ProAssurance Corporation (PRA)

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ProAssurance Corporation (PRA)

Q2 2010 Earnings Call Transcript

August 5, 2010 9:00 am ET

Executives

Frank B. O’Neil – SVP, Corporate Communications and IR

Stan Starnes – Chairman and CEO

Ned Rand – CFO and SVP

Howard Friedman – Co-President, Professional Liability Group; Chief Underwriting Officer and Chief Actuary, SVP

Vic Adamo – President

Analysts

Amit Kumar – Macquarie Group

Mark Hughes – SunTrust

Ray Iardella – Oppenheimer & Company

Mike Grasher – Piper Jaffray

Jay Willadsen – Lee Munder Capital

Beth Malone – Wunderlich Securities

Presentation

Operator

Good day, everyone, and welcome to today’s ProAssurance second quarter earnings conference call. As a reminder, today’s call is being recorded. For opening remarks and introductions I would now turn the call over to Mr. Frank O'Neil. Please go ahead, sir.

Frank B. O’Neil

Thank you, Corinne. Good morning, everyone. Thanks for taking time to be part of our call to discuss our solid results of the quarter and six months ended June 30, 2010. We issued a news release Wednesday afternoon reporting our results for those periods, and that release along with our SEC filings, including the 10-Q filed this morning, are designed to provide you with important detailed information about our company as well as disclosures regarding forward-looking statements.

We are explicitly identifying statements we make today that deal with projections, estimates and expectations as forward-looking statements subject to various risks. These risks could cause our actual results to differ materially from current projections or expectations. We will not undertake and expressly disclaim any obligation to alter or update forward-looking statements whether as a result of new information or future events unless required by law or regulation.

A note about our 10-Q; this is the first filing with the XBRL coding mandated by the SEC. We're anxious to learn if you find that to be helpful.

The content of the call is accurate only on Thursday, August 5, 2010, the date of first broadcast. If you’re reading a transcript of this call, please note we did not authorize it and have not reviewed it for accuracy. Thus, it could contain factual or transcription errors that could materially alter the intent or meaning of our statements. As a final reminder, we’re going to reference non-GAAP items in our call today. Please refer to our recent filing on Form 10-Q and our recent news release for a reconciliation of those non-GAAP numbers to their GAAP counterparts.

On the call today is our Chairman and CEO, Stan Starnes; our President, Vic Adamo; Chief Financial Officer, Ned Rand; and Chief Underwriting Officer and Actuary, Howard Friedman.

Let’s start with Stan.

Stan Starnes

Thanks, Frank. This quarter’s quite positive results and our discussion of industry trends will be familiar to most of you. There are no real surprises in our business or our investments. That's a reflection and a result of the disciplined approach we take to our business.

In this part of the market cycle, we are maintaining our long-term focus on the strength of our balance sheet and the depth of our commitment to policyholders through our pledge of “treated fairly”. While there were no surprises in the results, there were a few moving parts and we’d like to review those with you.

Frank B. O’Neil

Thanks, Stan. I want to remind everyone on the call the results we’re discussing today combine PICA with our historical book of business. For the past year, we've been breaking out PICA results, but the second quarter marks the one-year anniversary of PICA becoming part of ProAssurance, so we can now give you comparable period-over-period data.

So with that, I am going to ask Ned to walk us through the financials. Ned?

Ned Rand

Thanks, Frank. Although our focus is on the bottom line, I am going to start with the top line so that we can help you understand the significant line items in the income statement.

Gross written premium was $99 million in the quarter, down 12% year-over-year, and was at $256 million for six months, a decline of 4% year-over-year. To be sure, part of this is the effect of a competitive market, but approximately half of the quarter's decline in gross premium and close to 90% of the year-to-date decline is due to the continued offering of two-year policies in a key market.

Net earned premiums provide a more normalized view of our premium trend which is where I'd really like to focus your attention. As we discussed in late 2008 and early 2009 when we first began to write these two-year policies, they are credited as written premium at inception, so they increase gross written premium initially but they are earned on a pro rata basis over the course of the policy. This makes the net earned number a more meaningful number in terms of actual premium working its way into the earning stream.

To help you quantify that effect, two-year policies accounted for $1.6 million of our gross written premium in the second quarter of 2010 and $5.7 million for the six months ended June 30. That compares to $7.1 million and $12.5 million in gross written for the same periods in 2009. These are not huge numbers in the overall scheme of things, but understanding their effect on the top line and the relationship to net earned premium gives you some perspective.

And looking at the net earned numbers, you can see that we’re at $125 million for the quarter, down 2% year-over-year and $249 million for the six months, which is a 7% increase year-over-year. The most significant piece of the increase in net earned premium for the six-month period is the addition of PICA.

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