Frank O'Neil - SVP, Corporate Communication & IR William Starnes - Chairman and Chief Executive Officer Edward Rand - Executive Vice President and Chief Financial Officer Howard Friedman - President of Healthcare Professional Liability Group Michael Boguski - President of Eastern Insurance.

Gregory Peters - Raymond James & Associates, Inc. Mark Hughes - SunTrust Robinson Humphrey, Inc., Arash Soleimani - Keefe, Bruyette & Woods, Inc. Amit Kumar - The Buckingham Research Group, Inc..

Good morning, everyone. Welcome to the Conference Call to discuss ProAssurance’s Results for the Third Quarter of 2017. These results were reported in a new release issued on November 6, 2017 and in the Company’s Quarterly Report on Form 10-Q, which was also filed on November 6.

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 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 November 6, 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 also 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 Frank O'Neil, I would like to remind you that this call is being recorded and there will be a time for questions after the conclusion of prepared remarks..

Thank you, Brandon. 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 please?.

Thank you, Frank. We have a great deal of positive news to discuss in today's call. So as I turn the call over to Ned Rand, I will simply say that we are pleased with the overall results and a very solid quarter.

Ned?.

Thank you, Stan. We did see an increase in gross premiums written in the quarter and our Specialty P&C and Lloyd's segments. But I want to caution against reading too much into the increase in Specialty P&C for reasons Howard what is going too shortly.

Gross premiums and our Workers' Compensation segment were down only slightly, which in net competitive line represents a real accomplishment. Retention across all of our lines of business remains strong, which we believe shows that our insured see value in the suite of coverages and the services we are providing.

And that carries over to the success in our coordinated sales and marketing efforts, which produced approximately $3 million of new business in the quarter not in $12 million for the year. All three of our segments are quarter-over-quarter growth in new business as well.

Our consolidated current accident year net loss ratio was 84.1%, an increase of 4.7 points over the third quarter 2016 and our calendar year net loss ratio was 3.6 points higher than last year's third quarter. Both of those increase is being driven by strong related losses in the Lloyd’s segment.

We did recognize $32.3 million of net favorable development and you will hear more about that in our segment discussions. The story in our investment related results continues to be much the same as in prior quarters. The quarters net investment result was up about 27% over the last year and $27.9 million.

That is primarily due to increases in the earnings from unconsolidated subsidiaries, which were up substantially, $4.2 million in this year's third quarter versus a loss of $3.3 million last year.

Partially offsetting those earnings was a 6% or $1.5 million decline in net investment income due to lower interest rates and the smaller size of our portfolio due to our capital management activities. Summing all this up, net income for the quarter was $29 million, $0.54 per diluted share.

Operating income for the quarter was $24.3 million or $0.45 per diluted share. At September 30, our book value was $34.65 per share, up $0.24 since the end of the second quarter of this year and up $0.87 per share of approximately 2.5% since year-end.

Finally, at the end of the quarter, we had approximately $264 million in unpledged cash and liquid investments outside our insurance subsidiaries.

Frank?.

Thanks, Ned. We will turn next Howard Friedman for more detail on our Specialty P&C segment.

Howard?.

Thanks, Frank. Starting at the top, I’ll note gross premiums written increase quarter-over-quarter, but the vast majority of the increase had to do with the timing of renewals both last year and this year.

As we have said, as ProAssurance writes larger policies, we expect the overall trajectory of premiums to be positive, but there will be some variability along the way. That was the case this quarter where some policies that were processed in the fourth quarter last year renewed and were processed this year in the third quarter.

It makes the comparisons a bit difficult and I want to caution against reading too much into that as a trend. We called out another example in the news release. We had a one-time bump in premiums from tail premiums that were paid because a group of policyholders transition their coverage in a shared risk arrangement.

In essence terminating one ProAssurance policy and beginning another one with us. We did write $11.4 million of new business in the Specialty P&C segment up from $10.1 million last year.

There was some growth in every line in this segment and importantly $1.9 million came from our healthcare facility line underscoring the effectiveness of our broker outreach and our increasing success in that important growth area of our business.

Premium retention for physicians was again 90% in the quarter leveled with last year and up a point from third quarter 2016. Year-to-date retention is also at 90% also up a point from the first nine months of 2016.

Pricing on renewing physician business, something we believe is a key benchmark for us and a key indicator of market strength was 2% higher for the quarter and for the year-to-date. Our loss ratios both current year and net were essentially unchanged quarter-over-quarter.

Favorable net loss reserve development in the segment was $30.1 million basically unchanged compared to last year. The expense ratio at 22.8% and the combined ratio at 85.2% were also essentially leveled with the prior year quarter. All of this underscores the relative stability of the overall loss trend that we are seeing for this segment.

