Good day and welcome to the ProAssurance Corporation Second Quarter 2017 Earnings Conference Call and webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I will now like to turn the call over to Frank O'Neil. Please go ahead.

Thank you Allison and good morning everyone, welcome to our conference call to discuss ProAssurance's Results for second quarter 2017. Like to tell you that the results were reported in the news release issued on August 07, 2017 and in the Company's quarterly report on Form 10-Q which was also filed on August 07, 2017. These documents are intended to provide you with important information 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. Further, we caution you that Management expects to make statements on this call dealing with projections, estimates and expectations, and we explicitly identify these as forward-looking statements within the meaning of the U.S. Federal Securities laws and subject to applicable Safe Harbor Protections. The content of this call is accurate only on August 08, 2017. 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 at ProAssurance 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. On our call today are Chairman and CEO, Stan Starnes; Howard Friedman, the President of our Healthcare Professional Liability Group; Chief Financial Officer and Executive Vice President, Ned Rand and Mike Boguski, the President of Eastern, our Workers' Compensation Subsidiary. Stan will you start us off?

Thank you, Frank. I know there is a lot of interest in our comments today given the pre-announcement of results of last Tuesday. Let me stress again what I said in the pre-announcement. We remain confident in the long-term strategy we set out and we are equally confident in our ability to execute that strategy to continue to produce solid shareholder value. We believe there is nothing in the isolated events that occurred in the quarter that indicate issues with fundamentals of our business. That said we’ve recognized that these isolated items detracted from what otherwise would have been a solid quarter, and is our style we identified them, dealt with them and disclosed the outcome. Now move forward, and in that vein, I'd like Howard to spend a few minutes explaining those items and then we will move on to discuss the operational successes of the quarter, which I want to be sure we do not overlook. Howard?

Thanks Stan. I'll cover the $5.2 million pretax charge in our Specialty P&C segment segregated portfolio cells, which will amount to about $3.4 million after-tax is now shown in the financials as a segregated cell portfolio dividend expenses for this segment. The charge trues up the accounting for the accumulated earnings paid to the entities that owned segregated cells within our historical Bermuda captive facility at various times since 2003. These earnings were paid as dividends to the owners and we should have expensed the payments as they were made. But that did not happen. We're confident that this is an isolated issue, and there will be no further charges related to this. Few final points on this. Our Bermuda facility, was never a large part of our premium base and there is little ongoing activity in that operation. And although the structures are similar, this is in no way connected to our current segregated portfolio cell program operating under the umbrella of Eastern Re in the Cayman Islands. The second item is the confidential settlement of a lawsuit arising from our handling of a medical liability claim. While we do not see these types of lawsuits frequently they're not uncommon. The terms in details of the settlement are confidential and we will recover much of the amount of the settlement under a reinsurance treaty. None of that is particularly unusual but this was an older accident year without a great deal of IBNR remaining. Due to the loss sensitive terms of that reinsurance treaty our recovery resulted in approximately $3.2 million of additional ceded premium to re-insurers. That's really the effect here, the reduction in earned premium in the quarter, in Specialty P&C. We have already booked that anticipated reinsurance recovery, so the full effect of this settlement is reflected in the quarter's results, which Ned will now address. Ned?

Thanks Howard. There are a number of positive items to highlight from the quarter starting with gross premiums, which rose almost 6% driven primarily by quarter-over-quarter growth in our Specialty P&C and Workers' Compensation segments which were up approximately 8% and 5% respectively. We believe these gains are especially meaningful given the competitive nature of these two lines of insurance and demonstrate our ability to successfully source and compete for new business as well as retain existing business. On that note new business was a strong point in the quarter, we wrote $9.4 million of new business in our Specialty P&C segment and $9.5 million of new business in Workers Compensation. The consolidated current accident year net loss ratio was 80.2% down a little more than a point from the same quarter last year. The consolidated calendar year, net loss ratio for the quarter was 64.1%, which is 3.6 points higher than last year, primarily reflecting a lower level of favorable development as compared to the prior year. We recognized $20 million of net favorable development and we'll talk about that in greater detail as we discuss segments. Our net investment result for the quarter was up about 1% over last year to $25.2 million, gains in our investment and unconsolidated subsidiaries were up $2.1 million and were offset by the continuing drag of low interest rates and the smaller size of our portfolio due to the special dividend paid in January. We have a tax benefit of approximately $330,000 for the quarter and our tax position for the year is a benefit of approximately $1.6 million. So all in all net income for the quarter was $19.5 million or $0.36 per diluted share. Operating income for the quarter was $21.4 million or $0.40 per diluted share. Book value stood at $34.41 per share at quarter-end a gain of approximately 2% since year-end. As of July 31, we held approximately $250 million in unpledged cash and liquid investments outside our insurance subsidiaries, and available for use by the holding company.

