BIRMINGHAM, Ala.–(BUSINESS WIRE)–ProAssurance Corporation (NYSE: PRA) reports the following results for the three and nine months ended September 30, 2019:
|
CONSOLIDATED INCOME STATEMENT HIGHLIGHTS |
|||||||||||||||||||||
|
|
Three Months Ended September 30 |
|
Nine Months Ended September 30 |
||||||||||||||||||
|
($ in thousands, except per share data) |
2019 |
|
2018 |
|
% Change |
|
2019 |
|
2018 |
|
% Change |
||||||||||
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Gross premiums written* |
$ |
265,483 |
|
|
$ |
259,704 |
|
|
2.2 |
% |
|
$ |
766,655 |
|
|
$ |
745,614 |
|
|
2.8 |
% |
|
Net premiums written |
$ |
228,058 |
|
|
$ |
229,329 |
|
|
(0.6 |
%) |
|
$ |
663,784 |
|
|
$ |
652,230 |
|
|
1.8 |
% |
|
Net premiums earned |
$ |
215,788 |
|
|
$ |
206,070 |
|
|
4.7 |
% |
|
$ |
633,086 |
|
|
$ |
616,819 |
|
|
2.6 |
% |
|
Net investment income |
$ |
23,681 |
|
|
$ |
23,266 |
|
|
1.8 |
% |
|
$ |
70,038 |
|
|
$ |
67,677 |
|
|
3.5 |
% |
|
Equity in earnings (loss) of unconsolidated subsidiaries |
$ |
(1,277 |
) |
|
$ |
5,228 |
|
|
(124.4 |
%) |
|
$ |
(7,240 |
) |
|
$ |
12,247 |
|
|
(159.1 |
%) |
|
Net realized investment gains (losses) |
$ |
1,134 |
|
|
$ |
12,373 |
|
|
(90.8 |
%) |
|
$ |
47,064 |
|
|
$ |
2,651 |
|
|
1,675.3 |
% |
|
Other income (expense)* |
$ |
2,548 |
|
|
$ |
2,388 |
|
|
6.7 |
% |
|
$ |
7,419 |
|
|
$ |
7,155 |
|
|
3.7 |
% |
|
Total revenues* |
$ |
241,874 |
|
|
$ |
249,325 |
|
|
(3.0 |
%) |
|
$ |
750,367 |
|
|
$ |
706,549 |
|
|
6.2 |
% |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net losses and loss adjustment expenses |
$ |
161,614 |
|
|
$ |
147,605 |
|
|
9.5 |
% |
|
$ |
489,808 |
|
|
$ |
439,120 |
|
|
11.5 |
% |
|
Underwriting, policy acquisition and operating expenses* |
$ |
61,861 |
|
|
$ |
61,844 |
|
|
— |
% |
|
$ |
185,960 |
|
|
$ |
178,812 |
|
|
4.0 |
% |
|
Segregated portfolio cells dividend expense (income) |
$ |
3,621 |
|
|
$ |
5,255 |
|
|
(31.1 |
%) |
|
$ |
1,375 |
|
|
$ |
9,787 |
|
|
(86.0 |
%) |
|
Total expenses* |
$ |
231,370 |
|
|
$ |
218,303 |
|
|
6.0 |
% |
|
$ |
689,993 |
|
|
$ |
638,981 |
|
|
8.0 |
% |
|
Income tax expense (benefit) |
$ |
(6,689 |
) |
|
$ |
(206 |
) |
|
3,147.1 |
% |
|
$ |
(4 |
) |
|
$ |
(3,939 |
) |
|
(99.9 |
%) |
|
Net income (loss) |
$ |
17,193 |
|
|
$ |
31,228 |
|
|
(44.9 |
%) |
|
$ |
60,378 |
|
|
$ |
71,507 |
|
|
(15.6 |
%) |
|
Non-GAAP operating income |
$ |
16,269 |
|
|
$ |
22,417 |
|
|
(27.4 |
%) |
|
$ |
24,567 |
|
|
$ |
69,858 |
|
|
(64.8 |
%) |
|
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Diluted |
53,856 |
|
|
53,773 |
|
|
0.2 |
% |
|
53,831 |
|
|
53,735 |
|
|
0.2 |
% |
||||
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net income (loss) per diluted share |
$ |
0.32 |
|
|
$ |
0.58 |
|
|
(44.8 |
%) |
|
$ |
1.12 |
|
|
$ |
1.33 |
|
|
(15.8 |
%) |
|
Non-GAAP operating income per diluted share |
$ |
0.30 |
|
|
$ |
0.42 |
|
|
(28.6 |
%) |
|
$ |
0.46 |
|
|
$ |
1.30 |
|
|
(64.6 |
%) |
|
* Consolidated totals include inter-segment eliminations. The eliminations affect individual line items only and have no effect on net income (loss). See Note 14 of the Notes to Condensed Consolidated Financial Statements in the September 30, 2019 Form 10-Q for amounts by line item. |
