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ProAssurance Hits A Home Run

Posted: Feb 27, 2009 11:36 AM by Eric Fox

Tickers in this Article: PRA, HIG, GNW, MKL

While it is rare for any company to come out with good earnings in the current economic climate, ProAssurance's (NYSE:PRA) recent strong earnings report is noteworthy because the company is a part of the failing insurance sector. Therefore, it singlehandedly proves that a company can manage, even in the worst of times.

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Strong Earnings
ProAssurance reported operating income of $2.36 per share for Q4 2008 and $6.07 per share for the full year 2008. The numbers were up sharply from $1.54 and $4.90, respectively, for the periods of the prior year.

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ProAssurance's numbers were helped by favorable reserve development, which some may consider to be a less worthy source of earnings growth. However, an argument can be made that the company's success at underwriting should not be disregarded.

ProAssurance primarily is an underwriter of medical liability insurance. The company insures more than 30,000 physicians and dentists from medical malpractice and recently expanded its coverage further into the legal liability field.

Investment Portfolio
Another important item to note in the earnings report was the performance of ProAssurance's investment portfolio. The company recognized net realized losses of only $9.9 million in the fourth quarter and $50.9 million for the year. These numbers included impairments, but were negligible compared to the overall portfolio size of $3.6 billion.

Managed very conservatively, the portfolio invested 86% in fixed income and 9% in short-term paper. By way of disclosure, ProAssurance releases a detailed report on its portfolio, which lists every position it owns. Some insurers choose to invest more in equities, however. Markel (NYSE:MKL), for example, had 49% of its capital invested in equities at the end of 2008. It has been bringing this percentage down sharply over the last two years, however.

Not all insurers have done as well as ProAssurance with its investment results. Hartford (NYSE:HIG) reported a loss of $806 million, or $2.71 per share, in its most recent quarter. The company took a $610 million realized capital loss and wrote down $597 million in goodwill. Genworth (NYSE:GNW) was recently downgraded by A.M. Best, with the ratings agency citing "the significant unrealized loss positions maintained within its fixed income investment portfolio." Downgrades can lead to loss of business, as customers and investors become concerned with a company's capital levels.

Bottom Line
The recent earnings report by ProAssurance demonstrates that even in a poor operating and investing environment, some insurers are able to manage well and even thrive. Its peers should take note. (To learn more about investing in these companies, be sure to check out our Insurance Industry Handbook.)

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.

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