Thanks Ned. Before we move to Howard I want to mention of this $29 million of net favorable development. So, with that we’ll go to Howard Friedman for more detail on Specialty P&C.

Thanks Frank. As Ned mentioned we saw premium growth in the quarter in the Specialty P&C segment, 7.6% in aggregate to $125 million. Our Physician line the largest in the segment was up 7.7% to $85 million. Much of that increase was due to new business but also due to the expected increase in the 24 month policies, which have a predictable cycle of renewals. Premium for facilities was up approximately 21% to $13.4 million. The increase is primarily due to a timing difference related to when new business was recorded in 2016 plus to a lesser extent the amount of new business written in Q2 of this year. Both of which were partially offset by the predictable loss of some renewals in this very competitive space. On that note, many of you will recall that last year's second quarter saw us write the single largest premium in the Company's history. We were successful in renewing that account this year. That helped drive the increase in premium in the quarter and would explain the decline in new business in the segment, which was $9.4 million, while that's a solid number it's down from the $21 million of new business in a year ago quarter. Premium retention for physicians was strong in the quarter at 90% compared to 87% a year ago, year-to-date premium retention is also 90% up two points over last year, both indicative of our ability to service and retain the new business we fight so hard to write. Pricing on renewing physician business, a key benchmark for us was unchanged in the quarter and is 1% higher year-to-date. Our current accident year net loss ratio for the quarter was 89.7% an increase of 1.6 points over last year's second quarter and due almost entirely to the denominator of a loss ratio. The decrease in net earned premium caused by the $3.2 million of additional ceded premium I mentioned at the outset. Our favorable net loss reserve development in the segment was $26.5 million coming principally from accident years 2010 through 2014. This is $6.5 million lower than the second quarter of 2016 and is due to the continuing effect of a lower base of premiums and a compression of claim severity over the past five or six years. Overall loss trends for this segment are unchanged. Frank?

Thank you Howard. Now we're going to turn to Mike Boguski for comments about our Workers' Compensation segment, Mike?

Thank you Frank. The Workers' Compensation segment operating results increased to $3.8 million for the three months ended June 30, 2017 compared to $3 million for the same period in the prior year, driven by an increase in net premiums earned a decrease in the net loss ratio and an increase in the operating results of our segregated portfolio cell business. Partially offset by an increase in an underwriting expenses. Gross premiums written increased 5.1% to $59.3 million for the three months ended June 30, 2017 compared to $56.5 million for the same period in 2016 including new business writings of $9.5 million during the quarter compared to $6.5 million in 2016. Order premium was $1 million in the second quarter of 2017compared to $1.6 million in 2016. Renewal pricing decreased 3% in the quarter reflecting continued price competition in the Workers' Compensation marketplace. Premium retention was 88% for the second quarter driven by strong renewal retention results across all product lines including alternative market program business. Premium retention for alternative markets was 91% in the second quarter of 2017compared to 83% for the same period in 2016. We were successful in renewing all five of the available alternative market programs in the quarter. The decrease in the second quarter of 2017 accident year loss ratio reflects lower winter weather claims activity in 2017 compared to 2016. And overall trends in claim closing results. Through June 30, 2017, we successfully closed 36.9% of 2016 and prior claims, one of the best claim closing results in recent history. Favorable reserve development was $2.9 million in the quarter compared to $1 million in the second quarter of 2016 primarily related to alternative markets business but also includes approximately $400,000 in both periods related to the amortization of purchase accounting fair value adjustments.…

Thanks Mike, now we're going to go back to Howard for an update on the Lloyd's segment, which I will remind you reflects our 58% participation in Syndicate 1729 and which we report on a one quarter lag.

