ProAssurance (PRA) Up 3.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for ProAssurance (PRA). Shares have added about 3.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ProAssurance due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

ProAssurance Incurs Q4 Loss on High Costs & Low Premium

ProAssurance incurred a fourth-quarter 2023 adjusted operating loss of 5 cents per share against the Zacks Consensus Estimate of earnings of 4 cents per share. The company reported earnings of 14 cents in the year-ago period.

Operating revenues rose 0.6% year over year to $285 million in the quarter under review. The top line beat the consensus mark by 2%.

The weak fourth-quarter earnings were caused by competitive market conditions and weakening litigation trends. A decline in net premiums earned across its segments, as well as an elevated expense level, also hurt its performance. Nevertheless, the downside was partly offset by strong investment returns resulting from higher interest rates.

Quarterly Operational Update

Gross premiums written declined 7% year over year to $208.8 million and missed our estimate of $253 million. Net premiums earned of $247.3 million fell 4.2% year over year but outpaced the Zacks Consensus Estimate of $244.3 million, as well as our estimate of $244.1 million. Net investment income climbed 16.9% year over year to $33.7 million in the fourth quarter. The reported figure beat the consensus mark of $32.9 million and our estimate of $30.1 million.

Total expenses of $287.2 million escalated 2.6% year over year and came higher than our estimate of $279.5 million. The year-over-year increase was due to higher net losses and loss adjustment expenses, interest expense and underwriting, policy acquisition and operating expenses.

ProAssurance witnessed a net income of $6.4 million in the quarter under review, lower than the prior-year quarter’s $13.9 million. The combined ratio deteriorated 780 basis points (bps) year over year to 112%.

Segmental Update

Specialty P&C Segment

The segment’s revenues declined 2.8% year over year to $195.2 million in the fourth quarter but came higher than the Zacks Consensus Estimate of $193.7 million and our estimate of $192.4 million. Net premiums earned of $193.6 million fell 3.1% year over year. The reported figure missed the consensus mark of $194 million but beat our estimate of $191.3 million. The segment was affected by weaker market conditions that prevailed during the preceding twelve months and lower retention, partially offset by price increases in all product lines and improved new business writing.

Total expenses declined 2.3% year over year to $203 million. The unit incurred a loss of $7.8 million in the quarter under review, 10.8% wider than the prior-year quarter’s loss. The combined ratio of 104.9% deteriorated 90 bps year over year.

Workers' Compensation Insurance Segment

In the fourth quarter, revenues in the unit declined 8.8% year over year to $38.6 million, lower than the consensus estimate of $41.4 million and our estimate of $41.6 million. Net premiums earned of $38.3 million tumbled 8.6% year over year due to persistent competitive market conditions and lower audit premiums. The figure lagged the Zacks Consensus Estimate of $40.9 million and our estimate of $41.1 million.

Total expenses were $51.6 million, which escalated 22.9% year over year. The unit incurred a loss of $13 million against the prior-year quarter’s profit of $0.3 million. The combined ratio of 134.8% deteriorated 3,460 bps year over year.

Segregated Portfolio Cell Reinsurance Segment

The segment recorded gross premiums written of $14.3 million, which plunged 10.7% year over year due to reduced workers’ compensation renewal and audit premiums. Net premiums earned dropped 6.5% year over year to $15.4 million in the quarter under review and met our estimate.

Underwriting, policy acquisition and operating expenses totaled $5.2 million, which rose 1.9% year over year but came lower than our estimate of $5.6 million. The unit recorded a profit of $0.2 million, declining 50.7% year over year. The combined ratio deteriorated 1,870 bps year over year to 93.2% in the fourth quarter.

Corporate Segment

Net investment income advanced 16.2% year over year to $33 million and beat our estimate of $29 million due to the high interest rate environment. The year-over-year increase stemmed from improved average book yields from ProAssurance’s fixed maturity investments. The segment’s profit of $26.5 million increased 137.2% year over year in the quarter under review. Operating expenses increased 14% year over year to $9.2 million on the back of an increase in compensation-related costs. Interest expenses of $6.7 million jumped 21.3% year over year.

Financial Position (as of Dec 31, 2023)

ProAssurance exited the fourth quarter with cash and cash equivalents of $65.9 million, which increased from the 2022-end figure of $30 million. Total investments of $4.3 billion slipped from the $4.4 billion level at 2022 end. Total assets of $5.6 billion marginally decreased from the $5.7 billion figure at 2022 end.

Debt-less unamortized debt issuance costs were $427.1 million, which increased slightly from the $427 million figure as of Dec 31, 2022.

Total shareholders’ equity of $1.1 billion remained flat with the 2022-end level.

Net cash used in operating activities amounted to $49.9 million in 2023 compared with $29.8 million in 2022.

Book value per share was $21.82, which improved 7% year over year. Non-GAAP operating return on equity was negative 1% in the quarter under review.

Share Repurchase Update

ProAssurance did not repurchase any common shares in the fourth quarter and continued its suspension of dividend payments. A leftover capacity of $55.9 million remained in place to be utilized for common share repurchases or retirement of outstanding debt as of Dec 31, 2023.

Full Year Results

ProAssurance recorded total revenues of $1.1 billion in 2023, up 2.8% from the year-ago level. Total expenses jumped 5.7% year over year to $1.2 billion. As such, the 2023 adjusted operating loss was at 14 cents per share against earnings of 42 cents in 2022.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -35.29% due to these changes.

VGM Scores

At this time, ProAssurance has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise ProAssurance has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

ProAssurance is part of the Zacks Insurance - Property and Casualty industry. Over the past month, Berkshire Hathaway B (BRK.B), a stock from the same industry, has gained 1.2%. The company reported its results for the quarter ended December 2023 more than a month ago.

Berkshire Hathaway B reported revenues of $93.38 billion in the last reported quarter, representing a year-over-year change of +19.5%. EPS of $3.92 for the same period compares with $3.05 a year ago.

Berkshire Hathaway B is expected to post earnings of $3.41 per share for the current quarter, representing a year-over-year change of -7.6%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Berkshire Hathaway B. Also, the stock has a VGM Score of D.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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