Frank?.

Thank you, Howard. We will turn next to Mike Boguski for comments about the Workers' Compensation segment.

Mike?.

Thank you, Frank. The Workers' Compensation segment operating results were $2.6 million for the three months ended September 30, 2017, a $2.2 million increase from $332,000 in the third quarter of 2016.

The increase was driven by higher net earned premium, a decrease in the net loss ratio in underwriting expense ratio and an increase in the operating results of our segregated portfolio cell business.

Gross premiums written decreased slightly down less than 0.5% to $59.7 million for the three months ended September 30, 2017 compared to $59.9 million for the same period in 2016. However, gross premiums written have increased 4.5% year-to-date in 2017.

New business writings were $9.2 million during the quarter compared to $6.8 million in 2016 and audit premium was approximately $700,000 in the third quarter of 2017 compared to $1.5 million in 2016. Renewal pricing decreased 5% in the quarter reflecting continued price competition and loss cost reductions in some of our core operating states.

Premium retention was 87% for the third quarter driven by improved retention results across all workers comp product lines. Premium retention was especially strong in alternative markets at 92% in the third quarter of 2017 compared to 88% for the same period in 2016.

We were pleased to review the available alternative market program and wrote one new program in the third quarter of 2017. The decrease in the third quarter 2017 accident year loss ratio reflects overall favorable trends in claim closing results.

Through September 30 of 2017, we successfully closed 50.5% of 2016 and prior claims, reflective of the short tailed nature of our workers' compensation business model.

Favorable reserve development was $2.3 million in the quarter compared to $1.8 million in the third 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.

The decrease in the 2017 underwriting expense ratio primarily reflects the increase in net earned premium, a 1.1 point reduction in intangible asset amortization and the continued impact of our focus on effectively managing operating expenses, partially offset by an increase in underwriting acquisition expenses.

The 2017 combined ratio of 92.8% includes 1.3 percentage points of intangible asset amortization and 0.8 percentage points of a corporate management fee. From a strategic perspective, we were extremely pleased to close the renewal rights transaction with Great Falls Insurance Company during the quarter.

This transaction provides us with further geographic diversification, the foundation for New England expansion, increased scale and our small business book and the ability to expand our broad Workers’ Compensation product line to this market.

We are also extremely pleased to welcome the town in Great Falls employees and their valued agency partners to the ProAssurance family of companies. The New England Region will continue to operate from its current location in Auburn, Maine..

Thanks Mike. Let's go back to Howard for an update on the Lloyd's segment, as we do that I want to remind you that the results reflect our 58% participation in Syndicate 1729.

We normally report those results on one quarter lag expect at it is case this quarter, when there's an event, which we believe will have a material impact to the segment and should be disclosed to investors for the sake of transparency, so Howard..

Thank you, Frank. That material event is of course the preliminary loss estimates from the three hurricanes that hit Texas, the Southeast U.S. and much of the Caribbean. As we disclosed in a news release in October, we estimate our 58% share of the Syndicate's net pre-tax losses to be $7.5 million.

That number is net of reinstatement premiums, which are written and earned during the period and it is also net of reinsurance. The estimated storm-related losses were the primary driver of a 66.5 point increase in the current accident year loss ratio. Those authors also drove the net loss ratio increase, which was 47.8 points higher than a year-ago.

Excluding the storm-related effects on the segment, we continue to believe that normalized loss trends will continue as the Syndicate writes new business and the existing book matures. That is the loss side of the equation. On the premium side, gross premiums written increased by $2 million quarter-over-quarter.

There is a component of new business in that increase and also some benefit from $1.4 million of reinstatement premiums, which represent additional premium payable to the Syndicate to restore coverage limits that were exhausted as a result of reinsurance storm-related losses.

Underwriting and operating expense were up by approximately $500,000 in the quarter, but the rate of increase is slowing as operations mature. But the moderation in expense growth and the increase in earned premiums over last year's third quarter, the expense ratio declined 1.7 points.

All-in-all, we see this Syndicate continued underwriting discipline as the best course of action in this competitive market. We often say that you can sometimes make the most money by not writing a piece of bad business.

Duncan Dale and his team are continuing to underwrite carefully, selecting those risks that they believe will prove to be profitable in the long-term. That marries well with our underwriting philosophy and is within our expectations. We're confident that we are creating long-term value with permanent capital at Lloyd's.

In addition, the dedication to profitable underwriting is increasing the value of Dale Underwriting Partners, which is a key part of the Syndicate’s business and our minority ownership in that back office service is yet another vehicle for value creation.

