Good morning, everyone. Welcome to ProAssurance’s Conference Call to discuss the company’s Fourth Quarter and Full Year 2018 Results. These results were reported in a news release issued on February 21, 2019 and in the company’s quarterly report on Form 10-K, which was also filed on February 21st.

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.

We also 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 February 22, 2019 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 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 time for questions after the conclusion of prepared remarks..

Thank you, Denise. On our call today are our Chairman and CEO, Stan Starnes; President and Chief Operating Officer, Ned Rand; and Chief Financial Officer, Dana Hendricks. Howard Friedman and Mike Boguski, the Presidents of our Healthcare Professional Liability and Workers’ Compensation Operations are also on the call. We are going to go first to Stan..

Thank you, Frank. As I said in our earnings release, 2018 has not been without its challenges, especially given the volatility in the equity markets, which had such a negative effect on our net income in the quarter.

The effects of evolving loss environment in our medical professional liability line and the higher than expected property and natural catastrophic losses in our Lloyd’s investments. I mentioned those first, so as not to be seen as crossing over the challenges, but you will hear a number of positives in this call as well.

Our Workers’ Compensation Insurance segment is achieving excellent results, despite a very competitive market. We are seeing clear signs of market firming in our Medical Professional Liability business, with higher pricing and strong retention.

After we complete our remarks on this quarter, we will discuss the announced -- the management changes we announced yesterday. But first we will give some high level comments on consolidated results from Ned..

Thank you, Stan. Topline growth was again a highlight for us in the fourth quarter and for the year. For the quarter consolidated gross premiums written were $212 million, an increase of $20 million or 10.4% over the same quarter in the prior year.

This contributed to a year in which total gross premiums written reached a record $957 million, an increase of $82 million or 9.4% over 2017, with year-over-year growth in all of our operating segments.

This success was due in part to almost $100 million in new business written through our domestic operations in 2018, a key indicator to us that our products are successfully differentiated in a very competitive market.

For the fourth quarter, gross premiums written grew 7.7% or $4.6 million in our Workers’ Compensation Insurance segment and 3.9% or $635,000 in our Segregated Portfolio Cell Reinsurance segment quarter-over-quarter to $65 million and $17 million, respectively.

And our Specialty P&C segment, gross premiums were essentially unchanged quarter-over-quarter, primarily due to timing differences, which Howard will touch on later. Gross premiums written in our Lloyd’s segment increased to $25.8 million.

While we are pleased with this topline growth, there are significant challenges that must be met to carry that growth to the bottomline. The consolidated current accident year net loss ratio for the quarter was 88.6%, up 7 points over last year’s fourth quarter. This was primarily due to two factors.

First, the higher than expected property natural catastrophe-related losses in our Lloyd segment, which we will discuss in greater detail shortly, and the continuing caution we apply to our loss fix in light of the potential for increased loss severity within our medical professional liability lines.

As we have said before, we believe that caution will continue to affect our evaluation of potential loss trends and reserves within our Specialty P&C segment for the foreseeable future.

In the meantime, we continue to benefit from strong retention in our domestic insurance operations and are encouraged by growing evidence of returns to rational pricing and underwriting in the medical professional liability market.

Combined with over $23 million in new business written in the fourth quarter of 2018 through our Specialty P&C and Workers Compensation Insurance segments, these factors served to highlight our ability to increase premiums and add business, while maintaining our underwriting discipline.

We continue to grow market share by providing real value to our policyholders. I am going to ask Dana to share some highlights on the non-insurance related results in the quarter.

Dana?.

Thanks, Ned. On a consolidated level, our net investment results was $20.9 million, a decline of $4.7 million as compared to the fourth quarter of 2017, attributable to a decline in both net investment income, as well as equity in earnings from unconsolidated subsidiaries.

The decline in net investment income of $1.9 million quarter-over-quarter reflected lower average investment balances, particularly in our muni bond portfolio as we have reduced that asset class as a result of Tax Reform.

This was partially offset by an increase in income from our equity securities, which reflects an increase in our equity allocation.

The decrease in equity in earnings of unconsolidated subsidiaries of $2.8 million quarter-over-quarter was primarily due to the volatility of the broader equity market, which led to lower reported earnings from a few LP investments and an increases in tax deductible operating losses associated with our tax credit investments.

Net realized investment losses for the quarter totaled $46.1 million, primarily due to mark-to-market adjustments on our equity trading portfolio. Importantly, the recovery in the equity markets since the 1st [ph] of the year has reversed about $32 million of that loss.

The net realized investment losses were the primary drivers of the consolidated net loss for the quarter of $24.4 million or $0.46 per diluted share. Non-GAAP operating income for the quarter was $9.7 million or $0.18 per diluted share.

