ProAssurance Corporation (NYSE: PRA) reports net income of $13.9
million, or $0.26 per diluted share, and operating income(1) of
$3.5 million, or $0.06 per diluted share, for the three months
ended December 31, 2022.
Highlights - Fourth Quarter and Full Year 2022(2)
- Gross premiums written of $224 million (+3%) and $1.1 billion
(+15%)
- Favorable prior accident year reserve development of $5 million
and $37 million
- Consolidated combined ratio of 104.2% and 105.3%
- Consolidated operating ratio of 93.0% and 96.0%
- The full year operating ratio improved by 1.7 points compared
to 2021
- Net investment income of $29 million (+53%) and $96 million
(+36%)
- The full year net investment income increased by $25 million
compared to 2021
- Adjusted book value per share(1) of $25.99 as of December 31,
2022. Adjusted book value per share was $26.16 as of December 31,
2021.
(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 fourth quarter and
the full year of 2021. All items are listed with quarterly results
first, full year results second.
Management Commentary & Results of Operations
Our fourth quarter and full year results for 2022 reflect two
major trends in our markets. In our operating segments, competition
and higher than anticipated loss severity trends exert pressure on
loss ratios and underwriting profits. In the investment markets,
the higher interest rate environment provides meaningful
improvement in the return we earn on our invested assets, and our
investment leverage enhances the impact the higher rates have on
our earnings potential.
Full year premiums continued to grow in all of our core
operations, as the Specialty P&C, Workers’ Compensation
Insurance, and the Segregated Portfolio Cell Reinsurance segments
all produced increases in the top line for 2022.
Ned Rand, President and Chief Executive Officer of ProAssurance,
highlighted the strong premium retention in the Specialty P&C
segment, which improved 4 points in 2022. “I’m pleased to see that
in a challenging marketplace, our customers are remaining loyal to
the ProAssurance brand and our reputation in the medical community.
Thank you to all our team members who work hard every day to
provide that top-notch service. Our Workers’ Compensation Insurance
segment generated a positive result, as their efforts brought the
combined ratio in the segment to below 100% for the year, a nice
improvement over 2021.”
Rand continued, “Throughout 2022 we continued to make progress
in integrating systems, advancing our data science capabilities,
and returning to normalized staffing levels. We believe these are
all important contributors to our future success. Our policyholder
retention and ability to achieve premium rate increases are bright
spots for our top line growth and profitability. Our industry faces
the challenges of potential inflationary pressure on expenses and a
medical professional liability loss environment where we are seeing
upward pressure on claims severity.”
Due to the increase in interest rates and the resulting
improvement in investment income, our consolidated operating ratio
improved nearly 2 points to 96.0% for the year.
Net investment income showed substantial growth this quarter,
increasing by 53% to $29 million. This continues a trend of higher
investment income as a result of rising interest rates. We expect
this to continue, as reinvestment rates are now considerably higher
than the average book yield of maturing investments.
Our book value per share of $20.46 increased by 3.6% in the
quarter. Adjusted book value per share, which excludes Accumulated
Other Comprehensive Income (AOCI), is $25.99 as of December 31,
2022 as compared to $25.75 as of September 30, 2022.
CONSOLIDATED INCOME STATEMENT
HIGHLIGHTS
Selected consolidated financial data for
each period is summarized in the table below.
