ProAssurance Corporation (NYSE: PRA) reports net income of $10.6
million, or $0.20 per diluted share, and operating income(1) of
$8.6 million, or $0.16 per diluted share, for the three months
ended June 30, 2023.
Highlights - Second Quarter 2023(2)
- Gross premiums written of $238 million (+1%)
- New business written increased to $19 million (+58%)
- Favorable prior accident year reserve development of $6
million
- Consolidated combined ratio of 108.2%
- Consolidated operating ratio of 95.4%
- Net investment income of $32 million (+44%)
- Net investment income increased by $10 million compared to
2022
- Adjusted book value per share(1) of $26.31 as of June 30, 2023.
Adjusted book value per share was $25.99 as of December 31,
2022.
(1)
Represents a Non-GAAP financial measure.
See a reconciliation to its GAAP counterpart under the heading
“Non-GAAP Financial Measures” that follows.
(2)
Comparisons are to the second quarter of
2022.
Management Commentary & Results of Operations
Our second quarter results for 2023 reflect operating income of
$8.6 million, largely driven by strong investment returns.
Underwriting results reflect the ongoing competition and pressures
in losses and premiums in our core business. Net loss ratios
improved from the first quarter of the year in both our Specialty
P&C and Workers’ Compensation Insurance segments. Compared to
last year, favorable reserve development is lower, pushing the
combined ratio higher.
“The lines of business in which we operate continue to face
challenges, and we are responding in ways that will benefit all of
our constituencies over the long-term,” said Ned Rand, President
and Chief Executive Officer of ProAssurance. “Our underwriting
teams continue their disciplined focus on account selection and
pricing, while our claims handling professionals work diligently to
manage losses and mitigate the impact of social inflation prevalent
in the claims environment.”
New business written was noteworthy this quarter in several of
our lines of business. The healthcare professional liability, life
sciences, and traditional workers compensation lines all produced
new business exceeding expectations in the quarter.
Rand commented, “The new business we wrote across multiple lines
is a testament to the hard work our team members have performed in
keeping the market aware of the value proposition that ProAssurance
offers. We believe that our financial position and reputation for
standing with our insureds is attractive in the competitive
marketplace.”
Net investment income showed substantial growth this quarter,
increasing by 44% to $32 million. This continues a trend of higher
investment income as a result of higher interest rates. We expect
this trend to continue, as reinvestment rates are now considerably
higher than the average book yield of maturing investments. Strong
performance from investments in LPs/LLCs also contributed to an
increase in book value in the quarter.
Our book value per share at quarter end was $21.24, up 4% from
the December 31, 2022 book value of $20.46. Adjusted book value per
share, which excludes Accumulated Other Comprehensive Income
(AOCI), is $26.31 as of June 30, 2023 as compared to $25.99 as of
December 31, 2022. Share repurchases during the second quarter
contributed a $0.32 per share increase to adjusted book value.
CONSOLIDATED INCOME STATEMENT
HIGHLIGHTS
Selected consolidated financial data for
each period is summarized in the table below.
Three Months Ended June
30
Six Months Ended June
30
($ in thousands, except per share
data)
2023
2022
Change
2023
2022
Change
Revenues
Gross premiums written(1)
$
237,928
$
235,475
1.0
%
$
553,722
$
571,082
(3.0
%)
Net premiums written
$
214,046
$
210,151
1.9
%
$
498,955
$
521,066
(4.2
%)
Net premiums earned
$
247,862
$
247,271
0.2
%
$
487,649
$
512,982
(4.9
%)
Net investment income
31,650
21,944
44.2
%
61,960
42,387
46.2
%
Equity in earnings (loss) of
unconsolidated subsidiaries
6,632
5,180
28.0
%
5,511
12,799
(56.9
%)
Net investment gains (losses)(2)
2,946
(23,884
)
112.3
%
5,858
(37,390
