ProAssurance Corporation (NYSE: PRA) reports net income of $6.4
million, or $0.12 per diluted share, and an operating loss(1) of
$2.5 million, or $0.05 per diluted share, for the three months
ended December 31, 2023.
Fourth Quarter 2023(2)
- Gross premiums written: $209 million (-7%)
- New business written: $24 million (+103%)
- Favorable prior accident year reserve development of $3 million
driven primarily by our Segregated Portfolio Cell Reinsurance
segment
- Consolidated combined ratio of 112.0%
- Consolidated operating ratio of 98.4%
- Net investment income of $34 million (+17%)
- Book value per share of $21.82 as of December 31, 2023 improved
7%, driven by $88 million of after-tax unrealized holding gains
from our fixed maturity portfolio (which directly impacts equity
through AOCI)
(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 fourth quarter of
2022.
Management Commentary & Results of Operations
“We continue to manage our business with a focus on returning to
underwriting profitability. We are drawing on our decades of
successful underwriting, effective claims management and superior
service delivery to counter the twin effects of challenging market
conditions and worsening litigation trends. We continue to add new
business which we believe will perform better overall than business
that we are non-renewing. At the same time, we continue to walk
away from business that fails to meet our pricing goals or
underwriting standards and retain existing insureds at renewal
pricing that we believe reflects the current market realities,”
said Ned Rand, President and Chief Executive Officer of
ProAssurance. He added, “Our experience in medical professional
liability and workers’ compensation, the two highly cyclical lines
of insurance in which we operate, has shown that our operating
discipline and the long-term strategic improvements we’ve been
implementing will ultimately ensure our success.”
Our consolidated combined ratio increased 7.8 points
quarter-over-quarter primarily due to the increase in the current
accident year net loss ratio in our Workers Compensation Insurance
segment, reflecting the continuation of significant increases in
average claim costs in that segment. At the same time, the 17%
improvement in our net investment income resulted in a higher
investment income ratio.
While our actions in the current competitive landscape resulted
in lower gross premiums written, new business we believe to be
appropriately priced increased in all of our operating segments.
This underscores the value our insureds and distribution partners
place on our ability to deliver superior insurance protection
coupled with effective service strategies. We continue to be
encouraged by our ability to retain significant business despite
those higher renewal premiums. In summary, across our operating
segments, our reunderwriting, successful pursuit of rate adequacy,
and focus on risk selection better positions us for future
profitability.
Book value per share at quarter end was $21.82, up 7% from the
December 31, 2022 book value of $20.46 driven by after-tax
unrealized holding gains of $88 million on our fixed maturity
portfolio. Adjusted book value per share, which excludes our
Accumulated Other Comprehensive Loss, is $25.83 as of December 31,
2023 as compared to $25.99 as of December 31, 2022. Share
repurchases year-to-date have contributed a $0.59 per share
increase to adjusted book value per share.
CONSOLIDATED INCOME STATEMENT
HIGHLIGHTS
Selected consolidated financial data for
each period is summarized in the table below.
Three Months Ended December
31
Year Ended December 31
($ in thousands, except per share
data)
2023
2022
Change
2023
2022
Change
Revenues
Gross premiums written(1)
$
208,795
$
224,481
(7.0
%)
$
1,082,279
$
1,103,993
(2.0
%)
Net premiums written
$
195,016
$
211,082
(7.6
%)
$
985,994
$
1,014,137
(2.8
%)
Net premiums earned
$
247,329
$
258,243
(4.2
%)
$
977,397
$
1,029,581
(5.1
%)
Net investment income
33,705
28,840
16.9
%
128,419
95,972
33.8
%
Equity in earnings (loss) of
unconsolidated subsidiaries
1,341
(1,059
)
226.6
%
6,791
4,888
38.9
%
Net investment gains (losses)(2)
10,672
12,495
(14.6
%)
13,828
(33,157
)
141.7
%
Other income (loss)(1)
3,913
(3,812
)
202.6
%
10,777
9,404
14.6
%
Total revenues(1)
296,960
294,707
0.8
%
1,137,212
1,106,688
2.8
%
Expenses
Net losses and loss adjustment
expenses
195,248
191,596
1.9
%
800,494
776,762
3.1
%
Underwriting, policy acquisition and
