ProAssurance Corporation

Good morning everyone. Welcome to Pro Assurances conference call to discuss the company's second quarter 2024 results. I would like to remind you that the call is being recorded and there will be time for questions after the conclusion of the prepared remarks. Now I will turn the call over to Heather Wetzel to begin. Heather, please go ahead.

Good morning everyone. ProAssurance issued its news release, investor presentation, and report on Form 10Q on second quarter results yesterday, August 8th. Included in those documents were cautionary statements about the 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 discuss selected aspects of the results on this call, and investors should review the 10Q and news release for full and complete information. We expect to make statements on this call dealing with projections, estimates, and expectations, and explicitly identify these as forward-looking statements within the meaning of the U.S. Federal Securities Law and subject to applicable safe harbor protection. The content of this call is accurate only on August 9, 2024, and except as required by law or regulation, Pro Assurance will not undertake and expressly disclaim any obligation to update or alter information disclosed as part of these forward-looking statements. We also expect 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 are Ned Rand, President and CEO, and Dana Hendricks, Chief Financial Officer. Also joining on the call today are executive leadership team members, Rob Francis, Kevin Shook, and Karen Murphy. Now I will turn the call over to Ned.

Thank you. And I'd like to start by welcoming everyone to our call. We reported operating earnings in the second quarter of 23 cents per share, benefiting from a 16% increase in net investment income as we continue to take advantage of the higher interest rate environment. Our underwriting results, particularly in the specialty P&C segment, which includes our medical professional liability line of business, are beginning to reflect our actions to achieve long-term sustained profitability in the face of market conditions that remain challenging. Looking first at specialty P&C, the net loss ratio for the quarter improved both sequentially and year over year. Compared with last year, the current accident year loss ratio improved by 1.4 points with a higher level of favorable prior year reserve releases, also contributing to the two-point improvement in the net loss ratio. For some time, we have recognized and responded to the challenging medical professional liability loss environment. While frequency remains fairly flat, social inflation and eroding tort reforms are driving rising severity. We believe we are ahead of many in the space in achieving rate levels in NPL that outpace severity trends, even as we remain intently focused on segments within healthcare where there are opportunities to write business profitably. Since 2018, we have increased renewal premiums within our NPL lines of business by over 65% cumulatively, with this quarter's renewal pricing increases averaging 9%, driven by 10% for our standard business, and 12% for our specialty business. We also continue to forego renewal and new business opportunities that we believe do not meet our expectations of rate adequacy in the current loss environment. New business was below last year at $5 million. As a result, net written premiums for specialty P&C were flat, although retention of existing insureds remained a solid 84%. In parallel with our pricing actions, We are focused on discipline underwriting and managing claims to address market conditions. We are moving steadily forward with our use of innovation tools to improve risk selection, enhance pricing decisions, and improve workflows, while also focusing on ease of doing business for our insured and distribution partners. We are leveraging our extensive data on this market with predictive analytics, which is helping us in those markets and subsectors where there are opportunities to write business profitably. For example, these tools help us consider a variety of factors, including specialty and venue severity, when establishing our underwriting appetite. We're pleased to be seeing improved retention in the more profitable small to midsize accounts as a part of this effort. Turning to our workers' compensation segment, we are aggressively working to address the impact of higher loss trends related to rising medical costs per claim that we began to see in mid 2023. For the quarter, the segment's current accident year loss ratio was about four points below the full year 2023 ratio, although still above last year's second quarter. We believe our caution in the current claims environment and focus on operational discipline is having a positive impact. Further, our underwriting appetite remains intentionally cautious until we can obtain the necessary rate reflected in gross written premiums down 3%, with new business below last year at $5 million. We have seen the average cost per claim improve slightly from the elevated levels initially seen in the second half of 2023. Reported claim frequency continues to trend below historical levels, although still reflecting the impact of higher average medical costs per claim and the growing influence of vertically integrated medical systems. There is no change in prior accident year reserves for this segment in the second quarter. We are preparing to introduce tools that will help to address the challenging market conditions by using AI along with underwriting and claims data analytics to enhance profitability, productivity, and efficiency. Most recently, we entered into an agreement with Clara Analytics, a leading AI service provider with extensive workers' comp industry experience, to help us enhance medical outcomes for injured workers improve our case reserve estimation capabilities, and lighten the administrative burdens for our claims professionals. We will be leveraging their platform to address various aspects of escalating medical costs, including their medical document intelligence platform that helps direct care to the best performing providers, and their tool to help identify high severity claims early in the claims lifecycle. These new capabilities are leveraging the integrated policy, claims, risk management, and billing systems that we put in place in this segment at the beginning of 2024. We expect Clara to be contributing to our processes in the fourth quarter of 2024. As I said last quarter, our long history in both medical professional liability and workers' compensation has taught us that these cyclical lines will respond to our focused efforts. We remain confident in our ability to ultimately achieve underwriting profitability in both businesses despite current market conditions. but are a headwind keeping us from achieving our goals as quickly as we would like. We continue to choose to shrink our book in some markets while we wait for conditions to improve so that we can then turn our focus to growth. But we will not compromise to achieve a short-term fix at the expense of protecting our balance sheet and our insurance over the long term. We know that maintaining our discipline will be key to delivering positive long-term results. I think you'll see more signs of our progress as Dana looks further into the results. Dana?