Good morning, everyone, and welcome to ProAssurance's Conference Call to Discuss the Company's Second Quarter 2020 Results. These results were reported in the news release issued on August 10, 2020 and in the Company's quarterly report on Form 10-Q, which was also filed on August 10, 2020. 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. 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. federal securities laws and subject to applicable safe harbor projections - protections, excuse me. The content of this call is accurate only on August 11, 2020, 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. The management team of ProAssurance also expects 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 accounting numbers. Now, as I turn the call over to Mr. Ken McEwen, I would like to remind you that the call is being recorded, and there will be a time for questions after the conclusion of prepared remarks. Mr. McEwen, please go ahead.

Thank you, Grant. As a precautionary measure, and as a part of our ongoing pandemic plan, the participants in our call today are joining us remotely from their respective offices. We have Ned Rand, President and CEO; Dana Hendricks, Chief Financial Officer; Mike Boguski, President of our Specialty Property & Casualty lines; and Kevin Shook, President of our Workers' Compensation Insurance Operations. Ned, will you lead us off?

Thanks Ken. It's hard to believe it's been a full quarter since we started meeting this way with each of us on our own offices and harder still to believe that it might not be the last time we do so. While the COVID-19 pandemic continues to shape everything from how we interact with each other on a daily basis to the global economy, it absolutely does not impair our mission to protect others. If anything, the pandemic reinforces our resolve to protect our customers, that’s truly brave individuals who work tirelessly to protect us all in turn. I continue to be impressed by and grateful for the response our healthcare professionals and first responders have brought to the front lines, and everyone at ProAssurance thanks them for their selfless courage. I want to thank our employees as well for their continued flexibility and perseverance in the face of what has been a tremendously disruptive period in both our professional and personal lives. The results in the second quarter were affected by a few significant items that we will discuss shortly. However, as this conference call marks the first anniversary of my tenure as CEO and installation of the executive leadership team that we formed, I want to recognize the accomplishments the team has spearheaded in the past year. When Mike Boguski moved over from Eastern to lead the Specialty Property & Casualty, I asked him to employ his exceptional operational skills to foster a results-oriented culture of accountability. He has delivered as expected instituting a comprehensive review of the Specialty Property & Casualty segment and undertaking a full reunderwriting of our Specialty healthcare book of business. Thanks to his work and that of his team, we implemented a streamlined Specialty Property & Casualty organizational structure, secured rate above loss…

Thanks Ned. For the second quarter, we reported a net loss of $18.1 million or a loss of $0.34 per share and an operating loss of $32.4 million or $0.60 per share. As Ned mentioned and as we described in yesterday's release, there are two items of particular note that affected our second quarter results. Those will be discussed in the segment's discussions momentarily. Naturally, these items overshadow certain improved metrics, which we will get to throughout our prepared remarks. Similar to last quarter, the COVID-19 pandemic and its influence on our investments featured prominently in the quarter's results. So I'd like to provide some expanded detail for each component. The biggest impact came from higher losses from our unconsolidated subsidiaries. We invest in various LPs and LLCs and the results of those investments are typically reported on a one quarter lag. Accordingly, the $18.6 million loss in the current quarter from our LPs and LLCs is a result of the impact of the disruption in global financial markets during the first quarter due to COVID-19. We expect a recovery in value of those investments in the third quarter, comparable to the recovery in the broader market this past quarter, which leads us to a brighter note. We've recorded consolidated net realized investment gains of $20 million in the second quarter. This was driven by increases in the fair value of our equity portfolio and convertible securities as financial markets began to stabilize following the initial shock of the pandemic, representing a recovery in fair value of approximately 40% since the first quarter. Lastly, consolidated net investment income decreased quarter-over-quarter, primarily attributable to a lower allocation to equity securities and partial reinvestment in fixed maturities, coupled with lower yields on our short-term investments due to the recent aggressive action taken…