operating expenses(1)
81,965
77,550
5.7
%
300,744
307,338
(2.1
%)
SPC U.S. federal income tax expense
(benefit)
278
335
(17.0
%)
1,629
1,759
(7.4
%)
SPC dividend expense (income)
3,064
4,976
(38.4
%)
6,234
6,673
(6.6
%)
Interest expense
6,672
5,499
21.3
%
23,150
20,372
13.6
%
Goodwill impairment
—
—
nm
44,110
—
nm
Total expenses(1)
287,227
279,956
2.6
%
1,176,361
1,112,904
5.7
%
Income (loss) before income taxes
9,733
14,751
(34.0
%)
(39,149
)
(6,216
)
(529.8
%)
Income tax expense (benefit)
3,356
809
314.8
%
(545
)
(5,814
)
90.6
%
Net income (loss)
$
6,377
$
13,942
(54.3
%)
$
(38,604
)
$
(402
)
(9,503.0
%)
Non-GAAP operating income (loss)
$
(2,548
)
$
7,617
(133.5
%)
$
(7,331
)
$
22,911
(132.0
%)
Weighted average number of common
shares outstanding
Basic
50,969
53,963
52,642
54,008
Diluted
51,153
54,108
52,788
54,140
Earnings (loss) per share
Net income (loss) per diluted share
$
0.12
$
0.26
$
(0.14
)
$
(0.73
)
$
(0.01
)
$
(0.72
)
Non-GAAP operating income (loss) per
diluted share
$
(0.05
)
$
0.14
$
(0.19
)
$
(0.14
)
$
0.42
$
(0.56
)
(1)
Consolidated totals include inter-segment
eliminations. The eliminations affect individual line items only
and have no effect on net income (loss). See Note 16 of the Notes
to Consolidated Financial Statements in our December 31, 2023
report on Form 10-K for amounts by line item.
(2)
This line item typically includes both
realized and unrealized investment gains and losses, investment
impairments losses, and the change in the fair value of the
contingent consideration in relation to the NORCAL acquisition.
Detailed information regarding the components of net investment
gains (losses) are included in Note 3 of the Notes to Consolidated
Financial Statements in our December 31, 2023 report on Form
10-K.
The abbreviation “nm” indicates that the information or the
percentage change is not meaningful.
BALANCE SHEET HIGHLIGHTS
($ in thousands, except per share
data)
December
31, 2023
December
31, 2022
Total investments
$
4,349,781
$
4,387,683
Total assets
$
5,631,925
$
5,699,999
Total liabilities
$
4,519,945
$
4,595,981
Common shares (par value $0.01)
$
636
$
634
Retained earnings
$
1,381,981
$
1,423,286
Treasury shares
$
(469,702
)
$
(419,214
)
Shareholders’ equity
$
1,111,980
$
1,104,018
Book value per share
$
21.82
$
20.46
Non-GAAP adjusted book value per
share(1)
$
25.83
$
25.99
(1)
Adjusted book value per share is a
Non-GAAP financial measure. See a reconciliation of book value per
share to Non-GAAP adjusted book value per share under the heading
“Non-GAAP Financial Measures” that follows.
CONSOLIDATED KEY RATIOS
Three Months Ended December
31
Year Ended December 31
2023
2022
2023
2022
Current accident year net loss ratio
80.0
%
76.2
%
81.3
%
79.0
%
Effect of prior accident years’ reserve
development
(1.1
%)
(2.0
%)
0.6
%
(3.6
%)
Net loss ratio
78.9
%
74.2
%
81.9
%
75.4
%
Underwriting expense ratio
33.1
%
30.0
%
30.8
%
29.9
%
Combined ratio
112.0
%
104.2
%
112.7
%
105.3
%
Operating ratio
98.4
%
93.0
%
99.6
%
96.0
%
Return on equity(1)
2.3
%
2.7
%
(3.5
%)
—
%
Non-GAAP operating return on
equity(1)(2)
(1.0
%)
2.8
%
(0.7
%)
1.8
%
(1)
Quarterly amounts are annualized. Refer to
our December 31, 2023 report on Form 10-K under the heading
“Non-GAAP Operating ROE” in the Executive Summary of Operations
section for details on our calculation.
(2)
See a reconciliation of ROE to Non-GAAP
operating ROE under the heading “Non-GAAP Financial Measures” that
follows.
SEGMENT REORGANIZATION
As a result of our decision to no longer participate in the
results of Syndicate 1729 for the 2024 underwriting year, we
reorganized our segment reporting during the third quarter of 2023
to align with how our Chief Operating Decision Maker currently
oversees the business, allocates resources and evaluates operating
performance and, as a result, the number of our operating and
reportable segments decreased from five to four: Specialty P&C,
Workers' Compensation Insurance, Segregated Portfolio Cell
Reinsurance and Corporate. As a result of the segment
reorganization, we now report the underwriting results from our
participation in Lloyd’s Syndicates in the Specialty P&C
segment and the investment results of assets solely allocated to
our Lloyd's Syndicate operations and U.K. income taxes in our
Corporate segment. All prior period segment information has been
recast to conform to the current period presentation and the
segment reorganization had no impact on previously reported
consolidated financial results.
