Q2 2024 ProAssurance Corp Earnings Call

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Operator: Good morning, everyone. Welcome to Pro Assurance Contents' conference call to discuss the company's second quarter, 2024 results. I'd like to remind you that the call is being recorded and there will be time for questions after the conclusion of the prepared remarks. Now I will turn the call over to Heather Wetzel to begin.

Speaker Change: Good morning everyone. Welcome to ProAssurance's conference call to discuss the company's second quarter 2024 results. I'd like to remind you that the call is being recorded and there will be time for questions after the conclusion of the prepared remarks.

Speaker Change: Now I will turn the call over to Heather Wetzel to begin. Heather, please go ahead.

Heather Wetzel: Morning, everyone. ProAssurance issued its news release, investor presentation, and report on Form 10-Q on second quarter results yesterday, August 8. Included in those documents were cautionary statements about 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.

Heather Wetzel: Morning everyone. ProAssurance issued its news release investor presentation and report on Form 10-Q on second quarter results yesterday, August 8th.

Heather Wetzel: 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.

Heather Wetzel: This morning, our management team will discuss selected aspects of the results on this call, and investors should review the 10Q 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 law and subject to applicable safe harbor protections. The content of this call is accurate only as of August 9, 2024, and except as required by law or regulation, ProAssurance will not undertake and expressly disclaim any obligation to update or alter any information disclosed as part of these forward-looking statements.

Speaker Change: This morning, our management team will discuss selected aspects of the results on this call, and investors should review the 10Q and news release for full and complete information.

Speaker Change: 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 Law and subject to applicable safe harbor protections.

Speaker Change: The content of this call is accurate only on August 9, 2024, and except as required by law or regulation, ProAssurance will not undertake and expressly disclaim any obligation to update or alter information.

Speaker Change: 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.

Unknown Executive: Good morning, everyone. Welcome to Pro Assurances Conference called to discuss the company's second quarter, 2024 results. I'd like to remind you that the call was being recorded, and there will be time for questions after the conclusion of the prepared remarks.

Heather Wetzel: 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 counterpart. 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 Rob Francis, Kevin Shook, and Karen Murphy. Now I will turn the call over to Nick.

Speaker Change: 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 Rob Francis, Kevin Shook, and Karen Murphy. Now I will turn the call over to Ned.

Unknown Executive: Now I would turn the call over to Heather Websfield to begin. Heather, please go ahead.

Ned Rand: Thank you, and I'd like to start by welcoming everyone to our call. We reported operating earnings in the second quarter of $0.23 per share, benefiting from a 16% increase in net investment income as we continue to take advantage of the higher interest rate environment. Our underwriting results, particularly in the specialty T&C segment, which includes our medical professional liability line of business, are beginning to reflect our actions to achieve long-term sustained profitability in the face of market conditions that remain challenging.

Ned Rand: Thank you, and I'd like to start by welcoming everyone to our call.

Heather Websfield: Good morning, everyone. Pro Assurances issued its news release, investor presentation, and report on form 10K, one second quarter results yesterday, August 8th, included in those documents for cautionary statements about the significant risks, uncertain needs, and other factors that are out of the company's control and could affect Pro Assurances business and alter expected results. Please review those statements. This morning our management team will discuss selected aspects of the results of this call, and investors should review the 10Q and news release for full and complete information.

Speaker Change: We reported operating earnings in the second quarter of $0.23 per share, benefiting from a 16% increase in net investment income as we continue to take advantage of the higher interest rate environment.

Speaker Change: Our underwriting results, particularly in the specialty T&C segment, which includes our medical professional liability line of business.

Speaker Change: are beginning to reflect our actions to achieve long-term, sustained profitability in the face of market conditions that remain challenging.

Ned Rand: Looking first at Specialty T&C, the net loss ratio for the quarter improved both sequentially and year over year. Compared with last year, the current accident-ear loss ratio improved by 1.4 points, with a higher level of favorable prior year reserve release also contributing to the two point improvement in the net loss ratio. For some time, we have recognized and responded to the challenging medical professional liability loss environment. While frequency remains fairly flat, social inflation and eroding tort reforms are driving rising severity.

Heather Websfield: 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 US Federal Securities Law and subject to applicable safe harbor protection. The content of this call is accurate only on August 9th, 2024, and accepted is required by law or regulation. Pro Assurances will not undertake an expressly disclaim and the obligation to update or alter information disclosed as part of these forward looking statements.

Speaker Change: Looking first at Specialty P&C, the net loss ratio for the quarter improved both sequentially and year-over-year. Compared with last year, the current accident year loss ratio improved by 1.4 points, with a higher level of favorable prior year reserve releases.

Speaker Change: Also contributing to the two-point improvement in the net loss ratio.

Speaker Change: For some time, we have recognized and responded to the challenging medical professional liability loss environment.

Heather Websfield: We also expect to reference non-gap items during today's call. The company's recent news release provides a reconciliation of these non-gap numbers to their gap counterparts. On the call with me today are Ned Rand, President and CEO, and Dana Hendrix, Chief Financial Officer.

Speaker Change: While frequency remains fairly flat, social inflation and eroding tort reforms are driving rising severity.

Ned Rand: We believe we are ahead of many in the space in achieving rate levels in NPL that outpace severity trends, even as we remain intently focused on segments within health care where there are opportunities to write business profits. Since 2018, we have increased renewal premiums within our NPL lines of business by over 65% cumulative, with this quarter's renewal pricing increases averaging 9%, driven by 10% for our standard business and 12% for our specialty business. We also continue to forego renewal and new business opportunities that we believe do not meet our expectations of rate accuracy in the current loss environment. New business was below last year at $5 million.

Speaker Change: We believe we are ahead of many in the space in achieving rate levels in NPL that outpace severity trends, even as we remain intently focused on segments within healthcare where there are opportunities to write business profitably.

Heather Websfield: Also joining on the call today are executive leadership team members, Rob Francis, Kevin Schuch, and Karen Murphy.

Heather Websfield: Now I will turn the call over to Ned.

Speaker Change: Since 2018, we have increased renewal premiums within our NPL lines of business by over 65% cumulatively, with this quarter's renewal pricing increases averaging 9%, driven by 10% for our standard business and 12% for our specialty business.

Ned Rand: Thank you, and I'd like to start by welcoming everyone to our call. We reported operating earnings in the second quarter of 23 cents per share, benefiting from a 16% increase in net investment income, as we continue to take advantage of the higher interest rate environment. Our underwriting results, particularly in the specialty P and C segment, which includes our medical professional liability line of business, are beginning to reflect our actions to achieve long-term sustained profitability in the face of market conditions that remain challenging.

Speaker Change: We also continue to forego renewal and new business opportunities that we believe did not meet our expectations of rate adequacy in the current loss environment. New business was below last year at $5 million.

Ned Rand: As a result, net written premiums for Specialty P&C were flat, while their retention of existing insureds remained a solid 84%, in parallel with our pricing action. We are focused on disciplined underwriting and managing claims to address market conditions. We are moving steadily forward with our use of innovation tools to improve risk selection, enhance pricing decisions, and improve workflows, while also focusing on ease of doing business for our insured and distribution partners.

Speaker Change: As a result, net written premiums for Specialty P&C were flat, although retention of existing insureds remained a solid 84%.

Ned Rand: Looking first at specialty P and C, the net loss ratio for the quarter improved both sequentially and year over year compared with last year, the current action at your loss ratio improved by 1.4 points with a higher level of favorable prior year reserve releases. Also contributing to the two-point improvement in the net loss ratio. For some time, we have recognized and responded to the challenging medical professional liability loss environment, while frequency remains fairly flat, social inflation, and eroding tort reforms are driving rising severity.

