ProAssurance Corporation (NYSE: PRA) reports a net loss of $49.4
million, or $0.95 per diluted share, and an operating loss(1) of
$3.7 million, or $0.07 per diluted share, for the three months
ended September 30, 2023.
Third Quarter 2023(2)
- Gross premiums written: $320 million (+4%)
- New business written: $29 million (+82%)
- Unfavorable prior accident year reserve development of $8
million related to our Workers’ Compensation Insurance
business.
- Consolidated combined ratio of 116.7%
- Consolidated operating ratio of 103.2%
- Net investment income of $33 million (+32%)
- Adjusted book value per share(1) of $25.67 as of September 30,
2023 a decrease of $0.32 per share since 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 third quarter of
2022.
Management Commentary & Results of Operations
“Market conditions and judicial trends in our lines of business
continue to be a significant headwind to our efforts to return to
our desired level of underwriting profitability. We are meeting
those challenges head on in the marketplace by taking appropriate
rate actions, maintaining our underwriting criteria, effectively
managing claims and providing the best-in-class service that has
allowed us to attract well-priced new business,” said Ned Rand,
President and Chief Executive Officer of ProAssurance. He added,
“With our decades of experience in medical professional liability
and workers’ compensation we know there is no shortcut to building
sustained profitability that can ride out turbulent markets and
create profitability over the long term. These are two highly
cyclical lines of insurance, and the actions we are taking now will
allow us to thrive as market conditions improve over time.”
Driving the operating loss in the quarter was net unfavorable
prior accident year reserve development of $7.7 million. This was
due to $8.1 million of unfavorable development in our Workers’
Compensation Insurance segment, driven by higher-than-expected loss
trends as the average medical cost per claim increased in the third
quarter as compared to what we observed in the first two quarters
of the year. Also at play was a reduction in net earned premiums in
all our operating segments, both of which we discuss in our segment
commentary.
The unfavorable development in the quarter was the primary
reason our consolidated combined ratio increased 8.8 points
quarter-over-quarter. However, the 32% improvement in our net
investment income produced a higher investment income ratio,
leading to a smaller increase in our operating ratio.
There were significant gains in new business acquired in the
quarter, all of which reflected our disciplined pricing and
underwriting strategy. That drove increases in gross premiums
written, as did strong renewal price increases in our Specialty
P&C segment, which also saw strong retention even in the face
of continued market pressure.
During the quarter we made the decision to no longer participate
in the results of Syndicate 1729, beginning with the 2024
underwriting year. Due to the quarter lag, our ceased participation
in Syndicate 1729 will not be reflected in our results until the
second quarter of 2024. The results from our participation from
open underwriting years prior to 2024 will continue to earn out pro
rata over the entire policy period of the underlying business.
Furthermore, we entered into an agreement to sell our remaining
ownership interest in the underwriting and operations entity
associated with Syndicate 1729 to an unrelated third party, which
is contingent upon certain approvals. Approval of this sale will
not impact our decision to no longer participate in the results of
Syndicate 1729.
Market conditions affecting actual and projected results of our
Workers' Compensation Insurance segment during the quarter also
affected our analysis of goodwill related to that segment. As a
result, we recognized a non-cash $44.1 million impairment of
goodwill during the third quarter of 2023.
Book value per share at quarter end was $19.85, down 3% from the
December 31, 2022 book value of $20.46. Adjusted book value per
share, which excludes our Accumulated Other Comprehensive Loss, is
$25.67 as of September 30, 2023 as compared to $25.99 as of
December 31, 2022. Share repurchases year-to-date have contributed
a $0.59 per share increase to adjusted book value per share.
CONSOLIDATED INCOME STATEMENT
HIGHLIGHTS
Selected consolidated financial data for
each period is summarized in the table below.
