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ProAssurance Corp (NYSE:PRA)
Q2 2019 Earnings Call
Aug 8, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, everyone. Welcome to ProAssurance's Conference Call to discuss the company's results for the Second Quarter of 2019. These results were reported in a news release issued on August 7, 2019. Included in that release were cautionary statements 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. Please review those statements.

Management expects to make statements on this call dealing with projections, estimates and expectations, and explicitly identifies these as forward-looking statements within the meaning of the US Federal Securities Laws and subject to applicable Safe Harbor protection. The content of this call is accurate only on August 8, 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. Ken McEwen, 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. Mr. McEwen, please go ahead.

Ken McEwen -- Investor Relations Manager at ProAssurance

Thank you, Nicole. On our call today are President and CEO, Ned Rand; Chief Financial Officer, Dana Hendricks; Mike Boguski, President of our Specialty Property Casualty Lines and Kevin Shook, President of our Workers' Compensation Operations. Ned, will you please start us off?

Edward Lewis Rand Jr -- President And Chief Executive Officer

Thank you, Ken. As this is my first earnings call as CEO, I want to begin by thanking Stan for his innumerable contributions to ProAssurance during his 12 years of leadership. I look forward to continuing to work with him in his new role as Executive Chairman. I would also like to welcome and congratulate Mike Boguski and Kevin Shook in their new roles on our Executive Leadership team, which became effective shortly after our first quarter call. I'm excited for the insight and experience each of you brings to the table and look forward to what we will accomplish together.

There are a couple of one-time items that can make quarter-over-quarter comparisons tricky this quarter. And these are laid out in detail in our earnings release and our 10-Q. Dana and Kevin will provide some additional details. Behind the noise created by these items, I see enough positives to think that this was a good quarter. We were able to secure rate increases across our Specialty Property Casualty segment with only a modest impact to our retention.

This is a result of our dedication to disciplined underwriting, making sure we write business and assume risk only if we can get appropriate premium through the exposure that's presented. To do otherwise would compromise the security of our customers, our employees and our shareholders. Net favorable reserve development declined as a result of our focus on the risk of increasing severity trends in the broader healthcare professional liability market. I'll again emphasize that we're not seeing these trends in our paid data.

However, the greater number of large verdicts, increasing plaintiffs attorney demands and higher jury awards and the continued roll back of state specific damage caps demand we take the necessary steps to ensure the integrity of our balance sheet. The increase in the combined ratio is likewise loss driven and further exemplifies the reality of the environment for which we have so carefully prepared, one of the increasing risk in which all those companies who are prepared for the worst can achieve the best. As we have said before, ProAssurance is built to withstand and indeed thrive in challenging times such as these and as you will hear from Mike and Kevin and Dana, we are taking the steps necessary to ensure our continued long term success. With that, I'd like to ask Dana to take us into the details of the quarter. Dana?

Dana Shannon Hendricks -- Chief Financial Officer, Treasurer, And Executive Vice President

Thanks, Ned. Consolidated net income for the quarter totaled approximately $11.5 million or $0.21 per diluted share, a decline quarter-over-quarter. This was primarily due to a decrease in equity and earnings of unconsolidated subsidiaries, a higher current accident year net loss ratio and a lower amount of favorable development relating to prior accident years. The results of our specialty P&C segment continue to reflect our cautious approach to the loss environment, that Ned previously mentioned.

Non-GAAP operating income, which excludes the effect, the after-tax effect of net realized investment gains, was approximately $4.1 million in the quarter or $0.08 per diluted share and consistent with the first quarter. Please refer to our news release for a reconciliation of net income to non-GAAP operating income. Consolidated gross premiums written were relatively unchanged from the year ago quarter, excluding the effect of the loss portfolio transfer completed in the second quarter of 2018 and the effect of the regular renewal cycle of our 24-month policies.

Premiums written declined in our workers' compensation insurance and segregated portfolio sale reinsurance segment, which Kevin will address later in the call. These decreases were offset by an increase in the Lloyd segment, as Ned stated in his introduction, we are dedicated to maintaining the disciplined underwriting standards necessary to write business at premium appropriate to the assumed risk. We are willing to walk away from business we deem to be underpriced, the loss ratio and combined ratio were affected by a $10 million loss within one of the segregated portfolio sales in our SPC operation. Importantly, we are not an owner or participant in this sale and ultimately this loss has no impact on our earnings.