)
115.7
%
Other income (loss)(1)
2,741
5,314
(48.4
%)
3,528
8,119
(56.5
%)
Total revenues(1)
291,831
255,825
14.1
%
564,506
538,897
4.8
%
Expenses
Net losses and loss adjustment
expenses
191,058
177,670
7.5
%
396,354
387,093
2.4
%
Underwriting, policy acquisition and
operating expenses(1)
76,976
77,333
(0.5
%)
144,764
149,109
(2.9
%)
SPC U.S. federal income tax expense
994
349
184.8
%
1,526
991
54.0
%
SPC dividend expense (income)
3,747
(854
)
538.8
%
5,689
1,513
276.0
%
Interest expense
5,502
4,919
11.9
%
10,965
9,360
17.1
%
Total expenses(1)
278,277
259,417
7.3
%
559,298
548,066
2.0
%
Income (loss) before income taxes
13,554
(3,592
)
477.3
%
5,208
(9,169
)
156.8
%
Income tax expense (benefit)
2,927
(1,933
)
251.4
%
755
(3,950
)
119.1
%
Net income (loss)
$
10,627
$
(1,659
)
740.6
%
$
4,453
$
(5,219
)
185.3
%
Non-GAAP operating income (loss)
$
8,562
$
16,328
(47.6
%)
$
490
$
24,008
(98.0
%)
Weighted average number of common
shares outstanding
Basic
53,815
54,068
53,900
54,040
Diluted
53,918
54,186
54,017
54,165
Earnings (loss) per share
Net income (loss) per diluted share
$
0.20
$
(0.03
)
$
0.23
$
0.08
$
(0.10
)
$
0.18
Non-GAAP operating income (loss) per
diluted share
$
0.16
$
0.30
$
(0.14
)
$
0.01
$
0.44
$
(0.43
)
(1)
Consolidated totals include inter-segment
eliminations. The eliminations affect individual line items only
and have no effect on net income (loss). See Note 12 of the Notes
to Condensed Consolidated Financial Statements in our June 30, 2023
report on Form 10-Q for amounts by line item.
(2)
This line item typically includes both
realized and unrealized investment gains and losses, investment
impairments losses, and, for the current period, the change in the
fair value of the contingent consideration in relation to the
NORCAL acquisition. Detailed information regarding the components
of net investment gains (losses) are included in Note 3 of the
Notes to Condensed Consolidated Financial Statements in our June
30, 2023 report on Form 10-Q.
The abbreviation “nm” indicates that the
information or the percentage change is not meaningful.
BALANCE SHEET HIGHLIGHTS
($ in thousands, except per share
data)
June 30,
2023
December
31, 2022
Total investments
$
4,315,417
$
4,387,683
Total assets
$
5,657,412
$
5,699,999
Total liabilities
$
4,537,698
$
4,595,981
Common shares (par value $0.01)
$
636
$
634
Retained earnings
$
1,425,038
$
1,423,286
Treasury shares
$
(439,185
)
$
(419,214
)
Shareholders’ equity
$
1,119,714
$
1,104,018
Book value per share
$
21.24
$
20.46
Non-GAAP adjusted book value per
share(1)
$
26.31
$
25.99
(1)
Adjusted book value per share is a
Non-GAAP financial measure. See a reconciliation of book value per
share to Non-GAAP adjusted book value per share under the heading
“Non-GAAP Financial Measures” that follows.
CONSOLIDATED KEY RATIOS
Three Months Ended June
30
Six Months Ended June
30
2023
2022
2023
2022
Current accident year net loss ratio
79.6
%
79.5
%
81.1
%
80.2
%
Effect of prior accident years’ reserve
development
(2.5
%)
(7.6
%)
0.2
%
(4.7
%)
Net loss ratio
77.1
%
71.9
%
81.3
%
75.5
%
Underwriting expense ratio
31.1
%
31.3
%
29.7
%
29.1
%
Combined ratio
108.2
%
103.2
%
111.0
%
104.6
%
Operating ratio
95.4
%
94.3
%
98.3
%
96.3
%
Return on equity(1)
3.2
%
(0.4
%)
0.5
%
(0.7
%)
Non-GAAP operating return on
equity(1)(2)
3.0
%
5.3
%
0.1
%
3.7
%
Combined ratio, excluding
transaction-related costs(3)
108.2
%
102.9
%
111.0
%
104.3
%
(1)
Quarterly amounts are annualized. Refer to
our June 30, 2023 report on Form 10-Q under the heading “Non-GAAP
Operating ROE” in the Executive Summary of Operations section for
details on our calculation.
(2)
See a reconciliation of ROE to Non-GAAP
operating ROE under the heading “Non-GAAP Financial Measures” that
follows.
(3)
Our consolidated underwriting expense
ratio for the three and six months ended June 30, 2022 includes
$0.7 million and $1.9 million, respectively, of transaction-related
costs included in consolidated operating expenses associated with
our acquisition of NORCAL. These costs do not reflect normal
operating results.