Three Months Ended December
31
Year Ended December 31
($ in thousands, except per share
data)
2022
2021
Change
2022
2021
Change
Revenues
Gross premiums written(1)
$
224,481
$
218,141
2.9
%
$
1,103,993
$
960,024
15.0
%
Net premiums written
$
211,082
$
205,194
2.9
%
$
1,014,137
$
882,721
14.9
%
Net premiums earned
$
258,243
$
273,070
(5.4
%)
$
1,029,581
$
971,668
6.0
%
Net investment income
28,840
18,810
53.3
%
95,972
70,522
36.1
%
Equity in earnings (loss) of
unconsolidated subsidiaries
(1,059
)
15,015
(107.1
%)
4,888
48,974
(90.0
%)
Net investment gains (losses)(2)
12,495
4,097
205.0
%
(33,157
)
24,310
(236.4
%)
Other income (loss)(1)
(3,812
)
2,074
(283.8
%)
9,404
8,936
5.2
%
Total revenues(1)
294,707
313,066
(5.9
%)
1,106,688
1,124,410
(1.6
%)
Expenses
Net losses and loss adjustment
expenses
191,596
197,220
(2.9
%)
776,762
752,249
3.3
%
Underwriting, policy acquisition and
operating expenses(1)
77,550
67,795
14.4
%
307,338
268,246
14.6
%
SPC U.S. federal income tax expense
335
656
(48.9
%)
1,759
1,947
(9.7
%)
SPC dividend expense (income)
4,976
4,124
20.7
%
6,673
10,050
(33.6
%)
Interest expense
5,499
5,516
(0.3
%)
20,372
19,719
3.3
%
Total expenses(1)
279,956
275,311
1.7
%
1,112,904
1,052,211
5.8
%
Gain on bargain purchase
—
—
—
%
—
74,408
nm
Income (loss) before income taxes
14,751
37,755
(60.9
%)
(6,216
)
146,607
(104.2
%)
Income tax expense (benefit)
809
5,615
(85.6
%)
(5,814
)
2,483
(334.2
%)
Net income (loss)
$
13,942
$
32,140
(56.6
%)
$
(402
)
$
144,124
(100.3
%)
Non-GAAP operating income (loss)
$
3,477
$
33,439
(89.6
%)
$
24,509
$
75,892
(67.7
%)
Weighted average number of common
shares outstanding
Basic
53,963
53,984
54,008
53,962
Diluted
54,108
54,107
54,140
54,058
Earnings (loss) per share
Net income (loss) per diluted share
$
0.26
$
0.59
$
(0.33
)
$
(0.01
)
$
2.67
$
(2.68
)
Non-GAAP operating income (loss) per
diluted share
$
0.06
$
0.62
$
(0.56
)
$
0.45
$
1.40
$
(0.95
)
(1)
Consolidated totals include inter-segment
eliminations. The eliminations affect individual line items only
and have no effect on net income (loss). See Note 16 of the Notes
to Consolidated Financial Statements in our December 31, 2022
report on Form 10-K for amounts by line item.
(2)
This line item typically includes both
realized and unrealized investment gains and losses, investment
impairments, 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 4 of the Notes to
Consolidated Financial Statements in our December 31, 2022 report
on Form 10-K.
The abbreviation “nm” indicates that the
information or the percentage change is not meaningful.
BALANCE SHEET HIGHLIGHTS
($ in thousands, except per share
data)
December
31, 2022
December
31, 2021
Total investments
$
4,387,683
$
4,828,323
Total assets
$
5,699,999
$
6,191,477
Total liabilities
$
4,595,981
$
4,763,090
Common shares (par value $0.01)
$
634
$
633
Retained earnings
$
1,423,286
$
1,434,491
Treasury shares
$
(419,214
)
$
(415,962
)
Shareholders’ equity
$
1,104,018
$
1,428,387
Book value per share
$
20.46
$
26.46
Non-GAAP adjusted book value per
share(1)
$
25.99
$
26.16
(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 December
31
Year Ended December 31
2022
2021
2022
2021
Current accident year net loss ratio
76.2%
78.9%
79.0%
82.1%
Effect of prior accident years’ reserve
development
(2.0%)
(6.7%)
(3.6%)
(4.7%)
Net loss ratio
74.2%
72.2%
75.4%
77.4%
Underwriting expense ratio(2)
30.0%
24.8%
29.9%
27.6%
Combined ratio
104.2%
97.0%
105.3%
105.0%
Operating ratio
93.0%
90.1%
96.0%
97.7%
Return on equity(1)
2.7%
10.5%
—%
5.3%
Non-GAAP operating return on
equity(1)(2)
1.3%
9.9%
1.9%
5.6%
Combined ratio, excluding
transaction-related costs(3)
104.2%
96.5%
105.1%
102.4%
(1)
Quarterly amounts are annualized. Refer to
our December 31, 2022 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 year ended December 31, 2022 includes $1.9 million of
transaction-related costs included in consolidated operating
expenses associated with our acquisition of NORCAL as compared to
$1.4 million and $25.0 million for the three months and year ended
December 31, 2021. These costs do not reflect normal operating
results.
