Frank O'Neil – Senior Vice President, Corporate Communication and Investor Relations Stan Starnes – Chairman and Chief Executive Officer Ned Rand – Executive Vice President and Chief Financial Officer Howard Friedman – President-Healthcare Professional Liability Group Mike Boguski – President-Eastern Insurance Alliance.

Mark Hughes – SunTrust Investment Amit Kumar – Macquarie Ron Bobman – Capital Returns.

Good morning everyone, welcome to the conference call to discuss ProAssurance's Results for the Year and Quarter Ended December 31, 2016. These results were reported in the news release issued on February 22, 2017 and also in the Company’s annual report on Form 10-K filed this morning.

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 explicitly identifies 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 February 23, 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 of 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. Now, as I turn the call over to Mr.

Frank O'Neil, I would like to remind you that the call is being recorded and there will be a time for questions after the conclusion of the prepared remarks. Mr. O'Neil. The floor is yours..

Thank you, Chad. 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 kick us off with opening comments, please..

Thanks, Frank and my thanks as well to everyone who has taken the time to join us today. This will be a very straightforward call, we had a great deal of success in the fourth quarter which caps off a strong year for ProAssurance.

We’ve been sharing our strategy for dealing with the changing healthcare market for a number of quarters and the most recent quarter is a good example of what we are trying to accomplish. Our shareholders enjoyed a total return of 28% in 2016. Operationally, premiums grew in all segments.

We wrote $96 million of new business in 2016 in our Specialty P&C and Workers' Compensation segments. And part of that increase was due to 13% increase in broker submissions and our healthcare lines as our efforts to further penetrate the large broker and complex healthcare market continue to bear fruit.

Premium produced by our coordinated sales and marketing efforts more than doubled. Retentions remain solid as well, demonstrating that we are delivering on our commitment to our agent driven and direct business, which tends toward risks that are less complex but just as important to us.

So let's start with a review of the consolidated results from Ned Rand. Then we’ll flesh out the details in the operating segments.

Ned?.

Thanks Stan. I will be focusing primarily on the full year numbers, but will highlight some quarter results where they are important to mention. As Stan said, gross premiums were up year-over-year by 2.8% and that was accomplished through a strong fourth quarter where gross premiums were up 16.5%.

You'll hear more about the details of that in our segment discussion. Ceded premiums declined $6.5 million year-over-year due to improvements on our loss-sensitive professional liability reinsurance contracts. Net premiums earned increased 5.6% year-over-year.

Impacting both the gross written and earned premiums is a one-time $11.8 million transaction written by ProAssurance Risk Solutions. It was fully earned in the fourth quarter. Stan also mentioned our coordinated sales and marketing success. We wrote $13.6 million of premium through those efforts in 2016 compared to $5.5 million in 2015.

Our net investment result was $18.1 million lower year-over-year, driven primarily by a decline of approximately 8% in the size of our average fixed income portfolio, largely due to our capital return efforts over the past several years.

The sustained low interest rate environment that is affecting the entire insurance industry also contributed to that decline. The consolidated current accident year net loss ratio was 80.1% down 2.3 points from 2015, primarily driven by improvement in our Specialty P&C segment, although Lloyd's segment showed some improvement.

The consolidated calendar year net loss ratio was 60.4% just over one point higher than last year due to lower favorable net development. Favorable development was $144 million with contributions from all operating segments, but primarily Specialty P&C.

That compares to $161 million in 2015 that reduction is consistent with the decline in premium volume, we had experienced in the past few years due to the generally benign loss environment.

While we continue to establish initial loss estimates above our pricing targets, the modern increases in claim severity have been closer to our projections as compared to past years, resulting in lower favorable development. Our expense ratio was essentially unchanged year-over-year.

Our tax expense for the year was $25.1 million, with an effective tax rate of 14.3%. Our tax rate increased by 4.5 points, primarily due to the significant increase in net realized investment gains, which are taxed at 35%.