Speaker Change: In parallel with our pricing actions, we are focused on discipline underwriting and managing claims to address market conditions.

Speaker Change: We are moving steadily forward with our use of innovation tools to improve risk selection, enhance pricing decisions, and improve workflows, while also focusing on ease of doing business for our insured and distribution partners.

Ned Rand: We are leveraging our extensive data on this market with predictive analytics, which is helping us in those markets and subsectors where there are opportunities to write business processes. For example, these tools help us consider a variety of factors, including specialty and venue severity, when establishing our underwriting appetite.

Speaker Change: We are leveraging our extensive data on this market with predictive analytics, which is helping us in those markets and subsectors where there are opportunities to write business profitably.

Speaker Change: For example, these tools help us consider a variety of factors including specialty and venue severity when establishing our underwriting appetite.

Ned Rand: We believe we are ahead of many in the space in achieving rate levels and MPL that outpaste severity trends, even as we remain intently focused on segments with men health care, where there are opportunities to write business profits, of the Wood. Since 2018, we have increased renewal premiums within our NPL lines of business by over 65% cumulatively, with this quarter's renewal pricing increases averaging 9%, driven by 10% for our standard business and 12% for our specialty business.

Ned Rand: We're pleased to be seeing improved retention in the more profitable small to mid-sized accounts as a part of this effort. Now, turning to our Workers' Compensation segment. We are aggressively working to address the impact of higher loss trends related to rising medical costs per claim that we began to see in mid-2023. For the quarter, the segment's current accident year loss ratio was about four points below the full year 2023 ratio, although still above last year's second quarter.

Speaker Change: We're pleased to be seeing improved retention in the more profitable small to mid-sized accounts as a part of this effort.

Speaker Change: Turning to our workers' compensation segment, we are aggressively working to address the impact of higher loss trends related to rising medical costs per claim that we began to see in mid-2023.

Speaker Change: For the quarter, the segment's current accident-year loss ratio was about four points below the full-year 2023 ratio, although still above last year's second quarter.

Ned Rand: We also continue to forego renewal and new business opportunities that we believe do not meet our expectation of rate accuracy in the current loss environment. New business was below last year at $5 million. As a result, net written premiums for specialty PNC were flat, other retention of existing insurers remained a solid 84%. In parallel with our pricing actions, we are focused on discipline underwriting and managing claims to address market conditions. We are moving steadily forward with our use of innovation tool to improve risk selection, enhance pricing decisions, and improve workflows, while also focusing on easy doing business for our insured and distribution partners.

Ned Rand: We believe our caution in the current claims environment and focus on operational discipline is having a positive impact. Further, our underwriting appetite remains intentionally cautious until we can obtain the necessary rate, reflected in gross written premiums down 3% with new business below last year at $5 million. We have seen the average cost per claim improve slightly from the elevated levels initially seen in the second half of 2023. Reported claim frequency continues to trend below historical levels, but it's still reflecting the impact of higher average medical costs per claim and the growing influence of vertically integrated medical systems. There was no change in prior action at your reserves for this segment in the second quarter.

Speaker Change: We believe our caution in the current claims environment and focus on operational discipline is having a positive impact.

Speaker Change: Further, our underwriting appetite remains intentionally cautious until we can obtain the necessary rate, reflected in gross written premiums down 3%, with new business below last year at $5 million.

Speaker Change: We have seen the average cost per claim improve slightly from the elevated levels initially seen in the second half of 2023.

Speaker Change: Reported claim frequency continues to trend below historical levels, although still reflecting the impact of higher average medical costs per claim and the growing influence of vertically integrated medical systems.

Ned Rand: We are leveraging our extensive data on this market with predictive analytics, which is helping us in those markets and subsectors where there are opportunities to write business profitably. For example, these tools help us consider a variety of factors, including specialty and dimly severity, when establishing our underwriting appetite. We're pleased to be seeing improved retention in the more profitable small-to-mid-size accounts as a part of this effort.

Speaker Change: There's no change in prior action at your reserves for this segment in the second quarter.

Ned Rand: We are preparing to introduce tools that will help to address the challenging market conditions by using AI, along with underwriting and claims data analytics to enhance profitability, productivity, and efficiency. Most recently, we entered into an agreement with Clara Analytics, a leading AI service provider with extensive workers comp industry experience, to help us enhance medical outcomes for injured workers, improve our case reserve estimation capabilities, and lighten the administrative burdens for our claims professionals, will be leveraging their platform to address various aspects of escalating medical costs, including their medical document intelligence platform that helps direct care to the best performing provider, and their tools to help identify high-severity claims early in the claims lifecycle.

Speaker Change: We are preparing to introduce tools that will help to address the challenging market conditions by using AI, along with underwriting and claims data analytics to enhance profitability, productivity, and efficiency.

Speaker Change: Most recently, we entered into an agreement with Clara Analytics, a leading AI service provider with extensive workers' comp industry experience.

Ned Rand: Turning to our workers' compensation segment, we are aggressively working to address the impact of higher loss trends related to rising medical costs per claim that we began to see in mid-2023. For the quarter, the segment's current accident-ear loss ratio was about four points below the full-year 2023 ratio, although still above last year's second quarter. We believe our caution in the current claims environment and focus on operational discipline is having a positive impact.

Speaker Change: to help us enhance medical outcomes for injured workers, improve our case reserve estimation capabilities, and lighten the administrative burdens for our claims professionals.

Speaker Change: We will be leveraging their platform to address various aspects of escalating medical costs, including their medical document intelligence platform that helps direct care to the best performing providers, and their tool to help identify high severity claims early in the claims lifecycle.

Ned Rand: These new capabilities leverage the integrated policy, claims, risk management, and billing systems that we put in place in this segment at the beginning of 2024. We expect Clara to be contributing to our processes in the fourth quarter of 2024. As I said last quarter, our long history in both medical professional liability and workers' compensation has taught us that these cyclical lines will respond to our focused efforts. We remain confident in our ability to ultimately achieve underwriting profitability in both businesses despite current market conditions that are headwinds keeping us from achieving our goals as quickly as we would like.

Speaker Change: These new capabilities are leveraging the integrated policy, claims, risk management, and billing systems that we put in place in this segment at the beginning of 2024.

Ned Rand: Further, our necessary rate reflected in growth-written premiums down 3% with new business below last year at $5 million. We have seen the average cost per claim improved slightly from the elevated levels initially seen in the second half of 2023. Reported claim frequency continues to trend below historical levels, but they still reflect in the impact of higher average medical cost per claim and the growing influence of vertically integrated medical systems. There's no change in prior accident-ear reserves for this segment in the second quarter.

Speaker Change: We expect Clara to be contributing to our processes in the fourth quarter of 2024.

Speaker Change: As I said last quarter, our long history in both medical professional liability and workers' compensation has taught us that these cyclical lines will respond to our focused efforts.

Speaker Change: We remain confident in our ability to ultimately achieve underwriting profitability in both businesses despite current market conditions, but are headwind keeping us from achieving our goals as quickly as we would like.

Ned Rand: We continue to choose to shrink our book in some markets while we wait for conditions to improve so that we can then 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 insurance over the long term. We know that maintaining our discipline will be key to delivering positive long-term results. I think you'll see more signs of our progress as Dana looks further into the results.

Speaker Change: We continue to choose to shrink our book in some markets while we wait for conditions to improve so that we can then 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 insurers over the long term.

Ned Rand: We are prepared to introduce tools that will help to address the challenging market conditions by using AI along with underwriting a claims data analytics to enhance profitability, productivity and efficiency. Most recently, we entered into an agreement with Clara Analytics, a leading AI service provider with extensive workers' comp industry experience. To help us enhance medical outcomes for injured workers, improve our case reserve estimation capabilities, and lighten the administrative burdens for our claims professionals.