Thanks again Frank. Gross premiums written were down $1.7 million, quarter-over-quarter, but we want to stress that there was growth in the non-ProAssurance business and that the decline is due to the decision to reduce the premium ceded by our Podiatry line of business. You may recall that we began ceding premium from our Podiatry lines at Syndicate 1729 during its start-up phase as a way of meeting Lloyd's requirements for bringing new business to Lloyd’s and as a method of providing a stable premium base to the Syndicate. In the first six months of 2016, for example, we ceded what netted to $13.8 million given our 58% participation. As the Syndicate has expanded and grown a larger and broader premium base we were able to reduce the amount of Podiatry premiums ceded. Through six months this year, we ceded what nets out to $6 million. So that $7.8 million change masks real growth in non-ProAssurance business within Syndicate 1729. All of that washes out in our consolidated result due to an offsetting effect in our Specialty P&C segment, but it does color the gross premium line in the Lloyd segment and I wanted to be sure everyone understood the process and the outcome. Net premiums earned were $14.5 million, a 7.3% increase over the same quarter last year. As we've explained in prior quarters, premium and exposure for some of Syndicate 1729’s insurance policies and reinsurance contracts are initially estimated when coverage is written and subsequently recorded over an extended period, at which time the premium exposure and corresponding loss estimates are revised accordingly. In addition, some contracts are retrospectively rated with premium adjustments based on loss experience. Those adjustments also factored into the 12 point quarter-over-quarter decrease in the current accident year loss ratio, which was 71.4% in…

Thanks Howard. Stan some final thoughts from you please.

Thanks Frank. I am pleased that when we look at the fundamentals of the enterprise we see continuing validation of our long-term strategy, as well as its successful execution. We have every reason to remain confident, in a very bright future. Questions, Frank?

Thanks Stan. Allison we're ready for questions. Please.

Okay thank you. [Operator Instructions] Our first question today will come from Mark Hughes of SunTrust. Please go ahead with your question.

Good morning Mark.

Thank you and good morning. Ned how much holding company cash did you say you had.

$253 million

In the Specialty P&C business when you take into account the kind of the timing, the 24 month issues. Do you feel like you're getting a growth in the business, is there underlying momentum in terms of new business and the growth prospects here.

Hi Mark it is Howard. Yes I do feel that, on a quarter-to-quarter basis, it dipped up and down and as I noted last year's second quarter, we had a very large new business policy but even looking at this year, we have generated considerable amount of new premium in all of the different areas of Specialty P&C. And I think there is momentum, the marketplace is what it is and we deal with that everyday but on the whole we're adapting in our healthcare professional liability business adapting to the changes in healthcare looking at more on the larger accounts physician business and facilities business and continuing to generate the visibility in that marketplace with our agents and brokers. Looking at June 30, in healthcare itself we had about $18 million year-to-date and about half of that came in the second quarter.

You had I think in the Q discussed 9% rate increase perhaps on the facilities business and I think that was a function of some lost history. Could you talk about that, is that showing up in the P&L in terms of loss ratio.

I think it's, I mean it’s certainly blended into the loss experience and mostly and in terms of those – the loss activity that generated the rate increases is primarily in the prior year or prior several years of experience or some of the facility business. So it probably does not, it gets lost in the total. I mean if you look at it that way but on specific accounts and particularly on the larger facility accounts we rate them based on the experience and we had a couple of them that did not have great results and we increased the premiums commensurately and those accounts renewed with us at a higher premium.

Very good. At Lloyd’s could you talk about the profit outlook here, and thinking about the expense ratio, relative to the lower amount of earned premiums. And understanding that there's some shift there that there's not as much Podiatry premiums being ceded that, what's the outlook in terms of profitability now at Lloyd’s.

Our view on that is unchanged, and unchanged in two ways first is we look at it as a long-term development process, we know that expenses will continue moderating but it as you saw they continue to increase because the Syndicate is still growing, it's growing in terms of the premium that is writing and therefore the acquisition cost that it pays, it's also growing a bit in terms of internal staffing and it’s own development. But we believe and continue to believe, as we have for the past three and a half years that this will be and is a profitable operation and will over a period of time that expense loss premium equation will result in profitability to the Syndicate and to our share.

And Howard you might also touch on the first year of account that just recently closed. The Lloyd’s accounting process for the Lloyd's side of it at least is, at the end of three years you close out the given underwriting year. And so the 2014 underwriting year closed with a small profit, which I think is a very good sign for any new Syndicate particularly given the startup expenses involved in the first year of operation.

And then your retention on the Specialty P&C business seems like it was strong this quarter, I think up three points year-over-year, two point year-to-date. Is that also an indication that the competitive environment is a little more favorable.

I don't want to deny that, I think we're seeing we continue to see competition. I think I would say we're probably seeing a little less competition on the price side particularly on some of the physician business. And I think that is reflected in the results we've seen both in retention and rate change. At the same time facilities and large account physician business is still quite competitive. There's a strong desire on the part of many competitors to write the very large premium accounts. So I think it's still kind of a mixed bag out there I think we are seeing some favorable signs but by no means I am saying that things have changed overall in the competitive marketplace.