Net income for the quarter was $54.8 million or a $2 per diluted share and for the year net income was $151.1 million or $2.83 per diluted share. Operating income for the quarter was $44.4 million or $0.83 per diluted share and operating income for the year was $129.8 million or $2.43 per diluted share.

Our ROE improved 8% for the year and 11.4% in the quarter. Now I’d like to remind you that we are now targeting a rate a return that is 7 points above the 10-year treasury rate as opposed to our prior target of 12% to 14%. We simply came to realize that the prior target was unrealistic in the current interest rate environment.

At the same time, each line of business continues to target a return of 13% on allocated capital. Book value stood at $33.78 per share at year end. While this is $3.10 lower than at the start of the year. Remember that we did have $5.93 per share in dividends during the year.

We have not repurchased any share since the first half of 2016 given the discipline we exercised when our stock is trading above book value. As we demonstrated with the $4.69 special dividend we declared in November and paid in January, we are committed to being responsible stewards of the capital entrusted to us.

Finally, three other discrete data points. First with a sustained commitment to capital management reducing shareholders' equity, our premium-to-surplus ratio has risen to 0.5 to 1 as we become a little more efficient.

Next, at year-end 2016 we held $385 million in unpledged cash and liquid investments outside our insurance subsidiaries and available for use by the holding company. But I should point out that $266 million were paid in a dividend in January and reduced that $385 million to $119 million by mid-January.

And finally, just to note that in December, we drew down an extra $100 million on a revolving credit facility is a part of our preparation to pay our special dividend in January. This is a secured borrowing and we are earning more in interest on the collateral than we are paying in interest.

As the bond securing the loan mature, we intend to pay off that borrowed amount. We’ve used this strategy successfully before.

Frank?.

Thanks Ned. We'll hear more about the segment results now. Starting with Howard Friedman and Specialty P&C.

Howard?.

Thanks Frank. The markets in which we operate remain as competitive as ever. And given that, I'm very proud of the 1.8% year-over-year increase in gross written premium in the Specialty P&C segment. It was driven by a successful fourth quarter in which we wrote $126 million of premium an increase of almost $16 million or 14.5%.

The healthcare facilities line is the main driver of this increase. We have mentioned the $11.8 single premium policy written by ProAssurance Risk Solutions. Recall this is the group that offers sophisticated risk financing alternatives in both healthcare and workers' compensation.

In this case, the transaction results from the acquisition of a hospital and the new owners desire to wall off the prior professional liability exposure. The transaction was structured as an ovation of the original policies issued by the hospitals captive and we are assuming the risk and reserves of a known set of claims.

That $11.8 million premium was not counted in our new business numbers since it was a non-traditional transaction. However, we did write $62.5 million of new business for the year, which is a $23 million increase over 2015.

Our new business got a boost from the $20.6 million of new business written in the fourth quarter, which included several large accounts spread it throughout the healthcare lines of Specialty P&C. These accounts were brought to us through the broker market, validating our increased efforts there as Stan mentioned.

Let me step back a minute to point out that the increase in premiums is welcome and is the result of a great deal of hard work to implement our strategy. But these large premiums can be a double-edged sword and that they are from larger accounts which tend to be broker-driven and are shopped to the market on a regular basis.

While we're confident in our ability to service and retain risks across the spectrum of healthcare, the reality is that some will not renew and this will increase volatility in our top line and retention ratios. Our premium retention in the physician line, which is the largest single line in the segment, was 88% for the year.

And pricing on renewing physician business, the key benchmark for us was unchanged year-over-year. Our current accident year net loss ratio for 2016 was 88.6% down from 92.3% last year mainly due to changes in expected loss costs related to mass tort litigation and to a lesser extent changes in the mix of business.

While we did establish reserves related to mass torts in 2015 and 2016, the increase in 2016 was less than last year. Our favorable net loss reserve development in the segment was $137 million coming principally from accident years 2008 through 2014.

Every line in the segment experienced some level of favorable development, $116 million was from the healthcare professional liability lines, medical technology was $12 million and legal professional liability was $9 million. We do not see any change in the overall loss trends for this segment.