Frank?.

Thanks, Howard. Stan, some final thoughts for you, before we take questions..

Thanks, Frank. Our vision for the future remains intact and encouraging. We are positioned to not only grow our business, but retain those risks we write the dedication of our employees and distribution partners.

We hear quite open that their commitment to excellence is why so many of our insureds for gold attempting – of the lowest price and choose the ProAssurance promise of real long lasting value. We have built a strong foundation and we are now expanding on it, growing in a price that continues to give me great confidence in our future.

Frank?.

Thank you, Stan. Brandon, that concludes our prepared remarks and so we are ready to take questions please..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Greg Peters with Raymond James. Please go ahead..

Good morning, Greg..

Yes. Good morning.

So a couple questions for you with your results and I certainly appreciate Howard’s comments around the Specialty PC segment and some unusual anomalies that affected the topline in the third quarter, perhaps we could step back and you could provide us perspective when you take through the anomalies that happen in any given year, what you think the underlying growth rate of that business looks like on an annual basis perhaps?.

Howard?.

Sure. Hi, Greg. The marketplace right now and as we've talked about and as you know is still quite competitive. And what we've really been looking at and if you look at it over the – probably the course of the last couple of years is more or less offsetting our losses due to retention with new business production.

And that is generally, I think where we see things right now. Quarter by quarter it varies, but over the course of the year or so that's about what we are – it will be believed that we're able to do. And we have a great emphasis on developing opportunities for good new business.

But at the same time the competitive market does take business away from us and we've been able to get our retention ratio up a little bit this year as you have noted. But at the same time – and we've also been able to do better on in terms of the rate change being in the low positive territory.

But even 10% loss to 90% retention ratio still creates a big challenge to replace that with new business. So I’d say long answer, but basically flat is kind of what I see right now..

Thanks for that color, Howard.

Should I refer that because there were some I don't want to call it pull forward, but some fourth quarter business that ramp through the third quarter that we should see everything else equal to fourth quarter possibly being down, is that the right way to look at it?.

I think other than new business that may offset it and again constantly trying to generate that.

Yes, basically there was a shift of some policies that – new business policies that were effective in the third quarter of 2016, but due to the complexity of the policy is an issue and everything else they got issued and processed in November of last year, so they got into the fourth quarter and now they renewed on a timely basis.

So yes, I think that shift is likely unless offset by new business this quarter..

Yes, perfect. I understand completely. Thank you for that answer. I wanted to shift gears and also have you talk about the Lloyd's business. And I'm just curious and maybe Stan this would be appropriate for you to comment on as well.

What did you learn about the performance of the Lloyd business in the third quarter this year and specifically around the catastrophe exposures that might have surprised you or maybe it was favorable to your expectations? And then just as an additional question around the Lloyd's business.

As we think about this and the specialty nature of Dale's operation, should we view this as somewhat of a sidecar type of business where you might put extra capital in and might be allocated to more property related type of exposures if cat pricing affects the U.S.

property insurance market?.

Greg, it’s Stan. I’ll let Howard comment, but I will say this I was clearly when you start a new Syndicate. You have to play by Lloyd's rules and Lloyd's particularly a Syndicate such as ours which is a new underwriting Syndicate and other Corporate Syndicate. Lloyd expects you to write and approves diversified book of business, including cat exposure.

Obviously nobody wanted to win the ball like it did and obviously there was a great human catastrophe and loss involved in that and we are mindful of that and respectful of that. Having said that, I was pleased but not surprised at Duncan’s ability to write that cat coverage in a disciplined way with the appropriate backstops in place.

So that regardless of what happened the Syndicate’s loss exposure was mediated by the backstops and you never know for sure that's going to be the case until you know confirmed it with one of these catastrophes.

And so from that standpoint we were quite pleased so again I want to emphasize not surprised by Duncan’s expertise both personally and out of his staff and about a very disciplined approach to this. It's that discipline that makes the Lloyd’s underwriting effort it Syndicate 1729 assigns and not simply adept.

With respect to your question regarding the allocation of capital both the parent ProAssurance level and at the Syndicate 1729 level we constantly evaluate what our capital requirements are and what our capital opportunities are.

As you know we've announced and made a long-term commitment to Syndicate 1729 for capital and if opportunities came along we thought were noteworthy we could invest more capital in 1729. But that will be made on a current basis based on opportunities as we see them at the time.

As you know and if commented on we are blessed with an abundance of capital at the moment and as we've said many times room number one is not doing anything stupid with it, but we do not think placing capital with Duncan Dale is anything other than sound advice based on circumstances as we see it a time.