Understood thank you.

Our next question will come from Arash Soleimani with KBW. Please go ahead.

Hi, good morning.

Good morning Arash how are you?

Good how are you?

Good.

So, couple questions. I think last year in the beginning of the year you had mentioned it's pursuing some international health care opportunities in the Specialty P&C segment on a on a direct basis or through reinsurance, I just wonder if you have any updates on those initiatives.

Sure I could give you a couple of things, in the Lloyd’s Syndicate the International Health Care Team joined little over a year ago now, and has written a book of business at similar to some of the business that they had been historically involved with. I don't have numbers right off-hand but I believe that we were targeting something on the order of $10 million of premium on a an annualized basis and I think those – the results have been similar to that in terms of what they've been able to write. Within our own space we have looked at a number of international opportunities and continue to look at them we're doing a little bit of reinsurance, international health care business and we also have been involved for several years again on a re-insurance basis in a program ensuring physicians in England in the United Kingdom. It's not dramatic but it is something that we expect to grow over a period of time.

Thanks and my other question is I know in terms of that settlement expense you mentioned this quarter that there would be about $3.2 million of higher ceded premiums was the entirety of that $3.2 million recognized this quarter unceded premiums or would that be spread across the couple of quarters.

No it is recognized entirely in this quarter.

And then when looking at your accident loss ration within specialty, when you back out that $3.2 million from ceded, it seems that the accident year loss ratio actually may have gotten a bit better, and I know one quarter doesn’t make a trend per se. But I'm just trying to get a sense of how you're thinking about that. I think you said before you know frequency is about flat, severity is up maybe about 2%, pricing is about 1%. So, what is it that would imply that the course should kind of creep up a bit but it seems like it has actually improved. So wanted to kind of get your thoughts around that.

I’d say it really makes a business more than anything else. We have not changed our view on the current accident year and the way that we are booking it but we do book it, broken down into many different components and as those components move from quarter-to-quarter even in the absence of any change in view you can get a point or so movement one way or the other.

Okay, great thank you for the answers.

Thank you.

[Operator Instructions] And our next question will come from Matt Carletti with JMP. Please go ahead.

Good morning Matt.

Thanks and good morning guys. Just a few questions, I guess the first one is probably for either Stan or Howard. Just wondered if you could give us an update on the risk solutions business, I know that's definitely a lumpy business over time but more so just kind of the discussions pipeline kind of traction from a qualitative standpoint how that's going?

Matt, I’ll let Howard give you the specifics of it, but we've been very pleased with risk solutions. It gives us a vehicle for identifying and underwriting risk that we previously did not have and we think it will be a particularly important vehicle for that purpose as we go forward with healthcare with all of the changes that are to coming to healthcare and to the enterprises that deliver healthcare. So from a strategic standpoint, it's a very important piece of the puzzle and you're right of necessity it is always going to be quite lumpy. But let me let, Howard speak to the specifics.

Sure. I think that covers a lot of it, specifically most of the activity I think they’ve been looking at lately have involved hospitals, loss portfolio type transactions due to the continued M&A activity in the hospital space. One hospital acquiring the other or trying to shut down a self insured trust fund or captive so those commissions or potential opportunities are underway we’ve quoted if you didn't get them, similar in nature to the transaction that was done in the fourth quarter of 2016. But just have not closed on any so far this year.

Okay, great. Thanks. And then maybe one for Mike on the Workers' Comp business, we've heard from a peer or two this quarter that particular in the larger account portion of their books and these are kind of smaller account focused company. So large is kind of a relative term that they were seeing increased competition from kind of larger companies with the idea being that possibly maybe because what’s going on in commercial auto or elsewhere that there was a search for more profitable lines of business. Are you seeing anything along those lines I mean that headline growth number wouldn’t suggests so but I was hoping you could go behind the scenes a little bit?

Sure. Good morning, Matt. Just kind of look at the overall competitive profile, we have in the last really three years seeing more competition from what I would call the regional and national stock carriers, the industry combined ratio on Workers' Comps come under 100, I think they viewed the line of business as a growth target. So I'd agree with that assessment, we're also looking at the high technology Workers’ Comp, Specialty markets coming up into the middle market space and continued increased competition from what I would call regional worker's comp specials. So those are kind of the three areas of competition that’s been really consistent over the last kind of three years.