Three Months Ended September
30
Nine Months Ended September
30
($ in thousands, except per share
data)
2023
2022
Change
2023
2022
Change
Revenues
Gross premiums written(1)
$
319,762
$
308,430
3.7
%
$
873,484
$
879,512
(0.7
%)
Net premiums written
$
292,023
$
281,989
3.6
%
$
790,978
$
803,055
(1.5
%)
Net premiums earned
$
242,420
$
258,355
(6.2
%)
$
730,068
$
771,337
(5.4
%)
Net investment income
32,754
24,745
32.4
%
94,714
67,132
41.1
%
Equity in earnings (loss) of
unconsolidated subsidiaries
(61
)
(6,852
)
99.1
%
5,450
5,948
(8.4
%)
Net investment gains (losses)(2)
(2,702
)
(8,262
)
67.3
%
3,156
(45,652
)
106.9
%
Other income (loss)(1)
3,336
5,097
(34.5
%)
6,864
13,215
(48.1
%)
Total revenues(1)
275,747
273,083
1.0
%
840,252
811,980
3.5
%
Expenses
Net losses and loss adjustment
expenses
208,891
198,073
5.5
%
605,245
585,166
3.4
%
Underwriting, policy acquisition and
operating expenses(1)
74,014
80,679
(8.3
%)
218,779
229,788
(4.8
%)
SPC U.S. federal income tax expense
(benefit)
(175
)
433
(140.4
%)
1,351
1,424
(5.1
%)
SPC dividend expense (income)
(2,518
)
183
(1,476.0
%)
3,171
1,697
86.9
%
Interest expense
5,514
5,513
—
%
16,478
14,872
10.8
%
Goodwill impairment
44,110
—
nm
44,110
—
nm
Total expenses(1)
329,836
284,881
15.8
%
889,134
832,947
6.7
%
Income (loss) before income taxes
(54,089
)
(11,798
)
(358.5
%)
(48,882
)
(20,967
)
(133.1
%)
Income tax expense (benefit)
(4,655
)
(2,673
)
(74.1
%)
(3,901
)
(6,623
)
41.1
%
Net income (loss)
$
(49,434
)
$
(9,125
)
(441.7
%)
$
(44,981
)
$
(14,344
)
(213.6
%)
Non-GAAP operating income (loss)
$
(3,730
)
$
(2,976
)
(25.3
%)
$
(3,240
)
$
21,033
(115.4
%)
Weighted average number of common
shares outstanding
Basic
51,837
53,990
53,205
54,023
Diluted
52,006
54,124
53,339
54,151
Earnings (loss) per share
Net income (loss) per diluted share
$
(0.95
)
$
(0.17
)
$
(0.78
)
$
(0.85
)
$
(0.27
)
$
(0.58
)
Non-GAAP operating income (loss) per
diluted share
$
(0.07
)
$
(0.06
)
$
(0.01
)
$
(0.06
)
$
0.39
$
(0.45
)
(1)
Consolidated totals include inter-segment
eliminations. The eliminations affect individual line items only
and have no effect on net income (loss). See Note 13 of the Notes
to Condensed Consolidated Financial Statements in our September 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
September 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)
September 30, 2023
December
31, 2022
Total investments
$
4,230,257
$
4,387,683
Total assets
$
5,573,957
$
5,699,999
Total liabilities
$
4,562,114
$
4,595,981
Common shares (par value $0.01)
$
636
$
634
Retained earnings
$
1,375,604
$
1,423,286
Treasury shares
$
(469,702
)
$
(419,214
)
Shareholders’ equity
$
1,011,843
$
1,104,018
Book value per share
$
19.85
$
20.46
Non-GAAP adjusted book value per
share(1)
$
25.67
$
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 September
30
Nine Months Ended September
30
2023
2022
2023
2022
Current accident year net loss ratio
83.0
%
79.5
%
81.8
%
80.0
%
Effect of prior accident years’ reserve
development
3.2
%
(2.8
%)
1.1
%
(4.1
%)
Net loss ratio
86.2
%
76.7
%
82.9
%
75.9
%
Underwriting expense ratio
30.5
%
31.2
%
30.0
%
29.8
%
Combined ratio
116.7
%
107.9
%
112.9
%
105.7
%
Operating ratio
103.2
%
98.3
%
99.9
%
97.0
%
Return on equity(1)
(6.6
%)
(3.3
%)
(4.4
%)
(1.5
%)
Non-GAAP operating return on
equity(1)(2)
(1.4
%)
(1.1
%)
(0.4
%)
2.2
%
Combined ratio, excluding
transaction-related costs(3)
116.7
%
107.9
%
112.9
%
105.5
%
(1)
Quarterly amounts are annualized. Refer to
our September 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 nine months ended September 30, 2022 includes $1.9
million of transaction-related costs included in consolidated
operating expenses associated with our acquisition of NORCAL. These
costs do not reflect normal operating results.