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|
CONSOLIDATED KEY RATIOS |
|||||||||||
|
|
Three Months Ended September 30 |
|
Nine Months Ended September 30 |
||||||||
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
|
Current accident year net loss ratio |
82.3 |
% |
|
82.1 |
% |
|
84.0 |
% |
|
82.1 |
% |
|
Effect of prior accident years’ reserve development |
(7.4 |
%) |
|
(10.5 |
%) |
|
(6.6 |
%) |
|
(10.9 |
%) |
|
Net loss ratio |
74.9 |
% |
|
71.6 |
% |
|
77.4 |
% |
|
71.2 |
% |
|
Expense ratio |
28.7 |
% |
|
30.0 |
% |
|
29.4 |
% |
|
29.0 |
% |
|
Combined ratio |
103.6 |
% |
|
101.6 |
% |
|
106.8 |
% |
|
100.2 |
% |
|
Operating ratio |
92.6 |
% |
|
90.3 |
% |
|
95.7 |
% |
|
89.2 |
% |
|
Return on equity* |
4.3 |
% |
|
7.9 |
% |
|
5.2 |
% |
|
6.0 |
% |
|
* Quarterly computations of ROE are annualized |
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Management Commentary
“Once again, our Workers’ Compensation Insurance and Segregated Portfolio Cell Reinsurance segments were substantial contributors to the bottom line, while operating in a marketplace that continues to be highly competitive,” said Ned Rand, President and Chief Executive Officer of ProAssurance. Turning to the Specialty P&C segment, Mr. Rand said, “Our medical professional liability products, which make up the largest line of business in the segment, continue to build upon a strong book of business despite a loss environment that affects our current accident year loss picks and influences our analysis of reserves for prior year losses. These headwinds affected overall premiums in the segment, but we were able to implement renewal rate increases for another consecutive quarter with only a modest impact to retention, while adding new business at higher rates than in 2018.”
Mr. Rand continued, “While we are pleased to report higher operating earnings for the third quarter of 2019 than for the previous two quarters, the increase is largely the effect of a tax benefit in the period. We continue to expect loss severity trends perceived in the broader healthcare professional liability marketplace to weigh on operating performance for the remainder of the year, and into 2020. Our view of these trends, and the intensely competitive property casualty landscape, demand caution as we strive to create long-term value for our customers and shareholders. This is not the time to aggressively seek market share and top line growth. We are willing to walk away from business where it makes sense to do so, rather than chase under-priced business into dangerous territory. Instead, we continue to focus on improving underwriting results and managing expenses, applying our deep expertise to strengthen our position as a market leader in the lines in which we specialize.”
Third Quarter 2019
- The increase in consolidated gross premiums written was driven by our Workers’ Compensation Insurance segment (up 6.6% quarter-over-quarter), our Segregated Portfolio Cell Reinsurance segment (up 2.9% quarter-over-quarter), and our Lloyd’s Syndicates segment (up 15.3% quarter-over-quarter). Our Specialty P&C segment saw gross premiums written decline 1.6% quarter-over-quarter.
