Earnings call transcript Q2 2023

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Operator

Good morning, everyone, and welcome to ProAssurance's Conference Call to discuss the company's Second Quarter 2023 Results. These results were reported in a news release issued August 8, 2023, and in the company's quarterly report on Form 10-Q, which was also filed on August 8, 2023. 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, management will discuss selected aspects of the quarterly results on this call and investors should review the filing on Form 10-Q and the accompanying press release for full and complete information. 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. subject Safe and protections. Laws Securities to Harbor applicable Federal ProAssurance only call X required The alter and information regulation, these update this part statements. obligation accurate disclaims by not on any expressly or disclosed as content of or except is August to undertake and of law of as will forward-looking XXXX

their release being non-GAAP the GAAP remarks. the non-GAAP call. The today's The of management during these like I'd ProAssurance team And there questions prepared call of recent counterparts. also be provides news to items numbers that after reconciliation expects for of time to recorded to reference you will a company's conclusion remind and is

Financial will Ned the CEO, call on President and Leadership the call today today on are Murphy. Speakers Taubman, Members Shook, be Ross Also Kevin Officer. Rob Executive Karen Francis, joining Hendricks, Rand, Chief Team and and Dana

to turn I call Ned. over Now, the will

Ned Rand

and Elliott, you, good Thank morning.

some looking discussing Today, the the Dana and markets medical are seeing numbers I drivers night second professional and giving we're forward workers' in insight we last compensation and quarter the into that released liability you to

we of the I'll seeing, and provide and in a represent conditions highlight provide the market and and book both operate. consolidated which The returns investment the we're challenges results opportunities released commentary key will Dana some last night and then regarding markets drivers value. our we the results solid in quarter

the reserve have and level, expenses year albeit results in XXXX, stable improved high decline development. there's stability and the ratio in year relative investment significantly. the at prior quarter are a At than loss relative Underwriting accident to for favorable accident level prior in current been higher year a

these been quarters. in what challenging some claims expect within our that now, persistent continue, loss can The our have ratios current expect providing coming and we competitive and indication impacting for we industry of prior to time us accident year some market are and environment

background, key P&C that favorable reported underwriting I'll in our by our With the was reserve accident prior Specialty a in through adjustments. segment primarily lower results The in segments. driven walk year you result reduction

historically than has in for decade, booked considerable average development though the segment, years lower while the been in of favorable favorable experienced We recent the we quarter have past this in the development development still amount

has outstanding Our of reserves. assessment claims cautious of level the us reducing environment about the made

We monitor our handful continue severity legacy trends in jurisdictions. increased to a of

We last XX.X%, also prior Technology accident booked higher have claims. quarter, $X our year. responded reserves in from reserve the We initial business. Liability current to on development primarily up in recognized setting a slightly We net by million of Medical of ratio loss difficult reported the year favorable environment case year accident

described detail working and foreseeable The mitigate to losses on continue claims and for environment manage in that we call last us social future the with impact the of remains I quarter's diligently inflation.

Given from the the may evident instead, not be we efforts impact the our time. any over quarter, of to be a in results expect current single change environment, obvious

exceeding expectations written a X% the contributing our new line and with from from gross ago Our business by specialty to increased growth. top-line year premium

market we when the be walk and price on and cannot can, achieve the business targeted reduce E&S to is where accounts. specialty we like, strategy new in Our we and away to our limits retain opportunistic

from million very Technology a despite Consistent production increase new Liability the $X Medical were last business of business $XX environment. new at with The in strategy, up year. that million we competitive quarter, year-over-year

continue with year's, Premium us. driver on as over the point volume. of a competition to we below renewing business for last segment XX%, Price overall largest retention is focus price was the not

books. affecting leading policyholder accounts standard some retention and in the healthcare see to We the also specialty practice both to of consolidation changes loss and and levels continue

quarter, the the focus in on upon to commission, Underwriting reduces improvements, An to year in pricing continue compound contributed in the statutory ceding underwriting expenses we were increase in efficiencies consolidation. integration, continuing by expenses X% process last slightly last which segment as down expenses this Overall, decline Specialty to from X% and quarter. P&C increase. in year's systems increased and