Excluding the effects of this loss and the loss portfolio transfer, our consolidated current accident year net loss ratio increased from 80.6% to 83.5% and our expense ratio was relatively unchanged. Net favorable reserve development was $16 million in the quarter, down $22.8 million than the prior year period, a further effect of our consideration of the current loss environment. This brings us to a consolidated combined ratio of 105.8% for the quarter, excluding the effect of the E&O policy and loss portfolio transfer, a 6.4 point [increase compared to the year-ago quarter and a slight improvement compared to the first quarter.

Our consolidated net investment result for the quarter was $18.4 million, a decline of $9.4 million compared to the year ago quarter. This was primarily due to a $10.5 million decline in earnings from our unconsolidated subsidiaries, driven by lower reported earnings from two of our limited partnership investments. This is somewhat offset by an increase of approximately $1.2 million in net investment income, primarily attributable to higher yield in certain asset classes within our fixed maturity and short-term investment portfolios as well as an increase in our average investment in fixed maturity securities.

We believe pricing in the healthcare professional liability market is firming. This creates growth opportunities for companies with strong balance sheets either organically as customers seek higher quality companies for their coverage needs or through mergers and acquisitions. Our capital management strategy is geared toward ensuring both the strength of our balance sheet and that we are poised to take advantage of potential opportunities as they appear. Now I'll turn the call over to Mike Boguski for his comments on the results from our Specialty Property & Casualty segment. Mike.

Michael Leonard Boguski -- President, Specialty P and C

Thank you, Dana. I'd like to start by congratulating Ned on his promotion as Chief Executive Officer. We all look forward to supporting his vision and leadership into the future. Also congratulations to Kevin Shook on his promotion to President of Eastern. The Specialty P&C segment recorded a second quarter operating loss of $8.4 million, an improvement from the first quarter loss of $12 million. In addressing the factors that led to that result, it's important to understand the significant impact that the loss portfolio transfer booked in the second quarter of 2018 had on the quarter-over-quarter comparison,.

The loss portfolio transfer accounted for $26.6 million of premium written and fully earned in the second quarter of 2018, which was also booked at a 95% loss ratio. For more meaningful comparisons, my discussion of the numbers and ratios for Specialty Property & Casualty will exclude the effect of the loss portfolio transfer. Starting with the top line trends. Gross premiums written were essentially flat quarter-over-quarter, exclusive of the effect of the $5.5 million increase in 24-month policy premiums due to the timing of the renewal cycle.

We were pleased and encouraged by solid premium retention across the Specialty P&C segment during the quarter, while achieving renewal rate increases of approximately 4%. Highlighting two important portfolios of business in this segment, the physician premium retention was 88% during the quarter, while achieving rate increases of 3%. Premium retention for the facilities book was 80%, reflecting continued underwriting discipline while successfully securing an average renewal rate increase of 17% on this business in the quarter. Also we were particularly pleased with the 92% premium retention in our podiatric and chiropractic business this quarter.

This underwriting discipline combined with our deep specialization, high quality risk selection and ability to obtain the right price for the exposure are the cornerstones of our strategy to achieve a long-term underwriting profit. We will also continue to focus on driving operational efficiency and improving our competitive position into the future. New business written in the quarter was $8.1 million consistent with the second quarter of 2018. The increased accident year loss ratio trends drove the operating loss in the quarter. The calendar year loss ratio increased to 84.1% as compared to 73.4% in the second quarter of 2018. This was driven by a 3.3 percentage point increase in the accident year loss ratio and lower favorable reserve development.

We continue to take the necessary steps to maintain the strength of our balance sheet. This requires a cautious view of emerging severity trends, resulting in the higher accident year loss pick and less favorable development. The expense ratio was flat quarter-over-quarter. Finally, we were very pleased with the strong performance of our life sciences operation, which has produced an attractive underwriting profit in the first half of 2019. Ken?

Ken McEwen -- Investor Relations Manager at ProAssurance

Thank you, Mike. Kevin, will you please take us through Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments.

Kevin Merrick Shook -- President, Workers' Compensation Insurance

I will. Thank you, Ken. The Workers' Compensation Insurance segment produced operating income of $2.3 million for the quarter, the workers' compensation insurance marketplace continues to be highly competitive as evidenced by our gross premiums written, which declined 9.4% quarter-over-quarter to $64.2 million. New business written decreased to $6.6 million from $13.4 million a year ago.

