Ladies and gentlemen, good morning and thank you for attending today ProAssurance Third Quarter 2022 Earnings call. My name is Amber and I will be your operator for today's call. [Operator Instructions] It was now my pleasure to hand the conference over to our host, Jason Gingerich, with ProAssurance. Jason, please proceed.

Thank you, Amber. Good morning, everyone. Welcome to ProAssurance's conference call to discuss the company's third quarter 2022 results. These results were reported in a news release issued on November 8, 2022, and in the company's quarterly report on Form 10-Q, which was also filed on November 8, 2022. 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 US federal securities laws and subject to applicable safe harbor protections. The content of this call is accurate only on November 9, 2022. 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 counterparts. I'd like to remind you this call is being recorded and there will be a time for questions after the conclusion of prepared remarks. On our call today, we have Ned Rand, President and CEO; Dana Hendricks, Chief Financial Officer; Mike Boguski, President of our Specialty Property and Casualty Lines; and Kevin Shook, President of our Workers' Compensation Insurance Operations. Ned, will you start us off, please?

Thank you, Jason, and good morning. The team here at ProAssurance is pleased to discuss the quarter's results with you and to provide an opportunity to hear from our line of business leaders on the progress we're making and challenges we're addressing. This quarter's results for ProAssurance continue to reflect several trends that have been in place throughout the year. First is ongoing improvement in both our core businesses, Specialty P&C, and in workers' compensation. Loss ratios are improving as we are seeing the results of re-underwriting in the healthcare line and prop reaction to industry trends and the workers' compensation business. We are also pleased to see increases in policyholder retention across the Board and the components of our Specialty P&C business, which Mike will detail for you shortly. It's been a couple of years have changed for all of us and we believe that the reliability and customer focus of our operational teams, coupled with a long-standing reputation for excellence, make ProAssurance an appealing choice for our insurers in a competitive marketplace. Finally, the steady progression higher in interest rates and the effects of these rates will have on our investment - excuse me, the effects of these rates have on investment markets and the economy continues to play a large role in our results. And you will see the positive impact of just a couple of quarters of high - higher interest rates and the level of income that our portfolio produces. As more of our portfolio turns over and is reinvested, we'll continue to see that income grow and impact our bottom line. Dana has prepared to take you through those numbers as she shares the results for the quarter and highlights the major drivers of our results. Dana?

Thanks, Ned, and good morning, everyone. For the third quarter, we reported an operating loss of $3 million or $0.06 per share. Operating loss in the quarter reflected a reduction in equity in earnings from the investment fund to LPs and LLCs which posted a loss this quarter, as a result of the broad decline in both fixed income and equity markets that began early in the year and continued through the third quarter. Gross premiums written were essentially unchanged from the third quarter of 2021 with an increase in Specialty P&C premium, offsetting declines in the workers' compensation insurance and Lloyd's segment. Strong retention and rate gains helped to maintain premium in a competitive market environment. Excluding the impact of purchase accounting and prior year transaction related costs, our consolidated combined ratio improved 1 percentage point from the third quarter of 2021 driven by improvement in our standard physician business. Investment results provided a further 2.5-point improvement in the consolidated operating ratio, a profitability ratio which incorporates the effect of investment income in addition to underwriting results. You will recall from last quarter's discussion that our net loss and expense ratios for 2022 as compared to prior periods are impacted by offsetting amounts due to our change in process of allocating ULAE in our Specialty P&C segment. For the current quarter, that change resulted in a decrease in our consolidated net loss ratio of about 3 points with an equal and offsetting increase to our consolidated expense ratio. Excluding the change in ULAE, our consolidated current accident year net loss ratio improved by 2.5 points as compared to the third quarter of 2021. The majority of this improvement came from lower claims frequency in the Standard Physician business, especially in the acquired NORCAL business and in the Workers' Compensation…

Thanks, Dana. Now we're going to pivot to Mike Boguski for commentary on the Specialty Property and Casualty segments. Mike?