I want to also highlight the one point improvement in the underwriting expense ratio in Specialty P&C that decrease is primarily driven by that same $11.8 million one-time premium both written and earned in the fourth quarter.

As I mentioned, we cannot count on transactions of that size and type with any regularity and we'd expect the expense ratio to return to historical levels.

Frank?.

Thanks, Howard. Now we are going to bring in Mike Boguski for comments about the Workers' Compensation segment.

Mike?.

Thank you, Frank. The market is equally tough in Worker's Compensation making the 1.8% year-over-year growth in premiums a significant achievement. And just as in Specialty P&C, the increase was driven by success in the fourth quarter and which gross premiums written increased 12.3% to $53.5 million.

New business writings were important to the growth story in the fourth quarter. We wrote $10.2 million of new business in the fourth quarter up 40% increase over year-end 2015. New business for the year was $33 million.

The growth in gross premiums written in 2016 was driven by a premium retention of 85%, including 88% in our novated or alternative markets business and new business writings of $33 million. 2016 order premium was $6.3 million down $500,000 from fourth quarter 2015.

Renewal prices decreased 1% in 2016 compared to 2015 indicative of the competitive worker's compensation marketplace. We were successful in renewing all 23 of the available alternative market programs during the year.

We believe this speaks to the value these programs offer to their owners and to the company as a result of the fee-based revenue that is produced as well as the underwriting profit in selective sales in which we take an ownership position. Alternative markets direct premium increased $5.3 million or 7.5% in 2016 compared to 2015.

This includes one new program in Worker's Compensation with $1.9 million of premium at year-end. And although not included in the Worker's Compensation segment results, I’d like to highlight the fact that we added two new medical professional liability programs in 2016 totaling premiums of $3.3 million at year-end.

We continue to see opportunities in our alternative markets business. Particularly for healthcare centric organizations that seek captive solutions for their worker's compensation and medical professional liability lines of business.

It’s a measure of the success of the alternative market programs that the segregated portfolio cell dividend expense was $8 million this year. A sizable increase over the 853,000 of segregated portfolio cell dividend expense in 2015.

This dividend expense reflects both the underwriting and investment results of our alternative markets business net of our participation.

The 2016 net loss ratio was 63.6% an improvement of almost 2.5 points over 2015 and was due to an almost 12 point improvement in our alternative markets business, partially offset by a one percentage point increase in our traditional net loss ratio.

Favorable reserve development was $6.1 million for the year including $2.2 million of favorable development in the fourth quarter, which compares to net unfavorable reserve development of $2.2 million for the same period in 2015.

The net reserve development for the year includes $1.6 million related to the amortization of purchase accounting fair value adjustments. During 2016 we successfully closed 62.4% or 717 of the 2015 and prior open lost time claims.

We now have only 22 open claims for accident years 2008 and prior in our entire traditional book of business, indicative of the short-tail nature of our workers' compensation business model.

The 2016 underwriting expense ratio was 31.9%, 2 points higher than 2015 driven by increased state assessment expenses, incentive compensation and 1 million final charge related to termination of the legacy pension plan from a line of business divested in 2010.

The 2016 combined ratio of 95.6% included 2.4 percentage points of intangible asset amortization and a 0.8 percentage point of a corporate management fee..

Thanks Mike. Now we'll turn it back to Howard for an update on the Lloyd's segment.

Howard?.

Thanks Frank. The positive momentum that built through the year for Syndicate 1729 carried through the quarter that we are reporting today. And let me remind you, we are on a one quarter lag. The other reminder is that I’m reporting net results reflecting our 58% participation.

Gross premiums written were $65.2 million or 14.5% year-over-year increase with growth in the property and casualty insurance lines written by the Syndicate. Especially in the international health care professional liability coverage being written by the team that joined in the first quarter.

Net premiums earned were $54.7 million a year-over-year increase of 45.1%. This reflects increased overall premiums, adjustments to premiums on policies for which initial exposures are estimates and on policies for which premiums are adjusted based on loss experience.