Okay, great. And then just one last question for Ned, just wanted to ask the – kind of the quarterly capital question. You're halfway through the year, there's been some good growth but I think at the same time, you've mentioned the past about always need to and kind of look at capital to help hit target ROEs and things of that sort. So I guess the question is how do you just sit here halfway through the year, how do you think about that and to the extent that there is room for management is there certain mechanisms or timing that we should think about?

Hey, Matt. I don’t think our thinking has really changed much. So we continue to seek opportunities to deploy capital and through the business. And then in returning capital preferred share buybacks over special dividends, so I don’t think anything has changed in that. The evaluation that we do is continual and we will continue to look at that internally and discuss with our board and make decisions when that group deems appropriate.

Okay, great. And thank you for the answers and congrats on a – I know there’s a little noise with the headline but a nice quarter underneath.

Thank you, Matt.

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

Good morning. I had a question on the Lloyd's segments, understanding the expense ratios can be coming down but do you have an idea of ballpark how much premium you need in that segment to be – to normalize your expenses, the expense ratio? Or how much you planned on when you originally came up with the idea of getting Lloyd's Syndicate?

Hey, Bob. I think it’s safe to say the premium production has been below with the initial plans where I don’t have a specific number with me right now to say what it is. But we submit a plan the Syndicate does to Lloyd's every year. And every year we've come in below that plan given the underwriting discipline that’s being deployed at the Syndicate. We think it's far more important to stay committed to that underwriting discipline than to try and grow too rapidly and to – the re-employ and expense base of the organization. Our initial hope has been that we’d be at a break-even point somewhere between – years between years two and three but the growth in premiums has not quite gotten us there yet.

Okay, so the – is the last ratio portion of it's kind of coming in as expected or is it more an expense issue it's keeping you with underwriting losses.

Losses it is a little still early to tell because there is a good sized casualty book within the segment – within the Syndicate and so a lot of it will depend ultimately on some of those losses develop. And we have had a few areas within the Syndicate where the loss performance has been below our expectations and that’s certainly has had an impact on results. I think it's probably a little bit of both. The other challenge with being slightly smaller than we anticipated is when those loss events do occur that they have an outsized effect because the premium base is smaller.

All right, okay. Thanks Ned.

Our next question is a follow-up from Mark Hughes of SunTrust. Please go ahead.

Thank you. Mike with the rate down 3%, are you keeping ahead of loss cost trends there?

Good morning, Mark. The way we’ve kind of looked at it is over the last five years, our compounded renewal rates on the book of business is up – has been up about 13.7%. We gave back a point 2016 with three points this year and I think the other thing to keep in mind is that our claim frequency on an exposure basis as over the past five years on average has been down about 7.8%. So that has kept us ahead of the curve on that front. So and again at the end of the day, we will walk away from unprofitable business and we’ll continue to be an individual account underwriter and look for adequate rate for exposure.

What was the momentum you talked about 2.3 million in Eastern Specialty risk is that case building?

Its been – I described the submission activity and the quality has been really, really solid. I mean we have written some high-quality business in the first two quarters of the year. But we've written 11 accounts that represents 2.3 million and 10 of those have been in with long-term Mid-Atlantic agency partners that have been closing and so we're really pleased with the start to that unit, keeping in mind we did not start that till late first quarter of 2017. So I mean we’d be really pleased with and again we're going to look at this an individual account basis but this seems to be the appropriate level of growth that we're looking for quarter-after-quarter.

And then Howard, just talking about the new opportunity at Lloyd’s you brought in the team of underwriters, 14 underwriters should drive 2017 and I think you used a figure of $22 million. Is that the potential impact in your Lloyd’s Syndicate segment or is it your participation would mean the lower number and should that show up over the next 12 months?

Well, firstly it would be in 2018, we're talking about starting to write business and I mentioned the $22 million of the plan for 2018. And the Syndicate portion of that would be 40%, 60% to the SPA. So depending on the capital structure of the SPA clearly that 58%, of the 40% of the $22 million would be within ProAssurance and then depending on whether there's any participation on the SPA separately that could increase our premium volume.

Okay. So 58% of 40% of the $22 million is that fair?

And just to be clear, we had an opportunity to separately provide capital to the SPA, if we choose to do so and then we would pick up an additional portion of that 60% that SPA retains. The SPA will have a separate capital base, separate group of members that will provide capital to it. And if we just provide capital too, we would pick up a portion of that as well.

When do you make that decision?

Between now and the end of the year.

Fair enough. Okay. Thank you very much.

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Frank O'Neil for any closing remarks.

Thank you, Allison. No closing remarks here. We will speak to you all again in November when we report quarter three results. Thank you.

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