related the a compared compared higher was there's to of costs ratio of and this quarter year, earned filled. result positions a the to Compensation prior have number of in XX.X% increased open expense been have premium lower slightly quarter XXXX. The as

for in traditional premium decreased both the business, impacting to quarter competitive segment, Insurance pricing. challenging In down the which Compensation for EBUB of helped and was increase retention decrease the pricing Turning million saw the XX% our was and renewal offset We an quarter our the a and estimate X% increased premium, with by Workers' both retention to premium written quarter. market retention and carried in gross in pricing. $X audit and renewal of

in due current accident associated increase loss business than saw in of expense. which with growth in in a our nearly quarter. the consistent the of our loss into loss flow It The approximately to compensation A of through XXXX. new costs remained XX.X% ratio loss our point higher We our department unallocated second year claims adding also of ratio headcount was higher new portion adjustment quarter this and accounts was the $X traditional QX ratio. book million

loss This compared in deductible, losses annual which reserves aggregate also million an increase to $X recognized year year booked year. last the in prior We our to to increase the an saw in favorable development under the estimated accident of no reinsurance ratio. led ratio. calendar We contracts in contributed increase change loss

just for ratio the segment, the which quarter generated $X expense costs Cell which in the profit. travel costs headcount a Portfolio was in million increase the reflected the filled Segregated higher expenses, with The segment primarily year compensation we this Lloyds Expenses segment as open positions. posted driving The increased compared to XX% finish under I'll and and quarter. IT costs, of last segment, increase. with a the profit small Reinsurance for Syndicates compensation

share some highlights and results our Dana balance to from turn Now sheet I'd over the Dana? investment like returns. the consolidated call and to to

Dana Hendricks

Thanks, morning, everyone. good and Ned,

investment share For share. the the net of of to million operating impact is of gain and second investments operating quarter reported LLC the first improved The $X.XX of two in gains. or the between per and ratios investments. performance reflected per income net the combined million fixed difference year, coupled $X.X main and quarter $X.XX our income loss compared quarter, this The strong from with we income or $XX.X LP

consolidated increased X ratio provided from investment accident a X operating Our development ratio, increased the therefore second quarter results with of change. lower the from consolidated benefit point year. point prior the ratio Improved combined driving X the on favorable XXXX points last years operating to

accident of second ratio Our consolidated year essentially year accounting after current quarter XXXX the net the adjustments. in was the impact was unchanged prior net premium ceded consolidated favorable from year The of prior in driver loss and the excluding purchase reduction primary behind for loss change the ratio development. the quarter reserve

the compared recognized we aided tail favorable we to million. second XXXX, an of second last In million In quarter. quarter XXXX, in premium as recognized increase earned was ratio to $X by development $XX of quarter this XX.X% The favorable development. decreased expense and of year's slightly consolidated

a expenses, not in from benefited our in XXXX. but which in decline XXXX also ratio transaction-related The costs, were

the the to travel percentage increased higher point premiums those effects expense in by ratio beneficial costs. due DPAC and of amortization compensation and changes Excluding impact X.X earned, in net

as by $XX quarter yields floating of grew reset in each reinvestment higher investment the last securities to the the Net to has maturing our eight rate in income XX% quarters exceeded rate well. our million as assets that of and

As the noted earlier, the ratio a increased had largely positive when in mitigated increase the combined investment operating last comparing on to impact it income year. as performance

to In than earnings portfolio's book LLCs, the from and approximately are our Equity investment us in on yield that yield. quarter, a LPs the lag reported basis bonds points one-quarter second $X million which typically maturing we higher to in average reinvested in quarter. the increased XXX

in quarter results due the include report fourth to the quarter eight to the us. of those funds, results timing of funds when the However,

operating noted of transaction. difference earnings in value by income with associated we million gains $X from we call, marks operating the which eight the fair the the consideration million from drive quarter and change in funds. gains contingent last income the Net between were net the driven liability expected our are NORCAL investment in in positive and As excluded $X on

