NEWS RELEASE For More Information: Frank B. O’Neil, IRC Sr. Vice President, Corporate Communications & Investor Relations 800-282-6242 • 205-877-4461 • foneil@ProAssurance.com |
Consolidated Income Statement Highlights ($ in thousands, except per share data) | |||||||||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||
2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||||||||
Revenues | |||||||||||||||||||||
Gross premiums written* | $ | 245,547 | $ | 232,016 | 5.8 | % | $ | 683,132 | $ | 647,564 | 5.5 | % | |||||||||
Net premiums written | $ | 216,706 | $ | 205,775 | 5.3 | % | $ | 596,584 | $ | 573,071 | 4.1 | % | |||||||||
Net premiums earned | $ | 192,303 | $ | 185,275 | 3.8 | % | $ | 555,559 | $ | 539,587 | 3.0 | % | |||||||||
Net investment income | $ | 23,729 | $ | 25,261 | (6.1 | %) | $ | 69,592 | $ | 75,284 | (7.6 | %) | |||||||||
Equity in earnings (loss) of unconsolidated subsidiaries | $ | 4,164 | $ | (3,349 | ) | 224.3 | % | $ | 8,489 | $ | (6,607 | ) | 228.5 | % | |||||||
Net realized investment gains (losses) | $ | 7,749 | $ | 15,737 | (50.8 | %) | $ | 18,810 | $ | 18,314 | 2.7 | % | |||||||||
Other income* | $ | 510 | $ | 1,428 | (64.3 | %) | $ | 4,581 | $ | 5,963 | (23.2 | %) | |||||||||
Total revenues* | $ | 228,455 | $ | 224,352 | 1.8 | % | $ | 657,031 | $ | 632,541 | 3.9 | % | |||||||||
Expenses | |||||||||||||||||||||
Net losses and loss adjustment expenses* | $ | 129,356 | $ | 118,082 | 9.5 | % | $ | 364,058 | $ | 335,936 | 8.4 | % | |||||||||
Underwriting, policy acquisition and operating expenses* | $ | 57,111 | $ | 55,812 | 2.3 | % | $ | 172,106 | $ | 166,735 | 3.2 | % | |||||||||
Total expenses* | $ | 193,482 | $ | 180,838 | 7.0 | % | $ | 562,642 | $ | 519,851 | 8.2 | % | |||||||||
Income tax expense (benefit) | $ | 6,024 | $ | 9,680 | (37.8 | %) | $ | 4,467 | $ | 16,457 | (72.9 | %) | |||||||||
Net income | $ | 28,949 | $ | 33,834 | (14.4 | %) | $ | 89,922 | $ | 96,233 | (6.6 | %) | |||||||||
Operating income | $ | 24,263 | $ | 24,437 | (0.7 | %) | $ | 79,020 | $ | 85,398 | (7.5 | %) | |||||||||
Weighted average number of common shares outstanding | |||||||||||||||||||||
Diluted | 53,614 | 53,456 | 0.3 | % | 53,586 | 53,419 | 0.3 | % | |||||||||||||
Earnings per share | |||||||||||||||||||||
Net income per diluted share | $ | 0.54 | $ | 0.63 | (14.3 | %) | $ | 1.68 | $ | 1.80 | (6.7 | %) | |||||||||
Operating income per diluted share | $ | 0.45 | $ | 0.46 | (2.2 | %) | $ | 1.47 | $ | 1.60 | (8.1 | %) | |||||||||
*Consolidated totals include inter-segment eliminations. The eliminations affect individual line items only and have no effect on net income. See Note 11 of the Notes to Condensed Consolidated Financial Statements in the September 30, 2017 Form 10-Q for amounts by line item. |
Consolidated Key Ratios | |||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Current accident year loss ratio | 84.1 | % | 79.4 | % | 81.7 | % | 79.8 | % | |||
Effect of prior accident years’ reserve development | (16.8 | %) | (15.7 | %) | (16.2 | %) | (17.5 | %) | |||
Net loss ratio | 67.3 | % | 63.7 | % | 65.5 | % | 62.3 | % | |||
Expense ratio | 29.7 | % | 30.1 | % | 31.0 | % | 30.9 | % | |||
Combined ratio | 97.0 | % | 93.8 | % | 96.5 | % | 93.2 | % | |||
Operating ratio | 84.7 | % | 80.2 | % | 84.0 | % | 79.2 | % | |||
Return on equity * | 6.3 | % | 6.6 | % | 6.6 | % | 6.4 | % | |||
* Annualized |
NEWS RELEASE CONTINUES |
• | Gross premiums written increased 5.8% quarter-over-quarter, driven primarily by the timing of certain policy renewals in our Specialty P&C segment and by overall premium gains in our Lloyd’s Syndicate segment. Gross premiums written in our Workers’ Compensation segment were essentially level, reflecting the intense competition in that line of business. |
• | Net premiums earned grew in all three operating segments, quarter-over-quarter, and were up 3.8% overall. |
• | Our coordinated sales & marketing programs continued to drive additional business opportunities and resulted in $2.9 million of direct premiums written in the quarter. |
