"There were several positives of note in the quarter," said Ned Rand, President and Chief Executive Officer of ProAssurance, "including steady increases in renewal pricing across all product lines in our Specialty Property & Casualty segment with a modest impact to our retention rate. We see this as evidence of our customers perceiving value in our highest quality products and services. Also, we continue to operate profitably in our Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments despite intense competition."

Mr. Rand continued, "However, I cannot overstate the importance we place on disciplined underwriting. Our ability to attain appropriate pricing for the risk we assume is paramount to the success of ProAssurance, and vital to the security we provide to our customers. Stretching to grow where you can't get appropriate premium is a mistake that has crippled insurance companies in the past, and will do so again in the future. There will always be losses, and our job as an insurance company is to write at adequate pricing across our entire book, reflecting individual risk parameters, so that we can help our insureds when the unexpected does happen.

"We continue to be focused on the risk of a worsening loss environment in the broader healthcare professional liability insurance market, which influences our current accident year loss picks and influences our analysis of prior year reserves. Our view of this increasing severity will likely affect our results for the foreseeable future. As we adjust pricing and our risk appetite to reflect these severity trends, a degree of contraction is expected as some competitors seek to grow at any cost. This will not affect our proven, long-term strategy, which has delivered real value to shareholders for almost 30 years."

• Two one-time factors merit particular mention, as they have an effect on certain key metrics as well as quarter-over-quarter comparisons. Where appropriate, our commentary below excludes this effect. A more detailed analysis is provided in our filed Form 10-Q:
  • In the quarter, one of our segregated portfolio cells ("SPC") established a $10 million reserve related to an errors and omissions ("E&O") liability policy. This policy provides coverage for losses up to a lifetime maximum of $10 million. ProAssurance has no participation nor ownership interest in this particular cell. The recording of the $10 million reserve increased net losses and loss adjustment expenses, and decreased SPC dividend expense correspondingly, resulting in no effect to our operating income. However, the recording of this reserve increased our net loss and combined ratios for the quarter, as the offsetting effect of the SPC dividend expense is not included in these ratio calculations.
  • As discussed previously, in the second quarter of 2018, we entered into a loss portfolio transfer ("LPT") transaction with a large healthcare organization. This transaction resulted in total net premiums written and fully earned of $26.6 million and total net losses and loss adjustment expenses of $25.4 million recognized within our Specialty P&C segment during the second quarter of 2018.
• Excluding the impact of the 2018 LPT as well as the effect of the renewal cycle of our twenty-four month term physician policies, consolidated gross premiums written and written premium in our Specialty P&C segment were essentially unchanged quarter-over-quarter. Gross premiums written in our Workers' Compensation Insurance segment were $64.2 million, a decline of $6.7 million or 9.4% from last year's second quarter. In our Segregated Portfolio Cell Reinsurance segment, gross premiums written were $16.9 million, a decrease of $2.2 million or 11.5% compared to 2018's second quarter. These declines were largely offset by our Lloyd's Syndicates segment, where gross premiums written were $29.2 million, an increase of $5.0 million or 20.8%, quarter-over-quarter.
• Excluding the effect of both factors described above, our consolidated current accident year net loss ratio for the current quarter was 83.5% as compared to 80.6% in the year-ago period, an increase of 2.9 percentage points which reflects our continued concern around potential loss trends in the broader HCPL industry.
• Our consolidated underwriting expense ratio was 30.0% for the second quarter of 2019. Excluding the effect of the 2018 LPT, our consolidated underwriting expense ratio remained relatively unchanged as compared to the second quarter of 2018.
• Excluding the effect of the E&O policy described above, our consolidated combined ratio for the quarter was 105.8%, a 6.8 percentage points increase quarter-over-quarter driven by the lower amount of net favorable prior accident year reserve development recognized in the current period as compared to 2018 as well as a higher consolidated current accident year net loss ratio, as previously discussed.
• Net favorable prior accident year reserve development in the second quarter of 2019 was $16.0 million, compared to $22.8 million in the prior year quarter. While we continue to observe an increase in claim severity in the broader healthcare professional liability industry, it is somewhat more favorable than the severity assumptions previously used to establish initial reserves, hence we continue to see net favorable development relating to prior accident years.
• Our consolidated net investment result was $18.4 million, a decline of $9.4 million compared to the year-ago quarter. The decline in our consolidated net investment result was primarily due to a $10.5 million quarter-over-quarter decline in earnings from our unconsolidated subsidiaries, driven by lower reported earnings from two limited partnership ("LP") investments. The decrease was partially offset by an increase of approximately $1.2 million in net investment income, primarily attributable to higher yields in certain asset classes and an increase in our average investment in fixed maturity securities.
• Net realized investment gains were $9.3 million in the quarter, primarily reflecting sales of equity securities during the period. This compares to net realized investment gains of $2.8 million in the second quarter of 2018.
• We recorded a tax benefit of approximately $277,000 in the quarter, essentially unchanged quarter-over-quarter.
• Our coordinated sales & marketing programs produced $12.9 million of business year-to-date.

