SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
FORM 8-K |
CURRENT REPORT |
Pursuant to Section 13 or 15(d) of the Securities |
Exchange Act of 1934 |
Date of Report (Date of earliest event reported): May 3, 2018 |
ProAssurance Corporation |
(Exact name of registrant as specified in its charter) |
Delaware | 001-16533 | 63-1261433 |
(State of Incorporation) | (Commission File No.) | (IRS Employer I.D. No.) |
100 Brookwood Place, Birmingham, Alabama | 35209 |
(Address of Principal Executive Office ) | (Zip code) |
Registrant’s telephone number, including area code: (205) 877-4400 |
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: | |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Securities Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-(c) under the Exchange Act (17CFR 240.13e-(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). | |
Emerging growth company ¨ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ |
PROASSURANCE CORPORATION |
by: /s/ Frank B. O’Neil |
----------------------------------------------------- |
Frank B. O’Neil Senior Vice-President |
NEWS RELEASE For More Information: Frank B. O’Neil, IRC Sr. Vice President, Corporate Communications & Investor Relations 800-282-6242 • 205-877-4461 • FrankONeil@ProAssurance.com |
Consolidated Income Statement Highlights ($ in thousands, except per share data) | ||||||||||
Three Months Ended March 31 | ||||||||||
2018 | 2017 | % Change | ||||||||
Revenues | ||||||||||
Gross premiums written* | $ | 243,010 | $ | 231,345 | 5.0 | % | ||||
Net premiums written | $ | 215,132 | $ | 204,227 | 5.3 | % | ||||
Net premiums earned | $ | 187,159 | $ | 182,903 | 2.3 | % | ||||
Net investment income | $ | 22,027 | $ | 23,186 | (5.0 | %) | ||||
Equity in earnings (loss) of unconsolidated subsidiaries | $ | 1,640 | $ | 1,808 | (9.3 | %) | ||||
Net realized investment gains (losses) | $ | (12,517 | ) | $ | 13,280 | (194.3 | %) | |||
Other income* | $ | 2,723 | $ | 1,821 | 49.5 | % | ||||
Total revenues* | $ | 201,032 | $ | 222,998 | (9.9 | %) | ||||
Expenses | ||||||||||
Net losses and loss adjustment expenses* | $ | 129,786 | $ | 119,151 | 8.9 | % | ||||
Underwriting, policy acquisition and operating expenses* | $ | 57,360 | $ | 57,108 | 0.4 | % | ||||
Total expenses* | $ | 192,598 | $ | 182,767 | 5.4 | % | ||||
Income tax expense (benefit) | $ | (3,422 | ) | $ | (1,224 | ) | (179.6 | %) | ||
Net income | $ | 11,856 | $ | 41,455 | (71.4 | %) | ||||
Non-GAAP operating income | $ | 21,487 | $ | 33,401 | (35.7 | %) | ||||
Weighted average number of common shares outstanding | ||||||||||
Diluted | 53,682 | 53,535 | 0.3 | % | ||||||
Earnings per share | ||||||||||
Net income per diluted share | $ | 0.22 | $ | 0.77 | (71.4 | %) | ||||
Non-GAAP operating income per diluted share | $ | 0.40 | $ | 0.62 | (35.5 | %) | ||||
* Consolidated totals include inter-segment eliminations. The eliminations affect individual line items only and have no effect on net income. See Note 12 of the Notes to Condensed Consolidated Financial Statements in the March 31, 2018 Form 10-Q for amounts by line item. |
Consolidated Key Ratios | ||||||
Three Months Ended March 31 | ||||||
2018 | 2017 | |||||
Current accident year loss ratio | 81.5 | % | 80.9 | % | ||
Effect of prior accident years’ reserve development | (12.2 | %) | (15.8 | %) | ||
Net loss ratio | 69.3 | % | 65.1 | % | ||
Expense ratio | 30.6 | % | 31.2 | % | ||
Combined ratio | 99.9 | % | 96.3 | % | ||
Operating ratio | 88.1 | % | 83.6 | % | ||
Return on equity * | 3.0 | % | 9.1 | % | ||
* Quarterly computations of ROE are annualized |
NEWS RELEASE CONTINUES |