This decrease is due in part to the effect of the Great Falls renewal rights transaction, which added $4.3 million of traditional workers' compensation new business for the second quarter of 2018. Premium retention decreased to 81%, due in large part to our continued commitment to our underwriting. As we've discussed in the past, a strong economy results in low unemployment and more inexperienced workers entering the workforce resulting in increases in both claims frequency and severity. That said, our careful assessment of risk resulted in a price decrease of just 4% on renewing premium in keeping with improving loss trends.

Eastern is committed to its disciplined individual account underwriting and consistent application of the business model that has made us successful through changing insurance cycles and economic times. This strategy resulted in strong claim closing patterns in the quarter with 19% of 2018 and prior claims closed during the quarter and 39% closed during 2019. As a result, we recognized net favorable reserve development of $1.1 million in our Workers' Compensation Insurance segment for the quarter.

The increase in the current accident year loss ratio to 68.2% primarily reflected the impact of an annual aggregate deductible that was added to our reinsurance treaty effective May 1, 2019. The impact of renewal rate decreases on the 2019 accident year loss ratio was offset by the previously mentioned favorable claim trends during 2019. Before I get into the results of the Segregated Portfolio Cell Reinsurance segment, I want to touch base on the loss Dana mentioned earlier, one of the segregated portfolio cell programs at Eastern Re assumed an errors and omissions liability policy from a captive insurer unaffiliated with ProAssurance.

During the quarter, a claim was filed under this policy that met the lifetime maximum loss limit of $10 million. We have no participation or ownership interest in this particular cell, this loss increased net losses and loss adjustment expenses and decreased the segregated portfolio cell dividend expense correspondingly resulting in no impact to our operating results. However, the dividend expense is not included in the calculation of the expense ratio resulting in the higher combined ratio.

Excluding the impact of the E&O reserve, the accident year loss ratio actually decreased by 2.3 percentage points to 63.8% and the combined ratio for the segment increased 3.4 percentage points to 82.8%. For more details, please refer to our filed Form 10-Q for the second quarter, which includes a comparison of reported figures adjusted for the effect of the E&O reserve. The Segregated Portfolio Cell Reinsurance segment reported operating income of $848,000 for the quarter. Gross premiums written were $16.9 million in the quarter, down 11.5% from $19.1 million in 2018, primarily attributable to decreases in retention and renewal pricing, again both resulting from our response to the intense competition in the marketplace.

Alternative market solutions are in high demand as policyholders seek ways to manage controllable expenses. We offer a unique product that allows both healthcare professional liability and workers' compensation lines in a single segregated portfolio cell leveraging monoline expertise for both coverage types. Retention decreased to 85% in the quarter but remained flat at 93% year-to-date, even at 85% the retention rate is solid in this competitive market.

Following trends similar to those of our workers' compensation insurance segment, pricing on workers' compensation business in our Segregated Portfolio Cell Reinsurance segment is down 7% in line with loss trends within this segment of our business. We recognized net favorable reserve development of $2.3 million in the quarter compared to $3 million in the same quarter of 2018, which primarily reflected better than expected claim trends in the 2015, 2016 and 2017 accident years. Ken?

Ken McEwen -- Investor Relations Manager at ProAssurance

Thanks, Kevin. Ned, will you please give us an update on Lloyd's before your closing comments.

Edward Lewis Rand Jr -- President And Chief Executive Officer

Sure, Ken. As we stated for several quarters now, we view our participation in the two Lloyd's of London Syndicates in which we participate as an investment. As with any investment, we consider the long-term value created by such a partnership more than the short-term fluctuations. We believe that our original thesis of affiliating with Duncan Dale and Dale Underwriting Partners remains valid today. In the second quarter, both the net loss ratio and the underwriting expense ratio declined by 3.1 and 2.3 percentage points respectively, while net premiums written almost doubled to $18.8 million.

This increase was driven by both increases in renewal pricing and exposure growth on new business. New business growth was strong as well, the renewal rate increases are particularly encouraging. The Syndicate will be putting together its proposed business plans for 2020 over the next several months and we will be in a better position to discuss the 20-year of account once that is complete. We do continue to look at ways to reduce our exposure to the syndicate. Ken?

Ken McEwen -- Investor Relations Manager at ProAssurance

Thank you, Ned. Any closing comments for us before we begin taking questions.

