Fair Value Measurement (Tables)

12 Months Ended

Dec. 31, 2018

Assets and liabilities measured at fair value

Fair values of assets measured at fair value on a recurring basis as of December 31, 2018 and December 31, 2017 are shown in the following tables. Where applicable, the tables also indicate the fair value hierarchy of the valuation techniques utilized to determine those fair values. For some assets, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When this is the case, the asset is categorized based on the level of the most significant input to the fair value measurement. Assessments of the significance of a particular input to the fair value measurement require judgment and consideration of factors specific to the assets being valued.



	December 31, 2018
	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	$	—	$	120,201	$	—	$	120,201
U.S. Government-sponsored enterprise obligations	—		35,354		—		35,354
State and municipal bonds	—		293,772		—		293,772
Corporate debt, multiple observable inputs	2,319		1,216,834		—		1,219,153
Corporate debt, limited observable inputs	—		—		4,322		4,322
Residential mortgage-backed securities	—		181,238		—		181,238
Agency commercial mortgage-backed securities	—		13,108		—		13,108
Other commercial mortgage-backed securities	—		30,993		—		30,993
Other asset-backed securities	—		191,807		3,850		195,657
Fixed maturities, trading	—		38,188		—		38,188
Equity investments
Financial	62,344		—		—		62,344
Utilities/Energy	46,533		—		—		46,533
Consumer oriented	47,462		—		—		47,462
Industrial	41,487		—		—		41,487
Bond funds	174,753		—		—		174,753
All other	50,066		—		—		50,066
Short-term investments	265,910		42,409		—		308,319
Other investments	—		31,341		3		31,344
Other assets	—		1,884		—		1,884
Total assets categorized within the fair value hierarchy	$	690,874	$	2,197,129	$	8,175	2,896,178
Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:
Equity investments							20,292
Investment in unconsolidated subsidiaries							268,436
Total assets at fair value							$	3,184,906



	December 31, 2017
	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	$	—	$	133,627	$	—	$	133,627
U.S. Government-sponsored enterprise obligations	—		20,956		—		20,956
State and municipal bonds	—		632,243		—		632,243
Corporate debt, multiple observable inputs	2,371		1,151,084		—		1,153,455
Corporate debt, limited observable inputs	—		—		13,703		13,703
Residential mortgage-backed securities	—		196,789		1,055		197,844
Agency commercial mortgage-backed securities	—		10,742		—		10,742
Other commercial mortgage-backed securities	—		15,961		—		15,961
Other asset-backed securities	—		97,780		3,931		101,711
Equity investments
Financial	76,051		—		—		76,051
Utilities/Energy	54,388		—		—		54,388
Consumer oriented	54,529		—		—		54,529
Industrial	53,936		—		—		53,936
Bond funds	156,563		—		—		156,563
All other	75,142		—		—		75,142
Short-term investments	404,204		27,922		—		432,126
Other investments	607		31,155		409		32,171
Other assets	—		1,731		—		1,731
Total assets categorized within the fair value hierarchy	$	877,791	$	2,319,990	$	19,098	3,216,879
Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:
Investment in unconsolidated subsidiaries							210,759
Other investments							20,130
Total assets at fair value							$	3,447,768

Summary of quantitative information about Level 3 fair value measurements

Quantitative Information Regarding Level 3 Valuations



	Fair Value at
($ in thousands)	December 31, 2018	December 31, 2017	Valuation Technique	Unobservable Input	Range (Weighted Average)
Assets:
Corporate debt, limited observable inputs	$4,322	$13,703	Market Comparable Securities	Comparability Adjustment	0% - 5% (2.5%)
			Discounted Cash Flows	Comparability Adjustment	0% - 5% (2.5%)
Residential mortgage-backed and other asset-backed securities	$3,850	$4,986	Market Comparable Securities	Comparability Adjustment	0% - 5% (2.5%)
			Discounted Cash Flows	Comparability Adjustment	0% - 5% (2.5%)
Other investments	$3	$409	Discounted Cash Flows	Comparability Adjustment	0% - 10% (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 measured at fair value using Level 3 inputs.



	December 31, 2018
	Level 3 Fair Value Measurements – Assets
(In thousands)	Corporate Debt			Asset-backed Securities			Other investments			Total
Balance December 31, 2017	$	13,703		$	4,986		$	409		$	19,098
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income	(148		)	2			—			(146		)
Net realized investment gains (losses)	(8		)	—			(40		)	(48		)
Included in other comprehensive income	(233		)	(105		)	—			(338		)
Purchases	8,005			20,093			—			28,098
Sales	(6,406		)	(438		)	(366		)	(7,210		)
Transfers in	2,627			—			—			2,627
Transfers out	(13,218		)	(20,688		)	—			(33,906		)
Balance December 31, 2018	$	4,322		$	3,850		$	3		$	8,175
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	$	—		$	—		$	—		$	—



	December 31, 2017
	Level 3 Fair Value Measurements – Assets
(In thousands)	Corporate Debt			Asset-backed Securities			Other investments			Total
Balance December 31, 2016	$	14,810		$	3,007		$	3		$	17,820
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income	(163		)	—			—			(163		)
Net realized investment gains (losses)	13			—			(143		)	(130		)
Included in other comprehensive income	(369		)	(71		)	140			(300		)
Purchases	13,016			2,627			—			15,643
Sales	(4,837		)	—			(912		)	(5,749		)
Transfers in	999			—			1,321			2,320
Transfers out	(9,766		)	(577		)	—			(10,343		)
Balance December 31, 2017	$	13,703		$	4,986		$	409		$	19,098
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	$	—		$	—		$	—		$	—