SEGMENT REORGANIZATION
As a result of our decision to no longer participate in the
results of Syndicate 1729 for the 2024 underwriting year, we
reorganized our segment reporting during the third quarter of 2023
to align with how our Chief Operating Decision Maker currently
oversees the business, allocates resources and evaluates operating
performance and, as a result, the number of our operating and
reportable segments decreased from five to four: Specialty P&C,
Workers' Compensation Insurance, Segregated Portfolio Cell
Reinsurance and Corporate. As a result of the segment
reorganization, we now report the underwriting results from our
participation in Lloyd’s Syndicates in the Specialty P&C
segment and the investment results of assets solely allocated to
our Lloyd's Syndicate operations and U.K. income taxes in our
Corporate segment. All prior period segment information has been
recast to conform to the current period presentation and the
segment reorganization had no impact on previously reported
consolidated financial results.
SPECIALTY P&C SEGMENT RESULTS
Three Months Ended September
30
Nine Months Ended September
30
($ in thousands)
2023
2022
%
Change
2023
2022
%
Change
Gross premiums written
$
256,125
$
244,887
4.6
%
$
673,660
$
680,217
(1.0
%)
Net premiums written
$
241,888
$
222,344
8.8
%
$
607,945
$
615,855
(1.3
%)
Net premiums earned
$
195,772
$
198,481
(1.4
%)
$
562,206
$
593,534
(5.3
%)
Other income
1,089
1,000
8.9
%
3,106
4,185
(25.8
%)
Total revenues
196,861
199,481
(1.3
%)
565,312
597,720
(5.4
%)
Net losses and loss adjustment
expenses
(162,677
)
(158,518
)
2.6
%
(476,187
)
(469,690
)
1.4
%
Underwriting, policy acquisition and
operating expenses
(49,395
)
(53,166
)
(7.1
%)
(140,949
)
(148,339
)
(5.0
%)
Total expenses
(212,072
)
(211,684
)
0.2
%
(617,136
)
(618,029
)
(0.1
%)
Segment results
$
(15,211
)
$
(12,203
)
(24.6
%)
$
(51,824
)
$
(20,309
)
(155.2
%)
SPECIALTY P&C SEGMENT KEY
RATIOS
Three Months Ended September
30
Nine Months Ended September
30
2023
2022
2023
2022
Current accident year net loss ratio
83.4
%
82.2
%
84.4
%
82.8
%
Effect of prior accident years’ reserve
development
(0.3
%)
(2.3
%)
0.3
%
(3.7
%)
Net loss ratio
83.1
%
79.9
%
84.7
%
79.1
%
Underwriting expense ratio
25.2
%
26.8
%
25.1
%
25.1
%
Combined ratio
108.3
%
106.7
%
109.8
%
104.2
%
Compared to the third quarter of last year, gross written
premium increased by $11.2 million or 4.6%, despite the third
quarter reversal of $7.9 million of tail coverage that was written
and fully ceded to our Segregated Portfolio Cell Reinsurance
segment in the second quarter of 2023. Net premiums earned declined
1.4% as a result of the market conditions we have experienced over
the preceding twelve months.
Within the segment, written premium in our Standard Physician
line was 4.5% higher and Specialty lines were 34.1% higher than
last year, driven by an almost 55% and 50% increase in Custom
Physician and Hospital and Facilities policies, respectively, due
to new business exceeding expectations. Premium retention in the
quarter was 87%, unchanged from third quarter 2022. Standard
Physician retention was 89%, unchanged from the year-ago quarter.
Specialty retention was 80%, up six points quarter-over-quarter.
Small Business Unit and Medical Technology Liability business
retained 90% and 89% of premium, respectively.
