ProAssurance Corporation

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

Good morning, everyone. ProAssurance issued its news release, investor presentation, and report on Form 10-Q on third quarter results yesterday, November 7th, 2024. 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 An investor 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 protections. The content of this call is accurate only on November 8th, and except as required by law or regulation, Pro Assurance will not undertake and expressly disclaims any obligation 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 are executive leadership team members Rob Francis, Kevin Shook, and Karen Murphy. Now I'll turn the call over to Ned.

Thank you, and I'd like to start by welcoming everyone to our call. Yesterday, we reported operating earnings for the third quarter of $17.3 million, or 34 cents per share, reflecting the 99.5% combined ratio for our specialty P&C segment, which is predominantly made up of our medical professional liability business. The segment's combined ratio benefited from 10.5 points of favorable prior accident year reserve development as we saw claims close favorably relative to our expectations for accident years 2018 and prior in the ProAssurance legacy business, as well as for accident year 2021 for our NorCal book. In addition, the current accident year net loss ratio improved by almost one point from last year, but that gives only a glimpse of the progress we're making. Since 2019, the accident year loss and LAE ratio has improved more than 20 points, reflecting the impact of the re-underwriting efforts and renewal premium increases we have obtained, plus the benefits of other strategic initiatives. We're pleased to be seeing actions we have taken over the past several years generate positive outcomes. As we previously noted, about five years ago, we recognized and began responding to rising medical professional liability severity, driven by social inflation and eroding tort reforms that were affecting the loss environment. We believe we have stayed ahead of many in the space in achieving rate levels in NPL that outpace severity trends that continue to be challenging. We also continue to forego renewal and new business opportunities that we believe do not meet our expectation of rate adequacy in the current loss environment. Since 2018, we have increased renewal premiums within our NPL lines of business by over 65% cumulatively, with renewal premium increases this quarter of 14%, for our standard business and 18% for our specialty business. We are encouraged that retention of existing insureds remained a solid 84% in the quarter, with strong retention of the more profitable small to midsize accounts, reinforcing our relevance in the market. New business continues to be impacted by our focus on rate adequacy and was below last year at $8 million. Along with our pricing actions, we remain intently focused on disciplined underwriting, and managing claims to address market conditions. Innovation tools also continue to enhance our risk selection, pricing decisions, and workflows. Work is ongoing to maximize the use of predictive analytics to leverage our extensive data and to identify geographic markets and specialty subsectors where there are opportunities to write business that we believe will meet our profitability objectives. We're also committed to ensuring that our insured and distribution partners find us easy to do business with. helping distinguish us in the marketplace. In the next six weeks, we'll be launching a new web portal on an AI-ready platform that delivers a variety of enhanced self-service options for policyholders and agents, such as real-time credentialing. Next year, workflows across the group will be enhanced by using the new system functionality, and we'll start revising forms and manuals to improve engagement and efficiency. Turning to our workers' compensation segment, we continue to observe and to address the higher medical loss trends that we initially saw in mid-2023, although they have begun to moderate this year. In addition, we believe our focus on operational discipline is having a positive impact. For the quarter, the segment's current accident year loss ratio was about four points below the four-year 2023 ratio, and it was six points below last year's third quarter. We continue to carefully manage our underwriting appetite as we work to obtain the necessary rate, with net written premiums up only $2 million due to higher audit premiums. New business was below last year at $3 million. We also continue to leverage our investment in a new integrated policy claims risk management and billing system implemented earlier in 2024. Not only is that system working well, it is paving the way for innovation initiatives that will help us address the challenging market conditions where we will be using AI along with underwriting and claims data analytics to enhance profitability, productivity, and efficiency. Last quarter, I mentioned one innovation project, our partnership with workers' comp claims specialist Clara Analytics. Clara is ramping up with our systems and will be on board this quarter to help us enhance medical outcomes for injured workers, improve our case reserve estimation capabilities, and lighten the administrative burdens of our claims professionals. We will be leveraging their platform to address aspects of escalating medical costs, including the medical document intelligence platform that will assist us with directing care to the best performing providers. and their tool to help identify high-severity claims early in the claims lifecycle. And that's just one example of what's underway in this segment. We're also making innovation investments in proprietary underwriting tools that expand the use of data analytics to guide and support operational decisions, improving penetration in a more profitable small account market segment. Across the organization, our attention remains intently focused on our long-term objectives and the results that we need to achieve. We are pleased with our progress this quarter, and we are continuing 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. We will not compromise to achieve a short-term fix at the expense of protecting our balance sheet and our insureds over the long term. Our long history in both medical professional liability and workers' compensation has taught us that these cyclical lines will respond to our focused efforts, as demonstrated this quarter. We remain confident in our ability to ultimately achieve sustained underwriting profitability in both businesses, despite market headwinds. We know that maintaining our discipline is a 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?