SPECIALTY P&C SEGMENT
RESULTS
Three Months Ended December
31
Year Ended December 31
($ in thousands)
2023
2022
%
Change
2023
2022
%
Change
Gross premiums written
$
161,770
$
176,644
(8.4
%)
$
835,430
$
856,861
(2.5
%)
Net premiums written
$
154,636
$
168,166
(8.0
%)
$
762,580
$
784,020
(2.7
%)
Net premiums earned
$
193,611
$
199,864
(3.1
%)
$
755,817
$
793,400
(4.7
%)
Other income
1,589
934
70.1
%
4,695
5,122
(8.3
%)
Total revenues
195,200
200,798
(2.8
%)
760,512
798,522
(4.8
%)
Net losses and loss adjustment
expenses
(148,620
)
(156,353
)
(4.9
%)
(624,809
)
(626,045
)
(0.2
%)
Underwriting, policy acquisition and
operating expenses
(54,356
)
(51,466
)
5.6
%
(195,303
)
(199,809
)
(2.3
%)
Total expenses
(202,976
)
(207,819
)
(2.3
%)
(820,112
)
(825,854
)
(0.7
%)
Segment results
$
(7,776
)
$
(7,021
)
(10.8
%)
$
(59,600
)
$
(27,332
)
(118.1
%)
SPECIALTY P&C SEGMENT KEY
RATIOS
Three Months Ended December
31
Year Ended December 31
2023
2022
2023
2022
Current accident year net loss ratio
77.5
%
78.6
%
82.6
%
81.7
%
Effect of prior accident years’ reserve
development
(0.7
%)
(0.4
%)
0.1
%
(2.8
%)
Net loss ratio
76.8
%
78.2
%
82.7
%
78.9
%
Underwriting expense ratio
28.1
%
25.8
%
25.8
%
25.2
%
Combined ratio
104.9
%
104.0
%
108.5
%
104.1
%
The fourth quarter results for the Specialty P&C segment are
relatively stable as compared to the prior year; however, the
competitive market conditions and the continuation of the
challenging loss environment in our HCPL line of business continue
to impact our underwriting results.
Compared to the fourth quarter of last year, gross written
premium declined by $14.9 million or 8.4%, driven by net renewal
timing differences of $7.3 million in our Custom Physicians line
and our pursuit of rate adequacy in a competitive market. Premium
retention in the segment was 83%, down two points from the fourth
quarter of 2022, driven by an 84% retention in our Standard
Physician line of business including the loss of a $2.5 million
policy due to price competition. Despite the decline in written
premium, the results were positively impacted by price increases in
all product lines, and solid new business writings at appropriate
rates for the risk we assumed. We achieved renewal pricing
increases of 6%, level with the prior-year quarter. New business
written improved to $18.1 million for the quarter, compared to $9.9
million last year. Both measures reflect the value proposition
presented by ProAssurance. Net premiums earned declined 3.1% as a
result of the aforementioned market conditions we have experienced
over the preceding twelve months.
Within the segment, written premium in our Standard Physician
line declined $2.7 million reflecting the loss of a $2.6 million
policy due to price competition in the fourth quarter of 2023.
Specialty lines were 21.9% lower driven by a 46.9% decrease in the
Custom Physician line resulting from net timing differences, as
previously discussed. At the same time, we saw a 7.5% increase in
the Hospital and Facilities line reflecting the addition of two
large policies totaling $6.9 million in the fourth quarter of 2023
and our increasing relevance in this growing portion of the
market.
During the current quarter, we decreased our estimate of ULAE
for the full year due to the difference between actual allocable
expenses and earned premium as compared to original estimates
established at the beginning of the year. This adjustment resulted
in a 2.3 point decrease in our current period accident year loss
ratio with an offsetting 2.3 point increase in our current period
expense ratio, with no impact to our combined ratio, total
expenses, or segment results. Excluding the impact of the decrease
in ULAE estimate, the current accident year net loss ratio
increased by 1.2 points primarily attributable to the continued
effects of social inflation and higher than anticipated loss
severity trends throughout the healthcare market.
We recognized net favorable prior accident year reserve
development of $1.4 million in the fourth quarter, compared to $0.8
million in the same period of 2022. The net favorable development
for the quarter was due to the beneficial amortization of the
purchase accounting adjustments on NORCAL's reserves.
During the fourth quarter of 2023, we recognized unfavorable
development in NORCAL’s 2020 and prior accident year reserves which
was entirely offset by favorable development in NORCAL’s 2021 and
2022 accident year reserves. While these adjustments to NORCAL’s
reserves did not impact the segment’s net losses or net loss ratio,
they did result in a decrease in the fair value of the contingent
consideration liability of $2.5 million in the fourth quarter which
favorably impacted the segment expense ratio by 1.3 points.