We achieved renewal pricing increases of 7%, one point lower
than the third quarter of 2022. New business written improved to
$23.6 million for the quarter, compared to $12.1 million last year.
Both measures reflect the value proposition presented by
ProAssurance especially given current market conditions.
The segment current accident year net loss ratio increased by
1.2 points in the quarter as we respond to the continued effects of
social inflation, higher than anticipated loss severity trends
throughout healthcare, and changes in our mix of business.
We recognized net favorable prior accident year reserve
development of $0.7 million in the third quarter, compared to $4.6
million in the same period of 2022. The net favorable development
for the quarter was due to the beneficial amortization of the
purchase accounting adjustments on NORCAL's reserves, partially
offset by unfavorable prior year development related to our Lloyd’s
Syndicates operations due to higher than expected losses and
development on certain large claims, primarily catastrophe related
losses.
The expense ratio decreased to 25.2% compared to 26.8% last year
driven by the impact of a decrease in amounts accrued for
performance-related incentive plans in the current quarter, and
one-time expenses in the prior year quarter, partially offset by
lower levels of earned premium in the quarter.
WORKERS’ COMPENSATION INSURANCE SEGMENT
RESULTS
Three Months Ended September
30
Nine Months Ended September
30
($ in thousands)
2023
2022
%
Change
2023
2022
%
Change
Gross premiums written
$
63,637
$
63,543
0.1
%
$
199,824
$
199,295
0.3
%
Net premiums written
$
44,386
$
43,973
0.9
%
$
134,280
$
131,796
1.9
%
Net premiums earned
$
39,885
$
42,063
(5.2
%)
$
121,706
$
124,456
(2.2
%)
Other income
333
554
(39.9
%)
1,565
1,753
(10.7
%)
Total revenues
40,218
42,617
(5.6
%)
123,271
126,209
(2.3
%)
Net losses and loss adjustment
expenses
(41,208
)
(28,148
)
46.4
%
(101,813
)
(83,306
)
22.2
%
Underwriting, policy acquisition and
operating expenses
(13,542
)
(14,146
)
(4.3
%)
(40,923
)
(40,816
)
0.3
%
Total expenses
(54,750
)
(42,294
)
29.5
%
(142,736
)
(124,122
)
15.0
%
Segment results
$
(14,532
)
$
323
(4,599.1
%)
$
(19,465
)
$
2,087
(1,032.7
%)
WORKERS’ COMPENSATION INSURANCE SEGMENT
KEY RATIOS
Three Months Ended September
30
Nine Months Ended September
30
2023
2022
2023
2022
Current accident year net loss ratio
83.1
%
71.7
%
76.0
%
71.8
%
Effect of prior accident years’ reserve
development
20.2
%
(4.8
%)
7.7
%
(4.9
%)
Net loss ratio
103.3
%
66.9
%
83.7
%
66.9
%
Underwriting expense ratio
34.0
%
33.6
%
33.6
%
32.8
%
Combined ratio
137.3
%
100.5
%
117.3
%
99.7
%
The Workers’ Compensation Insurance segment underwriting results
declined in the third quarter of 2023, compared to the same period
in 2022, reflecting higher than expected loss trends and lower net
premiums earned related to the continuation of competitive market
conditions.
Gross premiums in the third quarter were essentially unchanged
compared to the same period of 2022. An increase in new business
was partially offset by lower audit premium. In our traditional
business, renewal results reflected rate decreases of 3% and
renewal retention of 85%, both of which improved in the third
quarter of 2023, but competitive market conditions persist. Audit
premium was $2.2 million in 2023, compared to $2.9 million for the
same period in 2022. New business written in our traditional
business was $4.8 million in the third quarter of 2023, an increase
of $1.7 million compared to the same period in 2022.
The net loss ratio for the third quarter of 2023 included an
increase in the current accident year loss ratio and $8.1 million
of unfavorable prior year reserve development, primarily related to
the 2022 accident year, both of which reflected higher than
expected loss trends. We continue to observe a reduction in
reported claim frequency; however, the lower frequency is being
more than offset by an increase in our average cost per claim in
both the 2023 and 2022 accident years, which we attribute to
increased medical costs driven by healthcare wage inflation and
medical advancements. The current accident year net loss ratio
reflected an increase in the full year loss ratio to 76.0% in the
third quarter, from 72.6% at the end of the second quarter.