SPECIALTY P&C SEGMENT
RESULTS
Three Months Ended June
30
Six Months Ended June
30
($ in thousands)
2023
2022
%
Change
2023
2022
%
Change
Gross premiums written
$
170,174
$
167,760
1.4
%
$
409,049
$
425,433
(3.9
%)
Net premiums written
$
145,562
$
150,015
(3.0
%)
$
359,627
$
384,853
(6.6
%)
Net premiums earned
$
178,902
$
183,547
(2.5
%)
$
358,245
$
381,514
(6.1
%)
Other income
1,021
1,903
(46.3
%)
2,014
2,924
(31.1
%)
Total revenues
179,923
185,450
(3.0
%)
360,259
384,438
(6.3
%)
Net losses and loss adjustment
expenses
(145,044
)
(137,002
)
5.9
%
(309,096
)
(302,960
)
2.0
%
Underwriting, policy acquisition and
operating expenses
(47,439
)
(48,077
)
(1.3
%)
(88,399
)
(90,958
)
(2.8
%)
Total expenses
(192,483
)
(185,079
)
4.0
%
(397,495
)
(393,918
)
0.9
%
Segment results
$
(12,560
)
$
371
(3,485.4
%)
$
(37,236
)
$
(9,480
)
(292.8
%)
SPECIALTY P&C SEGMENT KEY
RATIOS
Three Months Ended June
30
Six Months Ended June
30
2023
2022
2023
2022
Current accident year net loss ratio
84.7
%
84.1
%
86.0
%
85.0
%
Effect of prior accident years’ reserve
development
(3.6
%)
(9.5
%)
0.3
%
(5.6
%)
Net loss ratio
81.1
%
74.6
%
86.3
%
79.4
%
Underwriting expense ratio
26.5
%
26.2
%
24.7
%
23.8
%
Combined ratio
107.6
%
100.8
%
111.0
%
103.2
%
Compared to the second quarter of last year, gross written
premium increased 1.4% driven by $7.9 million of tail coverage
related to one program in which we do not participate in the
underwriting results, all of which is ceded to our Segregated
Portfolio Cell Reinsurance segment (see further discussion in the
Segregated Portfolio Cell Reinsurance section that follows). Net
earned premium decreased 2.5% in the same period. Standard
Physician written premium was lower than last year, while Custom
Physician premium increased due to new business exceeding
expectations. Premium retention in the quarter was 83% compared to
84% in the prior period. Standard Physician retention improved to
88%, while Specialty retention was lower at 66%; the Small Business
Unit and Medical Technology Liability business retained 89% and 82%
of premium, respectively.
We achieved renewal pricing increases of 6%, on par with the 6%
increase achieved in the second quarter of 2022. New business
written improved to $12.3 million for the quarter, compared to $7.8
million last year; we have written $23.1 million new business
year-to-date in 2023, despite the competitive market
conditions.
Excluding adjustments from purchase accounting and ceded
premium, the segment current accident year net loss ratio increased
by 0.7 percentage points in the quarter driven by the continued
severity trends and changes in the mix of business.
We recognized net favorable prior accident year reserve
development of $6.5 million in the second quarter, compared to
$17.4 million in the same period of 2022. The favorable development
for the quarter was primarily related to our Medical Technology
Liability line of business.
The expense ratio slightly increased to 26.5% compared to 26.2%
last year. Compensation-related expenses were largely responsible
for the increase, although this was mostly offset by an increase in
ceding commission, which provides a benefit to the expense
ratio.
WORKERS’ COMPENSATION INSURANCE SEGMENT
RESULTS
Three Months Ended June
30
Six Months Ended June
30
($ in thousands)
2023
2022
%
Change
2023
2022
%
Change
Gross premiums written
$
62,757
$
63,634
(1.4
%)
$
136,187
$
135,752
0.3
%
Net premiums written
$
42,323
$
42,558
(0.6
%)
$
89,894
$
87,824
2.4
%
Net premiums earned
$
41,018
$
41,709
(1.7
%)
$
81,821
$
82,393
(0.7
%)
Other income
651
517
25.9
%
1,232
1,199
2.8
%
Total revenues
41,669
42,226
(1.3
%)
83,053
83,592
(0.6
%)
Net losses and loss adjustment
expenses
(29,762
)
(27,947
)
6.5
%
(60,606
)
(55,158
)
9.9
%
Underwriting, policy acquisition and
operating expenses
(14,400
)
(13,669
)
5.3
%
(27,379
)
(26,669
)
2.7
%
Total expenses
(44,162
)
(41,616
)
6.1
%
(87,985
)
(81,827
)
7.5
%
Segment results
$
(2,493
)
$
610
(508.7
%)
$
(4,932
)
$
1,765
(379.4
%)
WORKERS’ COMPENSATION INSURANCE SEGMENT
KEY RATIOS
Three Months Ended June
30
Six Months Ended June
30
2023
2022
2023
2022
Current accident year net loss ratio
72.6
%
71.8
%
72.6
%
71.8
%
Effect of prior accident years’ reserve
development
0.0
%
(4.8
%)
1.5
%
(4.9
%)
Net loss ratio
72.6
%
67.0
%
74.1
%
66.9
%
Underwriting expense ratio
35.1
%
32.8
%
33.5
%
32.4
%
Combined ratio
107.7
%
99.8
%
107.6
%
99.3
%
The Workers’ Compensation Insurance segment underwriting results
declined in the second quarter of 2023, compared to the same period
in 2022, reflecting an increase in the net loss ratio, higher
expenses, and a reduction in net premiums earned.