Speaker Change: We know that maintaining our discipline will be key to delivering positive long-term results.

Ned Rand: We will be leveraging their platform to address various aspects of escalating medical costs, including their medical document intelligence platform that helps direct care to the best performing provider, and their tools to help identify high severity claims early in the claims life cycle. These new capabilities are leveraging the integrated policy, claims risk management and billing systems that we put in place in this segment at the beginning of 2024. We expect Clara to be contributing to our processes in the fourth quarter of 2024.

Speaker Change: I think you'll see more signs of our progress as Dana looks further into the results. Dana?

Dana Hendricks: Thanks, Ned. I'm going to dive a bit deeper into aspects of the specialty P&C and workers' compensation segments and overall results before turning to investment. As Ned noted for Specialty P&C, net written premiums were essentially flat. We're pleased with the stable retention we're seeing overall, even as rates improve. The segment's net loss ratio improvement of two points was driven by the progress we're making on the current accident year loss ratio in our NPL business.

Dana Hendricks: Thanks, Ned. I'm going to dive a bit deeper into aspects of the Specialty P&C and Workers' Compensation segments and overall results before turning to investment.

Dana Hendricks: As Ned noted for Specialty P&C, net written premiums were essentially flat. We're pleased with the stable retention we're seeing overall, even as rates improve.

Dana Hendricks: The segment's net loss ratio improvement of two points was driven by the progress we're making on the current accident year loss ratio in our NPL business.

Dana Hendricks: In addition, net favorable prior accident year reserve development of $6 million reflected better actual loss emergence than expected from our more in-depth second quarter actuarial review. The better loss ratio is partially offset by a higher expense ratio, as last year's expense ratio benefited from higher seating commission income from a large-tail policy, which is an offset to expenses. For workers' compensation, gross written premiums were down just over 3%.

Dana Hendricks: In addition, net favorable prior accident year reserve development of $6 million reflected better actual loss emergence than expected from our more in-depth second quarter actuarial review.

Ned Rand: As I said last quarter, our long history and both medical professional liability and workers compensation has taught us that these cyclical lines will respond to our focused efforts. We remain confident in our ability to ultimately achieve underwriting profitability in both businesses despite current market conditions that are ahead when keeping us from achieving our goals as quickly as we would like. We continue to choose to shrink our book in some markets while we wait for conditions to improve so that we can then turn our focus to growth.

Dana Hendricks: The better loss ratio is partially offset by a higher expense ratio, as last year's expense ratio benefited from higher seating commission income from a large-tail policy, which is an offset to expense.

Dana Hendricks: For workers' compensation, gross written premiums were down just over 3 percent. This was due to a change in our EBOB estimate, retention losses, and renewal rate decreases, partially offset by higher audit premiums.

Dana Hendricks: This was due to a change in our EBOB estimate, retention losses, and renewal rate decreases, partially offset by higher audit premiums. The segments combined ratio was 113.2%, reflecting the higher current accident year net loss ratio, as well as a one point increase in the expense ratio, largely due to higher compensation-related costs. Across all of our segments, including corporate, expenses and expense ratios are higher than last year, as we had anticipated. However, full year 2023 expenses were reduced by about $7 million due to non-recurring benefits that we've talked about in the past. This year, compensation-related costs are running higher on our slightly lower overall headcount.

Ned Rand: But we will not compromise to achieve a short term fix at the expense of protecting our balance sheet and our insurance over the long term. We know that maintaining our discipline will be key to delivering positive long-term results.

Dana Hendricks: The segments combined ratio was 113.2 percent, reflecting the higher current accident year net loss ratio, as well as a one point increase in the expense ratio, largely due to higher compensation related costs.

Dana Hendricks: I think you'll see more signs of our progress as Dana looks further into the results. Dana? Thanks, Ned. I'm going to dive a bit deeper into aspects of the specialty PNC and workers' compensation segments and overall results before turning to investment. As Ned noted for specialty PNC, net-written premiums were essentially flat. We're pleased with the stable retention we're seeing overall even as rates improve. The segment's net loss ratio improvement of two points was driven by the progress we're making on the current accident-year loss ratio in our MPL business.

Dana Hendricks: Across all of our segments, including corporate, expenses and expense ratios are higher than last year, as we had anticipated.

Dana Hendricks: Full year 2023 expenses were reduced by about $7 million by non-recurring benefits that we've talked about in the past.

Dana Hendricks: This year, compensation-related costs are running higher on our slightly lower overall headcount.

Dana Hendricks: Turning to investment results, this was an excellent quarter. Net investment income rose by $5 million, or 16%, as we continue to take advantage of the higher rate environment. New purchase yields in the quarter were 6%, or 260 basis points higher than our average book yield of 3.5%. The fixed maturity portfolio remains high quality, with 92% of the bonds being investment grade bonds with an average duration of just over three years. We continue to manage our asset duration to largely match that of our liabilities and to optimize our portfolio to generate yields.

Dana Hendricks: Turning to investment results, this was an excellent quarter. Net investment income rose by five million dollars or 16 percent as we continue to take advantage of the higher rate environment.

Dana Hendricks: In addition, net favorable prior accident-year reserve development of $6 million reflected better actual loss emergence than expected from our more in-depth second quarter actuarial review. The better loss ratio was partially offset by a higher expense ratio. As last year's expense ratio benefited from higher seating commission income from a large tail policy, which is an offset to expense.

Dana Hendricks: New purchase yields in the quarter were 6%, or 260 basis points higher than our average book yield of 3.5%.

Dana Hendricks: The Fixed Maturity Portfolio remains high quality with 92% in investment grade bonds with an average duration of just over three years.

Dana Hendricks: We continue to manage our asset duration to largely match that of our liabilities and to optimize our portfolio to generate yield.

Dana Hendricks: For workers' compensation, growth's written premiums were down just over 3%. This was due to a change in our e-bub estimate, retention losses and renewal rate decreases, partially offset by higher audit premiums. The segments combined ratio was 113.2% reflecting the higher current accident-year net loss ratio as well as a one-point increase in the expense ratio largely due to higher compensation related costs. Across all of our segments, including corporate, expenses, and expense ratios, are higher than last year as we had anticipated. Full year 2023 expenses were reduced by about $7 million by non-recurring benefits that we've talked about in the past. This year, compensation related costs are running higher on our slightly lower overall headcount.

Dana Hendricks: We recorded an $8 million gain from our investments in limited partnerships and LLCs reported as equity and earnings of unconsolidated subsidiaries. These typically report on a one-quarter lag, and they are continuing to produce strong returns. Equity and earnings also included a $400,000 benefit related to our tax credit partnership investments due to a decrease in our estimate of our allocable share of partnership operating losses. Overall, our tax credit partnership investments are nearing the end of their life cycle, and amortization of partnership operating losses and associated tax benefits are expected to be nominal going forward.

Dana Hendricks: We recorded an $8 million gain from our investments in Limited Partnerships and LLCs reported as equity and earnings of unconsolidated subsidiaries. These typically report on a one-quarter lag and they are continuing to produce strong returns.

Dana Hendricks: Equity and Earnings also included a $400,000 benefit related to our tax credit partnership investments due to a decrease in our estimate of our allocable share of partnership operating losses.

Dana Hendricks: Overall, our tax credit partnership investments are nearing the end of their life cycle, and amortization of partnership operating losses and associated tax benefits are expected to be nominal going forward.

Dana Hendricks: I also wanted to point out that the primary difference between net income and operating income was net investment gains of $3 million, which included a final determination related to the outstanding contingent consideration associated with our 2021 acquisition of NorCal. As you may recall, We have been carrying a liability for amounts potentially owed to certain former NorCal members. In June, the final steps required to resolve the contingency were complete, resulting in no additional consideration due.

