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Operator
I'd like to remind you that the call is being recorded, and there will be a time for questions after the conclusion of the prepared remarks. Now I'll turn the call over to Frank O'Neill. Please go ahead.
Frank O'Neill
Good morning, everyone. We reported on fourth quarter results in a news release issued February 27, 2024, and in our report on Form 10-K, which was also filed yesterday on February 27, 2024. Included in those documents were cautionary statements about significant risks, uncertainties, and other factors that are out of the company's control and could affect ProAssurance's business and alter expected results. Please review those statements. This morning, our management team will be discussing selected aspects of the quarterly results on this call, and investors should review the filing on Form 10-K and accompanying press releases for full and complete information. We expect to make statements on this call dealing with projections, estimates, and expectations, and we explicitly identify these as forward-looking statements within the meaning of the U.S. federal securities law and subject to applicable safe harbor protections. The content of this call is accurate only on February 28, 2024. Except as required by law or regulation, pro-assurance will not undertake an expressly disclaimed any obligation to update or alter information disclosed as part of these forward-looking statements. Our management team also expects to reference non-GAAP items during today's call. The company's recent news release provides a reconciliation of these non-GAAP numbers to their GAAP counterparts. On the call with me today will be Ned Rand, President and CEO, Dana Hendricks, the Chief Financial Officer, Also joining today are executive leadership team members Rob Francis, Kevin Shook, and Karen Murphy. Now I'm going to turn the call over to Ned.
Ned Rand
Thank you, Frank, and good morning, everyone. I want to address the headline number up front. Our per share operating loss was five cents in the quarter, primarily reflecting the continuation of significant increases in losses in our workers' compensation book of business. The results are disappointing. but are a direct result of our commitment to protecting our balance sheet and our insurance. ProAssurance remains committed to a long-term strategy that we believe will ultimately create sustained profitability. At the same time, we have to recognize the headwinds presented by the current difficult market conditions and a very challenging litigation climate. Our experience has shown us that responding with pricing actions and a focus on underwriting discipline while adapting to the evolution of our target markets, will propel us on a positive trajectory. While we remain confident that the strategies we have implemented will return pro assurance to acceptable levels of profitability, we have to acknowledge that it is taking longer than we anticipated. The reality on the ground today is a lost environment that continues to worsen and has prevented us from making as much progress as we would like. Our financial performance, unfortunately, masks the tremendous progress we have made within our organization to streamline operations, refocus our business, and make the organization more cohesive and effective. We remain confident this progress will make a difference over time. The competitive environment in both our specialty P&C and workers' compensation insurance segments continues to present a challenge. However, in both lines of business, we saw gains in new business that we believe to be well-priced. while renewal retention remains strong. Our operating decisions in light of competitive pressures resulted in an overall drop in gross premiums. A substantial amount of lost business was the result of our disciplined underwriting, our pursuit of rate adequacy, and our decisions to walk away from business that could not be written profitably. The new business we do write and the policies we renew are at rates we believe will ultimately perform better than the business we are non-renewing. When we add or retain business at these rates, it confirms our ability to present the market with an option to select high-quality coverage and superior service, both attributes which have been the bedrock of our profitability in the past and we believe will be so in the future. Now I want to make some general comments regarding our operating segments. First, specialty P&C, where social and medical inflation continue to drive judgments and settlements higher, and we're reflecting that in our underwriting, pricing, and reserving. Given the substantial deterioration in the litigation climate in recent years, our drive for additional rate will continue for the foreseeable future. In workers' compensation, we continue to be cautious about claims costs as the trends noted last quarter are unabated. Despite the fact that we are seeing continued reductions in claim frequency, the average medical cost per claim continues to rise as we see the dual effects of wage inflation for healthcare workers and increasing costs tied to the introduction of new medical treatments and technologies. We believe we are ahead of the industry in recognizing these trends because of the short-tailed nature of our book. As a reminder, we close cases approximately 40% faster than the industry, leaving us with fewer open claims at any one time compared to other companies in this line of business. And in our industry, the longer a claim is open, the more costly it becomes. which is why we focus on getting injured workers back to productivity as quickly as possible through early intervention and in-depth case management. Frank?
Frank O'Neill
Thank you, Dan. We'll next go to Dana, who will review some specific segment results and provide highlights from the balance sheet and investment returns. Dana?