Howard and Ed you may want to add something to that.

Howard?.

Yes, I would just second Stan’s comments, certainly there we expect that there will be opportunities in the property reinsurance market in particular that Duncan and his team will be able to take advantage of in the way of rising rates and we stand behind that, but it's not a clinical kind of view of it, as Stan said with this is a long-term view it's not just a matter of moving capital from one bucket to the other it has to make sense business wise and we're very confident that Duncan and the team there will be evaluating all of that very carefully..

Ed?.

I know everything that that Stan saying..

Great..

Thank you for the answers..

Our next question comes from Mark Hughes with SunTrust. Please go ahead..

Thank you. Good morning..

Good morning, Mark..

On the Lloyd’s business are you seeing any kind of movement in pricing I assume the cat expose property do you have seen anything on the casualty side how do you feel about that?.

If you read best this week you saw a variety of opinions ranging from the expect pricing on property renewals to go up without hesitation, you have others saying that they're not certain what will happen to it. And within the organization we have a plethora of opinions about what will happen.

We'll wait on the January 1 renewals and see but we're not a position to tell you of what's going to happen there are a variety of opinions around about it Mark as I'm sure you seem even more than I have about it. I'll say this personally and I'm often wrong but never in doubt. Personally I'll be surprised if prices soften any.

And that's a change from the last long-term period..

Right. The underlying losses and Lloyd's if you take out the 7.5 million still seems like there in the upper 70's. Anything there we should be concerned about it seems like it’s to going in the wrong direction lately understanding that it's still early days in the book it's still pretty green et cetera, but still seems to be moving up..

Howard?.

Sure.

Mark, no I don't think there's anything that to be write into that other than reserving it as the business seems to deem and really looking at as we have said this number of times looking at the Lloyd's historical averages to be conservative until the Syndicate has developed its own experience and the mix of business shifts from quarter-to-quarter and that drive the loss ratio more than anything else..

Howard, I’m sorry if I didn't catch any commentary on pricing.

I think physician pricing up 2% that's about as strong as we've seen in some time last quarter, you had referred and you maybe possibly some lessening in the competitive environment? How do you see that today?.

I still see things I guess the same way that I did last quarter very pleased to see the overall plus 2% and holding at that level for us at least.

Certainly can be influenced by the effect of large account renewals or other factors like that, but generally in the marketplace still seeing some level of stability, no less competition, but a little bit more stability in pricing than seen over the past two years and that's about as optimistic as I want to get about it, but it is somewhat more optimistic than maybe what I saw a year or two ago..

Ned, refresh me and what drives that equity in unconsolidated subs, it was a nice contributor this quarter, what drives that?.

Sure. They’re really two things that fall into that. The tax credits that we invest and flow through that line item and those are an expense as we amortize those often the benefits from those tax credits are seen and the tax line.

Other than that it is a variety of investments that we have made in limited partnerships and other funds that by nature of the structure those funds in our ownership of those funds we carry as investments and a consolidated subsidiaries. And by the nature of those, there's just a lot of volatility there..

It was the interest rates equity market gas prices or oil prices anything that will…?.

Yes, it’s really return on our private equity investments..

Okay. So there is mostly equity linked..

Yes..

Okay, in the Workers' Comp business, the Great Falls renewal rates what's the potential premium impact on that over the next few quarters?.

Mike?.

Good morning, Mark. If you look at the premium writings at the end of 2016, they were about $13.6 million.

We did write some premium at the end of the third quarter as a result of the transaction closing on 9/18 and for the most part because it's a small business book that those premium writings kind of relatively equal if you look out over the four quarters.

So we expect we've had a really good reception from the Great Falls employees and agency partners to the transaction and we expect that to proceed forward with good solid renewal retention..

And Mike as I recall you told me there's not much seasonality in that book?.

Yes, I’d indicated earlier it books pretty consistently on a quarterly basis..

The prior three quarters, you've had some pretty good growth, mid, upper single-digits, double-digit growth this quarter, premium audits, renewal pricing down, is this just kind of a blip, do you think you'll get back and positive growth territory or is this kind of a reflections current market conditions?.

The market conditions were challenging in the quarter, obviously the rates being down 5%. Just to comment on that, I mean we’ve really looked at that closely. We've had really positive rate over the last five years of about 7.2% and our frequency continues to go down.

So we are seeing the broader industry trends with respect to rate adequacy as a result of frequency reductions. So we still think we're pretty well positioned there. We like the quality of our book of business and the rate adequacy. I think what we have built those strategically will help us as we go out into the future.