Excluding the impact of the decrease in ULAE estimate and
contingent consideration, our expense ratio for the quarter
increased 1.3 points primarily due to an increase in
compensation-related costs and higher DPAC amortization.
WORKERS’ COMPENSATION INSURANCE SEGMENT
RESULTS
Three Months Ended December
31
Year Ended December 31
($ in thousands)
2023
2022
%
Change
2023
2022
%
Change
Gross premiums written
$
47,033
$
47,837
(1.7
%)
$
246,857
$
247,132
(0.1
%)
Net premiums written
$
28,005
$
28,964
(3.3
%)
$
162,285
$
160,760
0.9
%
Net premiums earned
$
38,328
$
41,916
(8.6
%)
$
160,034
$
166,371
(3.8
%)
Other income
289
449
(35.6
%)
1,854
2,201
(15.8
%)
Total revenues
38,617
42,365
(8.8
%)
161,888
168,572
(4.0
%)
Net losses and loss adjustment
expenses
(37,508
)
(28,102
)
33.5
%
(139,322
)
(111,407
)
25.1
%
Underwriting, policy acquisition and
operating expenses
(14,139
)
(13,923
)
1.6
%
(55,061
)
(54,737
)
0.6
%
Total expenses
(51,647
)
(42,025
)
22.9
%
(194,383
)
(166,144
)
17.0
%
Segment results
$
(13,030
)
$
340
(3,932.4
%)
$
(32,495
)
$
2,428
(1,438.3
%)
WORKERS’ COMPENSATION INSURANCE SEGMENT
KEY RATIOS
Three Months Ended December
31
Year Ended December 31
2023
2022
2023
2022
Current accident year net loss ratio
97.9
%
71.8
%
81.3
%
71.8
%
Effect of prior accident years’ reserve
development
0.0
%
(4.8
%)
5.8
%
(4.8
%)
Net loss ratio
97.9
%
67.0
%
87.1
%
67.0
%
Underwriting expense ratio
36.9
%
33.2
%
34.4
%
32.9
%
Combined ratio
134.8
%
100.2
%
121.5
%
99.9
%
The Workers’ Compensation Insurance segment underwriting results
for the fourth quarter of 2023 reflect an increase in the current
accident year net loss ratio driven by higher average claim costs,
and lower net premiums earned related to the ongoing impact of
competitive market conditions.
Gross premiums declined in the fourth quarter compared to the
same period of 2022, primarily reflecting lower renewal and audit
premium in our alternative market business ceded to the Segregated
Portfolio Cell Reinsurance segment. In our traditional business,
gross premiums were relatively flat in 2023, compared to 2022. New
and renewal premium were both higher in 2023, compared to 2022,
increasing $1.1 million and $1.4 million respectively, driven by
our continued focus on achieving pricing that reflects the current
market factors. Audit premium, including our estimate of earned but
unbilled audit premium, decreased $2.2 million in 2023 fourth
quarter, compared to 2022. While audit premium for the 2023 full
year was higher than 2022, the level of audit premium is beginning
to normalize. Renewal premium reflected rate decreases and
retention of 2.6% and 84.6%, respectively, in 2023, compared to
6.8% and 73.2%, respectively, for the same period in 2022. The
decrease in net premiums earned in 2023 primarily reflected the
lower audit premium, reinstatement premium of $1.6 million related
to a large reserve increase on a prior year reinsured claim, and
the continuation of competitive market conditions.
The current accident year net loss ratio for the fourth quarter
of 2023 reflected an increase in the full year loss ratio to 81.3%,
from 76.0% as of September 30, 2023. The increase in the loss ratio
reflected the continuation of higher than expected loss trends
driven by medical inflation. Reported claim frequency continues to
trend lower but is being more than offset by an increase in our
average cost per claim, which we attribute to higher medical costs
driven by healthcare wage inflation and medical advancements. We
continue to believe we are observing these trends ahead of the
market because of the early intervention and case management
strategies within our claim process which have proven to result in
returning injured workers to productivity and closing claims much
sooner than the industry average.
There was no change in prior accident year reserve estimates in
the fourth quarter of 2023, compared to $2.0 million of favorable
development for the same period in 2022.
Underwriting expenses were essentially unchanged
quarter-over-quarter. The underwriting expense ratio was 3.7 points
higher than the prior year quarter reflecting the decrease in net
premiums earned.
