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): November 2, 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 RESULTS OF OPERATION AND FINANCIAL CONDITION
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On November 2, 2011 we issued a news release reporting the results of our operations for the nine months and quarter ended September 30, 2011. The text of the release is furnished as Exhibit 99.1 to this Current Report on Form 8K.
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The information we are furnishing under Item 2.02 of this Current Report on Form 8K, including Exhibit 99.1, is not be deemed to be “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 (the “Exchange Act”) as amended, or otherwise subject to the liability of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of the general incorporation language of such filing, except as shall be expressly set forth by specific reference in such filing.
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ITEM 7.01 REGULATION FD DISCLOSURES
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In this item we are highlighting our disclosure, in Exhibit 99.1, that we have updated our online disclosure of our entire investment portfolio to provide details of our holdings through September 30, 2011. The disclosure is available under Supplemental Investor Information in the Investor Relations section of our website, www.ProAssurance.com. The direct link to the Supplemental Investor Information page is: www.proassurance.com/investorrelations/supplemental.aspx.
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The information we are furnishing under Item 7.01 of this Current Report on Form 8K, including Exhibit 99.1, is not be deemed to be “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 (the “Exchange Act”) as amended, or otherwise subject to the liability of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of the general incorporation language of such filing, except as shall be expressly set forth by specific reference in such filing.
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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 November 2, 2011 reporting results of our operations for the nine months and quarter ended September 30, 2011.
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Date: November 4, 2011
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PROASSURANCE CORPORATION
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by: /s/ Frank B. O’Neil
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-----------------------------------------------------
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Frank B. O’Neil
Senior Vice-President
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Unaudited Consolidated Financial Summary (in thousands)
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2011
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2010
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2011
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2010
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Gross Premiums Written
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$ | 174,680 | $ | 158,998 | $ | 450,795 | $ | 414,697 | ||||||||
Net Premiums Written
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$ | 164,798 | $ | 149,693 | $ | 421,692 | $ | 383,783 | ||||||||
Net Premiums Earned
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$ | 134,627 | $ | 130,300 | $ | 403,766 | $ | 379,124 | ||||||||
Net Investment Income
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$ | 34,116 | $ | 35,639 | $ | 106,573 | $ | 110,348 | ||||||||
Equity in Earnings (Loss) of
Unconsolidated Subsidiaries
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$ | (2,264 | ) | $ | (1,281 | ) | $ | (6,044 | ) | $ | 2,544 | |||||
Net Investment Result
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$ | 31,852 | $ | 34,358 | $ | 100,529 | $ | 112,892 | ||||||||
Net Realized Investment Gains (Losses)
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$ | (11,972 | ) | $ | 14,712 | $ | (5,648 | ) | $ | 8,807 | ||||||
Other Income
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$ | 7,471 | $ | 1,764 | $ | 11,745 | $ | 5,769 | ||||||||
Total Revenues
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$ | 161,978 | $ | 181,134 | $ | 510,392 | $ | 506,592 | ||||||||
Net Losses and Loss Adjustment Expenses
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$ | 63,176 | $ | 79,811 | $ | 197,951 | $ | 227,036 | ||||||||
Underwriting, Policy Acquisition
and Operating Expenses
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$ | 34,954 | $ | 32,095 | $ | 103,534 | $ | 94,940 | ||||||||
Interest Expense
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$ | 932 | $ | 832 | $ | 2,645 | $ | 2,472 | ||||||||
Total Expenses
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$ | 99,062 | $ | 112,738 | $ | 304,130 | $ | 324,448 | ||||||||
Tax Expense
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$ | 19,211 | $ | 17,344 | $ | 59,768 | $ | 52,599 | ||||||||
Net Income
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$ | 43,705 | $ | 51,052 | $ | 146,494 | $ | 129,545 | ||||||||
Operating Income
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$ | 48,366 | $ | 41,548 | $ | 147,007 | $ | 123,392 | ||||||||
