ProAssurance(PRA) - 2018 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2018, consolidated gross premiums written were $212 million, an increase of $20 million or 10.4% year-over-year, contributing to a record total of $957 million for the year, up $82 million or 9.4% from 2017 [12][14][21] - The consolidated current accident year net loss ratio for Q4 was 88.6%, up 7 points from the previous year [14][21] - Net realized investment losses for the quarter totaled $46.1 million, leading to a consolidated net loss of $24.4 million or $0.46 per diluted share [21][22] Business Line Data and Key Metrics Changes - Workers' Compensation Insurance segment gross premiums written increased by 7.7% to $65 million in Q4, while the Specialty P&C segment remained flat due to timing differences [13][45] - The Specialty P&C segment saw a year-over-year gross premiums written increase of 5.1%, driven by a $17 million increase in healthcare facilities premiums [26] - The Workers' Compensation Insurance segment operating results increased 35% to $14.3 million for 2018, with gross premiums written rising 11% to $293.2 million [38][39] Market Data and Key Metrics Changes - The Lloyd's segment reported gross premiums written of $25.8 million for Q4, with a 26.4% increase to $88.7 million for the year [56][57] - The current accident year net loss ratio for the Lloyd's segment was 104.5% for Q4 and 74% for the year, with significant losses attributed to natural catastrophes [55][56] Company Strategy and Development Direction - The company is focusing on maintaining underwriting discipline while capitalizing on market firming in the Medical Professional Liability business, with higher pricing and strong retention [10][16] - Management is reviewing options to reduce the financial significance and volatility associated with the Lloyd's investment, including potential reinsurance strategies [60][62] - The company aims to grow its healthcare professional liability business through selective M&A opportunities, particularly in niche markets [132][133] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns over the evolving loss environment in the medical professional liability line and the impact of natural catastrophe-related losses on financial performance [9][10] - There are indications of a return to rational pricing and underwriting in the medical professional liability market, which could benefit the company moving forward [16][31] - Management remains cautious about potential increases in loss severity, which will continue to influence reserve evaluations [31][34] Other Important Information - The company did not repurchase any shares in 2018, maintaining a focus on capital management and evaluating opportunities for growth [23][24] - Management announced changes in leadership, with Howard Friedman stepping back from day-to-day operations while remaining involved in a limited capacity [63][68] Q&A Session Summary Question: Inquiry about Howard's retirement and its relation to Lloyd's - Howard clarified that his retirement was not influenced by the situation at Lloyd's, stating it was a personal decision [85] Question: Clarification on the impact of Lloyd's catastrophe losses - Ned explained that the losses were primarily from catastrophe events associated with Syndicate 1729, highlighting the challenges faced in recent years [87] Question: Future capital commitments to Lloyd's - Ned confirmed that the capital commitment for 2019 is set, but the company is exploring options to mitigate volatility through reinsurance [88][90] Question: Trends in Medical Professional Liability business - Howard noted that while severity-related activities are increasing, the effects have not yet manifested in paid losses, indicating a cautious approach to reserves [92][94] Question: Current accident year losses in Specialty P&C - Stan discussed the impact of ceded premiums on the loss ratio, suggesting that the full year loss ratio is a better indicator going forward [100][101] Question: Competitors' response to pricing and severity issues - Howard mentioned that competitor responses vary, with some becoming less competitive while others may not yet recognize the severity trends [104][106] Question: Trends in Workers' Compensation business - Mike indicated that frequency trends are stabilizing, while severity has shown signs of improvement, suggesting a positive outlook [112][114] Question: Pricing dynamics in Specialty P&C - Stan explained that pricing variations are influenced by the mix of accounts and geography, emphasizing the importance of maintaining competitive pricing [120][121] Question: Future M&A interests - Stan outlined that the company is focused on healthcare professional liability and Workers' Compensation sectors for potential acquisitions, particularly in niche markets [132][133]