Investments in limited liability companies and limited partnerships

The carrying value of these interests is based on the NAV provided and was considered to approximate the fair value of the interests. For investment in unconsolidated subsidiaries, ProAssurance recognizes any changes in the NAV of its interests in equity in earnings (loss) of unconsolidated subsidiaries during the period of change. In accordance with GAAP, the fair value of these investments was not classified within the fair value hierarchy. The amount of ProAssurance's unfunded commitments related to these investments as of December 31, 2018 and fair values of these investments as of December 31, 2018 and 2017 was as follows:



	Unfunded Commitments		Fair Value
(In thousands)	December 31, 2018		December 31, 2018		December 31, 2017
Equity investments:
Mortgage fund ^(1)*	$	—	$	20,292	$	—
Investment in unconsolidated subsidiaries:
Private debt funds ⁽²⁾	$	20,954	18,196		42,206
Long equity fund ⁽³⁾	None		6,561		7,847
Long/short equity funds ⁽⁴⁾	None		28,805		31,352
Non-public equity funds ⁽⁵⁾	$	80,076	114,811		100,062
Multi-strategy fund of funds ⁽⁶⁾	None		9,322		9,100
Credit funds ⁽⁷⁾	$	8,916	29,164		6,561
Long/short commodities fund ⁽⁸⁾	None		12,958		13,025
Strategy focused funds ⁽⁹⁾	$	24,539	48,619		606
			268,436		210,759
Other investments:
Mortgage fund ^(1)*	See above		—		20,130

Total investments carried at NAV			$	288,728	$	230,889
* In the first quarter of 2018, ProAssurance began presenting this investment previously reported as a part of other investments as a part of equity investments on the Consolidated Balance Sheet. Prior year amounts have not been reclassified.

Below is additional information regarding each of the investments listed in the table above as of December 31, 2018.


⁽¹⁾	This investment fund is focused on the structured mortgage market. The fund will primarily invest in U.S. Agency mortgage-backed securities. Redemptions are allowed at the end of any calendar quarter with a prior notice requirement of 65 days and are paid within 45 days at the end of the redemption dealing day.

⁽²⁾

This investment is comprised of interests in three unrelated LP funds that are structured to provide interest distributions primarily through diversified portfolios of private debt instruments. One LP allows redemption by special consent; the other two do not permit redemption. Income and capital are to be periodically distributed at the discretion of the LPs over an anticipated time frame that spans from three to eight years.


⁽³⁾	This fund is a LP that holds long equities of public international companies. Redemptions are allowed at the end of any calendar month with a prior notice requirement of 15 days and are paid within 10 days of the end of the calendar month of the redemption request.

⁽⁴⁾

This investment is comprised of interests in multiple unrelated LP funds. The funds hold primarily long and short North American equities and target absolute returns using strategies designed to take advantage of market opportunities. The funds generally permit quarterly or semi-annual capital redemptions subject to notice requirements of 30 to 90 days. For some funds, redemptions above specified thresholds (lowest threshold is 90%) may be only partially payable until after a fund audit is completed and are then payable within 30 days.

⁽⁵⁾

This investment is comprised of interests in multiple unrelated LP funds, each structured to provide capital appreciation through diversified investments in private equity, which can include investments in buyout, venture capital, debt including senior, second lien and mezzanine, distressed debt and other private equity-oriented LPs. Two of the LPs allow redemption by terms set forth in the LP agreements; the others do not permit redemption. Income and capital are to be periodically distributed at the discretion of the LP over time frames that are anticipated to span up to nine years.


⁽⁶⁾	This fund is a LLC structured to build and manage low volatility, multi-manager portfolios that have little or no correlation to the broader fixed income and equity security markets. Redemptions are not permitted but offers to repurchase units of the LLC may be extended periodically.

⁽⁷⁾

This investment is comprised of three unrelated LP funds. Two funds seek to obtain superior risk-adjusted absolute returns through a diversified portfolio of debt securities, including bonds, loans and other asset-backed instruments. The remaining fund seeks event driven opportunities across the corporate credit spectrum. Two funds are allowed redemptions at any quarter-end with a prior notice requirement of 90 days;one fund permits redemption at any quarter-end with a prior notice requirement of 180 days.


⁽⁸⁾	This fund is a LLC invested across a broad range of commodities and focuses primarily on market neutral, relative value strategies, seeking to generate absolute returns with low correlation to broad commodity, equity and fixed income markets. Following an initial one-year lock-up period, redemptions are allowed with a prior notice requirement of 30 days and are payable within 30 days.

⁽⁹⁾

This investment is comprised of multiple unrelated LPs/LLCs funds. One fund is a LLC focused on investing in North American consumer products companies, comprised of equity and equity-related securities, as well as debt instruments. Redemptions are not permitted. Another fund is a LP focused on North American energy infrastructure assets that allows redemption with consent of the General Partner. The remaining funds are real estate focused LPs, one of which allows for redemption with prior notice.

Financial instruments not measured at fair value

The following table provides the estimated fair value of ProAssurance's 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 primarily fall within the Level 3 fair value category.



	December 31, 2018				December 31, 2017
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
BOLI	$	64,096	$	64,096	$	62,113	$	62,113
Other investments	$	2,943	$	2,943	$	58,546	$	69,095
Other assets	$	35,921	$	35,468	$	34,020	$	33,742
Financial liabilities:
Senior notes due 2023*	$	250,000	$	264,810	$	250,000	$	273,153
Revolving Credit Agreement*	$	—	$	—	$	123,000	$	123,000
Mortgage Loans*	$	39,064	$	39,064	$	40,460	$	40,460
Other liabilities	$	21,300	$	21,300	$	21,154	$	21,154
* Carrying value excludes debt issuance costs.