Thank you, Dana. The Specialty Property & Casualty segment recorded a second quarter loss of $56.6 million, primarily due to a tail policy issued to a large national healthcare account. We recognized what we assume will be a full limits loss for this tail policy, which resulted in a $45.7 million net underwriting loss in the quarter. The establishment of a $10 million reserve related to COVID-19 also contributed to the operating loss, which I'll expand upon shortly. Gross premiums written were $107.1 million, a decrease of 16.3% quarter-over-quarter. The lower topline revenue reflects our strategy to strengthen rate levels in our Standard Physician business, execution on state strategy initiatives, recognition of pandemic-related premium credits, and continued reunderwriting efforts in our Specialty business, which includes national accounts, excess and surplus lines, hospitals, and healthcare facilities. The Specialty reunderwriting efforts began in the third quarter of 2019 followed by the new executive hires in our Healthcare Professional Liability underwriting operation during the previous quarter. We are pleased with our progress to date. The first year reunderwriting in our Specialty business will be completed by the end of the third quarter of 2020. We expect to see the benefits of this effort continue in future quarters. We continue to focus on underwriting discipline and achievement of our long-term profit objectives, shrinking our topline, if necessary, to improve our bottom line. In relation to these strategic underwriting efforts, premium retention in the segment was 71% for the quarter, primarily driven by a 29% retention in our Specialty lines. The lower Specialty retention was driven by the loss of two large accounts, representing premium writings of $11.8 million, which includes the aforementioned large national account. In addition, the non-renewal of certain risk profiles within the senior care business had a significant impact on specialty…

Thanks Mike. So what details can you give us about the virus' effects to our premiums or our claims?

The pandemic continues to impact our business, including premium and exposure reductions, new business disruption, jury trial delays, and cash flow implications from deferred premiums. To be more specific, we processed approximately $3.7 million of premium reductions and $5.3 million of premium deferrals during the quarter. We have collected the vast majority of the outstanding deferrals early in the third quarter. The revenue reduction related to premium credits was partially offset by the aforementioned increase in new business writings in our Medical Technology business. There are only three reported COVID-19 claims with limited exposure during the quarter in our Healthcare Professional Liability business. As previously mentioned, we established a $10 million COVID loss reserve. This was related to reported incidents in our Senior Care business, primarily from non-renewed accounts. This reserve represents our best estimate on ultimate claims-related expenses based on current information and reported incidents. The vast majority of the states in which we write Senior Care business have enacted immunity legislation. We continue to monitor such legislation on a state-by-state basis and other regulatory trends. I'd like to conclude by thanking our valued employees, distribution partners, customers, and strategic business partners for their tremendous support as we navigated these unchartered waters together during this past quarter. Ken?

Thanks Mike. Now, let's turn to Kevin Shook for comments about the results of the Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments. Kevin?

Thank you, Ken. The Workers' Compensation Insurance segment produced operating income of $1 million and a combined ratio of 98.7% for the second quarter of 2020. During the quarter, the segment booked $57.2 million of gross premiums written, a decrease of 10.9% quarter-over-quarter. Renewal price decreases were 4% for the quarter and are representative of the continued competitive pressures in our underwriting territories despite COVID-19 and the associated economic conditions. Premium renewal retention was 87% for the 2020 quarter compared to 81% in 2019, as we continue to see stronger premium retention each month during the pandemic. New business writings were relatively flat quarter-over-quarter at $6.5 million in 2020 compared to $6.6 million in 2019. Audit premium for the second quarter of 2020 was approximately $200,000 compared to $1.2 million for 2019. The calendar year loss ratio was consistent quarter-over-quarter, reflecting an increase in the current accident year loss ratio from 68.2% in 2019 to 70.6% in 2020, offset by higher prior-year net favorable development of $1.5 million in 2020 compared to $1.1 million in 2019. The increase in the current accident year loss ratio primarily reflects the impact of renewal rate decreases. Despite a 39% decrease in reported claim frequency during the pandemic, we concluded that it was prudent to continue recording a higher accident year loss ratio, given the many uncertainties surrounding COVID-19. As part of our normal actuarial process, we will reevaluate the current accident year loss ratio in the third and fourth quarters of 2020, as more information becomes available regarding the pandemic and its potential impacts on our claim results. Our claims operation closed almost 35% of 2019 and prior claims during 2020, which is consistent with historical claim closing rates. Our claims professionals remain highly effective while working remotely during the pandemic. Our short-tailed…

Thanks, Kevin. Great detail. So Ned, how are things developing at Lloyd's with the virus?

