PROASSURANCE CORP Q1 FY2023 earnings call

Management Statement and Operational Highlights

• Market Dynamics: Challenging claims environment in medical professional liability with excess verdicts returning, social inflation, and larger verdicts; need to educate stakeholders on professional liability market.
• Specialty P&C: Gross written premium down 7%, premium retention 85%, pricing up 6%, expense ratio 22.8% with offsetting items.
• Workers’ Compensation: Gross written premium up $1M, current accident year loss ratio 72.6%, expense ratio improved.
• Investment and Book Value: Net investment income up nearly 50%, book value per share $21.07, adjusted book value per share $25.81; refinanced senior notes to reduce borrowing costs.

Segment Performance

• Specialty P&C Segment: Produced an operating loss in Q1 2023 driven by unfavorable prior accident year reserve adjustments. Gross written premium decreased by 7% y-o-y. Premium retention was 85%, pricing increased by 6%. Expense ratio was 22.8% with a $4M payroll tax refund and decrease in NORCAL accrued contingent consideration.
• Workers’ Compensation Insurance Segment: Gross written premium increased by $1M y-o-y. Current accident year loss ratio was 72.6% with unfavorable prior year development of $1.2M. Expense ratio improved due to higher audit premium.
• Segregated Portfolio Sale Reinsurance Segment: Posted a profit of just under $1M in the Lloyd’s Syndicate segment.

Guidance

• Investment income expected to continue increasing.
• Expect rate gains to push up as the year goes on.
• Prudent approach to reserves, responding more to negative trends.

Risks

• Challenging claims environment leading to unfavorable reserve development.
• Competitive market conditions affecting premium growth.
• Volatility in investment results, especially with LP/LLC portfolio and foreign currency movements.

Q: Geography of excess verdicts and pricing adjustment.

A: No specific geography, focusing on rate gains and underwriting away from inadequate pricing.

Q: Excess verdicts and reinsurance.

A: Vast majority reinsured, some retained within written limits.

Q: Specialty segment top line decline and go forward.

A: Due to new business opportunities and losing a large hospital account, walking away from under-priced business.

Q: Settlement strategy and reserve prudence.

A: Judicious in trials, using high lows, reserves are based on best info with prudence on negative trends.

Q: Loss ratio comparison and business mix.

A: Cautious in reserving, work comp book faster to recognize trends.