Third Avenue: “ProAssurance (PRA)’s Risk-Return Profile was Highly Attractive”

Third Avenue Management, an investment management firm, published its “Small-Cap Value Fund” fourth quarter 2020 investor letter – a copy of which can be downloaded here. A return of 24.04% was recorded by the fund in the fourth quarter of 2020, below its Russell 2000 Value benchmark that delivered a 33.36% return. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Third Avenue Management, in their Q4 2020 investor letter, mentioned ProAssurance Corporation (NYSE: PRA) and emphasized their views on the company. ProAssurance Corporation is a Birmingham, Alabama-based insurance company that currently has a $1.5 billion market capitalization. Since the beginning of the year, PRA delivered a 49.75% return, while its 12-month gains are also up by 6.39%. As of March 29, 2021, the stock closed at $26.64 per share.

Here is what Third Avenue Management has to say about ProAssurance Corporation in their Q4 2020 investor letter:

“Fund Management added a new investment in ProAssurance Corporation to the portfolio during the quarter. ProAssurance is a casualty insurer whose primary focus is health care professional liability insurance. It is the third-largest company in the industry, behind Berkshire Hathaway and The Doctors Company. ProAssurance came to our attention in the fourth quarter after its shares reached historically-low valuation levels. When the Fund initiated the investment, the company’s price-tobook value was close to 50% vs a long-term average of 150%.

The investment was attractive for a number of reasons. First, it is an important industry. Medical professionals need insurance
protection in order to practice. Second, the balance sheet was strong and management has shown a willingness to share capital
with shareholders. We specifically screen for unconventional capital allocation behavior. ProAssurance’s track record of not only repurchasing shares when its share price is discounted, but also paying special dividends when its valuation is rich was highly appealing to us. Third, industry pricing is currently soft. ProAssurance was one of the first companies to recognize the trend and has been methodically reducing exposures where appropriate. In our experience, when companies strategically decide to get smaller in order to get better, good things typically happen in time. This is particularly important in an industry where underwriting mistakes take time to reveal themselves. Finally, if the massive fiscal and monetary stimulus currently being injected into the economy results in higher inflation, a jump in interest rates would improve ProAssurance’s profitability and returns on equity, which would help close the book value discount embedded in the current share price.

ProAssurance continues to reposition its operations. It will need better industry pricing for the company to regain its historical
valuation levels. Given the balance sheet and the deeply discounted price, the risk-return profile was highly attractive.”


Our calculations show that ProAssurance Corporation (NYSE: PRA) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, ProAssurance Corporation was in 16 hedge fund portfolios. PRA delivered a decent 50.17% return in the past 3 months.