decreased XXXX due million of same to in the changes to impact $X.X denominated million in income P&C the quarter in fair segment. Other the quarter foreign of currency our -- loss from rates Specialty in $X.X and reserves in foreign exchange currency

in a of the effect movements compared the due $X.X to quarter foreign to of year was euro strengthening the a in of of loss prior the the currency gain This quarter period. million $XXX,XXX

million $XX up $XX.XX, driven flows share equity. portfolio gains directly quarter year-end, per of maturity on holding at was value by book our Our to X% which aftertax from fixed end

to $X.XX increase Our contributed share in value. the book repurchase

book share, comprehensive to which maturity. $XX.XX as hold and these primarily both intent temporary from ability unrealized Adjusted We of we losses the per consider XX. value holding loss to other $X.XX be accumulated to excludes unrealized as losses of have June is

which increasing investment income, We are ratio. current pleased included business, uptick new in a loss report stable and to solid year quarter, accident an a

prepared remarks. Elliot, our ready for questions. we're That concludes

Operator

first Our Truist. today comes Hughes question [Operator Mark from Instructions] with

Your line open. is

Mark Hughes

morning. you. Good Yes, thank

Ned Rand

Good Morning, Mark.

Mark Hughes

rest how the of stability talked pretty relative around you QX is XQ in in think the I the large I Ned, the year? extended experience was about through any that of think meaningful, the environment, kind claims? experience

Ned Rand

It's call question, the large in first of, a quarter, impacted very nice claims would Mark. the we couple had Yes, that I a quarter.

not book quarter, eyes have say, cautious as environment so while the of we're We regard. open get we're may any not didn't sorts that but although the better, is market we we worse, observation those see continue our come. have what the occurred it an claims during to seeing remain would our of that seeing -- across I to getting wide necessarily in in occurring,

Mark Hughes

prior about up business, business of pretty pricing seem What's loss the pretty X% with to quarters. be same the question, think when in new you picks kind to you your accident the strongly, with current business mid-XXs? -- with guess, the be up new year do the pursuing consistent up it's in environment -- want I new this

Ned Rand

that the to It's a a ask Francis answer I mean, going for to and a I'm it if on Rob? little maybe us in short bit. smart. in Rob question, is good yes, chime you're way that doing is,

Rob Francis

Francis. Rob Mark, Hi, Sure.

NORCAL don't over So, market we We underwriting has obviously six that's been with fruit. partners is new to integration of months our strategy, pursuing of business largely bearing driven and where about. by of firm that's larger but business really was be and in can reconfirm -- in our our which with our think our pricing is think agency elite our past tricky, our success execution relationships all new the following what course think a we

more a bit to for little discipline. a increases business, express carriers increases of rate larger are They're single-digit the even and of filing do to price those regional pick think sticking undercut companies, mutual so some few seeing it's the there. are smaller choose rate out happy but and situation, we are opportunities some we Also, some companies, there as

Ned Rand

Thanks, Rob.

Mark Hughes

on year see loss comp, workers bit, Yes, that's kind I'm no any emerging? looking you a then us up appreciate is of been medical sense the that. Can prior particularly, little give accident inflation picks you current what year there, year-over-year. and there And development, a of just

Ned Rand

Yes, to chime I'll get and Shook comment then make maybe Kevin a will brief in.

to to into previously, see way about I up you of comp way its little premium that? you're tailwind beginning claims believe, in are inflation a bit kind then claims headwind and to you costs beginning as go that catch the inflation and nice creep yes, think costs drive add beginning in. up we it as see as costs to into a and I get the that Kevin, work we've as a would what on its we're work talked compensation the works So going later to

Kevin Shook

come of later No, think reserves in on and 'XX. exactly in been releasing that's 'XX right. prior the policies We've starting because end to cautious Ned, see written we are through year I inflation both book,

before lastly, just is claims are tailwind, audit wage but industry benefited 'XX very of a is through to see increase going inflation our and know, tail saying peers. prevalent a policyholders inflation of the ultimately care. from And lot workers, being industry, eventually paying certainly indemnity about the will going if go our workers the our to and the cost we're was more it top-line healthcare with You premium inflation, half there's where of

it while little cost claim So the being per and indemnity frequency is average and is driven bit up medical. down, largely by by a is

