ProAssurance Corporation (PRA)

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ProAssurance Corporation (PRA)

Q2 2008 Earnings Call Transcript

August 6, 2008 10:00 am ET

Executives

Frank O'Neil – SVP, Corporate Communications and IR

Stan Starnes – CEO

Ned Rand – CFO and SVP

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

Darryl Thomas – Co-President, Professional Liability Group; Chief Claims Officer and SVP

Vic Adamo – President

Analysts

David Lewis – Raymond James

Mike Grasher – Piper Jaffray

Beth Malone – KeyBanc

John Gwynn – Morgan Keegan

Amit Kumar – Fox-Pitt, Kelton

Jack Sherak [ph] – SunTrust

Howard Flinker – Flinker & Co.

Presentation

Operator

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

Frank O'Neil

Thank you, Doris, and thank you everyone for joining us.

Let me preface our comments by noting that both our news release issued this morning and our SEC filings include disclosures with respect to forward-looking statements. In that regard, please understand that statements we make during today's call which deal with projections, estimates, expectations, and the like are explicitly identified as forward-looking statements subject to various risks. As you know, actual results could differ materially from current projections or expectations.

Our SEC filings have a full listing of the risks that investors should consider in connection with such statements. We believe you will better understand today’s remarks and our business when you understand the risks we face. We will not undertake and 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 Wednesday, August 6, 2008, the date of first broadcast. If you are reading a transcript of this call, you should know it is unauthorized and we have not 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 Chief Executive Officer, Stan Starnes; our President, Vic Adamo; Chief Financial Officer, Ned Rand; Chief Underwriting Officer, Howard Friedman; and our Chief Claims Officer, Darryl Thomas. Stan will open our remarks today. Stan, I will turn it over to you.

Stan Starnes

Thanks, Frank. Welcome everyone. We thank you for your interest.

We turned in another strong quarter and are pleased with our market position in the current underwriting cycle. We continue to provide one of the most secure balance sheets in our industry and we enjoy strong customers' loyalty. While we are seeing a decline in premium that we anticipated and expected, severity remains lower than our original expectations and we continue to experience the benefit of lower frequency, all of which results in favorable reserve development and enhanced profitability.

The key metrics by which we measure success, loss ratio, combined ratio and return on equity, each showed improvement in the second quarter. Our broad geographic reach gives us greater insight into the physician liability marketplace and we think this gives us a competitive advantage both when looking at organic growth as well as acquisition opportunities. Our attention to our insured and agents coupled with our effective claim strategy is allowing us to write and retain good business across our 28 jurisdictions. We will touch on our operational highlights in a moment, but first I am going to ask Ned to start with his review of the financials.

Ned Rand

Thanks, Stan.

We continue to focus our attention on the key areas that we think drive us through the soft market and into the market turn with considerable strength. As most of the trends for the quarter are equally applicable for the year to date period, I will focus my comments on the quarter. The year to date comparisons are detailed in our 10-Q, which we’ll file later this morning.

As Stan mentioned, we continue to operate in a competitive marketplace and our top line was down in the quarter. Howard will elaborate more on that in a minute. But the important measure, our bottom line was up. Our net income per diluted share for the quarter was 20% higher than in the same quarter in 2007, due to the gain in net income and the effect of our share repurchases.

We commuted several of the NCRIC reinsurance treaties for the years 1993 through 2005. The commutation played a part in the favorable net loss reserve development for the quarter adding $3.7 million, which Howard will also address in a minute. The favorable development also affects our reported loss ratio, which improved to 56.7% in the second quarter from 74.5% in Q2 of 2007. The expenses ratio in the quarter was 21.7%. Dollar for dollar, expenses were down in the quarter, but the decrease in premiums the denominator of the expense ration calculation pushed the ratio up.

For the quarter, the combined ratio was 78.4% compared to 93.8% last year. We continue to achieve a return on equity that is in line with our goals. It was 13.7% in the quarter. Net investment income was down 7% in the quarter due to lower short term interest rates, the loss of interest income on the money spent to repurchase shares, our shift to municipal bonds and the performance of our alternative investments. The overall result from our alternative investments did rebound somewhat from last quarter. The bottom line was a gain of $1 million in that portfolio.

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