Edward Lewis Rand Jr -- President And Chief Executive Officer

Yeah, Ken. Thank you. I want to reiterate our commitment to the strength and stability of our growth at any cost and to building long-term value of the short-term results. If there is an advantage to be found in a quarter like this one, it's the evidence that these statements are more than just words, they are philosophy, one in which we believe wholeheartedly and one that will keep us pointed in the right direction, while competitors become lost.

Because of this consistent strategy across the lines of business in which we specialize, I believe we have the best book of business in the industry with the most innovative products and services. Combined with our exceptional employees across our operating subsidiaries, ProAssurance is positioned to excel during what we expect to be a tumultuous period for many of our competitors and the property casualty industry at large. Ken?

Ken McEwen -- Investor Relations Manager at ProAssurance

Thank you, Ned. Nicole, that concludes our prepared remarks, we are ready for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Greg Peters of Raymond James. Please go ahead.

Greg Peters -- Raymond James

I have a couple questions, I wanted to circle back to the Specialty Property Casualty results and specifically you talked about what you're doing from an underwriting perspective and reserving perspective about increased severity in the market, but not in your own book. I'm trying to reconcile that cautious posture with the fact that you're continuing to report favorable reserve development. To me it seems like if you're concerned about substantial increases in severity, that reserve development would also diminish substantially.

Edward Lewis Rand Jr -- President And Chief Executive Officer

Yeah, Greg, it's Ned. So if you kind of look over time, you will see that the amount of favorable development has reduced over time, but we do continue to view our reserves as adequate and continue to see on a quarter-over-quarter basis that loss trends while worse than they have been are still not at the level that's embedded in our reserving for those prior accident years. So that's why we end up continuing to have a level of favorable development. As we have talked in the past, take a pretty conservative view when we establish those reserves and a pretty pessimistic view of what loss trends will do. And loss trends while worse than they have been over the last number of years, continue to be slightly better than kind of what's embedded in that reserving analysis.

Greg Peters -- Raymond James

Can you just remind me when you started to change your posture with the severity, was it six quarters ago or was it --?

Edward Lewis Rand Jr -- President And Chief Executive Officer

I'll have to look back, Greg, but yeah it was probably about six or so quarters ago where we began to talk about the fact that within the marketplace, we were seeing severity increases. And I do want to go back to one other comment you said, where we have not really seen these changes in severity within our own book of business is in our paid losses, we have observed increases in case reserves being established by our claims professionals across the organization and it's just still too early to tell given the tail on this business as to whether these are going to develop into paid losses or not.

Greg Peters -- Raymond James

So the target accident year would probably be 16 or 17 that we'd want to track over the

next several quarters to see how that ultimate pattern develops to get a sense of where your business is going to be going. Is that a fair assessment?

Edward Lewis Rand Jr -- President And Chief Executive Officer

I think that is. It takes 24 or more months before we begin to have any kind of paid data really emerging out of those accident years and better claims data. So I think that's a good assumption, Greg.

Greg Peters -- Raymond James

Okay, thanks. I guess on the Lloyd's business, and I know you're -- it's just an investment for you, but it seems like a lot of the rate movement in that market has been around property exposures and I'm just curious if you have a sense of for the 2019 year, potential more exposure to hurricane, catastrophe type volatility for the Lloyd's business than in previous years because that's where the most of the action has been or maybe I have a different -- maybe I have a wrong perspective.

Edward Lewis Rand Jr -- President And Chief Executive Officer

I think for the overall market, Greg, you're right. The largest most significant rate increases within the Lloyd's marketplace have been in the property lines, especially those property lines that are loss affected and the same would hold true for us. For our book of business. I would say that on a net basis when you factor in the reinsurance that is bought by the Syndicate that our exposure has not grown dramatically from prior periods.

And we do still remain exposed to that catastrophe exposure; as we talked a couple of quarters ago, we have looked at ways to lessen the exposure on the 2019 year of account and to be honest, we have just not found terms that we found acceptable to us, the economics were just not, I guess what I would call, fair enough in the scenarios that we looked at and so we continue to be a full participant in the 2019 year of account. And as I mentioned in our prepared remarks, are looking at the 2020 year of account now.

Greg Peters -- Raymond James

Got it. Well, congratulations on your first conference call, everyone, without stand [you read your prepared script as well as you've ever done before so

Edward Lewis Rand Jr -- President And Chief Executive Officer

Thanks, Greg.

