V I G I L A N T
P r o A s s u r a n c e • 2003 Annual Report
ever V I G I L A N T
F i n a n c i a l H i g h l i g h t s
Fiscal Years Ended December 31
(in thousands)
2003
2002
2001
2000
1999
Income Statement Highlights(1)
Gross premiums written(1)
Total revenues
Net income(1)(2)
Balance Sheet Highlights
Total investments
Total assets
Reserve for losses and loss adjustment expenses
Long-term debt
Total liabilities
$ 740,110
709,640
38,703
$2,055,672
$2,879,352
$1,814,584
$ 104,789
$2,333,047
$ 636,156
555,767
12,207
$1,679,497
$2,586,650
$1,622,468
$
72,500
$2,055,086
$ 388,983
382,555
12,450
$1,521,279
$2,238,325
$1,442,341
$
82,500
$1,802,606
$ 223,871
222,589
24,300
$ 796,526
$1,122,836
$ 659,659
$
—
$ 777,669
$ 201,593
208,029
46,700
$ 761,918
$1,117,668
$ 665,792
$
—
$ 791,944
(1) Includes Professionals Group since the date of consolidation, June 27, 2001. See Note 2 to the Consolidated Financial Statements.
(2) Net income for the year ended December 31, 2002 was increased by $1.7 million due to the adoption of SFAS 141 and 142. See Note 14 to our Consolidated
Financial Statements. In accordance with SFAS 142, we wrote off the unamortized balance of deferred credits that related to business combinations com-
pleted prior to July 1, 2001. The cumulative effect increased net income per share (basic and diluted) by $0.07 per share.
$18.77
$17.49
$16.02
$15.22
$13.92
’99
’00
’01
’02
’03
Book Value per Share
$546
$505
$413
$326
$345
’99
’00
’01
’02
’03
Shareholders’ Equity
(in millions)
$283
$177
$46
’99
$36
’00
$61
’01
’02
’03
Cash Flow from Operations(1)
(in millions)
A b o u t P r o A s s u r a n c e C o r p o r a t i o n
ProAssurance Corporation is a specialty insurer with almost $2.9 billion
in assets and more than $740 million in gross written premiums.
Through its subsidiaries ProAssurance is the nation’s fourth largest
writer of medical professional liability insurance and is one of the
top ten writers of personal auto coverage in Michigan.
letter
T O M Y F E L L O W
S H A R E H O L D E R S ,
has declined from 124.5% in 2002 to 111.6% in 2003. We
expect that ratio to continue to show improvement in the next
few years as price increases work their way to our bottom line
and we see claims for recent years reach maturity.
M a r c h 1 5 , 2 0 0 4
By every measure, 2003 was our most successful year since the
creation of ProAssurance in 2001. We returned our Professional
Liability segment to profitability and believe it to be poised to
achieve the financial goals we’ve set for this line of business.
Our Personal Lines segment again generated industry-leading
returns. As we enter 2004, we are Ever Vigilant in running a
customer-focused and financially strong insurance group that
provides security for its policyholders and strong returns for
its shareholders.
In Professional Liability, our largest
business segment, the operational
discipline that has been a hallmark
of ProAssurance has allowed us
to succeed in today’s turbulent
liability environment.
Our commitment to rate adequacy has not wavered, and we
have already filed for increases in nine of our states so far in
2004. Now that rates are at what we believe are appropriate
levels, we do expect to see some slowing in the rate of overall
premium increases, which has been at 28% for the past two
years. This certainly will be welcome news for our customers.
Because of our close ties to the medical community and the
physician leaders in our management, we understand the
effect our rate increases have had on our insureds. But the
failure of more medical malpractice insurers in 2003 brought
fresh lessons of the disastrous consequences of failing to
properly operate a business. We have chosen to protect our
balance sheet and ultimately, the financial well-being of those
we insure.
The compounding effect of our rate increases and the continuing
re-underwriting of our book has driven significant improvements
in our combined ratio. The Professional Liability combined ratio
Our success in Professional Liability is based upon our experi-
enced staff and regional operating model. Our regional approach
to underwriting ensures that our coverage decisions reflect
the latest developments in each state. We are confident that
market conditions in 2004 will allow us to begin adding well-
underwritten business to our book at advantageous pricing,
thus further enhancing our ability to meet our underwriting and
profitability targets.
Our hands-on, local approach is also vital to our claims success.
