SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
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Pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934
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Date of Report (Date of earliest event reported): May 4, 2011
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ProAssurance Corporation
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(Exact name of registrant as specified in its charter)
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Delaware
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001-16533
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63-1261433
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(State of Incorporation)
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(Commission File No.)
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(IRS Employer I.D. No.)
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100 Brookwood Place, Birmingham, Alabama
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35209
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(Address of Principal Executive Office )
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(Zip code)
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Registrant’s telephone number, including area code: (205) 877-4400
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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¨
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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¨
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Soliciting material pursuant to Rule 14a-12 under the Securities Act (17 CFR 240.14a-12)
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¨
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17CFR 240.14d-2(b))
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¨
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Pre-commencement communications pursuant to Rule 13e-(c) under the Exchange Act
(17CFR 240.13e-(c))
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ITEM 2.02
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RESULTS OF OPERATION AND FINANCIAL CONDITION
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ITEM 7.01
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REGULATION FD DISCLOSURES
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ITEM 9.01
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FINANCIAL STATEMENTS AND EXHIBITS
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99.1
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News release issued on May 4, 2011 reporting results of our operations for the year and quarter ended March 31, 2011.
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SIGNATURE
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For More Information Contact:
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Frank B. O’Neil
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Sr. Vice President, Corporate Communications & Investor Relations
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800-282-6242 • 205-877-4461 • foneil@ProAssurance.com
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Unaudited Consolidated Financial Summary
(in thousands, except per share data)
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Three Months Ended March 31,
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2011
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2010
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Gross Premiums Written
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$ | 160,813 | $ | 157,178 | ||||
Net Premiums Written
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$ | 149,883 | $ | 145,222 | ||||
Net Premiums Earned
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$ | 132,077 | $ | 123,427 | ||||
Net Investment Income
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$ | 36,161 | $ | 37,628 | ||||
Equity in Earnings (Loss) of
Unconsolidated Subsidiaries
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$ | (1,364 | ) | $ | 2,986 | |||
Net Investment Result
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$ | 34,797 | $ | 40,614 | ||||
Net Realized Investment Gains (Losses)
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$ | 4,124 | $ | (2,404 | ) | |||
Total Revenues
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$ | 173,585 | $ | 163,958 | ||||
Guaranty Fund Assessments (Recoupments)
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$ | (43 | ) | $ | (134 | ) | ||
Interest Expense
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$ | 795 | $ | 813 | ||||
Total Expenses
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$ | 106,927 | $ | 110,717 | ||||
Tax Expense
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$ | 18,965 | $ | 15,129 | ||||
Net Income
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$ | 47,693 | $ | 38,112 | ||||
Operating Income
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$ | 44,984 | $ | 39,588 | ||||
Net Cash Provided by Operating Activities
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$ | 24,861 | $ | 47,776 |
Earnings per Share
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Three Months Ended March 31,
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2011
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2010
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Weighted average number of
common shares outstanding
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Basic
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30,615,860 | 32,447,182 | ||||||
Diluted
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30,852,944 | 32,764,095 | ||||||
Operating Income per share (Basic)
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$ | 1.47 | $ | 1.22 | ||||
Operating Income per share (Diluted)
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$ | 1.46 | $ | 1.21 | ||||
Net Income per share (Basic)
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$ | 1.56 | $ | 1.17 | ||||
Net Income per share (Diluted)
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$ | 1.55 | $ | 1.16 |
Reconciliation of Net Income to Operating Income
(in thousands, except per share data)
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Three Months Ended March 31,
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2011
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2010
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Net Income
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$ | 47,693 | $ | 38,112 | ||||
Items Excluded in the Calculation
of Operating Income:
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Net Realized Investment (Gains) Losses
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$ | (4,124 | ) | $ | 2,404 | |||
Guaranty Fund (Recoupments) Assessments
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$ | (43 | ) | $ | (134 | ) | ||
Pre-Tax Effect of Exclusions
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$ | (4,167 | ) | $ | 2,270 | |||
Tax Effect at 35%
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$ | 1,458 | $ | (794 | ) | |||
Operating Income
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$ | 44,984 | $ | 39,588 | ||||
Per Diluted Common Share:
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Net Income
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$ | 1.55 | $ | 1.16 | ||||
Effect of Adjustments
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$ | (0.09 | ) | $ | 0.05 | |||
Operating Income Per Diluted Common Share
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$ | 1.46 | $ | 1.21 |
Key Ratios
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Three Months Ended March 31,
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2011
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2010
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Current Accident Year Loss Ratio
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83.6 | % | 84.0 | % | ||||
Effect of Prior Accident Year Reserve Development
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(30.3 | %) | (20.2 | %) | ||||
Net Loss Ratio
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53.3 | % | 63.8 | % | ||||
Expense Ratio
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25.9 | % | 24.6 | % | ||||
Combined Ratio
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79.2 | % | 88.4 | % | ||||
Operating Ratio
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51.8 | % | 57.9 | % | ||||
Return on Equity
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10.2 | % | 8.8 | % |
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Gross Written Premium was $161 million in the first quarter of 2011, a 2% increase over the first quarter of 2010. Our acquisition of American Physicians Services (APS) added $20 million to our Gross Written Premium in the first quarter, which more than offset a $17 million decline in our non-APS business.