Operator

Our next question comes from Christopher Campbell of KBW. Please go ahead.

Christopher Campbell -- KBW -- Analyst

First question is on the specialty P&C segment, physicians' rates were a little bit slower sequentially, about 100 bips, anything happening there that's kind of reducing the rate momentum you're seeing in Medmarc ?

Michael Leonard Boguski -- President, Specialty P and C

Yeah, Chris it's Mike. One thing to keep in mind on the physicians' rate, it's included our podiatric business as well. So the physician rates were actually a little bit over roughly in the 4% range and there was a slight decrease on the podiatric business of about 1.4%, I believe, in the quarter, which brought it down to 3%. But what we've seen kind of quarter -- consistently throughout toward the end of '18 and '19 is consistent kind of 3 to 5 point rate increases on that book.

Edward Lewis Rand Jr -- President And Chief Executive Officer

And now if at all [I give you some quarter-over-quarter comparisons just based on states that have heavier renewals in a given quarter as Mike mentioned, the podiatric business having a heavy second quarter renewal impact. So it's more timing. I think than trends indicating.

Christopher Campbell -- KBW -- Analyst

And then I guess just overall, where do you think the market needs to get to in terms of rates to get to rate adequacy or is that kind of still too early to call with uncertainty that you're seeing on the loss cost side?

Edward Lewis Rand Jr -- President And Chief Executive Officer

Yeah, Chris, I think it probably is a little early to call. I think everybody is now more a ways to what we've been talking about for six or so quarters. We have begun to see more of that kind of more disciplined underwriting and drive toward price in the marketplace. The large verdict continue, the headline makers continue, it certainly has not abated, the reinsurers will feel the most pain on those large verdict.

But that will have a trickle down effect onto the market, but I think because a lot of this is really just in the encouraged stage and not the paid stage, it's going to be a little bit longer before we know kind of where the kind of the tipping point is on pricing. That's always a challenge, and that's why we have cycles in the industry because we consistently overshoot and undershoot given the fact that we're looking backwards at losses to try and price today.

Michael Leonard Boguski -- President, Specialty P and C

This is Mike. I think I'd just add on that that we've seen a general message out there of competitors looking to achieve rate on the renewal books for both their facilities business and their physician books, it varies by region and state but a year ago we weren't seeing that. So I think that's just kind of an encouraging trend for us.

Christopher Campbell -- KBW -- Analyst

And then why is healthcare so much worse, the physicians book why does that need so much more rate?

Edward Lewis Rand Jr -- President And Chief Executive Officer

I think there are two reasons that I would point to, one, you've got more commercial capital that typically plays in that space. And it can be more rate focused, rate driven because that's what they have to compete on. They don't necessarily bring a particular expertise to the marketplace and so big premium dollars on individual accounts that attracts commercial capital. They can under price the business. I think the other thing that's going on is, and this is not exclusive to the facilities space, but from a social perspective, it's a lot easier to come up with a big jury award against an impersonal brick building commercial enterprise than it is defined against the physician, we certainly see cases where juries are awarding big verdicts against physicians as well, but it's a lot easier I think for a jury to find against bricks and mortar.

Christopher Campbell -- KBW -- Analyst

Great. And then just switching to workers' comp, why were the workers' comp rates down more in the SPC segment than the Workers' Comp segment. I guess what are you seeing in terms of frequency and severity in both of those segments?

Kevin Merrick Shook -- President, Workers' Compensation Insurance

Yeah. This is Kevin. The frequency and severity has been very consistent with the overall book of business. The segregated portfolio cell business is a little more economically sensitive. There has been more growth in it. So more inexperienced workers and I think that's probably driven up the severity a little bit there.

The frequency has been kind of flat in that book of business. I wouldn't focus so much on the second quarter rate decline of 7% but really look at the year-to-date, it's a very profitable book of business. We individually account underwrite every single policy and the rate is indicative of our desire to keep the good accounts. But I would certainly look more at our six-month results than I would focus in on the second quarter result itself.

Christopher Campbell -- KBW -- Analyst

Okay, got it. And is the workers' comp, are you -- what are you seeing in your core workers' comp book, is frequency flat in that or is it still down, what's happening there?

Kevin Merrick Shook, Eastern Holding Company, Ltd.-CFO and Treasurer 24

Yeah, so in '16 and '17, it was kind of flat to up maybe a point; this year we're actually seeing it flat to down a little bit and severity trends fairly consistent with what I just said about the Segregated Portfolio Cell Reinsurance segment.