SEGREGATED PORTFOLIO CELL REINSURANCE
SEGMENT RESULTS
Three Months Ended December
31
Year Ended December 31
($ in thousands)
2023
2022
%
Change
2023
2022
%
Change
Gross premiums written
$
14,335
$
16,055
(10.7
%)
$
70,259
$
78,937
(11.0
%)
Net premiums written
$
12,375
$
13,952
(11.3
%)
$
61,129
$
69,357
(11.9
%)
Net premiums earned
$
15,390
$
16,463
(6.5
%)
$
61,546
$
69,810
(11.8
%)
Net investment income
664
412
61.2
%
2,289
1,029
122.4
%
Net investment gains (losses)
1,850
1,159
59.6
%
3,680
(3,067
)
220.0
%
Other income
2
1
100.0
%
5
2
150.0
%
Net losses and loss adjustment
expenses
(9,120
)
(7,141
)
27.7
%
(36,363
)
(39,310
)
(7.5
%)
Underwriting, policy acquisition and
operating expenses
(5,213
)
(5,114
)
1.9
%
(20,457
)
(20,316
)
0.7
%
SPC U.S. federal income tax (expense)
benefit(1)
(278
)
(335
)
(17.0
%)
(1,629
)
(1,759
)
(7.4
%)
SPC net results
3,295
5,445
(39.5
%)
9,071
6,389
42.0
%
SPC dividend (expense) income (2)
(3,064
)
(4,976
)
(38.4
%)
(6,234
)
(6,673
)
(6.6
%)
Segment results (3)
$
231
$
469
(50.7
%)
$
2,837
$
(284
)
1,098.9
%
(1)
Represents the provision for U.S. federal
income taxes for SPCs at Inova Re, which have elected to be taxed
as a U.S. corporation under Section 953(d) of the Internal Revenue
Code. U.S. federal income taxes are included in the total SPC net
results and are paid by the individual SPCs.
(2)
Represents the net (profit) loss
attributable to external cell participants.
(3)
Represents our share of the net profit
(loss) and OCI of the SPCs in which we participate.
SEGREGATED PORTFOLIO CELL REINSURANCE
SEGMENT KEY RATIOS
Three Months Ended December
31
Year Ended December 31
2023
2022
2023
2022
Current accident year net loss ratio
68.0
%
58.2
%
65.5
%
65.3
%
Effect of prior accident years’ reserve
development
(8.7
%)
(14.8
%)
(6.4
%)
(9.0
%)
Net loss ratio
59.3
%
43.4
%
59.1
%
56.3
%
Underwriting expense ratio
33.9
%
31.1
%
33.2
%
29.1
%
Combined ratio
93.2
%
74.5
%
92.3
%
85.4
%
Premiums in our Segregated Portfolio Cell Reinsurance segment
are primarily comprised of workers' compensation coverages assumed
from our Workers' Compensation Insurance segment and, to a lesser
extent, healthcare professional liability coverages from our
Specialty P&C segment.
Gross premiums written decreased in the fourth quarter compared
to the same period in 2022, primarily reflecting lower workers’
compensation renewal and audit premium. Renewal premium reflected
rate decreases of 5.9% and renewal retention of 90.5% in the
quarter. Audit premium decreased to $0.9 million in 2023, compared
to $1.4 million in 2022. New business was relatively flat in the
quarter.
The increase in the net loss ratio reflects a higher current
accident year net loss ratio in both the workers’ compensation and
healthcare professional liability programs. While the workers’
compensation loss ratio increased during the fourth quarter, the
full year current accident year net loss ratio decreased 1.2
percentage points, reflecting a reduction in claim frequency and
severity. The increase in the healthcare professional liability
current accident year net loss ratio is primarily due to an
increase in expected claim frequency related to one program in
which we do not participate.
We recognized $1.3 million in net favorable prior accident year
reserve development in the quarter related entirely to workers’
compensation business due to favorable trends in claim closing
patterns primarily in accident years 2018 through 2022. Net
favorable prior accident year development was $2.4 million in the
fourth quarter of 2022.