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Net Earned Premium in the first quarter of 2011 was $132 million, including $14 million from APS. This is a 7% increase over the $123 million in Net Earned Premium in first quarter 2010.
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Retention in our medical professional liability physician book (including APS) was 90% in the first quarter, compared to 89% in the first quarter of 2010. We calculate retention by comparing expiring premium on renewed risks against total expiring premium.
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Average renewal pricing on our medical professional liability book (including APS) was 4% lower than expiring premium during the first quarter of 2011. This compares to a 1% average decrease over expiring premium in first quarter 2010.
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Loss severity trends continue to develop favorably compared to our previous expectations. We had $40 million of net favorable loss reserve development in the first quarter of 2011, $5 million of which came from the APS book of business. This compares to $25 million of favorable development in the first quarter of 2010.
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Our net investment result (Net Investment Income, plus net income from our investment in unconsolidated subsidiaries) for the first quarter of 2011 was $35 million compared to $41 million for year-ago period, a 14% decrease. Net Investment Income was $1.5 million lower in the first quarter of 2011 than the same period in 2010, principally due to lower yields in our fixed income portfolio. The $1.4 million loss attributable to Equity in Unconsolidated Subsidiaries is primarily the result of a $1.1 million amortization of tax credits we purchased in 2010. While the tax credits reduce our net investment result, they favorably reduced our tax liability by $1.3 million in the quarter.
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The CUSIP-level disclosure of our investment holdings as of March 31, 2011 is available under Supplemental Investor Information in the Investor Relations section of our website, www.ProAssurance.com.
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We purchased 258,821 shares of our common stock during the first quarter of 2011, at a cost of $15 million. We have approximately $194 million left in the authorization granted by our Board in November 2010. We have purchased 6.0 million shares of our stock since 2005, at a cost of $316 million.
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March 31, 2011
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December 31, 2010
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Shareholders’ Equity
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$ | 1,884,740 | $ | 1,855,863 | ||||
Total Investments
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$ | 4,007,609 | $ | 3,990,431 | ||||
Total Assets
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$ | 4,905,179 | $ | 4,875,056 | ||||
Policy Liabilities
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$ | 2,794,465 | $ | 2,781,830 | ||||
Accumulated Other Comprehensive Income (Loss)
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$ | 74,833 | $ | 79,124 | ||||
Goodwill
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$ | 161,453 | $ | 161,453 | ||||
Book Value per Share
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$ | 61.64 | $ | 60.35 |
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We entered into a revolving credit facility in April, 2011, which allows us to borrow up to $150 million from a consortium of five banks. This credit facility allows us to borrow funds on a secured or unsecured basis at an interest rate determined by our financial ratings at the time of borrowing. The credit facility will remain in place for three years. We have not yet borrowed any money from the facility.
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Live: Thursday, May 5, 2011, 10:00 am et. Investors may dial (888) 329-8903 (toll free) or (719) 457-2662. The call will also be webcast on our website, www.ProAssurance.com, and on StreetEvents.com.
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Replay: By telephone, through June 3, 2011 at (888) 203-1112 or (719) 457-0820, using access code 9923265. The replay will also be available through June 30, 2011 on our website, www.ProAssurance.com, and on StreetEvents.com.
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Podcast: A replay, and other information about ProAssurance, is available on a free subscription basis through a link on the ProAssurance website or through Apple’s iTunes.
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the expected benefits from completed and proposed acquisitions may not be achieved or may be delayed longer than expected due to business disruption, loss of customers and employees, increased operating costs or inability to achieve cost savings, and assumption of greater than expected liabilities, among other reasons;
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general economic conditions, either nationally or in our market areas, that are different than anticipated;
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regulatory, legislative and judicial actions or decisions that could affect our business plans or operations;
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the enactment or repeal of tort reforms;
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formation or dissolution of state-sponsored medical professional liability insurance entities that could remove or add sizable groups of physicians from the private insurance market;
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the impact of deflation or inflation;
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changes in the interest rate environment;
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the effect that changes in laws or government regulations affecting the U.S. economy or financial institutions may have on the U.S. economy and our business;
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performance of financial markets affecting the fair value of our investments or making it difficult to determine the value of our investments;
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changes in accounting policies and practices that may be adopted by our regulatory agencies and the Financial Accounting Standards Board, the Securities and Exchange Commission, or the Public Company Accounting Oversight Board;
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changes in laws or government regulations affecting medical professional liability insurance or the financial community;
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the effects of changes in the health care delivery system, including, but not limited to, the Patient Protection and Affordable Care Act;
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uncertainties inherent in the estimate of loss and loss adjustment expense reserves and reinsurance, and changes in the availability, cost, quality, or collectability of insurance/reinsurance;
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the results of litigation, including pre- or post-trial motions, trials and/or appeals we undertake;
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an allegation of bad faith which may arise from our handling of any particular claim, including failure to settle;
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loss of independent agents;
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changes in our organization, compensation and benefit plans;
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our ability to retain and recruit senior management;
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our ability to purchase reinsurance and collect recoveries from our reinsurers;
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assessments from guaranty funds;
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our ability to achieve continued growth through expansion into other states or through acquisitions or business combinations;
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changes to the ratings assigned by rating agencies to our insurance subsidiaries, individually or as a group; and
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insurance market conditions may alter the effectiveness of our current business strategy and affect our revenues.
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