Dan
Thanks, Frank. Our operating loss in the quarter was $2.5 million, or 5 cents, per diluted share. with the difference between net income of $6 million and the operating loss primarily reflecting the exclusion of $11 million of net investment gains, $5 million resulting from the sale of our remaining ownership interest in an entity associated with our Lloyd syndicate, and $3.5 million of foreign currency exchange losses. In terms of underwriting results, our consolidated combined ratio rose almost eight points compared to the fourth quarter of 2022, with results in the workers' compensation insurance segment being the primary driver of that increase. While our consolidated expense ratio was higher than the fourth quarter of last year, this was largely driven by current quarter adjustment to our full year estimate of ULAE in our specialty PNC segment, which unfavorably impacted our consolidated expense ratio by almost two points and had an equal and offsetting favorable impact to our consolidated loss ratio. The remaining increase in our consolidated expense ratio primarily reflected the pressure of lower earned premium, which we expect to continue into 2024 as we maintain our drive for higher rates. Turning now to our operating segments, in specialty P&C, premiums were $15 million less than fourth quarter last year, with about $8 million of the reduction driven by our focus on getting adequate rates for the risks we're underwriting and walking away when we cannot do so. and the remaining difference being due to timing differences. Even as we are focused on rate adequacy, we are able to write new business and renew policies that meet our underwriting standards. New business was $18 million, essentially double last year's fourth quarter, and renewal pricing was 6% higher with premium retention at 83%. Those results tell us that insureds find value in ProAssurance and are willing to pay for the insurance promises we make and the service we deliver. In our workers' compensation insurance segment, gross written premiums decreased $800,000. That decline was primarily the result of lower renewal and audit premium in our alternative market business ceded to the segregated portfolio sale reinsurance segment. In our traditional book, new business writings and renewal premiums each increased approximately $1 million compared to last year. Retention was 85%, 11 points higher than the fourth quarter last year. At the same time, renewal rates declined 3% as we continue to see intense competition and face rate pressure from prescribed state loss cost adjustments. In fact, some states have approved additional loss cost decreases for 2024, which flies in the face of the loss cost trends we're seeing. In response to the loss trends in our workers' compensation book, we increased our full-year current accident-year loss ratio to 81%. Underwriting expenses in our workers' compensation segment were essentially unchanged from last year's fourth quarter. However, the underwriting expense ratio increased four points, primarily reflecting lower net premiums earned. Our investment results continue to be a highlight as net investment income increased by almost $5 million to $34 million due to higher average book yields as we continue to reinvest at higher rates as securities within our portfolio mature. New purchase yields in the quarter were 5.2% or 200 basis points higher than our average book yield. Our average investment balances are down approximately 1.7% since the end of last year as we've reduced the rate of reinvestment in order to provide more cash for operating needs. Book value per share at year end was $21.82, up 7% from the end of last year, driven by after tax, unrealized holding gains of $88 million on our fixed maturity portfolio. That said, there is still approximately $4 per share of embedded unrealized holding losses in book value per share, which will accrete back to book value as the portfolio matures as we have both the intent and ability to hold until maturity. And before I conclude, there are a couple of items I'd like to highlight. First, on November 15th, we refinanced our $250 million senior notes with a $125 million draw on our revolver and a $125 million term loan. Additionally, we entered into two interest rate swaps that were effective December 29th, which results in a total interest rate on the revolver and term loan a 5.3% and 5.5% respectively going into 2024 as compared to the 5.3% interest on our retired senior note. We're very pleased with the result of this refinance given the current lending environment. Second, in our call last quarter, we mentioned that we would be ending our participation at Lloyd's beginning with the 2024 underwriting year. That's done, and we will begin to see that impact in our financial results in the second quarter of 2024 due to the quarter lag. As a reminder, the results from our participation in open underwriting years prior to 2024 will continue to earn out pro rata over the remaining policy periods. And as I mentioned earlier, we completed the sale of our interest in an entity associated with our Lloyd syndicates prior to year end.
Frank O'Neill
Thank you, Dana. Ned, I think you wanted to make one more comment before we open it for questions.
Ned Rand
Yeah, thanks, Frank. Before we open it for questions, I want to congratulate Dr. Ross Taubman, who leads our small business unit. Ross is retiring, and I want to thank him publicly for the work he's done for our company and for our insurers. His leadership in our podiatric business and in the realignment of our small business unit has been invaluable. Thank you, Ross.
