PROASSURANCE CORP Q2 FY2023 earnings call

• Relative stability in current accident year loss ratio albeit at a higher level than 2022, with decline in favorable prior accident year reserve development. Underwriting expenses stable relative to prior year. Investment results improved significantly.
• In Specialty P&C, new business in E&S and specialty market was $12M, up from $8M last year. Medical Technology Liability new business production increased year-over-year despite competitive environment. Focus on price over volume led to 83% premium retention, with price competition being a key driver of non-renewal.
• In Workers' Compensation, challenging and competitive market impacted retention and renewal pricing. Saw increase in audit premium and carried EBUB premium, offsetting some decline in retention and pricing. Began seeing medical inflation work its way into work comp claims costs.
• Consolidated results: Net income $10.6 million or $0.20 per share, operating income $8.6 million or $0.16 per share. Consolidated combined ratio increased 5 points from 2022, but improved investment results provided a 4 point benefit. Net investment income grew 44% to $32 million, driven by higher reinvestment rates and floating rate securities resetting to higher yields. Book value per share at quarter end was $21.24, up 4% from year-end.

Specialty P&C Segment:

• Gross written premium increased by 1% from a year ago, with new business from the specialty line exceeding expectations. New business was $12 million in the quarter, up from $8 million last year. Pricing in the segment increased by 6% in the quarter, continuing to compound upon last year's 6% increase. Current accident year loss ratio was 84.7%, up slightly from last year. Recognized net favorable prior accident year reserve development of $7 million in the quarter, primarily in the Medical Technology Liability business. Premium retention for the segment overall was 83%, a point below last year's.

Workers' Compensation Insurance Segment:

• Gross written premium decreased by $1 million in the quarter. Renewal pricing was down 7% and retention was 80% for the quarter. Current accident year loss ratio was 72.6%, approximately a point higher than the second quarter of 2022. Booked no change in the prior accident year reserves compared to favorable development of $2 million last year.

Segregated Portfolio Cell Reinsurance Segment:

• Posted a profit of just under $1 million for the quarter

• Net investment income is expected to continue benefiting from reinvestment rates exceeding maturing assets and floating rate securities resetting to higher yields.
• The impact of efforts to manage losses and mitigate social inflation may not be obvious in a single quarter but expected to be evident over time.
• Reinvestment of maturing bonds continues to yield higher than the portfolio's average book yield, positively impacting operating performance.

• Competitive market conditions persist, affecting retention and renewal pricing.
• Challenging claims environment, including social inflation and increased severity trends in legacy jurisdictions, impacts loss ratios.
• Medical inflation emerging in workers' compensation claims costs, which could affect future claims expenses.
• Foreign currency movements can impact other income, as seen with a $400,000 loss due to euro strengthening in the quarter.

Q: Competitive environment for new business?

A: Environment is risk-by-risk, with larger carriers showing more price discipline while some smaller mutual/regional companies undercut. It's a pick and choose situation but there are opportunities.

Q: Value proposition for insureds today vs 10+ years ago?

A: Insureds are different, and the value proposition changes, especially for larger, more complicated insureds. The claims team's diligence in understanding and researching claims adds value even without trial plans.

Q: Underwriting performance of Segregated Portfolio Cell Reinsurance vs other segments?

A: Better results due to more skin in the game for participants, with everyone sharing risk more fully leading to improved underwriting results.