Non-GAAP operating income is a financial measure that is widely used to evaluate performance within the insurance sector. In calculating Non-GAAP operating income, we have excluded the after-tax effects of the items listed in the following table that do not reflect normal operating results. We believe Non-GAAP operating income presents a useful view of the performance of our insurance operations; however, it should be considered in conjunction with net income computed in accordance with GAAP. The following table reconciles net income (loss) to Non-GAAP operating income:

ProAssurance management will discuss second quarter 2019 results during a conference call at 10:00 a.m. ET on Thursday, August 8, 2019. We invite anyone who would like to participate in the call to dial (888) 349-0134 (US), (855) 669-9657 (Canada) (toll free) or (412) 317-5145; no access code is required. We will webcast the call at Investor.ProAssurance.com. A replay will be available by telephone through at least October 31, 2019 at (877) 344-7529 (US), (855) 669-9658 (Canada) (both toll-free), or (412) 317-0088, using access code 10133041. A replay also will be available for one year on our website, Investor.ProAssurance.com. We also will make the replay and other information about ProAssurance available on a free subscription basis through Investor.ProAssurance.com or through Apple's iTunes. Investors may follow @PRA_Investors on Twitter to be notified of the latest financial news about ProAssurance.

ProAssurance Corporation is an industry-leading specialty insurer with extensive expertise in healthcare professional liability, products liability for medical technology and life sciences, legal professional liability, and workers' compensation insurance. The Company is recognized as one of the top performing insurance companies in America by virtue of our inclusion in the Ward's 50 for thirteen straight years. ProAssurance Group is rated "A+" (Superior) by A.M. Best; ProAssurance and its operating subsidiaries are rated "A" (Strong) by Fitch Ratings. For the latest on ProAssurance and its industry-leading suite of products and services, cutting edge risk management and practice enhancement programs, follow @ProAssurance on Twitter or LinkedIn. ProAssurance's YouTube channel regularly presents thought provoking, insightful videos that communicate effective practice management, patient safety and risk management strategies.

Premium retention for the Specialty P&C segment was 87%, which is lower by approximately three percentage points compared to the second quarter of 2018. Premium retention in physician professional liability, the largest line in the segment, was 88% in the quarter compared to 90% for the prior period. Premium retention in healthcare facilities was 80%, a ten percentage point decrease quarter-over-quarter, reflecting our continued underwriting discipline. Renewal pricing increased 3% for our physicians business and 17% for our healthcare facilities business as compared to the second quarter of 2018. New business written was $8.1 million, consistent with the same period in 2018.

As previously mentioned, the increase in the segment's current accident year net loss ratio drove the operating loss in the quarter. Excluding the impact of the 2018 LPT, the current accident year net loss ratio increased approximately three percentage points quarter-over-quarter to 94.0%. The primary driver was loss trends across the broader healthcare professional liability industry, which continue to influence the increase in our accident year loss picks. In addition, the 2018 second quarter current accident year net loss ratio was slightly lower as a result of the effects of favorable loss experience adjustments on reinsurance contracts, increasing earned premiums in the year-ago period. We recognized net favorable prior accident year reserve development of $12.4 million compared to $20.1 million quarter-over-quarter, which primarily reflected our cautious view of industry severity trends.

New business written declined to $6.6 million, including the effect of the Great Falls renewal rights transaction that took place in 2018, which accounted for $4.3 million of new business in the second quarter of 2018, the third full quarter after the transaction. Retrospective policy premium adjustments further decreased premiums written by $1.1 million in the second quarter of 2019, compared to adjustments that increased premiums by approximately $100,000 in the same period in 2018. Renewal pricing fell by 4%, compared to a 1.0% increase in the second quarter of 2018, while retention dropped to 81%. The declines in renewal pricing ties to our perception of loss trends, which continue to be favorable. The declines in retention and new business written underscores our firm commitment to responsible underwriting in an extremely competitive industry.

The calendar year net loss ratio increased from 64.8% to 65.8% quarter-over-quarter, due to an increase in the current accident year net loss ratio from 67.0% to 68.2%, partially offset by an increase in net favorable prior accident year reserve development from $1.0 million to $1.1 million. The increase in the current accident year net loss ratio primarily reflected the effect of the revised contract terms associated with our reinsurance treaty that was renewed on May 1st, which included the addition of an annual aggregate deductible. Consistent net favorable prior accident year reserve development in the quarter reflected overall favorable trends in claim closing patterns, primarily in the 2016 accident year, and includes purchase accounting amortization of approximately $400,000.

