PRA - Earnings call transcript Q2 2021 | ProAssurance Corporation

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Operator

Good morning, everyone, and welcome to ProAssurance’s Conference Call to discuss the Company’s Second Quarter 2021 Results. These results are reported in a news release issued on August 5, 2021. Please review that document. Management expects to make statements on this call dealing with projections, estimates and expectations and explicitly identifies these as forward-looking statements within the meaning of the U.S. federal securities laws and subject to applicable safe harbor protections. disclaims call as only regulation, as required not and this XXXX, August ProAssurance part of update undertake except to statements. and by expressly of content the is information on accurate X, will or forward-looking The alter obligations disclosed any law or expects of items reference during today’s The management to team call. ProAssurance also non-GAAP The their GAAP to these non-GAAP company’s numbers recent news release provides a reconciliation of counterparts.

call remind is call Mr. recorded, Ken I you Now, that be I to the of the will questions turn the there McEwen, prepared as for remarks. at being ahead. conclusion would and McEwen, time Mr. like a go please the

Ken McEwen

Officer; and yours. and our we morning, President the Workers’ Dana Kevin Rand, Lines; Mike Thank On our Ned, floor of is Financial and of CEO; good our Specialty Boguski, have you, Casualty Shook, President Property Ned Compensation call today, President and Operations. Sean, Chief Insurance everyone. Hendricks,

Ned Rand

truly off Ken. thank start Thanks, the many with everyone May and We quarter to great our as exciting been fronts, we want early through to closed results. ProAssurance. on expand thanks a halfway transaction reporting our their financial the organization you teams platform. is I model report This value X, on NORCAL its an national period, efforts. has to integration a NORCAL proving on this job the newly getting plan to morning roughly did our We’ve at of ready a progress everything excellent combined our made and to already operating

off and a the the closing beginning. transformative ProAssurance for transaction to in NORCAL strong yesterday, was As said release a I combined companies are event the

am past by uncertain the hear over Mike as and colleagues team beginning to results place, to court has changes office an succeed the had we’ve NORCAL civil we forward. spite that encouraged to of and an will continuing In through, healthcare workplaces we second very strategic our systems environment. especially add and work environment I the the return and the right navigate our remain move due you We in in effects from on Kevin, years confident uncertainties, both have the pandemic show to are we the these quarter. made as as I’m in from two As to of

the us Now, for into lead to the I’d so Dana? like can turn to over the call results she quarter. Dana,

Dana Hendricks

in in Thanks, question the to important to answer NORCAL But item it’s how was, quarter? noise excluding the was it did of think the get most I The quarter. Ned. of, short, a the and a In course, from that do acquisition we’ll the impactful good moment. quarter, first, this we transaction,

of We that then we expected improvement and adverse events period, booked by the improvement year-over-year significant ago saw year and just the some. in nature

Our show with turned solid Specialty a P&C an excellent gains, improvement in to strong little growth. and Lloyd’s at $X million. retention rate over continues business top line result

last in year. marketplace, Our Portfolio both expense ratios completed with the from very Workers’ Sale benefiting businesses their a Insurance Segregated Reinsurance produced income underwriting challenging restructuring and Compensation

as driven quarter incremental a market excellent steady investments lag. drive our the strategies the typically Finally, improvement. LLCs, investments that solid increase we we result saw LPs reported All returns Recall, and quarter. a from told, in on first execute in continue are those to by

results Now for the for the quarter.

these of one-time income new contributed gain share, the on a impacts related by and of per results, We XX% NORCAL NORCAL’s LP in of partially of million underwriting my again, our performance NORCAL non-indicative by Specialty effects million business I’ll quarter of a our are filing $X.XX second those of operating reporting. how this primarily into regular operating net quarter diluted LLC and transaction-related as will from which improvement or provide $XX.X operations, meaningful in our look and they are driven today. strong we of At or contributed the income or profitability and million offset share, portfolio be segments certain gross excluded core to XX-Q great and driven We nearly items acquisition, earnings by before costs. from address $XX.X transaction unique $X.XX the All $XX.X well from of year-over-year throughout to our $XX.X the quarter segments. and the driven million exactly will reported the non-GAAP premiums unusual purchase increased remarks in reported as accounting. consolidated in Because Monday, operating nature on to bargain the per to P&C addition million level, quarter. written Consolidated our premium results. $XX year-over-year, by of investment our segment written pre-tax

