Fair Value Measurement (Tables)

12 Months Ended

Dec. 31, 2012

Assets and liabilities measured at fair value



	December 31, 2012
	Fair Value Measurements Using						Total
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:
Fixed maturities, available for sale
U.S. Treasury obligations	$	—	$	205,857	$	—	$	205,857
U.S. Government-sponsored enterprise obligations	—		56,947		—		56,947
State and municipal bonds	—		1,212,804		7,175		1,219,979
Corporate debt, multiple observable inputs	—		1,455,333		—		1,455,333
Corporate debt, limited observable inputs:
Private placement senior notes	—		—		346		346
Other corporate debt, NRSRO ratings available	—		—		13,835		13,835
Other corporate debt, NRSRO ratings not available	—		—		1,010		1,010
Residential mortgage-backed securities	—		289,850		—		289,850
Agency commercial mortgage-backed securities	—		59,464		—		59,464
Other commercial mortgage-backed securities	—		74,106		—		74,106
Other asset-backed securities	—		67,237		4,035		71,272
Equity securities
Financial	70,900		—		—		70,900
Utilities/Energy	31,383		—		—		31,383
Consumer oriented	51,100		—		—		51,100
Technology	11,495		—		—		11,495
Industrial	18,200		—		—		18,200
All other	19,540		—		—		19,540
Short-term investments	59,761		11,976		—		71,737
Financial instruments carried at fair value, classified as a part of:
Investment in unconsolidated subsidiaries	—		—		33,739		33,739
Total assets	$	262,379	$	3,433,574	$	60,140	$	3,756,093

3. Fair Value Measurement (continued)



	December 31, 2011
	Fair Value Measurements Using						Total
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:
Fixed maturities, available for sale
U.S. Treasury obligations	$	—	$	283,865	$	—	$	283,865
U.S. Government-sponsored enterprise obligations	—		68,104		—		68,104
State and municipal bonds	—		1,221,187		7,200		1,228,387
Corporate debt, multiple observable inputs	—		1,359,866		—		1,359,866
Corporate debt, limited observable inputs:
Private placement senior notes	—		—		612		612
Other corporate debt, NRSRO ratings available	—		—		6,310		6,310
Other corporate debt, NRSRO ratings not available	—		—		1,160		1,160
Residential mortgage-backed securities	—		452,932		—		452,932
Agency commercial mortgage-backed securities	—		81,530		—		81,530
Other commercial mortgage-backed securities	—		81,188		—		81,188
Other asset-backed securities	—		101,809		—		101,809
Equity securities
Financial	25,281		—		—		25,281
Utilities/Energy	18,748		—		—		18,748
Consumer oriented	29,711		—		—		29,711
Technology	7,556		—		—		7,556
Industrial	9,185		—		—		9,185
All other	12,677		—		—		12,677
Short-term investments	111,359		8,062		—		119,421
Financial instruments carried at fair value, classified as a part of:
Investment in unconsolidated subsidiaries	—		—		23,841		23,841
Other investments	—		—		15,873		15,873
Total assets	$	214,517	$	3,658,543	$	54,996	$	3,928,056

Liabilities:
2019 Note payable	—		—		14,180		14,180
Interest rate swap agreement	—		—		4,659		4,659
Total liabilities	$	—	$	—	$	18,839	$	18,839

Investments in Limited liability companies and limited partnerships

Investment in unconsolidated subsidiaries and Other investments consist of limited partnership (LP) and limited liability company (LLC) interests valued using the net asset value (NAV) provided by the LP/LLC, which approximates the fair value of the interest.

Such interests include the following:



	Unfunded Commitments	Fair Value
(In thousands)	December 31, 2012	December 31, 2012		December 31, 2011
Investment in unconsolidated subsidiaries:
LP primarily invested in long/short equities (1)	None	$	17,115	$	17,123
LPs primarily invested in non-public equities (2)	$43,503	16,624		6,718
		33,739		23,841
Other investments:
LLC primarily invested in private equity and debt (3)	None	—		15,873
		$	33,739	$	39,714

(1)

The LP holds both long and short U.S. and North American equities, and targets absolute returns using a strategy designed to take advantage of event-driven market opportunities. Redemptions are allowed with a notice requirement of up to 45 days and are paid within 30 days of the redemption date, unless the redemption request is for 90% or more of the requestor’s capital balance. Redemptions at the 90% and above level will be paid at 90%, with the remainder paid after the LP’s annual audit.