Frank O'Neill
Thank you, Niv. And Alex, that concludes our prepared remarks. We are ready for questions if you'll open the lines.
Operator
Thank you. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad. If you'd like to remove your question, you may press star followed by two. Our first question for today comes from Matt Carlessi of JMP. Your line is now open. Please go ahead.
Matt Carlessi
Hey, thanks. Good morning. More than that. Hey, Ned, I caught your comments on workers' comp basically stating that you guys feel you're ahead of the industry with kind of the view you're taking on severity specifically. Is there anything else that we should think about playing into that? I know you have a more kind of healthcare-focused book there than maybe the industry at large. Are you seeing anything that would lead you to believe that might be part of it or not?
Ned Rand
or or is that not and it's really 100 kind of you know shorter tail and maybe seeing it first yeah it's a great question that we do we do have you know a large healthcare book but it's not the dominant piece of of the work comp book um and when we look across um the different business classes that we write we really don't find any single business class where this is kind of more predominant we really see it spread across the entire
Matt Carlessi
book of business so so yeah I think it is more a general general view of the industry as opposed to anything specific to a business class okay perfect and then on specialty PNC you know as we think about you know some of the top line metrics a couple questions one is just I noticed kind of hospitals and facilities had a nice return to growth if you just talk a little bit about kind of what you're seeing there I know you've worked for a couple years to kind of turn that book around and maybe seeing some good things. And then you mentioned a timing difference on a chunk of premiums. Can you just expand a little bit there? Just specifically, is it timing that it renewed in a prior quarter or that it will renew in a coming quarter?
Ned Rand
Yeah, so on the timing difference, I'll answer that one, Ruth, because it's a little bit of both. But some business, the renewal just isn't taking place, and we expect it to take place in 2024. On the more specific question around the hospital business, I'm going to let Rob answer that question.
Ruth
Sure. Hi, this is Rob. So it's really a little bit of a mixed bag on the hospital and facility side. The hospital business, we think, is the prices are increasing some, but not really enough. We were fortunate that we are seeing enough submissions that We were fortunate enough to hit on a couple of good ones, particularly in the fourth quarter that really met our underwriting criteria that we thought that the market wasn't recognizing appropriately. On the other hand, we have missed on a far greater number of opportunities in the hospital market simply because our pricing is higher than even the renewal pricing, which is increasing a little bit from the incumbent carrier's Additionally, in some of our high-level excess business, we've come off quite a number of towers just because we believe that the high-level excess pricing is not adequate either. So it's a little bit of a mixed bag.
Matt Carlessi
That's helpful. And one last one, if I could, just on share repurchases and kind of your appetite currently. You've been active. We can see that in the numbers. But as we look forward to 24, if I'm doing my math right, the stock's at about 45% of ex-AOCI book value today. you know, your premiums of surplus are less than one, you know, kind of out of the backdrop, can you just give us kind of your view on, you know, how aggressive we should expect you to be there?
Ned Rand
I'm sorry, can you repeat the question?
Matt Carlessi
Yeah, just outlook for repurchase activity given, you know, trading less than half of book value XAOCI and premiums of surplus below one.
Ned Rand
Yeah, sure. Thank you. Sorry. Yeah, it's something we'll continue to look at subject to kind of capitalization levels and liquidity levels.
Matt Carlessi
Okay. Thanks for the answers. Appreciate it.
Operator
Thank you. Our next question comes from Bob Farnham of Jani. Your line is now open. Please go ahead.
Bob Farnham
Hey there. Good morning. I've got a question for Ned and a question for Kevin. Just start off with the Ned one. So I'm looking at your kind of targeted ROE. You're looking at, what, 700 basis points above the 10-year treasury. I'm curious what, based on your investment income profile, what type of combined ratio do you need to get down to to be able to generate that type of return?
Ned Rand
Yeah, I believe it's around a 97 combined to get that.
Bob Farnham
Okay. Okay. And, Kevin, you know, the – so I'm curious about the impact of fee schedules. You know, I think each state has different fee schedules. So I'm just curious if there are different states that have worse inflationary trends than others. I know Matt was asking about different types of classes. I'm just thinking more state geographies. Are there any differences in terms of inflationary by state?
