 2.6
 
 $ 2.2
 
 $ 1.8
 
 
 
Rate Change History
47
 
 
 
Appendix: Moody’s Rankings
 
 
 
Moody’s Top 100 Ranking Data
 
 
 
Appendix: Investments
 
 
 
Equities & Other: $43 Million
51
12/31/09
  Represents 3% of our Total Investments
 
 
 
 
 
 
 
 
 
 
 
 
Strategy: Investment Discipline
  The choice: Chase yield or extend duration
  We are maintaining duration, looking for opportunities
55
Loss in value assuming a 100 basis point shift in the yield curve
Yields based on Single A composite corporate debt
 
 
 
Municipals: $1.5 Billion
56
12/31/09
  Investment policy has always required
 investment grade rating prior to applying the
 effect of insurance
 
 
 
Asset Backed: $700 Million
  Weighted average rating: “AA+”
Bloomberg Data
12/31/09
Alt-A
LTV 61%
Prime MBS
LTV 57%
Further Details Provided
on Sub-Prime and CMBS
on following pages
57
 
 
 
Sub-Prime Detail
58
  $7.2 million market value in AFS portfolio
  $3.5 million unrealized loss
  $13.3 million market value in
 high-yield LP rated “A”
  LP’s focus is distressed ABS
At 12/31/09
Vintage
 $4.7 Mln
2004 & Prior
 $2.5 Mln
2005
Quality & Vintage information only on direct holdings at 12/31/09
At 12/31/09
Type
Quality
$3.4 Mln
Mortgage-Backed
AA- avg - LTV 71%
$3.8 Mln
Home Equity
A+ avg
 
 
 
CMBS Detail
  Vintages
  2005 & Prior- $71 million
  2006- $21 million
  Top Property Types
  Office: 56% of CMBS portfolio
  Retail Anchored: 34% of CMBS portfolio
  Mixed Use: 6% of CMBS portfolio
  Other: 4% of CMBS Portfolio
59
 
 
 
CMBS Detail
  $93 million Fair Value in non-agency CMBS
  Book Value: $94 million
  3% of fixed income portfolio
60
At 12/31/2009
Quality
$89.3 Mln
 AAA
$ 3.0 Mln
 AA
$ 0.7 Mln
 A
At 12/31/2009
Wtd Avg LTV
 16%
<65%
 48%
=65-70%
 19%
<70-75%
 16%
=75-85%
 1%
+85%
At 12/31/2009
Credit Support
 39%
>30%
 46%
20% - 30%
 11%
10% - 20%
 4%
Less than 10%
At 12/31/2009
Deal Cumulative Delinquencies
 30%
 0.0% - 1.0%
 15%
 1.0%  - 2.0%
 19%
 2.0% - 3.0%
 10%
 3.0% - 5.0%
 21%
 5.0% - 8.0%
 5%
 8.0% - 10.0%
At
12/31/2009
Debt Service Coverage
 87%
=>1.5x
 7%
 1.4x-1.5x
 6%
 1.3x-1.4x
AT
12/31/2009
 
 
 
  Weighted Average Rating: A
  28% of Total Investments
Corporates: $1.1 Billion
61
12/31/2009
 
 
 
Corporate: Detail on Financials
  Top 20 Largest Banks/Financials: $ 267 million
  $68 mm FDIC backing
BA $41 ($23)
Credit Suisse $9
MS $29 ($6)
Eurohypo $8
BP Cap $25
KEY $6 ($6)
GECC $25 ($8)
BNY Mellon $6
JPM $23 ($14)
PNC $6 ($2)
GS $18( $2)
US Bank $6
Amex $13
Deutsche Bank $5
Citi $13($5)
Depfa ACS -Covered $5
Wells $13
FMCC $5
Natl Rural $9
John Deere Cap $5 ($2)
FDIC backed amounts listed in parentheses
62

12/31/2009
 
 
 
Treasury/GSE: $221 Million
63
12/31/2009
 
 
 
64
12/31/2009
 
 
 
Portfolio Overview: Short Term
  $187 Million
  Rated A1/P1 or better
  Money Markets:
  Moody’s: Aaa
  S&P: AAA
65
 
 
 
BOLI: $65 Million
  Weighted average rating
  Moody’s: AA3
  S&P: AA-
  A. M. Best: A+
66