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Is This the Right Time to Dump ProAssurance (PRA) Stock?
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On Dec 19, 2016, we issued an updated research report on ProAssurance Corp. (PRA - Free Report) . The Zacks Rank #5 (Strong sell) property & casualty insurer faces a number of headwinds like higher operating costs, heavy debt burden that is growing interest expenses, to name a few. Along with the internal weaknesses, the company’s underwriting results are also challenged by external threats, such as persistent low interest rate, reduced retention rates.
Year to date the shares of ProAssurance have gained 27.03% year to date, compared with 21.73% gained by the Zacks categorized Property and Casualty Insurance industry. Despite we doubt that the stock might suffer going forward, from a number of headwinds plaguing the company.
YTD PRICE CHART
Headwinds
ProAssurance faces a major risk with regard to its investment portfolio, which primarily consists of fixed income securities. Declining interest rate compels the company to reinvest its matured investments at comparatively low rates, which in turn, leads to decreased investment income. At the end of first nine months of 2016, net investment income fell 8.4% over the prior-year period to $75.3 million.
Also, rapidly growing underwriting, policy acquisition and operating expenses have been threatening the company’s growth potential by limiting the bottom line. These expenses have also been leading to the deterioration in underwriting ratio. Though total expenses fell 6.5% to $51.9 million at the end of first nine months of 2016, the underwriting, policy acquisition and operating expenses grew 5.6% from the prior-year period. The company needs to enforce a strong expense management strategy in order to stop the operating expenses from weighing on the margins going ahead.
Volatility in premium retention in the Physician business due to increased competition is another challenge for ProAssurance. Retention rate, which fell to 89% in the second quarter of 2016, did not been recover till the third quarter. Nonetheless, if the company continues to lose its insured clients to competitors, it runs the risk of seeing its premiums being adversely impacted and top-line growth being limited.
Alleghany deals with P&C reinsurance and insurance businesses in the U.S. and internationally. The company delivered positive surprises in three of the last four quarters with an average beat of 20.52%.
NMI Holdings offers private mortgage guaranty insurance services in the U.S. The company delivered positive surprises in all of the last four quarters with an average beat of 62.80%.
Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide. It delivered positive surprises in all of the last four quarters with an average beat of 9.27%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>
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Is This the Right Time to Dump ProAssurance (PRA) Stock?
On Dec 19, 2016, we issued an updated research report on ProAssurance Corp. (PRA - Free Report) . The Zacks Rank #5 (Strong sell) property & casualty insurer faces a number of headwinds like higher operating costs, heavy debt burden that is growing interest expenses, to name a few. Along with the internal weaknesses, the company’s underwriting results are also challenged by external threats, such as persistent low interest rate, reduced retention rates.
Year to date the shares of ProAssurance have gained 27.03% year to date, compared with 21.73% gained by the Zacks categorized Property and Casualty Insurance industry. Despite we doubt that the stock might suffer going forward, from a number of headwinds plaguing the company.
YTD PRICE CHART
Headwinds
ProAssurance faces a major risk with regard to its investment portfolio, which primarily consists of fixed income securities. Declining interest rate compels the company to reinvest its matured investments at comparatively low rates, which in turn, leads to decreased investment income. At the end of first nine months of 2016, net investment income fell 8.4% over the prior-year period to $75.3 million.
Also, rapidly growing underwriting, policy acquisition and operating expenses have been threatening the company’s growth potential by limiting the bottom line. These expenses have also been leading to the deterioration in underwriting ratio. Though total expenses fell 6.5% to $51.9 million at the end of first nine months of 2016, the underwriting, policy acquisition and operating expenses grew 5.6% from the prior-year period. The company needs to enforce a strong expense management strategy in order to stop the operating expenses from weighing on the margins going ahead.
Volatility in premium retention in the Physician business due to increased competition is another challenge for ProAssurance. Retention rate, which fell to 89% in the second quarter of 2016, did not been recover till the third quarter. Nonetheless, if the company continues to lose its insured clients to competitors, it runs the risk of seeing its premiums being adversely impacted and top-line growth being limited.
Stocks to Consider
Some better-ranked stocks from the insurance industry include Alleghany Corp. , NMI Holdings, Inc. (NMIH - Free Report) and Arch Capital Group Ltd. (ACGL - Free Report) . Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Alleghany deals with P&C reinsurance and insurance businesses in the U.S. and internationally. The company delivered positive surprises in three of the last four quarters with an average beat of 20.52%.
NMI Holdings offers private mortgage guaranty insurance services in the U.S. The company delivered positive surprises in all of the last four quarters with an average beat of 62.80%.
Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide. It delivered positive surprises in all of the last four quarters with an average beat of 9.27%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>