Our edge is in the venue-specific knowledge that allows us to
conclude over 90% of all claims filed against our insureds with
a favorable outcome. We recognize the upfront costs expended
in defending a claim. However, our success helps us control our
ultimate loss and legal costs and produces tremendous policy-
holder loyalty. We believe this localized approach to basic
insurance decisions is one of the reasons we have succeeded
where other companies have failed.
In 2003, we also saw great progress toward our goal of
becoming a key player in the Excess & Surplus Lines market
for professional liability risks. Many of the risks that have fallen
outside the standard market have found a home with our new
company, Red Mountain Casualty. Red Mountain allows us to
customize our pricing and coverage terms to meet the needs of
these unique, yet potentially insurable risks. Red Mountain
generated $20 million in premium in 2003 and could easily
build to $30 million in 2004.
The success we’ve enjoyed in our operations gives us confi-
dence in our ability to raise capital as needed to support our
organic growth as well as potential mergers or acquisitions
opportunities. As an example, our sale of convertible debentures
last summer allowed us to eliminate variable rate debt and a
variety of restrictive covenants imposed by our lenders, thus
giving us additional financial flexibility at attractive terms.
Looking toward growth and future capital needs, we have filed
a $250 million universal shelf offering that gives us the flexi-
bility to move quickly to raise capital through an offering of
equity, debt, or a combination of both. The ability to obtain
capital will allow us to take advantage of any opportunities
that may present themselves to us. Our recent renewal rights
transaction with the OHIC Insurance Company is one such
example. We believe that the capacity crunch in our sector,
and the inability of competitors to effectively raise capital, will
provide us with additional opportunities to grow our business
within our established business footprint.
The issue of capacity, whether to support growth or to fund an
acquisition, is something we are constantly and carefully eval-
uating. Should we see that our new business and premium
growth are straining our capacity, we likely would move to
obtain enough capital to give us room to grow and assure the
rating agencies of our commitment to balance sheet strength.
We would also pursue additional capital, if needed, to fund
an acquisition.
While we are committed to a strong balance sheet with
growth, we do not intend to seek additional capital unless
we have a justified need. We will not burden the Company
with debt for which we have no use, nor will we issue equity
that would have a long-term dilutive effect on our current
shareholders.
But often the most important transactions are the ones that
are not executed. Rest assured that we will apply the same
diligence and skill to our evaluation of mergers and acquisi-
tions that we apply to our underwriting and claims efforts. Our
goal is to write profitable business that will allow us to
achieve our financial targets. We will not acquire simply for
the sake of acquisition, nor will we commit blindly to top-line
growth at the expense of profitability.
We will learn much about the future of Tort Reform in the com-
ing year. Tort reforms failed twice at the federal level in 2003
and will likely be a key campaign issue in this fall’s election. At
the state level, the past 18 months have been fruitful for those
supporting Tort Reform as a way to balance the scales of jus-
tice. We are waiting to learn if the Supreme Courts in those
states will uphold those reforms. If the reforms are upheld, we
could see a new era of stability in medical liability rates. If they
are overturned, rates are likely to resume their rapid ascent
toward unaffordability.
We expect to succeed no matter what the outcome of the Tort
Reform fight. Opportunities will abound for a strong, respon-
sive medical liability insurer. We are equipped and ready to
capitalize on those opportunities, no matter how the business
environment evolves.
Along with our excitement regarding
Professional Liability, we are equally
enthusiastic about the ability of
our Personal Lines segment to
bolster our earnings.
In 2003, MEEMIC Insurance Company’s combined ratio was a
stellar 87.9%, marking the ninth consecutive year that
MEEMIC has earned an underwriting profit. We see no reason
that MEEMIC’s success should end, absent an unpredictable
weather-related catastrophe loss.
I do want to compliment MEEMIC’s management and employ-
ees for the high quality execution of MEEMIC’s business plan.
At MEEMIC, we focus on the best risks from a preferred mar-
ket, Michigan educators and their families. Our ability to select
the best risks from that pool and then efficiently handle their
claims allows MEEMIC to be an integral part of the profit pic-
ture at ProAssurance.
In 2004, we expect MEEMIC to produce solid earnings and
generate the capital required to support its planned growth in
Michigan’s parochial schools, colleges and universities. We
also expect MEEMIC to expand beyond its Michigan base in
2004. Peer-to-peer selling plays a key role in our policy persis-
tency and overall success in Michigan, so we are identifying
qualified educators outside of Michigan to serve as our sales
arm. Our growth outside of Michigan won’t be explosive or
immediate, but our success in Michigan allows us the luxury of
moving deliberately in this expansion, thus creating a model
for successful expansion for the future.