Ned Rand

it referred industry. I have Kevin tailed Thanks, of want of in a allows us than than the think that has the impact, causes Kevin. lot that a two comp to in work one emphasize recognize I Kevin thing things We industry trends to think do and and I two most to business faster shorter that us places. -- different the

The a both long though are at I in clients to really high other as we've thing that over we is, claims. of does time those able closing we a inflation look close because factors the by compounding think been the our avoid inflation period important it environment business. And impact of

Mark Hughes

very Thank much. you

Ned Rand

Mark. Thanks,

Operator

Our next with question comes from Piper Paul Newsome Sandler.

line is open. Your

Paul Newsome

Good about on or little X% your morning, described sort the margins effective that we've a holding is for in your just liability better enough low get the medical rate ask place given you from call. core perspective, thanks you personal still to what wanted bit business. to margin practice core a as tactical increases inflationary the we I high seemed price pretty business, little to of or a a where move can into a and

Ned Rand

question. Yes, for thanks Paul, the

I conditions of that things of the the the business in particular. as our get it the and and especially around an of restructuring think some and on doesn't business one organization we're walking business the on just from in re-underwriting we're just they're away of in actions E&S increase of the kind the that book Specialty terms reflected taking other that is the rate

it's where in improvement we but XXXXs, today. to increases compound three just When the rate not XX% over not market results, and you feel in turn trend we increase, that as put achieving and all did we've are the we're the last getting it making four then incremental been years, getting going together as XX% we you beyond early and live fast rate like the in underwriting to that's the that

Paul Newsome

claims you rate faster Is think well rates on as than your inflation are raising business? that underlying comp Do or..? through same workers' you the

Ned Rand

are I number in Well, but coming the been we're in, and we - over they've are think rates we controlling years. way we think down can are way of chime and been last Rates comp, in now. coming -- right are down down the comp yes, the controlling we maybe, coming they Kevin raising have not but

in of years I think those or book and when the rating here, comp of rate when in me you kind would lower will be if than are bureau you work rates go indications I far look ProAssurance we're at market, straight something Kevin eight indications, but correct choke where on reductions the they and just today.

of a using Kevin, think We As lot held an a I of misstated lot trend. and decline of individual but that against underwriting some to account you'd we're the hold. where underwriter justifies we rate, cost recognize in declining we've loss holding anything we may decline do that have that, add? adjustment, the need

Kevin Shook

No, nothing to add, Ned.

Ned Rand

thanks. right, All

Paul Newsome

Thank for you always help, the appreciate as

Ned Rand

Thanks, Paul.

Operator

Bob from comes question next Janney. Your Farnam with

Your line is open.

Robert Farnam

questions, of A comp broad there, a one workers' of morning. on more view. good It's segment. couple Hi, the

has had industry last hard or years it seems decade profit a pretty like have so, meaningful but generating for you comp well workers' underwriting line several any now. for the guys So, done the time the over

overall curious, book maybe on book just it, I'm it a your recognizing aspect else is the something difference industry? in you is the So and book, what's the creating the shorter going profitable primary that's severity between there tailed or less trends that's just of the

Ned Rand

loss essentially of in up which of that ultimately I is what things which faster costs than some the are we happening it the think closing will environment is and claims environment industry the we recognize owning are faster, I and question, in the some them. that great of means a to it's perhaps Bob, you are kind loss said, think

anything think mix vastly don't our that there's business is I particular to business, of mix of the for different. As

smaller because that? Kevin, more a you what effort generally rural and fact, write the got back and where loss largely workers In risks the would you've environment favored suburban we to and of work. employers more dignity of get injured wellness that add to has to the wholehearted kind