Ken, they're developing about how we would expect. Because we typically report our Lloyd's results on a one quarter lag, we're seeing most of the initial response to the pandemic showing up in our Lloyd's Syndicates results this quarter. The projections we disclosed in our Q1 release have held and we booked approximately $1.5 million related to the virus in the second quarter, net of reinsurance. We estimate we will recognize an additional $1.4 million, net of reinsurance, in the third quarter of this year. We continue to work closely with Dale Underwriting Partners to monitor the global legislative situation, and thankfully, contractual policy language has largely held against attempts to expand coverage, where no coverage was intended. We will continue to be as forthcoming and transparent as we can, given the multitude of evolving variables. A few remarks on Lloyd's outside of the pandemic. This was the first quarter in which our reduced participation in Syndicate 1729 came through our results, a change that brought down gross premiums written in the segment, but also one we expect will bring down volatility going forward. Because of this reduced participation, we expect to receive a return of approximately $33 million of our funds at Lloyd's during the third quarter of 2020. Meanwhile, we are seeing encouraging signs of hardening in every line of business in which we participate, particularly in the reinsurance segment, where rate increases and withdrawing capacity have created opportunity for those that continue to write in the space. Ken?

Thanks, Ned. Any final comments for us?

Just to reiterate what I said in the beginning. The previous four quarters have been unquestionably challenging but I am proud of the work we've accomplished in that time. Our goal of becoming a more efficient and effective organization is one of continuous improvement, one that we'll never call finished, but one toward, which I think great progress has been made. As the benefits of these efforts begin to show themselves in our underlying results, I want to thank our employees for their incredible work they've done and the work they will continue to do.

Great, thank you, Ned. Grant, that concludes our prepared remarks, and we are ready for questions.

[Operator Instructions] Our first question will come from Mark Hughes with SunTrust. Please go ahead.

The favorable development in the quarter, especially in Specialty P&C, could you talk about that? Was that actual development on specific claims or could you take perhaps a different philosophy around reserving, given what you're seeing in the broader environment?

Mike, do you want to take that? I can maybe lead off and just say, we didn't - we haven't changed anything in the reserving process. It's the emergence of kind of trends better than estimates and older years looking back to two, three years and beyond. But Mike probably will have some more specifics on that.

Sure. Thanks, Ned, and good morning, Mark. The prior year development was equally distributed across our life sciences or Medical Technology business, our podiatric liability, and our Healthcare Professional Liability. So, as you look at that $15 million, it was roughly $5 million in each of those areas. What we've seen is that the Medical Technology business continues to perform very well. Claim performance has been strong and we're seeing some of the same trends in our Small Business podiatric liability business. So they were recognized in the quarter. We've certainly been a little bit more conservative in the Healthcare Professional Liability world. When you look at claims severity trends, some of the volatility in some of our states and higher specialty loss pick, but we did take $5 million in the quarter based on trends in prior years that made sense.

And then the - you talked about your exposure in the Senior Care business. Could you talk about what the magnitude of that might be? You mentioned that incidents that were reported. Are those actually claims or just incidents? And then you mentioned maybe some legislative efforts around immunity. Just curious few more thoughts on what your exposure might be there.

It's a really good question. First, just to take a bigger picture view of it, we've been reunderwriting the Senior Care book for about a year now and with a different evaluation of kind of the risk profile in that book. And we've reduced our premium level by about 75%. Our book is under $10 million now compared to where it was. We also reduced our exposure about 80% in that segment of the business. The - from an incident perspective, there were roughly - as of June 30, roughly 300 incidents. These were not claims, we only had three claims reported in the quarter. These were just incidents related to the pandemic. So, I think the best way to look at that, Mark, is that's an IBNR reserve at this point until you have more information. So, we think we've positioned ourselves very well going forward with the exposure reduction in the Senior Care business. And the other thing I'd say about our Senior Care business, which is - Kevin mentioned this earlier, is we have a significant exposure in our captive business, where one of the customers is an owner of that exposure and we only have a 25% interest in the other customer. And also, some of the other customers that we write have SIRs and retentions and deductibles in that space. On the immunity front, nine of the 12 states that we write, the Senior Care business, had immunity legislation, and again, that will be helpful as we look at our exposure there. So, we think - this is obviously early in the game, because these are just incidents, but we've made our best estimate based on all that information and the overlay of legislation and the product structures of that business as well as the exposure reduction.