(2)

The LPs are structured to provide capital appreciation through diversified investments in private equity, which can include investments in buyout, venture capital, mezzanine debt, distressed debt and other private equity-oriented LPs. Redemptions are not allowed for one of the LPs, except by special permission of the LP. Income and capital are to be periodically distributed at the discretion of the LP over an anticipated time frame that spans from 4 to 7 years.


(3)	The LLC converted into a publicly traded investment fund during the second quarter of 2012. Prior to conversion, the LLC was structured to provide income through diversified investments in private equity, including mezzanine debt, distressed debt, syndicated bank loans and other private equity-oriented investments.

Summary of quantitative information about Level 3 fair value measurements

Quantitative Information Regarding Level 3 Valuations



Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at
(In millions)	December 31, 2012	Valuation Technique	Unobservable Input	Range (Weighted Average)
Assets:
State and municipal bonds	$7.2	Market Comparable Securities	Comparability Adjustment	0% - 10% (5%)
		Discounted Cash Flows	Comparability Adjustment	0% - 10% (5%)
Corporate debt with limited observable inputs	$15.2	Market Comparable Securities	Comparability Adjustment	0% - 5% (2.5%)
		Discounted Cash Flows	Comparability Adjustment	0% - 5% (2.5%)
Other asset-backed securities	$4.0	Market Comparable Securities	Comparability Adjustment	0% - 5% (2.5%)
		Discounted Cash Flows	Comparability Adjustment	0% - 5% (2.5%)

Summary of changes in the fair value of assets measured at fair value

The following tables (the Level 3 Tables) present summary information regarding changes in the fair value of assets and liabilities measured at fair value using Level 3 inputs, including financial instruments for which ProAssurance has elected fair value accounting.



	December 31, 2012
	Level 3 Fair Value Measurements – Assets
(In thousands)	State and Municipal Bonds			Corporate Debt			Asset-backed Securities			Investment in Unconsolidated Subsidiaries			Other Investments			Total
Balance December 31, 2011	$	7,200		$	8,082		$	—		$	23,841		$	15,873		$	54,996
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net Investment Income	—			14			—			—			—			14
Equity in earnings of unconsolidated subsidiaries	—			—			—			278			—			278
Net realized investment gains (losses)	—			10			—			—			(131		)	(121		)
Included in other comprehensive income	—			611			35			—			—			646
Purchases	—			3,136			6,734			11,008			—			20,878
Sales	(25		)	(1,951		)	(1,118		)	(1,388		)	—			(4,482		)
Transfers in	—			9,220			—			—			—			9,220
Transfers out	—			(3,931		)	(1,616		)	—			(15,742		)	(21,289		)
Balance December 31, 2012	$	7,175		$	15,191		$	4,035		$	33,739		$	—		$	60,140
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	$	—		$	—		$	—		$	278		$	(131	)	$	147



	December 31, 2011
	Level 3 Fair Value Measurements – Assets
(In thousands)	State and Municipal Bonds			Corporate Debt			Asset-backed Securities			Investment in Unconsolidated Subsidiaries			Other Investments			Total
Balance December 31, 2010	$	7,550		$	21,229		$	2,220		$	25,112		$	—		$	56,111
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Equity in earnings of unconsolidated subsidiaries	—			—			—			(1,077		)	—			(1,077		)
Net realized investment gains (losses)	—			—			314			—			(318		)	(4		)
Included in other comprehensive income	—			(1,650		)	(15		)	—			—			(1,665		)
Purchases	—			—			1,684			—			—			1,684
Sales	(350		)	(8,504		)	(1,921		)	(194		)	—			(10,969		)
Transfers in	—			6,587			—			—			16,191			22,778
Transfers out	—			(9,580		)	(2,282		)	—			—			(11,862		)
Balance December 31, 2011	$	7,200		$	8,082		$	—		$	23,841		$	15,873		$	54,996
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	$	—		$	—		$	—		$	(1,077	)	$	(318	)	$	(1,395	)

Summary of changes in the fair value of liabilities measured at fair value

All remaining transfers during 2012 and 2011 related to securities held for which there was little market activity for identical or nearly identical securities during the period. The securities were valued using multiple observable inputs when those inputs were available; otherwise the securities were valued using limited observable inputs.