Dana Hendricks: I also wanted to point out that the primary difference between net income and operating income was net investment gains of $3 million, which included a final determination related to the outstanding contingent consideration associated with our 2021 acquisition of NorCal.

Dana Hendricks: Turning to investment results.

Dana Hendricks: This is an excellent quarter. Net investment income rose by $5 million or 16% as we continue to take advantage of the higher rate environment. New purchase yields in the quarter were 6%, or 260 basis points higher than our average book yield of 3.5%. The fixed maturity portfolio remains high quality with 92% in investment grade bonds with an average duration of just over three years. We continue to manage our asset duration to largely match that of our liabilities and to optimize our portfolio to generate yield.

Dana Hendricks: As you may recall, we have been carrying a liability for amounts potentially owed to certain former NorCal members. In June , the final steps required to resolve the contingency were complete, resulting in no additional consideration due.

Dana Hendricks: The $6.5 million liability was fully reduced in the quarter and recognized through net investment gains and losses. We remain very bullish on the long-term value that NorCal brings to ProAssurance, in particular our expansion into the California market. Finally, adjusted book value per share was just over $26.

Dana Hendricks: The $6.5 million liability was fully reduced in the quarter and recognized through net investment gains and losses. We remain very bullish on the long-term value that NorCal brings to ProAssurance, in particular our expansion into the California market.

Dana Hendricks: We recorded an $8 million gain from our investments in limited partnership and LLCs reported as equity and earnings of uncontsolidated subsidiaries. These typically report on a one quarter lag and they are continuing to produce strong returns. Equity and earnings also included a $400,000 benefit related to our tax credit partnership investment due to a decrease in our estimate of our allocable share of partnership operating losses. Overall, our tax credit partnership investments are nearing the end of their life cycle and amortization of partnership operating losses and associated tax benefits are expected to be nominal going forward.

Dana Hendricks: Finally, adjusted book value per share was just over $26. Management looks at this metric as it includes about $4 per share of embedded, unrealized holding losses, primarily attributable to our fixed maturity portfolio.

Dana Hendricks: Management looks at this metric as it includes about $4 per share of embedded, unrealized holding losses, primarily attributable to our fixed maturity portfolio. We thus have the intent and ability to hold the related securities until maturity. Should bond yields decline, or as our portfolio matures, those unrealized losses will creep back to book value. Further, with our current investment leverage at three times GAAP equity, there is upside to book value as we believe bond yields will continue to be accretive, to close.

Dana Hendricks: We have both the intent and ability to hold the related securities until maturity.

Dana Hendricks: Should bond yields decline, or as our portfolio matures, those unrealized losses will creep back to book value.

Dana Hendricks: Further, with our current investment leverage at three times GAAP equity, there is upside to book value as we believe bond yields will continue to be accretive.

Dana Hendricks: Let me reiterate that we remain committed to protecting our balance sheet and our insured over the long term. We are seeing signs that our actions are delivering pricing levels that meet our objectives, and we will continue to be intentional about capital management.

Dana Hendricks: To close, let me reiterate that we remain committed to protecting our balance sheet and our insurers over the long term.

Dana Hendricks: I also wanted to point out that the primary difference between net income and operating income was net investment gains of $3 million, which included a final determination related to the outstanding contingent consideration associated with our 2021 acquisition of NorCal. As you may recall, we have been carrying a liability for amount potentially owed to certain former NorCal members. In June, the final steps required to resolve the contingency were complete, resulting in no additional consideration did.

Dana Hendricks: We are seeing signs that our actions are delivering pricing levels that meet our objectives, and we will continue to be intentional on capital management. Ned?

Dana Hendricks: I just want to remind everyone that we know there's much more to be done to achieve our goal of sustained profitability, but we are encouraged by the progress we are making, with six months' operating earnings of $0.31 per share. We expect continued progress and look forward to sharing results in the coming quarters.

Dana Hendricks: Thanks, Dana.

Dana Hendricks: The $6.5 million liability was fully reduced in the quarter and recognized through net investment gains and losses. We remain very bullish on the long term value that NorCal brings to pro assurance in particular our expansion into the California market.

Ned Rand: I just want to remind everyone that we know there is much more to be done to achieve our goal of sustained profitability.

Ned Rand: that we are encouraged by the progress we are making.

Speaker Change: with 6-month operating earnings of $0.31 per share.

Speaker Change: We expect continued progress and look forward to sharing results in coming quarters.

Heather Wetzel: Thank you, Ned. Operator, that concludes our prepared remarks. We're ready for questions.

Speaker Change: Thank you, Ned. Operator, that concludes our prepared remarks. We're ready for questions.

Operator: Of course, thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure you're unmuted locally. As a reminder, that's a star followed by one on your telephone keypad now. Our first question comes from Matt Carletti of JMP. Matt, your line is open. Please go ahead.

Operator: Of course, thank you.

Speaker Change: If you'd like to ask a question, please press star followed by 1 on your telephone keypad.

Dana Hendricks: Finally, adjusted book value per share was just over $26. Management looks at this metric as it includes about $4 per share of embedded unrealized holding losses, primarily attributable to our fixed maturity portfolio. We have both the intent and ability to hold the related securities until maturity should bond yields decline, or as our portfolio matures, those unrealized losses will creep back to book value. Further, with our current investment leverage at three times gap equity, there is upside to book value as we believe bond yields will continue to be a creative.

Speaker Change: If you'd like to withdraw your question please press star followed by two. When preparing to ask your question please ensure you're unmuted locally. As a reminder that's star followed by one on your telephone keypad now.

Speaker Change: Our first question comes from Matt Carletti of JMP. Matt, your line is open, please go ahead.

Matt Carletti: Thanks, good morning.

Matt Carletti: Dana, I just wanted to follow up on your last point there about... Good morning, Ned. Dana, your last point on being intentional about capital management, I'm hoping you guys can maybe expand on just kind of how you're viewing capital management at the moment. I mean, obviously, you guys are remaining very cautious on growing the business given market conditions and the stocks trading, I think, whatever version of book value you want to look at at very good discounts to it. And so, just if you could update us on kind of how you view kinds of uses of capital or what you're holding on to capital for versus buybacks and other opportunities.

Matt Carletti: Dana, I just wanted to follow up on your last point there about

Ned Rand: Good morning Ned. Dana, your last point on being intentional about capital management, I'm hoping you guys can maybe expand on just kind of how you're viewing capital management at the moment.

Dana Hendricks: To close, let me reiterate that we remain committed to protecting our balance sheet and our insures over the long term. We are seeing signs that our actions are delivering pricing levels that meet our objective and we will continue to be intentional on capital management.

Speaker Change: I mean, obviously, you guys are remaining very cautious on, you know, growing the business given market conditions, and the stocks trading.

Speaker Change: I think whatever version of book value you want to look at, at very good discounts to it. And so just if you could update us on kind of how you view kind of uses of capital or what you're holding on to capital for versus buybacks and other opportunities.

Ned Rand: Ned. Thanks, Dana. I just want to remind everyone that we know there's much more to be done to achieve our goal of sustained profitability. But we are encouraged by the progress we are making with six months operating earnings of 31 cents per share. We expect continued progress and look forward to sharing results in coming quarters. Thank you, Ned.

Dana Hendricks: Sure, Matt. Good morning.

Matt Carletti: Sure, Matt. Good morning.

Speaker Change: There is an awful lot to consider when we're thinking about capital management and for us, we're remaining committed to capital sufficiency.

Dana Hendricks: There is an awful lot to consider when we're thinking about capital management. And for us, we're remaining committed to capital sufficiency. You know, all the while being very mindful about our AMBES rating, the risk-based capital requirements that we need at the statutory entity, as well as our liquidity needs. We're very comfortable with our capital position.