Underwriting expenses decreased by $0.6 million, primarily
driven by lower compensation-related costs related to
performance-related incentive plans and the timing of certain
regulatory expenses. The underwriting expense ratio was 34.0%, less
than 1% higher than the prior year quarter reflecting lower net
premiums earned due to the decrease in audit premium and the
continuation of competitive market conditions.
SEGREGATED PORTFOLIO CELL REINSURANCE
SEGMENT RESULTS
Three Months Ended September
30
Nine Months Ended September
30
($ in thousands)
2023
2022
%
Change
2023
2022
%
Change
Gross premiums written
$
7,930
$
17,879
(55.6
%)
$
55,924
$
62,882
(11.1
%)
Net premiums written
$
5,749
$
15,672
(63.3
%)
$
48,753
$
55,404
(12.0
%)
Net premiums earned
$
6,763
$
17,811
(62.0
%)
$
46,156
$
53,347
(13.5
%)
Net investment income
601
294
104.4
%
1,625
617
163.4
%
Net investment gains (losses)
(525
)
(732
)
28.3
%
1,830
(4,225
)
143.3
%
Other income
2
1
100.0
%
3
2
50.0
%
Net losses and loss adjustment
expenses
(5,006
)
(11,407
)
(56.1
%)
(27,245
)
(32,170
)
(15.3
%)
Underwriting, policy acquisition and
operating expenses
(3,668
)
(5,599
)
(34.5
%)
(15,241
)
(15,203
)
0.2
%
SPC U.S. federal income tax (expense)
benefit(1)
175
(433
)
(140.4
%)
(1,351
)
(1,424
)
(5.1
%)
SPC net results
(1,658
)
(65
)
(2,450.8
%)
5,777
944
512.0
%
SPC dividend (expense) income (2)
2,518
(183
)
(1,476.0
%)
(3,171
)
(1,697
)
86.9
%
Segment results (3)
$
860
$
(248
)
446.8
%
$
2,606
$
(753
)
446.1
%
(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 September
30
Nine Months Ended September
30
2023
2022
2023
2022
Current accident year net loss ratio
70.5
%
67.7
%
64.7
%
67.5
%
Effect of prior accident years’ reserve
development
3.5
%
(3.7
%)
(5.7
%)
(7.2
%)
Net loss ratio
74.0
%
64.0
%
59.0
%
60.3
%
Underwriting expense ratio
54.2
%
31.4
%
33.0
%
28.5
%
Combined ratio
128.2
%
95.4
%
92.0
%
88.8
%
Premiums in our Segregated Portfolio Cell Reinsurance segment
are primarily comprised of workers' compensation coverages assumed
from our Workers' Compensation Insurance segment and, to a lesser
extent, healthcare professional liability coverages from our
Specialty P&C segment. In the third quarter of 2023, a tail
coverage assumed from the Specialty P&C segment was cancelled,
as previously discussed, resulting in the reversal of $7.9 million
of tail premium previously recognized during the second quarter of
2023. The cancellation of this tail coverage resulted in a 26 point
increase to the current period combined ratio, comprised of a 5
point increase to the net loss ratio and a 21 point increase to the
expense ratio. Importantly, this tail coverage related to one
program in which we do not participate in the underwriting results
and therefore this cancellation had no impact on our segment
results.
Workers’ compensation renewal premium reflected rate decreases
of 5% and renewal retention of 92% for the three months ended
September 30, 2023. Audit premium decreased to $0.6 million in the
current period, compared to $1.2 million in 2022. New business
written was $0.6 million in the third quarter of 2023, compared to
$0.8 million for the same period in 2022.
Excluding the impact of the aforementioned cancelled tail
coverage, the third quarter 2023 calendar year net loss ratio was 5
points higher than in the third quarter of 2022, reflecting an
increase in the healthcare professional liability current accident
year net loss ratio driven by an increase in expected claim
frequency related to the program that cancelled the tail coverage.