• | Net favorable development was $32.3 million in the quarter, as compared to $29.0 million in the year-ago period. Net favorable development in our Specialty P&C segment was $30.1 million, and our Workers’ Compensation segment experienced net favorable development of $2.3 million. |
• | The consolidated current accident year net loss ratio was 4.7 points higher quarter-over-quarter, due to losses, somewhat offset by reinstatement premiums, related to Hurricanes Harvey, Irma and Maria in our Lloyd's Syndicate segment. The consolidated underwriting expense ratio decreased 0.4 points over the third quarter of 2016. |
• | The results of our income from equity investments in unconsolidated subsidiaries were $4.2 million, an increase of $7.5 million from a $3.3 million loss in the third quarter of 2016. However, net investment income declined $1.5 million quarter-over-quarter primarily due to lower earnings in our fixed income portfolio. |
• | Net realized investment gains were $7.7 million in the third quarter of 2017. This is an $8.0 million decrease from the prior-year quarter because of a reduction in the amount of unrealized gains in our securities trading portfolio. |
• | Taxes decreased $3.7 million, quarter-over-quarter, primarily due to lower net realized investment gains, and as in prior quarters this year, the effect of our investment in various tax credits and tax exempt income. |
NEWS RELEASE CONTINUES |
Reconciliation of Net Income to Operating Income (In thousands, except per share data) | |||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 28,949 | $ | 33,834 | $ | 89,922 | $ | 96,233 | |||||||
Items excluded in the calculation of operating income: | |||||||||||||||
Net realized investment (gains) losses | (7,749 | ) | (15,737 | ) | (18,810 | ) | (18,314 | ) | |||||||
Net realized gains (losses) attributable to SPCs which no profit/loss is retained* | 764 | 1,189 | 2,191 | 1,502 | |||||||||||
Guaranty fund assessments (recoupments) | (225 | ) | 91 | (154 | ) | 143 | |||||||||
Pre-tax effect of exclusions | (7,210 | ) | (14,457 | ) | (16,773 | ) | (16,669 | ) | |||||||
Tax effect at 35% | 2,524 | 5,060 | 5,871 | 5,834 | |||||||||||
Operating income | $ | 24,263 | $ | 24,437 | $ | 79,020 | $ | 85,398 | |||||||
Per diluted common share | |||||||||||||||
Net income | $ | 0.54 | $ | 0.63 | $ | 1.68 | $ | 1.80 | |||||||
Effect of exclusions | (0.09 | ) | (0.17 | ) | (0.21 | ) | (0.20 | ) | |||||||
Operating income per diluted common share | $ | 0.45 | $ | 0.46 | $ | 1.47 | $ | 1.60 | |||||||
* Net realized investment gains (losses) on investments related to our SPCs are recognized in the earnings of our Corporate segment and the portion of earnings related to the gain or loss, net of our participation, is distributed back to the cells through our SPC dividend expense (income). To be consistent with our exclusion of Net realized investment gains (losses) recognized in earnings, we are excluding the portion of Net realized investment gains (losses) that is included in SPC dividend expense (income) during all periods presented. |
Balance Sheet Highlights (in thousands, except per share data) | |||||||
September 30, 2017 | December 31, 2016 | ||||||
Total investments | $ | 3,671,838 | $ | 3,925,696 | |||
Total assets | $ | 4,925,154 | $ | 5,065,181 | |||
Total liabilities | $ | 3,074,264 | $ | 3,266,479 | |||
Common shares (par value $0.01) | $ | 628 | $ | 627 | |||
Retained earnings | $ | 1,864,136 | $ | 1,824,088 | |||
Treasury shares | $ | (419,928 | ) | $ | (419,930 | ) | |
Shareholders’ equity | $ | 1,850,890 | $ | 1,798,702 | |||
Book value per share | $ | 34.65 | $ | 33.78 |
NEWS RELEASE CONTINUES |
Specialty P&C Insurance Segment ($ in thousands) | |||||||||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||
2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||||||||
Gross premiums written | $ | 166,284 | $ | 155,838 | 6.7 | % | $ | 428,032 | $ | 410,201 | 4.3 | % | |||||||||
Net premiums written | $ | 143,286 | $ | 134,989 | 6.1 | % | $ | 367,112 | $ | 354,510 | 3.6 | % | |||||||||
Net premiums earned | $ | 118,331 | $ | 116,199 | 1.8 | % | $ | 340,394 | $ | 335,080 | 1.6 | % | |||||||||
