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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022 or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to                          
Commission File Number: 0-16533
ProAssurance Corporation
(Exact name of registrant as specified in its charter)
Delaware63-1261433
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer Identification No.)
100 Brookwood Place,Birmingham,AL35209
(Address of principal executive offices)(Zip Code)
(205)877-4400
(Registrant’s telephone number,
including area code)		(Former name, former address and former
fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per sharePRANew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒Accelerated filer ☐
Non-accelerated filer☐Smaller reporting company ☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐   No  ☒
As of May 4, 2022, there were 54,047,919 shares of the registrant’s common stock outstanding.

Table of Contents
Glossary of Terms and Acronyms

When the following terms and acronyms appear in the text of this report, they have the meanings indicated below.
TermMeaning
AADAnnual aggregate deductible
AOCIAccumulated other comprehensive income (loss)
BoardBoard of Directors of ProAssurance Corporation
BOLIBusiness owned life insurance
CARES ActCoronavirus Aid, Relief and Economic Security Act
Council of Lloyd'sThe governing body for Lloyd's of London
CODMChief Operating Decision Maker
COVID-19Coronavirus Disease 2019
DDRDeath, disability and retirement
DPACDeferred policy acquisition costs
Eastern ReEastern Re, LTD, S.P.C.
EBUBEarned but unbilled premium
ECO/XPLExtra-contractual obligations/excess of policy limit claims
FALFunds at Lloyd's
FASBFinancial Accounting Standards Board
FHLBFederal Home Loan Bank
FHLMCFederal Home Loan Mortgage Corporation
FNMAFederal National Mortgage Association
GAAPGenerally accepted accounting principles in the United States of America
GNMAGovernment National Mortgage Association
HCPLHealthcare professional liability
IBNRIncurred but not reported
Inova ReInova Re, LTD, S.P.C.
IRSInternal Revenue Service
LIBORLondon Interbank Offered Rate
LLCLimited liability company
Lloyd'sLloyd's of London market
LPLimited partnership
Medical Technology LiabilityMedical technology and life sciences products liability
Mortgage LoansTwo ten-year mortgage loans with original borrowing amounts of approximately $18 million and approximately $23 million, each entered into by a subsidiary of ProAssurance
NAVNet asset value
NOLNet operating loss
NORCALNORCAL Insurance Company, formally known as NORCAL Mutual Insurance Company
NRSRONationally recognized statistical rating organization
NYSENew York Stock Exchange
OCIOther comprehensive income (loss)
PCAOBPublic Company Accounting Oversight Board
PPM RRGPreferred Physicians Medical Risk Retention Group, a Mutual Insurance Company
Revolving Credit AgreementProAssurance's $250 million revolving credit agreement
ROEReturn on equity
ROURight-of-use
SECSecurities and Exchange Commission
SPASpecial Purpose Arrangement
SPCSegregated portfolio cell
Specialty P&CSpecialty Property and Casualty
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Table of Contents
TermMeaning
Syndicate 1729Lloyd's of London Syndicate 1729
Syndicate 6131Lloyd's of London Syndicate 6131, a Special Purpose Arrangement with Lloyd's of London Syndicate 1729
Syndicate Credit AgreementUnconditional revolving credit agreement with the Premium Trust Fund of Syndicate 1729
TCJATax Cuts and Jobs Act H.R.1 of 2017
U.K.United Kingdom of Great Britain and Northern Ireland
ULAEUnallocated loss adjustment expenses
VIEVariable interest entity
VOBAValue of business acquired

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Caution Regarding Forward-Looking Statements
Any statements in this Form 10-Q that are not historical facts are specifically identified as forward-looking statements. These statements are based upon our estimates and anticipation of future events and are subject to significant risks, assumptions and uncertainties that could cause actual results to vary materially from the expected results described in the forward-looking statements. Forward-looking statements are 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. There are numerous factors that could cause our actual results to differ materially from those in the forward-looking statements. Thus, sentences and phrases that we use to convey our view of future events and trends are expressly designated as forward-looking statements as are sections of this Form 10-Q that are identified as giving our outlook on future business.
Forward-looking statements relating to our business include among other things: statements concerning future liquidity and capital requirements, investment valuation and performance, return on equity, financial ratios, net income, premiums, losses and loss reserve, 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 pricing or 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 matters.
These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following factors that could affect the actual outcome of future events:
lchanges in general economic conditions, including the impact of inflation or deflation and unemployment;
lour ability to maintain our dividend payments;
lregulatory, legislative and judicial actions or decisions that could affect our business plans or operations, including changes in interpretations of certain coverages as a result of COVID-19;
lthe enactment or repeal of tort reforms;
lformation or dissolution of state-sponsored insurance entities providing coverages now offered by ProAssurance which could remove or add sizable numbers of insureds from or to the private insurance market;
lchanges in the interest and tax rate environment;
lresolution of uncertain tax matters and changes in tax laws, including the impact of the CARES Act;
lchanges in laws or government regulations regarding financial markets or market activity that may affect our business;
lchanges in the ability, or perception thereof, of the U.S. government to meet its obligations that may affect the U.S. economy and our business;
lperformance of financial markets affecting the fair value of our investments or making it difficult to determine the value of our investments;
lchanges in requirements or accounting policies and practices that may be adopted by our regulatory agencies, the FASB, the SEC, the PCAOB or the NYSE that may affect our business;
lchanges in laws or government regulations affecting the financial services industry, the property and casualty insurance industry or particular insurance lines underwritten by our subsidiaries or by Syndicate 1729;
lthe effect on our insureds, particularly the insurance needs of our insureds, and our loss costs, of changes in the healthcare delivery system and/or changes in the U.S. political climate that may affect healthcare policy or our business;
lconsolidation of our insureds into or under larger entities which may be insured by competitors, or may not have a risk profile that meets our underwriting criteria or which may not use external providers for insuring or otherwise managing substantial portions of their liability risk;
lthe effect of cyclical insurance industry trends on our underwriting, including demand and pricing in the insurance and reinsurance markets in which we operate;
luncertainties inherent in the estimate of our loss and loss adjustment expense reserve and reinsurance recoverable;
lchanges in the availability, cost, quality or collectability of insurance/reinsurance;
lthe results of litigation, including pre- or post-trial motions, trials and/or appeals we undertake;
leffects on our claims costs from mass tort litigation that are different from that anticipated by us;
lallegations of bad faith which may arise from our handling of any particular claim, including failure to settle;
lloss or consolidation of independent agents, agencies, brokers or brokerage firms;
lchanges in our organization, compensation and benefit plans;
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lchanges in the business or competitive environment may limit the effectiveness of our business strategy and impact our revenues;
lour ability to retain and recruit senior management and other qualified personnel;
lthe availability, integrity and security of our technology infrastructure and that of our third-party providers, including any susceptibility to cyber-attacks which might result in a loss of information, operating capability or actual monetary loss;
lthe impact of a catastrophic event, including the COVID-19 pandemic, as it relates to our business and insurance operations, investment results, Lloyd's Syndicates and our insured risks;
lthe impact of the ongoing COVID-19 pandemic on our premium volume, loss reserves, investment portfolio, asset valuations, business operations and workforce;
lthe impact of a catastrophic man-made event, such as acts of terrorism, acts of war and civil and political unrest;
lthe effects of terrorism-related insurance legislation and laws;
lguaranty funds and other state assessments;
lour ability to achieve continued growth through expansion into new markets or through acquisitions or business combinations;
lfailure to successfully integrate NORCAL to achieve expected results or synergies;
lchanges to the ratings assigned by rating agencies to our holding company or insurance subsidiaries, individually or as a group;
lprovisions in our charter documents, Delaware law and state insurance laws may impede attempts to replace or remove management or may impede a takeover;
lstate insurance restrictions may prohibit assets held by our insurance subsidiaries, including cash and investment securities, from being used for general corporate purposes;
ltaxing authorities can take exception to our tax positions and cause us to incur significant amounts of legal and accounting costs and, if our defense is not successful, additional tax costs, including interest and penalties; and
lexpected benefits from completed acquisitions may not be achieved or may be delayed longer than expected due to business disruption; loss of customers, employees or key agents; increased operating costs or inability to achieve cost savings and synergies; and assumption of greater than expected liabilities, among other reasons.
Additional risks, assumptions and uncertainties that could arise from our membership in the Lloyd's market and our participation in certain Lloyd's Syndicates include, but are not limited to, the following:
lmembers of Lloyd's are subject to levies by the Council of Lloyd's based on a percentage of the member's underwriting capacity, currently a maximum of 5%, but can be increased by Lloyd's;
lSyndicate results can be affected by decisions made by the Council of Lloyd's which the management of Syndicate 1729 has little ability to control, such as a decision to not approve the business plan of Syndicate 1729, or a decision to increase the capital required to continue operations, and by our obligation to pay levies to Lloyd's;
lLloyd's insurance and reinsurance relationships and distribution channels could be disrupted or Lloyd's trading licenses could be revoked, making it more difficult for a Lloyd's Syndicate to distribute and market its products;
lrating agencies could downgrade their ratings of Lloyd's as a whole; and
lSyndicate operations are dependent on a small, specialized management team, and the loss of their services could adversely affect the Syndicate’s business. The inability to identify, hire and retain other highly qualified personnel in the future could adversely affect the quality and profitability of Syndicate 1729’s business.
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 December 31, 2021 report on Form 10-K and other documents we file with the SEC, such as our quarterly 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.
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TABLE OF CONTENTS

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ProAssurance Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)
March 31,
2022		December 31,
2021
Assets
Investments
Fixed maturities, available-for-sale, at fair value (amortized cost, $3,861,574 and $3,814,847, respectively; allowance for expected credit losses, none as of each respective period end)
$3,700,821 $3,833,722 
Fixed maturities, trading, at fair value (cost, $49,986 and $43,914, respectively)
49,421 43,670 
Equity investments, at fair value (cost, $211,962 and $211,356, respectively)
203,925 214,807 
Short-term investments233,345 216,987 
Business owned life insurance80,879 81,767 
Investment in unconsolidated subsidiaries321,402 335,576 
Other investments (at fair value, $100,678 and $98,611, respectively, otherwise at cost or amortized cost)
103,876 101,794 
Total Investments4,693,669 4,828,323 
Cash and cash equivalents72,101 143,602 
Premiums receivable (allowance for expected credit losses, $7,711 as of March 31, 2022 and $7,436 as of December 31, 2021)
260,929 241,095 
Receivable from reinsurers on paid losses and loss adjustment expenses14,310 14,599 
Receivable from reinsurers on unpaid losses and loss adjustment expenses464,780 451,741 
Prepaid reinsurance premiums32,198 24,571 
Deferred policy acquisition costs65,491 58,940 
Deferred tax asset, net157,214 117,613 
Real estate, net30,117 30,342 
Operating lease ROU assets17,989 19,595 
Intangible assets, net71,717 73,336 
Goodwill49,610 49,610 
Other assets128,473 138,110 
Total Assets$6,058,598 $6,191,477 
Liabilities and Shareholders' Equity
Liabilities
Policy liabilities and accruals
Reserve for losses and loss adjustment expenses$3,603,246 $3,579,940 
Unearned premiums486,693 433,961 
Reinsurance premiums payable24,891 22,627 
Total Policy Liabilities and Accruals4,114,830 4,036,528 
Operating lease liabilities19,190 20,844 
Other liabilities217,280 280,732 
Debt less unamortized debt issuance costs
425,530 424,986 
Total Liabilities4,776,830 4,763,090 
Shareholders' Equity
Common shares (par value $0.01 per share, 100,000,000 shares authorized, 63,371,520 and 63,308,741 shares issued, respectively)
634 633 
Additional paid-in capital393,433 392,941 
Accumulated other comprehensive income (loss) (net of deferred tax expense (benefit) of ($33,755) and $4,423, respectively)
(124,566)16,284 
Retained earnings1,428,229 1,434,491 
Treasury shares, at cost (9,325,180 shares as of each respective period end)
(415,962)(415,962)
Total Shareholders' Equity1,281,768 1,428,387 
Total Liabilities and Shareholders' Equity$6,058,598 $6,191,477 
See accompanying notes.
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ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Capital (Unaudited)
(In thousands)

ProAssurance Shareholders' Equity
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotal
Balance at December 31, 2021$633 $392,941 $16,284 $1,434,491 $(415,962)$1,428,387 
Common shares issued for compensation and effect of shares reissued to stock purchase plan— 7 — — — 7 
Share-based compensation— 1,342 — — — 1,342 
Net effect of restricted and performance shares issued1 (857)— — — (856)
Dividends to shareholders— — — (2,702)— (2,702)
Other comprehensive income (loss)— — (140,850)— — (140,850)
Net income (loss)— — — (3,560)— (3,560)
Balance at March 31, 2022$634 $393,433 $(124,566)$1,428,229 $(415,962)$1,281,768 

Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotal
Balance at December 31, 2020$632 $388,150 $75,227 $1,301,163 $(415,962)$1,349,210 
Common shares issued for compensation and effect of shares reissued to stock purchase plan— 8 — — — 8 
Share-based compensation— 1,024 — — — 1,024 
Net effect of restricted and performance shares issued1 (258)— — — (257)
Dividends to shareholders— — — (2,699)— (2,699)
Other comprehensive income (loss)— — (33,705)— — (33,705)
Net income (loss)— — — 7,735 — 7,735 
Balance at March 31, 2021$633 $388,924 $41,522 $1,306,199 $(415,962)$1,321,316 
See accompanying notes.
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ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
(In thousands, except per share data)
Three Months Ended March 31
 
20222021
Revenues
Net premiums earned$265,711 $187,358 
Net investment income20,443 15,017 
Equity in earnings (loss) of unconsolidated subsidiaries7,620 6,788 
Net investment gains (losses):
Other net investment gains (losses)(13,506)8,849 
Total net investment gains (losses)(13,506)8,849 
Other income2,804 2,005 
Total revenues283,072 220,017 
Expenses
Net losses and loss adjustment expenses209,423 149,785 
Underwriting, policy acquisition and operating expenses:
Operating expense38,810 31,522 
DPAC amortization32,966 24,929 
SPC U.S. federal income tax expense642 356 
SPC dividend expense (income)2,367 1,742 
Interest expense4,441 3,212 
Total expenses288,649 211,546 
Income (loss) before income taxes(5,577)8,471 
Provision for income taxes:
Current expense (benefit)(607)3,008 
Deferred expense (benefit)(1,410)(2,272)
Total income tax expense (benefit)(2,017)736 
Net income (loss)(3,560)7,735 
Other comprehensive income (loss), after tax, net of reclassification adjustments(140,850)(33,705)
Comprehensive income (loss)$(144,410)$(25,970)
Earnings (loss) per share:
Basic$(0.07)$0.14 
Diluted$(0.07)$0.14 
Weighted average number of common shares outstanding:
Basic54,012 53,918 
Diluted54,143 53,998 
Cash dividends declared per common share$0.05 $0.05 
See accompanying notes.
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ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended March 31
 20222021
Operating Activities
Net income (loss)$(3,560)$7,735 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization, net of accretion10,350 6,722 
(Increase) decrease in cash surrender value of BOLI888 915 
Net investment (gains) losses13,506 (8,849)
Share-based compensation1,343 1,031 
Deferred income tax expense (benefit)(1,410)(2,272)
Policy acquisition costs, net of amortization (net deferral)(6,551)(420)
Equity in (earnings) loss of unconsolidated subsidiaries(7,620)(6,788)
Distributed earnings from unconsolidated subsidiaries14,176 5,658 
Other, net(1,056)(661)
Change in:
Premiums receivable(19,834)(9,165)
Reinsurance related assets and liabilities(18,113)(12,290)
Other assets12,367 13,151 
Reserve for losses and loss adjustment expenses23,306 21,071 
Unearned premiums52,732 13,699 
Other liabilities(56,259)(837)
Net cash provided (used) by operating activities14,265 28,700 
Investing Activities
Purchases of:
Fixed maturities, available-for-sale(231,557)(342,197)
Equity investments(28,129)(38,232)
Other investments(12,757)(33,252)
Investment in unconsolidated subsidiaries(9,685)(5,319)
Proceeds from sales or maturities of:
Fixed maturities, available-for-sale176,820 195,266 
Equity investments27,305 82,048 
Other investments9,205 12,026 
Net sales or (purchases) of fixed maturities, trading (6,119)3,163 
Return of invested capital from unconsolidated subsidiaries17,302 17,618 
Net sales or maturities (purchases) of short-term investments(16,632)56,836 
Unsettled security transactions, net change(2,076)27,025 
Purchases of capital assets(811)(1,243)
Net cash provided (used) by investing activities(77,134)(26,261)
Financing Activities
Repayments of Mortgage Loans— (390)
Dividends to shareholders(2,691)(2,686)
Capital contribution received from (return of capital to) external segregated portfolio cell participants(5,085)(53)
Other(856)(257)
Net cash provided (used) by financing activities(8,632)(3,386)
Increase (decrease) in cash and cash equivalents(71,501)(947)
Cash and cash equivalents at beginning of period143,602 215,782 
Cash and cash equivalents at end of period$72,101 $214,835 
Significant Non-Cash Transactions
Dividends declared and not yet paid$2,702 $2,699 
See accompanying notes.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022

1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of ProAssurance Corporation, its wholly owned subsidiaries and VIEs in which ProAssurance is the primary beneficiary (ProAssurance, PRA or the Company). See Note 9 for more information on ProAssurance's VIE interests. The financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included. ProAssurance’s results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes contained in ProAssurance’s December 31, 2021 report on Form 10-K.
ProAssurance operates in five reportable segments as follows: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance, Lloyd's Syndicates and Corporate. For more information on the Company's segment reporting, including the nature of products and services provided and financial information by segment, refer to Note 11.
During the first quarter of 2022, ProAssurance revised its estimate of ULAE as a result of substantially integrating NORCAL into the Specialty P&C segment operations. ULAE are costs that cannot be attributed to processing a specific claim and are allocated to net losses and loss adjustment expenses on the Condensed Consolidated Statement of Income and Comprehensive Income. ProAssurance accounted for this change prospectively as a change in accounting estimate. Changes in accounting estimate are reflected prospectively beginning in the period the change in estimate occurs. The change in the Company's estimate of ULAE resulted in an increase of $7.3 million to underwriting, policy acquisition and operating expenses with an offsetting decrease of $7.3 million to net losses and loss adjustment expenses when compared to amounts that would have been estimated as ULAE under the Company's previous methodology. There was no impact on total expenses or net income (loss) in the Company's Condensed Consolidated Statement of Income and Comprehensive Income for the three months ended March 31, 2022 as a result of this change in the estimate.
Accounting Policies
The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosures related to these amounts at the date of the financial statements. The Company evaluates these estimates and assumptions on an ongoing basis based on current and historical developments, market conditions, industry trends and other information that the Company believes to be reasonable under the circumstances, including the potential impacts of the COVID-19 pandemic (see "Item 1A, Risk Factors" in ProAssurance's December 31, 2021 report on Form 10-K for additional information). The Company can make no assurance that actual results will conform to its estimates and assumptions; reported results of operations may be materially affected by changes in these estimates and assumptions.
The significant accounting policies followed by ProAssurance in making estimates that materially affect financial reporting are summarized in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2021 report on Form 10-K.
Accounting Changes Adopted
ProAssurance has not adopted any accounting changes during the three months ended March 31, 2022 that had a material effect on its results of operations, financial position or cash flows.
Accounting Changes Not Yet Adopted
ProAssurance is not aware of any accounting changes not yet adopted as of March 31, 2022 that could have a material impact on its results of operations, financial position or cash flows.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
2. Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level hierarchy has been established for valuing assets and liabilities based on how transparent (observable) the inputs are that are used to determine fair value, with the inputs considered most observable categorized as Level 1 and those that are the least observable categorized as Level 3. Hierarchy levels are defined as follows:
 Level 1:quoted (unadjusted) market prices in active markets for identical assets and liabilities. For ProAssurance, Level 1 inputs are generally quotes for securities actively traded in exchange or over-the-counter markets.
 Level 2:market data obtained from sources independent of the reporting entity (observable inputs). For ProAssurance, Level 2 inputs generally include quoted prices in markets that are not active, quoted prices for similar assets or liabilities, and results from pricing models that use observable inputs such as interest rates and yield curves that are generally available at commonly quoted intervals.
 Level 3:the reporting entity’s own assumptions about market participant assumptions based on the best information available in the circumstances (non-observable inputs). For ProAssurance, Level 3 inputs are used in situations where little or no Level 1 or 2 inputs are available or are inappropriate given the particular circumstances. Level 3 inputs include results from pricing models for which some or all of the inputs are not observable, discounted cash flow methodologies, single non-binding broker quotes and adjustments to externally quoted prices that are based on management judgment or estimation.
Fair values of assets measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 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. For more information on the valuation methodologies used regarding securities in the Level 2 and Level 3 categories, see Note 3 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2021 report on Form 10-K.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
March 31, 2022
Fair Value Measurements UsingTotal
(In thousands)Level 1Level 2Level 3Fair Value
Assets:
Fixed maturities, available-for-sale
U.S. Treasury obligations$— $225,676 $— $225,676 
U.S. Government-sponsored enterprise obligations— 16,733 — 16,733 
State and municipal bonds— 492,291 — 492,291 
Corporate debt, multiple observable inputs— 1,816,931 — 1,816,931 
Corporate debt, limited observable inputs— — 53,325 53,325 
Residential mortgage-backed securities— 417,276 572 417,848 
Agency commercial mortgage-backed securities— 12,847 — 12,847 
Other commercial mortgage-backed securities— 222,800 582 223,382 
Other asset-backed securities— 433,639 8,149 441,788 
Fixed maturities, trading— 49,421 — 49,421 
Equity investments
Financial12,074 2,289 — 14,363 
Utilities/Energy1,099 — — 1,099 
Industrial— — 2,500 2,500 
Bond funds170,338 — — 170,338 
All other15,625 — — 15,625 
Short-term investments210,122 23,223 — 233,345 
Other investments1,789 95,449 3,440 100,678 
Other assets— 1,663 — 1,663 
Total assets categorized within the fair value hierarchy$411,047 $3,810,238 $68,568 4,289,853 
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 subsidiaries267,125 
Total assets at fair value$4,556,978 
Liabilities:
Other liabilities$— $— $24,000 $24,000 
Total liabilities categorized within the fair value hierarchy$— $— $24,000 $24,000 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
December 31, 2021
Fair Value Measurements UsingTotal
(In thousands)Level 1Level 2Level 3Fair Value
Assets:
Fixed maturities, available-for-sale
U.S. Treasury obligations$— $238,507 $— $238,507 
U.S. Government-sponsored enterprise obligations— 20,234 — 20,234 
State and municipal bonds— 519,196 — 519,196 
Corporate debt, multiple observable inputs— 1,851,427 — 1,851,427 
Corporate debt, limited observable inputs— — 47,129 47,129 
Residential mortgage-backed securities— 453,644 297 453,941 
Agency commercial mortgage-backed securities— 14,141 — 14,141 
Other commercial mortgage-backed securities— 231,483 — 231,483 
Other asset-backed securities— 451,459 6,205 457,664 
Fixed maturities, trading— 43,670 — 43,670 
Equity investments
Financial6,615 855 — 7,470 
Industrial— — 2,500 2,500 
Bond funds187,059 — — 187,059 
All other17,778 — — 17,778 
Short-term investments174,944 42,043 — 216,987 
Other investments1,889 95,288 1,434 98,611 
Other assets— 649 — 649 
Total assets categorized within the fair value hierarchy$388,285 $3,962,596 $57,565 4,408,446 
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 subsidiaries270,816 
Total assets at fair value$4,679,262 
Liabilities:
Other liabilities$— $— $24,000 $24,000 
Total liabilities categorized within the fair value hierarchy$— $— $24,000 $24,000 