Speaker Change: All the while, being very mindful about our AMVS rating, risk-based capital requirements that we need at the statutory entity.

Unknown Executive: Operator, that concludes our prepared remarks. We're ready for questions. Of course, thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. When prepared to ask your question, please ensure you're unmuted locally. As a reminder, that star followed by one on your telephone keypad now.

Dana Hendricks: However, the volatility in the marketplace does remain. So we're considering what regulators and AMBES may be thinking as we navigate current market conditions, which really just leads us to continue to be cautious. All that said, I don't want to leave you with the wrong impression. AMBES recently affirmed our ratings in late June, but that's how we're thinking about it.

Speaker Change: as well as our liquidity needs.

Speaker Change: We're very comfortable with our capital position. However, the volatility in the marketplace does remain.

Speaker Change: So, we're considering what regulators and AMBEST may be thinking as we navigate current market conditions, which really just lead us to continue to be cautious.

Matt Coletti: Our first question comes from Matt Coletti of JMP. Matt, your line is open. Please go ahead. Dana, I just wanted to follow up on your last point there about more than that. Dana, your last point on being intentional about capital management. I'm hoping you guys can maybe expand on just kind of how you're viewing capital management at the moment. Obviously, you guys are remaining very cautious on growing the business given market conditions and the stocks trading. I think whatever version of book value you want to look at at very good discounts to it.

Speaker Change: All that said, I don't want to leave you with the wrong impression, AMBEST has recently affirmed our ratings in late June , but that's how we're thinking about it.

Matt Carletti: Okay, great. Thank you. That's all I have today.

Speaker Change: Okay, great. Thank you. That's all I have for that.

Paul Newsome: Thank you. Our next question comes from Paul Newsome of Piper Sandler. Paul, your line is open, please go ahead.

Matt Carletti: Thanks, Matt.

Speaker Change: Thank you. Our next question comes from Paul Newsome of Piper Sandler. Paul, your line is open, please go ahead.

Paul Newsome: Great. Good morning. Thanks for the call.

Paul Newsome: Great. Good morning. Thanks for the call.

Paul Newsome: A couple of remodeling questions. One, probably a simple one, the tax credit impact going away, I think historically it's been a 10-ish percent effective tax rate. With those tax credits going away, does that put it back up to the statutory rate or is it something that's going to continue?

Dana Hendricks: So just if you could update us on how you view uses of capital or what you're holding on the capital for versus buybacks and other opportunities. Sure, Matt. Good morning. There is not a lot to consider when we're thinking about capital management and for us, we're remaining committed to capital sufficiency. You know, all the while, what's being very mindful about our and best rating, risk based capital requirements that we need at the statutory entity as well as our liquidity needs.

Speaker Change: Higher with the state taxes or any guidance that are helpful that would be.

Speaker Change: Useful for the affecting taxes.

Speaker Change: You know, Paul, I may need to follow up with you on this particular question. I wouldn't expect our...

Paul Newsome: I mean, the tax credits associated with these investments have been diminishing over time. So, I don't think they've had a dramatic impact on our effective tax rate, but to answer you specifically, I'd need to do some additional follow-up.

Dana Hendricks: We're very comfortable with our capital position. However, they're the volatility in the marketplace does remain. So we're considering what regulators and a embeds may be thinking as we navigate current market conditions, which really just lead us to continue to be cautious. All that said, I don't want to leave you with the wrong impression a embed has recently affirmed our ratings in late June, but that's that's how we're thinking about it. Okay, great. Thank you. Thanks, Matt. Thank you.

Paul Newsome: Okay, maybe you can give us a little sense of the, is this a good run rate for the expense ratio, given all the moving parts of the last year or so?

Speaker Change: Yeah, I thought that...

Speaker Change: I thought certainly there might be a question around expenses, Paul, and so what I really wanted to make sure that

Paul Newsom: Our next question comes from Paul Newsom of Piper Sandler. Paul, your line is open. Please go ahead. Great. Good morning. Thanks for the call. A couple of a couple of modeling questions. One, probably a simple one, the tax cut impact going away. I think historically, it's been a 10-ish percent effective tax rate with those tax cuts going away. Does that put it back up to the statutory or is it something higher with those state taxes or any guidance that are helpful? That would be useful for the effective taxes.

Speaker Change: listeners understood was that the year-over-year change, quarter-over-quarter change that we have in our consolidated level of expenses is largely driven by compensation-related costs and

Speaker Change: Driving that increase higher is, in part, amounts accrued for performance-related incentive plans due to improvement in the related performance metrics, and to a lesser degree, annual merit adjustment.

Speaker Change: And you heard me say in opening remarks that our employee count is slightly down in the quarter.

Dana Hendricks: You know, Paul, I may need to follow up with you on on the particular question. I wouldn't expect our, I mean, the tax credits associated with these investments have been diminishing over time. So I don't think they've had a dramatic impact on our effective tax rate.

Speaker Change: We have been, we will continue to scrutinize positions that come open to determine the necessity, really, of filling those vacancies. That's a very important aspect of our expense management efforts.

Dana Hendricks: But to answer you specifically, I'd need to do this in the additional follow-up.

Speaker Change: especially as our top line decreases. So I would say it's as good as any run rate for expenses, but we are continuing to be mindful of expenses.

Dana Hendricks: Okay, maybe he gives a little sense of the, is this a good run rate for the expense ratio given all the moving parts of the last year or so? Yeah, I thought that, I thought certainly there might be a question around the expenses, Paul, and so what, what I really wanted to make sure that listeners understood was that the year over year change, quarter of a quarter change that we have in our consolidated level of expenses is largely driven by compensation related costs.

Speaker Change: Back on your first question, there is a tax rate reconciliation in our queue.

Speaker Change: That will probably give you more details about how we arrive at the effective rate.

Speaker Change: Great, thank you.

Dana Hendricks: This will be the right turn.

Speaker Change: Thank you. Our next question comes from Gregory Peters of Raymond James. Gregory, your line is open, please proceed.

Dana Hendricks: You know, Paul, I may need to follow up with you on this particular question. I wouldn't expect our tax credits associated with these investments to have been diminishing over time. So I don't think they've had a dramatic impact on our effective tax rate. But to answer you specifically, I'd need to do some additional follow up.

Paul Newsome: Okay. Maybe you can give us a little sense of the, is this a good run rate for the expense ratio given all the moving parts of the last year or so?

Dana Hendricks: Yeah, I thought that certainly there might be a question around expenses, Paul. And so, what I really wanted to make sure that listeners understood was that the year over year change, quarter over quarter change that we have in our consolidated level of expenses is largely driven by compensation related costs. And driving that increase higher is, in part, amounts accrued for performance-related incentive plans due to improvement in the related performance metrics and, to a lesser degree, an annual merit adjustment.

Gregory Peters: Good morning, everyone. Two quick questions just on broader macro environment.

Dana Hendricks: And you heard me say in my opening remarks that our employee count is slightly down in the quarter. We have been, and we will continue to scrutinize positions that come open to determine the necessity really of filling those vacancies. And that's a very important aspect of our expense management efforts, especially as our top line decreases. So I would say it's as good as any run rate for expenses, but we are continuing to be mindful.

Dana Hendricks: Back on your first question, there is a tax reconciliation in our queue that will probably give you more details about how we arrive at the effective rate.

Dana Hendricks: And driving that increase higher is in part announced accrued for performance related incentive plans due to improvement in the related performance metrics and to a lesser degree annual merit adjustment and you heard me say an open opening remarks that our employee count is slightly down in the quarter. We have been, we will continue to scrutinize positions that come open to determine the necessity really of filling those vacancies and that's a very important aspect of our expense management effort, especially as our top line decreases. So I would say it's as good as any run rate for expenses that we are continuing to be mindful of expenses.

