ProAssurance Takes Defensive Play During Surge Of Jury Verdicts: Analyst

Citizens Capital Markets analyst Matthew J. Carletti reiterated the Market Outperform rating on ProAssurance Corporation PRA, with a price targe of $20.

The company reported on Monday fourth-quarter results, where net investment income increased 9%. Gross premiums written fell 0.5% to $207.67 million.

Carletti noted the core Specialty P&C segment’s accident-year loss ratio matched expectations at 83%, reflecting continued caution around loss severity in select jurisdictions, while the Workers’ Compensation segment’s loss ratio also met expectations at 77%, driven by elevated medical loss trends.

GWP in the core Specialty P&C segment remained flat, in line with estimates, with cautious underwriting amidst a competitive market, solid renewal pricing (+8%), and retention (84%).

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The analyst wrote Workers’ Compensation GWP rose by 6%, surpassing estimates mainly due to higher audit premiums, though lower new business ($3 million vs. $5 million last year) partially offset the increase.

The analyst observes that as courts cleared post-COVID-19 pandemic backlogs, a surge in large jury verdicts and social inflation emerged, prompting ProAssurance to adopt a “defense” strategy, focusing on necessary rate increases to cover elevated loss costs, which could limit near-term growth.

While frequency has declined in its workers’ compensation business, severity persists.

ProAssurance’s aggressive pricing actions and constrained growth have allowed it to stay ahead of “loss cost trends,” resulting in stable loss ratios and favorable PPD levels.

The analyst noted the company was in a stronger, more stable position than a year ago and viewed the current 40%+ discount to book value as an overreaction.

PRA Price Action: ProAssurance shares traded higher by 14.10% to $16.10 at publication Tuesday.

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