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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
Level 3 Valuations
Other than as described below, see Note 3 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2021 report on Form 10-K for a summary description of the valuation methodologies used regarding securities in the Level 3 category, by security type.
Level 3 Valuation Methodologies
Residential mortgage-backed, other commercial mortgage-backed securities and other asset-backed securities consisted of securitizations of receivables valued using dealer quotes for similar securities or discounted cash flow models using yields currently available for similar securities. Similar securities are defined as securities of comparable credit quality that have like terms and payment features. Assessments of credit quality were based on NRSRO ratings, if available, or were subjectively determined by management if not available. At March 31, 2022, 100% of the securities were rated and the average rating was A. At December 31, 2021, 100% of the securities were rated and the average rating was BBB+.
Quantitative Information Regarding Level 3 Valuations
Below is a quantitative information regarding securities in the Level 3 category, by security type:
Fair Value at
($ in thousands)March 31, 2022December 31, 2021Valuation TechniqueUnobservable InputRange
(Weighted Average)
Assets:
Corporate debt, limited observable inputs$53,325$47,129Market Comparable
Securities		Comparability Adjustment
0% - 5% (2.5%)
Discounted Cash FlowsComparability Adjustment
0% - 5% (2.5%)
Residential mortgage-backed securities$572$297Market Comparable
Securities		Comparability Adjustment
0% - 5% (2.5%)
Discounted Cash FlowsComparability Adjustment
0% - 5% (2.5%)
Other commercial mortgage-backed securities$582$—Market Comparable
Securities		Comparability Adjustment
0% - 5% (2.5%)
Discounted Cash FlowsComparability Adjustment
0% - 5% (2.5%)
Other asset-backed securities$8,149$6,205Market Comparable
Securities		Comparability Adjustment
0% - 5% (2.5%)
Discounted Cash FlowsComparability Adjustment
0% - 5% (2.5%)
Equity investments$2,500$2,500Discounted Cash FlowsComparability Adjustment
0% - 10% (5%)
Other investments$3,440$1,434Discounted Cash FlowsComparability Adjustment
0% - 10% (5%)
Liabilities:
Other liabilities$24,000$24,000
Stochastic Model/Discounted Cash Flows
N/A
0% - 10% (8%)
The significant unobservable inputs used in the fair value measurement of the above listed securities were the valuations of comparable securities with similar issuers, credit quality and maturity. Changes in the availability of comparable securities could result in changes in the fair value measurements.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
Fair Value Measurements - Level 3 Assets
The following tables present summary information regarding changes in the fair value of assets measured using Level 3 inputs.
 March 31, 2022
 Level 3 Fair Value Measurements - Assets
(In thousands)Corporate DebtAsset-backed SecuritiesEquity InvestmentsOther InvestmentsTotal
Balance, December 31, 2021$47,129 $6,502 $2,500 $1,434 $57,565 
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income— 1 — — 1 
Net investment gains (losses)— — — 110 110 
Included in other comprehensive income(993)(260)— — (1,253)
Purchases9,711 5,585 — 1,483 16,779 
Sales(1,019)(5)— (116)(1,140)
Transfers in1,000 — — 529 1,529 
Transfers out(2,503)(2,520)— — (5,023)
Balance, March 31, 2022$53,325 $9,303 $2,500 $3,440 $68,568 
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end$— $— $— $64 $64 
 March 31, 2021
 Level 3 Fair Value Measurements – Assets
(In thousands)Corporate DebtAsset-backed SecuritiesOther InvestmentsTotal
Balance, December 31, 2020$3,265 $8,693 $— $11,958 
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income1 (2)— (1)
Net investment gains (losses)— (11)— (11)
Included in other comprehensive income20 (179)— (159)
Purchases4,875 7,357 — 12,232 
Sales(17)(304)— (321)
Transfers in858 — 2,152 3,010 
Transfers out(1,233)(6,241)— (7,474)
Balance, March 31, 2021$7,769 $9,313 $2,152 $19,234 
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end$— $— $— $— 
Fair Value Measurements - Level 3 Liabilities
There was no change in the fair value of the contingent consideration from the date of the NORCAL acquisition on May 5, 2021 to December 31, 2021 or March 31, 2022.

Transfers
Transfers shown in the preceding Level 3 tables were as of the end of the period in which the transfer occurred. All transfers were to or from Level 2.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
All transfers in and out of Level 3 during the three months ended March 31, 2022 and 2021 related to securities held for which the level of market activity for identical or nearly identical securities varies from period to period. The securities were valued using multiple observable inputs when those inputs were available; otherwise the securities were valued using limited observable inputs.
Fair Values Not Categorized
At March 31, 2022 and December 31, 2021, certain LPs/LLCs and investment funds measure fund assets at fair value on a recurring basis and provide a NAV for ProAssurance's interest. 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 March 31, 2022 and fair values of these investments as of March 31, 2022 and December 31, 2021 were as follows:
 Unfunded
Commitments		Fair Value
(In thousands)March 31,
2022		March 31,
2022		December 31,
2021
Investment in unconsolidated subsidiaries:
Private debt funds (1)
$4,515$17,674 $18,465 
Long/short equity funds (2)
None209 655 
Non-public equity funds (3)
$55,591158,286 160,219 
Credit funds (4)
$51,86845,174 47,300 
Strategy focused funds (5)
$28,24445,782 44,177 
Total investments carried at NAV$267,125 $270,816 
Below is additional information regarding each of the investments listed in the table above as of March 31, 2022.
(1)This investment is comprised of interests in two 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, while the other does 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.
(2)This investment holds primarily long and short North American equities and targets absolute returns using strategies designed to take advantage of market opportunities. Redemptions are permitted; however, 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.
(3)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, collateralized loan obligations 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 ten years.
(4)This investment is comprised of multiple 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 funds focus on private middle market company mezzanine and senior secured loans, opportunities across the credit spectrum, mortgage backed-loans, as well as various types of loan-backed investments. One fund allows redemptions at any quarter-end with prior notice requirements of 180 days, while two other funds allow for redemptions with consent of the General Partner. The remaining funds do not allow redemptions. For the funds that do not allow redemptions, income and capital are to be periodically distributed at the discretion of the LP over time frames throughout the remaining life of the funds.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
(5)This investment is comprised of multiple unrelated LPs/LLCs funds. One fund is an LLC focused on investing in North American consumer products companies, comprised of equity and equity-related securities, as well as debt instruments. A second fund is focused on aircraft investments, along with components and assets related to aircrafts. For both funds, redemptions are not permitted. Another fund is an 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.
ProAssurance may not sell, transfer or assign its interest in any of the above LPs/LLCs without special consent from the LPs/LLCs.
Nonrecurring Fair Value Measurement
ProAssurance did not have any assets or liabilities that were measured at fair value on a nonrecurring basis at March 31, 2022 or December 31, 2021.
Financial Instruments - Methodologies Other Than Fair Value
The following table provides the estimated fair value of the Company's financial instruments that, in accordance with GAAP for the type of investment, are measured using a methodology other than fair value. Fair values provided primarily fall within the Level 3 fair value category.
 March 31, 2022December 31, 2021
(In thousands)Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
Financial assets:
BOLI$80,879 $80,879 $81,767 $81,767 
Other investments$3,198 $3,198 $3,183 $3,183 
Other assets$33,029 $33,016 $40,581 $40,583 
Financial liabilities:
Senior notes due 2023*$250,000 $255,913 $250,000 $264,000 
Contribution Certificates$176,351 $161,533 $175,900 $179,892 
Other liabilities$31,446 $31,446 $52,332 $52,332 
* Carrying value excludes unamortized debt issuance costs.
The fair value of the BOLI was equal to the cash surrender value associated with the policies on the valuation date.
Other investments listed in the table above include FHLB common stock carried at cost and an annuity investment carried at amortized cost. Three of ProAssurance's insurance subsidiaries are members of an FHLB. The estimated fair value of the FHLB common stock was based on the amount the subsidiaries would receive if their memberships were canceled, as the memberships cannot be sold. The fair value of the annuity represents the present value of the expected future cash flows discounted using a rate available in active markets for similarly structured instruments.
Other assets and other liabilities primarily consisted of related investment assets and liabilities associated with funded deferred compensation agreements. The fair value of the funded deferred compensation assets was based upon quoted market prices, which is categorized as a Level 1 valuation, and had a fair value of $32.0 million and $39.5 million at March 31, 2022 and December 31, 2021, respectively. The fair value of the funded deferred compensation assets at December 31, 2021 included assets from a rabbi trust plan acquired in the NORCAL acquisition that was terminated during the three months ended March 31, 2022. The rabbi trust assets consisted entirely of cash equivalents and mutual funds and had a total fair value of $5.2 million as of December 31, 2021 (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K for additional information on the NORCAL acquisition). Other assets also included an unsecured note receivable. The fair value of the note receivable was based on the present value of expected cash flows from the note receivable, discounted at market rates on the valuation date for receivables with similar credit standings and similar payment structures. Other liabilities primarily consisted of liabilities associated with funded deferred compensation agreements. The reported balance is determined based on the amount of elective deferrals and employer contributions adjusted for periodic changes in the fair value of the participant balances based on the performance of the funds selected by the participants and had a fair value of $31.4 million and $52.3 million at March 31, 2022 and December 31, 2021, respectively. The fair value of the funded deferred compensation liabilities at December 31, 2021 included liabilities from deferred compensation arrangements assumed in the NORCAL acquisition that were terminated during the three months ended March 31, 2022 using the associated
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
rabbit trust assets and cash; the termination of these deferred compensation arrangements did not result in a gain or loss during the current period. The funded deferred compensation liabilities had a total fair value of $18.4 million as of December 31, 2021 (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K for additional information).
The fair value of the debt, excluding the Contribution Certificates, was estimated based on the present value of expected future cash outflows, discounted at rates available on the valuation date for similar debt issued by entities with a similar credit standing to ProAssurance.
The fair value of the Contribution Certificates was estimated based on a binomial option pricing model. The Contribution Certificates is a portion of the purchase consideration for the NORCAL acquisition and are issued to certain NORCAL policyholders in the conversion, and those instruments are an obligation of NORCAL Insurance Company, the successor of NORCAL Mutual Insurance Company (see Note 2 and Note 13 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K for further discussion of the terms of the Contribution Certificates).
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
3. Investments
Available-for-sale fixed maturities at March 31, 2022 and December 31, 2021 included the following:
March 31, 2022
(In thousands)Amortized
Cost		Gross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Fixed maturities, available-for-sale
U.S. Treasury obligations$237,899 $240 $12,463 $225,676 
U.S. Government-sponsored enterprise obligations17,650 15 932 16,733 
State and municipal bonds511,863 1,368 20,940 492,291 
Corporate debt1,955,390 4,593 89,727 1,870,256 
Residential mortgage-backed securities441,565 2,142 25,859 417,848 
Agency commercial mortgage-backed securities13,231 46 430 12,847 
Other commercial mortgage-backed securities232,924 471 10,013 223,382 
Other asset-backed securities451,052 2,065 11,329 441,788 
$3,861,574 $10,940 $171,693 $3,700,821 
 December 31, 2021
(In thousands)Amortized
Cost		Gross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Fixed maturities, available-for-sale
U.S. Treasury obligations$239,765 $1,166 $2,424 $238,507 
U.S. Government-sponsored enterprise obligations20,467 29 262 20,234 
State and municipal bonds511,750 9,620 2,174 519,196 
Corporate debt1,884,455 29,050 14,949 1,898,556 
Residential mortgage-backed securities455,438 4,254 5,751 453,941 
Agency commercial mortgage-backed securities13,909 294 62 14,141 
Other commercial mortgage-backed securities231,226 2,530 2,273 231,483 
Other asset-backed securities457,837 2,747 2,920 457,664 
$3,814,847 $49,690 $30,815 $3,833,722 

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
The recorded cost basis and estimated fair value of available-for-sale fixed maturities at March 31, 2022, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(In thousands)Amortized
Cost		Due in one
year or less		Due after
one year
through
five years		Due after
five years
through
ten years		Due after
ten years		Total Fair
Value
Fixed maturities, available-for-sale
U.S. Treasury obligations$237,899 $21,181 $128,387 $74,586 $1,522 $225,676 
U.S. Government-sponsored enterprise obligations17,650 1,798 11,029 3,774 132 16,733 
State and municipal bonds511,863 22,193 159,219 188,721 122,158 492,291 
Corporate debt1,955,390 141,092 848,525 774,223 106,416 1,870,256 
Residential mortgage-backed securities441,565 417,848 
Agency commercial mortgage-backed securities13,231 12,847 
Other commercial mortgage-backed securities232,924 223,382 
Other asset-backed securities451,052 441,788 
$3,861,574 $3,700,821 
Excluding obligations of the U.S. Government, U.S. Government-sponsored enterprises and a U.S. Government obligations money market fund, no investment in any entity or its affiliates exceeded 10% of shareholders’ equity at March 31, 2022.
Cash and securities with a carrying value of $54.5 million at March 31, 2022 were on deposit with various state insurance departments to meet regulatory requirements.
As a member of Lloyd's, ProAssurance is required to maintain capital at Lloyd's, referred to as FAL, to support underwriting by Syndicate 1729. At March 31, 2022, ProAssurance's FAL investments were comprised of available-for-sale fixed maturities with a fair value of $36.9 million and cash and cash equivalents of $0.1 million on deposit with Lloyd's in order to satisfy these FAL requirements.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
Investments Held in a Loss Position
The following tables provide summarized information with respect to investments held in an unrealized loss position at March 31, 2022 and December 31, 2021, including the length of time the investment had been held in a continuous unrealized loss position.
March 31, 2022
 TotalLess than 12 months12 months or longer
 FairUnrealizedFairUnrealizedFairUnrealized
(In thousands)ValueLossValueLossValueLoss
Fixed maturities, available-for-sale
U.S. Treasury obligations$208,608 $12,463 $195,658 $11,629 $12,950 $834 
U.S. Government-sponsored enterprise obligations16,601 932 12,835 599 3,766 333 
State and municipal bonds372,603 20,940 357,967 19,551 14,636 1,389 
Corporate debt1,437,296 89,727 1,292,183 75,597 145,113 14,130 
Residential mortgage-backed securities367,247 25,859 316,182 20,314 51,065 5,545 
Agency commercial mortgage-backed securities9,835 430 9,695 416 140 14 
Other commercial mortgage-backed securities204,736 10,013 194,654 9,310 10,082 703 
Other asset-backed securities375,684 11,329 360,024 10,477 15,660 852 
$2,992,610 $171,693 $2,739,198 $147,893 $253,412 $23,800 