This was partially offset by the decrease in the workers'
compensation current accident year net loss ratio primarily
reflecting a reduction in claim frequency and severity, partially
offset by the continuation of competitive market conditions and the
resulting renewal rate decreases.
We recognized $0.3 million in net unfavorable prior accident
year reserve development in the quarter, comprised of $1.4 million
of net unfavorable development in the healthcare professional
liability business primarily reflecting higher than expected claim
frequency in one program in which we do not participate. That
unfavorable development was offset by $1.1 million of net favorable
development in the workers’ compensation business due to favorable
trends in claim closing patterns primarily in accident years 2018
through 2021.
CORPORATE SEGMENT
Three Months Ended September
30
Nine Months Ended September
30
($ in thousands)
2023
2022
%
Change
2023
2022
%
Change
Net investment income
$
32,153
$
24,451
31.5
%
$
93,089
$
66,515
40.0
%
Equity in earnings (loss) of
unconsolidated subsidiaries:
All other investments, primarily
investment fund LPs/LLCs
368
(4,688
)
107.8
%
7,744
12,347
(37.3
%)
Tax credit partnerships
(429
)
(2,164
)
(80.2
%)
(2,294
)
(6,399
)
(64.2
%)
Total equity in earnings (loss) of
unconsolidated subsidiaries:
(61
)
(6,852
)
99.1
%
5,450
5,948
(8.4
%)
Net investment gains (losses)
(3,677
)
(7,530
)
51.2
%
(3,174
)
(41,427
)
92.3
%
Other income (loss)
2,847
4,695
(39.4
%)
5,347
10,386
(48.5
%)
Operating expenses
(8,344
)
(8,921
)
(6.5
%)
(24,823
)
(26,679
)
(7.0
%)
Interest expense
(5,514
)
(5,513
)
—
%
(16,478
)
(14,872
)
10.8
%
Income tax (expense) benefit
4,655
2,673
74.1
%
3,901
6,232
37.4
%
Segment results
$
22,059
$
3,003
634.6
%
$
63,312
$
6,103
937.4
%
Consolidated effective tax rate
8.6
%
22.7
%
8.0
%
31.6
%
The rise in interest rates continues to add significantly to our
net investment income, which increased to $32.2 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, reflected a small
gain in the quarter as compared to a loss of $4.7 million in the
year-ago quarter. The earnings generated from our portfolio of
investments in LPs/LLCs did not exceed the tax-deductible operating
losses recorded from our tax credit partnership investments
resulting in an overall loss from our investment in unconsolidated
subsidiaries in the quarter.
The corporate segment results include $3.7 million of net
investment losses for the quarter driven by unrealized holding
losses resulting from changes in the fair value of our equity
investments, partially offset by death benefit proceeds from BOLI
contracts.
Other income was $2.8 million compared to $4.7 million in 2022.
The decrease in other income was 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 $3.2 million to other income in 2022 as
compared to $1.8 million in the current period.