Total revenues | $ | 119,607 | $ | 117,211 | 2.0 | % | $ | 344,337 | $ | 339,101 | 1.5 | % | |||||||||
Net losses and loss adjustment expenses | $ | 73,831 | $ | 72,311 | 2.1 | % | $ | 220,123 | $ | 205,787 | 7.0 | % | |||||||||
Underwriting, policy acquisition and operating expenses | $ | 27,037 | $ | 26,563 | 1.8 | % | $ | 79,252 | $ | 77,519 | 2.2 | % | |||||||||
Segregated portfolio cell dividend expense (income) | $ | (65 | ) | $ | 94 | (169.1 | %) | $ | 5,026 | $ | 94 | 5,246.8 | % | ||||||||
Total expenses | $ | 100,803 | $ | 98,968 | 1.9 | % | $ | 304,401 | $ | 283,400 | 7.4 | % | |||||||||
Segment operating results | $ | 18,804 | $ | 18,243 | 3.1 | % | $ | 39,936 | $ | 55,701 | (28.3 | %) |
Specialty P&C Insurance Segment Key Ratios | |||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Current accident year loss ratio | 87.8 | % | 88.1 | % | 88.7 | % | 88.3 | % | |||
Effect of prior accident years’ reserve development | (25.4 | %) | (25.9 | %) | (24.0 | %) | (26.9 | %) | |||
Net loss ratio | 62.4 | % | 62.2 | % | 64.7 | % | 61.4 | % | |||
Underwriting expense ratio | 22.8 | % | 22.9 | % | 23.3 | % | 23.1 | % | |||
Combined ratio | 85.2 | % | 85.1 | % | 88.0 | % | 84.5 | % |
NEWS RELEASE CONTINUES |
Workers' Compensation Segment ($ in thousands) | |||||||||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||
2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||||||||
Gross premiums written | $ | 59,683 | $ | 59,910 | (0.4 | %) | $ | 203,237 | $ | 194,420 | 4.5 | % | |||||||||
Net premiums written | $ | 54,647 | $ | 54,444 | 0.4 | % | $ | 184,917 | $ | 175,986 | 5.1 | % | |||||||||
Net premiums earned | $ | 57,654 | $ | 54,498 | 5.8 | % | $ | 169,791 | $ | 163,974 | 3.5 | % | |||||||||
Total revenues | $ | 57,818 | $ | 54,584 | 5.9 | % | $ | 170,310 | $ | 164,670 | 3.4 | % | |||||||||
Net losses and loss adjustment expenses | $ | 35,081 | $ | 34,472 | 1.8 | % | $ | 103,217 | $ | 104,160 | (0.9 | %) | |||||||||
Underwriting, policy acquisition and operating expenses | $ | 18,434 | $ | 18,331 | 0.6 | % | $ | 52,220 | $ | 52,494 | (0.5 | %) | |||||||||
Segregated portfolio cell dividend expense (income)* | $ | 1,722 | $ | 1,449 | 18.8 | % | $ | 5,593 | $ | 3,440 | 62.6 | % | |||||||||
Total expenses | $ | 55,237 | $ | 54,252 | 1.8 | % | $ | 161,030 | $ | 160,094 | 0.6 | % | |||||||||
Segment operating results | $ | 2,581 | $ | 332 | 677.4 | % | $ | 9,280 | $ | 4,576 | 102.8 | % | |||||||||
* Represents the underwriting profit (loss) attributable to the alternative market business ceded to the SPCs at Eastern Re, net of our participation. |
Workers’ Compensation Segment Key Ratios | |||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Current accident year loss ratio | 64.8 | % | 66.6 | % | 65.3 | % | 65.9 | % | |||
Effect of prior accident years’ reserve development | (4.0 | %) | (3.3 | %) | (4.5 | %) | (2.4 | %) | |||
Net loss ratio | 60.8 | % | 63.3 | % | 60.8 | % | 63.5 | % | |||
Underwriting expense ratio | 32.0 | % | 33.6 | % | 30.8 | % | 32.0 | % | |||
Combined ratio | 92.8 | % | 96.9 | % | 91.6 | % | 95.5 | % |
NEWS RELEASE CONTINUES |
Lloyd’s Syndicate Segment ($ in thousands) | |||||||||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||
2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||||||||
Gross premiums written | $ | 20,972 | $ | 18,956 | 10.6 | % | $ | 56,995 | $ | 50,870 | 12.0 | % | |||||||||
Net premiums written | $ | 18,773 | $ | 16,342 | 14.9 | % | $ | 44,555 | $ | 42,575 | 4.7 | % | |||||||||
Net premiums earned | $ | 16,318 | $ | 14,578 | 11.9 | % | $ | 45,374 | $ | 40,533 | 11.9 | % | |||||||||
Net investment income | $ | 412 | $ | 351 | 17.4 | % | $ | 1,194 | $ | 1,004 | 18.9 | % | |||||||||
Other gains (losses) | $ | (1,850 | ) | $ | 784 | (336.0 | %) | $ | (1,536 | ) | $ | 1,233 | (224.6 | %) | |||||||
Total revenues | $ | 14,880 | $ | 15,713 | (5.3 | %) | $ | 45,032 | $ | 42,770 | 5.3 | % | |||||||||
Net losses and loss adjustment expenses | $ | 20,444 | $ | 11,299 | 80.9 | % | $ | 40,718 | $ | 25,989 | 56.7 | % | |||||||||