Gross premiums decreased by $0.9 million during the three months
ended June 30, 2023, compared to the same period of 2022 primarily
reflecting lower renewal premium, partially offset by an increase
in new business and higher audit premium. In our traditional
business, renewal results reflected rate decreases of 7% and
renewal retention of 80% as competitive market conditions persist.
Audit premium increased to $2.3 million in 2023, compared to $1.8
million for the same period in 2022, and we increased our carried
EBUB estimate by $1.9 million in the second quarter. New business
written in our traditional business was $5.6 million in the second
quarter of 2023, an increase of $2.0 million compared to the same
period in 2022.
The current accident year net loss ratio increased 0.8
percentage points, primarily reflecting an increase in losses
recognized under our reinsurance contract annual aggregate
deductible and higher ULAE costs. We recognized no prior accident
year reserve development in the second quarter of 2023, compared to
net favorable prior accident year reserve development of $2.0
million for the same period in 2022.
Underwriting expenses increased by $0.7 million, primarily
driven by higher compensation-related costs, IT costs, and
travel-related expenses. The underwriting expense ratio increased
to 35.1% reflecting the higher expenses and lower net premiums
earned.
SEGREGATED PORTFOLIO CELL REINSURANCE
SEGMENT RESULTS
Three Months Ended June
30
Six Months Ended June
30
($ in thousands)
2023
2022
%
Change
2023
2022
%
Change
Gross premiums written
$
25,113
$
16,634
51.0
%
$
47,994
$
45,003
6.6
%
Net premiums written
$
23,057
$
14,515
58.8
%
$
43,005
$
39,732
8.2
%
Net premiums earned
$
24,094
$
16,222
48.5
%
$
39,394
$
35,536
10.9
%
Net investment income
603
211
185.8
%
1,024
323
217.0
%
Net investment gains (losses)
1,194
(2,782
)
142.9
%
2,355
(3,493
)
167.4
%
Other income
1
1
—
%
1
1
—
%
Net losses and loss adjustment
expenses
(13,816
)
(9,272
)
49.0
%
(22,238
)
(20,763
)
7.1
%
Underwriting, policy acquisition and
operating expenses
(6,538
)
(5,237
)
24.8
%
(11,575
)
(9,605
)
20.5
%
SPC U.S. federal income tax expense(1)
(994
)
(349
)
184.8
%
(1,526
)
(991
)
54.0
%
SPC net results
4,544
(1,206
)
476.8
%
7,435
1,008
637.6
%
SPC dividend (expense) income (2)
(3,747
)
854
538.8
%
(5,689
)
(1,513
)
276.0
%
Segment results (3)
$
797
$
(352
)
326.4
%
$
1,746
$
(505
)
445.7
%
(1)
Represents the provision for U.S. federal
income taxes for SPCs at Inova Re, which have elected to be taxed
as a U.S. corporation under Section 953(d) of the Internal Revenue
Code. U.S. federal income taxes are included in the total SPC net
results and are paid by the individual SPCs.
(2)
Represents the net (profit) loss
attributable to external cell participants.
(3)
Represents our share of the net profit
(loss) and OCI of the SPCs in which we participate.
SEGREGATED PORTFOLIO CELL REINSURANCE SEGMENT KEY RATIOS
Three Months Ended June
30
Six Months Ended June
30
2023
2022
2023
2022
Current accident year net loss ratio
62.9
%
70.7
%
63.7
%
67.3
%
Effect of prior accident years’ reserve
development
(5.6
%)
(13.5
%)
(7.2
%)
(8.9
%)
Net loss ratio
57.3
%
57.2
%
56.5
%
58.4
%
Underwriting expense ratio
27.1
%
32.3
%
29.4
%
27.0
%
Combined ratio
84.4
%
89.5
%
85.9
%
85.4
%
The improvement in the Segregated Portfolio Cell Reinsurance
segment results for the second quarter of 2023 primarily reflects
improved investment results and a lower net loss ratio in the
segregated portfolio cells in which we participate.