associated of quarter a with the ratio Our in effect significant XX.X%, events to P&C. accident points, was consolidated attributable second current improvement in last Specialty net year-over-year the adverse year loss of losses primarily of year XX.X

on $XX.X More our improvement segment, the importantly, favorable the accounting P&C also included million amortization $X.X which recognized the assumed driven continued to development that net the in current purchase of efforts. the Specialty related million of We value quarter, NORCAL’s of benefits reflects fair reunderwriting largely reserve. adjustment by

of quarter pre-tax our acquisition in underwriting transaction the XX.X%, driven expense the ratio Our costs by NORCAL. associated consolidated with to increased

impact quarter Excluding of costs, purchase accounting transaction XX.X%, the but the expense included continued adjustments. efforts, ratio restructuring the in the of was reflecting certain also impact those

capitalized of a date. wrote NORCAL’s purchase asset on we part As acquisition off the accounting, DPAC

a from amortized driven LPs than would results our our affecting various our our capitalized and unconsolidated a to Form we and XX-Q, Consolidated discussed. net due was ago conclude approximately acquisition. As From the such ratio results yields a DPAC reporting getting only the income from results by rate. offset a securities, the for income lower the job. million result net perspective, for Ken? financial $X.X net and considered breakout from be $XX.X of million the detailed second to our over the investments provide the by our represented amortization environment. assets NORCAL short I’ll arrive which that amount and will in expenses acquisition. in investment readers additional done driven $XX.X lower quarter, the financial million of in time previously result, frame. thanking accounting from due invested expense our in down from extraordinary is in our in expense was short-term came million period, help our slightly were their low $XX.X LLCs, efforts the investment corporate team consolidated $XXX,XXX a interest as increased NORCAL in of partially to debt at NORCAL primarily current an year with quarter This to subsequently consolidated subsidiaries, decrease income investments the run normal. In year-over-year of since million, integrated by investment This by great rate was $X.X investment quarter They’ve items

Ken McEwen

Thanks, in Specialty Dana. What us improvement tell congratulations this you on Mike, results? about P&C a significant the can quarter.

Mike Boguski

NORCAL achieve the Ken. of to start integration the operating close I Specialty to results, of transaction extending continuing with operating P&C profit, of companies. start the years want two the Thanks, by over and team to an turnaround congratulations past the for the our great the to

second reunderwriting NORCAL. our since of We in ratio. the improvement accident segment’s in future business driven improvement business business been rate members the forward Most higher partners our Primarily, underwriting recorded new of and material business. the loss to address the results lines resulting rate at significant results premium quarter components. that the in and was ratio gains, by operating in all results current lower in a recorded to and all The a and improved our strategy including segment, has legacy HCPL are accomplished metrics XXXX. look events of efforts adverse for retention, team of and several the reduced certain the continued impact to year proud executed for year-over-year quarter with comprehensive was expense a We operating the and bright XXXX strengthening

a the of ratio, continued favorable development result of those within improvement current efforts. across was segment. the year benefits Also direct million recorded we in spread quarter contributing reunderwriting our evenly the lines net loss of of the profitability reserve business However, net excluding adverse HCPL relatively in even $XX.X to events, accident

current schedules. frequency a the from in accident normal ratio. aside on year XXXX loss recognizing these trends of the of due our continued has loss courts XXXX far, COVID-XX The business in operating and has our we lines observed introduced have pick frequency before long-tailed to cautious and places that continuing uncertainty the Just into into in of high nature to We degree remain conditions. in favorable as move to claims most reduction brief return trials in thus HCPL jury yet

pandemic have reserves to second made the IBNR continue in booked and been We to no activity carefully claim of quarter monitor adjustments the COVID-XX XXXX. related

line driven retention all line. necessary quarter focus in objectives. renewal delivered Furthermore, and either achieved by driven the manage increases during XX% achieved underwriting improved and average by of profit in over XX% benefited top $XX.X Gross lines long-term quarter, Physicians written growth was X.X%. remained from or business. NORCAL million. of flat million the rates to Moving the of We $XX the on segment and Premium in XX% legacy on Specialty our premiums We retention quarter, XX% this in for business to to team the our in we achieve by segment’s Healthcare. second or increased top our segment growth that the this as we XX% Standard in approximately price with by will discipline continue