Underwriting, policy acquisition and operating expenses | $ | 6,723 | $ | 6,251 | 7.6 | % | $ | 19,786 | $ | 16,660 | 18.8 | % | |||||||||
Total expenses | $ | 27,167 | $ | 17,550 | 54.8 | % | $ | 60,504 | $ | 42,649 | 41.9 | % | |||||||||
Total income tax expense (benefit) | $ | 61 | $ | 1,352 | (95.5 | %) | $ | (495 | ) | $ | 2,248 | (122.0 | %) | ||||||||
Segment operating results | $ | (12,348 | ) | $ | (3,189 | ) | (287.2 | %) | $ | (14,977 | ) | $ | (2,127 | ) | (604.1 | %) |
Lloyd’s Syndicate Segment Key Ratios | |||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Current accident year loss ratio | 124.6 | % | 58.1 | % | 91.0 | % | 65.0 | % | |||
Effect of prior accident years’ reserve development | 0.7 | % | 19.4 | % | (1.3 | %) | (0.9 | %) | |||
Net loss ratio | 125.3 | % | 77.5 | % | 89.7 | % | 64.1 | % | |||
Underwriting expense ratio | 41.2 | % | 42.9 | % | 43.6 | % | 41.1 | % |
NEWS RELEASE CONTINUES |
Corporate Segment ($ in thousands) | |||||||||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||
2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||||||||
Net investment income | $ | 23,317 | $ | 24,910 | (6.4 | %) | $ | 68,398 | $ | 74,280 | (7.9 | %) | |||||||||
Equity in earnings (loss) of unconsolidated subsidiaries | $ | 4,164 | $ | (3,349 | ) | 224.3 | % | $ | 8,489 | $ | (6,607 | ) | 228.5 | % | |||||||
Net realized investment gains (losses) | $ | 7,718 | $ | 15,687 | (50.8 | %) | $ | 18,705 | $ | 18,255 | 2.5 | % | |||||||||
Total revenues | $ | 36,222 | $ | 37,263 | (2.8 | %) | $ | 97,566 | $ | 86,686 | 12.6 | % | |||||||||
Operating expenses | $ | 4,989 | $ | 5,086 | (1.9 | %) | $ | 21,062 | $ | 20,748 | 1.5 | % | |||||||||
Segregated portfolio cell dividend expense (income)* | $ | 1,234 | $ | 1,653 | (25.3 | %) | $ | 3,457 | $ | 2,361 | 46.4 | % | |||||||||
Interest expense | $ | 4,124 | $ | 3,748 | 10.0 | % | $ | 12,402 | $ | 11,285 | 9.9 | % | |||||||||
Income tax expense (benefit) | $ | 5,963 | $ | 8,328 | (28.4 | %) | $ | 4,962 | $ | 14,209 | (65.1 | %) | |||||||||
Segment operating results | $ | 19,912 | $ | 18,448 | 7.9 | % | $ | 55,683 | $ | 38,083 | 46.2 | % | |||||||||
* Represents the investment results attributable to the SPCs at Eastern Re, net of our participation. |
NEWS RELEASE CONTINUES |
| changes in general economic conditions, including the impact of inflation or deflation and unemployment; |
| our ability to maintain our dividend payments; |
| regulatory, legislative and judicial actions or decisions that could affect our business plans or operations; |
| the enactment or repeal of tort reforms; |
| formation or dissolution of state-sponsored insurance entities providing coverages now offered by ProAssurance which could remove or add sizable numbers of insureds from or to the private insurance market; |
| changes in the interest and tax rate environment; |
| resolution of uncertain tax matters and changes in tax laws; |
| changes in U.S. laws or government regulations regarding financial markets or market activity that may affect the U.S. economy and our business; |
| changes in the ability of the U.S. government to meet its obligations that may affect the U.S. economy and our business; |
| performance of financial markets affecting the fair value of our investments or making it difficult to determine the value of our investments; |
| changes in requirements or accounting policies and practices that may be adopted by our regulatory agencies, the FASB, the SEC, the PCAOB or the NYSE that may affect our business; |
| changes in laws or government regulations affecting the financial services industry, the property and casualty insurance industry or particular insurance lines underwritten by our subsidiaries; |
| the effect on our insureds, particularly the insurance needs of our insureds, and our loss costs, of changes in the healthcare delivery system and/or changes in the U.S. political climate that may affect healthcare policy or our business; |
NEWS RELEASE CONTINUES |
| consolidation of our insureds into or under larger entities which may be insured by competitors, or may not have a risk profile that meets our underwriting criteria or which may not use external providers for insuring or otherwise managing substantial portions of their liability risk; |
