Good morning, everyone. Welcome to ProAssurance's conference call to discuss the company's first quarter 2024 results. I would like to remind you that the call is being recorded. Now I will turn the call over to Heather Wietzel.

Good morning, everyone. It's a pleasure to be here today. ProAssurance issued both its news release and report on Form 10-Q and first quarter results yesterday, May 6, 2024. 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, our management team will discuss selected aspects of the results on this call, and investors should review the 10-Q and news release for full and complete information. We expect to make statements on this call dealing with projections, estimates, and expectations and explicitly identify these as forward-looking statements within the meaning of the U.S. federal securities laws and subject to applicable safe harbor protections. The content of this call is accurate only on May 7, 2024, and except as required by law or regulation, ProAssurance will not undertake and expressly disclaims any obligation to update or alter information disclosed as part of these forward-looking statements. We also expect to reference non-GAAP items during today's call. The company's recent news release provides a reconciliation of these non-GAAP numbers to their GAAP counterparts. On the call with me today are Ned Rand, President and CEO; and Dana Hendricks, Chief Financial Officer. Also joining on the call today are executive leadership team members, Robert Francis, Kevin Shook, and Karen Murphy. Now I'll turn the call over to Ned.

Thank you. And I'd like to start by welcoming everyone to our call and welcoming Heather to ProAssurance. We reported operating earnings in the first quarter of $0.08 per share, benefiting from a 6-point improvement in the calendar year loss ratio and a 12% increase in investment income. We remain focused on driving underwriting improvement, which can be seen in the 3-point improvement in our current accident year loss ratio. The markets we operate in continue to be challenging, and we remain cautious about both the risks we underwrite and loss cost trends. We are focused on achieving pricing levels that help move us toward our long-term profitability goals and believe we are continuing to get rate beyond loss cost trends. We saw solid progress toward our objectives in the quarter with strong retention of existing insurers. We continue to forgo new and non-renew existing business that does not meet our underwriting criteria. The loss environment in the medical professional liability market continues to be challenging in many jurisdictions, with the resumption in the fourth quarter of 2022 of the pressure on claims costs from social inflation and higher-than-anticipated severity trends. These had initially emerged in 2019 and 2020, but abated during the pandemic. We continue to monitor the impact that these trends could have on our open case reserves and prior year development, but are confident in the actions we're taking to address market conditions. Reinforcing the importance of our underwriting stance, we are continuing to see the impact of higher medical costs per claim in current workers' compensation claims trends, a trend we believe the broader workers' comp market must ultimately address. Despite continued moderation of claim frequency, the average medical cost per claim is still rising due to healthcare wage inflation, higher utilization, and rising costs as new treatments and technologies are applied to patient care. Confirming our view in a study published in December 2023, the Workers' Compensation Research Institute described the impact on payments per claim of vertically-integrated providers, which represents an ever-growing share of the market. The study noted that workers treated by these providers received more medical care and saw more providers, increasing payments per claim by more than 10% at 12 months of maturity without meaningfully changing outcomes. Since we closed cases on average 40% faster than the industry, we can observe and respond to trends more quickly in our book of business. We're using the insights we're gaining to underwrite accordingly. We're convinced the impact of higher medical utilization will be seen industry-wide in the coming quarters. The bottom line is that our long history in both medical professional liability and workers' compensation has taught us that these cyclical lines of insurance will respond to our focused efforts. We remain confident in our ability to ultimately achieve underwriting profitability in both businesses. However, as I said last quarter, the current market conditions are a headwind, keeping us from achieving that goal as quickly as we would like. These conditions will likely require us to shrink our book in some markets while we wait for conditions to improve and we can turn our focus to growth. But we will not compromise to achieve a short-term fix at the expense of protecting our balance sheet and our insureds over the long term. We know that maintaining our discipline will be key to delivering the positive long-term results we believe we can achieve. I think you'll see signs of our progress in Dana's remarks as she takes a closer look at the segments.