As of December 31st, we held approximately $236 million in unpledged cash and liquid investments outside our insurance subsidiaries. This brings us to capital management, we did not repurchase any shares in the quarter or the year for that matter as the price did not reach a level where we felt repurchasing was our best use of capital.

I will remind you that we target a 36-month or shorter payback period when contemplating buying above book value, which we believe removes the motion from the decision about repurchases. We have approximately $110 million still available in our Board authorized stock repurchase program.

We will continue to evaluate our capital position with our Board on a regular basis, keeping in mind factors, such as, capital requirements imposed by regulators and rating agencies and the opportunities to add business as we see potential changes in the market. That includes writing new business or through M&A.

Frank?.

Thank you, Dana. Now we are going to go to Howard and Mike for commentary on our operating segments domestically.

Howard, will you start?.

Thanks, Frank. The results of our Specialty P&C segment continued to be affected by our consideration of potentially higher severity trends, especially with regard to large complex risks. Again, we have not seen these trends manifest within our paid losses, but we remain concerned about increasing severity in the broader market.

So that effect net favorable loss development was $22 million, compared to $37 million in the year ago quarter and $77 million for the year, compared to $119 million in 2017. That said, I believe there are positives to consider that highlight the underlying strength of the segments and its future.

First, even though the fourth quarter was flat over the same quarter in the prior year, we saw an increase in gross premiums written of 5.1% for the year over 2017. The year-over-year gain was driven largely by an increase of $17 million in healthcare facilities premiums were 36.3% quarter-over-quarter.

As the trends of consolidation in migration of physicians from independent practices to hospital based medicine progresses, healthcare facilities continue to be an important focus for us.

Retention in healthcare facilities increased 88% in the quarter, up 5 points over the same quarter in 2017 and retention for the year was 87%, up 1 point over last year.

In addition to a 7% price increase on healthcare facilities renewals, both for the quarter and the year, we generated $7 million in new business in the quarter, up from approximately $800,000 in the same period of 2017.

This reaffirms that we are succeeding in the marketplace and building on our ongoing visibility in the broker community, which largely controls the Facilities business. In the fourth quarter, we wrote $5 million in physician new business. However, gross premiums written in our physician business declined by $4 million quarter-over-quarter.

The decreased topline premium was due primarily to the timing of the renewal of a few large policies, that shift the $5 million of expiring premium into the first quarter of 2019. Physician retention was down 4 points to 88% for the quarter, but flat at 90% year-over-year.

Physician renewal pricing increased by 2% and 3% for the quarter and year, respectively. These rate increases are from the market conditions that we have discussed for several quarters and are consistent with the beginning of our former market, as expectations of severity climb, we would expect pricing to follow.

While we believe that ProAssurance will benefit as the market reacts to emerging loss trends, we want to underscore our continuing dedication to protecting the strength of our balance sheet, that requires that we take a cautious view of the potential for a rise in severity, which in turn influences our aspects and calls the evaluation of our reserves.

Our current accident year loss ratio increased by almost 7 points to 100.3% in the quarter and by almost 4 points to 93.8% for the year. A significant portion of the increase in loss ratio for the quarter and less so for the year, was due to an increase in ceded premiums, which reduced the denominator of the loss ratio.

The loss portfolio transfer in the second quarter also increased the loss ratio for the year, since it had very low expenses and therefore a higher loss ratio.

Finally, with the broader loss environment continuing to show signs of increased severity, we selected higher initial loss ratios in certain portions of our business to reflect the caution expressed above.

We believe that it is more important than ever to establish and evaluate reserves with the conservatism that has resulted in success over the years. So the bottomline is that we see no signs that these trends will change in the near future, meaning you should expect our reserve and loss severity assumptions to continue to affect this segment in 2019.

Before I turn it over to Frank, I want to emphasize that these trends and projected loss severity have an equal, and perhaps, greater influence on our competitors, especially those who have made a growth from market share at the expense of the quality of their balance sheets while the market was softer.

As the market continues to provide challenges, the rewards of conservative reserving practices and rational pricing are paid back with interest.

The proof is in the pudding as the saying goes and a prime example is our Medical Technology and Life Sciences business, which for the year added $35 million of gross premiums to our topline and $14 million to our bottomline, primarily as a result of favorable development. Further the Life Sciences combined ratio for the year was 40.2%.

That kind of profitability is made possible by resisting the temptation to write easy business in lieu of good business.

Frank?.

Thank you, Howard. Mike, you are up next to discuss both of our Workers Compensation focus segments..

Thank you, Frank. The Workers’ Compensation Insurance segment operating results increased 35% to $14.3 million for 2018, compared to $10.6 million for 2017. This was driven by an increase in net premiums earned and a decrease in the underwriting expense ratio, partially offset by an increase in the net loss ratio.