- Consolidated net premiums earned for third quarter of 2019 increased 4.7% over the prior-year quarter with all of our operating segments contributing to the increase, primarily driven by our Specialty P&C segment due to the addition of a loss portfolio transfer (“LPT”) resulting in $2.7 million of premium being written and fully earned in the quarter, as well as the pro rata effect of higher premiums written during the preceding twelve months.
- Our consolidated current accident year net loss ratio for the third quarter of 2019 was 82.3% as compared to 82.1% in the year-ago period, effectively unchanged quarter-over-quarter.
- Our consolidated underwriting expense ratio was 28.7% for the third quarter of 2019 as compared to 30.0% in the year-ago period, primarily due to a decrease in share-based compensation and other incentive-related compensation costs in our Corporate segment and a decrease in operating expenses in our Lloyd’s Syndicates segment.
- Net favorable prior accident year reserve development was $15.9 million in the third quarter of 2019, compared to $21.5 million in the prior-year quarter. While our perception of increasing claim severity in the broader healthcare professional liability industry has not changed from recent quarters, our reserves for prior accident years continue to develop favorably as current severity trends are somewhat more favorable than the severity assumptions we used to establish those initial reserves. This allows for continuing net favorable development relating to prior accident years.
- Our consolidated combined ratio for the quarter was 103.6%, a two percentage point increase quarter-over-quarter, primarily due to changes in the mix of premiums earned and a lower amount of prior accident year favorable development due to our perception of loss trends in the healthcare professional liability market.
- Our consolidated net investment result was $22.4 million, a decline of $6.1 million compared to the year-ago quarter, primarily due to a $6.5 million quarter-over-quarter decline in earnings from our unconsolidated subsidiaries, driven by lower reported earnings from two limited partnership (“LP”) investments.
- Net realized investment gains were $1.1 million compared to $12.4 million in the third quarter of 2018, reflecting a decrease in realized gains from the sale of equity investments and the change from unrealized holding gains to unrealized holding losses in our equity portfolio.
- We recorded a tax benefit of approximately $6.7 million in the quarter, primarily the result of $4.6 million in tax credits recognized in the third quarter of 2019 and a $2.0 million adjustment to align our actual effective tax rate with our projected effective tax rate.
Non-GAAP Financial Measures
Non-GAAP operating income is a financial measure that is widely used to evaluate performance within the insurance sector. In calculating Non-GAAP operating income, we have excluded the after-tax effects of the items listed in the following table that do not reflect normal operating results. We believe Non-GAAP operating income presents a useful view of the performance of our insurance operations; however, it should be considered in conjunction with net income computed in accordance with GAAP. The following table reconciles net income (loss) to Non-GAAP operating income:
|
RECONCILIATION OF NET INCOME TO NON-GAAP OPERATING INCOME |
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|
|
Three Months Ended September 30 |
|
Nine Months Ended September 30 |
|||||||||||||
|
(In thousands, except per share data) |
2019 |
|
2018 |
|
2019 |
|
2018 |
|||||||||
|
Net income (loss) |
$ |
17,193 |
|
|
$ |
31,228 |
|
|
$ |
60,378 |
|
|
$ |
71,507 |
|
|
|
Items excluded in the calculation of Non-GAAP operating income: |
|
|
|
|
|
|
|
|||||||||
|
Net realized investment (gains) losses |
(1,134 |
) |
|
(12,373 |
) |
|
(47,064 |
) |
|
(2,651 |
) |
|||||
|
Net realized gains (losses) attributable to SPCs which no profit/loss is retained (1) |