Kevin Shook

Yes, precisely shorter development all year our tail. that prior we loss year recognized because more absolutely. and Bob, accident booked have of it's claims really ratios how

depending favorable the XX means that development, read, accident XXX. year the XXX but the about So industry upon 'XX, research if combines XX estimates to are which there's you combined XX, calendar year you points, for XX of are think points

business look and When 'XX loss the of last we end and of five points we did book our we're at at our years accident the several year over to the this better. compare still industry, ratios

past, when perspective the in development of so. accident loss acceleration from the it's taken year think claims to the a already precise we've ratios favorable being it the I So that in industry comes more slower development

Robert Farnam

Okay.

thus XX.X relative year decent that for the least booking an So, accident thinking you're ratio, saying, industry go so you the actually what so peers or that's saying you're at the year this -- you're loss you're against? that far to that's

Kevin Shook

that's when lately has that And points points XX historically the mind XX biggest historically do so think or or Eastern booked in correct. is X I points, X No, booked keep points, has difference. the industry and again

Robert Farnam

thanks great, the Okay, second color. Reinsurance. Segregated question the for that was Cell And had on Portfolio I

taken so may be has the like really well but portfolio some could was the better for this done offline, it Now, go underwriting I just performance cell something back. curious of time that segment

Workers' what in So that results the than Compensation makes Specialty in segments? just the stronger I much and segment was underwriting curious the P&C

Ned Rand

leads that the partner mean where an sharing the it's an is agency on or think all risk, I to more in taking sharing share we're we captive, participants, risk, for there's risk alongside risk company fully way more be that everyone the captive, better right? I results. on in because a agency skin game I it think they're where that

Robert Farnam

All Okay. right.

for right. All for it sense. me. makes the that guys. Thanks That's color, Now,

Ned Rand

Bob. Thanks,

Operator

to turn with Now Matt Carletti Instructions] JMP. [Operator

open. is line Your

Matt Carletti

Thanks, good morning.

Ned Rand

Good morning, Matt.

Matt Carletti

Did us is that trying are feel market aggressive just environment, the the high share give could color little the are get I you when or competitive for it two business garnering a guys are is, market of end one the kind more same defending profit? that or the things. you One you've to think guys to about by well was talked around and outlier competing amount, obviously rest hoping worse? two your there for them. how win of or you is do for insureds business, known and just most past, on a are of In less outliers the kind interested willing the of you for you in better is very when then that's some standing people reputation And your of find or that. making I pay a guys now you

Ned Rand

Yes.

the So I to kind a environment, is competitive can by down make risk I it. hoping and first difference think who around be guess it a on it has. of you're competes on risk can driven particular environment really by don't the symmetrical is as that type risk-by-risk question the almost of the be to geography, It driven

carriers we price but have it's that very we willing any of beginning a to don't make kind chase continue are showing Rob what number to vary. to of we mutual of earlier, getting think in down risks, involved said well-capitalized greater going are Kind kind that and see price are to levels a sense to is of companies who lot one echo that discipline, of larger

see we sometimes outlier be going that going price, So, be the we because do higher to we're are the frequently. to

in risk, and find see part we why our an other XX% a And quarter. where to you to model charge the think allows price service us higher are going in sell. retention that's I times,

entire of very up very insureds, the the physicians, proposition that today ago, in and and large are insureds change just larger, especially to hospital are our the different so does that years from insureds more experts than they're are to systems go across very, ability claims, we XX-plus that of understanding going even defense book ago. researching desire the value and years is puts add to are a around work valuable, of say groups the it don't selling I'd XX to if for complicated value not into go even can lot ways to claims The to diligence to and trial, team to continues the go to plan and trial claims trial, you was if today finding just but less our

Matt Carletti

much. very you Thank enough. fair Okay,

Ned Rand

Yes. Thanks, Matt.

Operator

Q&A. I'll concludes remarks. to our CFO, back hand now for This closing Hendricks, Dana

Dana Hendricks

conference us Well, with today. next you call. you Hi. joined speaking to We again everyone look to thank that forward on quarter's

Operator

thank gentlemen, to now Ladies has like for participation. today's your and We concluded. call you

You may disconnect now your lines.

ProAssurance (PRA) 9 Aug 232023 Q2 Earnings call transcript