Gross premiums written increased in the quarter, primarily
reflecting healthcare professional liability tail premium of $7.9
million written and fully earned; we do not participate in the
underwriting results of this program. Workers’ compensation premium
declined slightly, primarily reflecting lower renewal and audit
premium.
Workers’ compensation renewal premium reflected rate decreases
of 6% and renewal retention of 84% for the three months ended June
30, 2023. Audit premium decreased to $0.9 million in the current
period, compared to $1.2 million in 2022. New business written was
$1.5 million in the second quarter of 2023, compared to $0.9
million for the same period in 2022.
The second quarter 2023 calendar year net loss ratio was
consistent with 2022, reflecting a lower workers’ compensation loss
ratio, offset by an increase in the healthcare professional
liability loss ratio. The workers’ compensation current accident
year net loss ratio decreased in 2023, reflecting a reduction in
claim severity and frequency. The increase in the healthcare
professional liability current accident year net loss ratio was
driven by a higher loss ratio in the program that wrote the tail
coverage. We recognized net favorable prior accident year reserve
development in the workers’ compensation business of $1.3 million
and $2.2 million during the second quarters of 2023 and 2022,
respectively. The 2023 net favorable development reflected overall
favorable trends in claim closing patterns primarily in accident
years 2018 through 2021.
The underwriting expense ratio decreased to 27.1% in 2023 from
32.3% in 2022, primarily reflecting the impact of a lower ceding
commission on the healthcare professional liability tail coverage
written and fully earned in the second quarter of 2023.
Underwriting expenses mostly represent commissions and other
expenses charged by the Workers’ Compensation Insurance and
Specialty P&C segments.
LLOYD’S SYNDICATES SEGMENT RESULTS
Three Months Ended June
30
Six Months Ended June
30
($ in thousands)
2023
2022
%
Change
2023
2022
%
Change
Gross premiums written
$
4,997
$
4,081
22.4
%
$
8,486
$
9,897
(14.3
%)
Net premiums written
$
3,104
$
3,063
1.3
%
$
6,429
$
8,657
(25.7
%)
Net premiums earned
$
3,848
$
5,793
(33.6
%)
$
8,189
$
13,539
(39.5
%)
Net investment income
137
143
(4.2
%)
325
355
(8.5
%)
Net investment gains (losses)
33
(485
)
106.8
%
22
(884
)
102.5
%
Other income (loss)
5
129
(96.1
%)
2
263
(99.2
%)
Net losses and loss adjustment
expenses
(2,436
)
(3,449
)
(29.4
%)
(4,414
)
(8,212
)
(46.2
%)
Underwriting, policy acquisition and
operating expenses
(1,434
)
(1,508
)
(4.9
%)
(3,155
)
(4,218
)
(25.2
%)
Segment results
$
153
$
623
(75.4
%)
$
969
$
843
14.9
%
LLOYD’S SYNDICATES SEGMENT KEY
RATIOS
Three Months Ended June
30
Six Months Ended June
30
2023
2022
2023
2022
Current accident year net loss ratio
23.8
%
14.1
%
38.4
%
29.9
%
Effect of prior accident years’ reserve
development
39.5
%
45.4
%
15.5
%
30.8
%
Net loss ratio
63.3
%
59.5
%
53.9
%
60.7
%
Underwriting expense ratio
37.3
%
26.0
%
38.5
%
31.2
%
Combined ratio
100.6
%
85.5
%
92.4
%
91.9
%
Results of our Lloyd’s Syndicates segment are generally reported
on a one-quarter lag and include the results from our current
participation in Lloyd's of London Syndicate 1729. Our
participation in the results of Syndicate 1729 for the 2023
underwriting year remains unchanged from the 2022 underwriting year
at 5%. We ceased participation in Syndicate 6131 beginning with the
2022 underwriting year. Due to the quarter lag, our ceased
participation in Syndicate 6131 was not reflected in our results
until the second quarter of 2022. We continue to view our
participation at Lloyd’s as an investment outside of our core
operations.