Thanks, Ned. Let me start with the Specialty P&C segment. The segment's top line is a good example of the progress Ned mentioned. Gross premiums written declined $3.6 million quarter-over-quarter driven by our nonrenewal of a large account. We retained 86% of policies eligible for renewal, maintaining our disciplined underwriting and pricing criteria to achieve an average rate increase of 7%. We were able to generate $10.4 million of new business priced at rates that move us toward our long-term profitability goals. We're also seeing the benefit of our risk selection where we're leveraging our expertise in the sector to identify segments of the medical professional liability market that could yield opportunities for greater profitability. Another example is the segment's current accident year net loss ratio, which improved almost 5 points as compared to last year's first quarter. This also demonstrates the positive effects of our ongoing application of our underwriting and pricing guidelines as well as our effective claims management strategy. In the quarter, we recognized net favorable prior accident year reserve development of $1.3 million, primarily attributable to purchase accounting amortization related to the NORCAL transaction. Last year's first quarter included $7.4 million of unfavorable development, primarily the result of several large verdicts. As a reminder, we perform a more in-depth review of prior year reserves on a semiannual basis in the second and fourth quarters. The increase in the quarter's expense ratio was primarily due to the impact of beneficial items in 2023, including a $3.8 million payroll tax refund from the Employee Retention Credit program and a decrease in the fair value of the contingent consideration liability related to the NORCAL acquisition. First quarter segment results also reflect our participation in Lloyd's with the first quarter reporting lag. This business will be in runoff beginning in the second quarter, with activity for open underwriting years prior to 2024 earning out over the next few years. The theme of disciplined operational strategy continues in our Workers' Compensation segment where state loss cost reductions are continuing to drive compounded premium rate decreases. We continue to believe the current market conditions require extraordinary dedication to premium adequacy and risk selection. We saw a small decline in top line premiums for the segment of approximately $800,000. Despite a slight reduction in policy count, premiums in the traditional book were approximately $3 million higher for several reasons. First, we're seeing higher reported insured payrolls and positive midterm policy endorsement. Plus, we renewed several policies as traditional business that were previously written in a captive program in the Segregated Portfolio Cell Reinsurance segment. We retained 87% of existing policies at rates that we believe move us toward our long-term rate adequacy goals. The $8.2 million of new business was added selectively. The segment's first quarter accident year loss ratio was below full year 2023, although higher than last year's first quarter due to the medical cost trends that Ned discussed. We believe our caution around the current claims environment and our focus on operational discipline is beginning to be reflected in results. There was no change in prior accident year reserve estimates in the first quarter of 2024 for this segment. The underwriting expense ratio was higher than the prior year quarter, primarily reflecting an increase in compensation-related costs in the current quarter and the impact of an increase in our EBUB estimate in last year's first quarter. Turning to investment results. Net investment income rose by $4 million or 12% quarter-over-quarter as we took advantage of the rising rate environment. New purchase yields in the quarter were 5.6% or 220 basis points higher than our average book yield. We also recorded a $3 million gain in equity and earnings from our investment in LPs and LLCs compared to an $800,000 loss in the year ago quarter. Book value per share was $21.82 with approximately $4 million, excuse me, $4 per share of embedded unrealized holding losses. We have both the intent and ability to hold the related securities until maturity, so those unrealized losses will accrete back to book value as the portfolio matures. As Ned said, we are committed to protecting our balance sheet and our insureds over the long term. We are seeing signs that our actions are beginning to achieve pricing levels that meet our objectives, and we will continue to be intentional about capital management. Heather?

Thank you, Dana. Ned, any final comments?

Thanks, Heather. I'd simply like to reiterate that we're pleased to report profitability in the quarter, and we know there is more to be done and that we understand the urgency of achieving that goal. But I'll say again, we will not take shortcuts to get there.

Thank you. That concludes our prepared remarks. Harry, we're ready for questions.

And for our first question today, we will go to the line of Matt Carletti of JMP.

Ned, you mentioned that about a year ago, you observed a significant increase in social inflation and severity following the pandemic, along with the measures you took. Could you provide an update on how the competitive environment may have shifted over the past year?

Yes. Happy to, Matt, and to jump in as well. What I would say is that it is inconsistent from a competitive environment. A lot of our competitors, as you know, are mutuals that have accumulated a lot of capital, as a consequence, generate a lot of investment income. As a consequence, they are willing to write at levels that we think are not appropriate. But we do, I think, in market scenarios, see what I would call more rational pricing decisions than we maybe were seeing 12 months ago, but it's kind of territory by territory and segment by segment. Robert, anything you might add to that?

Thanks, Ned. I would concur with that overall. And generally speaking, what we saw was coming out of the pandemic, there were some small rate increases, I won't say universally, but many companies were taking small rate increases and certainly taking a little bit harder look at their larger accounts, which were more underperforming. Unfortunately, they're taking rate increases that were probably half or 1/3 of what they actually needed. So because they didn't want to lose that business, but it was moving in the right direction. That softened a little bit in '23. We think because of the additional investment income, as Ned mentioned, they don't have the same underwriting profit goal. They have an overall operating profit goal. And so that softened a little bit in '23. We do believe that the larger carriers are maintaining a better level of discipline, but the mutual carriers are still living sort of in the world of a few years ago.

Our next question today is from the line of Greg Peters of Raymond James.

This is Sid on for Greg. You called out being ahead of recognizing some of the severity in the workers' comp line. And with the rate decreases, I'm just curious how you see the rate environment playing out if you think the market could get to an inflection sometime over the next year or 2?

It's a great question, Sid. We do think it needs to get to that inflection point. The decline in pricing has really been frequency-driven. And I'm fairly certain frequency's not going to zero. And so it's really when that severity trend kind of crosses over that frequency trend that you have to watch for. In our view, while we continue to see frequency improvements and benefit from that frequency trend, we kind of think we're at a point where that severity trend is becoming more meaningful. We don't see that reflected in a lot of the market yet. We think that point is coming. Regardless of your view on frequency and the impact that it's having, I think the severity trends in medical care are unquestionable and something that everybody is being faced with.

Our next question is from Dan Farnam of Janney.

It's Bob Farnam with Janney. Ned, I had a question about the Specialty P&C segment in regards to social inflation. And then I'm just curious if there are things you can do to address social inflation that are not just raising rates.