Thank you, Jason. Specialty P&C segment results for the quarter are highlighted by continued improvements in loss and loss adjustment expenses, pricing increases and premium retention. Excluding a 3.9 percentage point impact from purchase accounting related to the NORCAL acquisition, the combined ratio improved 1.5 percentage points as compared to the third quarter of 2021. The NORCAL acquisition continues to contribute topline growth which resulted in increased gross written premium during the quarter. We are pleased with the strategic value that the NORCAL transaction continues to deliver to the organization. Gross written premium increased by 1% to $238 million in the quarter with year-to-date growth of 29%. Net earned premium decreased 5% during the quarter as a result of the underwriting efforts over the past year. Premium retention for the entire segment was 87% in a competitive marketplace, driven by an 89% retention in the Standard Physician business. Specialty Healthcare retention was 74% and has improved 5 percentage points compared to 2021. We continue to see aggressive competition in the large account space. We delivered strong premium retention of 92% and 91% in our medical technology and small business units respectively. Overall, the segments renewal pricing increases were 8% in the quarter driven by the Standard Physician book at 9%. New business was approximately $12 million in the quarter, relatively consistent with the third quarter of 2021. The current accident year net loss ratio for the quarter exclusive of purchase accounting and the ULAE change, improved approximately 4 percentage points driven by lower claims frequency in Standard Physician book. This included a 2.2 percentage point improvement from the NORCAL book. We recognized net favorable prior accident year reserve development of $6 million in the quarter compared to $7 million in the same period of 2021. Favorable quarterly development in both the current and prior years included approximately $3 million related to the beneficial amortization of the purchase accounting adjustments on NORCAL's reserves. The expense ratio for the quarter was 26.6%, however, after excluding purchase accounting, various one-time items and yearly change, the expense ratio increased one percentage point as compared to the same period of 2021. The impact of one-time expense items was approximately 1 percentage point. The increase in the ratio was mostly related to a higher volume of premium subject to broker commissions in the NORCAL book and lower levels of earned premium. In summary, the results in the quarter are highlighted by improved loss ratios, higher premium retention, and continued benefits from integration and operational excellence strategies. We believe these efforts are positioning the company well as we navigate the challenges of competitive pricing, a tight labor market as well as economic and social inflation. We are confident in our ability to manage through these challenging - this challenging environment. Thank you. Jason?

Thanks, Mike. Kevin, will you bring us up to date on the Workers' Compensation Insurance and the Segregated Portfolio Cell Reinsurance segments?

I will, Jason, thank you. The Workers' Compensation Insurance segment's third quarter combined ratio decreased to 100.5% in 2022 compared to 106.3% in 2021, reflecting a lower loss ratio, partially offset by an increase in the expense ratio. The 2022 combined ratio, excluding intangible asset amortization and the corporate management fee was 97.5%. Gross written premium decreased for the third quarter, driven by renewal rate decreases, lower new business and the loss of a large account, partially offset by higher payroll audits and related premium adjustments. Renewal price decreases in our traditional book of business were 5% in 2022 and new business was down about $500,000. Our premium retention was 80% for the quarter, driven by the movement of a large account to a competitor. While the loss of this account resulted in a decrease to premium revenue during the quarter, maintaining our underwriting standards in this prolonged soft workers' compensation market cycle remains a top priority. Our strategies continue to focus on working with our valued distribution partners to secure quality new business opportunities and retain profitable accounts. Audit premium in our traditional book of business increased $3.5 million quarter-over-quarter, indicative of the payroll rebound after the lifting of pandemic restrictions in our underwriting territories in 2021. Audit premium in the 2022 third quarter included an increase of $500,000 to our earned, but unbilled audit premium asset. We will continue to monitor processed audit activity and the impact of wage inflation on the EBO assets in future quarters. The decrease in the calendar year loss ratio reflects an improvement in the current accident year loss ratio. The higher 2021 accident year loss ratio reflected elevated claim activity as workers return to employment with the easing of pandemic restrictions and the labor shortage, resulting in a reduction in skilled job training, alternative work arrangement risks and employee fatigue. During the first nine months of 2022, the claims operation closed 50% of 2021 and prior claims representing one of the best claim closing percentages in the last 10 years. Our expense ratio increased during the third quarter, largely due to higher general expenses from team member compensation and an increase in business related travel with the full return to normal business activities and events this year I'll finish with the Segregated Portfolio Cell Reinsurance segment. This segment reported a loss of $248,000 for the quarter, which included underwriting income of $450,000 that was more than offset by investment losses. We renewed all the captive programs that were available for renewal during the quarter. Jason?

Thank you, Kevin. Now I will turn it back to Ned for a review of the results from Lloyd's. Ned?

Thanks, Jason. Lloyd segment reported a small loss of $174,000 in the quarter. The impact to the bottom line over time as the Lloyd's investment will reflect our reduced participation. Approximately 34% of the Lloyd's coverage written is property coverage or catastrophe reinsurance. Therefore, we do have some exposure to the losses resulting from Hurricane Ian. Our initial indications are that the ProAssurance share of incurred losses resulting from the hurricane is likely to fall between $1 million and $2 million. Before we get to questions, I want to offer a heartfelt thank you to all of our team members across the organization for your dedication and commitment. You all continue to rise to the challenges and bring your best efforts to work each day. We have seen significant progress in our results and we will always strive to continue that improvement. I remain confident that we are taking the right steps to achieve our mission and to deliver for our customers and shareholders.

Thank you, Ned. Amber, that concludes our prepared remarks and we are ready for questions.

Thank you. We will now begin the Q&A session. [Operator Instructions] Our first question comes from Paul Newsome with Piper Sandler. Paul, your line is now open.

Good morning, thanks for the call. I wanted to ask a little bit - we get a little bit more color on the reserve development, which historically has been very high and we had - and it's a different type of process than other people, other companies such that really the calendar year was kind of the right number to look at? Is that changed? Should we consider basically must favorable reserve development as part of the norm?