The rate of growth in underwriting expenses within the Syndicate slowed considerably in 2016, up 23.3% over last year which, for reference, saw underwriting expenses grow by 94.2% over 2014. The more moderate increased results from the natural maturation of the Syndicate’s operations primarily the decreased need to add staff.

With premiums higher and absolute expense growth slowing, the underwriting expense ratio is also decreasing as expected.

The net loss ratio decreased roughly 4.5 points year-over-year reflecting $500,000 in net favorable prior year development and shift in the mix of business as well as increased reliance on the actual loss experience on the book of business.

However, the Syndicate continues to generally rely on loss assumptions derived from Lloyd's historical data, when establishing initial reserves. While there has been some shift in the mix of business. It remains a diverse book and the overall categories and geography remain largely the same.

Casualty coverage accounts for 53% of the Syndicate’s premium, property coverage accounts for 28%. Catastrophe reinsurance is 15%, and property reinsurance comprises the remaining 4%. One last item which you may have noticed in our news release, we recognized a $3 million tax benefit in the Lloyd's segment in the fourth quarter.

The benefit resulted from a current period change in the calculation of the current currency exchange gains and losses on our funds at Lloyd's, which is the roughly $97 million used to support our underwriting capacity. That tax benefit essentially reverse the taxes we accrued in prior quarters of this year.

Frank?.

Thanks Howard.

Stan, some final thoughts from you, please?.

Thanks Frank. Nothing really to add here before we open the line for questions, other than to say thank you to everyone working at ProAssurance, and to our strategic and distribution partners for a simply terrific year.

This is a very tough environment and the dedication and enthusiasm I see every day is the main reason we were able to execute our strategy so successfully this year. So thanks again everyone for a job well done.

Frank?.

Thank you, Stan. Chad, we are ready to take questions, if you open the lines please..

Sure. Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question will come from Mark Hughes of SunTrust Investment. Please go ahead..

Thank you very much. Good morning..

Good morning, Mark..

How should we think about the pace of new business? You seem to have a very good success, the brokers submissions are up. It looks like you are hitting more of those submissions successfully.

Should we look for maybe more consistent growth rather than kind of a choppy experience?.

Mark, I'll let Howard answer that question specifically for healthcare but I’d just remind everybody that the uncertainty in the healthcare arena continues if anything it's increased in recent months.

So frankly, my guess is choppiness will be the order of the day but, Howard?.

Yes, I would very much agree, choppy I think is a good word. While the submissions are up and we were very pleased and I think pleased not only with the rate of submissions but also with the ability that we had to respond to them and the pricing in underwriting that we were able to do.

There is a wide variety and in any given quarter certainly over the course of the year. I think we will see many submissions that we either pass on that we are not successful when writing because of our underwriting or terms and conditions.

So particularly with the larger accounts, as I mentioned earlier I think that we're going to see a fair amount of variation on our existing or legacy book of business.

We've been very consistent in terms of being able to retain that business both in terms of retention rate and pricing and the flow of new business in that portion of our business is more predictable..

Understood. How about the PRS? You got a nice big chunk of business.

Do you have healthy pipeline of more of those or is that – I'm sure it is uncertain, but is there a pipeline of that business?.

Yes, there is. There are quite a few opportunities that come along. I guess I'd remind you that it's been a long time that we've been talking about this unit, which we are very optimistic about and pleased with. But and they looked at many opportunities before this one was actually put on the books.

Again because of the nature of the business the competition that's out there and just some of the transactions that were reviewed but either didn't make sense or because of the pricing in terms that we put on them, they went elsewhere.

There's also a lot of uncertainty from the nature of these transactions because sometimes the underlying transaction itself, as in this case, the sale of a hospital may be proposed but not go through. So we might be all lined up to do something and still not get it..

Right.

Final question, directionally speaking, when we think about the loss pick in the Specialty P&C business with kind of mixed plus pricing trends, how should we think? You think that will be up, down, sideways?.

I think that there's always some noise in it. And a year ago mass torts was a little bit of a noise, this year it wasn’t so much. Sometimes we have on the current accident year loss ratio, the effect of changes in our death, disability and retirement reserves or the internal claims handling cost of ULAE.