Net Cash Provided by Operating Activities
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$ | 53,366 | $ | 32,707 | $ | 106,418 | $ | 108,626 |
Earnings per Share
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2011
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2010
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2011
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2010
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Weighted average number of
common shares outstanding (in 000’s)
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Basic
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30,557 | 31,642 | 30,577 | 32,135 | ||||||||||||
Diluted
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30,847 | 32,047 | 30,844 | 32,508 | ||||||||||||
Operating Income per share (Basic)
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$ | 1.58 | $ | 1.31 | $ | 4.81 | $ | 3.84 | ||||||||
Operating Income per share (Diluted)
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$ | 1.57 | $ | 1.30 | $ | 4.77 | $ | 3.80 | ||||||||
Net Income per share (Basic)
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$ | 1.43 | $ | 1.61 | $ | 4.79 | $ | 4.03 | ||||||||
Net Income per share (Diluted)
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$ | 1.42 | $ | 1.59 | $ | 4.75 | $ | 3.99 |
Reconciliation of Net Income to Operating Income (in thousands, except per share data)
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2011
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2010
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2011
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2010
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Net Income
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$ | 43,705 | $ | 51,052 | $ | 146,494 | $ | 129,545 | ||||||||
Items Excluded in the Calculation
of Operating Income:
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Confidential Settlement of Litigation with a
Service Provider
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$ | (4,900 | ) | $ | - | $ | (4,900 | ) | $ | - | ||||||
Net Realized Investment (Gains) Losses
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$ | 11,972 | $ | (14,712 | ) | $ | 5,648 | $ | (8,807 | ) | ||||||
Guaranty Fund (Recoupments) Assessments
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$ | 99 | $ | 91 | $ | 41 | $ | (659 | ) | |||||||
Pre-Tax Effect of Exclusions
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$ | 7,171 | $ | (14,621 | ) | $ | 789 | $ | (9,466 | ) | ||||||
Tax Effect at 35%
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$ | (2,510 | ) | $ | 5,117 | $ | (276 | ) | $ | 3,313 | ||||||
Operating Income
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$ | 48,366 | $ | 41,548 | $ | 147,007 | $ | 123,392 | ||||||||
Per Diluted Common Share:
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Net Income
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$ | 1.42 | $ | 1.59 | $ | 4.75 | $ | 3.99 | ||||||||
Effect of Adjustments
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$ | 0.15 | $ | (0.29 | ) | $ | 0.02 | $ | (0.19 | ) | ||||||
Operating Income Per Diluted Common Share
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$ | 1.57 | $ | 1.30 | $ | 4.77 | $ | 3.80 |
Key Ratios
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Three Months Ended September 30, |
Nine Months Ended September 30,
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2011
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2010
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2011
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2010
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Current Accident Year Loss Ratio
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85.6 | % | 86.9 | % | 84.3 | % | 85.2 | % | ||||||||
Effect of Prior Accident Year
Reserve Development
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(38.7 | %) | (25.6 | %) | (35.3 | %) | (25.3 | %) | ||||||||
Net Loss Ratio
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46.9 | % | 61.3 | % | 49.0 | % | 59.9 | % | ||||||||
Expense Ratio
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25.8 | % | 24.0 | % | 25.2 | % | 24.4 | % | ||||||||
Combined Ratio
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72.7 | % | 85.3 | % | 74.2 | % | 84.3 | % | ||||||||
Operating Ratio
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47.4 | % | 57.9 | % | 47.8 | % | 55.2 | % | ||||||||
Return on Equity
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8.8 | % | 11.3 | % | 10.1 | % | 9.8 | % |
Business Detail
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In the third quarter, Gross Premiums Written were $175 million, a 10% increase over the $159 million in the third quarter of 2010. Premiums from our acquisition of American Physicians Service Group (APS) were $17 million, which offset a reduction in our other business. For the year-to-date, Gross Premiums Written are $451 million, up 9% or $36 million, compared to the same period last year. Approximately $55 million in new premium from our APS acquisition and our Certitude program with Ascension Health offset a reduction in our non-APS physician business during the first nine months of 2011.