During the year, gross premiums written, which includes traditional business and the alternative market business ceded to the SPC Reinsurance segment increased 11% to $293.2 million, compared to $264 million for 2017, an increase of 29.2 million.

This was driven by consistent production results and strong retention, including the Great Falls Insurance Company renewal rights transaction. New business writings for 2018 were $51.5 million, compared to $47.7 million in 2017, including $11.7 million of new business related to Great Falls.

Order premium was $5.9 million, as compared to $4.1 million in 2017. Renewal prices decreased -- decreases were held to 1% during 2018, compared to renewal price decreases of 3% in 2017.

We were pleased with our premium retention rate of 86% for the year, a solid result in an increasingly competitive Workers’ Compensation marketplace where retention rates at that level are increasingly difficult to achieve.

The increase in the calendar year net loss ratio reflecting an increase in the current accident year net loss ratio, partially offset by favorable trends in prior accident year claim closing patterns resulting in net favorable development of $8 million in 2018, compared to $5.7 million in 2017.

The 2018 net favorable loss reserve development reflected better than expected claim results primarily related to accident years 2015 and 2016. The increase in the current accident year net loss ratio from 66.1% in 2017 to 68% in 2018 is due to an increase in severity-related claim activity related to economic growth trends.

The claims operation closed 64.2% of 2017 and prior claims during 2018, indicative of the short tail nature of our workers’ compensation business model. The decrease in the full year 2018 underwriting expense ratio primarily reflected the effect of the increase in premiums earned and the continued effective management of general expenses.

The combined ratio of 93.6% improved approximately 1 point in 2018 compared to 2017. The 2018 combined ratio includes 1.3 percentage points of intangible asset amortization and 0.8 percentage points of the corporate management fee. I want to highlight a few items in the Workers’ Compensation Insurance results for the fourth quarter of 2018.

Gross written premium increased almost 8% over the same period in 2017 and the combined ratio was 88.2%, including a calendar year net loss ratio of 60.4% in an underwriting expense ratio of 27.8%.

The Workers’ Compensation Insurance segment operating results increased $6.6 million for the fourth quarter of 2018, compared to $5.1 million for the same period in 2017, an increase of 30%. Two important strategic initiatives that were launched in 2017 continued to produce profitable premium in 2018.

The Great Falls Insurance Company renewal rights transaction, which now serves as our New England Regional Office added $15 million of direct written premium in 2018 and Eastern Specialty Risk higher hazard employee unit which launched in 2017 contributed $8.2 million. Now I’d like to focus on the Segregated Portfolio Cell Reinsurance segment.

The segment’s operating result of $2.3 million for 2018 represents our share of the net operating profit of the Segregated Portfolio Cell captive programs in which we participate in varying degrees. Gross written premium in the SPC Reinsurance segment increased to $85.1 million for 2018 from $77.7 million in 2017.

This includes flat renewal pricing in 2018, compared to renewal price decreases of 4% in 2017. Production results for 2018 include premium renewal retention of 91% and new business writings of $8.3 million, which were ceded to the SPC’s from the Workers’ Compensation Insurance segment.

Year-over-year, the SPC 2018 calendar year net loss ratio decreased to 52.4% from 54.9%, driven by net favorable development of $9 million in 2018, compared to $8.5 million in 2017 and a decrease in the current accident year net loss ratio.

The favorable development reflects better than expected claim results primarily related to accident years 2015 through 2017. The current accident year loss ratio was 64.5% for 2018, compared to 67.4% in 2017. The decrease in the current accident year net loss ratio is due to a decrease in large claim activity in 2018, compared to 2017.

Underwriting expenses in the SPC Reinsurance segment represent the ceding commission paid to the Workers’ Compensation Insurance and Specialty P&C segments for the services provided to the SPC business.

Frank?.

Thank you, Mike. Howard, back to you now for some commentary on Lloyds..

Sure, Frank. Please remember we are reporting on a one quarter lag as we have since the inception of the segments. However, in quarters such as this one, where material effects of an event or either known or projected. We have accelerated certain results into the current reporting quarter.

The additional net pre-tax loss costs from exposure to Hurricane Michael were $6.8 million net of reinsurance and reinstatement premiums. Normally, these losses would be reported in our first quarter of 2019, due to the aforementioned quarter delay.

However, due to the availability of materiality of these estimates, we have accelerated our reporting of the storm related losses into our fourth quarter of 2018.

Segment operating results for the quarter also included our allocated share of the estimates for losses in connection with certain other natural catastrophes, which included volcanic eruptions in Hawaii and Hurricane Florence, which affected several states along the Mid-Atlantic.