• | Consolidated gross premiums written were $11.7 million higher than the year-ago quarter, primarily due to higher premiums in our Workers’ Compensation and Specialty P&C segments. In our Worker’s Compensation segment, gross premiums written were $91.3 million, $7.1 million higher than in the first quarter of 2017. Gross premiums written in our Specialty P&C segment were $140.5 million, $3.7 million higher than in the year-ago quarter. Premiums written in our Lloyd’s segment were $12.4 million, approximately $350,000 less than in the first quarter of 2017. |
• | Net premiums earned were $187.2 million in the first quarter of 2018, a $4.3 million increase over the same quarter in 2017. Net premiums earned increased $3.2 million and $3.1 million in our Specialty P&C and Workers’ Compensation segments, respectively. Net premiums earned in our Lloyd's Syndicate segment decreased $2.1 million, reflecting the effect of a revision in our reinsurance agreements at the beginning of 2017. |
• | Our coordinated sales & marketing programs produced $8.8 million of business in the first quarter of 2018 vs $7.7 million in the first quarter of 2017. |
• | Net favorable development was $22.8 million in the quarter, as compared to $28.8 million in the year-ago period. There was net favorable development in all operating segments: $20.6 million in Specialty P&C, $1.9 million in Workers’ Compensation and approximately $330,000 in our Lloyd’s segment. |
• | The consolidated underwriting expense ratio was 0.6 points lower than the same period last year primarily due to lower share-based compensation expenses in our Corporate segment. |
• | Our net realized investment losses were $12.5 million in the first quarter of 2018, compared to net realized investment gains of $13.3 million in 2017, which primarily reflected mark-to-market adjustments in our equity trading portfolio. |
• | Our consolidated net investment result for the first quarter of 2018 was $23.7 million, a quarter-over-quarter decrease of $1.3 million due to reduced earnings from our fixed income portfolio, primarily reflecting lower average investment balances. |
NEWS RELEASE CONTINUES |
Reconciliation of Net Income to Non-GAAP Operating Income (in thousands, except per share data) | |||||||
Three Months Ended March 31 | |||||||
2018 | 2017 | ||||||
Net income | $ | 11,856 | $ | 41,455 | |||
Items excluded in the calculation of Non-GAAP operating income: | |||||||
Net realized investment (gains) losses | 12,517 | (13,280 | ) | ||||
Net realized gains (losses) attributable to SPCs which no profit/loss is retained (1) | (410 | ) | 824 | ||||
Guaranty fund assessments (recoupments) | 84 | 65 | |||||
Pre-tax effect of exclusions | 12,191 | (12,391 | ) | ||||
Tax effect (2) | (2,560 | ) | 4,337 | ||||
After-tax effect of exclusions | 9,631 | (8,054 | ) | ||||
Non-GAAP operating income | $ | 21,487 | $ | 33,401 | |||
Per diluted common share: | |||||||
Net income | $ | 0.22 | $ | 0.77 | |||
Effect of exclusions | 0.18 | (0.15 | ) | ||||
Non-GAAP operating income per diluted common share | $ | 0.40 | $ | 0.62 | |||
(1) Net realized investment gains (losses) on investments related to our SPCs are recognized in the earnings of our Corporate segment and the portion of earnings related to the gain or loss, net of our participation, is distributed back to the cells through our SPC dividend expense (income). To be consistent with our exclusion of net realized investment gains (losses) recognized in earnings, we are excluding the portion of net realized investment gains (losses) that is included in SPC dividend expense (income). | |||||||
(2) 21% and 35% are the annual expected incremental tax rates for the three months ended March 31, 2018 and 2017, respectively, associated with the taxable or tax deductible items listed above. The effective tax rate for each period was applied to these items in calculating net income. See further discussion under the heading "Taxes" in the Executive Summary of Operations section of our 2018 Form 10-Q filed on May 3, 2018. |
