Birmingham, AL – ProAssurance Corporation (NYSE: PRA) recently reported results for the three and six months ended June 30, 2019.
“There were several positives of note in the quarter,” said Ned Rand, President and Chief Executive Officer of ProAssurance, “including steady increases in renewal pricing across all product lines in our Specialty Property & Casualty segment with a modest impact to our retention rate. We see this as evidence of our customers perceiving value in our highest quality products and services. Also, we continue to operate profitably in our Workers’ Compensation Insurance and Segregated Portfolio Cell Reinsurance segments despite intense competition.”
Mr. Rand continued, “However, I cannot overstate the importance we place on disciplined underwriting. Our ability to attain appropriate pricing for the risk we assume is paramount to the success of ProAssurance, and vital to the security we provide to our customers. Stretching to grow where you can’t get appropriate premium is a mistake that has crippled insurance companies in the past, and will do so again in the future. There will always be losses, and our job as an insurance company is to write at adequate pricing across our entire book, reflecting individual risk parameters, so that we can help our insureds when the unexpected does happen.
“We continue to be focused on the risk of a worsening loss environment in the broader healthcare professional liability insurance market, which influences our current accident year loss picks and influences our analysis of prior year reserves. Our view of this increasing severity will likely affect our results for the foreseeable future. As we adjust pricing and our risk appetite to reflect these severity trends, a degree of contraction is expected as some competitors seek to grow at any cost. This will not affect our proven, long-term strategy, which has delivered real value to shareholders for almost 30 years.”
Second Quarter 2019
Two one-time factors merit particular mention, as they have an effect on certain key metrics as well as quarter-over-quarter comparisons. Where appropriate, our commentary below excludes this effect. A more detailed analysis is provided in our filed Form 10-Q:
- In the quarter, one of our segregated portfolio cells (“SPC”) established a $10 million reserve related to an errors and omissions (“E&O”) liability policy. This policy provides coverage for losses up to a lifetime maximum of $10 million. ProAssurance has no participation nor ownership interest in this particular cell. The recording of the $10 million reserve increased net losses and loss adjustment expenses, and decreased SPC dividend expense correspondingly, resulting in no effect to our operating income. However, the recording of this reserve increased our net loss and combined ratios for the quarter, as the offsetting effect of the SPC dividend expense is not included in these ratio calculations.
- As discussed previously, in the second quarter of 2018, we entered into a loss portfolio transfer (“LPT”) transaction with a large healthcare organization. This transaction resulted in total net premiums written and fully earned of $26.6 million and total net losses and loss adjustment expenses of $25.4 million recognized within our Specialty P&C segment during the second quarter of 2018.
Excluding the impact of the 2018 LPT as well as the effect of the renewal cycle of our twenty-four month term physician policies, consolidated gross premiums written and written premium in our Specialty P&C segment were essentially unchanged quarter-over-quarter. Gross premiums written in our Workers’ Compensation Insurance segment were $64.2 million, a decline of $6.7 million or 9.4% from last year’s second quarter. In our Segregated Portfolio Cell Reinsurance segment, gross premiums written were $16.9 million, a decrease of $2.2 million or 11.5% compared to 2018’s second quarter. These declines were largely offset by our Lloyd’s Syndicates segment, where gross premiums written were $29.2 million, an increase of $5.0 million or 20.8%, quarter-over-quarter.
Excluding the effect of both factors described above, our consolidated current accident year net loss ratio for the current quarter was 83.5% as compared to 80.6% in the year-ago period, an increase of 2.9 percentage points which reflects our continued concern around potential loss trends in the broader HCPL industry.
Our consolidated underwriting expense ratio was 30.0% for the second quarter of 2019. Excluding the effect of the 2018 LPT, our consolidated underwriting expense ratio remained relatively unchanged as compared to the second quarter of 2018.
Excluding the effect of the E&O policy described above, our consolidated combined ratio for the quarter was 105.8%, a 6.8 percentage points increase quarter-over-quarter driven by the lower amount of net favorable prior accident year reserve development recognized in the current period as compared to 2018 as well as a higher consolidated current accident year net loss ratio, as previously discussed.
Net favorable prior accident year reserve development in the second quarter of 2019 was $16.0 million, compared to $22.8 million in the prior year quarter. While we continue to observe an increase in claim severity in the broader healthcare professional liability industry, it is somewhat more favorable than the severity assumptions previously used to establish initial reserves, hence we continue to see net favorable development relating to prior accident years.
Our consolidated net investment result was $18.4 million, a decline of $9.4 million compared to the year-ago quarter. The decline in our consolidated net investment result was primarily due to a $10.5 million quarter-over-quarter decline in earnings from our unconsolidated subsidiaries, driven by lower reported earnings from two limited partnership (“LP”) investments. The decrease was partially offset by an increase of approximately $1.2 million in net investment income, primarily attributable to higher yields in certain asset classes and an increase in our average investment in fixed maturity securities.
Net realized investment gains were $9.3 million in the quarter, primarily reflecting sales of equity securities during the period. This compares to net realized investment gains of $2.8 million in the second quarter of 2018.
We recorded a tax benefit of approximately $277,000 in the quarter, essentially unchanged quarter-over-quarter.
Our coordinated sales & marketing programs produced $12.9 million of business year-to-date.
The complete results release is available here: ProAssurance Results for Second Quarter 2019