We estimate our allocated a share of the net pre-tax losses associated with these natural catastrophe and property losses to be approximately $3.2 million, which brings our total natural catastrophe related losses to approximately $10 million in the quarter. The current accident year net loss ratio was 104.5% for the quarter and 74% for the year.

We recognized $1.7 million in adverse development in the quarter. This drove adverse development for the year to $2 million as compared to favorable development of approximately $800,000 in 2017. As Ned mentioned earlier, gross premiums written were $25.8 million.

The increase is due primarily to our greater participation in the operations of Syndicate 1729 from 58% to 62% effective January 1st and our 100% participation in Syndicate 6131, which is the special purpose arrangement written through Syndicate 1729.

Gross premiums written in the quarter also increase, albeit to a lesser extent, by the effect of reinstatement premiums received of $913,000 in 2018, as compared to $234,000 in 2017 in connection with natural catastrophe-related losses. For the year, gross premiums written increased 26.4% to $88.7 million.

Net premiums earned increased $6.2 million to $18.1 million, an increase of 52.1% over the prior year quarter.

As in prior quarters, this primarily reflected the increased amount of business produced in the open market, where premium is earned over 12 months, as opposed to business written under -- delegated underwriting authority, where premium is earned over 24 months.

The growth in expenses continues to result from the addition of staff needed to accommodate the segment’s growth and by higher commissions resulting from premium growth.

The increase in gross premiums written mentioned earlier is a step in the right direction towards achieving the necessary scale for the Syndicate to reduce the impact of operating expenses.

Frank?.

Stan, I know you want to make some comments about Lloyds..

Thanks, Frank. As we said in our pre-release, we are disappointed in the financial results of our investment at Lloyd’s. While we believe the reasons we decided to invest in Lloyd’s are still valid. We also understand that investors are concerned with the financial performance of this investment and the volatility it is introduced into our results.

As we said, we are undertaking a review of all of our options with this investment in an effort to reduce both the financial significance of the investment and the associated earnings volatility. As we are just beginning this process, we cannot yet project what the ultimate result will be.

We continue to believe in what they all underwriting this create and want to help position the Syndicate for long-term success.

Our valuation will be comprehensive and will include a range of all alternatives including finding ways to reduce the volatility of the Syndicates resolve, partial reinsurance of our participation or reducing the capacity we provide.

We are not going to rush into anything, but we recognize the importance of resolving this and we will not drag our feet in reaching the final determination of the best course of action for ProAssurance and our investors. Now I would like ask Ned to discuss the management changes that we announced yesterday afternoon.

Ned?.

Thank you, Stan. As we noted in our press release, Howard has indicated his desire to retire from day-to-day activities of running our Healthcare Professional Liability business and we have reluctantly agreed. We are pleased that he will continue to play an important role in the organization going forward.

We and our investors owe Howard a deep debt of gratitude for his years of service, insight and wisdom. It’s a debt, we can never repay.

Rather than have me addresses reasons for stepping away from some of his many duties, I thought its best that you hear from him, Howard?.

Thanks, Ned, and thank you to Stan, Mike, Dana, and everyone else at ProAssurance who have been so gracious, supportive and understanding of my decision. I spoke to several hundred of our ProAssurance associates yesterday afternoon and I will tell you what I told them. I love what I do, and I get a great deal of satisfaction enjoy every day.

After more than 22 years of ProAssurance and almost 40 years in the Medical Professional Liability business, there’s still something new interesting and professionally challenging every day. I’d love to lead such a great group of people through the next portion of the market cycle, with all of the challenges and satisfaction that will come from it.

At the same time now there are many other things I’d like to do, time with my grandchildren, hobbies, travel and many other interests. My wife and I want to do those things while we can, while we are healthy and active.

I am very happy that I will be able to have a continuing, but limited role with ProAssurance after mid-May and contribute in a small way to its ongoing success. I also want to personally thank many of you out there on this call for the years of meetings, friendship and support, even with your tough questions. Thanks everyone..

Thanks, Howard. As a result of Howard’s decision, we have been able to create new opportunities for Mike Boguski and Kevin Shook. Both Mike and Kevin has proven to be great assets for ProAssurance. I am excited for them and for ProAssurance.

Mike understands the history of this side of our business and a culture of service excellence that has evolved from that history. He also understands the bottomline expectations that we honor and I am sure his operational insights will be of value in improving everything we do.

Kevin knows Eastern’s operations inside and out and has been a vital part Eastern’s success. I am confident he will ensure that our Workers’ Compensation operations continue in the upward trajectory as Mike has launched.

Mike and Kevin, any remarks from your end?.

