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It has been about a month since the last earnings report for ProAssurance (PRA). Shares have added about 5.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is ProAssurance due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
ProAssurance Q1 Earnings Miss Mark, Jump Y/Y
ProAssurance reported first-quarter 2022 operating earnings of 14 cents per share, missing the Zacks Consensus Estimate of 17 cents. PRA’s bottom line, however, rose from 4 cents per share a year ago.
Quarterly operating revenues of ProAssurance increased from the prior-year level of $204.4 million to $289 million. The top line also beat the Zacks Consensus Estimate of $277 million.
It reported lower-than-expected first-quarter 2022 earnings due to increased expenses. Also, weakness in the Segregated Portfolio Cell Reinsurance and Workers' Compensation businesses weighed on earnings. The negatives were partially offset by higher premiums, improved underwriting results in the Specialty P&C unit and a strong performance from investment income. The NORCAL acquisition also aided the results.
Gross premiums written were up 49.3% year over year to $335.6 million, mainly on the back of the Specialty P&C segment, aided by the NORCAL acquisition. This was partially offset by lower participation at Lloyd’s of London and soft gross premiums written in the Workers’ Compensation Insurance unit. Net premiums earned were up 41.8% year over year to $265.7 million.
Net investment income rose 36.1% year over year to $20.4 million on increased profits from investments from the NORCAL acquisition.
Total expenses increased 36.4% year over year to $288.6 million due to higher SPC U.S. federal income tax expense, interest expense, underwriting, policy acquisition and operating expenses. Also, net losses and loss adjustment expenses jumped 39.8% year over year in the quarter under review.
Combined ratio declined 420 basis points (bps) year over year to 105.8%. Operating ratio declined 390 bps to 98.1%. Return on equity plunged year over year to a negative 0.8% for the first quarter.
ProAssurance did not engage in share buybacks in the first quarter. As of Mar 31, 2022, PRA had $110 million left under its authorization for repurchases and debt retirement.
Specialty P&C Insurance Segment
Total revenues of $199 million were up 71.4% from the prior-year figure. Gross premiums written rose 86.3% year over year to $257.7 million, mainly owing to the NORCAL acquisition. The segment incurred a loss of $9.9 million, narrower than the year-ago loss of $11.5 million, courtesy of improved operating efficiency, premium retention and underwriting discipline. Total expenses of $208.8 million surged 63.8% year over year. Combined ratio contracted 480 bps year over year to 105.5%.
Workers' Compensation Segment
Total revenues of $41.4 million were up 2.4% year over year. Gross premiums written were $72.1 million, down 0.3% from the year-earlier number, mainly due to a lower premium production. On account of higher operating expenses, the segment reported a lower profit of $1.2 million for the first quarter than the year-ago profit of $1.9 million. Total expenses of $40.2 million were up 4.5% year over year. Combined ratio jumped 270 bps year over year to 98.9%.
Lloyd's Syndicate Segment
Gross premiums written were $5.8 million, down 58.8% from the figure recorded in the comparable quarter of last year due to decreased participation in Syndicates. Profits from the segment amounted to $0.2 million for the quarter under review against the year-ago loss of $2.9 million. Underwriting, policy acquisition and operating expenses declined 58.9% year over year to $2.7 million. Combined ratio decreased 2,690 bps year over year to 96.5%.
Segregated Portfolio Cell Reinsurance Segment
Gross premiums written were $28.4 million, up 12.8% from the year-earlier number. It incurred a loss of $0.2 million for the first quarter, reflecting a downside of 128.1% year over year due to net investment losses. Combined ratio declined 880 bps year over year to 82.1%.
Net investment income of $20.1 million was up 43% year over year. Improved performance on investments from the NORCAL acquisition and other factors aided the segment. It generated $6 million of profits, down 69.4% from the year-ago reading. Operating expenses of $8.7 million increased 21.8% from the prior-year level. Interest expense of $4.4 million rose 38.3% year over year.
Financial Position (as of Mar 31, 2022)
ProAssurance’s total investments were $4,693.7 million, down from $4,828.3 million registered at 2021 end. At the first-quarter-end, PRA’s total assets were $6,058.6 million, down sequentially from $6,191.5 million. Cash and cash equivalents declined to $72.1 million in the first quarter from $143.6 million at the fourth-quarter-end. Debt less unamortized debt issuance costs stood at $425.5 million, marginally up from $425 million at 2021 end.
The insurer’s shareholder equity declined to $1,281.8 million from $1,428.4 million as of Dec 31, 2021. Book value was $23.72 per share, down from $26.46 as of Dec 31, 2021.
Net operating cash flow in the first quarter was $14.3 million, down from $28.7 million a year ago.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -47.14% due to these changes.
Currently, ProAssurance has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, ProAssurance has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
ProAssurance belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, American Financial Group (AFG), has gained 0.6% over the past month. More than a month has passed since the company reported results for the quarter ended March 2022.
American Financial reported revenues of $1.61 billion in the last reported quarter, representing a year-over-year change of +16.2%. EPS of $3.56 for the same period compares with $2.38 a year ago.
For the current quarter, American Financial is expected to post earnings of $2.23 per share, indicating a change of -6.7% from the year-ago quarter. The Zacks Consensus Estimate has changed -4.3% over the last 30 days.
American Financial has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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