Balance Sheet Highlights (in thousands, except per share data) | |||||||
March 31, 2018 | December 31, 2017 | ||||||
Total investments | $ | 3,498,645 | $ | 3,686,528 | |||
Total assets | $ | 4,678,924 | $ | 4,929,197 | |||
Total liabilities | $ | 3,109,755 | $ | 3,334,402 | |||
Common shares (par value $0.01) | $ | 630 | $ | 628 | |||
Retained earnings | $ | 1,614,344 | $ | 1,614,186 | |||
Treasury shares | $ | (418,009 | ) | $ | (418,007 | ) | |
Shareholders’ equity | $ | 1,569,169 | $ | 1,594,795 | |||
Book value per share | $ | 29.28 | $ | 29.83 |
NEWS RELEASE CONTINUES |
Specialty P&C Segment ($ in thousands) | ||||||||||
Three Months Ended March 31 | ||||||||||
2018 | 2017 | % Change | ||||||||
Gross premiums written | $ | 140,520 | $ | 136,858 | 2.7 | % | ||||
Net premiums written | $ | 121,966 | $ | 117,297 | 4.0 | % | ||||
Net premiums earned | $ | 116,276 | $ | 113,058 | 2.8 | % | ||||
Total revenues | $ | 117,532 | $ | 114,256 | 2.9 | % | ||||
Net losses and loss adjustment expenses | $ | 84,585 | $ | 74,994 | 12.8 | % | ||||
Underwriting, policy acquisition and operating expenses | $ | 28,276 | $ | 25,977 | 8.9 | % | ||||
Segregated portfolio cell dividend expense (income) | $ | (30 | ) | $ | (28 | ) | (7.1 | %) | ||
Total expenses | $ | 112,831 | $ | 100,943 | 11.8 | % | ||||
Segment operating results | $ | 4,701 | $ | 13,313 | (64.7 | %) |
Specialty P&C Segment Key Ratios | |||||
Three Months Ended March 31 | |||||
2018 | 2017 | ||||
Current accident year loss ratio | 90.4 | % | 88.7 | % | |
Effect of prior accident years’ reserve development | (17.7 | %) | (22.4 | %) | |
Net loss ratio | 72.7 | % | 66.3 | % | |
Underwriting expense ratio | 24.3 | % | 23.0 | % | |
Combined ratio | 97.0 | % | 89.3 | % |
NEWS RELEASE CONTINUES |
Workers' Compensation Segment ($ in thousands) | ||||||||||
Three Months Ended March 31 | ||||||||||
2018 | 2017 | % Change | ||||||||
Gross premiums written | $ | 91,349 | $ | 84,230 | 8.5 | % | ||||
Net premiums written | $ | 81,325 | $ | 75,570 | 7.6 | % | ||||
Net premiums earned | $ | 58,407 | $ | 55,283 | 5.7 | % | ||||
Total revenues | $ | 58,773 | $ | 55,428 | 6.0 | % | ||||
Net losses and loss adjustment expenses | $ | 36,715 | $ | 34,650 | 6.0 | % | ||||
Underwriting, policy acquisition and operating expenses | $ | 17,333 | $ | 16,691 | 3.8 | % | ||||
Segregated portfolio cell dividend expense (income) | $ | 1,894 | $ | 1,174 | 61.3 | % | ||||
Total expenses | $ | 55,942 | $ | 52,515 | 6.5 | % | ||||
Segment operating results | $ | 2,831 | $ | 2,913 | (2.8 | %) |
Workers’ Compensation Segment Key Ratios | |||||
Three Months Ended March 31 | |||||
2018 | 2017 | ||||
Current accident year loss ratio | 66.1 | % | 67.0 | % | |
Effect of prior accident years’ reserve development | (3.2 | %) | (4.3 | %) | |
Net loss ratio | 62.9 | % | 62.7 | % | |
Underwriting expense ratio | 29.7 | % | 30.2 | % | |
Combined ratio | 92.6 | % | 92.9 | % |
NEWS RELEASE CONTINUES |
Lloyd’s Syndicate Segment ($ in thousands) | ||||||||||
Three Months Ended March 31 | ||||||||||
2018 | 2017 | % Change | ||||||||
Gross premiums written | $ | 12,361 | $ | 12,713 | (2.8 | %) | ||||
Net premiums written | $ | 11,841 | $ | 11,360 | 4.2 | % | ||||
Net premiums earned | $ | 12,476 | $ | 14,562 | (14.3 | %) | ||||
Net investment income | $ | 751 | $ | 372 | 101.9 | % | ||||
Other gains (losses) | $ | 277 | $ | 418 | (33.7 | %) | ||||
Total revenues | $ | 13,504 | $ | 15,352 | (12.0 | %) | ||||
Net losses and loss adjustment expenses | $ | 8,486 | $ | 9,507 | (10.7 | %) | ||||
Underwriting, policy acquisition and operating expenses | $ | 7,246 | $ | 6,211 | 16.7 | % | ||||
Total expenses | $ | 15,732 | $ | 15,718 | 0.1 | % | ||||