December 31, 2021
 TotalLess than 12 months12 months or longer
 FairUnrealizedFairUnrealizedFairUnrealized
(In thousands)ValueLossValueLossValueLoss
Fixed maturities, available-for-sale
U.S. Treasury obligations$190,054 $2,424 $181,689 $2,206 $8,365 $218 
U.S. Government-sponsored enterprise obligations16,287 262 16,287 262 — — 
State and municipal bonds175,442 2,174 171,930 2,039 3,512 135 
Corporate debt945,196 14,949 866,731 11,828 78,465 3,121 
Residential mortgage-backed securities326,248 5,751 290,019 4,320 36,229 1,431 
Agency commercial mortgage-backed securities4,529 62 4,355 54 174 8 
Other commercial mortgage-backed securities151,827 2,273 145,467 1,884 6,360 389 
Other asset-backed securities278,915 2,920 271,463 2,796 7,452 124 
$2,088,498 $30,815 $1,947,941 $25,389 $140,557 $5,426 
As of March 31, 2022, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 2,504 debt securities (64.6% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 1,288 issuers. The greatest and second greatest unrealized loss positions among those securities were approximately $2.3 million and $2.0 million, respectively. The securities were evaluated for impairment as of March 31, 2022.
As of December 31, 2021, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 1,766 debt securities (45.8% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 998 issuers. The greatest and second greatest unrealized loss positions among those securities were each approximately $0.4 million. The securities were evaluated for impairment as of December 31, 2021.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
Each quarter, ProAssurance performs a detailed analysis for the purpose of assessing whether any of the securities it holds in an unrealized loss position has suffered an impairment due to credit or non-credit factors. A detailed discussion of the factors considered in the assessment is included in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K.
Fixed maturity securities held in an unrealized loss position at March 31, 2022, excluding asset-backed securities, have paid all scheduled contractual payments and are expected to continue. Expected future cash flows of asset-backed securities, excluding those issued by GNMA, FNMA and FHLMC, held in an unrealized loss position were estimated as part of the March 31, 2022 impairment evaluation using the most recently available six-month historical performance data for the collateral (loans) underlying the security or, if historical data was not available, sector based assumptions, and equaled or exceeded the current amortized cost basis of the security.
There was no allowance for expected credit losses for the three months ended March 31, 2022.
The following table presents a roll forward of the allowance for expected credit losses on available-for-sale fixed maturities for the three months ended March 31, 2021.
Three Months Ended March 31, 2021
(In thousands)Corporate DebtTotal
Balance, at December 31, 2020$552 $552 
Reductions related to:
Securities sold during the period(552)(552)
Balance, at March 31, 2021$— $— 
Other information regarding sales and purchases of fixed maturity available-for-sale securities is as follows:
Three Months Ended March 31
(In millions)20222021
Proceeds from sales (exclusive of maturities and paydowns)$63.5 $61.9 
Purchases$231.6 $342.2 
Equity Investments
ProAssurance's equity investments are carried at fair value with changes in fair value recognized in income as a component of net investment gains (losses) during the period of change. Equity investments on the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 primarily included bond funds and, to a lesser degree, stocks and investment funds.
Short-term Investments
ProAssurance's short-term investments, which have a maturity at purchase of one year or less, are primarily comprised of investments in U.S. treasury obligations, commercial paper and money market funds. Short-term investments are carried at fair value which approximates the cost of the securities due to their short-term nature.
BOLI
ProAssurance holds BOLI policies that are carried at the current cash surrender value of the policies (original cost $42 million), which includes the BOLI policies acquired from NORCAL (original cost $10 million). All insured individuals were members of ProAssurance or NORCAL management at the time the policies were acquired. The primary purpose of the program is to offset future employee benefit expenses through earnings on the cash value of the policies. ProAssurance is the owner and beneficiary of these policies.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
Net Investment Income
Net investment income (loss) by investment category was as follows:
Three Months Ended
March 31
(In thousands)20222021
Fixed maturities$21,544 $15,692 
Equities701 694 
Short-term investments, including Other426 273 
BOLI(47)444 
Investment fees and expenses(2,181)(2,086)
Net investment income$20,443 $15,017 
Investment in Unconsolidated Subsidiaries
ProAssurance's investment in unconsolidated subsidiaries were as follows:
 March 31, 2022Carrying Value
(In thousands)Percentage
Ownership		March 31,
2022		December 31,
2021
Qualified affordable housing project tax credit partnershipsSee below$10,036 $12,424 
All other investments, primarily investment fund LPs/LLCs
See below311,366 323,152 
$321,402 $335,576 
Qualified affordable housing project tax credit partnership interests held by ProAssurance generate investment returns by providing tax benefits to fund investors in the form of tax credits and project operating losses. The carrying value of these investments reflects ProAssurance's total commitments (both funded and unfunded) to the partnerships, less any amortization. At March 31, 2022, ProAssurance's ownership percentage relative to one of the tax credit partnership interests is almost 100%; this interest had a carrying value of $2.0 million. At December 31, 2021, ProAssurance's ownership percentage relative to two of the tax credit partnership interests was almost 100%; these interests had a carrying value of $3.2 million at December 31, 2021. ProAssurance's ownership percentage relative to the remaining tax credit partnership interests is less than 20%; these interests had a carrying value of $8.0 million at March 31, 2022 and $9.2 million at December 31, 2021. Since ProAssurance has the ability to exert influence over the partnerships but does not control them, all are accounted for using the equity method. See further discussion of the entities in which ProAssurance holds passive interests in Note 9.
ProAssurance holds interests in investment fund LPs/LLCs and other equity method investments and LPs/LLCs which are not considered to be investment funds. ProAssurance's ownership percentage relative to four of the LPs/LLCs is greater than 25%, which is expected to be reduced as the funds mature and other investors participate in the funds; these investments had a carrying value of $49.3 million at March 31, 2022 and $49.0 million at December 31, 2021. ProAssurance's ownership percentage relative to the remaining investments and LPs/LLCs is less than 25%; these interests had a carrying value of $262.1 million at March 31, 2022 and $274.2 million at December 31, 2021. ProAssurance does not have the ability to exert control over any of these funds.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Equity in earnings (loss) of unconsolidated subsidiaries included losses from qualified affordable housing project tax credit partnerships and a historic tax credit partnership. Investment results recorded reflect ProAssurance's allocable portion of partnership operating results. Tax credits reduce income tax expense in the period they are utilized. The results recorded and tax credits recognized related to ProAssurance's tax credit partnership investments were as follows:
Three Months Ended
March 31
(In thousands)20222021
Qualified affordable housing project tax credit partnerships
Losses recorded$2,388 $3,368 
Tax credits recognized$1,205 $3,324 
Historic tax credit partnership*
Losses (gains) recorded$— $(182)
Tax credits recognized$— $50 
*ProAssurance holds a historic tax credit partnership which was fully amortized in 2020. This partnership generated investment returns by providing benefits to fund investors in the form of tax credits, tax deductible project operating losses and positive cash flows. ProAssurance received a distribution associated with this investment during the first quarter of 2021, as a result of positive cash flows from a completed project, which was recognized as an operating gain.
The tax credits generated from the Company's tax credit partnership investments of $1.2 million for the three months ended March 31, 2022 were deferred for use in future periods due to the Company's expected consolidated loss calculated on a tax basis. For the three months ended March 31, 2021 the tax credits generated from the Company's tax credit partnership investments of $3.4 million were deferred and are expected to be utilized in future periods. Not included in the table above is $2.0 million of tax credits recaptured from 2019 during the three months ended March 31, 2022 due to the carryback of the Company's estimated NOL for the three months ended March 31, 2022 to the 2021 tax year. The recaptured tax credits were earned in 2019 but not utilized until 2021 due to NOL's generated in both 2019 and 2020. As of March 31, 2022, the Company had approximately $49.9 million of available tax credit carryforwards generated from its investments in tax credit partnerships which they expect to utilize in future periods.
Tax credits provided by the underlying projects of the Company's historic tax credit partnership are typically available in the tax year in which the project is put into active service, whereas the tax credits provided by qualified affordable housing project tax credit partnerships are provided over approximately a ten year period.
Significant Equity Method Investees
As previously discussed, ProAssurance holds certain investments that are measured using the equity method of accounting, primarily investments in LPs/LLCs, which are carried as a part of Investment in Unconsolidated Subsidiaries on the Condensed Consolidated Balance Sheets. Each quarter, ProAssurance assesses the significance of its equity method investees. As of March 31, 2022 ProAssurance determined one equity method investee, Prime Storage Fund II, LP, to be significant. This fund invests primarily in self-storage real estate. As of March 31, 2021, ProAssurance determined one equity method investee, NB Private Equity Credit Opportunities Fund LP, to be significant. NB Private Equity Credit Opportunities Fund LP fund invests primarily in senior/junior debt instruments of private equity backed companies, including secured and unsecured loans, bonds and other instruments. The following table presents gross summarized financial information for significant funds, including the portion not attributable to ProAssurance, derived from the fund's financial statements which are prepared in accordance with GAAP. As the majority of ProAssurance's equity method investments report their results to the Company on a one quarter lag, the summarized financial information below is for the three months ended December 31, 2021 and 2020, respectively.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
(In thousands)Three Months Ended March 31, 2022
Three Months Ended March 31, 2021
Prime Storage Fund II LP
NB Private Equity Credit Opportunities Fund LP
Net investment income$28,691 $40,636 
Net investment gains (losses)22,438 14,587 
Net change in unrealized appreciation (depreciation)235,525 61,777 
Net gain (loss)$286,654 $117,000 
Net gain (loss) attributable to ProAssurance*$1,457 $2,056 
*Represents ProAssurance's share of the fund's aggregate income or loss, which is included as a component of equity in earnings (loss) of unconsolidated subsidiaries in its Condensed Consolidated Statement of Income and Comprehensive Income for the three months ended March 31, 2022 and 2021.
Net Investment Gains (Losses)
Realized investment gains and losses are recognized on the first-in, first-out basis. The following table provides detailed information regarding net investment gains (losses):
Three Months Ended
March 31
(In thousands)20222021
Gross realized gains, available-for-sale fixed maturities$1,187 $4,294 
Gross realized (losses), available-for-sale fixed maturities(1,124)(187)
Net realized gains (losses), trading fixed maturities(75)72 
Net realized gains (losses), equity investments(220)4,189 
Net realized gains (losses), other investments650 3,196 
Change in unrealized holding gains (losses), trading fixed maturities (326)(214)
Change in unrealized holding gains (losses), equity investments(11,485)(2,937)
Change in unrealized holding gains (losses), convertible securities, carried at fair value (2,476)(190)
Other363 626 
Net investment gains (losses)$(13,506)$8,849 
For the three months ended March 31, 2022 and 2021, ProAssurance did not recognize any credit-related impairment losses in earnings or non-credit impairment losses in OCI.
The following table presents a roll forward of cumulative credit losses recorded in earnings related to impaired debt securities for which a portion of the impairment was recorded in OCI.
Three Months Ended
March 31
(In thousands)20222021
Balance beginning of period$— $552 
Reductions due to:
Securities sold during the period (realized)— (552)
Balance March 31$— $— 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
4. Income Taxes
For interim periods, ProAssurance generally utilizes the estimated annual effective tax rate method under which the Company determines its provision (benefit) for income taxes based on the current estimate of its annual effective tax rate. For the three months ended March 31, 2022, ProAssurance utilized the discrete effective tax rate method for recording income taxes after the estimated annual effective tax rate method produced an unreliable estimated effective annual tax rate. The discrete method is applied when the application of the estimated annual effective tax rate method is impractical and does not provide a reliable estimate of the annual effective tax rate. The Company believes the use of the discrete effective tax rate method is more appropriate than the annual effective tax rate method for the three months ended March 31, 2022 as minor changes in the Company's estimated ordinary income would have a significant effect on the estimated annual effective tax rate and would result in sizable variations in the customary relationship between income tax expense (benefit) and pre-tax accounting income (loss). ProAssurance will reevaluate its use of this method each quarter until the Company believes a return to the estimated annual effective tax rate method is deemed appropriate. For the three months ended March 31, 2021, ProAssurance utilized the estimated annual effective tax rate method. Under the estimated annual effective tax rate method, items which are unusual, infrequent, or that cannot be reliably estimated are considered in the effective tax rate in the period in which the item is included in income, and are referred to as discrete items. In calculating the Company's year-to-date income tax expense (benefit) under the estimated annual effective tax rate method, it includes the estimated benefit of tax credits for the year-to-date period based on the most recently available information provided by the tax credit partnerships; the actual amounts of credits provided by the tax credit partnerships may prove to be different than our estimates. The effect of such a difference is recognized in the period identified.
For the three months ended March 31, 2022, the provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes primarily because ProAssurance recognizes tax credit benefits transferred from tax credit partnership investments. In calculating the Company's year-to-date income tax expense (benefit), the Company included the estimated benefit of tax credits for the year-to-date period based on the most recently available information provided by the tax credit partnerships; the actual amounts of credits provided by the tax credit partnerships may prove to be different than the Company's estimates. The effect of such a difference is recognized in the period identified.
ProAssurance had a receivable for U.S. federal and U.K. income taxes carried as a part of other assets as of March 31, 2022 and December 31, 2021 of $7.9 million in each period. At March 31, 2022 and December 31, 2021, the liability for unrecognized tax benefits, which is included in the total receivable for U.S. federal and U.K. income taxes, was $3.4 million in each period which included an accrued liability for interest of approximately $0.4 million in each period.
NORCAL Acquisition
As a result of the NORCAL acquisition, ProAssurance has U.S. federal NOL carryforwards which as of March 31, 2022 were approximately $43.0 million and will begin to expire in 2035. See Note 7 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K for more information.
Coronavirus Aid, Relief and Economic Security Act
In response to COVID-19, the CARES Act was signed into law on March 27, 2020 and contains several provisions for corporations and eased certain deduction limitations originally imposed by the TCJA. See further discussion in Note 7 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K. As a result of the CARES Act, ProAssurance was permitted to carryback NOLs generated in tax years 2019 and 2020 for up to five years. ProAssurance generated an NOL of approximately $33.3 million from the 2020 tax year that was carried back to the 2015 tax year which resulted in a claim for a refund of approximately $11.7 million.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
5. Reserve for Losses and Loss Adjustment Expenses
The reserve for losses is established based on estimates of individual claims and actuarially determined estimates of future losses based on ProAssurance’s past loss experience, available industry data and projections as to future claims frequency, severity, inflationary trends and settlement patterns. Estimating the reserve, particularly the reserve appropriate for liability exposures, is a complex process. For a high proportion of the risks insured or reinsured by ProAssurance, claims may be resolved over an extended period of time, often five years or more, and may be subject to litigation. Estimating losses requires ProAssurance to make and revise judgments and assessments regarding multiple uncertainties over an extended period of time. As a result, the reserve estimate may vary considerably from the eventual outcome. The assumptions used in establishing ProAssurance’s reserve are regularly reviewed and updated by management as new data becomes available. Changes to estimates of previously established reserves are included in earnings in the period in which the estimate is changed. For additional information regarding ProAssurance's reserve for losses, see Note 1 and Note 10 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2021 report on Form 10-K.
Activity in the reserve for losses and loss adjustment expenses is summarized as follows:
(In thousands)Three Months Ended March 31, 2022Three Months Ended March 31, 2021Year Ended December 31, 2021
Balance, beginning of year$3,579,940 $2,417,179 $2,417,179 
Less reinsurance recoverables on unpaid losses and loss adjustment expenses451,741 385,087 385,087 
Net balance, beginning of year3,128,199 2,032,092 2,032,092 
Net reserves acquired from NORCAL acquisition— — 1,089,103 
Net losses:
Current year(1)
214,753 154,634 797,732 
Favorable development of reserves established in prior years, net(2)
(5,330)(4,849)(45,483)
Total209,423 149,785 752,249 
Paid related to:
Current year(13,179)(10,513)(109,925)
Prior years(185,977)(126,534)(635,320)
Total paid(199,156)(137,047)(745,245)
Net balance, end of period3,138,466 2,044,830 3,128,199 
Plus reinsurance recoverables on unpaid losses and loss adjustment expenses464,780 393,420 451,741 
Balance, end of period$3,603,246 $2,438,250 $3,579,940 
(1) Current year net losses for the three months ended March 31, 2022 and year ended December 31, 2021 included $2.5 million and $6.7 million, respectively, of amortization of the negative VOBA associated with NORCAL's assumed unearned premium, which is being amortized over a period in proportion to the earn-out of the associated premium as a reduction to current accident year net losses (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K).
(2) Net favorable prior year reserve development recognized for the three months ended March 31, 2022 and year ended December 31, 2021 included $2.9 million and $7.9 million, respectively, of amortization of the purchase accounting fair value adjustment on NORCAL's assumed net reserve and amortization of the negative VOBA associated with NORCAL's DDR reserve which is recorded as a reduction to prior accident year net losses and loss adjustment expenses (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K). ProAssurance has not recognized any development related to NORCAL's prior accident year reserves since the date of acquisition on May 5, 2021.
Estimating liability reserves is complex and requires the use of many assumptions. As time passes and ultimate losses for prior years are either known or become subject to a more precise estimation, ProAssurance increases or decreases the reserve estimates established in prior periods. The net favorable loss development recognized in the three months ended March 31, 2022 primarily reflected overall favorable trends in claim closing patterns in the Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments. The net favorable loss development recognized in the Workers' Compensation
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
Insurance segment is primarily related to the 2019 accident year and prior. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment is primarily related to the 2019 and 2020 accident years. Net favorable development recognized during the three months ended March 31, 2022 was net of an increase in the Company's reserve for potential ECO/XPL claims of $4.0 million in the Specialty P&C segment. Excluding the increase in the ECO/XPL reserve and amortization of purchase accounting adjustments (see footnote 2 in the table above), ProAssurance recognized net favorable prior accident year reserve development of $5.0 million in the Specialty P&C segment, principally related to accident years 2019 through 2021. Consolidated net favorable loss development recognized in the three months ended March 31, 2022 was partially offset by unfavorable reserve development recognized in the Lloyd's Syndicates segment driven by certain catastrophe related losses.
The net favorable loss development recognized in the three months ended March 31, 2021 primarily reflected a lower than anticipated claims severity trend (i.e., the average size of a claim) in the Specialty P&C segment, primarily related to the 2017 and 2018 accident years. The net favorable development also reflected overall favorable trends in claim closing patterns in the Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments. The net favorable loss development recognized in the Workers' Compensation Insurance segment is primarily related to the 2017 accident year and prior. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment is primarily related to the 2018 and 2019 accident years. Consolidated net favorable loss development recognized in the three months ended March 31, 2021 was partially offset by unfavorable reserve development recognized in the Lloyd's Syndicates segment driven by certain property and catastrophe related losses.
The net favorable loss development recognized for the year ended December 31, 2021 primarily reflected a lower than anticipated loss emergence in the Specialty P&C segment, primarily related to the 2015 through 2020 accident years. ProAssurance did not recognize any development related to NORCAL's prior accident year reserves in 2021. Net favorable prior accident year reserve development recognized in the Specialty P&C segment also included a $1.0 million reduction in our IBNR reserve for COVID-19 during the third quarter of 2021. The net favorable development also reflected overall favorable trends in claim closing patterns in the Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments. The net favorable loss development recognized in the Workers' Compensation Insurance segment is primarily related to the 2012 through 2017 accident years. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment is primarily related to accident year 2015 and accident years 2018 through 2020. Consolidated net favorable loss development recognized in 2021 was partially offset by unfavorable reserve development recognized in the Lloyd's Syndicates segment driven by certain catastrophe related losses.
6. Commitments and Contingencies
ProAssurance is involved in various legal actions related to insurance policies and claims handling including, but not limited to, claims asserted by policyholders. These types of legal actions arise in the Company's ordinary course of business and, in accordance with GAAP for insurance entities, are considered as a part of the Company's loss reserving process, which is described in detail under the heading "Losses and Loss Adjustment Expenses" in the Accounting Policies section in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K. ProAssurance also has other direct actions against the Company unrelated to its claims activity which are evaluated and accounted for as a part of other liabilities. For these corporate legal actions, the Company evaluates each case separately and establishes what it believes is an appropriate reserve based on GAAP guidance related to contingent liabilities. As of March 31, 2022, there were no material reserves established for corporate legal actions.
As a member of Lloyd's, ProAssurance has obligations to Syndicate 1729 including a Syndicate Credit Agreement and FAL requirements. The Syndicate Credit Agreement is an unconditional revolving credit agreement to the Premium Trust Fund of Syndicate 1729 for the purpose of providing working capital. At March 31, 2022, the maximum permitted borrowings under the Syndicate Credit Agreement were approximately £30.0 million (approximately $39.4 million at March 31, 2022). Effective July 1, 2022, maximum permitted borrowings will be reduced to £15.0 million (approximately $19.7 million at March 31, 2022) from £30.0 million under an amended Syndicate Credit Agreement executed in January 2022. The amended Syndicate Credit Agreement has a maturity date of June 30, 2023 and contains an annual auto-renewal feature which allows for ProAssurance to elect to non-renew if notice is given at least 30 days prior to the next auto-renewal date, which is one year prior to the maturity date. Under the Syndicate Credit Agreement, advances bear interest at 3.8% annually and may be repaid at any time but are repayable upon demand after June 30, 2023, subject to extension through the auto-renewal feature. As of March 31, 2022, there were no outstanding borrowings under the Syndicate Credit Agreement. ProAssurance provides FAL to support underwriting by Syndicate 1729 which is comprised of investment securities and cash and cash equivalents deposited with Lloyd's with a total fair value of approximately $37.0 million at March 31, 2022 (see Note 3).
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Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
ProAssurance has entered into financial instrument transactions that may present off-balance sheet credit risk or market risk. These transactions include a short-term loan commitment and commitments to provide funding to non-public investment entities. Under the short-term loan commitment, ProAssurance has agreed to advance funds on a 30 day basis to a counterparty provided there is no violation of any condition established in the contract. As of March 31, 2022, ProAssurance had total funding commitments related to non-public investment entities as well as the short-term loan commitment of approximately $234.2 million which included the amount at risk if the full short-term loan is extended and the counterparties default. However, the credit risk associated with the short-term loan commitment is minimal as the counterparties to the contract are highly rated commercial institutions and to-date have been performing in accordance with their contractual obligations. ProAssurance’s expected credit losses associated with this short-term loan commitment were nominal in amount as of March 31, 2022.
ProAssurance has previously entered into a services agreement with a company to provide data analytics services for certain product lines within the Company's HCPL book of business. In November 2021, ProAssurance executed an amendment to this services agreement which extended the Company's commitment an additional three years for an annual fee of approximately $3.5 million. In addition, the amended services agreement contains an annual one-year auto-extension feature unless either party elects to non-renew the services agreement by providing notice at least six-months prior to the end of the contract. ProAssurance incurred operating expenses associated with this services agreement of $0.9 million and $0.6 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the remaining commitment under this agreement was estimated to be approximately $9.0 million.
The purchase consideration in the NORCAL acquisition included contingent consideration. NORCAL policyholders who elected to receive NORCAL stock and tender it to ProAssurance are eligible for a share of contingent consideration in an amount of up to approximately $84 million depending upon the after-tax development of NORCAL's ultimate net losses between December 31, 2020 and December 31, 2023. The estimated fair value of this contingent consideration was $24 million as of March 31, 2022, which is unchanged from the acquisition date of May 5, 2021, and was derived utilizing a stochastic model. This estimate does not guarantee that contingent consideration will ultimately be paid. Depending on NORCAL's actual ultimate net loss development between December 31, 2020 and December 31, 2023, the actual amount due to eligible policyholders may be greater than or less than the $24 million current fair value estimate. See further discussion around the contingent consideration in Note 2 and further discussion on the NORCAL acquisition in Note 2 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2021 report on Form 10-K.
7. Debt
ProAssurance’s outstanding debt consisted of the following:
($ in thousands)March 31,
2022		December 31,
2021
Senior Notes due 2023, unsecured, interest at 5.3% annually
$250,000 $250,000 
Contribution Certificates due 2031, interest at 3.0% (effective interest rate at 4.35%) paid annually beginning April 2022
176,351 175,900 
Total principal426,351 425,900 
Less unamortized debt issuance costs821 914 
Debt less unamortized debt issuance costs$425,530 $424,986 
Revolving Credit Agreement
ProAssurance has a Revolving Credit Agreement with seven participating lenders. The Revolving Credit Agreement, which expires November 2024 may be used for general corporate purposes, including, but not limited to, short-term working capital, share repurchases as authorized by the Board and support for other activities. ProAssurance's Revolving Credit Agreement permits borrowings up to $250 million, and has available a $50 million accordion feature which, if successfully subscribed, would expand the permitted borrowings to a maximum of $300 million. As of March 31, 2022 and December 31, 2021, there were no outstanding borrowings on the Revolving Credit Agreement.
Covenant Compliance
There are no financial covenants associated with the Senior Notes or the Contribution Certificates due 2023 and 2031, respectively.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
The Revolving Credit Agreement contains customary representations, covenants and events constituting default, and remedies for default. The Revolving Credit Agreement also defines financial covenants regarding permitted leverage ratios. ProAssurance is currently in compliance with all covenants of the Revolving Credit Agreement.
Additional Information
For additional information regarding ProAssurance's debt, see Note 13 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2021 report on Form 10-K.
8. Shareholders’ Equity
At March 31, 2022 and December 31, 2021, ProAssurance had 100 million shares of authorized common stock and 50 million shares of authorized preferred stock. The Board has the authority to determine provisions for the issuance of preferred shares, including the number of shares to be issued, the designations, powers, preferences and rights, and the qualifications, limitations or restrictions of such shares.
ProAssurance declared cash dividends of $0.05 per share during the first quarter of both 2022 and 2021. Dividends declared during the 2022 and 2021 three-month periods totaled $2.7 million in each period. Any decision to pay future cash dividends is subject to the Board’s final determination after a comprehensive review of financial performance, future expectations and other factors deemed relevant by the Board. See Note 14 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K for additional information.
At March 31, 2022, Board authorizations for the repurchase of common shares or the retirement of outstanding debt of $110 million remained available for use. ProAssurance did not repurchase any common shares during the three months ended March 31, 2022 or 2021.
Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)
The following tables provide a detailed breakout of the components of AOCI and the amounts reclassified from AOCI to net income (loss). The tax effects of all amounts in the tables below, except for an immaterial amount of unrealized gains and losses on available-for-sale securities held at the Company's U.K. subsidiary, were computed using the enacted U.S. federal corporate tax rate of 21%. OCI included a deferred tax benefit of $38.2 million and $8.3 million for the three months ended March 31, 2022 and 2021, respectively.
The changes in the balance of each component of AOCI for the three months ended March 31, 2022 and 2021 were as follows:
(In thousands)Unrealized Investment Gains (Losses)Unrecognized Change in Defined Benefit and Post Retirement LiabilitiesAccumulated Other Comprehensive Income (Loss)
Balance, December 31, 2021$14,929 $1,355 $16,284 
OCI, before reclassifications, net of tax(140,808)— (140,808)
Amounts reclassified from AOCI, net of tax(28)(14)(42)
Net OCI, current period(140,836)(14)(140,850)
Balance, March 31, 2022$(125,907)$1,341 $(124,566)