SPECIALTY P&C SEGMENT RESULTS
Three Months Ended December
31
Year Ended December 31
($ in thousands)
2022
2021
%
Change
2022
2021
%
Change
Gross premiums written
$
173,152
$
166,095
4.2
%
$
836,628
$
681,509
22.8
%
Net premiums written
$
164,461
$
158,763
3.6
%
$
765,444
$
626,147
22.2
%
Net premiums earned
$
195,496
$
207,046
(5.6
%)
$
769,773
$
695,008
10.8
%
Other income
1,245
572
117.7
%
5,003
3,370
48.5
%
Total revenues
196,741
207,618
(5.2
%)
774,776
698,378
10.9
%
Net losses and loss adjustment
expenses
(152,592
)
(157,275
)
(3.0
%)
(609,915
)
(575,164
)
6.0
%
Underwriting, policy acquisition and
operating expenses
(50,143
)
(36,342
)
38.0
%
(192,397
)
(127,709
)
50.7
%
Total expenses
(202,735
)
(193,617
)
4.7
%
(802,312
)
(702,873
)
(14.1
%)
Segment results
$
(5,994
)
$
14,001
(142.8
%)
$
(27,536
)
$
(4,495
)
(512.6
%)
SPECIALTY P&C SEGMENT KEY
RATIOS
Three Months Ended December
31
Year Ended December 31
2022
2021
2022
2021
Current accident year net loss ratio
79.6%
82.2%
83.1%
87.5%
Effect of prior accident years’ reserve
development
(1.5%)
(6.2%)
(3.9%)
(4.7%)
Net loss ratio
78.1%
76.0%
79.2%
82.8%
Underwriting expense ratio
25.6%
17.6%
25.0%
18.4%
Combined ratio
103.7%
93.6%
104.2%
101.2%
The fourth quarter and full year results for the Specialty
P&C segment reflect increased gross written premium and
improved accident year loss ratios. Exclusive of 2.7 percentage
points from purchase accounting and one-time expenses in the year,
the 2022 combined ratio was relatively flat compared to 2021.
Overall, the results were positively impacted by improved premium
retention across the segment, price increases in all product lines,
and solid new business writings. The NORCAL acquisition continues
to deliver strategic value to the organization.
Gross written premiums increased to $173 million in the quarter
and $837 million for the full year. The 23% increase in top line
premium for the year was primarily due to the NORCAL acquisition.
Net earned premium decreased 6% for the quarter which reflects the
impact of underwriting efforts. Net earned premium increased 11%
for the year.
Premium retention in the segment was 85% for the quarter and 84%
for the year, representing improvements of 12 and 4 percentage
points, respectively, compared to the same periods in 2021. This
was driven by 90% retention in our Standard Physician business for
the quarter and 88% for the year, and also reflects strong results
in our Medical Technology Liability and Small Business Unit which
delivered premium retention of 90% and 91%, respectively, for the
year.
We achieved renewal pricing increases of 7% in both the quarter
and full year along with continued improvements in terms,
conditions, and product structure in our Specialty Healthcare
business. New business for the segment was $10 million for the
quarter and $37 million for the year, reflecting continued
competitive pressures in the market.