(132 |
) |
|
1,130 |
|
|
1,531 |
|
|
387 |
|
|||||
|
Guaranty fund assessments (recoupments) |
96 |
|
|
90 |
|
|
202 |
|
|
177 |
|
|||||
|
Pre-tax effect of exclusions |
(1,170 |
) |
|
(11,153 |
) |
|
(45,331 |
) |
|
(2,087 |
) |
|||||
|
Tax effect, 21% (2) |
246 |
|
|
2,342 |
|
|
9,520 |
|
|
438 |
|
|||||
|
After-tax effect of exclusions |
(924 |
) |
|
(8,811 |
) |
|
(35,811 |
) |
|
(1,649 |
) |
|||||
|
Non-GAAP operating income |
$ |
16,269 |
|
|
$ |
22,417 |
|
|
$ |
24,567 |
|
|
$ |
69,858 |
|
|
|
Per diluted common share: |
|
|
|
|
|
|
|
|||||||||
|
Net income (loss) |
$ |
0.32 |
|
|
$ |
0.58 |
|
|
$ |
1.12 |
|
|
$ |
1.33 |
|
|
|
Effect of exclusions |
(0.02 |
) |
|
(0.16 |
) |
|
(0.66 |
) |
|
(0.03 |
) |
|||||
|
Non-GAAP operating income per diluted common share |
$ |
0.30 |
|
|
$ |
0.42 |
|
|
$ |
0.46 |
|
|
$ |
1.30 |
|
|
|
(1)
|
Net realized investment gains (losses) on investments related to SPCs are recognized in our Segregated Portfolio Cell Reinsurance segment and the portion of operating earnings, including the gain or loss, net of our participation, is due to the external cell participants through the SPC dividend expense (income). To be consistent with our exclusion of net realized investment gains (losses) recognized in earnings, we are excluding the portion of net realized investment gains (losses) that is included in the SPC dividend expense (income) which is due to the external cell participants. |
|||||||||||||||
|
(2)
|
The 21% rate is the annual expected statutory tax rate associated with the taxable or tax deductible items listed above. Excluding net realized investment (gains) losses, which are discrete items and are tax effected at the annual expected statutory tax rate in the period they are included in net income, our effective tax rate for the respective periods was applied to these items in calculating net income. See further discussion under the heading “Taxes” in the Executive Summary of Operations section of our September 30, 2019 Form 10-Q filed on November 5, 2019. |
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|
BALANCE SHEET HIGHLIGHTS |
||||||||
|
(In thousands, except per share data) |
September 30, 2019 |
|
December 31, 2018 |
|||||
|
Total investments |
$ |
3,496,074 |
|
|
$ |
3,349,382 |
|
|
|
Total assets |
$ |
4,824,359 |
|
|
$ |
4,600,726 |
|
|
|
Total liabilities |
$ |
3,234,901 |
|
|
$ |
3,077,724 |
|
|
|
Common shares (par value $0.01) |
$ |
631 |
|
|
$ |
630 |
|
|
|
Retained earnings |
$ |
1,581,789 |
|
|
$ |
1,571,847 |
|
|
|
Treasury shares |
$ |
(417,277 |
) |
|
$ |
(417,277 |
) |
|
|
Shareholders’ equity |
$ |
1,589,458 |
|
|
$ |
1,523,002 |
|
|
|
Book value per share |
$ |
29.56 |
|
|
$ |
28.39 |
|
|
Capital Management
We have not repurchased any shares of our stock in 2019 and did not repurchase any shares in 2018. As of October 31, 2019, approximately $110 million remains available in our Board-authorized stock repurchase program. In August 2019, our Board of Directors declared a regular dividend of $0.31 per share, which was paid on October 11, 2019.
Conference Call Information
ProAssurance management will discuss third quarter 2019 results during a conference call at 10:00 a.m. ET on Wednesday, November 6, 2019. We invite anyone who would like to participate in the call to dial (888) 349-0134 (US), (855) 669-9657 (Canada) (toll free) or (412) 317-5145; no access code is required. We will webcast the call at Investor.ProAssurance.com. A replay will be available by telephone through at least November 6, 2020 at (877) 344-7529 (US), (855) 669-9658 (Canada) (both toll-free), or (412) 317-0088, using access code 10135348. A replay also will be available for one year on our website, Investor.ProAssurance.com. We also will make the replay and other information about ProAssurance available on a free subscription basis through Investor.ProAssurance.com or through Apple’s iTunes. Investors may follow @PRA_Investors on Twitter to be notified of the latest financial news about ProAssurance.
