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ProAssurance (PRA) Down 12.3% Since Q1 Earnings Miss Mark

ProAssurance Corporation‘s PRA shares have declined 12.3% since it reported lower-than-expected first-quarter 2022 earnings on May 9. Increased expenses affected its bottom line. 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.

Similar to ProAssurance, another player from the Insurance – Property and Casualty space, Allstate Corporation ALL, missed on earnings in the first quarter due to surging operating expenses. Also, increased inflation affected ALL’s profits in the quarter under review. Allstate’s management plans to fight inflation by changing its investment allocations, lowering costs and raising prices. It is to be seen what measures ProAssurance take to lower its expenses.

Q1 Results

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.

ProAssurance Corporation Price, Consensus and EPS Surprise

ProAssurance Corporation price-consensus-eps-surprise-chart | ProAssurance Corporation Quote

Operational Update

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 US 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.

Segmental Results

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 written premiums 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%.

Corporate Segment

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.

Companies Expected to Beat Estimates

While ProAssurance, which currently carries a Zacks Rank #3 (Hold), missed on earnings this time around, here are some companies worth considering from the Finance space with the right combination of elements to beat on earnings this season:

Hamilton Lane Incorporated HLNE currently has an Earnings ESP of +0.89% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hamilton Lane’s earnings beat estimates in each of the last four quarters, the average being 31%.

Houlihan Lokey, Inc. HLI has an Earnings ESP of +12.73% and is a Zacks #3 Ranked player, presently.

The Zacks Consensus Estimate for Houlihan Lokey’s bottom line for the to-be-reported quarter is pegged at $1.10 per share.

HLI’s earnings beat estimates in each of the last four quarters, the average being 28.1%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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