The Lloyd’s segment reported a combined ratio of 100.6% for the
quarter. The current accident year net loss ratio increased to
23.8% in 2023 as compared to 14.1% in 2022, driven by certain
catastrophe related losses.
We recognized $1.5 million of unfavorable prior year development
during the three months ended June 30, 2023 as compared to $2.6
million for the same period of 2022. The 2023 unfavorable prior
year development was driven by higher than expected losses and
development on certain large claims, primarily catastrophe related
losses.
CORPORATE SEGMENT
Three Months Ended June
30
Six Months Ended June
30
($ in thousands)
2023
2022
%
Change
2023
2022
%
Change
Net investment income
$
30,910
$
21,590
43.2
%
$
60,611
$
41,709
45.3
%
Equity in earnings (loss) of
unconsolidated subsidiaries:
All other investments, primarily
investment fund LPs/LLCs
8,143
7,028
15.9
%
7,376
17,035
(56.7
%)
Tax credit partnerships
(1,511
)
(1,848
)
(18.2
%)
(1,865
)
(4,236
)
(56.0
%)
Total equity in earnings (loss) of
unconsolidated subsidiaries:
6,632
5,180
28.0
%
5,511
12,799
(56.9
%)
Net investment gains (losses)
(281
)
(20,617
)
(98.6
%)
481
(33,013
)
101.5
%
Other income (loss)
2,173
3,626
(40.1
%)
2,500
5,691
(56.1
%)
Operating expenses
(8,275
)
(9,019
)
(8.2
%)
(16,477
)
(17,756
)
(7.2
%)
Interest expense
(5,502
)
(4,919
)
11.9
%
(10,965
)
(9,360
)
17.1
%
Income tax (expense) benefit
(2,927
)
1,789
263.6
%
(755
)
3,559
121.2
%
Segment results
$
22,730
$
(2,370
)
1059.1
%
$
40,906
$
3,629
1027.2
%
Consolidated effective tax rate
21.6
%
53.8
%
14.5
%
43.1
%
The rise in interest rates continues to add significantly to our
net investment income, which increased to $30.9 million in the
quarter, driven by higher average book yields on our fixed maturity
investments as our reinvestment rate exceeds that of the maturing
assets.
Equity in earnings from our investment in LPs/LLCs, which are
typically reported to us on a one-quarter lag, increased to $8.1
million in the quarter. Also contributing to the improvement to
equity in earnings was lower amortization of tax credit partnership
operating losses.
The corporate segment results include $0.3 million of net
investment losses for the quarter, as unrealized holding gains
resulting from changes in the fair value of convertible securities
and other investments nearly offset net realized losses in our
equity and other investments.
Other income was $2.2 million compared to $3.6 million in 2022.
The variance in other income from quarter to quarter is largely
driven by foreign currency exchange rate movements related to
euro-denominated loss reserves in our Specialty P&C Segment.
Foreign exchange movements resulted in a gain of $2.5 million to
other income in 2022 as compared to a loss of $0.4 million in the
current period.
Operating expenses decreased by $0.7 million primarily due to a
decrease in compensation-related costs and, to a lesser extent, a
decrease in professional fees.
Non-GAAP Financial Measures
Non-GAAP Operating Income
(Loss)
Non-GAAP operating income (loss) is a financial measure that is
widely used to evaluate performance within the insurance sector. In
calculating Non-GAAP operating income (loss), we have excluded the
effects of the items listed in the following table that do not
reflect normal results. We believe Non-GAAP operating income (loss)
presents a useful view of the performance of our insurance
operations; however, it should be considered in conjunction with
net income (loss) computed in accordance with GAAP. The following
table reconciles net income (loss) to Non-GAAP operating income
(loss):
RECONCILIATION OF NET INCOME (LOSS) TO
NON-GAAP OPERATING INCOME (LOSS)
Three Months Ended June
30
Six Months Ended June
30
(In thousands, except per share
data)
2023
2022
2023
2022
Net income (loss)
$
10,627
$
(1,659
)
$
4,453
$
(5,219
)
Items excluded in the calculation of
Non-GAAP operating income (loss):
Net investment (gains) losses (1)
(2,946
)
23,884
(5,858
)
37,390
Net investment gains (losses) attributable
to SPCs which no profit/loss is retained (2)
939
(2,198
)
1,852
(2,800
)
Transaction-related costs (3)
—
685
—
1,862
Guaranty fund assessments
(recoupments)
1
113
(74
)
125
Pre-tax effect of exclusions
(2,006
)
22,484
(4,080
)
36,577
Tax effect, at 21% (4)
(59
)
(4,497
)
117
(7,350
)
After-tax effect of exclusions
(2,065
)
17,987
(3,963
)
29,227
Non-GAAP operating income (loss)
$
8,562
$
16,328
$
490
$
24,008
Per diluted common share:
Net income (loss)
$
0.20
$
(0.03
)
$
0.08
$
(0.10
)
Effect of exclusions
(0.04
)
0.33
(0.07
)
0.54
Non-GAAP operating income (loss) per
diluted common share
$
0.16
$
0.30
$
0.01
$
0.44
(1)
Net investment gains (losses) for the
three and six months ended June 30, 2023 include a gain of $2.0
million and $3.0 million, respectively, related to the change in
the fair value of contingent consideration issued in connection
with the NORCAL acquisition. We have excluded this adjustment as it
does not reflect normal operating results. See further discussion
around the contingent consideration in Note 2 of the Notes to
Condensed Consolidated Financial Statements and discussion on our
accounting policy in the Critical Accounting Estimates section
under the heading "Contingent Consideration" of our June 30, 2023
report on Form 10-Q.