The segment accident year loss ratio for the quarter was
relatively flat and the full year improved 1.4 percentage points
compared to 2021, exclusive of 2.6 and 3.0 percentage point
decreases in the quarter and year, respectively, from purchase
accounting and the change in ULAE. The NORCAL book contributed 2.2
points of improvement to the full year accident year loss ratio,
resulting from the recognition of lower claim frequency and
execution of our re-underwriting efforts. This was offset by higher
than anticipated loss severity trends in a couple of states within
our Standard Physician line of business, which emerged primarily in
the fourth quarter of 2022.
We recognized net favorable prior year reserve development of $3
million for the quarter and $30 million for the year. This included
favorable development related to the beneficial amortization of
purchase accounting adjustments on NORCAL's reserves of $11 million
for the year. The $30 million of favorable development for the year
decreased as compared to $33 million booked in 2021. Development
was impacted by the previously stated higher than anticipated loss
trends seen in the fourth quarter. The loss environment continues
to be challenging as a result of social inflation and claims
severity trends.
The expense ratio was 25.6% in the fourth quarter and 25.0% for
the full year. Compared to 2021, excluding the impact from NORCAL
purchase accounting, one-time expenses and the change in ULAE, the
expense ratio increased 3.4 and 0.9 percentage points in the
quarter and year, respectively. The increase was primarily driven
by lower earned premium in the quarter due to underwriting efforts,
and higher DPAC amortization. For the year, the expense ratio
increase is driven by a higher volume of commissionable premium in
our NORCAL book and higher costs related to technology initiatives
and travel. This was partially offset by the benefits of
organizational restructuring and expense synergies from the NORCAL
acquisition.
Refer to our December 31, 2022 report on Form 10-K for
additional details on items impacting our Specialty P&C
segment’s current accident year net loss ratio and underwriting
expense ratio.
WORKERS’ COMPENSATION INSURANCE SEGMENT RESULTS
Three Months Ended December
31
Year Ended December 31
($ in thousands)
2022
2021
%
Change
2022
2021
%
Change
Gross premiums written
$
47,837
$
45,779
4.5
%
$
247,132
$
240,546
2.7
%
Net premiums written
$
28,964
$
27,496
5.3
%
$
160,760
$
161,865
(0.7
%)
Net premiums earned
$
41,916
$
41,728
0.5
%
$
166,371
$
164,600
1.1
%
Other income
449
481
(6.7
%)
2,201
2,211
(0.5
%)
Total revenues
42,365
42,209
0.4
%
168,572
166,811
1.1
%
Net losses and loss adjustment
expenses
(28,102
)
(29,381
)
(4.4
%)
(111,407
)
(114,704
)
(2.9
%)
Underwriting, policy acquisition and
operating expenses
(13,923
)
(13,899
)
0.2
%
(54,737
)
(52,418
)
4.4
%
Total expenses
(42,025
)
(43,280
)
(2.9
%)
(166,144
)
(167,122
)
(0.6
%)
Segment results
$
340
$
(1,071
)
131.7
%
$
2,428
$
(311
)
880.7
%
WORKERS’ COMPENSATION INSURANCE SEGMENT
KEY RATIOS
Three Months Ended December
31
Year Ended December 31
2022
2021
2022
2021
Current accident year net loss ratio
71.8%
74.0%
71.8%
74.0%
Effect of prior accident years’ reserve
development
(4.8%)
(3.6%)
(4.8%)
(4.3%)
Net loss ratio
67.0%
70.4%
67.0%
69.7%
Underwriting expense ratio
33.2%
33.3%
32.9%
31.8%
Combined ratio
100.2%
103.7%
99.9%
101.5%
The Workers’ Compensation Insurance segment underwriting results
improved in the fourth quarter and full year of 2022, compared to
the same periods in 2021, primarily reflecting a lower net loss
ratio and higher audit premium.
