ProAssurance Corporation (PRA)

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ProAssurance Corporation (PRA)

Q1 2009 Earnings Call

May 5, 2009 10:00 am ET


Frank O'Neil - SVP Corporate Communications IR

Stan Starnes - Chairman, CEO

Vic Adamo - President

Ned Rand - CFO

Hayes Whiteside - Medical Director

Howard Friedman - Chief Underwriting Officer


David Lewis - Raymond James

Mark Hughes - SunTrust Robinson Humphrey

Mike Grasher - Piper Jaffray

Michael Nannizzi - Oppenheimer

Mary Schafer - Morgan Stanley



Good day everyone and welcome to today's ProAssurance first quarter 2009 earnings release and conference call. As a reminder, this call is being recorded. Now, I would like to turn the conference over to Mr. Frank O'Neil. Please go ahead sir.

Frank O'Neil

Thank you, Jennifer, and thanks everyone for joining us. The news release we issued yesterday afternoon and our SEC filings including this morning's 10-Q filing include disclosures with respect to forward-looking statements. In that regard, please understand that many of the statements we make today will deal with projections, estimates and expectations. We explicitly identify these as forward-looking statements subject to various risks. Our actual results could differ materially from current projections or expectations.

Our SEC filings have a full listing of the risks you should understand about ProAssurance. We will not undertake and we expressly disclaim any obligation to update or alter forward-looking statements whether as a result of new information or future events except as required by law or regulation.

The content of this call is accurate only on Tuesday, May 5, 2009, the date of first broadcast. If you are reading a transcript of this call, please note that we did not authorize it nor have we reviewed it for accuracy, thus it may contain errors that could alter the intent or meaning of our statements.

On the call today is our Chairman and CEO, Stan Starnes; our President, Vic Adamo; Chief Financial Officer, Ned Rand; Chief Claims Officer, Darryl Thomas; our Medical Director, Dr. Hayes Whiteside; and our Chief Underwriting Officer, Howard Friedman who is attending an industry conference and has dialed in from the road.

Stan will open our remarks today.

Stan Starnes

Thanks, Frank. Welcome everyone and thanks for joining us. Let me set the tone for today's call by highlighting our profitability in the quarter and underscoring the growth in book value despite the challenging environment in which we operate, both as providers of insurance and as investors in a troubled economy.

On the insurance side of the enterprise, we continued to see moderate loss trends. We renewed policies at historically high retention levels, and we have seen the rate of decline in renewal pricing slow for the first time in many quarters. On top of that our pricing is such that we are able to write business we believe will be profitable in today's market and still maintain our historically conservative reserving pattern, which insures our ability to respond to any change in the loss environment.

On the investment side, our cautious approach to investing help limit losses caused by impairments. Like everyone else, we face lower interest rates and ongoing dislocations in the financial markets, but we nevertheless have maintained the discipline required to maintain profitability in our core business.

With that as an overview, let us hear about the number, Frank.

Frank O'Neil

Okay. Thanks, Stan. Ned, numbers from you?

Ned Rand

Sure, Frank. Since Stan ended with the balance sheet and investment picture, that's where I will start. We were able to grow our book value per share by 4% and stockholders equity by 3% in the quarter. We think that is a notable accomplishment in a challenging operating environment. Book value stands at $44.19 per share. We believe our stock continues to represent a solid value given our historical price to book ratios.

On the subject of our stock, in the quarter, we bought back approximately 443,000 shares at a cost of $18.6 million. We have approximately $55.8 million available to repurchase our common stock or retire debt and we expect to continue purchasing shares if the price again falls below book value.

As we focus on building shareholder value, I can think of few, if any, investments that are as strong as our stock right now. We earned $0.99 per diluted share on an operating basis, down about 7% from last year's first quarter, but that decline is primarily due to investment related items.

From a balance sheet perspective, we are taking a somewhat defensive posture. While that is helping to preserve our capital and protect our book value, it is impacting our investment return. Two such defensive actions are an increase in our cash and short-term holdings and our investment in Inflation Protected Securities, TIPS. The increase in cash and short-term investments led to lower returns on our core fixed income portfolio due to lower balances.

In addition, while we held more in short-term investments during the quarter on a comparative basis, we are still impacted by the decline in short-term rates that began during the second half of 2008. Our return on short-term funds is down an average of approximately 300 basis points.

Our inflation protected securities, where the coupon on the security is tied to the change in CPI, actually produced a negative coupon for the quarter because of the decline in the CPI during the period. However, because there continues to be an expectation of significant inflation into the future, the value of these securities increased during the quarter resulting in a total return of 5%.

With that as a backdrop, we continue to search for ways to put our money to work under more advantageous terms, but at the same time we are being careful on how we deploy our cash. We continue to see volatility on pricing pressure in the asset backed investment universe and we continue to take a conservative approach in dealing with other than temporary impairment concerns.

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