| uncertainties inherent in the estimate of our loss and loss adjustment expense reserve and reinsurance recoverable; |
| changes in the availability, cost, quality or collectability of insurance/reinsurance; |
| the results of litigation, including pre- or post-trial motions, trials and/or appeals we undertake; |
| effects on our claims costs from mass tort litigation that are different from that anticipated by us; |
| allegations of bad faith which may arise from our handling of any particular claim, including failure to settle; |
| loss or consolidation of independent agents, agencies, brokers or brokerage firms; |
| changes in our organization, compensation and benefit plans; |
| changes in the business or competitive environment may limit the effectiveness of our business strategy and impact our revenues; |
| our ability to retain and recruit senior management; |
| the availability, integrity and security of our technology infrastructure or that of our third-party providers of technology infrastructure, including any susceptibility to cyber-attacks which might result in a loss of information or operating capability; |
| the impact of a catastrophic event, as it relates to both our operations and our insured risks; |
| the impact of acts of terrorism and acts of war; |
| the effects of terrorism-related insurance legislation and laws; |
| guaranty funds and other state assessments; |
| our ability to achieve continued growth through expansion into new markets or through acquisitions or business combinations; |
| changes to the ratings assigned by rating agencies to our insurance subsidiaries, individually or as a group; |
| provisions in our charter documents, Delaware law and state insurance laws may impede attempts to replace or remove management or may impede a takeover; |
| state insurance restrictions may prohibit assets held by our insurance subsidiaries, including cash and investment securities, from being used for general corporate purposes; |
| taxing authorities can take exception to our tax positions and cause us to incur significant amounts of legal and accounting costs and, if our defense is not successful, additional tax costs, including interest and penalties; and |
| expected benefits from completed and proposed acquisitions may not be achieved or may be delayed longer than expected due to business disruption; loss of customers, employees or key agents; increased operating costs or inability to achieve cost savings; and assumption of greater than expected liabilities, among other reasons. |
Additional risks, assumptions and uncertainties that could arise from our membership in the Lloyd's of London market and our participation in Syndicate 1729 include, but are not limited to, the following: | |
| members of Lloyd's are subject to levies by the Council of Lloyd's based on a percentage of the member's underwriting capacity, currently a maximum of 3%, but can be increased by Lloyd's; |
| Syndicate operating results can be affected by decisions made by the Council of Lloyd's which the management of Syndicate 1729 has little ability to control, such as a decision to not approve the business plan of Syndicate 1729, or a decision to increase the capital required to continue operations, and by our obligation to pay levies to Lloyd's; |
| Lloyd's insurance and reinsurance relationships and distribution channels could be disrupted or Lloyd's trading licenses could be revoked making it more difficult for Syndicate 1729 to distribute and market its products; |
| rating agencies could downgrade their ratings of Lloyd's as a whole; and |
NEWS RELEASE CONTINUES |
| Syndicate 1729 operations are dependent on a small, specialized management team and the loss of their services could adversely affect the Syndicate’s business. The inability to identify, hire and retain other highly qualified personnel in the future, could adversely affect the quality and profitability of Syndicate 1729’s business. |