(In thousands)Unrealized Investment Gains (Losses)Non-credit Impairments
Unrecognized Change in Defined Benefit Plan Liabilities(1)
Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2020$75,388 $(57)$(104)$75,227 
OCI, before reclassifications, net of tax(30,415)— — (30,415)
Amounts reclassified from AOCI, net of tax(3,347)57 — (3,290)
Net OCI, current period(33,762)57 — (33,705)
Balance, March 31, 2021$41,626 $— $(104)$41,522 
(1)For three months ended March 31, 2021, amounts represent the re-estimation of the defined benefit plan liability assumed in the Eastern acquisition. The defined benefit plan was frozen as to the earnings of additional benefits and the benefit plan liability was reestimated annually. The Company terminated Eastern's defined benefit plan during the third quarter of 2021.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
9. Variable Interest Entities
ProAssurance holds passive interests in a number of entities that are considered to be VIEs under GAAP guidance. ProAssurance's VIE interests principally consist of interests in LPs/LLCs formed for the purpose of achieving diversified equity and debt returns. ProAssurance's VIE interests, carried as a part of investment in unconsolidated subsidiaries, totaled $291.4 million at March 31, 2022 and $303.7 million at December 31, 2021. ProAssurance does not have power over the activities that most significantly impact the economic performance of these VIEs and thus is not the primary beneficiary. Investments in entities where ProAssurance holds a greater than minor interest but does not hold a controlling interest are accounted for using the equity method. Therefore, ProAssurance has not consolidated these VIEs. ProAssurance’s involvement with each of these VIEs is limited to its direct ownership interest in the VIE. Except for the funding commitments disclosed in Note 6, ProAssurance has no arrangements with any of these VIEs to provide other financial support to or on behalf of the VIE. At March 31, 2022, ProAssurance’s maximum loss exposure relative to these investments was limited to the carrying value of ProAssurance’s investment in the VIE.
As a result of the Company's acquisition of NORCAL (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K), ProAssurance is the primary beneficiary of PPM RRG. While there is no direct ownership of PPM RRG by ProAssurance, it manages the business operations of PPM RRG through its management services agreement and has effective control of the PPM RRG's Board of Directors through an irrevocable voting proxy. The management services agreement allows ProAssurance to provide management and oversight services to the RRG, which includes the ability to make business decisions impacting the operations of PPM RRG. PPM RRG has a $5 million surplus note to NORCAL which is its only source of capital. ProAssurance has consolidated the account balances and transactions of PPM RRG beginning on the NORCAL acquisition date of May 5, 2021. At March 31, 2022, approximately $141 million of ProAssurance's assets and approximately $141 million of its liabilities included on the Condensed Consolidated Balance Sheet were related to PPM RRG.
10. Earnings (Loss) Per Share
Diluted weighted average shares is calculated as basic weighted average shares plus the effect, calculated using the treasury stock method, of assuming that restricted share units and performance share units have vested. The following table provides a reconciliation between the Company's basic weighted average number of common shares outstanding to its diluted weighted average number of common shares outstanding:
(In thousands, except per share data)
Three Months Ended
March 31
20222021
Weighted average number of common shares outstanding, basic54,012 53,918 
Dilutive effect of securities:
Restricted Share Units114 76 
Performance Share Units17 4 
Weighted average number of common shares outstanding, diluted54,143 53,998 
Effect of dilutive shares on earnings (loss) per share$— $— 
Dilutive common share equivalents are reflected in the earnings (loss) per share calculation while antidilutive common share equivalents are not reflected in the earnings (loss) per share calculation. For the three months ended March 31, 2022, all incremental common share equivalents were not included in the computation of diluted earnings (loss) per share because to do so would have been antidilutive for the period. There were no antidilutive common share equivalents for the three months ended March 31, 2021.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
11. Segment Information
ProAssurance's segments are based on the Company's internal management reporting structure for which financial results are regularly evaluated by the Company's CODM to determine resource allocation and assess operating performance. The Company continually assesses its internal management reporting structure and information evaluated by its CODM to determine whether any changes have occurred that would impact its segment reporting structure.
The Company operates in five segments that are organized around the nature of the products and services provided: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance, Lloyd's Syndicates and Corporate. Additional information regarding ProAssurance's segments is included in Note 18 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2021 report on Form 10-K. A description of each of ProAssurance's five operating and reportable segments follows.
•Specialty P&C includes professional liability insurance and medical technology liability insurance.
•Workers' Compensation Insurance includes workers' compensation insurance products which are provided primarily to employers with 1,000 or fewer employees.
•Segregated Portfolio Cell Reinsurance includes the results (underwriting profit or loss, plus investment results, net of U.S. federal income taxes) of SPCs at Inova Re and Eastern Re, the Company's Cayman Islands SPC operations.
•Lloyd's Syndicates includes the results from ProAssurance's participation in Lloyd's of London Syndicate 1729 and Syndicate 6131. ProAssurance's participation in the results of Syndicate 1729 for the 2022 underwriting year remains unchanged from the 2021 underwriting year at 5%. Effective January 1, 2022, Syndicate 6131 ceased underwriting on a quota share basis with Syndicate 1729 as Syndicate 6131's applicable business is retained within Syndicate 1729 beginning with the 2022 year of account. Due to the quarter lag, the Company's ceased participation in Syndicate 6131 will not be reflected in the Company's results until the second quarter of 2022.
•Corporate includes ProAssurance's investment operations and excludes those reported in the Company's Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments. In addition, this segment includes corporate expenses, interest expense. U.S. income taxes and non-premium revenues generated outside of the Company's insurance entities.
The accounting policies of the segments are described in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2021 report on Form 10-K. ProAssurance evaluates the performance of its Specialty P&C and Workers' Compensation Insurance segments based on before tax underwriting profit or loss. ProAssurance evaluates the performance of its Segregated Portfolio Cell Reinsurance segment based on operating profit or loss, which includes investment results of investment assets solely allocated to SPC operations, net of U.S. federal income taxes. Performance of the Lloyd's Syndicates segment is evaluated based on operating profit or loss, which includes investment results of investment assets solely allocated to Lloyd's Syndicate operations, net of U.K. income tax expense. Performance of the Corporate segment is evaluated based on the contribution made to consolidated after-tax results. ProAssurance accounts for inter-segment transactions as if the transactions were to third parties at current market prices. Assets are not allocated to segments because investments, other than the investments discussed above that are solely allocated to the Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments, and other assets are not managed at the segment level. The tabular information that follows shows the financial results of the Company's reportable segments reconciled to results reflected in the Condensed Consolidated Statements of Income and Comprehensive Income. Beginning in the second quarter of 2021, transaction-related costs rose to a significant level; therefore, management determined that transaction-related costs will not be included in a segment on a prospective basis beginning in the second quarter of 2021 as ProAssurance does not consider these costs in assessing the financial performance of any of its operating or reportable segments. As a result, transaction-related costs are included in the reconciliation of segment results to consolidated results for the three months ended March 31, 2022.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
Financial results by segment were as follows:
Three Months Ended March 31, 2022
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell Reinsurance Lloyd's SyndicatesCorporateInter-segment EliminationsConsolidated
Net premiums earned
$197,967 $40,684 $19,314 $7,746 $— $— $265,711 
Net investment income
— — 112 211 20,120 — 20,443 
Equity in earnings (loss) of unconsolidated subsidiaries
— — — — 7,620 — 7,620 
Net investment gains (losses)— — (711)(399)(12,396)— (13,506)
Other income (expense)(1)
1,019 682 1 134 2,065 (1,097)2,804 
Net losses and loss adjustment expenses(2)
(165,958)(27,211)(11,491)(4,763)— — (209,423)
Underwriting, policy acquisition and operating expenses(1)(2)
(42,878)(13,001)(4,369)(2,709)(8,739)1,097 (70,599)
SPC U.S. federal income tax expense(3)
— — (642)— — — (642)
SPC dividend (expense) income
— — (2,367)— — — (2,367)
Interest expense
— — — — (4,441)— (4,441)
Income tax benefit (expense)
— — — — 1,770 — 1,770 
Segment results
$(9,850)$1,154 $(153)$220 $5,999 $— (2,630)
Reconciliation of segments to consolidated results:
Transaction-related costs, net(4)
(930)
Net income (loss)$(3,560)
Significant non-cash items:
Depreciation and amortization, net of accretion$2,592 $874 $370 $14 $6,500 $— $10,350 
Three Months Ended March 31, 2021
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell Reinsurance Lloyd's SyndicatesCorporateInter-segment EliminationsConsolidated
Net premiums earned$115,613 $40,011 $15,884 $15,850 $— $— $187,358 
Net investment income— — 221 729 14,067 — 15,017 
Equity in earnings (loss) of unconsolidated subsidiaries— — — — 6,788 — 6,788 
Net investment gains (losses)— — 987 (115)7,977 — 8,849 
Other income (expense)(1)
469 392 1 221 1,894 (972)2,005 
Net losses and loss adjustment expenses
(101,186)(26,207)(9,425)(12,967)— — (149,785)
Underwriting, policy acquisition and operating expenses(1)
(26,346)(12,286)(5,025)(6,591)(7,175)972 (56,451)
SPC U.S. federal income tax expense(3)
— — (356)— — — (356)
SPC dividend (expense) income
— — (1,742)— — — (1,742)
Interest expense
— — — — (3,212)— (3,212)
Income tax benefit (expense)
— — — — (736)— (736)
Segment results
$(11,450)$1,910 $545 $(2,873)$19,603 $— 7,735 
Net income (loss)$7,735 
Significant non-cash items:
Depreciation and amortization, net of accretion$2,171 $903 $316 $15 $3,317 $— $6,722 
(1) Certain fees for services provided to the SPCs at Inova Re and Eastern Re are recorded as expenses within the Segregated Portfolio Cell Reinsurance segment and as other income within the Workers' Compensation Insurance segment. These fees are primarily SPC rental fees and are eliminated between segments in consolidation.
(2) During the first quarter of 2022, ProAssurance revised its estimate of ULAE as a result of substantially integrating NORCAL into the Specialty P&C segment operations. The change in the Company's estimate of ULAE increased underwriting, policy acquisition and operating expenses with an offsetting decrease to net losses and loss adjustment expenses in the Specialty P&C segment; there was no impact on segment results for the three months ended March 31, 2022. See further discussion on this change in estimate in Note 1.
(3) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
(4) Represents the transaction-related costs, after-tax, associated with the acquisition of NORCAL. Pre-tax transaction-related costs of approximately $1.2 million were included as a component of consolidated operating expense and the associated income tax benefit of approximately $0.3 million were included as a component of consolidated income tax benefit (expense) on the Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2022.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022