Hi, Paul. It's Ned. That's a good question. And as we've talked over the last number of quarters, we're taking what we think is a careful and cautious approach, but the establishment of reserves and the current calendar year as well as any development that we're recognizing. A couple of points. We do a deeper dive on reserves kind of in the second quarter and fourth quarter. I think that deeper dive has become more important to the process as the data that feeds into the process has become a little less consistent because of the impact that COVID had on claim closing patterns. And so I think that leads into some of what we see in the quarter. But I do think your point of kind of the levels and if you're going back 10 years to the levels of favorable development that we saw in the past, I think that's unlikely to occur the huge levels of magnitude. But we do believe that we are establishing reserves on a very conservative basis and we think that's appropriate given both the lack of consistency of data, given COVID. The challenges that we do see in the marketplace, Mike in his prepared comments mentioned social inflation and that's certainly something that we have an eye on. The other thing that's happened in particular with our healthcare professional liability reserves, again turning back to COVID is the closing patterns have slowed, which means the resolution of claims is taking longer. That impacts that reserve analysis, but also kind of the final conclusion that you reached. So it used to be that in, call it, three to four years, we felt we had pretty good clarity on where a current accident year was headed, that timeframe has expanded. And while court systems have opened it back up and are moving probably at a pace similar to what they were operating at pre-COVID, there remains a significant backlog in the court systems that has to be worked through. Mike, I don't know if there's anything you'd add to that?

I have no further comments.

That's great. I was hoping to turn towards investment returns. Obviously, higher interest rates good for your regular investment income, but the earnings in the unconsolidated subsidiaries at the recent entrants are more volatile. So I kind of have two questions when I ask you, what is - should we expect fourth quarter I guess to be with their loss for the alternative investments? And then kind of relatedly, could you talk about how that product and some of the others tax type of investments filter into your pricing of insurance policies? Because I'm wondering if - maybe this is the question really, if we sort of back out or have some sort of normalized return for those kinds of investments, what kind of ROE are we currently pricing on there - businesses out?

Do you want to take the first part of that and then I will may be take the second part, Dana?

Yes. That'd be great. Good morning, Paul, and thanks for the question. So little - just a little background, a little more insight on those investments in LPs and LLCs that you're asking about. We had a $4.5 million roughly loss on those invested assets in the LPs and LLCs. So I'm putting aside the tax credits - tax credit amortization that also fall into the equity and earnings line. So, as a reminder, those do report to us on a one quarter lag and therefore the loss that we saw in the third quarter in our financial statements is a reflection of second quarter market changes. While the majority of the investments in this category did see negative marks in the quarter, the biggest drivers really were in the software and FinTech sector, which I think we're all - generally those following the markets are aware that they took a big hit in the second quarter. Also to experiencing a loss, but to a lesser degree was private equity credit. Real estate did tend to fare pretty well in the second quarter, which translated to our third quarter earnings. So that's a bit of a backdrop. The other thing that I would say, Paul, is about this particular class of investments is that over the long term, they really have served us well. Over the last - I went back and look because I thought someone like you might be interested in knowing actually, I went back and looked over the last five years and this is only the second quarter in which we realized a loss associated with this particular class of investments. The last thing is second quarter of 2020. So over the long term, it served - this investment classes really served us well. And we do expect yields to be in the ballpark of say 6% give or take 100 basis points. And when I look back through the last five years, I certainly see that on average. I hope that's helpful and responsive to your first question.

And Paul, on your second question, the way that kind of the algorithms that we look at from a pricing perspective work is that they have a kind of a built-in risk-free rate based on the cash flows expected under the policy. At the end of the day that for us translates to kind of a targeted loss ratio. And so - so that's the way the pricing works. And historically that's been kind of 10% to 13% ROE target within the pricing mechanism that we use. Recognizing that that's over a long term and so that depending on market conditions, you will achieve that in some periods and you'll probably underperform that in some periods. As an organization, we target an ROE for ProAssurance at 700 basis points above your 10-year treasuries, certainly that ROE target is moving up as interest rates move up. I think importantly to some of the comments that Dana made about the earnings power of the investment portfolio, when you think about the leverage of our investments to our equity, it's about a four to one leverage, which means on an after-tax basis that you gain approximately 320 basis points of ROE for every 100 basis points of rate gains you make in the portfolio and we think that'll be an important driver as we move forward.

Yes, I'd like to circle back as Paul specifically asked about, what can he expect next quarter. And Paul, we will begin receiving reports from these investments really in mid-November. And over the course of the six weeks thereafter, obviously, as they begin reporting into us, then we will have a sense of that, but it's not something I'd be able to give you insights in on at this moment.

All right. Thank you. Always appreciate the help.

Thanks, Paul.

Thank you. There are currently no further questions in queue. [Operator Instructions] There are currently no further questions in queue, so I will pass the conference back over to Jason for any additional or closing remarks.

Thank you, Amber. And thank you to everyone that joined us today. We look forward to speaking with you again in 2023.

This concludes today's ProAssurance third quarter 2022 earnings call. Thank you for your participation. You may now disconnect your line.