And Mark, just to clarify for everybody kind of the difference between an incident and a claim, incidents are typically just self-reporting on the part of an insured. So, if they know they have a COVID-positive resident as an example, they may report that. A claim is where a third-party has typically brought suit against that insured and we've been notified of that suit. So that's - the incidents are just kind of self-reporting. Given the fact that the vast majority of the business we write is on a claims-made basis, there's always an effort on the part of insureds to report incidents to kind of get things in the proper policy periods.

Then a final question, Mike, on the physician liability business, healthcare liability business, can you talk about the state of competition, how are your mutual competitors acting these days?

Yes. First of all, there's still a lot of capital in that space. So, it is highly competitive and it's state-by-state. We see some states, where we have, what I call, maybe more challenging venues where we're securing more rate for the renewal book. There are other states that are just highly, highly competitive, have a lot of aggressive competitors in the mutual space. So, it's region-by-region, state-by-state. There is no question mark that the Specialty area of our business is firming at a greater degree than what we see in the core physician business. But that said, really delighted with the 12 points of rate that we secured in the quarter as I think that will be helpful as we go into the future on the profit side.

[Operator Instructions] Our next question will come from Paul Newsome with Piper Sandler. Please go ahead.

I wanted to sort of expand upon Mark's first question about the reserving process, because obviously, new eyes took a look at the book starting a year ago, that has had a material effect on the reserves and - as well as the accident year picks. But as we think out forward, I'm wondering if there is a view that the sort of same philosophy on accident year picks versus they were in the past or if you're going to try to shoot for an accident year pick that was closer to what you actually - what the best guess is for the ultimate result? Because I think historically, the firm is sort of noted that they want to shoot for a fairly substantial level of ongoing favorable reserve development, assuming that under the view that there is a lot of volatility in the business. So, could you kind of give us a sense - and I'm not really talking about next quarter, I'm really thinking about sort of 2021 and beyond, how that will work it out and if we should be expecting similar levels of favorable reserve development as we saw in the past if the philosophy is unchanged.

Maybe, I'll start, Paul, and then - and Mike can chime in. The line of business continues to be one that has a tremendous amount of uncertainty and how claims would develop, and certainly COVID only adds to that uncertainty. And as we've talked in the past kind of that existence of that uncertainty has caused us to be very cautious on how we've reserved the book of business, and we still remain very focused on that uncertainty that exists in the line. I don't think that really - that has changed much at all. As to kind of what we've have said historically is that we were looking to price 10 points - to reserve 10 points above our pricing. I think given kind of the tremendous amount of uncertainty, we wouldn't make that specific statement today. We would just say that we're reserving very, very cautiously. But, Mike, do you want to fill in some details on that?

Yes, I would just say that when you look at just - first of all, we haven't changed our reserve philosophy or how we've set reserves, any of that, which as Ned mentioned earlier. But now, we're just evaluating - when we set the net accident year loss ratio, we're really kind of evaluating the frequency trends, and interestingly, there were significant frequency reductions this quarter that we did not recognize because we weren't sure, as Ned said, there is some uncertainty in pandemic but whether that's real or not or just court delays and later reporting. We've kept a very close eye on severity trend and pricing to that severity trend and that's state-by-state. We see some states in our core physician book that the relatively flat severity trend, we see others with 6 points to 7 points. So, on average, it tends to be in that kind of 3% to 3.5% range on the severity side. So we're pricing for that, we're certainly not recognizing all of that immediately. We're watching this earn out over the next quarters, but we continue to just evaluate all those pieces as we set our net accident year loss ratio reserve. And I think Ned hit it on the head with respect to just the uncertainty of COVID, the uncertainty of severity. So, we're keeping that in mind as well.