Total income tax expense (benefit) | $ | 6 | $ | (7 | ) | 185.7 | % | |||
Segment operating results | $ | (2,234 | ) | $ | (359 | ) | (522.3 | %) |
Lloyd’s Syndicate Segment Key Ratios | ||||||
Three Months Ended March 31 | ||||||
2018 | 2017 | |||||
Current accident year loss ratio | 70.7 | % | 72.9 | % | ||
Effect of prior accident years’ reserve development | (2.7 | %) | (7.6 | %) | ||
Net loss ratio | 68.0 | % | 65.3 | % | ||
Underwriting expense ratio | 58.1 | % | 42.7 | % |
NEWS RELEASE CONTINUES |
Corporate Segment ($ in thousands) | ||||||||||
Three Months Ended March 31 | ||||||||||
2018 | 2017 | % Change | ||||||||
Net investment income | $ | 21,276 | $ | 22,814 | (6.7 | %) | ||||
Equity in earnings (loss) of unconsolidated subsidiaries | $ | 1,640 | $ | 1,808 | (9.3 | %) | ||||
Net realized investment gains (losses) | $ | (12,463 | ) | $ | 13,253 | (194.0 | %) | |||
Total revenues | $ | 11,396 | $ | 38,048 | (70.0 | %) | ||||
Operating expenses | $ | 4,678 | $ | 8,315 | (43.7 | %) | ||||
Segregated portfolio cell dividend expense (income)* | $ | (117 | ) | $ | 1,229 | (109.5 | %) | |||
Interest expense | $ | 3,705 | $ | 4,133 | (10.4 | %) | ||||
Income tax expense (benefit) | $ | (3,428 | ) | $ | (1,217 | ) | (181.7 | %) | ||
Segment operating results | $ | 6,558 | $ | 25,588 | (74.4 | %) | ||||
* Represents the investment results attributable to the SPCs at our Cayman Islands reinsurance subsidiaries. |
NEWS RELEASE CONTINUES |
| changes in general economic conditions, including the impact of inflation or deflation and unemployment; |
| our ability to maintain our dividend payments; |
| regulatory, legislative and judicial actions or decisions that could affect our business plans or operations; |
| the enactment or repeal of tort reforms; |
| formation or dissolution of state-sponsored insurance entities providing coverages now offered by ProAssurance which could remove or add sizable numbers of insureds from or to the private insurance market; |
| changes in the interest and tax rate environment; |
NEWS RELEASE CONTINUES |
| resolution of uncertain tax matters and changes in tax laws, including the impact of the TCJA; |
| changes in U.S. laws or government regulations regarding financial markets or market activity that may affect the U.S. economy and our business; |
| changes in the ability of the U.S. government to meet its obligations that may affect the U.S. economy and our business; |
| performance of financial markets affecting the fair value of our investments or making it difficult to determine the value of our investments; |
| changes in requirements or accounting policies and practices that may be adopted by our regulatory agencies, the FASB, the SEC, the PCAOB or the NYSE that may affect our business; |
| changes in laws or government regulations affecting the financial services industry, the property and casualty insurance industry or particular insurance lines underwritten by our subsidiaries; |
| the effect on our insureds, particularly the insurance needs of our insureds, and our loss costs, of changes in the healthcare delivery system and/or changes in the U.S. political climate that may affect healthcare policy or our business; |
| consolidation of our insureds into or under larger entities which may be insured by competitors, or may not have a risk profile that meets our underwriting criteria or which may not use external providers for insuring or otherwise managing substantial portions of their liability risk; |
| uncertainties inherent in the estimate of our loss and loss adjustment expense reserve and reinsurance recoverable; |
| changes in the availability, cost, quality or collectability of insurance/reinsurance; |
| the results of litigation, including pre- or post-trial motions, trials and/or appeals we undertake; |