CORPORATE SEGMENT
Three Months Ended December
31
Year Ended December 31
($ in thousands)
2023
2022
%
Change
2023
2022
%
Change
Net investment income
$
33,041
$
28,428
16.2
%
$
126,130
$
94,943
32.8
%
Equity in earnings (loss) of
unconsolidated subsidiaries:
All other investments, primarily
investment fund LPs/LLCs
1,452
(393
)
469.5
%
9,196
11,954
(23.1
%)
Tax credit partnerships
(111
)
(666
)
(83.3
%)
(2,405
)
(7,066
)
(66.0
%)
Total equity in earnings (loss) of
unconsolidated subsidiaries:
1,341
(1,059
)
226.6
%
6,791
4,888
38.9
%
Net investment gains (losses)
8,322
2,336
256.3
%
5,148
(39,090
)
113.2
%
Other income (loss)
2,960
(4,188
)
170.7
%
8,307
6,198
34.0
%
Operating expenses
(9,184
)
(8,055
)
14.0
%
(34,007
)
(34,733
)
(2.1
%)
Interest expense
(6,672
)
(5,499
)
21.3
%
(23,150
)
(20,372
)
13.6
%
Income tax (expense) benefit
(3,356
)
(809
)
314.8
%
545
5,423
90.0
%
Segment results
$
26,452
$
11,154
137.2
%
$
89,764
$
17,257
420.2
%
Consolidated effective tax rate
34.5
%
5.5
%
1.4
%
93.5
%
The high interest rate environment continues to be a benefit to
our net investment income, which increased to $33.0 million in the
quarter, driven by higher average book yields on our fixed maturity
investments as our reinvestment rate exceeds that of the maturing
assets.
Equity in earnings from our investment in LPs/LLCs, which are
typically reported to us on a one-quarter lag, reflected a $1.5
million gain in the quarter as compared to a loss of $0.4 million
in the year-ago quarter driven by the performance of one LP which
reflected higher market valuations during the third quarter of
2023.
The corporate segment results include $8.3 million of net
investment gains for the quarter driven by unrealized holding gains
resulting from changes in the fair value of our equity investments
and convertible securities. These unrealized gains reverse the
trend noted over the year and underscore the variable effect of
measuring these investments at fair value each period which we
believe to be temporary as we have the intent and capability to
hold to these investments to maturity.
Other income was $3.0 million compared to a loss of $4.2 million
in 2022. The increase in other income was driven by proceeds of
$5.4 million associated with the sale of our remaining ownership
interest in the underwriting and operations entity associated with
Syndicate 1729 to an unrelated third party. Further, other income
reflected foreign currency exchange rate movements related to
euro-denominated loss reserves in our Specialty P&C segment.
Foreign exchange movements resulted in a loss of $3.6 million and
$5.0 million in the fourth quarters of 2023 and 2022,
respectively.
Operating expenses increased by $1.1 million primarily due to an
increase in compensation-related costs driven by an increase in
headcount as we have filled open positions during the year.
NON-GAAP FINANCIAL MEASURES
Non-GAAP Operating Income
(Loss)
Non-GAAP operating income (loss) is a financial measure that is
widely used to evaluate performance within the insurance sector. In
calculating Non-GAAP operating income (loss), we have excluded the
effects of the items listed in the following table that do not
reflect normal results. We believe Non-GAAP operating income (loss)
presents a useful view of the performance of our insurance
operations; however, it should be considered in conjunction with
net income (loss) computed in accordance with GAAP. The following
table reconciles net income (loss) to Non-GAAP operating income
(loss):
RECONCILIATION OF NET INCOME (LOSS) TO
NON-GAAP OPERATING INCOME (LOSS)
Three Months Ended December
31
Year Ended December 31
($ in thousands, except per share
data)
2023
2022
2023
2022
Net income (loss)
$
6,377
$
13,942
$
(38,604
)
$
(402
)
Items excluded in the calculation of
Non-GAAP operating income (loss):
Net investment (gains) losses (1)
(10,672
)
(12,495
)
(13,828
)
33,157
Net investment gains (losses) attributable
to SPCs which no profit/loss is retained (2)
1,504
1,224
2,925
(2,138
)
Transaction-related costs (3)
—
—
—
1,862
Goodwill impairment
—
—
44,110
—
Foreign currency exchange rate (gains)
losses(4)
3,484
5,241
2,993
(2,022
)
Non-operating income (5)
(5,416
)
—
(6,878
)
—
Guaranty fund assessments
(recoupments)
28
412
57
541
Pre-tax effect of exclusions
(11,072
)
(5,618
)
29,379
31,400
Tax effect, at 21% (6)
2,147
(707
)
1,894
(8,087
)
After-tax effect of exclusions
(8,925
)
(6,325
)
31,273
23,313
Non-GAAP operating income (loss)
$
(2,548
)
$
7,617
$
(7,331
)
$
22,911
Per diluted common share:
Net income (loss)
$
0.12
$
0.26
$
(0.73
)
$
(0.01
)
Effect of exclusions
(0.17
)
(0.12
)
0.59
0.43
Non-GAAP operating income (loss) per
diluted common share
$
(0.05
)
$
0.14
$
(0.14
)
$
0.42
(1)
Net investment gains (losses) for the
quarter and year ended December 31, 2023 include gains of $0.5
million and $5.0 million, respectively, as compared to $9.0 million
in each of the same respective periods of 2022 related to the
change in the fair value of contingent consideration issued in
connection with the NORCAL acquisition. We have excluded these
adjustments as they do not reflect normal operating results. See
further discussion around the contingent consideration in Note 2
and Note 8 of the Notes to Consolidated Financial Statements and
discussion on our accounting policy in the Critical Accounting
Estimates section under the heading "Contingent Consideration" of
our December 31, 2023 report on Form 10-K.
