ProAssurance Corp. :PRA-US: Earnings Analysis: Q2, 2017 By the Numbers : August 28, 2017

ProAssurance Corp. reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of ProAssurance Corp. – Markel Corporation, W. R. Berkley Corporation, Alleghany Corporation, Loews Corporation, Aspen Insurance Holdings Limited, Travelers Companies, Inc., RLI Corp., AmTrust Financial Services Inc. and Hallmark Financial Services, Inc. (MKL-US, WRB-US, Y-US, L-US, AHL-US, TRV-US, RLI-US, AFSI-US and HALL-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 202.78 million, Net Earnings of USD 19.52 million.
  • Year-on-year change in operating cash flow of -64.28% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline from operating margin decreases as well as from unusual items

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 202.78 221.05 236.91 226.92 214.26
Revenue Growth (%YOY) -5.36 6.91 21.8 26.39 5.64
Earnings (mil) 19.52 41.46 54.85 33.83 43.08
Earnings Growth (%YOY) -54.69 114.6 56.94 229.25 29.93
Net Margin (%) 9.63 18.75 23.15 14.91 20.11
EPS 0.36 0.77 1.02 0.63 0.81
Return on Equity (%) 1.07 2.29 2.86 1.66 2.15
Return on Assets (%) 1.6 3.31 4.32 2.71 3.49

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Market Share Versus Profits

Revenues History
Earnings History

PRA-US‘s change in revenue this period compared to the same period last year of -5.36% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that PRA-US is holding onto its market share. Also, for comparison purposes, revenues changed by -8.27% and earnings by -52.92% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

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Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

Insurance companies sometimes tradeoff for improvements in premiums earned by relaxing standards in underwriting policies. A quick way to check against such activity is to compare the changes in loan loss provisions as well any chnages in the level of policy claims. If either of these checks point to a decline in the underwriting standards, it is quite possible that the company’s performance is a result of underwriting policy changes that could have a longer term impact compared to the shorter term pop in premiums earned.

Premiums Earned Percent History
Loss Ratio History

The company’s earnings decline year-on-year has been influenced by its underwriting policies. Its loss ratio went from 60.49% to 64.07%. This decline in earnings would have been worse but for the fact that the company showed improvement in premiums earned as a percent of total revenues, from 82.48% to 88.94%. For comparison, premiums earned as a percent of revenues were 82.74% and the loss ratio 65.14% in the immediate last period.

Premiums Earned Percent Versus Loss Ratio

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

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Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

PRA-US‘s change in operating cash flow of -64.28% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Margins

The company’s fall in earnings have been influenced by the following factors: (1) Contraction in operating margins after interest from 24.25% to 10.27% and (2) One-time items that contributed to a weakening of pretax margins from 22.63% to 9.46%.

EBIT Margin Versus PreTax Margin

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Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

ProAssurance Corp. is a holding company for property and casualty insurance companies. The company operates through four segments: Specialty Property and Casualty, Workers’ Compensation, Lloyd’s Syndicate and Corporate. The Specialty Property and Casualty segment includes professional liability business and medical technology and life sciences business. The Workers’ Compensation segment includes the workers’ compensation business which the company provides for employers, groups and associations. The Lloyd’s Syndicate segment includes operating results from participation in Lloyd’s Syndicate 1729. The Corporate segment includes investing operations managed at the corporate level, non-premium revenues generated outside of insurance entities, and corporate expenses, including interest and U.S. income taxes. ProAssurance was founded in June 2001 and is headquartered in Birmingham, AL.

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