| effects on our claims costs from mass tort litigation that are different from that anticipated by us; |
| allegations of bad faith which may arise from our handling of any particular claim, including failure to settle; |
| loss or consolidation of independent agents, agencies, brokers or brokerage firms; |
| changes in our organization, compensation and benefit plans; |
| changes in the business or competitive environment may limit the effectiveness of our business strategy and impact our revenues; |
| our ability to retain and recruit senior management; |
| the availability, integrity and security of our technology infrastructure or that of our third-party providers of technology infrastructure, including any susceptibility to cyber-attacks which might result in a loss of information or operating capability; |
| the impact of a catastrophic event, as it relates to both our operations and our insured risks; |
| the impact of acts of terrorism and acts of war; |
| the effects of terrorism-related insurance legislation and laws; |
| guaranty funds and other state assessments; |
| our ability to achieve continued growth through expansion into new markets or through acquisitions or business combinations; |
| changes to the ratings assigned by rating agencies to our insurance subsidiaries, individually or as a group; |
| provisions in our charter documents, Delaware law and state insurance laws may impede attempts to replace or remove management or may impede a takeover; |
| state insurance restrictions may prohibit assets held by our insurance subsidiaries, including cash and investment securities, from being used for general corporate purposes; |
| taxing authorities can take exception to our tax positions and cause us to incur significant amounts of legal and accounting costs and, if our defense is not successful, additional tax costs, including interest and penalties; and |
NEWS RELEASE CONTINUES |
| 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 or key agents; increased operating costs or inability to achieve cost savings; and assumption of greater than expected liabilities, among other reasons. |
Additional risks, assumptions and uncertainties that could arise from our membership in the Lloyd's market and our participation in Lloyd's Syndicates include, but are not limited to, the following: | |
| members of Lloyd's are subject to levies by the Council of Lloyd's based on a percentage of the member's underwriting capacity, currently a maximum of 3%, but can be increased by Lloyd's; |
| Syndicate operating results can be affected by decisions made by the Council of Lloyd's which the management of Syndicate 1729 and Syndicate 6131 have little ability to control, such as a decision to not approve the business plan of Syndicate 1729 or Syndicate 6131, or a decision to increase the capital required to continue operations, and by our obligation to pay levies to Lloyd's; |
| Lloyd's insurance and reinsurance relationships and distribution channels could be disrupted or Lloyd's trading licenses could be revoked making it more difficult for a Lloyd's Syndicate to distribute and market its products; |
| rating agencies could downgrade their ratings of Lloyd's as a whole; and |
| Syndicate 1729 and Syndicate 6131 operations are dependent on a small, specialized management team and the loss of their services could adversely affect the Syndicate’s business. The inability to identify, hire and retain other highly qualified personnel in the future, could adversely affect the quality and profitability of Syndicate 1729’s or Syndicate 6131's business. |
8B^D=6;(JQ
M>KECDC:HOJ45]H'9F>%<3SZ>L3&"\]_II\IP9)G:N_GW5HMBG?K/)%I^]#\^
M_:/V4G@_%=1IJUF-/>?M&DGR^SY9F:TB?7%:+89WZSR1:?O0Y@ A2"
M #H !VX['_:]SG$V=6U523(:[D)H_E_ >8C([;&]&I?HJ_\ .ZV8K,5?