About ProAssurance
ProAssurance Corporation is an industry-leading specialty insurer with extensive expertise in healthcare professional liability, products liability for medical technology and life sciences, legal professional liability, and workers’ compensation insurance.
The Company is recognized as one of the top performing insurance companies in America by virtue of our inclusion in the Ward’s 50 for thirteen consecutive years. ProAssurance Group is rated “A+” (Superior) by A.M. Best; ProAssurance and its operating subsidiaries are rated “A” (Strong) by Fitch Ratings. For the latest on ProAssurance and its industry-leading suite of products and services, cutting-edge risk management and practice enhancement programs, follow @ProAssurance on Twitter or LinkedIn. ProAssurance’s YouTube channel regularly presents thought provoking, insightful videos that communicate effective practice management, patient safety and risk management strategies.
SPECIALTY P&C SEGMENT RESULTS
|
|
Three Months Ended September 30 |
|
Nine Months Ended September 30 |
||||||||||||||||||
|
($ in thousands) |
2019 |
|
2018 |
|
% Change |
|
2019 |
|
2018 |
|
% Change |
||||||||||
|
Gross premiums written |
$ |
164,991 |
|
|
$ |
167,639 |
|
|
(1.6 |
%) |
|
$ |
459,324 |
|
|
$ |
456,137 |
|
|
0.7 |
% |
|
Net premiums written |
$ |
141,299 |
|
|
$ |
143,921 |
|
|
(1.8 |
%) |
|
$ |
393,210 |
|
|
$ |
394,601 |
|
|
(0.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net premiums earned |
$ |
125,237 |
|
|
$ |
120,789 |
|
|
3.7 |
% |
|
$ |
375,315 |
|
|
$ |
378,355 |
|
|
(0.8 |
%) |
|
Other income |
1,858 |
|
|
1,426 |
|
|
30.3 |
% |
|
4,536 |
|
|
3,945 |
|
|
15.0 |
% |
||||
|
Total revenues |
127,095 |
|
|
122,215 |
|
|
4.0 |
% |
|
379,851 |
|
|
382,300 |
|
|
(0.6 |
%) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net losses and loss adjustment expenses |
(107,573 |
) |
|
(98,363 |
) |
|
9.4 |
% |
|
(321,248 |
) |
|
(292,742 |
) |
|
9.7 |
% |
||||
|
Underwriting, policy acquisition and operating expenses |
(29,700 |
) |
|
(27,931 |
) |
|
6.3 |
% |
|
(89,177 |
) |
|
(83,833 |
) |
|
6.4 |
% |
||||
|
Total expenses |
(137,273 |
) |
|
(126,294 |
) |
|
8.7 |
% |
|
(410,425 |
) |
|
(376,575 |
) |
|
9.0 |
% |
||||
|
Segment operating results |
$ |
(10,178 |
) |
|
$ |
(4,079 |
) |
|
149.5 |
% |
|
$ |
(30,574 |
) |
|
$ |
5,725 |
|
|
(634.0 |
%) |
|
SPECIALTY P&C SEGMENT KEY RATIOS |
|||||||||||
|
|
Three Months Ended September 30 |
|
Nine Months Ended September 30 |
||||||||
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
|
Current accident year net loss ratio |
94.5 |
% |
|
93.4 |
% |
|
93.9 |
% |
|
91.9 |
% |
|
Effect of prior accident years’ reserve development |
(8.6 |
%) |
|
(12.0 |
%) |
|
(8.3 |
%) |
|
(14.5 |
%) |
|
Net loss ratio |
85.9 |
% |
|
81.4 |
% |
|
85.6 |
% |
|
77.4 |
% |
|
Underwriting expense ratio |
23.7 |
% |
|
23.1 |
% |
|
23.8 |
% |
|
22.2 |
% |
|
Combined ratio |
109.6 |
% |
|
104.5 |
% |
|
109.4 |
% |
|
99.6 |
% |
The Specialty P&C segment’s $10.2 million operating loss during the third quarter of 2019 was due to a lower amount of prior year favorable development, driven by loss volatility in our large account business, and a higher current accident year net loss ratio that reflects a continued cautious view of emerging severity trends.