Yes. It's a good question, Bob, and it's probably a long answer. So yes, there certainly are things. I think there are things that we can do in how we approach claims. So there are things that we can very, very directly control. And kind of finding that balance and refining that balance between claims, we take the distance and claims that we choose to settle, and that can have an impact, obviously, on the ultimate cost of a claim. From an underwriting standpoint, beyond price, obviously, the risk we choose to write, the territories we choose to write in can make a difference as well. I think then the question really then goes to what can be done about social inflation and how can you perhaps turn the tide of social inflation. And that's a much more complicated question. A lot of, in my view, a lot of what happens or is happening right now is just driven by kind of societal views of what's a dollar worth, societal views of the need to compensate injured parties regardless of who might be at fault. And so there are a number of those sorts of issues where I think as an industry, better informing the public about what our product is and what we do and how doctors practice and the safety focus that doctors do have to try and turn some of that tide is important. I think as an industry, the insurance industry also could do a better job of communicating the value that we provide to society because we're often made the bad guys. And I think the fact that we are kind of the grease that allows commerce to happen gets lost. And so I think there's some narratives that we need to try and recapture both as a healthcare industry, as an insurance industry that can help improve that. And then there's tort reform, right? And there's a whole myriad of things within tort reform. And when we talk about tort reform, I think people's minds automatically go to caps, but there's so much more involved there. Some of it is around disclosure of litigation funding. Some of it is around putting parameters around life care planners and the plans and how they develop the plans and making sure that what they're putting forth is rational and realistic. So yes, there are a lot of things that we as an industry are looking at that we are working to address, and then there are things within the organization that we can do as well.

Are there geographic areas that you're in that you see some progress in those regards?

I would say that there are geographic areas that we think are more stable and predictable and there are those that are less stable and predictable. But I think that that delineation is harder to see today than it was 10 years ago. Ten years ago, I think you could say there were 10 really bad jurisdictions. And if you were to kind of see where large verdicts were coming from, it was highly probable that they were coming from one of those 10 jurisdictions, and that's not the case today. It's a little more haphazard and a little more unpredictable. But there certainly are markets that we feel better about. We feel better about where our pricing is and better about the litigation environment, and there are others that we are much more cautious about.

Our next question today is from the line of Mark Hughes of Truist Securities.

Ned, do you think the mutuals are engaging in cash flow underwriting? Given their generally overcapitalized positions, are they simply taking advantage of the higher interest rates? Do you think we need a shift from the Fed for them to become less competitive? What are your thoughts on that?

Yes. I think it's really investment income driven. As Rob mentioned, they can write to a higher combined ratio and still turn in underwriting or an operating profit, and they're very focused on that operating profit. I think a challenge, though, for them will come in that if you consistently underprice the market year-over-year-over-year, that gap to good pricing compounds every year. And so if you're not keeping up with trends and if you're running well below trends, when you finally have to get back to adequate pricing, the jump you have to make can be quite considerable. And I think that will present a challenge for them at some point. But for right now, yes, they are able to generate a lot of investment income to offset underwriting losses.

And then I'm sorry if I missed this in the earlier commentary, but when you think about the improvement in the current accident year loss ratio in the healthcare business, can you kind of break apart what were the components of that improvement, price, terms and conditions, claims they experienced?

Yes. I would say it's driven in part by the pricing gains that we made when we wrote that business 12 months ago. And our belief is that the pricing trend we've got is in excess of the severity trends that we're seeing. We also take a look at the business that we've non-renewed and kind of the mix of business that we currently have when establishing that loss ratio.

Yes. And again, I apologize if you already touched on this, but the NCCI loss cost trajectory still continues to be down and not abating. Are you seeing any kind of a sign that there might be some stabilization there just in terms of the industry loss experience or the NCCI's analysis of their loss cost recommendations?

And Kevin, you can jump in when I'm done. I would say that our focus right now is not so much on what NCCI thinks, it’s what we think. And focusing on how we drive rate as an individual account underwriter in a pretty challenging market where the whole market seems to want to drive price down. Again, as I said earlier, I think the frequency trends can't continue forever, and the severity trends are very, very real. And so I think there has to be a response. NCCI is backwards-looking and often with the delay, and that kind of backwards look, I think that is perhaps influencing where they sit. We think the tide does need to turn. Just can’t say when it will for the industry. So we're going to control it on our own. Anything you'd add to that, Kevin?

No, I agree with everything you said. I will say that NCCI is acknowledging that industry leaders are extremely worried about medical inflation. And I think generally, people were surprised to see continued loss cost decreases. So I do think on the part of work comp company executives and working with NCCI, trying to build the medical more in instead of having it be largely frequency-based, is something that we want to look forward to in 2025.

Thank you. This will conclude our Q&A session for today, and I'd like to hand back at this time to Heather Wietzel.

Thank you, everyone, who joined us today. Please feel free to reach out if you would like to talk further. We look forward to speaking with you again on next quarter's conference call, at the least. So thank you. Have a great day.

This will conclude today's conference call. Thank you all for joining. You may now disconnect your lines.