While we are pleased to tell you about our 2003 results in
both Professional Liability and Personal Lines, we believe the
best is yet to come. With our merger solidly behind us and the
effects of price increases being realized in our income state-
ment, we expect a combined ratio of approximately 100% for
2004, and foresee further improvement in 2005. We are thus
confident in our ability to reach our ultimate goal of a Return
on Equity of between 12% and 14%. In reaching those financial
goals we will also meet the equally important goal of main-
taining a balance sheet whose strength is beyond question.
Every employee at ProAssurance is working each day to meet
this goal while exceeding our customers’ expectations. Our
success is due to their diligence and dedication; I am grateful
for their efforts.
I am equally grateful to the agents and defense attorneys who
represent us and our insureds with honest, effective advocacy.
I would also like to thank the insureds who serve on our advi-
sory committees; they really make the difference in keeping us
up-to-date with the emerging
changes in medicine and den-
tistry as well as the insurance
needs of our clients.
Finally, I am most grateful to
those of you who join with us
as investors in ProAssurance.
I hope you’ll continue to
share in our success in the
years ahead.
A. Derrill Crowe, M.D.
Chairman and CEO
looking
out F O R O U R
C U S T O M E R S
E v e r V i g i l a n t
ProAssurance’s financial strength is now more important—and more evident—
than ever before. The power of our balance sheet allows us to respond when
other insurers can’t, and gives our customers the confidence that we can keep
our promise of insurance protection.
As one of America’s leading specialty insurance groups, our singular focus is on
uncompromising financial stability that supports our dedication to excellence.
Our commitment to responsive service enhances our position as an industry
leader and enables us to deliver the performance that our insureds and
investors have come to expect.
MAR KET CAPITALI ZATION
S I NC E I NC E PTION
(in millions)
$230
$192
$186
$131
$103
$348
$319
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P r o f e s s i o n a l L i a b i l i t y
The Professional Liability market has been shaken by signifi-
cant contractions in the past few years. While thousands of
American physicians face the specter of bankrupt companies,
abandoned markets or restricted coverage, ProAssurance’s
insureds have learned not to fear because they know our firm
financial foundation is their assurance that we remain solidly
behind them.
P e r s o n a l L i n e s
For more than fifty years MEEMIC Insurance Company has pro-
vided security and value to educators and their families in
Michigan. We offer a full range of auto and home insurance
products tailored to meet the budgets and lifestyles of the
people we serve. Our representatives are a part of the educa-
tional communities they serve, which ensures that we maintain
our reputation for integrity and unmatched service.
This unquestioned dedication to financial strength goes hand-
in-hand with our unparalleled commitment to the defense of
non-meritorious claims. We understand our insureds’ desire to
protect their hard-won reputation, and we are committed to
the strongest advocacy on their behalf, while at the same
time seeking reasonable, expedient settlement of claims that
have merit.
We are recognized as an industry leader because we combine
our experience and knowledge to provide the complete cus-
tomized coverage our insureds demand.
As MEEMIC expands beyond Michigan, we remain dedicated
to the premise that educators deserve a specialized insurance
company that understands their unique and evolving needs.
$1,013
$936
$771
$605
$606
$496
$453
$379
ProAssurance’s market capitalization exceeded the $1 billion mark in
the first quarter of 2004. This represents a milestone for our organiza-
tion’s management, employees and agents, and reflects the financial
markets’ support of our measured approach to sustaining profitable
growth and building balance sheet strength.
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3/1/04
T A B L E O F
contents
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Market for Registrant’s Common Equity and Related Stockholder Matters
Selected Financial Data
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure
Controls and Procedures
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Changes in Capital
Consolidated Statements of Income
Consolidated Statements of Cash Flow
Notes to Consolidated Financial Statements
Schedule I: Summary of Investments—Other Than Investments in Related Parties
Schedule II: Condensed Financial Information of Registrant
Schedule III: Supplementary Insurance Information
Schedule IV: Reinsurance
Schedule VI: Supplementary Property and Casualty Insurance Information
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D i r e c t o r s
A. Derrill Crowe, MD(4)*
Chairman & Chief Executive Officer
Lucian Bloodworth(1)(2)
Chairman, Cain Manufacturing Company, Inc.
