ProAssurance reports operating income of $48M for first quarter 2012

ProAssurance Corporation (NYSE: PRA) reports Operating Income of $48 million, or $1.56 per diluted share for the first quarter of 2012.  Gross Premiums Written were $170 million, a 6% increase over the year-ago quarter. Book Value per share is $72.33 at the end of the first quarter of 2012, Shareholders' Equity is $2.2 billion and Total Assets topped $5 billion for the first time in the Company's history. 

Non-GAAP Financial Measures

Operating Income is a "Non-GAAP" financial measure that is widely used in our industry to evaluate the performance of underwriting operations. Operating Income excludes the after-tax net effects of confidential settlements in 2012 and the effects of Net Realized Investment (Gains) Losses and Guaranty Fund (Recoupments) Assessments. We believe it presents a useful view of the performance of our insurance operations. While we believe disclosure of certain Non-GAAP information is appropriate, you should not consider this information without also considering the information we present in accordance with GAAP, which includes the net effect of confidential settlements in 2012 and Net Realized Investment (Gains) Losses and Guaranty Fund (Recoupments) Assessments during the periods.

We calculate Return on Equity by dividing annualized Net Income for the period by the average of beginning and ending Shareholders' Equity.

Management Commentary

"Our results continue to reflect our dedication to a disciplined approach to a difficult  business, coupled with a long-term commitment to policyholder protection and increased value for our shareholders," said W. Stancil Starnes, the Chairman and Chief Executive Officer of ProAssurance. He added, "Our unique combination of financial strength, insurance expertise, operational innovation and commitment to the principles of Treated Fairly allows us to retain existing customers and attract new insureds who understand the difference that sets ProAssurance apart."

Business Detail

• Gross Premiums Written were $170 million in the first quarter of 2012, an increase of $10 million over the same period last year. The increase in written premium is driven primarily by three reporting endorsements (also known as "tail policies"). Two of those policies were written for physician groups that were joining hospital systems and terminating ongoing insurance coverage with us, and the third policy was for a hospital that was ending its own coverage due to a merger.
• Premium retention was 92% in the first quarter of 2012, up two points from the first quarter of 2011.
• Average renewal pricing on our physician medical professional liability book was unchanged from last year's first quarter.
• We recognized $48 million in net favorable loss reserve development in the first quarter of 2012, compared to $40 million in the same period last year. This net favorable development was primarily from accident years 2004 to 2009 and is significantly attributable to loss severity that has proven to be lower than we expected, based on data we used to develop our previous estimate. Further, the claim frequency declines experienced by the industry through the middle of the last decade have not yet resulted in higher average loss payments, despite general expectations to the contrary.

Investment Commentary

• Our Net Investment Result (Net Investment Income, plus Equity in Earnings (Loss) of Unconsolidated Subsidiaries) for the first quarter of 2012 was $31 million, compared to $35 million a year ago.
• Net Investment Income declined $3 million quarter-over-quarter, due to the persistent low interest rate environment. Our average tax equivalent income yield was 4.4% in the quarter vs. 4.7% a year ago.
• Our Equity in Earnings (Loss) of Unconsolidated Subsidiaries experienced a $2 million loss in the first quarter of 2012, compared to a loss of $1.3 million during last year's first quarter. This result is driven primarily by the normal amortization of tax credit limited partnerships. These partnerships produce a favorable net effect on our tax liabilities, which more than offset the reduction in Equity in Earnings (Loss) of Unconsolidated Subsidiaries.
• The CUSIP-level disclosure of our investment holdings as of March  31, 2012 is available under Supplemental Investor Information in the Investor Relations section of our website, www.ProAssurance.com.

Capital Management and Business Highlights

• Consistent with our Dividend Policy, announced in September 2011, our Board approved quarterly cash dividends of $0.25 per common share, paid in January and April of 2012.
• We did not repurchase any of our common stock in the quarter, although we have purchased 6.1 million shares of our stock at a cost of $321 million since 2005. We have approximately $188 million remaining in the authorization granted by our Board in November 2010.
• Fitch Ratings affirmed the "A" ratings and "Stable" outlook assigned to ProAssurance and its subsidiaries.