The following table provides detailed information regarding ProAssurance's gross premiums earned by product as well as a reconciliation to net premiums earned. All gross premiums earned are from external customers except as noted. ProAssurance's insured risks are primarily within the U.S.
Three Months Ended March 31
(In thousands)20222021
Specialty P&C Segment
Gross premiums earned:
HCPL$175,547 $97,045 
Small Business Unit
26,538 25,925 
Medical Technology Liability
10,000 8,938 
Other194 152 
Ceded premiums earned(14,312)(16,447)
Segment net premiums earned197,967 115,613 
Workers' Compensation Insurance Segment
Gross premiums earned:
Traditional business43,156 41,743 
Alternative market business
17,878 16,889 
Ceded premiums earned(20,350)(18,621)
Segment net premiums earned40,684 40,011 
Segregated Portfolio Cell Reinsurance Segment
Gross premiums earned:
Workers' compensation(1)
17,178 16,115 
HCPL(2)
4,486 1,852 
Ceded premiums earned(2,350)(2,083)
Segment net premiums earned19,314 15,884 
Lloyd's Syndicates Segment
Gross premiums earned:
Property and casualty9,232 20,385 
Ceded premiums earned(1,486)(4,535)
Segment net premiums earned7,746 15,850 
Consolidated net premiums earned$265,711 $187,358 
(1) Premium for all periods is assumed from the Workers' Compensation Insurance segment.
(2) Premium for all periods is assumed from the Specialty P&C segment.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2022
12. Benefit Plans
ProAssurance assumed a defined benefit pension plan on May 5, 2021 as a result of its acquisition of NORCAL, which covers substantially all NORCAL employees (except those that were previous employees of Medicus Insurance Company and FD Insurance Company, employees of PPM RRG as well as new hires after December 31, 2013). Benefits are based on years of service and the employee’s average of the highest five years of annual compensation. Annual contributions to the defined benefit pension plan are not less than the minimum funding standards outlined in the Employee Retirement Income Security Act of 1974, as amended. ProAssurance makes contributions to the defined benefit pension plan with the goal of ensuring that it is adequately funded to meet its future obligations. ProAssurance did not make any contributions to the pension plan during the three months ended March 31, 2022 and does not anticipate making any contributions for the remainder of 2022. The defined benefit pension plan no longer has future service accruals or compensation increases because this plan was frozen effective December 31, 2015. See Notes 2 and 19 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K for more information regarding ProAssurance's acquisition of NORCAL and defined benefit pension plan, respectively.
The components of the net periodic benefit cost (income) for the three months ended March 31, 2022 were as follows:
($ in thousands)Three Months Ended March 31, 2022
Components of net periodic benefit cost (income):
Interest cost$711 
Expected return on Plan assets(989)
Total net periodic benefit cost (income)*$(278)
*Net periodic benefit cost (income) is included as a component of operating expense on the Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2022.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes to those statements which accompany this report. Throughout the discussion we use certain terms and abbreviations, which can be found in the Glossary of Terms and Acronyms at the beginning of this report. In addition, a glossary of insurance terms and phrases is available on the investor section of our website. Throughout the discussion, references to "ProAssurance," "PRA," "Company," "we," "us" and "our" refer to ProAssurance Corporation and its consolidated subsidiaries. The discussion contains certain forward-looking information that involves significant risks, assumptions and uncertainties. As discussed under the heading "Caution Regarding Forward-Looking Statements," our actual financial condition and results of operations could differ significantly from these forward-looking statements.
ProAssurance Overview
ProAssurance Corporation is a holding company for property and casualty insurance companies. Our wholly owned insurance subsidiaries provide professional liability insurance, liability insurance for medical technology and life sciences risks and workers' compensation insurance. We also provide capital to Syndicate 1729 at Lloyd's of London.
We operate in five segments which are based on our internal management reporting structure for which financial results are regularly evaluated by our CODM to determine resource allocation and assess operating performance: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Reinsurance, Lloyd's Syndicates and Corporate. Additional information on ProAssurance's five operating and reportable segments is included in Note 18 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K and in the Segment Results sections herein that follow.
Critical Accounting Estimates
Our Condensed Consolidated Financial Statements are prepared in conformity with GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the amounts we report on those statements. We evaluate these estimates and assumptions on an ongoing basis based on current and historical developments, market conditions, industry trends and other information that we believe to be reasonable under the circumstances, including the potential impacts of the COVID-19 pandemic (see "Item 1A, Risk Factors" in our December 31, 2021 report on Form 10-K for additional information). We can make no assurance that actual results will conform to our estimates and assumptions; reported results of operations may be materially affected by changes in these estimates and assumptions. A detailed discussion of our critical accounting estimates is included in our Critical Accounting Estimates section in Item 7 of our December 31, 2021 report on Form 10-K.
Management considers the following accounting estimates to be critical because they involve significant judgment by management and those judgments could result in a material effect on our financial statements:
•Reserve for losses and loss adjustment expenses
•Reinsurance
•Valuation of investments and impairment of securities
•Goodwill
•Income taxes
Estimation of Taxes / Tax Credits
For interim periods, we generally utilize the estimated annual effective tax rate method under which we determine our provision (benefit) for income taxes based on the current estimate of our annual effective tax rate. For the three months ended March 31, 2022, we utilized the discrete effective tax rate method for recording income taxes after the estimated annual effective tax rate method produced an unreliable estimated annual effective tax rate. The discrete method is applied when the application of the estimated annual effective tax rate method is impractical and does not provide a reliable estimate of the annual effective tax rate. We believe the use of the discrete effective tax rate method is more appropriate than the annual effective tax rate method for the three months ended March 31, 2022 as minor changes in our estimated ordinary income would have a significant effect on the estimated annual effective tax rate and would result in sizable variations in the customary relationship between income tax expense (benefit) and pre-tax accounting income (loss). For the three months ended March 31, 2021, we utilized the estimated annual effective tax rate method. Under the estimated annual effective tax rate method, items which are unusual, infrequent, or that cannot be reliably estimated are considered in the effective tax rate in the period in which the item is included in income, and are referred to as discrete items. In calculating our year-to-date income tax expense (benefit) under the estimated annual effective tax rate method, we include the estimated benefit of tax credits for the year-to-date period based on the most recently available information provided by the tax credit partnerships; the actual amounts of credits provided by the tax credit partnerships may prove to be different than our estimates. The effect of such a difference is recognized in the period identified.
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Accounting Changes
During the first quarter of 2022, we revised our estimate of ULAE as a result of substantially integrating NORCAL into our Specialty P&C segment operations. ULAE are costs that cannot be attributed to processing a specific claim and are allocated to net losses and loss adjustment expenses on the Condensed Consolidated Statement of Income and Comprehensive Income. We have accounted for this change prospectively as a change in accounting estimate. Changes in accounting estimate are reflected prospectively beginning in the period the change in estimate occurs. The change in our estimate of ULAE resulted in an increase to underwriting, policy acquisition and operating expenses with an offsetting decrease to net losses and loss adjustment expenses in our Specialty P&C segment; there was no impact on total expenses or net income (loss) in our Condensed Consolidated Statement of Income and Comprehensive Income for the three months ended March 31, 2022. See further discussion on this change in estimate in the Segment Results - Specialty Property & Casualty section that follows and in Note 1 of the Notes to Condensed Consolidated Financial Statements as a result of this change in the estimate.
We did not have any other change in accounting estimate or policy that had a material effect on our results of operations or financial position during the three months ended March 31, 2022. We are not aware of any accounting changes not yet adopted as of March 31, 2022 that could have a material impact on our results of operations, financial position or cash flows.
Liquidity and Capital Resources and Financial Condition
Overview
ProAssurance Corporation is a holding company and is a legal entity separate and distinct from its subsidiaries. As a holding company, our principal source of external revenue is our investment revenues. In addition, dividends from our operating subsidiaries represent another source of funds for our obligations, including debt service and shareholder dividends. We also charge our operating subsidiaries within our Specialty P&C (including the acquired operating subsidiaries of
NORCAL effective January 1, 2022) and Workers' Compensation Insurance segments a management fee based on the extent to which services are provided to the subsidiary and the amount of gross premium written by the subsidiary. At March 31, 2022, we held cash and liquid investments of approximately $65 million outside our insurance subsidiaries that were available for use without regulatory approval or other restriction. We also have $250 million in permitted borrowings available under our Revolving Credit Agreement as well as the possibility of a $50 million accordion feature, if successfully subscribed. As of May 4, 2022, no borrowings were outstanding under our Revolving Credit Agreement.
To date, during 2022, our operating subsidiaries have paid dividends to us of approximately $1 million. In the aggregate, our insurance subsidiaries are permitted to pay dividends of approximately $148 million over the remainder of 2022 without prior approval of state insurance regulators. However, the payment of any dividend requires prior notice to the insurance regulator in the state of domicile, and the regulator may reduce or prevent the dividend if, in its judgment, payment of the dividend would have an adverse effect on the surplus of the insurance subsidiary. We make the decision to pay dividends from an insurance subsidiary based on the capital needs of that subsidiary and may pay less than the permitted dividend or may also request permission to pay an additional amount (an extraordinary dividend).
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Operating Activities and Related Cash Flows
Reinsurance
Within our Specialty P&C segment, we use insurance and reinsurance (collectively, “reinsurance”) to provide capacity to write larger limits of liability, to provide reimbursement for losses incurred under the higher limit coverages we offer and to provide protection against losses in excess of policy limits. Within our Workers' Compensation Insurance segment, we use reinsurance to reduce our net liability on individual risks, to mitigate the effect of significant loss occurrences (including catastrophic events), to stabilize underwriting results and to increase underwriting capacity by decreasing leverage. In both our Specialty P&C and Workers' Compensation Insurance segments, we use reinsurance in risk sharing arrangements to align our objectives with those of our strategic business partners and to provide custom insurance solutions for large customer groups. Within our Lloyd's Syndicates segment, Syndicate 1729 utilizes reinsurance to provide capacity to write larger limits of liability on individual risks, to provide protection against catastrophic loss and to provide protection against losses in excess of policy limits. The discussion in our Liquidity section under the same heading in Item 7 of our December 31, 2021 report on Form 10-K includes additional information regarding our reinsurance agreements.
The significant coverages provided by our current excess of loss reinsurance agreements are detailed in the following table.
Excess of Loss Reinsurance Agreements
pra-20220331_g1.jpg
Healthcare Professional LiabilityMedical Technology & Life Sciences ProductsWorkers' Compensation - Traditional
(1) Effective October 1, 2020, one prepaid limit reinstatement of $21M and a second limit reinstatement of up to $21M for the second layer, subject to reinstatement premium, which attaches after the first reinstatement has been completely exhausted. All limit reinstatements thereafter require no additional premium. Effective October 1, 2021, limits can be reinstated a maximum of four times.
(2) Prior to October 1, 2020, retention was $1M.
(3) Historically, retention has ranged from 2.5% to 32.5%.
(4) Historically, retention has ranged from $1M to $2M.
(5) Includes an AAD where retention is 3.5% of subject earned premium in annual losses otherwise recoverable in excess of the $500K retention per loss occurrence.
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For the workers' compensation business ceded to Inova Re and Eastern Re, each SPC has in place its own reinsurance arrangements; which are illustrated in the following table.
Segregated Portfolio Cell Reinsurance
pra-20220331_g2.jpg
Per Occurrence CoverageAggregate Coverage
(1) The attachment point is based on a percentage of written premium within individual cells, ranges from 85% to 94%, and varies by cell.
Cash Flows
Cash flows between periods compare as follows:
Three Months Ended March 31
(In thousands)20222021Change
Net cash provided (used) by:
Operating activities
$14,265 $28,700 $(14,435)
Investing activities
(77,134)(26,261)(50,873)
Financing activities(8,632)(3,386)(5,246)
Increase (decrease) in cash and cash equivalents$(71,501)$(947)$(70,554)
The principal components of our operating cash flows are the excess of premiums collected and net investment income over losses paid and operating costs, including income taxes. Timing delays exist between the collection of premiums and the payment of losses associated with the premiums. Premiums are generally collected within the twelve-month period after the policy is written, while our claim payments are generally paid over a more extended period of time. Likewise, timing delays exist between the payment of claims and the collection of any associated reinsurance recoveries.
The decrease in operating cash flows of $14.4 million for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 was primarily due to:
•An increase in paid losses of $67.8 million driven by our Specialty P&C segment primarily due to NORCAL paid losses and the payment of three large claims totaling $16.4 million during the first quarter of 2022.
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•An increase in cash paid for operating expenses of $51.7 million driven by our Specialty P&C and Corporate segments. The increase in cash paid for operating expenses in our Specialty P&C and Corporate segments was driven by an increase in compensation-related costs primarily attributable to an increase in headcount due to the addition of NORCAL employees. Furthermore, the increase in our Specialty P&C segment reflected an increase in commissions paid driven by additional premiums from our acquisition of NORCAL. Additionally, the increase reflected the termination of deferred compensation arrangements assumed in the NORCAL acquisition during the first quarter of 2022 totaling approximately $13.2 million. See further discussion of NORCAL's deferred compensation arrangements in Note 2 to the Notes to Condensed Consolidated Financial Statements.
•The effect of a tax refund of approximately $9.0 million which we received in February 2021. See additional discussion on this refund in our Liquidity section under the heading "Taxes" in Item 7 of our December 31, 2021 report on Form 10-K.
The decrease in operating cash flows was partially offset by:
•An increase in net premium receipts of $95.4 million primarily driven by our Specialty P&C segment, partially offset by a decrease in our Lloyd's Syndicates segment. The increase in our Specialty P&C segment was due to additional premiums from our acquisition of NORCAL and the beneficial impacts of our re-underwriting efforts and focus on rate adequacy. The decrease in premium receipts in our Lloyd's Syndicates segment reflected our decreased participation in the results of Syndicate 1729 and Syndicate 6131 for the 2021 underwriting year.
•An increase in cash received from investment income of $18.6 million driven by an increase in distributed earnings and redemptions from our portfolio of investments in LPs/LLCs. The increase in the current period also reflected an increase in our investment balances due to the acquisition of NORCAL.
The remaining variance in operating cash flows for the three months ended March 31, 2022 as compared to the same period of 2021 was composed of individually insignificant components.
We manage our investing cash flows to ensure that we will have sufficient liquidity to meet our obligations, taking into consideration the timing of cash flows from our investments, including interest payments, dividends and principal payments, as well as the expected cash flows to be generated by our operations as discussed in this section under the heading "Investing Activities and Related Cash Flows."
Our financing cash flows are primarily comprised of dividend payments. See further discussion of our financing activities in this section under the heading "Financing Activities and Related Cash Flows."
Taxes
We are subject to the tax laws and regulations of the U.S., Cayman Islands and U.K. We file a consolidated U.S. federal income tax return that includes the parent company and its U.S. subsidiaries, except for ProAssurance American Mutual, A Risk Retention Group. Our filing obligations include a requirement to make quarterly payments of estimated taxes to the IRS using the corporate tax rate effective for the tax year. We did not make any quarterly estimated tax payments during the three months ended March 31, 2022 or 2021.
As a result of the CARES Act that was signed into law on March 27, 2020 we were permitted to carryback NOLs generated in tax years 2019 and 2020 for up to five years. See further discussion in the Critical Accounting Estimate section under the heading "U.S. Tax Legislation" and Note 7 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K. We generated an NOL of approximately $33.3 million from the 2020 tax year that was carried back to the 2015 tax year that resulted in a claim for a refund of approximately $11.7 million, which we anticipate to receive during 2022.
As a result of our acquisition of NORCAL, we recorded $46.8 million of net deferred tax assets reflecting the remeasurement of NORCAL's historical net deferred tax assets at the acquisition date of May 5, 2021. The net deferred tax assets acquired from NORCAL were subject to recalculation following application of all purchase accounting adjustments and our assessment of the realizability of NORCAL's deferred tax assets. As a result of the NORCAL acquisition, we have U.S. federal NOL carryforwards which as of March 31, 2022 were approximately $43.0 million. These NOL carryforwards are subject to limitation by Internal Revenue Code Section 382 and will begin to expire in 2035. For additional information on the NORCAL acquisition see Note 2 and Note 7 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K.
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Investing Activities and Related Cash Flows
Our investments at March 31, 2022 and December 31, 2021 are comprised as follows:
 March 31, 2022December 31, 2021
($ in thousands)Carrying
Value		% of Total InvestmentCarrying
Value		% of Total Investment
Fixed maturities, available-for-sale
U.S. Treasury obligations$225,676 5 %$238,507 5 %
U.S. Government-sponsored enterprise obligations16,733 1 %20,234 1 %
State and municipal bonds492,291 10 %519,196 11 %
Corporate debt1,870,256 40 %1,898,556 39 %
Residential mortgage-backed securities417,848 9 %453,941 9 %
Commercial mortgage-backed securities236,229 5 %245,624 5 %
Other asset-backed securities441,788 9 %457,664 9 %
Total fixed maturities, available-for-sale3,700,821 79 %3,833,722 79 %
Fixed maturities, trading49,421 1 %43,670 1 %
Total fixed maturities3,750,242 80 %3,877,392 80 %
Equity investments(1)
203,925 4 %214,807 4 %
Short-term investments233,345 5 %216,987 4 %
BOLI80,879 2 %81,767 2 %
Investment in unconsolidated subsidiaries321,402 7 %335,576 7 %
Other investments103,876 2 %101,794 3 %
Total investments$4,693,669 100 %$4,828,323 100 %
(1) Includes $170.3 million and $187.1 million of investment grade bond funds as of March 31, 2022 December 31, 2021, respectively, which are not subject to significant equity price risk.
At March 31, 2022, 99% of our investments in available-for-sale fixed maturity securities were rated and the average rating was A+. The distribution of our investments in available-for-sale fixed maturity securities by rating were as follows:
March 31, 2022December 31, 2021
 ($ in thousands)
Carrying
Value		% of Total InvestmentCarrying
Value		% of Total Investment
Rating*
AAA$1,055,035 28 %$1,129,136 29 %
AA+117,938 3 %130,077 3 %
AA243,342 6 %254,570 7 %
AA-188,939 5 %194,661 5 %
A+223,591 6 %221,473 6 %
A506,730 14 %521,598 14 %
A-341,477 9 %364,147 9 %
BBB+285,373 8 %292,984 8 %
BBB291,795 8 %300,650 8 %
BBB-143,304 4 %127,982 3 %
Below investment grade299,304 8 %296,444 8 %
Not rated3,993 1 %— — %
Total$3,700,821 100 %$3,833,722 100 %
*Average of three NRSRO sources, presented as an S&P equivalent. Source: S&P, Copyright ©2022, S&P Global Market Intelligence
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A detailed listing of our investment holdings as of March 31, 2022 is located under the Financial Information heading on the Investor Relations page of our website which can be reached directly at https://investor.proassurance.com/financial-information/quarterly-investment-supplements/default.aspx or through links from the Investor Relations section of our website, investor.proassurance.com.
We manage our investments to ensure that we will have sufficient liquidity to meet our obligations, taking into consideration the timing of cash flows from our investments, including interest payments, dividends and principal payments, as well as the expected cash flows to be generated by our operations. In addition to the interest and dividends we will receive from our investments, we anticipate that between $70 million and $130 million of our portfolio will mature (or be paid down) each quarter over the next twelve months and become available, if needed, to meet our cash flow requirements. The primary outflow of cash at our insurance subsidiaries is related to paid losses and operating costs, including income taxes. The payment of individual claims cannot be predicted with certainty; therefore, we rely upon the history of paid claims in estimating the timing of future claims payments with consideration to current and anticipated industry trends and macroeconomic conditions. To the extent that we may have an unanticipated shortfall in cash, we may either liquidate securities or borrow funds under existing borrowing arrangements through our Revolving Credit Agreement and the FHLB system. Permitted borrowings under our Revolving Credit Agreement are $250 million with the possibility of an additional $50 million accordion feature, if successfully subscribed. Given the duration of our investments, we do not foresee a shortfall that would require us to meet operating cash needs through additional borrowings. Additional information regarding our Revolving Credit Agreement is detailed in Note 7 of the Notes to Condensed Consolidated Financial Statements.
At March 31, 2022, our FAL was comprised of fixed maturity securities with a fair value of $36.9 million and cash and cash equivalents of $0.1 million deposited with Lloyd's. See further discussion in Note 3 of the Notes to Condensed Consolidated Financial Statements.
Our investment portfolio continues to be primarily composed of high quality fixed income securities with approximately 91% of our fixed maturities being investment grade securities as determined by national rating agencies. The weighted average effective duration of our fixed maturity securities at March 31, 2022 was 3.78 years; the weighted average effective duration of our fixed maturity securities combined with our short-term securities was 3.55 years.
The carrying value and unfunded commitments for certain of our investments were as follows:
Carrying ValueMarch 31, 2022
($ in thousands, except expected funding period)March 31, 2022December 31, 2021Unfunded CommitmentExpected funding period in years
Qualified affordable housing project tax credit partnerships (1)
$10,036 $12,424 $581 5
All other investments, primarily investment fund LPs/LLCs311,366 323,152 158,580 5
Total$321,402 $335,576 $159,161 
(1) The carrying value reflects our total commitments (both funded and unfunded) to the partnerships, less any amortization, since our initial investment. We fund these investments based on funding schedules maintained by the partnerships.
Investment fund LPs/LLCs are by nature less liquid and may involve more risk than other investments. We manage our risk through diversification of asset class and geographic location. At March 31, 2022, we had investments in 34 separate investment funds with a total carrying value of $311.4 million which represented approximately 7% of our total investments. Our investment fund LPs/LLCs generate earnings from trading portfolios, secured debt, debt securities, multi-strategy funds and private equity investments, and the performance of these LPs/LLCs is affected by the volatility of equity and credit markets. For our investments in LPs/LLCs, we record our allocable portion of the partnership operating income or loss as the results of the LPs/LLCs become available, typically following the end of a reporting period.
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Debt
At March 31, 2022 our debt included $250 million of outstanding unsecured senior notes. The notes bear interest at 5.3% annually and are due in November 2023 although they may be redeemed in whole or part prior to maturity. There are no financial covenants associated with these notes.
NORCAL Insurance Company, successor to NORCAL Mutual Insurance Company, issued Contribution Certificates, which bear interest at 3.0% annually and are due in 2031, to certain NORCAL policyholders in the conversion. The Contribution Certificates have a principal amount of $191 million and were recorded at their fair value of $175 million at the date of the NORCAL acquisition on May 5, 2021. The difference of $16 million between the recorded acquisition date fair value and the principal balance of the Contribution Certificates will be accreted utilizing the effective interest method over the term of the certificates of ten years as an increase to interest expense. Furthermore, interest payments are subject to deferral if we do not receive permission from the California Department of Insurance prior to payment. We received permission from the California Department of Insurance to pay the first annual interest payment which was paid in April 2022. See Note 2 and Note 13 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for additional information on the Contribution Certificates issued in the NORCAL acquisition. There are no financial covenants associated with these certificates.
We have a Revolving Credit Agreement, which expires in November 2024, that may be used for general corporate purposes, including, but not limited to, short-term working capital, share repurchases as authorized by the Board and support for other activities. Our Revolving Credit Agreement permits borrowings of up to $250 million as well as the possibility of a $50 million accordion feature, if successfully subscribed. At March 31, 2022, there were no outstanding borrowings on our Revolving Credit Agreement; we are in compliance with the financial covenants of the Revolving Credit Agreement.
Additional information regarding our debt is provided in Note 7 of the Notes to Condensed Consolidated Financial Statements.
Three of our insurance subsidiaries are members of an FHLB. Through membership, those subsidiaries have access to secured cash advances which can be used for liquidity purposes or other operational needs. In order for us to use FHLB proceeds, regulatory approvals may be required depending on the nature of the transaction. To date, those subsidiaries have not materially utilized their membership for borrowing purposes.
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Results of Operations – Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
Selected consolidated financial data for each period is summarized in the table below.
Three Months Ended March 31
($ in thousands, except per share data)20222021Change
Revenues:
Net premiums written$310,915 $202,270 $108,645 
Net premiums earned$265,711 $187,358 $78,353 
Net investment result28,063 21,805 6,258 
Net investment gains (losses)(13,506)8,849 (22,355)
Other income2,804 2,005 799 
Total revenues283,072 220,017 63,055 
Expenses:
Net losses and loss adjustment expenses209,423 149,785 59,638 
Underwriting, policy acquisition and operating expenses71,776 56,451 15,325 
SPC U.S. federal income tax expense642 356 286 
SPC dividend expense (income)2,367 1,742 625 
Interest expense4,441 3,212 1,229 
Total expenses288,649 211,546 77,103 
Income (loss) before income taxes(5,577)8,471 (14,048)
Income tax expense (benefit)(2,017)736 (2,753)
Net income (loss)$(3,560)$7,735 $(11,295)
Non-GAAP operating income (loss)$7,683 $2,085 $5,598 
Earnings (loss) per share:
Basic$(0.07)$0.14 $(0.21)
Diluted$(0.07)$0.14 $(0.21)
Non-GAAP operating income (loss) per share:
Basic$0.14 $0.04 $0.10 
Diluted$0.14 $0.04 $0.10 
Net loss ratio78.8 %79.9 %(1.1  pts)
Underwriting expense ratio27.0 %30.1 %(3.1  pts)
Combined ratio105.8 %110.0 %(4.2  pts)
Operating ratio98.1 %102.0 %(3.9  pts)
Effective tax rate36.2 %8.7 %27.5  pts
Return on equity*(0.8 %)2.3 %(3.1  pts)
*Annualized. See further discussion on this calculation in the Executive Summary of Operations section under the heading "ROE."
In all tables that follow, the abbreviation "nm" indicates that the information or the percentage change is not meaningful.
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Executive Summary of Operations
The following sections provide an overview of our consolidated and segment results of operations for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. Our results for the three months ended March 31, 2022 include NORCAL's results. See the Segment Results sections that follow for additional information regarding each segment's results.
Revenues
The following table shows our consolidated and segment net premiums earned:
Three Months Ended March 31
($ in thousands)20222021Change
Net premiums earned
Specialty P&C
$197,967 $115,613 $82,354 71.2 %
Workers' Compensation Insurance
40,684 40,011 673 1.7 %
Segregated Portfolio Cell Reinsurance
19,314 15,884 3,430 21.6 %
Lloyd's Syndicates
7,746 15,850 (8,104)(51.1 %)
Consolidated total
$265,711 $187,358 $78,353 41.8 %
For the three months ended March 31, 2022, consolidated net premiums earned included additional earned premiums of $80.8 million in our Specialty P&C segment from our acquisition of NORCAL. Excluding NORCAL, consolidated net premiums earned decreased $2.5 million during the 2022 three-month period as compared to the same period of 2021 driven by a decrease in net premiums earned in our Lloyd's Syndicates segment, partially offset by an increase in net premiums earned in our Segregated Portfolio Cell Reinsurance, Specialty P&C and Workers' Compensation Insurance segments. The decrease in our Lloyd's Syndicates segment was due to our decreased participation in the results of Syndicate 1729 and Syndicate 6131 for the 2021 underwriting year. Net premiums earned in our Segregated Portfolio Cell Reinsurance segment increased during the 2022 three-month period driven by tail coverage premiums primarily related to one program in which we do not participate, which resulted in $3.0 million of one-time premium written and fully earned. Net premiums earned in our Specialty P&C segment, excluding NORCAL, increased during the 2022 three-month period due to the beneficial impacts of our re-underwriting efforts and focus on rate adequacy. For our Workers' Compensation Insurance segment, the increase in net premium earned during the 2022 three-month period reflected the prior year effect of a reduction in our EBUB estimate and the impact of audit premium billed to policyholders during the current period.
The following table shows our consolidated net investment result:
Three Months Ended March 31
($ in thousands)20222021Change
Net investment income$20,443 $15,017 $5,426 36.1 %
Equity in earnings (loss) of unconsolidated subsidiaries*
7,620 6,788 832 12.3 %
Net investment result$28,063 $21,805 $6,258 28.7 %
*Equity in earnings (loss) of unconsolidated subsidiaries includes our share of the operating results of interests we hold in certain LPs/LLCs as well as operating losses associated with our tax credit partnership investments, which are designed to generate returns in the form of tax credits and tax-deductible project operating losses.
Our consolidated net investment result for the three months ended March 31, 2022 included additional net investment income of approximately $6.5 million from NORCAL. Excluding NORCAL, consolidated net investment income decreased $1.1 million during the 2022 three-month period as compared to the same period of 2021 driven by lower yields on our corporate debt securities and, to a lesser extent, state and municipal bonds. The increase in our equity in earnings (loss) of unconsolidated subsidiaries for the three months ended March 31, 2022 as compared to the same period of 2021 was due to lower project operating losses associated with our tax credit partnerships which is an offset to earnings from our LP/LLC portfolio. The increase in our equity in earnings (loss) of unconsolidated subsidiaries for the three months ended March 31, 2022 also included additional earnings from our acquired interests in four LPs from NORCAL of approximately $0.4 million.
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Expenses
The following table shows our consolidated and segment net loss ratios and net prior accident year reserve development.
Three Months Ended March 31
($ in millions)20222021Change
Current accident year net loss ratio
Consolidated ratio
80.8 %82.5 %(1.7  pts)
Specialty P&C
85.8 %89.8 %(4.0  pts)
Workers' Compensation Insurance71.8 %71.0 %0.8  pts
Segregated Portfolio Cell Reinsurance64.5 %68.9 %(4.4  pts)
Lloyd's Syndicates41.8 %72.1 %(30.3  pts)
Calendar year net loss ratio
Consolidated ratio
78.8 %79.9 %(1.1  pts)
Specialty P&C
83.8 %87.5 %(3.7  pts)
Workers' Compensation Insurance
66.9 %65.5 %1.4  pts
Segregated Portfolio Cell Reinsurance
59.5 %59.3 %0.2  pts
Lloyd's Syndicates
61.5 %81.8 %(20.3  pts)
Favorable (unfavorable) reserve development, prior accident years
Consolidated$5.3$4.8$0.5 
Specialty P&C$3.9$2.7$1.2 
Workers' Compensation Insurance
$2.0$2.2$(0.2)
Segregated Portfolio Cell Reinsurance
$0.9$1.4$(0.5)
Lloyd's Syndicates$(1.5)$(1.5)$— 
The primary drivers of the change in our consolidated current accident year net loss ratio for the three months ended March 31, 2022 as compared to the same period of 2021 were as follows:
Increase (Decrease)
 2022 versus 2021
Estimated ratio increase (decrease) attributable to:
NORCAL Operations4.7 pts
NORCAL Acquisition - Purchase Accounting Adjustment(0.9 pts)
Change in Estimate of ULAE(2.7 pts)
All other, net(2.8 pts)
Decrease in the consolidated current accident year net loss ratio(1.7 pts)
Excluding the impact of the items specifically identified in the table above, our consolidated current accident year net loss ratio for the three months ended March 31, 2022 decreased 2.8 percentage points as compared to the prior year period driven by our Specialty P&C, Lloyd's Syndicates and Segregated Portfolio Cell Reinsurance segments, partially offset by our Workers' Compensation Insurance segment. The improvement in the current accident year net loss ratio in our Specialty P&C segment for the three months ended March 31, 2022 was driven by a decrease to certain loss ratios in our Standard Physician line of business, which we began recognizing in the second half of 2021 and, to a lesser extent, changes in the mix of business. For our Lloyd's Syndicates segment, the lower current accident year net loss ratio reflected the impact of certain property and catastrophe related losses incurred during the prior year period and, to a lesser extent, decreases to certain loss estimates during the first quarter of 2022. The decrease in the current accident year net loss ratio in our Segregated Portfolio Cell Reinsurance segment was driven by favorable trends in prior accident year claim results and their impact on our analysis of the current accident year loss estimate, partially offset by the continuation of intense price competition and the resulting renewal rate decreases in the workers' compensation business. In our Workers' Compensation Insurance segment, the increase in the current accident year net loss ratio primarily reflects the continuation of intense price competition and the resulting renewal rate decreases, partially offset by the impact of favorable prior year claim trends on the current year estimate. The Workers' Compensation Insurance segment's current accident year net loss ratio for the three months ended March 31, 2022 also reflects an expectation that the labor shortage will continue to have an impact on claim activity during 2022.
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As shown in the previous table, initial loss ratios associated with NORCAL policies were higher than the average for the other books of business in our Specialty P&C segment. The impact of NORCAL operations resulted in a 4.7 percentage point increase in our consolidated current accident year net loss ratio for the three months ended March 31, 2022. Also as a result of our acquisition of NORCAL, our consolidated current accident year net loss ratio for the three months ended March 31, 2022 was impacted by amortization of the negative VOBA associated with NORCAL's assumed unearned premium which is recorded as a reduction to current accident year net losses and accounted for a 0.9 percentage point decrease in our current period ratio. The remaining unamortized negative VOBA will be fully amortized in the second quarter of 2022.
During the first quarter of 2022, we decreased our estimate of ULAE in our Specialty P&C segment as a result of substantially integrating NORCAL into our operations, which accounted for a 2.7 percentage point decrease in our current period consolidated current accident year net loss ratio with an offsetting 2.7 percentage point increase in our current period consolidated expense ratio with no impact to our consolidated combined ratio, total expenses or net income. See additional information on this change in ULAE estimate in the Segment Results - Specialty Property and Casualty section that follows.
In both the 2022 and 2021 three-month periods, our consolidated calendar year net loss ratio was lower than our consolidated current accident year net loss ratio due to the recognition of net favorable prior year reserve development, as shown in the previous table. Net favorable prior accident year development recognized was net of an increase in our reserve for potential ECO/XPL claims of $4.0 million for three months ended March 31, 2022 as compared to a reduction in this same reserve of $0.2 million during the same period of 2021. Further, net favorable development recognized during the 2022 three-month period included $2.9 million related to the amortization of the purchase accounting fair value adjustment on NORCAL's assumed net reserve and amortization of the negative VOBA associated with NORCAL's DDR reserve which is recorded as a reduction to prior accident year net losses and loss adjustment expenses. We have not recognized any development related to NORCAL's prior accident year reserves since the date of acquisition on May 5, 2021. See Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for additional information on the NORCAL acquisition and the related purchase accounting adjustments. Excluding the increase in the ECO/XPL reserve and amortization of purchase accounting adjustments, we recognized net favorable prior accident year reserve development of $5.0 million in our Specialty P&C segment during the three months ended March 31, 2022, principally related to accident years 2019 through 2021. For our Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments, the net favorable development recognized during the three months ended March 31, 2022 reflected overall favorable trends in claim closing patterns.
Our consolidated and segment underwriting expense ratios were as follows:
Three Months Ended March 31
20222021Change
Underwriting Expense Ratio
Consolidated (1)
27.0 %30.1 %(3.1  pts)
Specialty P&C21.7 %22.8 %(1.1  pts)
Workers' Compensation Insurance32.0 %30.7 %1.3  pts
Segregated Portfolio Cell Reinsurance22.6 %31.6 %(9.0  pts)
Lloyd's Syndicates35.0 %41.6 %(6.6  pts)
Corporate (2)
3.3 %3.8 %(0.5  pts)
(1) Consolidated underwriting expenses include transaction-related costs associated with our acquisition of NORCAL. Beginning in the second quarter of 2021, transaction-related costs rose to a significant level; therefore, management determined that transaction-related costs will not be included in a segment on a prospective basis beginning in the second quarter of 2021 as we do not consider these costs in assessing the financial performance of any of our operating or reportable segments. While transaction-related costs are included in the Corporate segment's underwriting expense ratio for the 2021 three-month period, they did not have a significant impact on the ratio. See Note 11 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results.
(2) There are no net premiums earned associated with the Corporate segment. Ratios shown are the contribution of the Corporate segment to the consolidated ratio (Corporate operating expenses divided by consolidated net premiums earned).
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The change in our consolidated underwriting expense ratio for the 2022 three-month period as compared to the same period of 2021 was primarily attributable to the following:
Increase (Decrease)
 2022 versus 2021
(In percentage points)Comparative three-month period
Estimated ratio increase (decrease) attributable to:
Increase in Net Premiums Earned and DPAC amortization(1)
(0.6 pts)
Change in Estimate of ULAE2.7 pts
Tail Premium(2)
(1.4 pts)
All other, net(3.8 pts)
Decrease in the underwriting expense ratio(3.1 pts)
(1) Excludes tail premium for the three months ended March 31, 2022 and 2021.
(2) Represents the effect of the premium earned from tail policies for the three months ended March 31, 2022 as compared to the same period on 2021 as there is typically minimal deferred acquisition costs associated with tail premium (see further discussion in the Segment Results - Specialty Property and Casualty and Segregated Portfolio Cell Reinsurance sections that follow).
Excluding the impact of the items specifically identified in the table above, our consolidated underwriting expense ratio for the three months ended March 31, 2022 decreased 3.8 percentage points driven by lower operating expenses due to the benefits from prior organizational restructurings and proactive expense management as well as expense synergies recognized from the NORCAL acquisition in our Specialty P&C segment. The decrease in the current period ratio also reflected the change in our allowance for expected credit losses in our Segregated Portfolio Cell Reinsurance segment related to the collection of customer accounts that were previously written off.
As shown in the previous table, the consolidated underwriting expense ratio reflected a decrease in our estimate of ULAE which resulted in approximately $7.3 million of expenses remaining in operating expenses instead of being allocated to net losses and loss adjustment expenses. As a result, this change in ULAE estimate had offsetting impacts to our consolidated loss and expense ratios during the period with no impact to our consolidated combined ratio, total expenses or net income. See additional discussion on this change in ULAE estimate in the Segment Results - Specialty Property and Casualty section that follows.
Taxes
Our provision for income taxes and effective tax rates for the three months ended March 31, 2022 and 2021 were as follows:
($ in thousands)
Three Months Ended March 31
20222021Change
Income (loss) before income taxes$(5,577)$8,471 $(14,048)(165.8 %)
Less: Income tax expense (benefit)(2,017)736 (2,753)374.0 %
Net income (loss)$(3,560)$7,735 $(11,295)(146.0 %)
Effective tax rate36.2%8.7%27.5 pts
We recognized an income tax benefit of $2.0 million and income tax expense of $0.7 million during the three months ended March 31, 2022 and 2021, respectively; however, the comparability of our effective tax rates is impacted by the consolidated pre-tax loss recognized during the 2022 three-month period as compared to consolidated pre-tax income recognized in the 2021 three-month period. Furthermore, the comparability of our effective tax rates is impacted by our use of the discrete effective tax rate method for the three months ended March 31, 2022 versus our use of the estimated annual effective tax rate method for the three months ended March 31, 2021 (see further discussion on these methods in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits").
Our effective tax rate for both the 2022 and 2021 three-month periods was different from the statutory federal income tax rate of 21% primarily due to the benefit recognized from the tax credits transferred to us from our tax credit partnership investments. See further discussion of other notable items impacting our effective tax rate in the Segment Operating Results - Corporate section that follows under the heading "Taxes."
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Operating Ratio
Our operating ratio is our combined ratio, less our investment income ratio. This ratio provides the combined effect of underwriting profitability and investment income. Our operating ratio for the three months ended March 31, 2022 and 2021 was as follows:
Three Months Ended March 31
20222021Change
Combined ratio105.8 %110.0 %(4.2  pts)
Less: investment income ratio7.7 %8.0 %(0.3  pts)
Operating ratio
98.1 %102.0 %(3.9  pts)
Combined ratio, excluding transaction-related costs*105.4 %109.6 %(4.2  pts)
*Our consolidated combined ratio for the 2022 and 2021 three-month periods includes $1.2 million and $0.9 million, respectively, of transaction-related costs included in consolidated operating expenses associated with our acquisition of NORCAL. Given these costs do not reflect normal operating expenses, we have excluded their impact from our calculation of the consolidated combined ratio. See previous discussion under the heading "Expenses."
The primary drivers of the change in our operating ratio were as follows:
Increase (Decrease)
 2022 versus 2021
(In percentage points)Comparative
three-month
periods
Estimated ratio increase (decrease) attributable to:
NORCAL Acquisition - Purchase Accounting Adjustments(2.1 pts)
NORCAL Investment Results(2.4 pts)
Investment Results (1)
2.7 pts
All other, net(2.1 pts)
Decrease in the operating ratio(3.9 pts)
(1) Excludes net investment income contributed by NORCAL for the 2022 three-month period.
Excluding the impact of the items specifically identified in the table above, our operating ratio for the 2022 three-month period improved by 2.1 percentage points as compared to the same period of 2021 primarily due to an improvement in our expense ratio and net loss ratio in our Specialty P&C and Lloyd's Syndicates segments, partially offset by a higher net loss ratio in our Workers' Compensation Insurance. See previous discussion in this section under the heading "Expenses" and further discussion in our Segment Operating Results sections that follow.
ROE
ROE is calculated as annualized net income (loss) for the period divided by the average of beginning and ending shareholders’ equity. This ratio measures our overall after-tax profitability and shows how efficiently capital is being used. Beginning in the second quarter of 2021, transaction-related costs rose to a significant level; therefore, management determined prospectively that transaction-related costs associated with our acquisition of NORCAL will not be annualized in our quarterly calculation of ROE as these costs are considered non-recurring in nature. ROE for the three months ended March 31, 2022 and 2021 were as follows:
Three Months Ended March 31
20222021Change
ROE
(0.8 %)2.3 %(3.1  pts)
Our ROE for the current year period was impacted by purchase accounting adjustments associated with our acquisition of NORCAL which increased our ROE by 1.7 percentage points. See Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for additional information on the NORCAL acquisition and the related purchase accounting adjustments. Excluding the purchase accounting adjustments, ROE for the 2022 three-month period decreased 4.8 percentage points driven by unrealized holding losses resulting from changes in the fair value of our equity investments which decreased our ROE by 4.3 percentage points during the current period.
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Book Value per Share
Book value per share is calculated as total shareholders’ equity at the balance sheet date divided by the total number of common shares outstanding. This ratio measures the net worth of the Company to shareholders on a per share basis. Our book value per share at March 31, 2022 as compared to December 31, 2021 is shown in the following table.
Book Value Per Share
Book Value Per Share at December 31, 2021$26.46 
Increase (decrease) to book value per share during the three months ended March 31, 2022 attributable to:
Dividends declared(0.05)
Net income (loss)(0.07)
OCI (1)
(2.61)
Other(0.01)
Book Value Per Share at March 31, 2022$23.72 
(1) Primarily the impact of unrealized holding losses on our available-for-sale fixed maturity investments. See Note 8 of the Notes to Condensed Consolidated Financial Statements for additional information.