Ned, I will start. First of all, I’d like to thank, Stan and Ned for the opportunity to lead the Specialty Property & Casualty segment into the future. I look forward to the challenges and opportunities ahead with a great deal of enthusiasm. I want to congratulate Howard on his truly outstanding career.

It’s been a truly fantastic experience to work alongside Howard over the past five years. I also look forward to working with Howard in his actuarial role in the organization and to benefit from his vast healthcare industry experience in institutional knowledge. Thank you, Howard, from all of us.

I want to express my deep gratitude and appreciation to the Eastern team members, senior executives, agency partners and strategic business partners for their tremendous support, dedication and commitment over the past 22 years.

Together we have built an industry leading Workers’ Compensation specialists from a startup position in 1997 to $290 million topline business at year end 2018 that has consistently delivered an attractive underwriting result over the various economic and insurance cycles.

I am extremely proud of all that we have accomplished together over the past 22 years. Thank you so much. I want to finish by congratulating Kevin Shook and the well deserved promotion to the President of Eastern. I am extremely confident that Kevin will lead the Workers’ Compensation and SPC Reinsurance businesses to the next level of success.

He’s battle tested and very well-prepared for this leadership role. He brings a wealth of talent, experience, leadership skills, work ethic and energy to the organization in his role. On a personal level, Kevin has been a trusted advisor, valued business partner and a great friend over the past 18 years.

I am extremely grateful that this strong relationship will continue in our new executive leadership roles in the ProAssurance organization. Thank you Kevin so much..

And thank you, Mike. I would like to begin by expressing my gratitude to you Mike, Span and Ned for the opportunity to become Eastern’s second President since its founding in 1997.

I have been with each in for almost 18 years beginning first as it CFO until January of ‘14 when I was promoted to Executive Vice President, overseeing all field operations and our captive business. I would like to thank our dedicated employees agency partners and strategic business partners for the valuable contributions to Eastern over the years.

Together we will lead the Workers’ Compensation and SPC businesses to the next phase of success. I would also like to congratulate Howard on an outstanding career and wish him continued success in his new actuarial role. I am especially grateful to Mike. Mike is a great mentor friend and trusted partner.

Mike has led Eastern strategic vision, operational and financial discipline and energetic culture, and has been very collaborative in these endeavors which is prepared me well for the future.

I look forward to Mike’s leadership in our Specialty P&C business and the enthusiasm, innovation dedication talent and experience that he will bring to this new role. I am now going to turn it back to Stan for closing remarks..

Thank you, Kevin. I will conclude by again noting our gratitude to Howard, Mike and Kevin, for their past service and for their anticipated future contributions.

There will be ample opportunity in our May call to more fully comment on these changes and on our ongoing gratitude, Frank?.

Thank you, Stan. Denise that concludes our prepared remarks, will you open the lines for questions..

Certainly, sir. [Operator Instructions] And your first question this morning will come from Amit Kumar of Buckingham Research. Please go ahead..

Thanks and good morning. And Howard on your retirement news. Thanks for all the help over the years. It’s been great to you to learn so much from you on different topics..

Thank you, Amit..

And then maybe I will just have a few questions on Lloyds and then I will re-queue.

The first question I had was -- let me ask the senses product, there is no way to ask this, was that your desire to retire or was it accelerated by what’s going on at Lloyd’s or not?.

Okay. I will say, no, absolutely not. I tried to think the reasons and those are 100% the reasons, Lloyd’s is a -- I believe a good long-term business in general and I think as Stan said we have to look at the options for ProAssurance, but, no, it’s nothing to do with Lloyds, all to do with me, unfortunately..

Yeah. And on the outside, look, the timing of press release coinciding with strategic options just made me wonder. Moving on, I wanted to better understand Lloyd’s -- I know we spent a lot of time in 2013 and 2014 understanding this.

The first question I had is there noise coming mostly from the 6131 piece that the special the contingency in the Specialty Property business or is this from 1729?.

Hi, Amit. It’s Ned. As we said in our release and in the prepared remarks, the impact is coming from catastrophe losses, property catastrophe losses and those are associated with 1729. As we discussed in the past, there’s essentially three lines of business or buckets of business 1729, right.

It’s got a nice casualty book of business that has a specialty property book of business and a property reinsurance business it includes property cat. In 2017 and 2018 there’s been two very challenging back to back catastrophe years.

In 2017, you had three hurricanes coming together to form very large significant losses for the industry and in 2018 it’s been more of a frequency of severity with no individual event being as big as those in 2017, but just a lot of sizable events coming together in 2018, but it is all really been within the quarter 1729..