Gross premiums increased by $2.1 million and $6.6 million in the
quarter and full year, compared to the same periods of 2021,
reflecting higher audit premium, partially offset by the
continuation of very competitive workers’ compensation market
conditions. In our traditional business, audit premium increased to
$3.3 million in the fourth quarter of 2022, compared to $0.4
million for the same period in 2021. Renewal rate changes, new
business and renewal retention in the fourth quarter of 2022
reflect the competitive market conditions. Renewal rates in our
traditional business decreased 7% during the quarter. Renewal
retention was 73% in our traditional business for the quarter,
compared to 82% for the same period in 2021, reflecting the loss of
several large accounts during the quarter. New business writings in
our traditional business were $4.0 million in the fourth quarter of
2022, an increase of $1.8 million compared to the same period in
2021.
The current accident year net loss ratio improved 2.2 percentage
points, primarily reflecting an improvement in claim trends. We
recognized favorable prior accident year reserve development of
$2.0 million and $1.5 million in the 2022 and 2021 fourth quarters,
respectively. Favorable development for the year was $8.0 million
in 2022 compared to $7.1 million in 2021.
Underwriting expenses and the underwriting expense ratio were
relatively flat in the fourth quarter of 2022, compared to the same
period in 2021. The increase in the full year expense ratio
primarily reflects higher costs related to compensation,
business-related travel and marketing costs related to advertising
and website-related activities.
SEGREGATED PORTFOLIO CELL REINSURANCE
SEGMENT RESULTS
Three Months Ended December
31
Year Ended December 31
($ in thousands)
2022
2021
%
Change
2022
2021
%
Change
Gross premiums written
$
16,055
$
15,395
4.3
%
$
78,937
$
71,850
9.9
%
Net premiums written
$
13,952
$
13,386
4.2
%
$
69,357
$
63,042
10.0
%
Net premiums earned
$
16,463
$
16,188
1.7
%
$
69,810
$
63,688
9.6
%
Net investment income
412
194
112.4
%
1,029
814
26.4
%
Net investment gains (losses)
1,159
1,308
(11.4
%)
(3,067
)
4,080
(175.2
%)
Other income
1
—
nm
2
3
(33.3
%)
Net losses and loss adjustment
expenses
(7,141
)
(6,009
)
18.8
%
(39,310
)
(32,569
)
20.7
%
Underwriting, policy acquisition and
operating expenses
(5,114
)
(6,556
)
(22.0
%)
(20,316
)
(21,635
)
(6.1
%)
SPC U.S. federal income tax expense(1)
(335
)
(656
)
(48.9
%)
(1,759
)
(1,947
)
(9.7
%)
SPC net results
5,445
4,469
21.8
%
6,389
12,434
(48.6
%)
SPC dividend (expense) income (2)
(4,976
)
(4,124
)
20.7
%
(6,673
)
(10,050
)
(33.6
%)
Segment results (3)
$
469
$
345
35.9
%
$
(284
)
$
2,384
(111.9
%)
(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 December
31
Year Ended December 31
2022
2021
2022
2021
Current accident year net loss ratio
58.2%
69.5%
65.3%
67.1%
Effect of prior accident years’ reserve
development
(14.8%)
(32.4%)
(9.0%)
(16.0%)
Net loss ratio
43.4%
37.1%
56.3%
51.1%
Underwriting expense ratio
31.1%
40.5%
29.1%
34.0%
Combined ratio
74.5%
77.6%
85.4%
85.1%
The Segregated Portfolio Cell Reinsurance segment for the fourth
quarter of 2022, compared to the same period of 2021, primarily
reflects improved underwriting results in the segregated portfolio
cells in which we participate. The segment result decreased for the
full year of 2022 compared to 2021, primarily reflecting the
decline in the equity and fixed income markets.
Gross premiums written increased for both the 2022 fourth
quarter and full year, compared to the same periods in 2021,
reflecting higher workers’ compensation audit premium, partially
offset by lower renewal premium. Gross premiums written for the
2022 full year also reflect higher healthcare professional
liability premium related to the issuance of tail policies under
one program, in which we do not participate.