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Non-GAAP Financial Measures
Non-GAAP operating income (loss) is a financial measure that is widely used to evaluate performance within the insurance sector. In calculating Non-GAAP operating income (loss), we have excluded the effects of the items listed in the following table that do not reflect normal results. We believe Non-GAAP operating income (loss) presents a useful view of the performance of our insurance operations, however it should be considered in conjunction with net income (loss) computed in accordance with GAAP.
The following table is a reconciliation of net income (loss) to Non-GAAP operating income (loss):
Three Months Ended
March 31
(In thousands, except per share data)20222021
Net income (loss)$(3,560)$7,735 
Items excluded in the calculation of Non-GAAP operating income (loss):
Net investment (gains) losses13,506 (8,849)
Net investment gains (losses) attributable to SPCs which no profit/loss is retained (1)
(602)789 
Transaction-related costs (2)
1,177 925 
Guaranty fund assessments (recoupments)13 4 
Pre-tax effect of exclusions14,094 (7,131)
Tax effect, at 21% (3)
(2,851)1,481 
After-tax effect of exclusions11,243 (5,650)
Non-GAAP operating income (loss)$7,683 $2,085 
Per diluted common share:
Net income (loss)$(0.07)$0.14 
Effect of exclusions0.21 (0.10)
Non-GAAP operating income (loss) per diluted common share$0.14 $0.04 
(1) Net investment gains (losses) on investments related to SPCs are recognized in our Segregated Portfolio Cell Reinsurance segment. SPC results, including any net investment gain or loss, that are attributable to external cell participants are reflected in the SPC dividend expense (income). To be consistent with our exclusion of net investment gains (losses) recognized in earnings, we are excluding the portion of net investment gains (losses) that is included in the SPC dividend expense (income) which is attributable to the external cell participants.
(2) Transaction-related costs associated with our acquisition of NORCAL. We are excluding these costs as they do not reflect normal operating results and are unique and non-recurring in nature.
(3) The 21% rate is the annual expected statutory tax rate associated with the taxable or tax deductible items listed above. We utilized the discrete effective tax rate method for the three months ended March 31, 2022 while we utilized the estimated annual effective tax rate method for the three months ended March 31, 2021. For the 2022 period, our statutory tax rate was applied to these items in calculating net income (loss). For the 2021 period, our effective tax rate was applied to these items in calculating net income (loss), excluding net investment gains (losses) and related adjustments. See further discussion on these methods in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits". Under both methods, net investment gains (losses) in our Corporate segment are treated as discrete items and are tax effected at the annual expected statutory tax rate (21%) in the period they are included in our consolidated tax provision and net income (loss). The taxes associated with the net investment gains (losses) related to SPCs in our Segregated Portfolio Cell Reinsurance segment are paid by the individual SPCs and are not included in our consolidated tax provision or net income (loss); therefore, both the net investment gains (losses) from our Segregated Portfolio Cell Reinsurance segment and the adjustment to exclude the portion of net investment gains (losses) included in the SPC dividend expense (income) in the table above are not tax effected.

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Segment Results - Specialty Property & Casualty
Our Specialty P&C segment focuses on professional liability insurance and medical technology liability insurance as discussed in Note 18 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K. On May 5, 2021, we completed our acquisition of NORCAL, an underwriter of healthcare professional liability insurance (Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K provides additional information regarding this acquisition). Segment results reflected pre-tax underwriting profit or loss from these insurance lines, and for the three months ended March 31, 2022, included the pre-tax underwriting results of NORCAL as well as certain purchase accounting adjustments. Segment results for the three months ended March 31, 2022 exclude transaction-related costs as we do not consider these costs in assessing the financial performance of the segment. Segment results included the following:
Three Months Ended March 31
($ in thousands)20222021Change
Net premiums written
$234,838$121,313$113,525 93.6 %
Net premiums earned
$197,967$115,613$82,354 71.2 %
Other income
1,019469550 117.3 %
Net losses and loss adjustment expenses(165,958)(101,186)(64,772)64.0 %
Underwriting, policy acquisition and operating expenses
(42,878)(26,346)(16,532)62.7 %
Segment results$(9,850)$(11,450)$1,600 14.0 %
Net loss ratio
83.8%87.5%(3.7 pts)
Underwriting expense ratio
21.7%22.8%(1.1 pts)
Premiums Written
Changes in our premium volume within our Specialty P&C segment are generally driven by three primary factors: (1) the amount of new business written, (2) our retention of existing business and (3) the premium charged for business that is renewed, which is affected by rates charged and by the amount and type of coverage an insured chooses to purchase. In addition, premium volume may periodically be affected by shifts in the timing of renewals between periods. For the three months ended March 31, 2022, our premium volume was primarily affected by our acquisition of NORCAL.
The professional liability market, which accounts for a majority of the revenues in this segment, remains challenging as physicians continue joining hospitals or larger group practices and, therefore, are no longer purchasing individual or group policies in the standard market. In addition, some competitors have chosen to compete primarily on price; both factors may impact our ability to write new business and retain existing business. Furthermore, the insurance and reinsurance markets have historically been cyclical, characterized by extended periods of intense price competition and other periods of reduced competition. The professional liability market has been particularly affected by these cycles. Underwriting cycles are generally driven by an excess of capacity available and actively pursuing business that is deemed profitable. Changes in the frequency and severity of losses may affect the cycles of the insurance and reinsurance markets significantly. During “soft markets” where price competition is high and underwriting profits are poor, growth and retention of business become challenging which may result in reduced premium volumes.
Gross, ceded and net premiums written were as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Gross premiums written$257,672 $138,289 $119,383 86.3 %
Less: Ceded premiums written22,834 16,976 5,858 34.5 %
Net premiums written$234,838 $121,313 $113,525 93.6 %
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Gross Premiums Written
Gross premiums written by component were as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Professional Liability
HCPL
Standard Physician(1)
$52,653 $52,617 $36 0.1 %
NORCAL Standard Physician(2)
106,476 — 106,476 nm
Total Standard Physician159,129 52,617 106,512 202.4 %
Specialty
Custom Physician(3)
7,407 15,837 (8,430)(53.2 %)
NORCAL Custom Physician(4)
11,638 — 11,638 nm
Hospitals and Facilities(5)
14,197 16,341 (2,144)(13.1 %)
NORCAL Hospitals and Facilities(6)
3,067 — 3,067 nm
Senior Care(7)(12)
4,493 5,041 (548)(10.9 %)
Reinsurance assumed(8)
9,761 10,437 (676)(6.5 %)
Total Specialty50,563 47,656 2,907 6.1 %
Total HCPL209,692 100,273 109,419 109.1 %
Small Business Unit(9)
22,519 22,766 (247)(1.1 %)
Tail Coverages(10)(12)
9,838 8,138 1,700 20.9 %
NORCAL Tail Coverages(10)
7,733 — 7,733 nm
Total Professional Liability249,782 131,177 118,605 90.4 %
Medical Technology Liability(11)
7,700 6,984 716 10.3 %
Other190 128 62 48.4 %
Total$257,672 $138,289 $119,383 86.3 %
(1) Standard Physician premium remained relatively unchanged during the 2022 three-month period as compared to the same period of 2021 as retention losses were offset by an increase in renewal pricing, the conversion of twenty-four month term policies and, to a lesser extent, new business written. Renewal pricing increases during the 2022 three-month period reflect the rising loss cost environment and new business written reflects general market conditions. Retention losses during the 2022 three-month period were largely attributable to our targeted state strategy to reassess our underwriting appetite in certain unprofitable states. We will continue to perform a detailed evaluation of venues, specialties and other areas to improve our underwriting results. We also continue to focus on underwriting discipline as we emphasize careful risk selection, rate adequacy, improved contract terms and a willingness to walk away from business that does not fit our goal of achieving a long-term underwriting profit. Retention losses during the 2022 three-month period also reflected the loss of a $2.0 million policy that chose to utilize self-insurance as well as the loss of a $1.0 million policy due to price competition. We ceased offering twenty-four month term policies beginning in the second quarter of 2020, and the majority of the policies that were up for renewal in 2021 were renewed to twelve month term policies; however, a portion of the premium from 2020 related to policies that are subject to renewal and conversion in 2022.
(2) NORCAL Standard Physician premium represents premium contributed by NORCAL and is comprised of three and twelve month term policies. NORCAL Standard Physician premium during the 2022 three-month period was impacted by retention losses, including the loss of one large policy, partially offset by an increase in renewal pricing and, to a lesser extent, new business written.
(3) Custom Physician premium includes large complex physician groups, multi-state physician groups and non-standard physicians and is written primarily on an excess and surplus lines basis. The decrease in Custom Physician premium during the 2022 three-month period as compared to the same period of 2021 was driven by retention losses, partially offset by an increase in renewal pricing and, to a lesser extent, new business written. Retention losses for the 2022 three-month period were driven by the loss of two large policies totaling approximately $9.0 million due to price competition, which resulted in a decrease in our Specialty retention rate of 18.9 percentage points. Renewal pricing increases for the 2022 three-month period reflect the rising loss cost environment and new business written reflects general market conditions.
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(4) NORCAL Custom Physician premium represents premium contributed by NORCAL and includes large complex physician groups, multi-state physician groups and non-standard physicians and is written primarily on an excess and surplus lines basis. NORCAL Custom Physician premium during the 2022 three-month period was impacted by retention losses, partially offset by an increase in renewal pricing and, to a lesser extent, new business written.
(5) Hospitals and Facilities premium (which includes hospitals, surgery centers and miscellaneous medical facilities) decreased during the 2022 three-month period as compared to the same period of 2021 driven by retention losses and, to a lesser extent, the timing of the renewal of a $1.6 million policy between periods; this policy will renew in the second quarter of 2022 as compared to the first quarter of 2021. Retention losses in the 2022 three-month period were largely attributable to the loss of a $1.4 million policy due to the insured entering into a captive arrangement and our non-renewal of a $1.2 million policy due to our focus on underwriting discipline. The decrease in Hospitals and Facilities premium for the 2022 three-month period was partially offset by new business written, primarily miscellaneous medical facilities, and, to a lesser extent, an increase in renewal pricing. Renewal pricing increases for the 2022 three-month period reflect rate increases and contract modifications that we believe are appropriate given the current loss environment and new business written reflects general market conditions.
(6) NORCAL Hospitals and Facilities premium represents premium contributed by NORCAL and includes hospitals, surgery centers and miscellaneous medical facilities. NORCAL Hospitals and Facilities premium during the 2022 three-month period was impacted by retention losses, partially offset by new business written and, to a lesser extent, an increase in renewal pricing.
(7) Senior Care premium includes facilities specializing in long term residential care primarily for the elderly ranging from independent living through skilled nursing. Our Senior Care premium decreased for the 2022 three-month period as compared to the same period of 2021 driven by retention losses, partially offset by new business written. The lower premium retention was primarily due to a large account renewing with a meaningful reduction in exposure. Renewal pricing for the 2022 three-month period remained relatively unchanged as compared to the same period of 2021.
(8) We offer custom alternative risk solutions including assumed reinsurance. The decrease in premium during the 2022 three-month period primarily reflected the impact of an assumed reinsurance arrangement with a regional hospital group entered into during the first quarter of 2021 which resulted in $4.5 million of premium written, comprised of $2.3 million of retroactive premium written and fully earned and $2.2 million of prospective premium written (see Note 5 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K). The decrease in premium during the 2022 three-month period was largely offset by an increase in premiums assumed on a quota share basis through a strategic partnership in place since 2016 with an international medical professional liability insurer. In 2021, we increased our participation in the original program and entered into another program with this insurer in a new international territory. We anticipate the volume of premium assumed through this partnership will continue to grow going forward.
(9) Our Small Business Unit is primarily comprised of premium associated with podiatrists, legal professionals, dentists and chiropractors. Our Small Business Unit premium remained relatively unchanged during the 2022 three-month period as compared to the same period of 2021 as retention losses were almost entirely offset by new business written and, to a lesser extent, an increase in renewal pricing. The increase in renewal pricing during the 2022 three-month period was primarily the result of an increase in the rate charged for certain renewed policies in select states.
(10) We offer extended reporting endorsement or "tail" coverage to insureds who discontinue their claims-made coverage with us, and we also periodically offer tail coverage through stand-alone policies. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. The amount of tail coverage premium written can vary significantly from period to period.
(11) Our Medical Technology Liability business is marketed throughout the U.S.; coverage is typically offered on a primary basis, within specified limits, to manufacturers and distributors of medical technology and life sciences products including entities conducting human clinical trials. In addition to the previously listed factors that affect our premium volume, our Medical Technology Liability premium is also impacted by the sales volume of insureds. Our Medical Technology Liability premium increased during the 2022 three-month period as compared to the same period of 2021 due to new business written and, to a lesser extent, an increase in renewal pricing, partially offset by retention losses. Renewal pricing increases during the 2022 three-month period are primarily due to changes in the sales volume of certain insureds, including changes in exposure. Retention losses during the 2022 three-month period are primarily attributable to an increase in competition on terms and pricing, as well as merger activity within the industry.