Got it. And then the next question, again staying on Lloyds is that the $200 million capital commitment, is that some sort of a contractual commitment i.e. we are pretty much set for 2019 and I guess any actions can only be peripheral at this time i.e.

no reinsurance, et cetera? And then 2020 when you are six-year commitment ends then things change or how should I think about that piece?.

It’s good question, Amit. I think for 2019 as far as the capital that we have committed kind of following though the Lloyd’s process. We have made a commitment to the syndicate for 2019 and that capital is committed.

Now there are things that we potentially can do and we will evaluate using reinsurance as Stan said the damp and mute some of the volatility that we have seen and that’s kind of independent of that capital commitment and we can affect that at any time.

So the commitment is there for 2019 and then as we work toward 2020, as Stan mentioned, one of the things that we will be evaluating is where we should reduce that capital commitment by bringing in other capital providers into the Syndicate that’s something that we will evaluate as well..

Got it. That’s actually very helpful. The only -- the final question and I will stop here is, going back to the, I don’t know, I use the term core, the Medical Professional Liability business line and talking about the discussion on loss cost trend. I actually was going back and reading some of your transcripts from when we started talking about it.

This might be for Howard, when we look at the time when we sort of talking about it initially and when we look at it today. And I know that one common theme is mean your comment that these losses haven’t yet manifested themselves in the paid losses and yet you remain concerned.

Has anything changed from the time-frame when you were initially talking about it, is it changing faster, slower, any comparative you would be very helpful Howard and I will stop here? Thanks again..

Sure. Well, I think, when I say is we have not, and so really don’t see the effects in our paid losses, so that aspect has not changed. We continue to see a lot of severity related activity in the general news related to large vertex and settlements for both physician and hospital clients.

Some of that I think as we spoke about before, probably, driven by higher available coverage limits with the consolidation in healthcare, larger entities, purchasing larger limits, and therefore, more resources available to as a target. The only thing I’d say that has changed from our perspective is that, we are continuing to see those things.

It wasn’t just an aberration at least in terms of the news items and the experience in the judicial system and we are still working through. The lag -- the time lag as you know for resolution of claims in this business is measured in years.

So it will be a little longer, I think, before we can confirm whether there is an effect on our paid losses or if we are going to find that we have been conservative in the approach that we are taking on a reserve side..

Got it. Okay. That’s very helpful. And Howard once again thanks for all your help over the years..

Yeah. You are welcome. Great to know you. Thank you, Amit..

The next question will be from Mark Hughes of SunTrust. Please go ahead..

Thank you very much. Good morning..

Good morning, Mark..

My congratulations as well that everyone in their new roles. On the current accident year losses in the Specialty P&C, you mentioned the impact of the denominator, I guess, with the ceded premiums, higher reduced denominator and I assume that’s around the facilities business.

How do we think about that on a go-forward basis, the full year, current accident year, if I am looking at this properly 94%, is that a good a barometer going forward?.

I think certainly the full year is better barometer going forward in the fourth quarter. The increase in the ceded premium is really a result of the adjustment for those prior year reinsurance contracts that had retrospectively rated premiums and adjustment that came from the increase in the loss estimates.

So in other words to say, a follow through of increasing losses i.e. increasing ceded losses resulting in more ceded premium accrual. And those years that had the retrospectively rated reinsurance contract, we are moving farther away from them for the most part of 2015 and prior with respect to premiums that can go up as well as down.

So I certainly think that the full year loss ratio estimate of the better gauge, obviously, it’s going to depend on what we see in those -- in loss activity in 2019 and from which years it comes..

And -- when I think about your experience in the fourth quarter and this is just the one quarter snapshot, but the physician pricing up 2%, the retention was a little lower in the high ‘80s, still very good clearly, but a little bit lower.

But on the other hand, you continue to see signs of severity related issues, why is -- are your competitors still not responding to this environment?.

It varies like whatever the things that we certainly see some competitors that are responding in terms of, say, being less competitive, if you will and we see others that aren’t either ignoring it, not seeing it in their numbers or not seeing it yet. It’s hard to tell exactly what the rationale is.

Our retention and price change as you know will vary from quarter to quarter, because the mix of business varies depending on which states have heavier concentrations in a given quarter in terms of the rate change, as well as individual large accounts that for one reason may or may not renew.

Our fourth quarter results were in part driven by a few situations where we on the physician larger group business, where we are on the wrong end of a consolidation.

One group acquiring the other and ours was the smaller or less influential and we didn’t have the opportunity to offer or to get in there and sell the larger group -- the existing group or products. We are certainly going to be back in there next year and the year after to try to do that.

But that happens and sometimes we went on those and sometimes we lose. So that will drive new business or retention one way or the other and that’s for the most part what happened in the retention numbers for Q4..

Yeah. I think, Howard, you were also mentioning to me that fourth quarter 2017, there was a little bit of a spike, so the comparison maybe skewed..