Consistent with the workers’ compensation insurance segment,
renewal and new business premium reflect the competitive workers’
compensation market conditions. Renewal rate decreases were 3.4%
during the 2022 fourth quarter and 3.9% for the full year. Renewal
retention was 83.4% in 2022, compared to 86.4% for the same period
in 2021. New business writings in our workers’ compensation
programs were $0.8 million in the fourth quarter of 2022, compared
to $1.0 million for the same period in 2021.
The net loss ratio increased, reflecting lower prior accident
year reserve development in the healthcare professional liability
business, partially offset by a lower current accident year loss
ratio in the workers’ compensation business. The improvement in the
workers’ compensation current accident year loss ratio reflects
improved claim trends.
We recognized net favorable prior accident year reserve
development of $2.4 million and $5.2 million during the fourth
quarters of 2022 and 2021, respectively. The 2021 favorable reserve
development included $2.5 million related to the healthcare
professional liability business. We recognized net favorable prior
accident year reserve development of $6.3 million and $10.2 million
during the full years of 2022 and 2021, respectively.
The underwriting expense ratio improved to 31.1% in 2022 from
40.5% in 2021. The 2021 expense ratio reflected an increase in the
allowance for credit losses related to an overdue balance of a
large customer, which was subsequently collected. Underwriting
expenses primarily reflect commissions and other expenses charged
by the Workers’ Compensation Insurance and Specialty P&C
segments.
LLOYD’S SYNDICATES SEGMENT RESULTS
Three Months Ended December
31
Year Ended December 31
($ in thousands)
2022
2021
%
Change
2022
2021
%
Change
Gross premiums written
$
3,492
$
6,267
(44.3
%)
$
20,233
$
37,969
(46.7
%)
Net premiums written
$
3,705
$
5,549
(33.2
%)
$
18,576
$
31,667
(41.3
%)
Net premiums earned
$
4,368
$
8,108
(46.1
%)
$
23,627
$
48,372
(51.2
%)
Net investment income
115
284
(59.5
%)
568
1,961
(71.0
%)
Net investment gains (losses)
51
240
(78.8
%)
(964
)
249
(487.1
%)
Other income (loss)
(311
)
47
(761.7
%)
119
912
(87.0
%)
Net losses and loss adjustment
expenses
(3,761
)
(4,555
)
(17.4
%)
(16,130
)
(29,812
)
(45.9
%)
Underwriting, policy acquisition and
operating expenses
(1,323
)
(2,736
)
(51.6
%)
(7,412
)
(17,957
)
(58.7
%)
Segment results
$
(861
)
$
1,388
(162.0
%)
$
(192
)
$
3,725
(105.2
%)
LLOYD’S SYNDICATES SEGMENT KEY
RATIOS
Three Months Ended December
31
Year Ended December 31
2022
2021
2022
2021
Current accident year net loss ratio
35.0%
38.7%
37.2%
51.9%
Effect of prior accident years’ reserve
development
51.1%
17.5%
31.1%
9.7%
Net loss ratio
86.1%
56.2%
68.3%
61.6%
Underwriting expense ratio
30.3%
33.7%
31.4%
37.1%
Combined ratio
116.4%
89.9%
99.7%
98.7%
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 (5% participation
for 2022 underwriting year) and our former participation in
Syndicate 6131 (50% participation for 2021 underwriting year).
Syndicate 6131 ceased assuming business from Syndicate 1729
beginning in the 2022 underwriting year. We continue to view our
participation at Lloyd’s as an investment outside our core
operations.
The decline in net premiums earned is primarily the result of
our decreased participation. The segment reported a combined ratio
of 116.4% for the quarter and 99.7% for the year. The current
accident year net loss ratio decreased in 2022 as compared to 2021
driven by decreases to certain loss estimates during the first
quarter of 2022, partially offset by lower reinsurance recoveries
as a proportion of gross losses as compared to the prior year
period and, to a lesser extent, certain catastrophe losses in the
current period.
We recognized $7.3 million and $4.7 million of unfavorable prior
year development for the years ended December 31, 2022 and 2021,
respectively. The unfavorable prior year development for the year
ended December 31, 2022 was driven by higher than expected losses
and development on certain large claims, primarily catastrophe
related losses.