Okay. Got it. And then what rate increases are you guys getting in the Lloyd's book?

Edward Lewis Rand Jr -- President And Chief Executive Officer

Hey, Chris, it's Ed, I don't have the specifics, in the property exposure it's certainly in the teens and greater, in the casualty book it's in the probably low to mid single-digits.

Christopher Campbell -- KBW -- Analyst

Thanks a lot.

Edward Lewis Rand Jr -- President And Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Our next question comes from Mark Hughes of SunTrust. Please go ahead.

Michael Ramirez -- SunTrust -- Analyst

Hey, good morning guys. This is Michael Ramirez in for Mark, thanks for taking our questions this morning. I guess first, how much higher does physician pricing need to go before you consider equity? So for example, like you can drop your accident year loss ratio down to be more in line with our long-term average?

Edward Lewis Rand Jr -- President And Chief Executive Officer

Yeah, Michael, I think it's too early to call that, we have not seen the severity trends really manifest in paid losses and until we get a sense of where paid losses are actually heading, it's hard to know. We believe we are getting the rate that we need. But it's early days yet to tell.

Michael Leonard Boguski -- President, Specialty P and C

Yeah, I think one other point, it's Mike, if you keep in mind, there is -- as the renewal rates just started to come through in '18 and '19 increases and that takes time to earn out over an in-force book. So that will be helpful into the future and then we've got -- obviously, correlate that to where the loss trends are going.

Michael Ramirez -- SunTrust -- Analyst

Second, what is your perception of your competitors' view on loss trends in the medical, professional liability segment? So are they acting like there is meaningful inflation in the system or is it just pretty much business as usual?

Edward Lewis Rand Jr -- President And Chief Executive Officer

We said a few minutes ago, we are beginning to see competitors react to the severity trends in the marketplace and I think we were probably calling that pretty early and we're alone six quarters ago when we weren't, and I would say that the industry has really caught up to us at this point.

Michael Ramirez -- SunTrust -- Analyst

I apologize if we missed that from earlier. Maybe one on workers' comp here. So are there any one or two sort of competitors that are being particularly aggressive in this space, which led to kind of like a slowdown in written premiums or is it just basically a broader market shift?

Kevin Merrick Shook -- President, Workers' Compensation Insurance

It's a broader market shift. I mean, we're seeing competition from the package players that are leveraging comp to offset losses in commercial auto and umbrella and general liability. We're seeing competition from monoline workers' comp players and just in speaking about the decrease in direct written premium, I mean, again it's a result of our focus on underwriting profit and individually account underwriting every one of our policies to make sure that we've got the adequate rate for exposure. But competition remains heavy, it's coming from kind of all sides and all regions and we've built Eastern for sustainable results through changing insurance cycles and economic times.

Michael Ramirez -- SunTrust -- Analyst

And then maybe one housekeeping, apologize once again, if this has already been discussed or asked, but what is your reasonable outlook for equity and earnings of unconsolidated subsidiaries?

Edward Lewis Rand Jr -- President And Chief Executive Officer

It's a good question, it's kind of a volatile part of our investment portfolio. So it's hard to predict kind of quarter-over-quarter. On a number of those investments, there is a reporting lag, a timing lag and so you can kind of look back at the economic performance over the prior quarter and sometimes get an indication of where we think things might be headed.

But as I think we've said since we began investing in some of these investments, it is volatile over the long term and our focus as always is over the long term, we are getting and have been getting superior returns because of these investments. It is going to add volatility and personally [right now, where our operating earnings are being stressed that volatility manifests itself a little more than it would have in the past, but I really am sorry, but I can't give you any good guidance on that.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Ken McEwen for any closing remarks.

Ken McEwen -- Investor Relations Manager at ProAssurance

That's all we have. Thank you for joining us and we'll talk to you again in November.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Ken McEwen -- Investor Relations Manager at ProAssurance

Edward Lewis Rand Jr -- President And Chief Executive Officer

Dana Shannon Hendricks -- Chief Financial Officer, Treasurer, And Executive Vice President

Michael Leonard Boguski -- President, Specialty P and C

Kevin Merrick Shook -- President, Workers' Compensation Insurance

Greg Peters -- Raymond James

Christopher Campbell -- KBW -- Analyst

Michael Ramirez -- SunTrust -- Analyst

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