our to or terms to and through Although structure, rates not in rate pricing, continue adjustments reflected product adequacy directly conditions. we strengthen

respectively. unit X% business increased business technology small and X%, achieved rate gains and Our also of liability medical

earned over restructuring, HCPL the years. $X.X year organizational written restructuring a operational The accounting and points are business of of our segment conclude, second XX.X% quarter improvement offset two our efforts. ratio for from first from management by we driven partially year expense million business Casualty the by New with quarter, quarter reunderwriting, the $X.X reported This higher the Property primarily improvements legacy quarter an million and the driven written past ago benefits costs. business. significantly increase in of To in transaction P&C an premiums, in quarter, of X.X from slight specialty for impact in the the $X.X ago prior Specialty was our results technology and expense totaled and of an pleased the Specialty – increase by million,

the excited the value of transaction extremely are future We and about the bright strategic NORCAL ahead.

national we We and all building model have quarter, on the performance economic business our well Ken? and our are enhanced future with through our on progress a sustainable on the integration cycles. and plan goal made during basis way excellent to of insurance

Ken McEwen

the and Insurance us congratulations to Portfolio segments and again well. to Segregated as those? team. the walk Mike, Kevin, Compensation report and results you Can Thanks, solid Cell you Reinsurance Workers’ had through

Kevin Shook

and of XXXX, Ken. Compensation in an in loss offset produced XX.X% of ratio year-over-year ratio The second higher the ratio. Insurance improvement to The compared in Workers’ Sure, a XXXX XX.X% in year the $X.X segment in a increase reflects ratio of million XXXX. underwriting combined the combined accident by quarter income partially expense

an loss by and in current year to accident year year calendar in its increase claims audits XXth in favorable in During pandemic territories. and economic in payrolls. in notably related segments negative was profitable the of concentrated operating restrictions impact development despite the hospitality from increase partially loss the activity year-over-year policyholder of a claim ratio, market COVID Traditional premiums reflects million small of quarter. Renewal million ratio offset Reported on months ratio booked XXXX the year XX.X% the of of restaurant, gross operation The in historically to during in base. new $XXX,XXX quarter X.X% $X.X to decreases an ratio policyholder business premium quarter pre-pandemic the segment accident XXXX final below during our unit, higher XX%. trends. second to of to increased the workers ratio $XX.X second with business increase to trend and booked quarter decreased of XXXX. in historical than was in be retention second in quarter June activity response for of to renewal claims our the book XX.X% year-over-year XXXX return with claims the in accident employment increase reported renewal with XXXX. the in Audit written, XXXX business most that the accounts construction the full year dates our year month higher Of and by closed our conditions observed in writings quarter claim XX% business business traditional $X.X pandemic and were was brings frequency higher traditional price reflects audit the claim XXXX. small the book accident quarter million million reflecting there Despite prior levels, no continues consistent full current quarter, of overall in X% claims COVID-XX small the the million $X.X XXXX of $X.X within our easing associated loss premium. in premium in The as June. for our the activity increase to loss compared our of is of XXXX, The which albeit XXXX The the the second note decrease with six continued currently fact unit, COVID XX%. ended during are We of prior

reported slight during COVID increase July. a was However, there claims in

compensation year all was renewed of broaden territories that continuation in XX.X%, current during attempts August to observed for ratio minimal Workers’ of coverage $XXX,XXX by decrease to workers’ during Re partially in Other return compared reserve and calendar programs of Re business the XXXX. with underwriting of $XXX,XXX. of underwriting and million year We all, The the workers’ XX.X% Cell in continue workers loss second due compensation available XXXX, claim but were The captive the the in trends quarter, operating a in expense monitor XX.X% XX.X% Insurance XXXX We activity initiatives very quarter of expenses combined XXXX The from XX.X%, income or XXXX decreased segment Reinsurance in was to XXXX. movement X% in impact produced up ratio were quarter higher the the Favorable net accident earned. SPC segment. competitive the were to million restructuring XX% of increased from marketplace. offset Portfolio loss renewal quarter and reflects $X.X Segregated in second segment In employment. underwriting to the both of premiums ratio XXXX. for in Compensation legislative consistent intense our $X.X approximately in XXXX the quarter. ratio price implemented a primarily to quarter. Premium in largely competition in as loss development The and SPC million the solid another Ken? to a the XXXX decrease those in $X.X the a second of

Ken McEwen

a Thanks, can results quick look before you the Kevin. Ned, at closing Lloyd’s just us give comments?

