ProAssurance on Par with Zacks Est - Analyst Blog

ProAssurance Corporation’s (PRA) second quarter operating earnings of $1.29 per share came in line with the Zacks Consensus Estimate. However, this compared unfavorably with the earnings of $1.52 per share in the prior-year quarter.

On a year over year basis, earnings for the quarter were adversely affected by a 7.8% decline in revenues that totalled to $161.5 million, primarily due to weakness in premiums written and earned. However, the lower-than-expected top-line was partly offset by decrease in interest and tax expenses that improved the combined ratio.

Net income in the quarter was $40.4 million or $1.23 per share, compared with $53.9 million or $1.62 in the prior-year quarter. Operating income excludes the after-tax effects of net realized gains or losses and guaranty fund assessments or recoupments. During the reported quarter, the effect of adjustment to net income was 6 cents per share, compared with 10 cents in the year-ago quarter.

Gross written premiums for the quarter decreased 11.7% year over year to $98.5 million. ProAssurance’s retention of its existing business in its historical medical liability book was 89% in the reported quarter.

ProAssurance experienced $37.5 million of favourable net loss reserve development in the reported quarter, compared with $55.5 million a year ago. The favourable development came from accident years 2004 to 2007.

Net investment income for the quarter dipped 6.5% year over year to $37.1 million. ProAssurance’s net investment result for the reported quarter decreased primarily due to lower reinvestment rates on fixed income portfolio.

Financial Ratios

ProAssurance’s net loss ratio for the reported quarter came in at 54.6%, compared with 52.6% in the prior-year quarter. Expense ratio during the quarter was 24.5%, up from 22.8% in the prior-year quarter. Combined ratio slightly improved to 79.1% from 75.3% in the prior-year quarter.

However, return on equity (ROE) plummeted to 9.1% from 14.4% in the prior-year quarter. Book value increased to $56.31 per share as of June 30, 2010 compared with $54.07 as of March 31, 2010.

Share Repurchase Update

During the reported quarter, ProAssurance repurchased approximately 674,000 shares of its common stock for about $39.2 million. As of June 30, 2010, the company had approximately $76.2 million of shares remaining under the existing share repurchase authorization approved in September 2009.

There are inherent threats associated with the medical professional liability insurance sector as a whole, stemming from price competition, legislative reform, loss cost trends and regulatory challenges. However, we anticipate the results of ProAssurance to reflect benefits of acquisitions, geographic diversity and strong financial position.

 
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