Gregory Peters: In the quarter, have you seen any new entrants come into the marketplace, or is the competitive pressures coming from existing players?

Speaker Change: I'd say you're talking about the medical professional liability space, Greg.

Gregory Peters: Yes, yes, sorry about that. Yeah, no, no, no new entrants. It's really, the competitive landscape has really not changed substantially. Every now and then we'll hear about a, you know, someone entering into the marketplace, but typically they're not making much of an impact at all.

Speaker Change: Yeah, I seem to pick up some of the same.

Speaker Change: News and I'm just curious whether it's piercing any of your business so that's the basis of the question. Yeah, no, we're not really...

Dana Hendricks: Right, Paul back on your first question. Back on your first question, there is a tax rate reconciliation in our queue that will probably give you more details about how we arrive at the effective rate. Great, thank you.

Speaker Change: Sorry, because I didn't need to talk every night, not to go back on that. No, we're really not seeing any new insurance making any waves and our parts of the market.

Unknown Executive: Thank you.

Speaker Change: Okay. And then just another macro question. I know it's an ongoing battle, you know, dealing with severity, etc. It's become...

Speaker Change: As you know, quite topical for longer-tailed lines of business, liability businesses across many of the companies running that business.

Gregory Peters: Our next question comes from Gregory Peters of Raymond James. Gregory, your line is open. Please proceed.

Speaker Change: Any change, I know it's a state-by-state thing, but any change in sort of attorney representation rates? Are you seeing any increase or decrease in attorney involvement in your book of business?

Ned Rand: Good morning, everyone. Two quick questions just on broader macro environment. In the quarter, have you seen any new entrants come into the marketplace or is the competitive pressures coming from existing players? I think you're talking about the medical professional ability space, Greg. Yes, yes, sorry about that. Yeah, no, no, no new entrants. It's really the competitive landscape has really not changed substantially. Every now and then we'll hear about it, you know, someone entering into the marketplace, but typically they're not making much of an impact at all.

Ned Rand: Yeah, I think to pick up some of the same news and I'm just curious if whether it's piercing any of your business. So that's the basis of the question. Yeah, we're not really. Sorry, you didn't need to talk every no not to go back on that. No, we're really not seeing any new entrants make any waves and in our parts of the market.

Speaker Change: No, not seeing any material changes there.

Ned Rand: Okay.

Speaker Change: Okay, and then finally just going to the workers' comp business.

Speaker Change: You know, it's...

Speaker Change: Thank you.

Speaker Change: The results you're reporting are different from most of your peers, and maybe you can just explain, and by that I mean your combined ratios seem to be higher with less favorable reserve development.

Speaker Change: Maybe you could just...

Speaker Change: Help us bridge the gap between what we're seeing with a lot of other peers in workers comp and what we're seeing in your company.

Speaker Change: Thank you.

Speaker Change: Yeah, it's a good question, Greg. And certainly we can talk about what we're seeing. I can't speak for our peers and what they may be saying or what they may be doing. I think there's two parts to your question. On the reserve development, you'll recall that

Speaker Change: We have a relatively short-tailed workers' compensation book and close claims faster and more aggressively than a lot of the marketplace. And as a consequence of that, the absolute reserves that we hold for the workers' compensation book are pretty small.

Ned Rand: And then just another macro question. I know it's an ongoing battle, you know, dealing with severity, et cetera. It's become, as you know, quite topical for longer-tailed lines of business, liability businesses across many of the companies writing that business. Any change, you know, sort of attorney representation rates, are you seeing any increase or decrease in attorney involvement in your book of business? No, not seeing any material changes there.

Ned Rand: Okay.

Speaker Change: So there's less opportunity for favorable development because we've closed the claims. Now, the flip side of that is there's also a lot less potential for things to go sideways or wrong because the claims are closed.

Speaker Change: I also think that because we do close claims faster and maybe stand on top of our claims a little more quickly, we

Speaker Change: and respond to the trends in inflation and in healthcare perhaps faster than some of our peers are doing. And so what we're responding to is elevated costs of care stemming from inflation in the medical area.

Ned Rand: And then finally, just going to the workers' comp business, you know, it's, the results you're reporting are different from most of your peers. And maybe you can just explain. And by that, I mean, your combined ratio seemed to be higher with less favorable reserve development. Maybe you could just help us bridge the gap between what we're seeing with a lot of other peers in workers' comp and what we're seeing in your company.

Speaker Change: We're responding to that, both as we mentioned, and kind of how we're approaching clients, and also as we approach individual states' markets.

Speaker Change: trying to counter the negative trend in rates that the market is being influenced by.

Speaker Change: Makes sense. Thanks for the answers.

Ned Rand: Thank you. Yeah, it's a good question, Greg. And certainly we can talk about what we're seeing. I can't speak for our peers and what they may be seeing or what they may be doing. I think there's two parts to your question. On the reserve development, you'll recall that we have a relatively short-tailed workers' compensation book and closed claims faster and more aggressively than a lot of the marketplace. And as a consequence of that, the absolute reserves that we hold for the workers' compensation book are pretty small.

Gregory Peters: Thank you. Our next question comes from Gregory Peters of Raymond James. Gregory, your line is open. Please proceed.

Speaker Change: Sure.

Speaker Change: Thank you. Our next question comes from Mark Hughes of Truist. Mark, your line is open, please go ahead.

Gregory Peters: Good morning, everyone. Two quick questions on the broader macro environment. In the quarter, have you seen any new entrants come into the marketplace, or are the competitive pressures coming from existing players?

Ned Rand: So there's less opportunity for favorable development because we've closed the claims. Now, the flip side of that is there's also a lot less potential for things to go sideways or wrong because the claims are closed. I also think that because we do close claims faster and maybe stand on top of our claims a little more quickly, we see and respond to the trends and inflation and in healthcare. Perhaps faster than some of our peers are doing.

Ned Rand: I'd say you're talking about the medical professional liability space, Greg.

Speaker Change: Yeah, thank you. Good morning.

Speaker Change: Ned, did you give a specific rate number for workers comp for the quarter?

Speaker Change: That's a good rate number.

Speaker Change: Price Change Numbers. Kevin, I'm going to go to you for that.

Speaker Change: I think it was down 3%, but I want Kevin to confirm.

Speaker Change: Yes, so rate this quarter was down 3% and the prior year quarter it was down 7%.

Speaker Change: Okay, very good. Anything in the reserve development in the recent active years, say 2020, 2023, anything you've observed around?

Kevin Shook: frequency or severity that stands out.

Ned Rand: And so what we're responding to is elevated costs of care, standing from inflation in the medical area. And we're responding to that both as we mentioned and kind of how we're approaching claims. And also as we approach individual states markets and trying to counter the negative trend and rate that the market is being influenced by.

Speaker Change: Yeah, aside from kind of the broader issues that you discussed around social inflation.

Gregory Peters: That makes sense.

Speaker Change: Yeah, no, nothing that I would point to.

Speaker Change: in those years.

Speaker Change: Yeah.

Speaker Change: Do you think, uh...

Speaker Change: If interest rates are coming down, do you think that might have some impact on pricing if we think about here?

Speaker Change: Some of the patrols have big...

Gregory Peters: Thanks for the answers. Sure.

Unknown Executive: Thank you.

Speaker Change: Investment Portfolios,

Speaker Change: Do you think there's some cash flow underwriting going on and therefore lower interest rates might help to stiffen up the pricing?

Mark Hughes: Our next question comes from March. Use of truest mark. Your line is open. Please go ahead. Yeah, thank you. Good morning. Now, did you give a specific rate number for workers or the quarter rate number price change numbers? Kevin, I'm going to. Yeah. Yeah, I think it was down, but I want Kevin to confirm. Yeah, so rate this quarter was down 3% in the prior year quarter. It was down 7%.

