PROASSURANCE CORP Q4 FY2022 earnings call

• Ned Rand: Optimistic about future, improvement in operating and loss ratios, reunderwriting efforts in healthcare, investment team navigating markets, and reinvesting maturing bonds at higher yields.
• Dana Hendricks: Discussed consolidated results (operating income, premium growth, combined ratio changes, reserve development, expense ratio, investment results, unrealized gains/losses on fixed income).
• Mike Boguski: Specialty P&C segment highlights (premium growth, retention, pricing increases, accident year loss ratio improvement, NORCAL integration).
• Kevin Shook: Workers' Compensation segment details (combined ratio, premium growth, loss ratio, reserve development, challenges in 2023).
• Ned Rand: Closed with Lloyd's segment results and thanked team members.

Specialty P&C Segment

• Fourth quarter gross written premium: $173 million; full year: $807 million (23% growth primarily from NORCAL acquisition).
• Full year combined ratio relatively flat excluding onetime expenses and purchase accounting adjustments.
• Premium retention: 85% in Q4, 84% for the year; strong retention in standard physician, small business, and medical technology units.
• Accident year loss ratio improved 1.4 percentage points full year excluding purchase accounting and ULAE change.
• Expense ratio increased 3.4 percentage points in Q4 and 0.9 percentage points for the year.

Workers' Compensation Insurance Segment

• Full year combined ratio: 99.9%; Q4: 100.2%.
• Gross written premium up 2.7% full year; Q4 up 4.5%.
• Loss ratio improved; expense ratio increased due to higher general expenses (team member compensation, business-related travel).
• Segregated portfolio cell reinsurance: Loss of $284,000 full year (underwriting income offset by unrealized investment losses).

Lloyd's Segment

• Full year combined ratio: 99.7% (small underwriting profit, but overall small loss).
• Estimated $2 million share of hurricane losses included in full year results.

• Expect improvement in net investment income due to reinvesting maturing bonds at higher yields.
• Optimistic about 2023 prospects with continued efforts to create scale and efficiencies.

• Medical professional liability loss environment challenged by social inflation and severity trends.
• Competitive marketplace pressures (price decreases, labor shortages, economic/medical inflation in workers' compensation).
• Unrealized holding losses on fixed income portfolio, though considered temporary.

Q: Just curious if you could talk to your approach to case reserves and how or when you go about recognizing good or bad news in your reserves?

A: Yes, happy to talk on that. It's more on science. Our claims professionals monitor and manage claims, establish initial reserves with limited info, then adjust as facts come in. Consistent process allows actuaries to project. In Q4, claims professionals reacted to heightened claim environment in certain jurisdictions.

Q: And then maybe if you could give us some more perspective on the change in open claims and how that's migrated over the last several years?

A: As far as the number of open claims, I don't know that we have that information in front of us today. I don't think the quantum of open claims has changed dramatically. We have seen continued decline in claim frequency across jurisdictions compared to 5 years ago, but I don't have specific details.

Q: When you think about the heightened claims environment, how does this compare to 2016, 2017, where you saw signs that got you concerned? Compare and contrast what it is now versus then, and lay finger on areas, lines of business commonalities.

A: COVID paused some trends seen in '16-'18. Court systems reopening and backlog of cases working through legal system. Continuation of prior trends, including more large verdicts. Tensions/hostilities in communities contribute to jury reactions. Competitors seeing this, which may impact competitive dynamic and pricing.

Q: What's your view on growth? Still some top line expansion. How do you view your top line posture under circumstances in a very dynamic environment?

A: On Specialty P&C side, growth via acquisition (NORCAL contributed 23% growth). Health care professional liability market growth 2%-3%. Approach with disciplined underwriting, focusing on bottom line. If market firms in specialty areas in Q4 2022 and start of 2023, will take advantage of pricing opportunities.