Gross premiums written decreased $2.6 million compared to the third quarter of 2018 to $165.0 million. This was due to a decrease of $2.8 million in healthcare facilities premium compared with the third quarter of last year, and the pending renewal of a $3.6 million physician policy. This was somewhat offset by the previously mentioned LPT, which resulted in $2.7 million of premium written and fully earned during the period. Net premiums earned increased 3.7% quarter-over-quarter, also as a result of the LPT.
Premium retention for the Specialty P&C segment was 86%, three percentage points lower than the prior-year quarter, primarily due to volatility of premium retention in our healthcare facilities line (57%) as we decided not to renew certain products written on an excess and surplus lines basis. Premium retention in physicians professional liability, the largest line in the segment, was flat quarter-over-quarter at 89%, reflecting marketplace recognition of the value of ProAssurance in a competitive market. Further reinforcing the value of our policies in the market, renewal pricing increased 7% for the segment, including an 8% increase for our physicians business and 12% increase for our healthcare facilities business. We wrote $9.0 million of new business in the segment during the quarter, primarily in our physicians line of business.
The current accident year net loss ratio increased approximately one percentage point quarter-over-quarter, reflecting our view of emerging loss trends in the broader healthcare professional liability industry. We continue to maintain a cautious view on these loss trends despite rate increases and underwriting selection improvements across our book of business. In addition, the 2018 third quarter current accident year net loss ratio was slightly lower as a result of the effects of favorable loss experience adjustments on prior year reinsurance contracts, increasing earned premium in the year-ago period.
We recognized net favorable prior accident year reserve development of $10.8 million, compared to $14.4 million in the prior-year quarter, again resulting from our continuing caution about industry severity trends. The reduction in favorable development also reflected loss volatility associated with large account business in our healthcare facilities line.
WORKERS’ COMPENSATION INSURANCE SEGMENT RESULTS
|
|
Three Months Ended September 30 |
|
Nine Months Ended September 30 |
||||||||||||||||||
|
($ in thousands) |
2019 |
|
2018 |
|
% Change |
|
2019 |
|
2018 |
|
% Change |
||||||||||
|
Gross premiums written |
$ |
70,066 |
|
|
$ |
65,719 |
|
|
6.6 |
% |
|
$ |
223,638 |
|
|
$ |
228,271 |
|
|
(2.0 |
%) |
|
Net premiums written |
$ |
49,663 |
|
|
$ |
45,945 |
|
|
8.1 |
% |
|
$ |
146,101 |
|
|
$ |
150,581 |
|
|
(3.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net premiums earned |
$ |
49,477 |
|
|
$ |
47,296 |
|
|
4.6 |
% |
|
$ |
141,990 |
|
|
$ |
135,230 |
|
|
5.0 |
% |
|
Other income |
494 |
|
|
376 |
|
|
31.4 |
% |
|
1,948 |
|
|
1,828 |
|
|
6.6 |
% |
||||
|
Total revenues |
49,971 |
|
|
47,672 |