Speaker Change: Yeah, I'd like to, I'd like to think that would be the case, Mark. Certainly, there are a lot of companies that...

Speaker Change: are benefiting from high levels of investment income, allowing them to write a combined ratio as well above 100. And so if we had some downward pressure on those returns, it certainly should.

Speaker Change: result in a reaction from the pricing standpoint. I think the other challenge, though, is these companies, a lot of these mutual companies, tend to be very overcapitalized. And so that needs their response, I think, even in a

Kevin Shook: Okay, very good. Anything in the reserve development in the recent years, say 2020, 2023, anything you could observe around frequency or severity that stands on. Yeah, aside from kind of the broader issues that you've been discussed around social inflation. Yeah, nothing that I would point to. In those years. Yeah, do you think if interest rates are coming down, do you think that might have some impact on pricing? We think about here.

Speaker Change: Downward interest rate environment.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: And then anything about the California market with NorCal acquisition, any distinct pricing competitive trends there or is it pretty similar to the broader picture?

Speaker Change: pretty similar to the to the broader picture we you know they had some changes to the tort reform and in California a couple years ago I think we're beginning to see a little bit of that impact

Speaker Change: But it's not, it's not huge.

Speaker Change: But I think the market's well positioned to respond to that from a pricing perspective.

Kevin Shook: He does some of the patrols have big investment portfolios. Do you think there's some cash flow underwriting going on and therefore lower interest rates might help the business of pricing? Yeah, I'd like to think that would be the case mark. Certainly there are a lot of companies that. Our bit of fitting from high levels of investment income, allowing them to to write a combined ratio as well above 100 and so if we had some downward pressure on those returns, it certainly should.

Speaker Change: The kind of the writers in California all have pretty good scale and are generally good behaviors and so I would say that we don't see as much irrational pricing.

Speaker Change: by and large in the California market as we do some of the other markets we compute in.

Speaker Change: yeah

Gregory Peters: Yes, yes. Sorry about that.

Speaker Change: Thank you. As a final reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad now.

Ned Rand: Yeah, no, no, no, no, no new entrants. It's really the competitive landscape hasn't changed substantially every now and then we hear about it. You know, someone entering the marketplace, but typically, they're not making much of an impact at all [inaudible] Yeah, I seem to pick up some of the same news, and I'm just curious. Singh, any of your business. That's the basis of the question. Um, yeah, no, we're not really.

Speaker Change: Our next question comes from Bob Farnham of Jenny. Bob, your line is open, please proceed.

Kevin Shook: Result in a reaction from the pricing standpoint, I think the other challenge though is these companies, a lot of these mutual company tend to be. Very over capitalized and so that needs to response, I think even in a downward interest rate environment.

Ned Rand: Sorry, guys didn't need to talk every no, not to go back on it. No, we're really not seeing any new instruments make any waves in our parts of the market.

Speaker Change: Thanks, good morning. Just another question on workers comp and I'm just trying to figure out how to model going forward. So you've made these insurtech investments including Clara Analytics. I'm just trying to get a feel, is there any way you can quantify

Ned Rand: Yeah, okay. And then anything about the California market with no capital acquisition. Any distinct pricing competitive trends there or is it pretty similar to the broader picture? Pretty similar to the broader picture. We had they had some changes to the short reform and California. A couple of years ago, I think we're beginning to see a little bit of that impact. But it's not it's not huge. But I think the market's well positioned to respond to that from a pricing perspective, when I think about the California market, you know, it's.

Speaker Change: How much you've spent on these investments and what kind of savings you're going to see over time?

Gregory Peters: Okay, and then, and then just another macro question. I know it's it's an ongoing battle, you know dealing with severity, etc. It's become, as you know, quite topical for longer-tailed lines of business, liability businesses across many of the companies running that business. Any change, I know it's a state-by-state thing, but any change in sort of attorney representation rates, or are you seeing any increase or decrease in attorney involvement in your book of business?

Ned Rand: No, I am not seeing any material changes there.

Speaker Change: Can I let you answer, please?

Speaker Change: Yeah, so I would say the upfront costs on a lot of the insured tech

Speaker Change: has been minimal.

Speaker Change: Bob, it's kind of difficult to quantify, you know, the benefits of it. I think it's going to be significant.

Speaker Change: Clara, you know, scores medical providers, gets you to the right doctor.

Speaker Change: Severity Predictions, Alerts on Attorney Involvement. So, I think over the next couple of quarters, we'll get a better feel for it. On the Guidewire underwriting investment, where we're going to be using it predominantly for smaller business,

Ned Rand: The kind of the writers in California all have pretty good scale and they're generally good behaviors. And so I would say that we don't see as much irrational pricing. By and large in the California market as we do some of the other markets we compute them.

Unknown Executive: Yeah, okay. Thank you. As a final reminder, we'd like to ask a question. Please press star, followed by one on your telephone, keep ads now.

Speaker Change: There is a significant loss ratio advantage for accounts say under $50,000 versus accounts over $50,000. It's low double digits and you know the goal there is to incrementally grow that small book of business that has the best loss ratio but it's hard for me to say

Bob Farnam: Our next question comes from Bob Fahnum of Jenny. Hope you're on his open. Please proceed. Thanks. Good morning. Just another question on workers comp. And I'm just trying to figure out how to modify forward. So you may need to ensure tech investments, including clarity analytics. So I'm just trying to get a feel. Is there any way you can quantify how much you spent on these investments and kind of how. What kind of savings you can see over time.

Speaker Change: without these things, you know, being implemented as to exactly what it is, but expect Clara to be extremely favorable and expect to grow the small book of business using Guidewire.

Gregory Peters: Okay, and finally, just going to the Workers' Cop business. You know, it.

Speaker Change: Okay, I didn't expect you to have any definite there. So I guess more broadly with the continuing rate declines in workers' comp

Gregory Peters: The results you're reporting are different from most of your peers, and, Maybe you can just explain, and by that, I mean your combined ratios seem to be higher with less favorable reserve development. Maybe you could just... Help us bridge the gap between what we're seeing with a lot of other peers in workers comp and what we're seeing at your company. Yeah.

Speaker Change: Are you thinking that your loss ratios may actually improve from here because of the investments or is it still going to be under pressure because of the rate environment?

Bob Farnam: Can I let you answer, please? Yeah, so the, I would say the upfront costs on a lot of the insure tech has been minimal. Bob, it's kind of difficult to quantify, you know, the benefits of it. I think it's going to be significant. Clara, you know, scores medical providers get you to the right doctor, severity predictions, alerts on attorney involvement. So I think over the next couple of quarters we'll get a better feel for it.

Ned Rand: Yeah, it's a good question, Greg, and certainly we can talk about what we're seeing. But I can't speak for our peers and what they may be saying or what they may be doing. I think there are two parts to your question.

Ned Rand: On reserve development, you'll recall that we have a relatively short-tailed workers' compensation book and close claims faster and more aggressively than a lot of the marketplace, and as a consequence of that, the absolute reserves that we hold for the workers' compensation book are pretty small. So there's less opportunity for favorable development because we've closed the claims. Now, the flip side of that is that there's also a lot less potential for things to go sideways or wrong because the claims are closed.

Ned Rand: I also think that because we do close claims faster and maybe stand on top of our claims a little more quickly, we see and respond to the trends in inflation and in health care, perhaps faster than some of our peers are doing. And so what we're responding to is elevated costs of care stemming from inflation in the medical area, and we're responding to that both as we mentioned and kind of how we're approaching claims and also as we approach individual states, markets, and trying to counter the negative trend in rates that the market is being influenced by.