CORPORATE SEGMENT
Three Months Ended December
31
Year Ended December 31
($ in thousands)
2022
2021
%
Change
2022
2021
%
Change
Net investment income
$
28,313
$
18,332
54.4
%
$
94,375
$
67,747
39.3
%
Equity in earnings (loss) of
unconsolidated
subsidiaries:
All other investments, primarily
investment fund LPs/LLCs
(393
)
18,541
(102.1
%)
11,954
64,031
(81.3
%)
Tax credit partnerships
(666
)
(3,526
)
(81.1
%)
(7,066
)
(15,057
)
(53.1
%)
Total equity in earnings (loss) of
unconsolidated subsidiaries:
(1,059
)
15,015
(107.1
%)
4,888
48,974
(90.0
%)
Net investment gains (losses)
2,285
2,549
(10.4
%)
(38,126
)
19,981
(290.8
%)
Other income (loss)
(4,188
)
1,745
(340.0
%)
6,198
5,531
12.1
%
Operating expenses
(8,055
)
(7,591
)
6.1
%
(34,733
)
(26,641
)
30.4
%
Interest expense
(5,499
)
(5,516
)
(0.3
%)
(20,372
)
(19,719
)
3.3
%
Income tax (expense) benefit
(809
)
(3,282
)
(75.4
%)
5,423
(4,651
)
(216.6
%)
Segment results
$
10,988
$
21,252
(48.3
%)
$
17,653
$
91,222
(80.6
%)
Consolidated effective tax rate
5.5
%
14.9
%
93.5
%
1.7
%
The rise in interest rates added significantly to our net
investment income, which increased to $28.3 million and $94.4
million in the quarter and full year, respectively. The increases
were driven by higher average book yields on our fixed maturity
investments as our reinvestment rate exceeds that of the maturing
assets. For the year, higher average investment balances resulting
from the addition of the NORCAL assets to our portfolio on May 5,
2021 also drove the increase.
Equity in earnings (loss) from our investment in LPs/LLCs, which
are reported to us on a one-quarter lag, decreased to a loss of
$0.4 million in the quarter and earnings of $12.0 million for the
full year. Our reported earnings from investments in LPs/LLCs
declined in both the fourth quarter and full year as market
valuations in 2022 have been lower than in 2021. Partially
offsetting the lower earnings from our LP/LLC investments was lower
amortization of tax credit partnership operating losses.
The corporate segment results include $2.3 million of net
investment gains and $38.1 million of net investment losses for the
quarter and year, respectively. For the quarter, the net investment
gains were driven by unrealized holding gains resulting from
changes in the fair value of our convertible securities. The net
investment losses for the year were driven by unrealized holding
losses resulting from changes in the fair value of our equity
investments and convertible securities and, to a lesser extent,
realized losses from the sale of equity investments.
Other income (loss) for the quarter decreased driven by the
effect of adverse foreign currency exchange rate losses of $5.0
million related to foreign currency denominated loss reserves, as
the U.S. dollar weakened in the quarter relative to the euro. For
the full year, we recognized a foreign currency exchange rate gain
of $1.9 million given gains recognized during the first three
quarters of the year.
For the year, operating expenses increased $8.1 million due to
the addition of Corporate NORCAL employees to the segment, an
increase in professional fees, business-related travel, and higher
share-based compensation expenses.