Operating expenses decreased by $0.6 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 September
30
Nine Months Ended September
30
(In thousands, except per share
data)
2023
2022
2023
2022
Net income (loss)
$
(49,434
)
$
(9,125
)
$
(44,981
)
$
(14,344
)
Items excluded in the calculation of
Non-GAAP operating income (loss):
Net investment (gains) losses (1)
2,702
8,262
(3,156
)
45,652
Net investment gains (losses) attributable
to SPCs which no profit/loss is retained (2)
(431
)
(562
)
1,421
(3,362
)
Transaction-related costs (3)
—
—
—
1,862
Goodwill impairment
44,110
—
44,110
—
Guaranty fund assessments
(recoupments)
103
4
29
130
Pre-tax effect of exclusions
46,484
7,704
42,404
44,282
Tax effect, at 21% (4)
(780
)
(1,555
)
(663
)
(8,905
)
After-tax effect of exclusions
45,704
6,149
41,741
35,377
Non-GAAP operating income (loss)
$
(3,730
)
$
(2,976
)
$
(3,240
)
$
21,033
Per diluted common share:
Net income (loss)
$
(0.95
)
$
(0.17
)
$
(0.85
)
$
(0.27
)
Effect of exclusions
0.88
0.11
0.79
0.66
Non-GAAP operating income (loss) per
diluted common share
$
(0.07
)
$
(0.06
)
$
(0.06
)
$
0.39
(1)
Net investment gains (losses) for the
three and nine months ended September 30, 2023 include a gain of
$1.5 million and $4.5 million, respectively, related to the change
in the fair value of contingent consideration issued in connection
with the NORCAL acquisition. We have excluded these adjustments as
they do 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
September 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 discrete effective tax rate
method for the three and nine months ended September 30, 2023,
while we used the estimated annual effective tax rate method for
the three and nine months ended September 30, 2022. See further
discussion on these methods in the Critical Accounting Estimates
section under the heading "Estimation of Taxes/Tax Credits" and in
Note 4 of the Notes to Condensed Consolidated Financial Statements
of our September 30, 2023 report on Form 10-Q. For the 2023
periods, our statutory tax rate was applied to these items in
calculating net income (loss), excluding the 2023 goodwill
impairment loss which is not tax deductible. In addition, the gains
in 2023 related to the change in the fair value of contingent
consideration are non-taxable and therefore had no associated
income tax impact. For the 2022 periods, our effective tax rate was
applied to these items in calculating net income (loss), excluding
net investment gains (losses) and related adjustments which were
treated as discrete items and were tax effected at the annual
expected statutory tax rate (21%) in the period they were 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.
Non-GAAP Operating ROE
The following table is a reconciliation of ROE to Non-GAAP
operating ROE for the three and nine months ended September 30,
2023 and 2022:
Three Months Ended
September 30
Nine Months Ended
September 30
2023
2022
2023
2022
ROE(1)
(6.6
%)
(3.3
%)
(4.4
%)
(1.5
%)
Pre-tax effect of items excluded in the
calculation of Non-GAAP operating ROE
5.5
%
2.8
%
4.1
%
4.7
%
Tax effect, at 21%(2)
(0.3
%)
(0.6
%)
(0.1
%)
(1.0
%)
Non-GAAP operating ROE
(1.4
%)
(1.1
%)
(0.4
%)
2.2
%
(1)
Quarterly amounts are annualized. Refer to
our September 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 September 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 nine months ended September 30,
2023 attributable to:
Dividends declared
(0.05
)
Cumulative repurchase of shares(2)
0.59
Net income (loss)(3)
(0.88
)
Other(4)
0.02
Non-GAAP Adjusted Book Value Per Share at
September 30, 2023
25.67
Add: AOCI Per Share(1)
(5.82
)
Book Value Per Share at September 30,
2023
$
19.85
(1)
Primarily the impact of accumulated
unrealized investment gains (losses) on our available-for-sale
fixed maturity investments. See Note 10 of the Notes to Condensed
Consolidated Financial Statements in our September 30, 2023 report
on Form 10-Q for additional information.
(2)
Represents the impact of our repurchase of
3.1 million common shares, conducted through a series of 10b5-1
stock repurchase plans during 2023. See Note 10 of the Notes to
Condensed Consolidated Financial Statements in our September 30,
2023 report on Form 10-Q for additional information.
(3)
Includes the $44.1 million goodwill
impairment associated with the Workers' Compensation Insurance
segment, which accounted for $0.87 of the decrease in book value
per share. See Note 5 of the Notes to Condensed Consolidated
Financial Statements in our September 30, 2023 report on Form 10-Q
for additional information.
(4)
Includes the impact of share-based
compensation.
Conference Call Information
ProAssurance management will discuss third quarter 2023 results
during a conference call at 10:00 a.m. ET on Thursday, November 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:
www.netroadshow.com/events/global-numbers?confId=56230. The access
code for all attendees is 198658.
Callers may also choose to pre-register to receive unique call
access details and avoid operator wait times; pre-register here if
desired:
www.netroadshow.com/events/login?show=477bea77&confId=56230.
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 484795. 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/20231108491513/en/
Dana Hendricks EVP, Chief Financial Officer 800-282-6242 •
205-877-4462 • DanaHendricks@ProAssurance.com
ProAssurance (NYSE:PRA)
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