On Sep 30, 2013, we downgraded our recommendation on
) to Underperform from Neutral following poor second quarter
results that was announced on Aug 5, 2013. This property and
casualty insurer currently carries a Zacks Rank #4 (Sell).
Why the Downgrade?
ProAssurance's second-quarter earnings came in at 72 cents per
share that missed the Zacks Consensus Estimate of 90 cents per
share by 20% as well as year-ago quarter's earnings of 96 cents
per share by 25%.
ProAssurance's core business has been volatile since the past
several years, although it has been more inclined toward a
downturn. Given the low rates and challenges in writing new
business, fluctuations in net premiums earned/written are
expected to persist in the future. Moreover, inherent threats
associated with the medical professional liability insurance
sector related to price competition, legislative reform, loss
cost trends and regulatory challenges are expected to weigh on
top line going forward.
Premium retention in ProAssurance's physician business is another
factor that is taking a toll on top line growth. If the company
continues to lose its insured clients to competitors or to
self-insurance mechanisms it might weigh largely on premiums,
thereby waning top line growth going forward. Additionally,
investment income has been a drag for the past few years as the
declining interest rate forces the company to reinvest its
matured investments at comparatively lower interest rates.
Furthermore, ProAssurance has consistently suffered from higher
underwriting, policy acquisition and operating expenses as
exhibited in the first half of the year. Rising expenses and
waning premiums earned have together contributed to a
deteriorating underwriting expense ratio. This implies lower
profitability for the company. Until and unless, ProAssurance
undertakes stringent expense management initiatives or measures
to improve policy retentions and renewals, the company
profitability might be hampered severely resulting in loss of
Other Stocks to Consider
Among other property and casualty insurers,
Global Indemnity Plc (
Cincinnati Financial Corp.
Everest Re Group Limited
) carry a favorable Zacks Rank #1 (Strong Buy) and appear
CINCINNATI FINL (CINF): Free Stock Analysis
GLOBAL INDEMNTY (GBLI): Free Stock Analysis
PROASSURANCE CP (PRA): Free Stock Analysis
EVEREST RE LTD (RE): Free Stock Analysis
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