Gross premiums written for the second quarter of 2019 were $16.9 million, compared to $19.1 million in the year-ago quarter, a decrease of 11.5% quarter-over-quarter also driven by the competitive workers' compensation marketplace. The majority of the gross written premium in the quarter, $15.8 million, related to workers' compensation, while the remaining $1.1 million related to healthcare professional liability. Renewal retention in our workers' compensation business decreased to 85%, a ten percentage point decline quarter-over-quarter. Renewal pricing decreased by 7%, compared to a 2% increase in the same quarter a year ago. We retained all 16 of the available alternative market programs, including 14 workers' compensation programs and 2 healthcare professional liability programs up for renewal during the six months ended June 30, 2019.

Excluding the effect of the E&O policy as discussed at the beginning of this release, the current accident year net loss ratio decreased by 2.3 percentage points to 63.8%, primarily reflecting a decline in severity-related claim activity, partially offset by the effect of the continuation of intense price competition and the resulting renewal pricing decreases. We recognized net favorable prior accident year reserve development of $2.3 million in the quarter, which primarily reflected better than expected claim trends in accident years 2015-2017.

Results of our Lloyd's Syndicates segment are generally reported on a one-quarter lag and include the operating results from our majority participation in Lloyd's of London Syndicate 1729 and our 100% participation in Syndicate 6131, which is a Special Purpose Arrangement that underwrites on a quota share basis with Syndicate 1729. We have a total capital commitment of up to $200 million to support our Lloyd's Syndicate operations. Furthermore, our participation in Syndicate 6131 was not reflected in our Lloyd's Syndicates segment results until the second quarter of 2018 as Syndicate 6131 began writing business effective January 1, 2018.

In the second quarter of 2019, gross premiums written increased $5.0 million to $29.2 million, primarily driven by new business written in property insurance coverages and, to a lesser extent, volume increases on renewal business. Year-to-date, gross premiums written as of the second quarter of 2019 consisted of 44% property insurance coverages, 34% casualty coverages, 12% catastrophe reinsurance coverages, 7% specialty property coverages, and 3% property reinsurance coverages.

Gross premiums earned were $22.0 million in the second quarter of 2019, an increase of $2.7 million over the same quarter of 2018. The increase was driven by the pro rata effect of higher premiums written during the preceding twelve months, primarily property insurance coverages. Ceded premiums earned were $4.7 million, an increase of $2.9 million over the year ago quarter driven by the pro rata effect of an increase in premiums ceded under reinsurance arrangements during the preceding twelve months. Net premiums earned were $17.3 million, essentially unchanged from the same quarter of 2018.

Maximum underwriting capacity for Syndicate 1729 in 2019 is approximately $163 million of which $99 million is our allocated underwriting capacity. This excludes approximately $15 million dedicated to Syndicate 6131, for which ProAssurance is the sole capital provider. The capital we are providing for Syndicate 6131 comes from capital we have already committed to the Lloyd's segment. We currently support our commitment with investment securities deposited with Lloyd's, which had a fair value of approximately $135 million at June 30, 2019.

Our operating expenses decreased by 3.5% quarter-over-quarter, primarily attributable to a decrease in share-based compensation expenses and other compensation-related costs, primarily as a result of lower bonuses. The decrease in share-based compensation expenses in the period was attributable to a decrease in the projected value of performance-based awards as well as fewer awards outstanding, as compared to the same period in 2018.

Statements in this news release that are not historical fact or that convey our view of future business, events or trends are specifically identified as forward-looking statements. Forward-looking statements are based upon our estimates and anticipation of future events and highlight significant risks, assumptions and uncertainties that could cause actual results to vary materially from our expected results. We expressly claim the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, for any forward-looking statements in this news release. Forward-looking statements represent our outlook only as of the date of this news release. Except as required by law or regulation, we do not undertake and specifically decline any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Forward-looking statements are generally identified by words such as, but not limited to, "anticipate," "believe," "estimate," "expect," "hope," "hopeful," "intend," "likely," "may," "optimistic," "possible," "potential," "preliminary," "project," "should," "will," and other analogous expressions. When we address topics such as liquidity and capital requirements, the value of our investments, return on equity, financial ratios, net income, premiums, losses and loss reserves, premium rates and retention of current business, competition and market conditions, the expansion of product lines, the development or acquisition of business in new geographical areas, the availability of acceptable reinsurance, actions by regulators and rating agencies, court actions, legislative actions, payment or performance of obligations under indebtedness, payment of dividends, and other similar matters, we are making forward-looking statements.

Our results may differ materially from those we expect and discuss in any forward-looking statements. The principal risk factors that may cause these differences are described in "Item 1A, Risk Factors" in our Form 10-K and other documents we file with the Securities and Exchange Commission, such as our current reports on Form 8-K, and our regular reports on Form 10-Q. We caution readers not to place undue reliance on any such forward-looking statements, which are based upon conditions existing only as of the date made, and advise readers that these factors could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. Except as required by law or regulations, we do not undertake and specifically decline any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.