|
|
4.8 |
% |
|
143,938 |
|
|
137,058 |
|
|
5.0 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net losses and loss adjustment expenses |
(32,356 |
) |
|
(30,650 |
) |
|
5.6 |
% |
|
(93,424 |
) |
|
(87,794 |
) |
|
6.4 |
% |
||||
|
Underwriting, policy acquisition and operating expenses |
(14,895 |
) |
|
(15,410 |
) |
|
(3.3 |
%) |
|
(43,456 |
) |
|
(41,545 |
) |
|
4.6 |
% |
||||
|
Total expenses |
(47,251 |
) |
|
(46,060 |
) |
|
2.6 |
% |
|
(136,880 |
) |
|
(129,339 |
) |
|
5.8 |
% |
||||
|
Segment operating results |
$ |
2,720 |
|
|
$ |
1,612 |
|
|
68.7 |
% |
|
$ |
7,058 |
|
|
$ |
7,719 |
|
|
(8.6 |
%) |
|
WORKERS’ COMPENSATION INSURANCE SEGMENT KEY RATIOS |
|||||||||||
|
|
Three Months Ended September 30 |
|
Nine Months Ended September 30 |
||||||||
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
|
Current accident year net loss ratio |
68.2 |
% |
|
70.7 |
% |
|
68.2 |
% |
|
68.0 |
% |
|
Effect of prior accident years’ reserve development |
(2.8 |
%) |
|
(5.9 |
%) |
|
(2.4 |
%) |
|
(3.1 |
%) |
|
Net loss ratio |
65.4 |
% |
|
64.8 |
% |
|
65.8 |
% |
|
64.9 |
% |
|
Underwriting expense ratio |
30.1 |
% |
|
32.6 |
% |
|
30.6 |
% |
|
30.7 |
% |
|
Combined ratio |
95.5 |
% |
|
97.4 |
% |
|
96.4 |
% |
|
95.6 |
% |
The Workers’ Compensation Insurance segment reported $2.7 million of operating income for the third quarter of 2019, compared to $1.6 million from the same period a year ago.
Gross premiums written were $70.1 million in the quarter, a 6.6% increase over third quarter 2018 primarily due to the addition of $11.3 million of new business, and an increase in audit premium. The workers’ compensation insurance market remains intensely competitive and resulted in an overall 4% decrease in premiums on renewing business. Those competitive pressures, and our willingness to walk away from business we believe to be underpriced, resulted in a retention rate of 84%, down one percentage point from the same quarter in 2018.
Our alternative market business, the majority of which we cede to the Segregated Portfolio Cell Reinsurance segment, accounted for $16.7 million of the gross premiums written in the quarter. That is consistent with the prior-period quarter, reflecting the same trends evident in our traditional business.
The current accident year net loss ratio decreased 2.5 percentage points as compared to the same period a year ago to 68.2%, primarily as a result of an increase to the ratio during the third quarter of 2018. The 2018 increase was driven by the impact of severity-related claim activity during the first half of the year related to economic growth trends and the increase in new and less experienced workers to the workforce. Net favorable prior accident year reserve development in the third quarter of 2019 was $1.4 million, reflecting overall favorable trends in claim closing patterns, primarily in the 2016 accident year, and includes purchase accounting amortization of approximately $400,000.
The underwriting expense ratio improved to 30.1% quarter-over-quarter, due primarily to an increase in net premiums earned.