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 December
31
Year Ended December 31
(In thousands, except per share
data)
2022
2021
2022
2021
Net income (loss)
$
13,942
$
32,140
$
(402
)
$
144,124
Items excluded in the calculation of
Non-GAAP operating income (loss):
Net investment (gains) losses (1)
(12,495
)
(4,097
)
33,157
(24,310
)
Net investment gains (losses) attributable
to SPCs which no profit/loss is retained (2)
1,224
1,045
(2,138
)
3,253
Transaction-related costs (3)
—
1,442
1,862
24,977
Guaranty fund assessments
(recoupments)
412
41
541
228
Gain on bargain purchase (4)
—
—
—
(74,408
)
Pre-tax effect of exclusions
(10,859
)
(1,569
)
33,422
(70,260
)
Tax effect, at 21% (5)
394
2,868
(8,511
)
2,028
After-tax effect of exclusions
(10,465
)
1,299
24,911
(68,232
)
Non-GAAP operating income (loss)
$
3,477
$
33,439
$
24,509
$
75,892
Per diluted common share:
Net income (loss)
$
0.26
$
0.59
$
(0.01
)
$
2.67
Effect of exclusions
(0.20
)
0.03
0.46
(1.27
)
Non-GAAP operating income (loss) per
diluted common share
$
0.06
$
0.62
$
0.45
$
1.40
(1)
Net investment gains (losses) in 2022
include a gain of $9.0 million 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 and Note 4 of the Notes to
Consolidated Financial Statements of our December 31, 2022 report
on Form 10-K.
(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)
Gain on bargain purchase associated with
our acquisition of NORCAL which is considered unusual, infrequent
and non-recurring in nature. As such, we have excluded the gain on
bargain purchase from Non-GAAP operating income (loss) as it does
not reflect normal operating results.
(5)
The 21% rate is the statutory tax rate
associated with the taxable or tax deductible items listed above.
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. The 2021
gain on bargain purchase and the 2022 gain related to the change in
the fair value of contingent consideration are non-taxable and
therefore had no associated income tax impact. See further
discussion under the heading “Taxes” in the Executive Summary of
Operations section of our December 31, 2022 report on Form
10-K.
Non-GAAP Operating ROE
The following table is a reconciliation of ROE to Non-GAAP
operating ROE for the quarter and year ended December 31, 2022 and
2021:
Three Months Ended
December 31
Year Ended December 31
2022
2021
2022
2021
ROE(1)
2.7 %
10.5 %
— %
5.3 %
Pre-tax effect of items excluded in the
calculation of Non-GAAP
operating ROE
(1.5 %)
(1.4 %)
2.6 %
0.2 %
Tax effect, at 21%(2)
0.1 %
0.8 %
(0.7 %)
0.1 %
Non-GAAP operating ROE
1.3 %
9.9 %
1.9 %
5.6 %
(1)
Quarterly amounts are annualized. Refer to
our December 31, 2022 report on Form 10-K 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 5 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 December 31,
2022 and December 31, 2021:
Book Value Per Share
Book Value Per Share at December 31,
2021
$
26.46
Less: AOCI Per Share(1)
0.30
Non-GAAP Adjusted Book Value Per Share at
December 31, 2021
26.16
Increase (decrease) to Adjusted Book Value
Per Share during the year ended December 31, 2022
attributable to:
Dividends declared
(0.20
)
Net income (loss)
(0.01
)
Other(2)
0.04
Non-GAAP Adjusted Book Value Per Share at
December 31, 2022
25.99
Add: AOCI Per Share(1)
(5.53
)
Book Value Per Share at December 31,
2022
$
20.46
(1)
Primarily the impact of accumulated
unrealized investment gains (losses) on our available-for-sale
fixed maturity investments.
(2)
Includes the impact of share-based
compensation and shares repurchased conducted through a 10b5-1
stock repurchase plan.
Conference Call Information
ProAssurance management will discuss fourth quarter 2022 results
during a conference call at 10:00 a.m. ET on Tuesday, February 28,
2023. US-based investors may access the call by dialing either
(844) 200-6205 (toll free) or (646) 904-5544 (local), and
international investors may dial +1 (929) 526-1599. The access code
for all attendees is 935700. We will webcast the call at
Investor.ProAssurance.com.
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 529421. 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; NORCAL
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/20230227005776/en/
Jason Gingerich jasongingerich@proassurance.com 512-879-5101
ProAssurance (NYSE:PRA)
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