On Mar 14, 2014, we issued an updated research report on
). After analyzing the company's capital deployment initiatives
via dividend hike and share repurchase authorization as well as
the acquisition of Eastern Insurance Holdings during the fourth
quarter of 2013, ProAssurance's future prospects look quite
promising. The stock appears profitable to one's portfolio.
Although the company failed to meet the Zacks Consensus Estimate
or the year-ago results, it delivered positive earnings surprise
in two of the last four quarters, with an average beat of 2.8% .
Why This Stance?
ProAssurance has been active in deploying capital efficiently
through both the channels - dividends and share repurchases. The
20% dividend hike during the fourth quarter was impressive as it
resulted in a yield of 2.74%, higher than the industry yield of
Additionally, the company approved a $100 million extension to
its existing share repurchase program. The company's share
repurchases in 2013 and so far in 2014 has taken the toll to $329
million deployed over the last six years.
Despite the low rates and challenges in writing new business,
ProAssurance's core business has been witnessing substantial
improvement over the past few quarters. Also, global expansions
and new product enhancements are expected to help the company's
claims and underwriting efficiency. Particularly, the opening of
new claims processing centers and the launch of CapAssurance
helped ProAssurance write new business and are expected to help
the company generate more revenues going forward.
Gross premiums have surged on the acquisition of Medmarc Mutual
Insurance Company and Independent Nevada Doctors Insurance
Exchange. Going forward, synergies from the acquisition of
Eastern Insurance Holdings are expected to boost premiums
further. Adding to these positives, the strong score with credit
rating agencies, particularly the rating upgrades in 2013 are
expected to help the company retain investor confidence.
However, this Zacks Rank #3 (Hold) company is struggling over
volatility in premium retentions in its physician business as
well as higher underwriting, policy acquisition and operating
expenses. ProAssurance also faces significant risks associated
with its investment portfolio and given the continued low yield
on the fixed income portfolio, investment results are likely to
be hampered in the upcoming period.
Moreover, ProAssurance's cash flow from operations is affected
by the timing of payments and declined roughly 58% in 2013. If
the cash flow persistently declines, it will likely weigh on
ProAssurance's capital deployment and deleveraging activities
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Montpelier Re Holdings Ltd.
) are some better-ranked stocks with a Zacks Rank #2 (Buy) in the
same sector that appear impressive at current levels and are