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(12) Certain components of our gross premiums written include alternative market premiums. We currently cede either all or a portion of the alternative market premium, net of reinsurance, to three SPCs of our wholly owned Cayman Islands reinsurance subsidiaries, Inova Re and Eastern Re, which are reported in our Segregated Portfolio Cell Reinsurance segment (see further discussion in the Ceded Premiums Written section that follows). The portion not ceded to the SPCs is retained within our Specialty P&C segment.
Three Months Ended March 31
($ in millions)20222021Change
Senior Care
$3.9 $4.2 $(0.3)(7.1 %)
Tail Coverages3.0 0.3 2.7 900.0 %
Total
$6.9 $4.5 $2.4 53.3 %
Alternative market gross premiums written increased during the 2022 three-month period as compared to the same period of 2021 driven by an increase in tail coverage premium, primarily related to one program.
We are committed to a rate structure that will allow us to fulfill our obligations to our insureds while generating competitive long-term returns for our shareholders. Our pricing continues to be based on expected losses as indicated by our historical loss data and available industry loss data. In recent years, this practice has resulted in gradual rate increases and we anticipate further rate increases due to indications of increasing projected loss severity. Additionally, the pricing of our business includes the effects of filed rates, surcharges and discounts. Renewal pricing also reflects changes in our exposure base, deductibles, self-insurance retention limits and other policy terms and conditions. See further explanation of changes in renewal pricing above under the heading "Gross Premiums Written".
The change in renewal pricing for our Specialty P&C segment, including by major component, was as follows:
Three Months Ended
March 31
2022
Specialty P&C segment
9 %
HCPL
Standard Physician10 %
Specialty6 %
Total HCPL
9 %
Small Business Unit5 %
Medical Technology Liability10 %
New business written by major component on a direct basis was as follows:
Three Months Ended
March 31
(In millions)20222021
HCPL
Standard Physician(1)
$1.8 $0.6 
Specialty(1)
3.7 8.7 
Total HCPL
5.5 9.3 
Small Business Unit
1.0 1.0 
Medical Technology Liability
1.7 1.8 
Total
$8.2 $12.1 
(1) Includes premium contributed by NORCAL during the 2022 three-month period.
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For our Specialty P&C segment, we calculate retention as annualized renewed premium divided by all annualized premium subject to renewal. Retention is affected by a number of factors. We may lose insureds to competitors or to alternative insurance mechanisms such as risk retention groups, captive arrangements or self-insurance entities (often when physicians join hospitals or large group practices) or due to pricing or other issues. We may choose not to renew an insured as a result of our underwriting evaluation. Insureds may also terminate coverage because they have left the practice of medicine for various reasons, principally for retirement, death or disability, but also for personal reasons.
Retention for our Specialty P&C segment, including by major component, was as follows:
Three Months Ended
March 31
20222021
Specialty P&C segment
83 %77 %
HCPL
Standard Physician(1)
88 %86 %
Specialty(1)
61 %56 %
Total HCPL
82 %73 %
Small Business Unit91 %91 %
Medical Technology Liability(2)
84 %87 %
(1) Includes premium contributed by NORCAL during the 2022 three-month period. We continue the process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies, which will likely impact retention in future quarters.
(2) See Gross Premiums Written section for further explanation of retention decline in 2022.
Ceded Premiums Written
Ceded premiums represent the amounts owed to our reinsurers for their assumption of a portion of our losses. Our HCPL and Medical Technology Liability excess of loss reinsurance arrangements renew annually on October 1. For those excess of loss reinsurance arrangements in effect prior to October 1, 2021, we generally retained the first $2 million in risk insured by us and ceded coverages in excess of this amount. Effective October 1, 2021, our HCPL treaty renewed at a lower gross rate and we generally retain from 0% to 5% of the next $24 million of risk for our HCPL coverages in excess of $2 million. Our HCPL excess of loss reinsurance arrangement that renewed on October 1, 2021 also incorporated NORCAL policies. Prior to October 1, 2021, NORCAL policies were reinsured under separate reinsurance agreements, primarily excess of loss, which have historically renewed annually on January 1. For the NORCAL excess of loss reinsurance arrangement that renewed on January 1, 2021, retention was generally the first $2 million in risk and coverages in excess of this amount were ceded up to $24 million. For our Medical Technology Liability treaty which also renewed effective October 1, 2021, we also retain 2.5% of the next $8 million of risk for coverages in excess of $2 million. There were no significant changes in the cost or structure of our Medical Technology Liability treaty upon the October 2021 renewal.
In certain of our excess of loss arrangements, the ultimate amount of ceded premium is determined by the loss experience of the business ceded, subject to certain minimum and maximum amounts. Given the length of time that it takes to resolve our claims, many years may elapse before all losses recoverable under a reinsurance arrangement are known. As a part of the process of estimating our loss reserve we also make estimates regarding the amounts recoverable under our reinsurance arrangements. As a result, we may have an adjustment to our estimate of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. Any changes to estimates of premiums ceded related to prior accident years are fully earned in the period the changes in estimates occur.
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Ceded premiums written were as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Excess of loss reinsurance arrangements (1)
$9,496 $7,678 $1,818 23.7 %
Other shared risk arrangements (2)
4,336 3,963 373 9.4 %
Premium ceded to SPCs (3)
6,881 4,469 2,412 54.0 %
Other ceded premiums written(4)
2,121 866 1,255 144.9 %
Total ceded premiums written$22,834 $16,976 $5,858 34.5 %
(1) We generally reinsure risks under our excess of loss reinsurance arrangements pursuant to which the reinsurers agree to assume all or a portion of all risks that we insure above our individual risk retention levels, up to the maximum individual limits offered. Premium due to reinsurers also fluctuates with the volume of written premium subject to cession under the arrangement. In certain of our excess of loss reinsurance arrangements, the premium due to the reinsurer is determined by the loss experience of that business reinsured, subject to certain minimum and maximum amounts. The increase in ceded premiums written under our excess of loss reinsurance arrangements during the 2022 three-month period as compared to the same period of 2021 was driven by additional ceded premiums of $4.4 million as a result of incorporating NORCAL policies into our existing HCPL excess of loss reinsurance arrangements with the October 1, 2021 renewal, as previously discussed. Excluding NORCAL, ceded premiums written under our excess of loss reinsurance arrangements decreased by approximately $2.4 million primarily due to a decrease in the overall volume of gross premiums written subject to cession and, to a lesser extent, the reduced rate on the treaty year effective October 1, 2021.
(2) We have entered into various shared risk arrangements, including quota share, fronting, and captive arrangements, with certain large healthcare systems and other insurance entities. While we cede a large portion of the premium written under these arrangements, they provide us an opportunity to grow net premium through strategic partnerships. These arrangements primarily include our Ascension Health program. Ceded premiums written under our shared risk arrangements during the 2022 three-month period remained relatively unchanged as compared to the same period of 2021.
(3) As previously discussed, as a part of our alternative market solutions, all or a portion of certain healthcare premium written is ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. See the Segment Results - Segregated Portfolio Cell Reinsurance section for further discussion on the cession to the SPCs from our Specialty P&C segment. The increase in premiums ceded to SPCs during the 2022 three-month period as compared to the same period of 2021 was driven by the impact of tail coverages, primarily related to one program (see discussion in footnote 12 under the heading "Gross Premiums Written").
(4) The increase in other ceded premiums written during the 2022 three-month period as compared to the same period of 2021 was primarily driven by the incorporation of NORCAL's cyber liability coverages into our existing HCPL cyber liability arrangement with the October 1, 2021 renewal.
Ceded Premiums Ratio
The ceded premiums ratio was as follows:
Three Months Ended March 31
 20222021Change
Ceded premiums ratio
8.9%12.3%(3.4 pts)
The above table reflects ceded premiums written as a percent of gross premiums written. The decrease in our ceded premiums ratio for the 2022 three-month period as compared to the same period of 2021 was driven by the reduced rate on our excess of loss reinsurance arrangements for the treaty year effective October 1, 2021 as well as the impact of the addition of the NORCAL gross written premium base for the 2022 three-month period. The decrease in our ceded premiums ratio for the 2022 three-month period as compared to the same period of 2021 was partially offset by an increase in premiums ceded to SPCs. See additional discussion on NORCAL ceded premiums and premiums ceded to SPCs above under the heading "Ceded Premiums Written."
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Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to our reinsurers for their assumption of a portion of our losses. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. The majority of our policies carry a term of one year; however, some of our Medical Technology Liability policies have a multi-year term and some of our NORCAL Standard Physician policies have a three-month term. In addition, prior to the third quarter of 2020, we wrote certain Standard Physician policies with a twenty-four month term. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. Retroactive coverage premiums are 100% earned at the inception of the contract, as all of the associated underlying loss events occurred in the past. Additionally, any ceded premium changes due to changes to estimates of premiums owed under reinsurance agreements for prior accident years are fully earned in the period of change.
Net premiums earned were as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Gross premiums earned$212,279 $132,060 $80,219 60.7 %
Less: Ceded premiums earned14,312 16,447 (2,135)(13.0 %)
Net premiums earned$197,967 $115,613 $82,354 71.2 %
Gross premiums earned during the 2022 three-month period included additional earned premiums of approximately $79.7 million from our acquisition of NORCAL. Excluding premiums associated with the NORCAL acquisition, gross premiums earned remained relatively unchanged during the 2022 three-month period as compared to the same period of 2021.
Ceded premiums earned decreased during the 2022 three-month period as compared to the same period of 2021 driven by the pro rata effect of a decrease in premium ceded under our shared risk and excess of loss arrangements during the preceding twelve months.
Losses and Loss Adjustment Expenses
The determination of calendar year losses involves the actuarial evaluation of incurred losses for the current accident year and the actuarial re-evaluation of incurred losses for prior accident years, including an evaluation of the reserve amounts required for ECO/XPL losses. As part of the review of our prior accident year reserves, we also make estimates of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. This analysis may result in changes to estimates of premiums owed under reinsurance agreements for prior accident years which impact net premiums earned (the denominator of the net loss ratio) in the period the adjustment is made. No such adjustments were made during the three months ended March 31, 2022 or 2021. See previous discussion under the heading "Ceded Premiums Written" for additional information.
Accident year refers to the accounting period in which the insured event becomes a liability of the insurer. For claims-made policies, which represent the majority of the premiums written in our Specialty P&C segment, the insured event generally becomes a liability when the event is first reported to us. For occurrence policies, the insured event becomes a liability when the event takes place. For retroactive coverages, the insured event becomes a liability at inception of the underlying contract. We believe that measuring losses on an accident year basis is the best measure of the underlying profitability of the premiums earned in that period, since it associates policy premiums earned with the estimate of the losses incurred related to those policy premiums.
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The following table summarizes calendar year net loss ratios for our Specialty P&C segment by separating losses between the current accident year and all prior accident years. In addition, net loss ratios for the three months ended March 31, 2022 in the following table include the impact of NORCAL.
Net Loss Ratios (1)
Three Months Ended March 31
20222021Change
Calendar year net loss ratio 83.8 %87.5 %(3.7  pts)
Less impact of prior accident years on the net loss ratio(2.0 %)(2.3 %)0.3  pts
Current accident year net loss ratio (2)
85.8 %89.8 %(4.0  pts)
(1)Net losses, as specified, divided by net premiums earned.
(2)Our current accident year net loss ratio (as shown in the table above) decreased 4.0 percentage points during the three months ended March 31, 2022 as compared to the same period of 2021. The change in our current accident year net loss ratio in each period was primarily attributable to the following:
(In percentage points)Increase (Decrease)
2022 versus 2021
Comparative
three-month
period
Estimated ratio increase (decrease) attributable to:
NORCAL Operations4.0 pts
NORCAL Acquisition - Purchase Accounting Adjustment(1.2 pts)
Change in Estimate of ULAE(3.7 pts)
All other, net(3.1 pts)
Decrease in current accident year net loss ratio(4.0 pts)
Excluding the impact of the items specifically identified in the table above, our current accident year net loss ratio for the three months ended March 31, 2022 improved 3.1 percentage points as compared to the prior year period driven by a decrease to certain loss ratios in our Standard Physician line of business, which we began recognizing in the second half of 2021 and, to a lesser extent, changes in the mix of business. We continue to observe a reduction in claims frequency that started to emerge in 2020, some of which is due to our re-underwriting efforts and some of which, we believe, is associated with the COVID-19 pandemic including the disruption of the court systems. Given the consistent and prolonged nature of this favorable claims frequency trend, we reduced certain loss ratios in our Standard Physician line of business during the third and fourth quarters of 2021. We continue to remain cautious in recognizing the full impact of these favorable trends in our current accident year reserve due to the long-tailed nature of our HCPL claims as well as the uncertainty surrounding the length and severity of the pandemic.
Initial loss ratios associated with NORCAL policies were higher than the average for our other books of business in this segment. The impact of NORCAL operations resulted in a 4.0 percentage point increase in our current accident year net loss ratio for the three months ended March 31, 2022. We continue the process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies. Also as a result of our acquisition of NORCAL, our current accident year net loss ratio for the three months ended March 31, 2022 was impacted by amortization of the negative VOBA associated with NORCAL's assumed unearned premium which is recorded as a reduction to current accident year net losses and accounted for a 1.2 percentage point decrease in our current period ratio. The remaining unamortized negative VOBA will be fully amortized in the second quarter of 2022 (see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for additional information on the remaining expected amortization of the NORCAL acquisition purchase accounting adjustments).
During the first quarter of 2022, we decreased our estimate of ULAE as a result of substantially integrating NORCAL into our Specialty P&C segment operations, which accounted for a 3.7 percentage point decrease in our current period accident year loss ratio with an offsetting 3.7 percentage point increase in our current period expense ratio with no impact to our combined ratio or segment results (see discussion on our expense ratio in the following section under the heading "Underwriting, Policy Acquisition and Operating Expenses"). This change in estimated ULAE had no impact on our combined ratio or segment results.
We re-evaluate our previously established reserve each quarter based upon the most recently completed actuarial analysis supplemented by any new analysis, information or trends that have emerged since the date of that study. We also take into account currently available industry trend information.
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We recognized net favorable prior accident year reserve development of $3.9 million during the three months ended March 31, 2022 as compared to $2.7 million during the same period of 2021. Net favorable development recognized during the three months ended March 31, 2022 was net of an increase in our reserve for potential ECO/XPL claims of $4.0 million as compared to a reduction in this same reserve of $0.2 million during the same period of 2021. Furthermore, net favorable development recognized during the three months ended March 31, 2022 included $2.9 million related to the amortization of the purchase accounting fair value adjustment on NORCAL's assumed net reserve and amortization of the negative VOBA associated with NORCAL's DDR reserve which is recorded as a reduction to prior accident year net losses and loss adjustment expenses. See Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for additional information on the remaining expected amortization of the NORCAL acquisition purchase accounting adjustments. We have not recognized any development related to NORCAL's prior accident year reserves since the date of acquisition on May 5, 2021. Excluding the increase in the ECO/XPL reserve and amortization of purchase accounting adjustments, we recognized net favorable prior accident year reserve development of $5.0 million during the three months ended March 31, 2022, principally related to accident years 2019 through 2021. Development recognized during the three months ended March 31, 2021 principally related to accident years 2017 and 2018.
A detailed discussion of factors influencing our recognition of loss development is included in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses" in our December 31, 2021 report on Form 10-K. Assumptions used in establishing our reserve are regularly reviewed and updated by management as new data becomes available. Any adjustments necessary are reflected in the then current operations. Due to the size of our reserve, even a small percentage adjustment to the assumptions can have a material effect on our results of operations for the period in which the change is made, as was the case in both 2022 and 2021.
Underwriting, Policy Acquisition and Operating Expenses
Our Specialty P&C segment underwriting, policy acquisition and operating expenses, including NORCAL expenses for the 2022 three-month period, were comprised as follows:
Three Months Ended March 31
($ in thousands)20222021Change
DPAC amortization$21,740 $12,396 $9,344 75.4 %
Management fees1,402 1,001 401 40.1 %
Other underwriting and operating expenses19,736 12,949 6,787 52.4 %
Total$42,878 $26,346 $16,532 62.7 %
DPAC amortization for the 2022 three-month period included approximately $8.1 million of DPAC amortization associated with NORCAL policies written subsequent to our acquisition; however, this level of DPAC amortization is approximately $1.0 million lower than would be considered normal for the quarter due to the application of GAAP purchase accounting rules whereby the capitalized policy acquisition costs for policies written prior to the acquisition date were written off through purchase accounting on May 5, 2021 rather than being expensed pro rata over the remaining term of the associated policies (see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for more information). The remaining increase in DPAC amortization for the 2022 three-month period as compared to the same period of 2021 reflected an increase in brokerage expenses due to our increased participation with an international medical professional liability insurer in our Specialty line of business (see discussion under the heading "Gross Premiums Written").
Management fees are charged pursuant to a management agreement by the Corporate segment to the operating subsidiaries within our Specialty P&C segment for services provided based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. Fluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period. Due to continued organizational structure enhancements in our Specialty P&C segment during 2021 as well as operational alignments as a result of the integration of NORCAL, the extent to which services are provided by the Corporate segment to the operating subsidiaries within the segment decreased further effective January 1, 2022. Accordingly, we reduced the fee charged to the operating subsidiaries in 2022. Also effective January 1, 2022, the management agreement included operating subsidiaries of NORCAL contributing to $0.6 million of additional management fees in the current period.
Other underwriting and operating expenses increased during the 2022 three-month period primarily due to the addition of expenses contributed by NORCAL as well as a decrease in our estimate of ULAE which resulted in approximately $7.3 million of expenses remaining in operating expenses instead of being allocated to net losses and loss adjustment expenses. As a result, this change in ULAE estimate had offsetting impacts to our loss and expense ratios during the period with no impact to our combined ratio or segment results. See additional discussion on this change in ULAE estimate in the previous section under the heading "Losses and Loss Adjustment Expenses." Excluding expenses contributed by NORCAL and the impact of the change
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in ULAE, other underwriting and operating expenses decreased due to benefits from prior organizational restructurings and proactive expense management, somewhat offset by one-time expenses of $1.6 million incurred during the current period mainly comprised of one-time bonuses, employee severance charges and lease exit costs.
Underwriting Expense Ratio (the Expense Ratio)
Our expense ratio for the Specialty P&C segment was as follows:
 Three Months Ended March 31
 20222021Change
Underwriting expense ratio
21.7 %22.8 %(1.1  pts)
The change in our expense ratio for the 2022 three-month period as compared to the same period of 2021 was primarily attributable to the following:
Increase (Decrease)
 2022 versus 2021
(In percentage points)Comparative three-month period
Estimated ratio increase (decrease) attributable to:
Increase in Net Premiums Earned and DPAC amortization(1)
0.3 pts
Change in Estimate of ULAE3.7 pts
Tail Premium(2)
(1.2 pts)
All other, net(3.9 pts)
Decrease in the underwriting expense ratio(1.1 pts)
(1) Excludes tail premium for the three months ended March 31, 2022 and 2021.
(2) Represents the effect of the premium earned from tail policies for the three months ended March 31, 2022 as compared to the same period of 2021 as there is typically minimal expense associated with tail premium (see discussion under the heading "Gross Premiums Written").
Excluding the items specifically identified in the table above, our expense ratio for the 2022 three-month period decreased by 3.9 percentage points primarily due to lower operating expenses due to the benefits from prior organizational restructurings and proactive expense management as well as expense synergies recognized from the NORCAL acquisition. However, as previously discussed, DPAC amortization associated with NORCAL recorded during the 2022 three-month period was lower than would be considered normal for the quarter due to the application of GAAP purchase accounting rules. Normalizing this amortization would have increased our expense ratio for the 2022 three-month period by an estimated 0.5 percentage points.
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Segment Results - Workers' Compensation Insurance
Our Workers' Compensation Insurance segment includes workers' compensation products provided to employers generally with 1,000 or fewer employees, as discussed in Note 18 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K. Workers' compensation products offered include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and alternative market programs. Alternative market programs include program design, fronting, claims administration, risk management, SPC rental, asset management and SPC management services. Alternative market program premiums are 100% ceded to either the SPCs within our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer for one program. Our Workers' Compensation Insurance segment results reflect pre-tax underwriting profit or loss from these workers' compensation products, exclusive of investment results, which are included in our Corporate segment. Segment results included the following:
Three Months Ended March 31
($ in thousands)20222021Change
Net premiums written$45,266 $46,884 $(1,618)(3.5 %)
Net premiums earned$40,684 $40,011 $673 1.7 %
Other income682 392 290 74.0 %
Net losses and loss adjustment expenses(27,211)(26,207)(1,004)3.8 %
Underwriting, policy acquisition and operating expenses(13,001)(12,286)(715)5.8 %
Segment results$1,154 $1,910 $(756)(39.6 %)
Net loss ratio66.9%65.5%1.4 pts
Underwriting expense ratio32.0%30.7%1.3 pts