	December 31, 2012
	Level 3 Fair Value Measurements - Liabilities
(In thousands)	2019 Note Payable			Interest rate swap agreement			Total
Balance December 31, 2011	$	14,180		$	4,659		$	18,839
Total (gains) losses realized and unrealized:
Included in earnings as a part of:
Net realized investment (gains) losses	769			476			1,245
Loss on extinguishment of debt	2,163			—			2,163
Settlements	(17,112		)	(5,135		)	(22,247		)
Balance December 31, 2012	$	—		$	—		$	—
Change in unrealized (gains) losses included in earnings for the above period for Level 3 liabilities outstanding at period-end	$	—		$	—		$	—



	December 31, 2011
	Level 3 Fair Value Measurements - Liabilities
(In thousands)	2019 Note Payable			Interest rate swap agreement		Total
Balance December 31, 2010	$	15,616		$	3,658	$	19,274
Total (gains) losses realized and unrealized:
Included in earnings as a part of:
Net realized investment (gains) losses	(1,112		)	1,001		(111		)
Settlements	(324		)	—		(324		)
Balance December 31, 2011	$	14,180		$	4,659	$	18,839
Change in unrealized (gains) losses included in earnings for the above period for Level 3 liabilities outstanding at period-end	$	(1,112	)	$	1,001	$	(111	)

Financial instruments not measured at fair value

The following table provides the estimated fair value of our financial instruments that, in accordance with GAAP for the type of investment, are measured using a methodology other than fair value. All fair values provided fall within the Level 3 fair value category.



	December 31, 2012				December 31, 2011
(In thousands)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Other Investments	$	31,085	$	38,656	$	22,351	$	28,226
Investment in Unconsolidated Subsidiaries	87,310		91,528		87,483		96,443
BOLI	52,414		52,414		52,651		52,651
Other Assets	11,400		11,385		9,636		9,636

Financial liabilities:
Revolving credit agreement	$	125,000	$	125,000	$	—	$	—
Trust Preferred Securities due 2034	—		—		22,992		22,992
Surplus Notes due May 2034	—		—		12,000		12,000
Note Payable due February 2012	—		—		515		519
Other Liabilities	12,130		12,085		15,076		14,946

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

+ References+ Details

- Definition

Tabular disclosure of the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such certain disclosures about the financial instruments, assets, and liabilities include: (1) the fair value of the required items together with their carrying amounts (as appropriate) and (2) the methodology and assumptions used in developing such estimates of fair value.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 107

-Paragraph 14

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-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef

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-Name Accounting Standards Codification

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-Publisher FASB

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 10: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

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+ Details

- Definition

Tabular disclosure of the fair value of investees that calculate net asset value per share (including by unit, membership interest, or other equity (ownership interest) unit measure) (alternative investments), whether measured at fair value on a recurring or nonrecurring basis, by major category of assets and liabilities (as defined), including, for example, (i) fair value measurements at the reporting date, (ii) the level within the fair value hierarchy in which the fair value measurements fall, (iii) a reconciliation of beginning and ending balances for those alternative investments that are measured at fair value using unobservable inputs (Level 3 - fair value hierarchy fair value measurement inputs), (iv) the inputs and valuation techniques used to measure fair value, (v) a discussion of changes to valuation techniques and inputs, if any, during the period, (vi) a description of the nature and risk associated with the alternative investments, and (vii) a discussion of the probability that any of the alternative investments are to be sold.

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- Definition

Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.

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