(2)
Net investment gains (losses) on
investments related to SPCs are recognized in our Segregated
Portfolio Cell Reinsurance segment. SPC results, including any net
investment gain or loss, that are attributable to external cell
participants are reflected in the SPC dividend expense (income). To
be consistent with our exclusion of net investment gains (losses)
recognized in earnings, we are excluding the portion of net
investment gains (losses) that is included in the SPC dividend
expense (income) which is attributable to the external cell
participants.
(3)
Transaction-related costs associated with
our acquisition of NORCAL. We are excluding these costs as they do
not reflect normal operating results and are unique and
non-recurring in nature.
(4)
The 21% rate is the annual expected
statutory tax rate associated with the taxable or tax deductible
items listed above. We utilized the estimated annual effective tax
rate method for the three and six months ended June 30, 2023, while
we utilized the discrete effective tax rate method for the three
and six months ended June 30, 2022. For the 2023 periods, our
effective tax rate was applied to these items in calculating net
income (loss), excluding net investment gains (losses) and related
adjustments. The 2023 gain related to the change in the fair value
of contingent consideration is non-taxable and therefore had no
associated income tax impact. For the 2022 periods, our statutory
tax rate was applied to these items in calculating net income
(loss). Net investment gains (losses) in our Corporate segment are
treated as discrete items and are tax effected at the annual
expected statutory tax rate (21%) in the period they are included
in our consolidated tax provision and net income (loss). The taxes
associated with the net investment gains (losses) related to SPCs
in our Segregated Portfolio Cell Reinsurance segment are paid by
the individual SPCs and are not included in our consolidated tax
provision or net income (loss); therefore, both the net investment
gains (losses) from our Segregated Portfolio Cell Reinsurance
segment and the adjustment to exclude the portion of net investment
gains (losses) included in the SPC dividend expense (income) in the
table above are not tax effected. See further discussion under the
heading “Taxes” in the Executive Summary of Operations section of
our June 30, 2023 report on Form 10-Q.
Non-GAAP Operating ROE
The following table is a reconciliation of ROE to Non-GAAP
operating ROE for the three and six months ended June 30, 2023 and
2022:
Three Months Ended June
30
Six Months Ended June
30
2023
2022
2023
2022
ROE(1)
3.2
%
(0.4
%)
0.5
%
(0.7
%)
Pre-tax effect of items excluded in the
calculation of Non-GAAP operating ROE
(0.2
%)
7.2
%
(0.4
%)
5.5
%
Tax effect, at 21%(2)
—
%
(1.5
%)
—
%
(1.1
%)
Non-GAAP operating ROE
3.0
%
5.3
%
0.1
%
3.7
%
(1)
Quarterly amounts are annualized. Refer to
our June 30, 2023 report on Form 10-Q under the heading “Non-GAAP
Operating ROE” in the Executive Summary of Operations section for
details on our calculation.
(2)
The 21% rate is the statutory tax rate
associated with the taxable or tax deductible items. See further
discussion in footnote 4 in this section under the heading
"Non-GAAP Operating Income."