But I think on the basic loss and allocated loss adjustments expenses that we established. I’d say that we are pretty stable. We have been and I don't expect that to change any time soon or anything dramatically. It’s a direct reflection of the rate environment in that we see through our rate analysis things being pretty stable in the marketplace.

As well as generally what we're seeing in the overall frequently and severity environment it all somewhat circular and related and right now we just don't see many significant changes out there..

Thank you..

Thanks Mark..

[Operator Instructions] Our next question comes from Amit Kumar with Macquarie. Please go ahead..

Thanks and good morning, and congrats on the results..

Thank you, Amit..

A few follow-up questions. Just going back to the discussion on the tort climate, some of the companies have actually talked about an adverse climate and they in fact have taken charges. I think you know whom I am referring to.

I was trying to reconcile, is this more of your book of business issue? Is it a more geographic issue why you are witnessing better trends than some of the other companies, or how should we think about that piece?.

It would vary for both healthcare and workers’ comp but Howard can start with the healthcare..

Yes, I’d happy to. On the healthcare side, I think there's several things.

Sometimes other companies have reported charges and looking back at it, many of those companies were relatively the price competitors in the marketplace so if the initial reserving was based on the same assumptions as the pricing and the pricing analysis was not sufficient, I think that often is the driver of some of the charges that you see.

The loss environment never has been easy on healthcare. We're always subject to volatility, both in terms of verdicts on cases that are tried and how those drive settlements, as well as potentially changes in frequency.

In our business, we have not seen the changes in frequency and I think we have done a really good job in terms of, in our claims area, in controlling the verdicts but that potential is always there.

When that does happen, particularly for companies that retain a significant amount on a net basis, either with very limited reinsurance and no reinsurance, it can create a lot of volatility for their results..

Mike, what would you say?.

As we look across our workers’ compensation operating platform, first of all, it has been stable on the regulatory side of the equation. We have been able to control our medical inflation with our excellent claims closing patterns. Claims frequency continues to decrease.

We had about a 9.5% claims frequency decrease this year and that has occurred in the industry really over the last 16, 17 years. You end up – at the end of the day you end up with fairly stable severity trends, medical inflation seems to be under control over all and the frequency continues to come down, putting rate pressure on the book of business.

That is kind of where we are at as an environment. It does vary state by state. I would just say the 2016 to 2017 core operating stage that we are in today, we are really pleased with our overall results and they have been good states to deploy our capital..

Got it. That's helpful. The second question I had was going back to the discussion on Obamacare. I know we used to spend a lot of time talking about it, how it could lead to a flood of new patients, probably result in the change in the loss cost pattern, maybe even worsen it materially.

With Trump obviously as President and the repeal of Obamacare being sort of the topic of the day, how are you thinking about this plays out? Are you doing things differently than how we were thinking previously with Obamacare?.

Amit, nobody has any idea how it's going to play out. I go to a variety of meetings in a variety of environments and a variety of settings and the common theme is great uncertainty. I think it is just too soon for us to know.

Given that uncertainty, we are going to be very cautious about making any changes that we think would be at risk because of the uncertainty.

Now, having said that, I think it remains clear that the revision of more and more healthcare by larger and larger organizations will continue to accelerate and I think it is clear that more and more healthcare will be delivered at lower and lower provider levels.

Those two things have been sort of the foundation of the strategy that we have employed for now well over seven years and I don't see anything that will change that. The system is not going back the way it used to be.

In terms of what legislation may ultimately be enacted by Congress, I think it would be utter folly to make any big bets on what that would ultimately look like.

We will continue the strategy we have in place, we will continue to be attentive and responsive to a variety of different customers from the very, very large healthcare systems to the still-remaining solo practitioners. The uncertainty that is faced by the system has probably never been greater.

I read constantly about the blurring of lines between, for example, providers and payers and I think that is going to continue and probably accelerate. We think we have – whatever the ultimate answer is, we think we have a vital role to play in the market, but we are not going to get ahead of ourselves..

