Birmingham, AL – ProAssurance Corporation (NYSE: PRA) recently reported a net loss of $1.7 million, or $0.03 per diluted share, and operating income(1) of $16.3 million, or $0.30 per diluted share, for the three months ended June 30, 2022.
Highlights – Second Quarter 2022(2)
- Gross premiums written increased to $235.5 million (+13%) and net premiums earned increased to $247 million (+4%)
- Favorable prior accident year reserve development of $19 million (+38%)
- Consolidated combined ratio, excluding transaction-related costs, of 102.9%, down 2.5 points from first quarter 2022 and up 3.0 points from second quarter 2021
- Net investment income increased to $22 million (+26%)
- Operating ROE(1) of 5.3 %, up 3.1 points from first quarter 2022 and down 2.7 points from second quarter 2021
- Adjusted book value per share(1) of $25.96, down $0.06 and $0.20 per share from March 31, 2022 and December 31, 2021, respectively
Management Commentary & Results of Operations
Our operating results for the second quarter of 2022 reflect continued improvement in underwriting results as we focus on disciplined underwriting and execute on our strategic business initiatives. Compared to the first quarter of 2022, our operating income improved $8.6 million excluding transaction-related costs; this generated an improvement of 2.5 points in our consolidated combined ratio to 102.9%, driven by higher favorable prior accident year reserve development in our Specialty P&C segment. Despite the improvement as compared to the previous quarter, our operating income decreased $10.3 million compared to the second quarter of 2021. This was due to the lower level of NORCAL’s DPAC amortization in the second quarter of 2021 (approximately $6.3 million lower than would have otherwise been recognized due to the impact of GAAP purchase accounting,) which resulted in a more favorable expense ratio for that quarter.
Ned Rand, President and Chief Executive Officer of ProAssurance, remarked on the first full year of operations since closing the NORCAL transaction. “We are proud of what we have accomplished in our first year of combined operations. Due to extensive planning, process improvements, and diligent efforts from all team members across the organization, we have seen notable improvement in the NORCAL book since becoming a part of ProAssurance.”
Consolidated gross premiums written increased 13%, driven by additional premiums in the Specialty P&C segment in the current quarter due to the timing of the prior year NORCAL acquisition. Our Workers’ Compensation Insurance and Segregated Portfolio Cell Reinsurance segments contributed to the increasing top line as well.
Net investment income increased due to the addition of NORCAL’s investment portfolio and the positive effect of rising interest rates; average book yields are beginning to increase as we reinvest maturing positions at higher rates. We expect the current rising interest rate environment to have a continued favorable impact on investment income prospectively.
Our book value per share of $21.63 declined approximately 9% since March 31, 2022, as higher interest rates persisted into the current quarter. This resulted in after-tax unrealized holding losses of $109 million from our fixed maturity portfolio (which directly impacts equity through AOCI) and net investment losses of $24 million, primarily unrealized losses from our convertible and equity securities (which are reflected on the income statement). Adjusted book value per share, which excludes AOCI, is $25.96 as of June 30, 2022 as compared to $26.02 as of March 31, 2022.
Mr. Rand continued: “While our results for the current quarter reflected an improvement in underwriting results from the first quarter of 2022, higher interest rates continued to impact our book value through the investments we carry at fair value. However, the rise in interest rates is beginning to show the earnings power of our $4.5 billion investment portfolio, which can have a meaningful impact on our future investment income.”
The complete results release is available here: ProAssurance Results for Second Quarter 2022
(1) Represents a Non-GAAP financial measure. See a reconciliation to its GAAP counterpart under the heading “Non-GAAP Financial Measures” that follows
(2)Comparisons are to the second quarter of 2021