Non-GAAP Adjusted Book Value per
Share
The following table is a reconciliation of our book value per
share to Non-GAAP adjusted book value per share at June 30, 2023
and December 31, 2022:
Book Value Per Share
Book Value Per Share at December 31,
2022
$
20.46
Less: AOCI Per Share(1)
(5.53
)
Non-GAAP Adjusted Book Value Per Share at
December 31, 2022
25.99
Increase (decrease) to Non-GAAP Adjusted
Book Value Per Share during the six months ended June 30, 2023
attributable to:
Dividends declared
(0.05
)
Cumulative repurchase of shares(2)
0.32
Net income (loss)
0.08
Other(3)
(0.03
)
Non-GAAP Adjusted Book Value Per Share at
June 30, 2023
26.31
Add: AOCI Per Share(1)
(5.07
)
Book Value Per Share at June 30,
2023
$
21.24
(1)
Primarily the impact of accumulated
unrealized investment gains (losses) on our available-for-sale
fixed maturity investments. See Note 9 of the Notes to Condensed
Consolidated Financial Statements in our June 30, 2023 report on
Form 10-Q for additional information.
(2)
Represents the impact of our repurchase of
1.4 million common shares, conducted through a 10b5-1 stock
repurchase plan during the second quarter of 2023. See Note 9 of
the Notes to Condensed Consolidated Financial Statements in our
June 30, 2023 report on Form 10-Q for additional information.
(3)
Includes the impact of share-based
compensation.
Conference Call Information
ProAssurance management will discuss second quarter 2023 results
during a conference call at 10:00 a.m. ET on Wednesday, August 9,
2023. US-based investors may access the call by dialing either
(833) 470-1428 (toll free) or (404) 975-4839 (local). International
investors may find a toll-free number here:
https://www.netroadshow.com/events/global-numbers?confId=53156. The
access code for all attendees is 644047.
Callers may also choose to pre-register to receive unique call
access details and avoid operator wait times; pre-register here if
desired:
https://www.netroadshow.com/events/login?show=75636f9a&confId=53156.
The conference call will also be webcast at
https://events.q4inc.com/attendee/305732155.
A replay will be available by telephone for at least 7 days
after the call date. US-based investors may access the replay by
dialing (866) 813-9403 (toll free) or (929) 458-6194, and
international investors may dial +44 (204) 525-0658. The access
code for all attendees is 531045. A replay will also be available
for at least one year at investor.proassurance.com. Investors may
follow @ProAssurance on Twitter to be notified of the latest news
about ProAssurance.
About ProAssurance
ProAssurance Corporation is an industry-leading specialty
insurer with extensive expertise in healthcare professional
liability, products liability for medical technology and life
sciences, legal professional liability, and workers’ compensation
insurance.
ProAssurance Group is rated “A” (Excellent) by AM Best.
ProAssurance and its operating subsidiaries (excluding NORCAL
Group) are rated “A-” (Strong) by Fitch Ratings. For the latest on
ProAssurance and its industry-leading suite of products and
services, cutting-edge risk management and practice enhancement
programs, follow @ProAssurance on Twitter or LinkedIn.
ProAssurance’s YouTube channel regularly presents
thought-provoking, insightful videos that communicate effective
practice management, patient safety and risk management
strategies.
Caution Regarding Forward-Looking Statements
Any statements in this news release that are not historical
facts are specifically identified as forward-looking statements.
These statements are based upon our estimates and anticipation of
future events and are subject to significant risks, assumptions and
uncertainties that could cause actual results to differ materially
from the expected results described in the forward-looking
statements. Forward-looking statements are identified by words such
as, but not limited to, “anticipate,” “believe,” “estimate,”
“expect,” “hope,” “hopeful,” “intend,” “likely,” “may,”
“optimistic,” “possible,” “potential,” “preliminary,” “project,”
“should,” “will,” and other analogous expressions.
Although it is not possible to identify all of these risks and
factors, they include, among others, the following: inadequate loss
reserves to cover the Company's actual losses; inherent uncertainty
of models resulting in actual losses that are materially different
than the Company's estimates; adverse economic factors; a decline
in the Company's financial strength rating; loss of one or more key
executives; loss of a group of agents or brokers that generate
significant portions of the Company's business; failure of any of
the loss limitations or exclusions the Company employs, or change
in other claims or coverage issues; adverse performance of the
Company's investment portfolio; adverse market conditions that
affect its excess and surplus lines insurance operations; and other
risks described in the Company's filings with the Securities and
Exchange Commission. These forward-looking statements speak only as
of the date of this release and the Company does not undertake and
specifically declines any obligation to update or revise any
forward-looking information to reflect changes in assumptions, the
occurrence of unanticipated events, or otherwise.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230808950807/en/
Dana Hendricks EVP, Chief Financial Officer 800-282-6242 •
205-877-4462 • DanaHendricks@ProAssurance.com
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