Ned Rand

Ken. to Yes. Happy do so,

participation XXXX As you know, for XX% and the XXXX underwriting year, we written reduced quarter from our The to participation from our this in that segment the XX%. XXX% reflect Syndicate premiums in XXXX change. Syndicate in to X% gross

$X.X year of of reduced result to participation, the of received improved we results reductions, period ago return a meaningfully capital Despite As million. a from the these meaningly million. $XX.X

Before exceptionally want we are I an how reiterate we get to after questions, results pleased deliver challenging to improved year. to

progress speaks can for I in from we I long-term believe accomplish our the look While half forward what have Ken? in to second year. year objectives, a itself. we pursuit still our seeing of to much the do of profit ago

Ken McEwen

Sean, concludes you, remarks. that Thank our prepared Ned.

are We questions. for ready

Operator

Paul question Thank come ahead. Please you. will go today first [Operator Newsome Piper with Instructions] Your from Sandler.

Paul Newsome

it’s has the morning. Maybe and getting if the a words environment on specialty over bit whether last malpractice other Congratulations harder? businesses, materially little competitive the Good liability quarter. or medical if on or quarter the easier changed few and not a

Ned Rand

want you take to do Mike, thanks. Paul, Great. that?

Mike Boguski

our last it our rates, Good fairly definitely product business, terms, over really, we’ve some underwrite Standard Sure, was there last Ned. In the competitive seen morning, of structure conditions. an still just remains in Thank over continued. core HCPL two that, What years you. is Physicians that’s really Paul. general, states. strengthen the to in specialty business, and and HCPL opportunity In our particularly –

the that pretty think forward that’s our slowed in pleased say interesting business across going in people with digits this, rate pricing with look and I down industry good quarter, reduction. thing that taking specialty been reduction that, I’d digits of the trends double maybe HCPL only of at a I frequency COVID, the double trends will a a say really segment. reduced in the that – and is as frequency extremely result the that’s as Standard are result the our

Ned Rand

on Mike I reduction Paul, pinch there’s because the add and of whether just also, reduction being that to. that very Mike. referred the know frequency pricing both very, frequency We court frequency of not down. don’t cautious, reduction. all a the in might because in reserving pipe the systems and slowed how of the drivers or Thanks, because of that reduction remain how we’re we’re frequency We

those remain they’re that how others being it. we maybe of a very cautious are the in say So some aggressive industry some I’d in more benefits, in recognizing potential little recognizing

Paul Newsome

probably wondering, to My And second surprise, have give that unconsolidated But piece. And The is benefit piece. might if that very to earnings prospects we about as there from strong I us the how on the could how time the of modeling, financial us that question. the hardest maybe sense piece was markets. thoughts words gives better was view some no bit I a little that think forward. that, going a some guessing you I’m

Ned Rand

confident kind probably by a elaborate earn-out. the is much And other for shows other Dana we but how that. a part, investments some It’s and the to – that backdrop how actually over that let very the perform line And a economic volatile a that earnings which Dana outsized tax two Paul, XX-Q give term, returns it those components the for to component of recognize it’s one is and can and then There’s component bit. Yes. it But longer driven the our challenge. investments, LPs us. is we we’re is very that, is reduction producing information I’ll answer that is expected credits. in to that

Dana Hendricks

Yes.

Paul, I in that to to on investments think, – component, consider what actually, I’d one us you’ve one Ned, certainly. quarter primary typically you, those they’re lag. The tell thing reported hit the on is a is

how market XXXX what’s our So, kind through quarter, really was first our be be in about have the you that’s to going quarter. come in to second thinking of to for going and of second responding the quarter

be really, that’s you it. to how about thinking So ought

tax the provide portion schedule of a anticipated we do that our terms Ned In credit mentioned, the of tax website. credits on

that sort at look a get pieces. take can component you so, as the to well two And of