Gregory Peters: Okay, that makes sense. Thanks for the answers.

Speaker Change: I, you know, I think it's going to be under look, we're down four points from from six months ago.

Mark Hughes: Thank you. Our next question comes from Mark Hughes of Truist. Mark, your line is open, please.

Mark Hughes: Yeah, thank you. Good morning, Ned. Did you give a specific rate number for workers comp for the quarter? That's a great number, price change numbers. Kevin, I'm gonna go.

Kevin Shook: I think it was down there for sure, but I want Kevin to confirm.

Speaker Change: We're doing a lot on the medical care management side from a PPO network perspective.

Kevin Shook: Yes, so the rate this quarter was down 3%, and the prior year quarter, it was down 7%.

Speaker Change: You know, there's a lot of headwinds with vertical integration.

Mark Hughes: Okay, very good. Anything in reserve development in the recent academic year, say 2020, 2023, anything you've observed around frequency or severity that stands out? Yeah, aside from kind of the broader issues that you discussed around social inflation.

Ned Rand: Yeah, nothing that I would point to in those years.

Mark Hughes: Do you think, uh... If interest rates are coming down, do you think that might have some impact on pricing if we think about your, I see that some of the patrols have big... Investment Portfolios. Do you think there's some cash flow underwriting going on and therefore lower interest rates might help to stiffen up the price?

Ned Rand: Yeah, I'd like to, I'd like to think that would be the case, Mark. Certainly, there are a lot of companies that are benefiting from high levels of investment income, allowing them to write a combined ratio well above 100. And so if we had some downward pressure on those returns, it certainly should result in a reaction from the pricing standpoint. I think the other challenge, though, is these companies; a lot of these mutual companies tend to be very overcapitalized. And so that mutes their response, I think, even in a downward interest rate environment.

Speaker Change: So it's a difficult question to answer, but my expectation is we'll continue to improve. I realize I'm not directly answering your question because it's hard to predict the future.

Ned Rand: and then anything about the California market, with North Carolina liquidation. Any distinct pricing competitive trends there? Or is it pretty similar to the broader picture? Pretty similar, you know.

Bob Farnam: On the guide wire, underwriting investment, where we're going to be using it predominantly for smaller business, there is a significant loss ratio advantage for accounts say under 50,000 versus accounts over 50. It's low double digits and you know, the goal there is to incrementally grow that small book of business that has the best loss ratio, but it's hard for me to say without these things, you know, being implemented as to exactly what it is, but expect Clara to be extremely favorable and expect the growth, the small book of business using guide wire. Okay, yeah, I didn't expect you to have any definite there.

Ned Rand: pretty similar to the broader picture. You know, they had some changes to tort reform in California a couple years ago. I think we're beginning to see a little bit of that impact. But it's not, it's not huge.

Ned Rand: But I think the market's well positioned to respond to that from a pricing perspective. When I think about the California market, you know, the kind of writers in California all have pretty good scale and generally good behaviors. And so I would say that we don't see as much irrational pricing, by and large, in the California market as we do in some of the other markets we compute in.

Speaker Change: Yeah, no, no, all right. I guess we'll just have to keep an eye on it over the next few quarters to see how things are revolving. Just kind of curious if we can get any jumpstart on the impact. So, all right, thanks.

Robert Farnam: Thank you. As a final reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad now. Our next question comes from Bob Farnam of Janney. Bob, your line is open, please proceed.

Bob Farnham: Yep. Thanks, Bob.

Robert Farnam: Thanks, good morning. Just another question on workers comp, and I'm just trying to figure out how to model going forward. So you've made these insurance tech investments, including Clara analytics. So I'm just trying to get a feel. Is there any way you can quantify how much you've spent on these investments and kind of how much savings you're going to see over time?

Unknown Executive: Can I let you answer, please?

Unknown Executive: Yeah, so I would say the upfront costs on a lot of the insurance tech have been minimal. Bob, it's kind of difficult to quantify, you know, the benefits of it. I think it's going to be significant. Clara, for example, scores medical providers to get you to the right doctor, severity predictions, and alerts on attorney involvement.

Unknown Executive: So I think over the next couple of quarters we'll get a better feel for it. On the guide wire, underwriting investment, where we're going to be using it predominantly for smaller business, there is a significant loss ratio advantage for accounts, say, under 50,000 versus accounts over 50. It's low double digits, and, you know, the goal there is to incrementally grow that small book of business that has the best loss ratio. But it's hard for me to say without these things being implemented as to exactly what it is. But expect Claire to be extremely favorable and expect to grow the small book of business using the guide wire.

Bob Farnham: Thank you. At this stage we have no further questions via the telephone lines, so I'll hand back over to Heather Wetzel for any closing or final remarks.

Robert Farnam: Okay, yeah, I didn't expect you to have any definites there. So I guess more broadly, with the continuing rate declines in workers' comp, are you thinking that your loss ratios may actually improve from here because of the investments, or is it still going to be under pressure because of the rate environment?

Unknown Executive: I, you know, I think it's going to be under. Look, we're down four points from six months ago. We're doing a lot on the medical care management side from a PPO network perspective. You know, there's a lot of headwinds with vertical integration, and fee schedules are going up. So it's a, it's a difficult question to answer. But my expectation is we'll continue to.

Robert Farnam: Yeah, no, no, all right, I guess we'll just have to keep an eye on it.

Heather Wetzel: Thank you. At this stage, we have no further questions via the telephone lines, so I'll hand over to Heather Wetzel for any closing or final remarks.

Heather Wetzel: Yes, thank you. And thank you everyone for joining us today. Feel free to reach out if there are any follow-up questions you'd like addressed. And, of course, I look forward to talking to you again on next quarter's call or during some of the other investor interactions we'll have in the coming months. So thank you.

Heather Wetzel: Yes, thank you. And thank you everyone for joining us today. Feel free to reach out if there are any follow up questions you'd like addressed. And of course, look forward to talking to you again on next quarter's call or on some of the other investor interactions we'll have in the coming months. So thank you.

Bob Farnam: So I guess more broadly, with the continuing rate declines, which was comp, are you thinking that your accident, your loss ratios may actually improve from here because of the investments or is it still going to be under pressure because of the rate environment? You know, I think it's going to be under, look, we're down four points from six months ago. We're doing a lot on the medical care management side from a PPO network perspective.

Operator: Ladies and gentlemen, this concludes today's call. Thank you for joining us. You may now disconnect your lines.

Speaker Change: Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.

Speaker Change: Thank you so much for watching this video and I'll see you in the next video.

Speaker Change: [inaudible]

Bob Farnam: You know, there's a lot of headwinds with vertical integration, fee schedules are going up. So it's a difficult question to answer, but my expectation is we'll continue to improve. So I realize I'm not directly answering your question because it's hard to predict the future. Yeah, no, no, all right, I guess we'll just start to keep an eye on it open the next few quarters if you have things to revolving. Just kind of curious, we can get any jump starter and the impact. So all right, thanks. Yep, thanks, Bob. Thank you. At this stage, we have no further questions by the telephone lines.

Heather Websfield: So I'll hand back over to Heather Wetzel for any closing or final remarks. Yes, thank you, and thank you everyone for joining us today. I feel free to reach out if there are any follow-up questions you'd like addressed. And of course, look forward to talking to you again on next quarter's call or on some of the other investor actions we'll have in the coming months. So thank you.

Unknown Executive: Ladies and gentlemen, this concludes today's call. Thank you for joining the Mtis Connectual lines.

Dana Hendricks: A couple of remodeling questions. One, probably a simple one, the tax credit impact going away. I think historically, it's been a 10-ish percent effective tax rate. With those tax credits going away, does that put it back up to the statutory rate? Or is it something higher with those state taxes, or any guidance that would be helpful.