John J. McMahon, Jr.(1)(3)(5)*
Chairman, Ligon Industries
Victor T. Adamo, Esq., CPCU(4)
Vice-Chairman & Chief Operating Officer
Robert E. Flowers, MD(1)(3)*(4)(5)
Retired Physician
John P. North, Jr., CPA(1)(2)*
Retired Accounting Firm Partner
Paul R. Butrus(4)
Vice-Chairman
Wilfred W. Yeargan, MD(1)(3)
Physician
Ann F. Putallaz, Ph.D.(1)(2)
Vice-President, Munder Capital Management
Committees
(1) Independent
(2) Audit
(3) Compensation
(4) Executive
(5) Nominating & Corporate Governance
*Chair
S e n i o r O f f i c e r s
Jeffrey L. Bowlby, ARM
Senior Vice-President, Marketing & Sales
Professional Liability Group
Lynn Kalinowski
President
MEEMIC Insurance Company
Robert D. Francis
Senior Vice-President
Managing Director
Red Mountain Casualty Insurance Company, Inc.
James J. Morello, CPA
Chief Accounting Officer & Treasurer
Senior Vice-President
ProAssurance Corporation
Howard H. Friedman, ACAS, MAAA
Chief Financial Officer & Secretary
Senior Vice-President
ProAssurance Corporation
Frank B. O’Neil
Investor Relations Officer
Senior Vice-President
Corporate Communications
ProAssurance Corporation
William H. Woodhams, MD(1)(5)
Physician
Christine C. Schmitt, CPA
Chief Financial Officer & Treasurer
MEEMIC Insurance Company
Darryl K. Thomas, Esq.
Senior Vice-President, Claims
Professional Liability Group
I n v e s t o r I n f o r m a t i o n
There were 29,105,971 shares of ProAssurance
Corporation common stock outstanding at
March 1, 2004. On that date, we had 3,605
shareholders of record. Our common stock
trades on The New York Stock Exchange under
the symbol PRA. Our stock is listed as ProAsr in
the stock section of USA Today and many major
newspapers, and as ProAssurance in The Wall
Street Journal. We also post the price of our
stock on our website, www.ProAssurance.com.
Our Transfer Agent is Mellon Investor Services,
LLC. You may phone them at (800) 851-4218,
and you may access their website at www.
melloninvestor.com. If you hold shares in certifi-
cate form, you may learn more about your share-
holdings by using Mellon Investor Services’
dedicated website, https://vault.melloninvestor.
com/isd/. This website will allow you to verify
your shareholdings and report address changes.
You also may report address changes by mail by
writing to:
Mellon Investor Services, LLC
P. O. Box 3338
South Hackensack, NJ 07606-1916
If you have a certificate to transfer, you should
obtain forms and instructions from Mellon
Designed by Curran & Connors, Inc. / www.curran-connors.com
Investor Services by phone or through their
website. Send the certificate(s) and required
form by insured, registered mail to:
www.ProAssurance.com. If you prefer, you may
request the same information by mail or phone
by contacting:
Mellon Investor Services, LLC
Stock Transfer Department
P. O. Box 3312
South Hackensack, NJ 07606-1912
If you need to report lost or stolen stock certifi-
cates, please phone (800) 851-4218 or send a
registered letter to:
Mellon Investor Services, LLC
Estoppel Department
P. O. Box 3317
South Hackensack, NJ 07606-1917
How to learn about our
Corporate Governance
We post detailed information in the Corpo-
rate Governance section of our website,
www.ProAssurance.com. If you prefer, you may
request the information by mail or phone.
How to obtain financial information
We post detailed financial information, and
maintain archives of that information, along
with prior presentations and conference calls
on the Investor Relations section of our website,
Frank B. O’Neil
Senior Vice President, Corporate
Communications & Investor Relations
Investor@ProAssurance.com
(205) 877-4461
How to contact us
You may write to us at:
ProAssurance Corporation
P. O. Box 590009
Birmingham, AL 35259-0009
We also can be reached by phone, fax or through
our website:
Phone: (205) 877-4400 • (800) 282-6242
Fax: (205) 802-4799
www.ProAssurance.com
Annual Meeting
The 2004 Annual Meeting is scheduled for
10:30 a.m. on May 19, 2004 at the Harbert Center,
2019 4th Avenue North, Birmingham, AL.
ProAssurance’s Professional Liability advertising
focuses on our financial strength and market leadership.
100 Brookwood Place, Birmingham, Alabama 35209
205-877-4400 800-282-6242
www.ProAssurance.com