Paul Newsome

think guess, And as... I

Operator

come next Please Hughes ahead. go from today with The question Mark Truist. will

Mark Hughes

Yes. you. morning. Thank Good

impacting courts the from. attorneys are think mentioned other You they be still their still they profit being can closed maybe and thing, assume I for frequency. that there trial they out cases would doing looking

get way. correct? the to That be get still in to when that notices, would logistical court Or notice You is often Is don’t you that process? going aspect court? have you some of necessarily that

Ned Rand

Yes.

may So are. sitting there. not Mark, systems litigate. settle court have off may down a them file the systems that open the mere position And If back do We in negotiating The the know being to all drivers prospect you’re what you’re necessarily be without that until that or we that’s lawyers the believe court there plaintiff want because kind probably of on waiting remain don’t total don’t to of start right. why lawsuits and fact to are up, able they to shut cautious. are the driver we where just

Mike, don’t that I know we We if And don’t is, we remain some know cautious. is add impact exactly anything you’d to impact. so that’s and there what why that? think

Mike Boguski

you. that’s no, spot No, on. Thank

Mark Hughes

trends the and double you as accelerated looks Then, both quarter, was of but it more in your out, that you related reflecting up in slowdown Is this half – probably the ground, some or physician to that some then think on specialty. pointed But decline frequency. been Mike, recently on this first like you in digits, pricing it I continuing you slowdown pricing are total? mentioned covered in

Mike Boguski

question. Good Mark. morning, Good Yes.

about results of is from have in rate to from you’re second million. and well And terrific XX this We gain is NORCAL as news. in mind produced They timeframe. XX premium benefit into – keep I $XX.X there. points One of the some added rate that things quarter, we the did X to aware, the our May June we think

helpful. was that So

years mind think I of to reunderwriting adequacy And the to year for a from candidly, first think keep that is the I thing long-term underwriting of couple slowdown rate year. profit. quarters was, and and the last get in to other think produce the couple that, can to we a been this structures was we’ve just of

second So again, year that does And slow those of state-by-state. trends, frequency down as you get the reunderwriting. is it into

are competitive being potential as state some are there from aggressive claims the reductions. claims, competitors, the pressures look resulting more we competitors So, at maybe that frequency

Mark Hughes

earlier early the -- we years, to ago, the all time Understood. distorting of claims older if the inflation in years in have an accident line were probably say you it what And to four is concern inflation some acceleration? some might fair is When is about of these with you But expected sorting was those social that XXXX at particularly, rather this. of obviously of think than three, and say back the trends. of it you what think fair kind more those in is

Mike Boguski

Yes.

state-by-state, has severity is and hanging think Ned much the and at of obviously, again, in slowdown on it’s look kind that I very results. the in XXXX stated, our systems court you X%, trend, as of there think kind just impact I and XXXX But general, that. as in around

Mark Hughes

you. Thank

Mike Boguski

Welcome.

Operator

Jeffrey The come next Dowling with Partners. ahead. will & Ransom question today from go Please

Gary Ransom

an effect questions Ransom. Is of there point unusual NORCAL. on I might you had else future? – the that in of some expenses future? Gary that that at second that there it’s or any quarters might Sorry, Are anything distort anything just a quarter booked in know might but couple the the in were have Yes, now

Ned Rand

Dana of be details well. and a you Yes. those can of detail there’ll XX-Q some kind our more on lot highlights give Dana? of Gary, some as

Dana Hendricks

sure. Yes,

we’ll that about be there that want I think the year. mentioned the policy are thinking costs, that building remarks So, acquisition as One an in about deferred you in of to is of time, particular my quarter, course I few pieces. and is you and NORCAL think will that over expense this around over opening next second impact the on component be the –

when happens corresponding about day the written time starts and the is, begins again, essentially of the one over then after capitalized acquisition is you right, amortization that So the off, building acquisition, DAC policy costs think the were at what acquisition. of

the So in us significant. the impact second was quarter very for

So benefit we the premium associated very deferred the earned acquisition with costs. had of little policy

amortization have which run So, segment it if a or you’re we at about higher consolidated would if X.X is were been rate thinking from expense, expenses for P&C full X.X DAC the by million, Specialty about $X in about perspective. points points a

amortization, So, can reach normal quarter you amortization and its acquisition that thinking deferred to in policy reaches look each that normal run the of increase about building future that run rate which rate, quarters, costs expense it at of XXXX. quarter the will expect it as you until second

