On Mar 18, Zacks Investment Research downgraded
) to a Zacks Rank #5 (Strong Sell) as estimates have been going
down ever since it reported weak fourth-quarter 2013 results.
AMTRUST FIN SVC (AFSI): Free Stock Analysis
FIDELITY NAT FI (FNF): Free Stock Analysis
PROASSURANCE CP (PRA): Free Stock Analysis
ALLEGHANY CORP (Y): Free Stock Analysis
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Why the Downgrade?
ProAssurance witnessed downward estimate revisions following weak
fourth-quarter results reported on Feb 20, 2014. The results
clocked a negative surprise of 3.9%. Moreover, shares of this
property and casualty insurer lost nearly 7.9% since the company
reported disappointing fourth-quarter results. Given its current
of -4.1%, we feel the company is slated for difficult times going
ProAssurance reported fourth-quarter operating earnings per share
of 99 cents, which missed the Zacks Consensus Estimate of $1.03
by 3.9%. Earnings also decreased 36.5% year over year.
The underperformance by ProAssurance was largely due to surging
expenses coupled with lower revenues. During the last reported
quarter, net losses and loss adjustment expenses also rose
significantly higher. Additionally, ProAssurance has been
consistently suffering from higher underwriting, policy
acquisition and operating expenses driven by higher acquisition
expenses and compensation costs. This escalation is also
deteriorating the underwriting ratio.
Another major risk is associated with ProAssurance's investment
portfolio, which primarily consists of fixed income securities.
The declining interest rate forces the company to reinvest its
matured investments at comparatively lower interest rates, which
leads to declining investment income.
Moreover, ProAssurance has been facing volatility in premium
retention in its physician business for quite some time now
mainly due to increased competition. If the company continues to
lose its insured clients to competitors or to self-insurance
mechanisms and risk retention groups, this might weigh largely on
premiums, thereby hurting top line growth going forward.
Over the last 30 days, the Zacks Consensus Estimate for 2014 slid
by 5.7% to $3.13 per share as 3 of 5 estimates were revised
Other Insurers Worth a Look
We prefer to avoid ProAssurance for the time being. However,
investors interested in the property and casualty insurance space
may consider better-ranked stocks like
AmTrust Financial Services, Inc.
Fidelity National Financial, Inc.
). All these stocks sport a Zacks Rank #1 (Strong Buy).