Yeah. 92% in Q4 last year was a very good number and we are very happy about it at the time, but it is above the average..

And it is also just in what Howard said, but as we write larger and larger physician accounts that retention number will become more volatile..

Yeah..

Thank you for that.

And then one final question Mike on the Workers’ Comp business, the favorable loss cost to really been the story in comp for a while now, the latest trends in frequency and severity, do you have any signals that maybe changing, is that trend continuing?.

Hi, Mark. It’s a great question. Our frequency has been -- if you look at it over a long-term basis, it’s averaged to be down about 3.8% on average. It’s up 3% in ‘17. It’s up about 1% in 2018. But overall, the frequency trends have been -- is starting to stabilize a little bit from the prior years.

On the severity side, what we have experienced in our traditional Workers’ Comp segment this past year. We saw the trends from the inexperienced workers in a very low unemployment rate economy and that -- on the flip side we have also seen a slowdown in our SPC business on the severity side, which is a good sign going forward.

That’s a very economically sensitive business. So we think as the economy stabilizes, we get more and a normalized growth rate and unemployment rate that will certainly slowdown for on the severity side.

I think the other important point there is that the tremendous amount of resources we are putting in to mitigating severity exposures with our risk management investments across our operating territories..

Thank you..

You are welcome..

The next question will be from Christopher Campbell of KBW. Please go ahead..

Yeah. Hi. Good morning..

Hi, Chris..

Hi. Good morning, Frank.

I guess my first question is just looking at the physicians pricing within Specialty P&C, it was down about 30 bps or 300 bps sequentially quarter-over-quarter, anything special happening there in terms of the rate hardening?.

No. I’d say, it’s really just the -- again the mix of accounts, geography and so forth that renewed in the fourth quarter versus what we had in other quarters there in a year and it will vary from quarter to quarter.

Obviously we are comfortable with the pricing on the renewals and given states are given accounts we might need more or less and depending on the concentration of those -- the quarterly results will change..

Got it. That makes lot of sense. And then, just another question on the Specialty P&C segment. I understand that you are holding onto the higher loss fix, potential claims cost increases and it sounds like quote unquote for the foreseeable future. So I guess how long should we think about that, just in terms of not 2019, not 2020 and not 2021.

I mean, I guess, just given the tale, like how long would it take until you guys felt comfortable about potentially lowering your loss specs and/or releasing some of those reserves, if you are not -- if you don’t see the uptick in higher vertex flow in the year book?.

Historically, we typically have not changed our initial loss specs in terms of modifying the accident year estimate for typically two years, unless there was something driving it one way or the other. So that’s sort of a historical baseline.

With the concern that we have about severity, we actually are probably holding at a little longer at this point at least for some of the more recent accident years before we even come to that conclusion. So I’d say a minimum two and it could be longer than that..

Got it.

So minimum from Q from when you started increasing that loss specs, correct?.

Again, yeah, that is our typical view in terms of an accident year. Unless there is something out there that is really dramatically different. We haven’t seen dramatically different, I said minimum two from when we started..

Chris, just sure you understood two years for each and every accident year, before we feel like we have got credible data coming through in our paid information. So it’s not we get two years from kind of when we started and every accident year we would be adjusted.

We look at the accident years individually and think we need two plus years of data for that accident year..

Got it. Well, it’s a year in -- so you have raised a lot, you have boosted a lot of the loss fix in 2018. So if we get to 2020 and you haven’t seen the severities materialize, does that feedback into your accident year 2021 fix.

I guess this is what I am trying to trying to understand? Is that because you haven’t seen that severity or id you have to kind of factor in what’s you are starting to see ‘19?.

Yeah. Yeah. Interesting question, Chris. I think going to kind of perspective it becomes both a blend of our view of the losses environment is like and then the pricing environment that will influence ultimately those loss fix we made in any given year perspectively.

So, certainly if we began to see in 2020 that the loss of our materialize was improving that would influence where we would set our 2021 reserves, but also significant influence or that would be the pricing we are getting in the marketplace..

Great. And then just few on capital management, I know the special dividends a little bit lower. And I guess just in terms of reducing that, does that imply that you are looking at anything near-term.

And I guess could you just give us some color at a high level, like what would be the type of, if there was something that you are interested in inorganically.

What kind of premiums, what lines of business Med-Mal or on the Workers Comp side, which states? I guess could you just give us some color on what would be interesting to ProAssurance nowadays?.

Sure. So I guess to go to the first part of your question on capital management and we do an evaluation on an annual basis and really more regularly with our Board about our capital position and we will take actions as we deem appropriate.

