ProAssurance Corporation (NYSE:PRA): Navigating Challenges with Disciplined Underwriting and Pricing

Published on September 24, 2024 | Ticker: PRA

ProAssurance Corporation, a leading provider of specialty insurance solutions, has reported its financial results for the first quarter of 2024. The company's performance reflects its commitment to disciplined underwriting and pricing strategies amidst a challenging market environment.

Financials

For the full year 2023, ProAssurance reported annual net income of -$38,604,000 and annual revenue of $1,137,212,000. The company's annual operating cash flow was -$49,885,000, and its annual free cash flow was -$54,675,000. These figures underscore the headwinds the company has faced in recent years.

In the first quarter of 2024, ProAssurance reported operating earnings of $0.08 per share, benefiting from a 6-point improvement in the calendar year loss ratio and a 12% increase in investment income. The company's focus on underwriting improvement is evident in the 3-point improvement in its current accident year loss ratio.

Business Overview

The markets in which ProAssurance operates continue to be challenging, and the company remains cautious about the risks it underwrites and loss cost trends. ProAssurance is committed to achieving pricing levels that align with its long-term profitability goals, and it has seen solid progress in this regard, with strong retention of existing insurers. However, the company has been selective in its approach, forgoing new business and non-renewing existing policies that do not meet its underwriting criteria.

Medical Professional Liability Market

The loss environment in the medical professional liability market remains challenging, with the resumption of pressure on claims costs from social inflation and higher-than-anticipated severity trends. These trends had initially emerged in 2019 and 2020 but abated during the pandemic. ProAssurance is closely monitoring the impact of these trends on its open case reserves and prior year development, and it is confident in the actions it is taking to address the market conditions.

Workers' Compensation Segment

In the workers' compensation segment, ProAssurance is also seeing the impact of higher medical cost per claim in current claims trends, a trend the company believes the broader workers' compensation market must ultimately address. Despite continued moderation of claim frequency, the average medical cost per claim is still rising due to health care wage inflation, higher utilization, and the application of new treatments and technologies.

Recent Developments

ProAssurance's Specialty P&C segment demonstrated progress in the first quarter, with the segment's current accident year net loss ratio improving almost 5 points compared to the same period last year. This improvement reflects the positive effects of the company's ongoing application of its underwriting and pricing guidelines, as well as its effective claims management strategy.

In the Workers' Compensation Insurance segment, ProAssurance continues to face the challenge of compounded premium rate decreases driven by state loss cost reductions. The company remains dedicated to premium adequacy and risk selection, and it saw a small decline in top-line premiums for the segment. However, the segment's first-quarter accident year loss ratio was below the full-year 2023 level, although higher than the prior-year quarter, due to the medical cost trends.

ProAssurance's investment results also contributed to the company's performance in the first quarter, with net investment income rising by $4 million or 12% quarter-over-quarter as the company took advantage of the rising rate environment. The company also recorded a $3 million gain in equity and earnings from its investment in LPs and LLCs, compared to an $800,000 loss in the year-ago quarter.

Outlook

Looking ahead, ProAssurance remains committed to protecting its balance sheet and its insureds over the long term. The company is seeing signs that its actions are beginning to achieve pricing levels that meet its objectives, and it will continue to be intentional in its capital management. While the current market conditions present a headwind, ProAssurance is confident in its ability to ultimately achieve underwriting profitability in both its medical professional liability and workers' compensation businesses.

Conclusion

ProAssurance's first-quarter results demonstrate the company's disciplined approach to underwriting and pricing, as it navigates the challenges of the current market environment. The company's focus on risk selection, claims management, and capital management positions it well to deliver long-term value for its shareholders and policyholders.

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