(2)
Net investment gains (losses) on
investments related to SPCs are recognized in our Segregated
Portfolio Cell Reinsurance segment. SPC results, including any net
investment gain or loss, that are attributable to external cell
participants are reflected in the SPC dividend expense (income). To
be consistent with our exclusion of net investment gains (losses)
recognized in earnings, we are excluding the portion of net
investment gains (losses) that is included in the SPC dividend
expense (income) which is attributable to the external cell
participants.
(3)
Transaction-related costs associated with
our acquisition of NORCAL. We are excluding these costs as they do
not reflect normal operating results and are unique and
non-recurring in nature.
(4)
Foreign currency exchange rate gains
(losses) relate to the impact of foreign exchange rate movements on
foreign currency denominated loss reserves predominately associated
with premium assumed from an international medical professional
liability insured in our Specialty P&C segment. Our
participation in this program has grown in recent years which has
led to greater volatility in our results of operations even with
nominal movements in exchange rates given the size of the reserve.
We mitigate foreign exchange rate exposure on our Consolidated
Balance Sheet by generally matching the currency and duration of
associated investments to the corresponding loss reserves. In
accordance with GAAP, the impact on the market value of
available-for-sale fixed maturities due to changes in foreign
currency exchange rates is reflected as a part of OCI. Conversely,
the impact of changes in foreign currency exchange rates on loss
reserves is reflected through net income (loss) as a component of
other income. Therefore, we believe foreign currency exchange rate
gains (losses) in our Consolidated Statements of Income and
Comprehensive Income in isolation are not indicative of our
operating performance.
(5)
Proceeds associated with the sale of our
ownership interest in the underwriting and operations entity
associated with Syndicate 1729 to unrelated third parties
recognized in other income in our Corporate segment. We are
excluding these costs as they do not reflect normal operating
results and are unique and non-recurring in nature.
(6)
The 21% rate is the statutory tax rate
associated with the taxable or tax deductible items listed above.
Our statutory tax rate was applied to these items in calculating
net income (loss), excluding the 2023 goodwill impairment which is
not tax deductible. In addition, the 2023 and 2022 gains related to
the change in the fair value of contingent consideration are
non-taxable and therefore had no associated income tax impact. The
taxes associated with the net investment gains (losses) related to
SPCs in our Segregated Portfolio Cell Reinsurance segment are paid
by the individual SPCs and are not included in our consolidated tax
provision or net income (loss); therefore, both the net investment
gains (losses) from our Segregated Portfolio Cell Reinsurance
segment and the adjustment to exclude the portion of net investment
gains (losses) included in the SPC dividend expense (income) in the
table above are not tax effected.
Non-GAAP Operating ROE
The following table is a reconciliation of ROE to Non-GAAP
operating ROE for the quarter and year ended December 31, 2023 and
2022:
Three Months Ended
December 31
Year Ended December 31
2023
2022
2023
2022
ROE(1)
2.3
%
2.7
%
(3.5
%)
—
%
Pre-tax effect of items excluded in the
calculation of Non-GAAP operating ROE
(4.1
%)
0.4
%
2.6
%
2.4
%
Tax effect, at 21%(2)
0.8
%
(0.3
%)
0.2
%
(0.6
%)
Non-GAAP operating ROE
(1.0
%)
2.8
%
(0.7
%)
1.8
%
(1)
Quarterly amounts are annualized. Refer to
our December 31, 2023 report on Form 10-K under the heading
“Non-GAAP Operating ROE” in the Executive Summary of Operations
section for details on our calculation.
(2)
The 21% rate is the statutory tax rate
associated with the taxable or tax deductible items. See further
discussion in footnote 6 in this section under the heading
"Non-GAAP Operating Income."
Non-GAAP Adjusted Book Value per
Share
The following table is a reconciliation of our book value per
share to Non-GAAP adjusted book value per share at December 31,
2023 and December 31, 2022:
Book Value Per Share
Book Value Per Share at December 31,
2022
$
20.46
Less: AOCI Per Share(1)
(5.53
)
Non-GAAP Adjusted Book Value Per Share at
December 31, 2022
25.99
Increase (decrease) to Non-GAAP Adjusted
Book Value Per Share during the year ended December 31, 2023
attributable to:
Dividends paid
(0.05
)
Cumulative repurchase of shares(2)
0.59
Net income (loss)(3)
(0.76
)
Other(4)
0.06
Non-GAAP Adjusted Book Value Per Share at
December 31, 2023
25.83
Add: AOCI Per Share(1)
(4.01
)
Book Value Per Share at December 31,
2023
$
21.82
(1)
Primarily the impact of accumulated
unrealized investment gains (losses) on our available-for-sale
fixed maturity investments. See Note 10 of the Notes to
Consolidated Financial Statements in our December 31, 2023 report
on Form 10-K for additional information.