And a lot of what factors into that is kind of the prospects we see and in our short, mid and long-term to deploy capital and we think with the volatility that we are seeing in the marketplace with the loss severity changes that we anticipate that there will be lots of opportunities to grow our healthcare professional liability business in particular and so that is part of what led into the decision around capital.

As we think about the M&A environment, really focus on the areas that we know, so it’s really kind of the healthcare professional liability world and the Work Comp world.

Things that are still out of our geographic footprint are generally more interesting to us than things that overlap with our geographic footprint, companies that have specializations and niche players like our pediatric company FICA are interesting to us because they bring something unique to the marketplace.

We do not need to do any transactions to expand our product offerings and really even to expand our geographic reach. But we are -- we don’t have geographic concentrations everywhere. So the transactions we do I think if we do them will be very selective in kind of meet those criteria..

Thanks for the extra color and then thanks for all the answers. Good luck next year..

Thank you..

The next question will be from Marcos Holanda of Raymond James. Please go ahead..

Hi. Good morning and thanks for taking my questions..

Thank you, Marcos..

Yeah. Congratulations, Howard. I also wish the best of luck for the new management team. I want to -- I wanted to come back to Med-Mal practice discussion. I was reading an article this morning about a Med-Mal insurer that went under state control earlier this month.

And it just got me thinking and also hoping you guys give us some more color on the landscape that you are seeing.

Are -- do you think -- are facilities and the physicians are tuned to these trends that you guys are seeing or are they now sort of coming after your product, quality coverage and if you can give us anything on the competition versus the mutuals that would be great?.

Sure. Yeah. I think the article you are referring to is the Capson being put into rehabilitation by the Texas Department of Insurance last week. And it’s unfortunate, on the one hand for the policyholders that are involved and it’s a beginning I think of something that we will see more of in the Medical Professional Liability landscape.

If you think about it, I think this is the fourth situation over the past year-and-a-half or so that one of the smaller relatively younger companies has been in one way or another, put out of business.

And at the same time they are small, they are isolated, but I think it’s a reflection of what happens in the market when companies are pretty price oriented in their approach.

They tend to not specialize, but look to build the book of business on a very wide range in geographical basis and the competition really doesn’t allow for them to be successful in that regard, if it’s just based on price, because there’s always somebody is going to push the price down further.

We see a number of the smaller mutual companies that are starting to have pretty high expense ratios.

They have plenty of capital obviously, but as the book of business shrinks because of healthcare consolidation and physicians becoming part of larger groups that some of these small companies can handle or going to work for hospitals and losing the business and by the way through the industry even.

Some of these small companies are running high expense ratios and are beginning to run significant combined ratios as well and really using the capital what they have to just subsidize the business. So I think we will see more of that in terms of whether physicians and all are tuned to it. I think they will start to be.

Again there was a lot of attention to this 15 years ago when we have a number of significant insolvencies and physicians losing coverage, guarantee funds being involved and hospitals absorbing claims that should have been paid by those sales physician insurance companies.

But it’s not at that level yet and depending on the memories it may take a little while to get there..

Got it. Thanks for that color. And then just another one here on Workers’ Comp.

As it relates to pricing, do you guys think or do you foresee that price there could be an inflection point in pricing even if the economy slows down here in the next couple years?.

The biggest challenge we have seen on the pricing side, is that as a result of the different bureaus and the NCCI looking at frequent -- the frequency based trends that have come down dramatically, loss cost decreases per rates have been pressured and to some degree in double -- on a double-digit basis in some of our core states.

So what we try to do is be more focused on individual account underwriting, looking at the quality of risk and really pricing it more on a loss pick basis, to put a stable price out there this competitive over the long term is a long-term value.

So we are trying to stay away from following the loss costs into the pricing tank and we have had a lot of success on that front over from 2011 through the end of 2018 our compound renewal rate increases have been just about 9%, 8.8%, despite significant loss cost decreases by the rating bureaus.

So we are also hopeful that some of these severity trends will start to convert more into the pricing side as well, but we have been really consistent in our pricing, we protected a high quality book of business and that will continue in 2019..

Mike, you might also talk about what drives the cycle as different companies have different views of where loss costs are?.

I mean it’s -- the competitive pressures are all over the map, frankly, I mean, we have some really competitive folks out there. But from a cycle standpoint when you see -- when you start to see adverse development in comp and those types of issues is when you start to see prices come up.

And also whether or not the regional and large stock players on the multi-line basis come in and out the market and that will drive it to some degree..

Thank you for your answers..

And Mr. O’Neill we have no additional questions in the queue, I would like to hand the conference back to you for any final comments..

That’s it Denise. Thank you very much. We will talk to everybody again in May. Thank you..

Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today’s presentation. At this time you may disconnect your lines..