Birmingham, AL – ProAssurance Corporation (NYSE: PRA) recently reported results for the quarter and year ended December 31, 2020, and will timely file its annual report on Form 10-K on or before March 1, 2021.
2020 was a year like no other. I am immensely proud of and encouraged by what the employees of ProAssurance have accomplished. The organizational changes enacted beginning in 2019 and throughout 2020 have had a meaningful impact on our operations and are having a positive effect on our performance. Long-tailed lines of business, like those written by ProAssurance, are slow to change; however, the benefits of actions we have taken are evident in our operating results for the fourth quarter, in which we saw an improvement in each of our segments, excluding Lloyd’s, as compared to the third quarter.
We faced many significant challenges in 2020, but we are a stronger company having faced them, and I am pleased with the work we have accomplished in the last twelve months. However, I recognize we have more work to do in returning to underwriting profitability and in pursuit of operational excellence.
An important step in that journey is currently underway. I’m happy to announce that the California Department of Insurance has completed its review of NORCAL Group’s conversion documents, and NORCAL will now begin solicitation of policyholders to vote on NORCAL’s plan to convert from a mutual company to a stock company. As detailed in our Specialty Property & Casualty segment section further in this release, there are several conditions yet to be met before closure of the deal is possible. However, this progress marks an important step in that process, and I greatly appreciate the efforts made by both companies in reaching this point. -Ned Rand, President & Chief Executive Officer
Key Takeaways – Fourth Quarter 2020
- For the quarter ended December 31, 2020 we reported net income of approximately $14.3 million, or $0.27 per share, and Non-GAAP operating income of approximately $3.3 million, or $0.06 per share.
- Non-GAAP operating income for the fourth quarter included strong performance from our investments in LPs/LLCs as well as improvement in underwriting results from the re-underwriting and rate strengthening efforts in our Specialty Property & Casualty (“Specialty P&C”) segment, and the restructuring efforts in our Specialty P&C and Workers’ Compensation Insurance segments.
- Quarter-over-quarter improvement in consolidated results is also attributable to a lower net loss ratio in our Segregated Portfolio Cell Reinsurance (“SPCR”) segment, partially offset by a higher combined ratio in our Lloyd’s Syndicates segment driven by adverse prior year reserve development related to certain natural catastrophe losses.
- Consolidated gross premiums written in the current quarter decreased due to our strategy to strengthen rate levels in our Specialty P&C segment, our decreased participation in Syndicate 1729, and competitive market conditions in our Workers’ Compensation Insurance and SPCR segments. Consolidated net premiums earned also decreased, primarily attributable to the pro rata effect of lower net premiums written during the preceding twelve months.
- Our consolidated net loss ratio in the current quarter was significantly reduced from the year-ago quarter, reflecting a lower current accident year net loss ratio and the effect of net favorable reserve development.
- Despite lower earned premium, our consolidated expense ratio in the fourth quarter was slightly lower from the year-ago quarter, primarily attributable to our focus on operational efficiency through organizational enhancements enacted throughout 2020, as well as reduced travel-related expenses due to the pandemic.
- Net investment income decreased primarily due to a decrease in our allocation to equities and lower yields from our short-term investments and corporate debt securities given the actions taken by the Federal Reserve to reduce interest rates in response to COVID-19.
Key Takeaways – Full Year 2020
- For the year ended December 31, 2020 we reported a net loss of approximately $175.7 million, or $3.26 per share, primarily attributable to the $161.1 million goodwill impairment charge recorded in the third quarter of 2020. We reported a Non-GAAP operating loss of approximately $27.7 million, or $0.52 per share.
- The full year 2020 Non-GAAP operating loss is attributable to the pre-tax net underwriting loss of approximately $45.7 million associated with a tail policy issued to the large national healthcare account (“LNHA”) in the second quarter of this year. To a lesser extent, the loss is also attributable to the recording of a pre-tax $10 million pandemic-related IBNR reserve, also in the second quarter.
- Lower consolidated gross premiums written in 2020 are primarily attributable to re-underwriting efforts in our Specialty P&C segment through the first nine months of 2020, and the other factors noted above for the fourth quarter.
- Our consolidated net loss ratio for the year decreased due to favorable reserve development and, to a lesser extent, a reduction to the current accident year net loss ratio driven by improvements in the loss ratio for our Specialty P&C segment in 2020, largely muted by the effects of the LNHA tail policy and pandemic-related IBNR reserve in the second quarter of 2020.
- Despite lower earned premiums, one-time expenses related to re-organizational enhancements, and transaction-related costs associated with our planned acquisition of NORCAL, our consolidated expense ratio for 2020 was only slightly higher than in 2019, reflective of our focus on operational efficiency and, to a lesser extent, reduced travel expenses due to the pandemic.
- Lower net investment income was also reflective of the factors noted above for the fourth quarter.
The complete results release is available here: ProAssurance Results for Fourth Quarter and Year-End 2020