Updated Research Report on ProAssurance - Analyst Blog

On Mar 14, 2014, we issued an updated research report on ProAssurance Corporation PRA. After analyzing the company's capital deployment initiatives via dividend hike and share repurchase authorization as well as the acquisition of Eastern Insurance Holdings during the fourth quarter of 2013, ProAssurance's future prospects look quite promising. The stock appears profitable to one's portfolio.

Although the company failed to meet the Zacks Consensus Estimate or the year-ago results, it delivered positive earnings surprise in two of the last four quarters, with an average beat of 2.8% .  

Why This Stance?

ProAssurance has been active in deploying capital efficiently through both the channels – dividends and share repurchases. The 20% dividend hike during the fourth quarter was impressive as it resulted in a yield of 2.74%, higher than the industry yield of 2.14%.

Additionally, the company approved a $100 million extension to its existing share repurchase program. The company's share repurchases in 2013 and so far in 2014 has taken the toll to $329 million deployed over the last six years.  

Despite the low rates and challenges in writing new business, ProAssurance's core business has been witnessing substantial improvement over the past few quarters. Also, global expansions and new product enhancements are expected to help the company's claims and underwriting efficiency. Particularly, the opening of new claims processing centers and the launch of CapAssurance helped ProAssurance write new business and are expected to help the company generate more revenues going forward.

Gross premiums have surged on the acquisition of Medmarc Mutual Insurance Company and Independent Nevada Doctors Insurance Exchange. Going forward, synergies from the acquisition of Eastern Insurance Holdings are expected to boost premiums further. Adding to these positives, the strong score with credit rating agencies, particularly the rating upgrades in 2013 are expected to help the company retain investor confidence.

However, this Zacks Rank #3 (Hold) company is struggling over volatility in premium retentions in its physician business as well as higher underwriting, policy acquisition and operating expenses. ProAssurance also faces significant risks associated with its investment portfolio and given the continued low yield on the fixed income portfolio, investment results are likely to be hampered in the upcoming period.

Moreover, ProAssurance's cash flow from operations is affected by the timing of payments and declined roughly 58% in 2013. If the cash flow persistently declines, it will likely weigh on ProAssurance's capital deployment and deleveraging activities going forward.

Other Stocks

RLI Corp. RLI, Montpelier Re Holdings Ltd. MRH and ACE Ltd. ACE are some better-ranked stocks with a Zacks Rank #2 (Buy) in the same sector that appear impressive at current levels and are worth considering.