Got it. The final question and I will stop is going back to the discussion on capital management. Obviously, you've mentioned in opening remarks the stocks multiple and new stock repurchase in Q4 or Q1 to date.

How should we generally think about capital allocation going forward? I mean, is the focus now more on perhaps finding new opportunity, finding new entities instead of growth through an acquisitive nature and hence we should we anticipate capital management in terms of a buyback to be on the back burner or – maybe just talk a bit about that. Thanks..

I will let Ned delve into the specifics of it with you, but it is not that we set a capital management strategy and put it in concrete. It is a very fluid strategy and it depends upon the environment in which we are living. The Board discusses strategy, capital management strategy, at every meeting.

Our first desire is to put the capital to work in our businesses. If we can't do that, our second desire would be to buy our shares back at an attractive price. If we can't do that, our third goal would be to pay the special to regular dividends.

Acquisitions remain very much in our target, but we no longer have to do the acquisitions and we are not going to do them at what we regard as unreasonable and irrational prices. We are in a very fortunate position. We do not have to do them.

But I don't think our Board will ever say, this is going to be the capital management strategy we will follow forever and ever.

I think they will continue to look at it at every meeting, and I think that will continue to assess the opportunities that are in front of us and the best use of our capital to the benefit of our shareholders and our customers.

Ned?.

I don't think I have anything to add, Stan. Thanks, though..

Thanks for the answers and good luck for the future..

Thank you, Amit..

[Operator Instructions] The next question comes from Ron Bobman of Capital Returns. Please go ahead..

Hi, gentlemen..

Hello, Ron..

Hi, guys. Congrats on the year. I had a few questions. On the $11 million sort of, I don't know if you would call it a new initiative, but in essence that new piece of business you wrote and I know chased a lot more of and I assume you will keep pursuing them.

Did you have, or do you have, a special reinsurance relationship that is sort of also sort of utilized or supporting you where there's no sort of specialized or supplemental reinsurance supporting that new line or new effort?.

Hey, Ron. First, everyone of these is a little different and the reinsurance program that we have can optionally support it, but it is not required to.

Just as a bit of background, this transaction in particular sort of came with its own reinsurance in that we are – as I mentioned, we are actually becoming or have become the carrier of the original policies through this novation, so we are the insurer and the reinsurers that were in place over the hospital captives are still in place over our novated policy, the policies that we have issued.

In this particular situation, we did not have to utilize our existing reinsurance program.

In other transactions, there may be some that have limits or features that are large enough for us to be interested in doing so on a net basis, to limit our net exposure, and then we always have the option to go out and arrange for facultative or individual reinsurance on any transaction..

Okay. Got you. Makes sense. For Stan or Frank, maybe, get finished the year very strongly.

How would you contrast that to Alabama's football season?.

I think Alabama finished the year very strongly..

When we go off-line, I'm going to send you Coach Saban's cell phone and you can call and ask him..

All right. I'm going to go out of state now to Pennsylvania. On the workers' comp and the competitive environment, and I don't know if it is increasingly competitive, I think you said that.

Michael, is the competition increasingly coming from whole account writers that are now willing to write the comp as well or no noticeable difference as far as the profile of the competition? Thanks..

Ron, that is a really good observation.

We are seeing competitive pressure from both the regional and the national stock carriers that write multi lines, and it's being viewed, as the industry combined ratios come down in the last five, six years from kind of a 115 to a 95, it's been viewed as a more attractive line of business and I think strategically as a growth line of business for the multi-carriers.

We really see, at the end of the day, we see – and it is regional, the competition is different on a regional basis, but we really see competition in three areas, the multi-line carriers that I just described, on the small business side we see the technology players play hard in that marketplace and then we see the regional specialty workers' comp carriers.

Those are kind of our three – the three types of competitors that are out there in the marketplace and it is a competitive space right now..

Okay. Thanks a lot, guys. Best of luck..

Mike, consistent with prior cycles, correct?.

Yes, absolutely..

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

Thank you, Chad, and thanks to everybody who joined us. We will speak to you again in May when we report first-quarter results..

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