M*G7I%
1-&Q^S83*Z_E8&V,;F,?:QUV)R(O6"U$^)[F
M+\62Q=4E@D:J/BFC9)&YKV- UD^O8>U+3UVG+95[6/9;V2O9R"UF1S?78"&2P^JY*K; >1]JS^'S^QTL/O6.R>4LS8*;7,[ B1P2O:QTK8B>>S;M+_ &9Q7!EO.V#-/V;4;SM$8LMJ
M[7F?+NLD4R3/Y:VKTYI;#]E_:G^R>,:?->T5T^>?LNJF9VK&'-:L=Y,^$=SD
MBF69V^[6U>G-*8BCNID_GKR->U'- RS-Q)VB.0\'%3GJX'/9:7=M6DDC>R&QAMJDDR4\=:22Q;?,W&9R3+XF
M5\MAUASJ;;%B&LEJ&%NL-";Y[5?V94R.H 8P\[EQ&8:B23/J1XG+6999LC96.2.WX%17V1NTK
MF.'N3--Y*P;E]]U3,P79ZZ.>QN1P\S74\_B)7QLED2'*86Q=IN5D4SF2213)
M!8=$V"2VGT'=\5LF%Q6P8*]#D\-FL?3RF*R%=WB@NX^_7CM5+,2JB.\,L$K'
M]'(US556O:U[7-0/;P !P>O1%7X=/7[7S_E]X@&>T_=K
MF/;N6L#Q;B[+9L5QABUMYIGD-:]NZ[-!'8GA=.KGOD9CM8^1VL8QM=K9LK<2
M9MKPU)89R_/_ #)BN/-)VO>LV[PXG4=?RVQ7VM?$R6:OB:4UQU6OY[XXWVKC
MHFU*D*O1T]F>&&-'22,8ZI!Y?Y7S&][9LNZ[#8FMYO:LWD\_DYIY&RO2SE+<
MEI8$>R*"+RJ<7/6@C=EKEICI8E2.:*)+.Z[L
MX]\+VYD%:K"R6U%/H)H?;K]EPJ2I=S_ .Q+1E1DEC^I_N-J6S2E>GC>ZM
MK^U^!]RDKT1K:E/8(;U?S?SI^8I5GQNIP^N4N*MGT?/9#5MQP.4UG8L3(V'(
MX;,575;U21S&2L\3>KX9H98I&20VJLMBG8C>V2M8EC
.19G?=S>SB\<<:,H[-RS[CRAN[88)?
MDFW59+Q_K]SI'(_Y.QEJ".QL-F"1)88\IGV-K20N22O@*,Z),LD6CCH:T,5>
MO%'#!7CCA@@B8V*&"*)B1QQ0Q,:V.*..-J,9'&UK&-1&M:B(G0(6O!OLG.6D
M]WGY+Y;I54ZQ/M8K0\%+<7ZVZOG0-S^Q/JM>RQCFM\%AFNUY:=R9W6*Y#61U
MC;QQ?[.%V6];]Q?=G)&1^DVKZBW'WKF/]Y1_6+W_-9#!1V*_E_V9CXKD3I6P^?!9@4HWYU
MY$ACVZ9%)$UNG-7EZQOBQ%>*YL
M4JRL>C+=;"K'&YSW358\SBQ#]F1XWH8?LSU
JO=Y<,;&>)Z
MJYW17.57*J@?N@ ZN]M#L[U>6.*M^XZMK&QFVZSE,37FFZI'5R4D"R
MXBZKFU[4D?N66AI6FRP5Y+,*P^951MAL3VU)F4Q%W'V[6/R->6ID2I?JS0N^NAEJW(9J\L+NCHI8W1N^N:J%RE(WJU4_R_.B_,J?;0
MK1N_U[*4/%O:-V67'1+%@N1*T?(6*B\NI#'6M96S/4V2A!%55B)7K9VI/:A<
MZK6_.LG%!_9S