You sort of began what was going to be my second question - the answer to my second question, which is outside Workers' Comp and Lloyd's, really in your medical practice professional liability book, are you getting enough rate at this point that you really think you're going to get substantial underlying margin expansion? Or is it still just very uncertain that given the numbers? I mean, I think if I multiply the low ends of your range, it looks pretty good, if I multiply the high-end of what you talked about severity and frequency, it's not so much. Where do you think we shake out in that regard?

Yeah, I think, first of all, I'm really pleased - I mean, we started in - as the new team came together, second half of 2019, we had high-single digit rate increases and that continued into the first two quarters of 2020, where it became double-digits. So, and as you know, this quarter about 12 points in our physician and 20% in our Specialty side of that. And as Ned stated in his opening, these are given the frequency being flat and some of the trends we're seeing that have gone down in the second quarter that - we are pricing above the frequency - in frequency and severity trend, which should bring margin into the business. And the way I'd state that is, if you look at year-end 2019 compared to this quarter, we actually had about a 5.2-point improvement in our accident year loss ratio compared to year-end as a result of the reunderwriting efforts and the rate trend. So, we're really, really pleased with that. And I think the other thing that is really important to point out is the Specialty team is doing - they're doing a tremendous job beyond rate. As we look at the hospital facilities, correctional care book, large accounts, we're securing terms, condition, and product structure that add additional rate adequacy to the book of business. So we're also looking at it outside of just pure rate as compared to frequency and severity because we're seeing some significant improvements there as well. So, we're really encouraged as we go out in the future quarters.

Yes. And just to reiterate that, Paul, and I think it's important as anybody tries to model our business is there are really three things that you need to think about in the change in the book and it's not just about that rate. That rate is tremendously important, as Mike said. We feel we're getting rate beyond trend, but equally or perhaps even more important is the reunderwriting of the book and the business that we've walked away from because it's - we priced ourselves out of it or we've chosen not to renew it and then the restructuring. And just an easy way to think about the restructuring is the addition of a deductible. So, if you add a $200,000 deductible or increase the deductible by $200,000, but the rate stays the same and that rate analysis you see no change, but the underlying profitability of the business definitely goes up. And so, all three of those factors have to be considered. The one that's the hardest to give insight into is the restructuring, obviously, but it's where a lot of the efforts, especially on the Specialty book are aimed.

Our next question will come from Bob Farnam with Boenning & Scattergood. Please go ahead.

Just to complete that last thought, so when you're saying the change in the terms and conditions, that's largely means that you've applied different types of deductibles to these policies, is that the majority of what you mean by changes in terms and conditions?

Deductibles and SIRs are probably the most prominent change, but there are other structural changes that can be as well, co-participations, things of that nature. Mike, what would you add to that list?

Just the other thing I'd add is just, Bob, as we use our Inova captive structures, there is the ownership piece of that. So, if you have customers that are owning that underwriting result and we're more of a fee-based player on that, actually - obviously that takes some volatility out of your results as well. But no, that's primarily retentions, aggregates, SIRs, and all of those terms that are prevalent in the Specialty sector.

Yes, obviously that's hard for us to model, but it's - obviously, it seems like there's a lot of things going on there. So it's probably important to know. And one quick question on that Large National Healthcare Account, I mean, it sounds like you booked kind of a limit loss there. Is that the last we're going to see if any negative financial results in there? Or are there any scenarios where you might see additional losses there?

Ned, I'll take it.

Okay.

Bob, as you're aware, we strengthened the reserves at year-end and we booked it at a high confidence level for this exposure, and you're spot on, the tail exposure was booked assuming a full limits maximum exposure. So, there is no additional exposure to the tail. So, based on these facts, there is just a high confidence level that this exposure is behind us, and obviously, we're very pleased with that.

I'm showing no more questions currently. So this will conclude our question-and-answer session. I'd like to turn the conference back over to Ken McEwen for any closing remarks.

Thank you, Grant, and thank you to everyone who joined us today. Please stay safe and healthy, and we look forward to speaking with you again in November.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.