I from that’s And that a on biggest missing around quarter piece of thinking basis need So for be be that of $X that’s say to future. million. to the I’d quarterly the second expect would you kind increase about sort that

Gary Ransom

time? can business? help books if top thinking bit helps this Maybe as about sells or integration? a us across maybe you be distribution should integration we go two the top there help strategically. of line you the things line Can understand over how that line And helpful. the specifically That’s and/or just bottom product you Okay. improves strategy or profitability Are understand how more either through little about us

Ned Rand

– details. maybe One, couple investment just a Mike couple from level Yes. thoughts. is of growth. that the the into I’ll get income growth premium the A we’ll see high aside let

forward. purchase we invested brought as drive earnings that help in move and So investment assets an the $X beyond will additional billion we price

bring we’ve a As combined previously, in to reduce million those efforts. the organizations $XX overall to in we or between expect spoken part of expenses integration about of excess as

to in some specifics a other do some want Mike, at to integration things the of pretty level. high So talk around to are those keep impacts? you mind

Mike Boguski

sure, you. Thank Yes, Ned.

for well our we really we’re early already close synergy will And expansion. look getting agents mean synergy structure HCPL put think meticulous the thought just it’s that the company, wins. plan revenue we’ve wins. the as a First is, there. NORCAL and and as some tremendous again, into regions, there’s of five you all, nice national and by integration us we very out that looked revenue Because customer We what and with have at wins, is to announced do opportunity integration the bringing I geographic

addition We our NORCAL, facilities. Inova or sciences products, workers’ the have of also, for our products captive life comp

there’s do really some cross fall. opportunity great of process part a big that’s planning and a So strategic our this to marketing,

over strategic we overall you the reduced from it’s pretty perspective, structure, and business, excited we’re about cycle. best-of-breed in just much nice next value But a when look that. think diverse it book us So at more plan of insurance a integration platform, we confident to talent, have feel – we’ll really to expense national that going bring some

it. about excited We’re

Gary Ransom

Thank you much. very

Operator

next with from you. come The go Thank ahead. JMP. will Carletti [Operator Instructions] Please Matt question

Matt Carletti

Hey. Thanks. Good morning.

– you circling kind question, think reduction I expecting million the in on combined of synergies. back First conversation expense say I there. heard expense just Ned, $XX about the

bit thought I just with to you Dana’s the expense I mean kind up over with saw Just of course, us build about it’s little we year. the a the number going trying that pairing in next how of help to quarter? DAC – comments, can and the

of a timing any the seeing in $XX quarter if future or to quarters? if get that’s all rough current yet you already it kind in million, trying – a on that of for if Just have we’re and feel

Ned Rand

Yes.

that be that by of driven changes make. component largest personnel the So, will we

NORCAL. first force our continue integrate the to reduction those to expect during happened next that Board the had well that one the months we of the reduced the at staffing in of would departure as And day Some continue over at We with well. most quarter, as organizations. as as senior will XX NORCAL management XX the we that

before lumpiness some Mike, it But be changes, as see we of those in be say day good just that. those years because add? you’d a actions. about expenses probably of there’ll a early of so, result anything will kind And of would two I benefit full start one we’ve but the got that

Mike Boguski

would the million just I project roughly and million, it Ned. was this, approximately $X quarter, quarter. say in the would third in second $XX Yes, we

of we to So an areas the drives wins. earlier, some also point obviously IT I – those and other have personnel are you did early consolidation think consolidation, helpful that get but that. And that, Ned’s run to types that it reinsurance at goes early

in So, news I overall the the plan publicly to stated on early number be is substantially think – the pretty we that good the will process.

Matt Carletti

it on like and start. Thanks deal Great. a for good off closed, the the and you’re color to sounds getting congrats

Mike Boguski

you. Thank

Operator

This will back McEwen I would Ken the over any conclude question-and-answer today’s turn to closing like now session. for remarks. to conference

Ken McEwen

Thank everybody Thank and joined you. stay Thank to look you again healthy, we you, you to forward in with today. Please November. safe speaking us who Sean. and

Operator

conclude will you today’s question-and-answer you conference. Thank session now And presentation. for This attending having the for today’s may disconnect.

ProAssurance (PRA) 7 Aug 212021 Q2 Earnings call transcript