We’ve built the Eastern Specialty Risk high hazard business. We added the main transaction. And keep in mind Pennsylvania is our only matured state of our 19 core operating state. So we still think we have some runway to grow each of our other regions. So I think it was more of an anomaly.

We’re actually pretty pleased with the new business in the quarter..

Very good. Thank you..

You’re welcome..

[Operator Instructions] Our next question comes from Arash Soleimani with KBW. Please go ahead..

Good morning, Arash.

How are you?.

Good morning.

How are you?.

Good. Thanks..

One question I had with Lloyd’s, I know you still talk about Lloyd’s as an investment today.

How should we think about – at what point do you foresee it becoming more of a I guess core part of the business rather than simply an investment, is that something we're still talking more three to five years in terms of the timeframe?.

Hey, Arash, it’s Ned. I think probably the outer end of that realistically. The focus today is on establishing all the infrastructure that's needed to run the Syndicate. You may recall that we partnered with that third-party service provider called Asta that provides a lot of the back office operations.

Over time, we take in those operations and I think it will be after – sometime after we stand up the Syndicate fully on its own that we really began to see it more as a core to the organization and that's probably the tail end of that three to five-year time horizon is what we're talking about..

Thanks.

And in the NPL space, are you seeing any changes in the competitive environment or are you seeing any of your competitors I guess struggle more than they have been in the past or is it really just pretty steady all around?.

Howard?.

Yes. Sure. This is Howard. I think with the exception of some very small players in the market, I think the competition is pretty stable.

I'd say we have the some of the larger national or regional competitors still obviously like us trying to modify what we're doing in the way that healthcare continues to evolve and doing more with larger groups and doing more with facilities and so forth as compared to the past.

We see some of the smaller competitors really I think trying to struggle to remain relevant, fighting very high expense ratios and the continued reduction in the number of physicians who are in private practice and making their own insurance decisions.

And then we've seen a few very small players start to run into some financial difficulty, but these are very isolated cases and don't seem to be a trend right now. There just seems to be two or three of them going on at the same point in time for totally unrelated reasons..

Thank you for the answers..

We have Amit Kumar with Buckingham for our next question. Please go ahead..

Hi, Amit..

Hey. Thanks and good morning. Just a few follow-up questions.

Number one, going back to the catastrophe loss estimate, I guess I would imagine based on the discussion on reinstatement premium, was the loss in the property reinsurance sub-segment of 1729? And how should we think about if the overall losses drift upwards?.

Hey Amit, it’s Ned. The losses were kind of spread between the property and the property reinsurance/cat book of business at the Syndicate. And we have booked our best estimate for that and I would say the best estimate is like at a 70% to 80% confidence level. And we will just have to watch.

But certainly depending on how losses emerge and as you know it can take a long time in these situations for losses to emerge. And we'll see what happens. We're very confident and very comfortable with the estimate that we've put out..

Got it. The second question I had was on capital management. And almost I missed the discussion there wasn't any stock bought in the quarter.

Was that more a function of I guess opportunities in the marketplace and maybe Lloyd's going forward or how should we think about or is it a more a function of the stock multiple at this stage?.

Yes, I think what was talked about in the past is that rather than take your view on the value of our stock, we have a very objective way that we evaluate stock buybacks and we look at how long it takes to recoup any dilution in book value that's caused by buying our stock above the book value and we've got to return period were about three years that establishes that price and so we did not hit that price during the quarter..

Got it, that makes sense. And I don't think you're hitting it any [indiscernible] based on today's price. The last question I had was on the reserve release piece.

Was this I guess trends as usual or was there anything unusual in the reserve release this quarter versus the prior quarters?.

Yes. Hi Amit, this is Howard. No really nothing that I would consider unusual there.

We just try to evaluate each quarter, the way that we see it and based on what we have in the data and in terms of – as we have said over the past couple of year, trying to be a little bit more responsive on a quarterly basis as opposed to waiting until the end of the year to do a more thorough evaluation.

So nothing that I would say is out of the ordinary this quarter..

And then one thing when you look at it on the consolidated, as you may recall that in the third quarter of last year, we had just under $3 million of adverse development of Lloyd's and from a comparative standpoint that was essentially just flat – zero this year, I think $100,000. So that’s also impacting at a consolidated level..

That's helpful. That's all I have. Thanks for the answers Stan. Good luck for the future..

Thank you..

Thanks, Amit. End of Q&A.

This concludes the question-and-answer session. I'd like to turn the conference back over to Frank O'Neill for any closing remarks..

Thank you, Brandon and thanks to everyone who participated on the call today. I think we will speak with you next in February when we announce results for the fourth quarter. Thank you and goodbye..

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