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Our retention rate for physician business in both the quarter and nine months ending September 30, 2011 was 89%. This compares with 90% and 89%, respectively, in the comparable prior-year periods. We calculate retention by comparing expiring premium on renewed risks against total expiring premium.
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Renewal pricing on our physician medical professional liability book (including APS) averaged 1% higher than the third quarter of 2010, primarily due to the concentration of third quarter renewals in our podiatric medical professional liability business. Year-to-date, our average renewal pricing is down 1%, after being unchanged in the same period a year ago.
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Loss severity trends continue to come in at levels below those considered in establishing our reserves. In the third quarter, net favorable loss reserve development was $52 million, compared to $33 million in the year-ago quarter. For the nine months ended September 30, 2011, net favorable reserve development was $142 million, compared to $96 million a year ago. Our 2011 year-to-date net favorable reserve development includes $15 million from the APS book of business.
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Investment Commentary
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Our third quarter 2011 Net Investment Result (Net Investment Income, plus Equity in Earnings (Loss) of Unconsolidated Subsidiaries) was $32 million compared to $34 million in the third quarter of 2010. Year-to-date, our Net Investment Result was $101 million, a $12 million decrease from the same period a year ago.
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The decrease in Net Investment Income is primarily due to reduced earnings from lower overall yields in our fixed income portfolio, which also contributed to a $4 million decrease in Net Investment Income for the first nine months of 2011.
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We experienced quarterly and year-to-date losses of $2 million and $6 million respectively in our Equity in Earnings (Loss) of Unconsolidated Subsidiaries. These losses were primarily from negative returns from one of our investments and normal amortization of tax credit limited partnerships. The tax credit investments reduce our Net Investment Result, but have a favorable effect on our tax liabilities.
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The CUSIP-level disclosure of our investment holdings as of September 30, 2011 is available under Supplemental Investor Information in the Investor Relations section of our website, www.ProAssurance.com.
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Capital Management
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Our Board approved a cash dividend policy in the third quarter of 2011, and we paid our first cash dividend, $0.25 per common share, after the close of the quarter, on October 13, 2011.
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We purchased 82,000 shares of our common stock in the third quarter at a cost of $5.6 million. Year-to-date we have repurchased 341,000 shares at a total cost of $21.0 million. We have approximately $188 million remaining in the authorization granted by our Board in November 2010. Since 2005 we have purchased 6.1 million shares of our stock at a cost of $321 million.
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Balance Sheet Highlights (in thousands, except per share data)
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September 30, 2011
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December 31, 2010
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Shareholders’ Equity
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$ | 2,021,763 | $ | 1,855,863 | ||||
Total Investments
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$ | 4,046,511 | $ | 3,990,431 | ||||
Total Assets
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$ | 4,988,809 | $ | 4,875,056 | ||||
Policy Liabilities
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$ | 2,781,475 | $ | 2,781,830 | ||||
Accumulated Other Comprehensive Income (Loss)
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$ | 122,348 | $ | 79,124 | ||||
Goodwill
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$ | 159,625 | $ | 161,453 | ||||
Book Value per Share
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$ | 66.23 | $ | 60.35 |
Conference Call Information
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Live: Thursday, November 3, 2011, 10:00 am et. Investors may dial (877) 874-1571 (toll free) or (719) 325-4747. The call will also be webcast on our website, www.ProAssurance.com, and on StreetEvents.com.
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Replay: By telephone, through November 30, 2011, at (888) 203-1112 or (719) 457-0820, using access code 5148938. The replay will also be available 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, employees and key agents, 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; 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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changes in U.S. laws or government regulations regarding financial markets or market activity that may affect the U.S. economy and our business;
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changes in the ability of the U.S. government to meet its obligations that may affect 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 healthcare 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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Contact:
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Frank B. O’Neil, Sr. Vice President, Corporate Communications & Investor Relations
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800-282-6242 • 205-877-4461 • foneil@ProAssurance.com
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