SEGREGATED PORTFOLIO CELL REINSURANCE SEGMENT RESULTS
|
|
Three Months Ended September 30 |
|
Nine Months Ended September 30 |
||||||||||||||||||
|
($ in thousands) |
2019 |
|
2018 |
|
% Change |
|
2019 |
|
2018 |
|
% Change |
||||||||||
|
Gross premiums written |
$ |
17,281 |
|
|
$ |
16,799 |
|
|
2.9 |
% |
|
$ |
70,556 |
|
|
$ |
68,255 |
|
|
3.4 |
% |
|
Net premiums written |
$ |
15,268 |
|
|
$ |
14,832 |
|
|
2.9 |
% |
|
$ |
62,886 |
|
|
$ |
60,709 |
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net premiums earned |
$ |
19,779 |
|
|
$ |
18,963 |
|
|
4.3 |
% |
|
$ |
58,566 |
|
|
$ |
54,247 |
|
|
8.0 |
% |
|
Net investment income |
445 |
|
|
371 |
|
|
19.9 |
% |
|
1,261 |
|
|
1,100 |
|
|
14.6 |
% |
||||
|
Net realized gains (losses) |
(98 |
) |
|
1,397 |
|
|
(107.0 |
%) |
|
1,949 |
|
|
467 |
|
|
317.3 |
% |
||||
|
Other income |
176 |
|
|
86 |
|
|
104.7 |
% |
|
397 |
|
|
176 |
|
|
125.6 |
% |
||||
|
Net losses and loss adjustment expenses |
(9,778 |
) |
|
(8,560 |
) |
|
14.2 |
% |
|
(40,496 |
) |
|
(27,561 |
) |
|
46.9 |
% |
||||
|
Underwriting, policy acquisition and operating expenses |
(5,951 |
) |
|
(5,516 |
) |
|
7.9 |
% |
|
(17,091 |
) |
|
(16,070 |
) |
|
6.4 |
% |
||||
|
SPC net operating results |
4,573 |
|
|
6,741 |
|
|
(32.2 |
%) |
|
4,586 |
|
|
12,359 |
|
|
(62.9 |
%) |
||||
|
Segregated portfolio cell dividend (expense) income (1) |
(3,621 |
) |
|
(5,255 |
) |
|
(31.1 |
%) |
|
(1,375 |
) |
|
(9,787 |
) |
|
(86.0 |
%) |
||||
|
Segment operating results (2) |
$ |
952 |
|
|
$ |
1,486 |
|
|
(35.9 |
%) |
|
$ |
3,211 |
|
|
$ |
2,572 |
|
|
24.8 |
% |
|
(1) Represents the operating (profit) loss due to external cell participants. |
|||||||||||||||||||||
|
(2) Represents our share of the operating profit (loss) of the SPCs in which we participate. |
|||||||||||||||||||||
|
SEGREGATED PORTFOLIO CELL REINSURANCE SEGMENT KEY RATIOS |
|||||||||||
|
|
Three Months Ended September 30 |
|
Nine Months Ended September 30 |
||||||||
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||
|
Current accident year net loss ratio |
66.1 |
% |
|
64.8 |
% |
|
82.5 |
% |
|
66.0 |
% |
|
Effect of prior accident years’ reserve development |
(16.7 |
%) |
|
(19.7 |
%) |
|
(13.4 |
%) |
|
(15.2 |
%) |
|
Net loss ratio |
49.4 |
% |
|
45.1 |
% |
|
69.1 |
% |
|
50.8 |
% |
|
Underwriting expense ratio |
30.1 |
% |
|
29.1 |
% |
|
29.2 |
% |
|
29.6 |
% |
|
Combined ratio |
79.5 |
% |
|
74.2 |
% |
|
98.3 |
% |
|
80.4 |
% |
The Segregated Portfolio Cell Reinsurance segment represents the operating results (underwriting profit or loss, plus investment results) of Segregated Portfolio Cells (SPCs) within Inova Re and Eastern Re, our Cayman Islands SPC operations. The segment operating result of approximately $952,000 represents our share of the results of SPC programs in which we participate to varying degrees.
Gross premiums written for the third quarter of 2019 were $17.3 million, an increase of 2.9% quarter-over-quarter driven by approximately $800,000 of new business and a 96% renewal retention rate, partially offset by a 5% decline in renewal pricing resulting from competitive market conditions. We have retained all 18 of the available alternative market programs, including 16 workers’ compensation programs and 2 healthcare professional liability programs up for renewal during the nine months ended September 30, 2019, and added a new program in the third quarter of 2019.
The current accident year net loss ratio increased by 1.3 percentage points to 66.1%, as intense price competition resulted in renewal rate decreases. We recognized net favorable prior accident year reserve development of $3.
Contacts
Ken McEwen
Investor Relations Manager
800-282-6242 • 205-439-7903 • [email protected]