Kevin
There is, Bob. So in our 19 core states, 16 of them have fee schedules. Three of them are usual and customary. And I will say that fee schedules are complicated. There's exemptions for certain procedures. There's exemptions for traumatic injuries and increases are different by state. But for example, Pennsylvania in 2023 was up 6%. And I recently read a study that looked at the last three years versus the prior three years and fee schedules in general have almost doubled, you know, from 19 to 22 compared to that prior period. It is hard to get a specific figure to say this is what the fee schedules went up because of all the exemptions, but that is what we're seeing.
Bob Farnham
How frequently are the fee schedules kind of updated or revised?
Kevin
Most of them are updated annually, but there are certain states where it's updated every couple of years.
Bob Farnham
Okay. All right. And in terms of, I'm just looking at the background in the workers' comp space. I mean, you had like a 116 or so combined ratio, accent year combined ratio, and you've got rates going down. So I'm just curious, like the new business that you're putting on, what level profitability are you expecting from the new business coming on?
Kevin
You know, interestingly, with everything that's going on in the other lines, you know, there's not a lot of shopping of the comp. So the stuff that we are seeing is perfect for our service model, and we are able to get rate. And our new business over the last 18 months has performed at a much better level than our renewal book, which I think has been very interesting.
Bob Farnham
Okay, so you would expect that the kind of the 116 action year combined ratio to improve going forward based on the new business that seems to be priced better?
Kevin
Is that fair? If we continue to see a higher proportion of new business and it performs as it historically has, I think that that is a reasonable conclusion. Okay.
Bob Farnham
All right, guys, thanks.
Operator
Thanks, Bob. Thank you. Our next question comes from Maxwell Fritcher of Truer Securities. Your line is now open. Please go ahead.
Bob
Hi, good morning. I'm calling in from Mark Hughes. I just have one question. I was wondering how much more are you going to push pricing in this physician's business?
Ned Rand
I'm sorry, just to make sure I heard the question. How much more are we going to push pricing in the physician business? Maxwell, is that the question? Yes.
Bob
Yes, okay.
Ned Rand
Yeah, no, yeah, as we, I think, said in our comments earlier, you know, we will continue to drive rate, and we think there is a need to drive rate across all of the medical professional liability book of business. On the physician side, it's probably more state specific than the specialty. health care book that we have. And so there are some states where we feel like we're getting adequate rate or modest increases are needed to keep up with severity trends. And there are other states where we think a lot more rate up into the double digits is still required.
Bob
That's helpful. Thank you.
Operator
Thank you. As a reminder, if you would like to ask a question, that's followed by one on your telephone keypad. Our next question comes from Adam Hirsch of Jumana Capital. Your line is now open. Please go ahead.
Adam Hirsch
Hi, good morning. Can you address how your corporate OPEX is up 14% in the quarter while premiums are down? And then also, what is your big plan to close the large gap to book value?
Ned Rand
So on the OPEX expense, I'm going to let then I kind of address what's going on there, that there's a number of moving parts, I think, associated with that. Your second question, closing the gap on where we're trading relative to book value, is that what you have? Yes, sir. Okay, thank you. Yeah, so, you know, the return to positive operating ROE and getting back to our target levels of operating ROE are what are going to drive When you look at the insurance industry as a whole, it tends to trade on book value relative to return on equity. And so driving return on equity forward will propel that multiple forward over time. So that's really the driver within the insurance industry. And that's our focus is that return to profitability, return to positive ROE, which will then impact where we trade relative to book value. Dana, do you have an answer on the operating expense question?
Dan
Yeah, Adam, in looking at the numbers, I think you quoted a much larger increase than what we're showing certainly in our press release. Quarter over quarter, we're about $1 million up on corporate operating expenses. And that's really largely due to some compensation-related costs just with filling some open headcount largely. So, is there a further question?
Adam Hirsch
Okay, so you do, no, I mean, I just see that it's up 14% year-over-year. Okay, I thought I heard you say a different number. No, ma'am, I was just curious if there's a reason why you have to expand headcount with how business is going right now.
Dan
No, no, no, no. No, we're not expanding headcount. Some of the metrics that you see in there are just about filling open headcounts that was open. We've certainly in recent years and as late as the year in 2022 had more open positions coming out of coming out of coded than than we've had this year okay great thank you thank you at this time we currently have no further questions so i'll hand back to frank o'neill for any further remarks
Frank O'Neill
Thank you, Alex. And that concludes our call for today. Co-assurance management team will be back with you when we report first quarter results. Thank you.
Operator
Thank you for joining today's call. You may now disconnect your lines.
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