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Why Is ProAssurance (PRA) Down 11.3% Since Last Earnings Report?

A month has gone by since the last earnings report for ProAssurance (PRA). Shares have lost about 11.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ProAssurance due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

ProAssurance Beats Q2 Earnings Estimates

ProAssurance reported second-quarter 2022 operating earnings of 30 cents per share, beating the Zacks Consensus Estimate of 7 cents. PRA’s bottom line, however, fell from 49 cents per share a year ago.

The quarterly operating revenues of ProAssurance increased from the prior-year level of $258.9 million to $274.5 million. However, the top line missed the Zacks Consensus Estimate of $315 million.

The company reported better-than-expected second-quarter 2022 earnings due to decreased expenses. Also, higher premiums, underwriting discipline in the Specialty P&C unit and a strong performance from investment income benefited the results. The NORCAL acquisition keeps supporting its year-over-year growth. This was partially offset by weakness in the Lloyd's Syndicate and Segregated Portfolio Cell Reinsurance businesses.

Operational Update

Gross premiums written were up 12.9% year over year to $235.5 million, mainly on the back of the Specialty P&C segment, aided by the NORCAL acquisition. This was partially offset by lower participation in Syndicates at Lloyd. Net premiums earned were up 3.5% year over year to $247.3 million but missed the Zacks Consensus Estimate of $269.7 million.

Net investment income rose 26% year over year to $21.9 million on increased profits from investments from the NORCAL acquisition and rising interest rates. It beat the Zacks Consensus Estimate of $19 million.

Total expenses decreased 3.1% year over year to $259.4 million due to lower SPC U.S. federal income tax expense, interest expense, and improved SPC dividend income. Net losses and loss adjustment expenses also fell 2.3% year over year in the quarter under review.

Combined ratio declined 520 basis points (bps) year over year to 103.2%. Operating ratio declined 680 bps to 94.3%. Non-GAAP return on equity plunged year over year to 5.3% for the second quarter.

ProAssurance did not engage in share buybacks in the second quarter. As of Jun 30, 2022, PRA had $110 million left under its authorization for repurchases and debt retirement.

Segmental Results

Specialty P&C Insurance Segment

Total revenues of $185.5 million were up 9% from the prior-year figure. Gross premiums written rose 18.1% year over year to $167.8 million, mainly owing to the NORCAL acquisition. The segment reported a profit of $0.4 million, beating the Zacks Consensus Estimate of a loss of $6 million, but was down from the year-ago profit of $1 million. Total expenses of $185.1 million jumped 9.5% year over year. The combined ratio increased 60 bps year over year to 100.8%.

Workers' Compensation Segment

Total revenues of $42.2 million were up 1.7% year over year and beat the Zacks Consensus Estimate of $40 million. Gross premiums written were $63.6 million, up 10% from the year-earlier number. Increased audit premiums and renewal retention in traditional businesses helped the segment. On account of higher operating expenses, the segment reported a profit of $0.6 million for the second quarter, lower than the year-ago profit of $1.1 million. However, it beat the Zacks Consensus Estimate of a loss of $0.1 million. Total expenses of $41.6 million were up 2.8% year over year. The combined ratio increased 20 bps year over year to 99.8%.

Lloyd's Syndicate Segment

Gross premiums written were $4.1 million, down 52.7% from the figure recorded in the comparable quarter of last year due to decreased participation in Syndicates. Profits from the segment amounted to $0.6 million for the quarter under review, in line with the Zacks Consensus Estimate, but down from the year-ago figure of $4.3 million. Underwriting, policy acquisition and operating expenses declined 68.1% year over year to $1.5 million. Combined ratio increased 1,000 bps year over year to 85.5%.

Segregated Portfolio Cell Reinsurance Segment

Gross premiums written were $16.6 million, up 3.6% from the year-earlier number. It incurred a loss of $0.4 million for the second quarter, reflecting a downside of 136.9% year over year due to a higher net loss ratio and decline in equity and fixed income markets. It also missed the Zacks Consensus Estimate of a profit of $0.2 million. Combined ratio increased 510 bps year over year to 89.5%.

Corporate Segment

Net investment income of $21.6 million was up 29.3% year over year. Improved performance on investments from the NORCAL acquisition and other factors aided the segment. It generated $2.4 million of losses, down 108.8% from the year-ago reading. Operating expenses of $9 million increased 52.1% from the prior-year level. Interest expense of $4.9 million rose 5% year over year.

Financial Position (as of Jun 30, 2022)

ProAssurance’s total investments were $4,549 million, down from $4,828.3 million registered at the 2021 end. At the second-quarter-end, PRA’s total assets were $5,891.2 million, down from the 2021-end figure of $6,191.5 million. Cash and cash equivalents declined to $34.8 million in the second quarter from $143.6 million at the fourth-quarter-end. Debt-less unamortized debt issuance costs stood at $425.9 million, marginally up from $425 million at 2021-end.

The insurer’s shareholder equity declined to $1,169.9 million from $1,428.4 million as of Dec 31, 2021. Book value was $21.63 per share, down from $26.46 as of Dec 31, 2021.

Net cash used in operations in the first half of 2022 was $3.7 million against an operating cash flow of $31 million a year ago.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

The consensus estimate has shifted -7.69% due to these changes.

VGM Scores

At this time, ProAssurance has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

ProAssurance has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

ProAssurance is part of the Zacks Insurance - Property and Casualty industry. Over the past month, Selective Insurance (SIGI), a stock from the same industry, has gained 1.3%. The company reported its results for the quarter ended June 2022 more than a month ago.

Selective Insurance reported revenues of $907.6 million in the last reported quarter, representing a year-over-year change of +9.3%. EPS of $1.17 for the same period compares with $1.85 a year ago.

Selective Insurance is expected to post earnings of $1.26 per share for the current quarter, representing a year-over-year change of +6.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -3.1%.

Selective Insurance has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.


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