(2)
Represents the impact of our repurchase of
3.1 million common shares, conducted through a series of 10b5-1
stock repurchase plans during 2023. See Note 10 of the Notes to
Consolidated Financial Statements in our December 31, 2023 report
on Form 10-K for additional information.
(3)
Includes the $44.1 million goodwill
impairment associated with the Workers' Compensation Insurance
segment, which accounted for $0.87 of the decrease in book value
per share. See Note 5 of the Notes to Consolidated Financial
Statements in our December 31, 2023 report on Form 10-K for
additional information.
(4)
Includes the impact of share-based
compensation.
Conference Call Information
ProAssurance management will discuss fourth quarter 2023 results
during a conference call at 10:00 a.m. ET on Wednesday, February
28, 2024. US-based investors may access the call by dialing either
(833) 470-1428 (toll free) or (404) 975-4839 (local). International
investors may find a toll-free number here:
https://www.netroadshow.com/events/global-numbers?confId=60355. The
access code for all attendees is 688177.
Callers may also choose to pre-register to receive unique call
access details and avoid operator wait times; pre-register here if
desired:
www.netroadshow.com/events/login?show=11e40410&confId=60355.
The conference call will also be webcast at
https://events.q4inc.com/attendee/777467232.
A replay will be available by telephone for at least 7 days
after the call date. US-based investors may access the replay by
dialing (866) 813-9403 (toll free) or (929) 458-6194, and
international investors may dial +44 (204) 525-0658. The access
code for all attendees is 341261. A replay will also be available
for at least one year at investor.proassurance.com. Investors may
follow @ProAssurance on X (formerly Twitter) to be notified of the
latest news about ProAssurance.
About ProAssurance
ProAssurance Corporation is an industry-leading specialty
insurer with extensive expertise in healthcare professional
liability, products liability for medical technology and life
sciences, legal professional liability, and workers’ compensation
insurance.
ProAssurance Group is rated “A” (Excellent) by AM Best.
ProAssurance and its operating subsidiaries (excluding NORCAL
Group) are rated “A-” (Strong) by Fitch Ratings. For the latest on
ProAssurance and its industry-leading suite of products and
services, cutting-edge risk management and practice enhancement
programs, follow @ProAssurance on X (formerly Twitter) or LinkedIn.
ProAssurance’s YouTube channel regularly presents
thought-provoking, insightful videos that communicate effective
practice management, patient safety and risk management
strategies.
Caution Regarding Forward-Looking Statements
Any statements in this news release that are not historical
facts or explicitly stated as an opinion are specifically
identified as forward-looking statements. These statements are
based upon our estimates and anticipation of future events and are
subject to significant risks, assumptions and uncertainties that
could cause actual results to differ materially from the expected
results described in the forward-looking statements.
Forward-looking statements are identified by words such as, but not
limited to, “anticipate,” “believe,” “estimate,” “expect,” “hope,”
“hopeful,” “intend,” “likely,” “may,” “optimistic,” “possible,”
“potential,” “preliminary,” “project,” “should,” “will,” and other
analogous expressions.
Although it is not possible to identify all of these risks and
factors, they include, among others, the following: inadequate loss
reserves to cover the Company's actual losses; inherent uncertainty
of models resulting in actual losses that are materially different
than the Company's estimates; adverse economic factors; a decline
in the Company's financial strength rating; loss of one or more key
executives; loss of a group of agents or brokers that generate
significant portions of the Company's business; failure of any of
the loss limitations or exclusions the Company employs, or change
in other claims or coverage issues; adverse performance of the
Company's investment portfolio; adverse market conditions that
affect its excess and surplus lines insurance operations; and other
risks described in the Company's filings with the Securities and
Exchange Commission. These forward-looking statements speak only as
of the date of this release and the Company does not undertake and
specifically declines any obligation to update or revise any
forward-looking information to reflect changes in assumptions, the
occurrence of unanticipated events, or otherwise.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240227533601/en/
Dana Hendricks EVP, Chief Financial Officer 800-282-6242 •
205-877-4462 • DanaHendricks@ProAssurance.com
ProAssurance (NYSE:PRA)
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