Premiums Written
Our workers’ compensation premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of our existing book of business, (3) premium rates charged on our renewal book of business, (4) changes in payroll exposure and (5) audit premium.
Gross, ceded and net premiums written were as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Gross premiums written
$72,118 $72,328 $(210)(0.3 %)
Less: Ceded premiums written
26,852 25,444 1,408 5.5 %
Net premiums written
$45,266 $46,884 $(1,618)(3.5 %)
Gross Premiums Written
Gross premiums written by product were as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Traditional business:
Guaranteed cost$35,503 $38,196 $(2,693)(7.1 %)
Policyholder dividend7,862 7,520 342 4.5 %
Deductible2,120 2,052 68 3.3 %
Retrospective(1)
646 455 191 42.0 %
Other1,615 1,600 15 0.9 %
Alternative market business(2)
24,372 23,715 657 2.8 %
Change in EBUB estimate— (1,210)1,210 nm
Total$72,118 $72,328 $(210)(0.3 %)
(1) The change in retrospectively-rated policies included an adjustment that decreased premium by $0.1 million for each of the three months ended March 31, 2022 and 2021.
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(2) A majority of alternative market premiums are ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment. See further discussion on alternative market gross premiums written in our Segment Operating Results - Segregated Portfolio Cell Reinsurance section under the heading "Gross Premiums Written" that follows.
Gross premiums written remained relatively unchanged during the three months ended March 31, 2022 as compared to the same period of 2021 as decreases in new business, renewal retention and renewal rate changes were largely offset by an increase in audit premium and the prior year impact of the reduction of our EBUB estimate. Policy audits processed during the 2022 three-month period resulted in audit premium billed to policyholders totaling $1.7 million as compared to audit premium returned to policyholders of $0.8 million for the same period in 2021. We did not adjust our EBUB estimate for the 2022 three-month period; however, we reduced our EBUB estimate by $1.2 million for the same period in 2021. Renewal rate retention was 88% for the 2022 three-month period as compared to 90% for the same period of 2021. Renewal rate decreased 4% during the 2022 three-month period as compared to 3% during the same period of 2021. New business written decreased $2.1 million during the 2022 three-month period as compared to the same period of 2021, reflecting the competitive workers' compensation market conditions and a decrease in new business submissions in the 2022 three-month period.
We retained 100% of the nine workers’ compensation alternative market programs that were up for renewal during the three months ended March 31, 2022.
New business, audit premium, renewal retention and renewal price changes for our traditional business and the alternative market business are shown in the table below:
Three Months Ended March 31
20222021
($ in millions)Traditional BusinessAlternative Market BusinessSegment
Results		Traditional BusinessAlternative Market BusinessSegment
Results
New business$3.5 $1.1 $4.6 $5.9 $0.8 $6.7 
Audit premium (excluding EBUB)$0.1 $1.6 $1.7 $(1.0)$0.2 $(0.8)
Retention rate (1)
85 %92 %88 %89 %92 %90 %
Change in renewal pricing (2)
(4 %)(3 %)(4 %)(2 %)(5 %)(3 %)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
Ceded Premiums Written
Ceded premiums written were as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Premiums ceded to SPCs$21,488 $20,682 $806 3.9 %
Premiums ceded to external reinsurers3,155 2,974 181 6.1 %
Premiums ceded to unaffiliated captive insurer2,884 3,033 (149)(4.9 %)
Change in return premium estimate under external reinsurance 29 (474)503 106.1 %
Estimated revenue share under external reinsurance(704)(771)67 (8.7 %)
Total ceded premiums written$26,852 $25,444 $1,408 5.5 %
Premiums ceded to SPCs represent alternative market business that is ceded under 100% quota share reinsurance agreements to the SPCs in our Segregated Portfolio Cell Reinsurance segment. Premiums ceded to an unaffiliated captive insurer represent alternative market business for one program that is ceded under a 100% quota share reinsurance agreement. Alternative market premiums written increased for the 2022 three-month period, which resulted in higher premiums ceded to SPCs. See further discussion on alternative market gross premiums written in our Segment Operating Results - Segregated Portfolio Cell Reinsurance section under the heading "Gross Premiums Written" that follows.
Under our external reinsurance treaty for traditional business, we retain the first $0.5 million in risk insured by us and cede losses in excess of this amount on each loss occurrence, subject to an AAD, equal to 3.5% of ceded earned premium for the treaty year effective May 1, 2021. Premiums ceded under our traditional reinsurance treaty are based on premium earned
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during the treaty period. The increase in premiums ceded to external reinsurers during the 2022 three-month period primarily reflected the increase in reinsurance rates effective May 1, 2021.
Changes in the return premium estimate reflected adjustments to our estimate of expected future recovery of ceded premium based on the underlying loss experience of our reinsurance treaties that include a provision for return premium. As shown in the table above, we decreased our estimate of return premium by a nominal amount during the 2022 three-month period as compared to an increase of $0.5 million during the same respective period in 2021. Changes in the estimated return premium primarily reflect adjustments to loss estimates on previously reported reinsured claims.
We are party to a revenue sharing agreement with our reinsurance broker under which we participate in the broker's revenue earned under our reinsurance treaties based on the volume of premium ceded. We estimate the amount of revenue we expect to receive under this agreement as premiums are recognized and ceded to the reinsurers.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:
Three Months Ended March 31
20222021Change
Ceded premiums ratio, as reported33.3 %31.8 %1.5  pts
Less the effect of:
Premiums ceded to SPCs (100%)
26.1 %25.9 %0.2  pts
Premiums ceded to unaffiliated captive insurers (100%)1.5 %1.7 %(0.2  pts)
Change in EBUB— %0.1 %(0.1  pts)
Change in return premium estimate under external reinsurance0.1 %(1.1 %)1.2  pts
Estimated revenue share(1.6 %)(1.8 %)0.2  pts
Assumed premiums earned (not ceded to external reinsurers)(0.3 %)(0.3 %)—  pts
Ceded premiums ratio (related to external reinsurance), less the effects of above7.5 %7.3 %0.2  pts
The above table reflects traditional ceded premiums earned as a percent of traditional gross premiums earned. As discussed above, premiums ceded under our traditional reinsurance treaty are based on premiums earned during the treaty period. The increase in the ceded premiums ratio for the three months ended March 31, 2022 as compared to the same period in 2021 primarily reflected an increase in reinsurance rates.
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to SPCs in our Segregated Portfolio Cell Reinsurance segment, external reinsurers (including changes related to the return premium and revenue share estimates) and the unaffiliated captive insurer. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Our workers’ compensation policies are twelve month term policies, and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of our insureds' payrolls, changes in our EBUB estimate and premium adjustments related to retrospectively-rated policies. Payroll audits are conducted subsequent to the end of the policy period and any related premium adjustments processed are recorded as fully earned in the current period. In addition, we record an estimate for EBUB and evaluate the estimate on a quarterly basis.
Net premiums earned were as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Gross premiums earned$61,034 $58,632 $2,402 4.1 %
Less: Ceded premiums earned20,350 18,621 1,729 9.3 %
Net premiums earned$40,684 $40,011 $673 1.7 %
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The increase in net premiums earned during the three months ended March 31, 2022 as compared to the same period in 2021 primarily reflected the impact of the adjustment to EBUB in the prior year period. Excluding the adjustment to EBUB during the 2021 three-month period, net premiums earned decreased during the three months ended March 31, 2022 as compared to the same period in 2021 primarily due to the pro rata effect of a reduction in net premiums written during the preceding twelve months. The decrease in net premiums earned during the three months ended March 31, 2022 was partially offset by an increase in audit premium billed to policyholders.
Losses and Loss Adjustment Expenses
We estimate our current accident year loss and loss adjustment expenses by developing actual reported losses using historical loss development factors, adjusted to reflect current and expected trends based on various internal analyses and supplemental information. The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Calendar year and current accident year net loss ratios by component were as follows:
Three Months Ended March 31
20222021Change
Calendar year net loss ratio66.9 %65.5 %1.4  pts
Less impact of prior accident years on the net loss ratio(4.9 %)(5.5 %)0.6  pts
Current accident year net loss ratio71.8 %71.0 %0.8  pts
The increase in the current accident year net loss ratio during the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected the continuation of intense price competition and the resulting renewal rate decreases, partially offset by the impact of favorable prior year claim trends on the current year estimate. The current accident year net loss ratio for the three months ended March 31, 2022 also reflects an expectation that the labor shortage will continue to have an impact on claim activity during 2022.
Calendar year incurred losses (excluding IBNR) in excess of our per occurrence reinsurance retention, before consideration of the AAD (see previous discussion under the heading "Ceded Premiums Written"), increased $1.7 million for the three months ended March 31, 2022 as compared to the same period of 2021; however, of the $1.7 million, we retained losses in excess of our per occurrence retention totaling $1.0 million which reflected losses within the AAD. There were no current accident year reported losses ceded to reinsurers during the three months ended March 31, 2022 or 2021.
We recognized net favorable prior year development related to our previously established reserve of $2.0 million for the three months ended March 31, 2022 as compared to $2.2 million for the same period of 2021. The net favorable prior year reserve development for the three months ended March 31, 2022 and 2021 reflected overall favorable trends in claim closing patterns. Net favorable development for the 2022 three months ended was primarily related to accident years 2019 and prior. Net favorable development for the 2021 three-month period was primarily related to accident years 2017 and prior.
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Underwriting, Policy Acquisition and Operating Expenses
Underwriting, policy acquisition and operating expenses include the amortization of commissions, premium taxes and underwriting salaries, which are capitalized and deferred over the related workers’ compensation policy period, net of ceding commissions earned. The capitalization of underwriting salaries can vary as they are subject to the success rate of our contract acquisition efforts. These expenses also include a management fee charged by our Corporate segment, which represents intercompany charges pursuant to a management agreement, and the amortization of intangible assets, primarily related to the acquisition of Eastern by ProAssurance. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary.
Our Workers' Compensation Insurance segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended March 31
($ in thousands)20222021Change
DPAC amortization$7,061 $6,741 $320 4.7 %
Management fees541 542 (1)(0.2 %)
Other underwriting and operating expenses8,868 8,252 616 7.5 %
Policyholder dividend expense209 269 (60)(22.3 %)
SPC ceding commission offset(3,678)(3,518)(160)4.5 %
Total$13,001 $12,286 $715 5.8 %
The increase in DPAC amortization for the three months ended March 31, 2022 as compared to the same period in 2021 primarily reflected the increase in gross premiums earned.
The increase in other underwriting and operating expenses for the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected an increase in costs related to compensation, business-related travel, lease exit costs and an increase in the allowance for credit losses. Marketing costs included advertising and website-related activities that were planned for 2022. Business-related travel has increased as a result of the easing of pandemic-related restrictions. During the first quarter of 2022, we recognized one-time lease exit costs of $0.2 million due to the early termination of an office lease; however, as a result, we anticipate annual expense savings of approximately $0.1 million. The increase in the allowance for credit losses primarily reflects an increase in accounts greater than 90 days old, which we believe is a timing issue that will reverse in future periods.
As previously discussed, alternative market premiums written by our Workers' Compensation Insurance segment are 100% ceded, less a ceding commission, to either the SPCs in our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer. The ceding commission charged to the SPCs consists of an amount for fronting fees, cell rental fees, commissions, premium taxes and risk management fees. The fronting fees, commissions, premium taxes and risk management fees are recorded as an offset to underwriting, policy acquisition and operating expenses. Cell rental fees are recorded as a component of other income and claims administration fees are recorded as ceded ULAE. The increase in SPC ceding commissions earned for the three months ended March 31, 2022 as compared to the same period of 2021, primarily reflected the increase in alternative market ceded earned premium.
Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:
Three Months Ended March 31
20222021Change
Underwriting expense ratio, as reported32.0 %30.7 %1.3  pts
Less estimated ratio increase (decrease) attributable to:
Impact of ceding commissions received from SPCs3.5 %2.9 %0.6  pts
Impact of audit premium(0.1 %)1.0 %(1.1  pts)
Change in return premium estimate under external reinsurance— %(0.2 %)0.2  pts
Estimated revenue share(0.3 %)(0.4 %)0.1  pts
Underwriting expense ratio, less listed effects28.9 %27.4 %1.5  pts
Excluding the items noted in the table above, the expense ratio increased for the three months ended March 31, 2022, primarily reflecting the increase in other underwriting and operating expenses, as previously discussed.
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Segment Results - Segregated Portfolio Cell Reinsurance
The Segregated Portfolio Cell Reinsurance segment includes the results (underwriting profit or loss, plus investment results, net of U.S. federal income taxes) of SPCs at Inova Re and Eastern Re, our Cayman Islands SPC operations, as discussed in Note 18 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K. SPCs are segregated pools of assets and liabilities that provide an insurance facility for a defined set of risks. Assets of each SPC are solely for the benefit of that individual cell and each SPC is solely responsible for the liabilities of that individual cell. Assets of one SPC are statutorily protected from the creditors of the others. Each SPC is owned, fully or in part, by an individual company, agency, group or association and the results of the SPCs are attributable to the participants of that cell. We participate to a varying degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC results attributable to external cell participants are reported as an SPC dividend (expense) income in our Segregated Portfolio Cell Reinsurance segment. In addition, our Segregated Portfolio Cell Reinsurance segment includes the investment results of the SPCs as the investments are solely for the benefit of the cell participants and investment results attributable to external cell participants are reflected in the SPC dividend (expense) income. As of March 31, 2022, there were 27 (4 inactive) SPCs. The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from our Workers' Compensation Insurance and Specialty P&C segments. As of March 31, 2022, there were two SPCs that assumed both workers' compensation insurance and healthcare professional liability insurance and one SPC that assumed only healthcare professional liability insurance.
Segment results reflects our share of the underwriting and investment results of the SPCs in which we participate, and included the following:
Three Months Ended March 31
($ in thousands)20222021Change
Net premiums written$25,217 $22,188 $3,029 13.7 %
Net premiums earned$19,314 $15,884 $3,430 21.6 %
Net investment income112 221 (109)(49.3 %)
Net investment gains (losses)(711)987 (1,698)(172.0 %)
Other income1 1 — — %
Net losses and loss adjustment expenses(11,491)(9,425)(2,066)21.9 %
Underwriting, policy acquisition and operating expenses(4,369)(5,025)656 (13.1 %)
SPC U.S. federal income tax expense (1)
(642)(356)(286)80.3 %
SPC net results2,214 2,287 (73)(3.2 %)
SPC dividend (expense) income (2)
(2,367)(1,742)(625)35.9 %
Segment results (3)
$(153)$545 $(698)(128.1 %)
Net loss ratio59.5%59.3%0.2 pts
Underwriting expense ratio22.6%31.6%(9.0 pts)
(1) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
(2) Represents the net (profit) loss attributable to external cell participants.
(3) Represents our share of the net profit (loss) of the SPCs in which we participate.


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Premiums Written
Premiums in our Segregated Portfolio Cell Reinsurance segment are assumed from either our Workers' Compensation Insurance or Specialty P&C segments. Premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of the existing book of business, (3) premium rates charged on the renewal book of business and, for workers' compensation business, (4) changes in payroll exposure and (5) audit premium.
Gross, ceded and net premiums written were as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Gross premiums written
$28,369 $25,151 $3,218 12.8 %
Less: Ceded premiums written
3,152 2,963 189 6.4 %
Net premiums written
$25,217 $22,188 $3,029 13.7 %
Gross Premiums Written
Gross premiums written reflected reinsurance premiums assumed by component as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Workers' compensation
$21,488 $20,682 $806 3.9 %
Healthcare professional liability
6,881 4,469 2,412 54.0 %
Gross Premiums Written$28,369 $25,151 $3,218 12.8 %
Gross premiums written for the three months ended March 31, 2022 and 2021 were primarily comprised of workers' compensation coverages assumed from our Workers' Compensation Insurance segment. Workers' compensation gross premiums written increased during the three months ended March 31, 2022 as compared to the same period of 2021 driven by an increase in audit premium billed to policyholders and new business written, partially offset by renewal rate decreases of 3%. Healthcare professional liability gross premiums written increased during the three months ended March 31, 2022 as compared to the same period of 2021 driven by the effect of tail coverage premium primarily related to one program in which we do not participate, which resulted in $3.0 million of one-time premium written and fully earned. We retained 100% of the eight workers' compensation programs and one healthcare professional liability program up for renewal during the three months ended March 31, 2022.
New business, audit premium, retention and renewal price changes for the assumed workers' compensation premium is shown in the table below:
Three Months Ended March 31
($ in millions)20222021
New business$1.1 $0.8 
Audit premium$1.6 $0.2 
Retention rate (1)
92 %92 %
Change in renewal pricing (2)
(3 %)(5 %)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
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Ceded Premiums Written
Ceded premiums written were as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Ceded premiums written$3,152 $2,963 $189 6.4 %
For the workers' compensation business, each SPC has in place its own external reinsurance coverage. The healthcare professional liability business is assumed net of reinsurance from our Specialty P&C segment; therefore, there are no ceded premiums related to the healthcare professional liability business reflected in the table above. The risk retention for each loss occurrence for the workers' compensation business ranges from $0.3 million to $0.4 million based on the program, with limits up to $119.7 million. In addition, each program has aggregate reinsurance coverage between $1.1 million and $2.1 million on a program year basis. Premiums ceded under our SPC reinsurance treaty are based on premiums written during the treaty period. The change in ceded premiums written during the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected the change in workers' compensation gross premiums written and the impact of rate increases under the external reinsurance treaty. External reinsurance rates vary based on the alternative market program.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:
Three Months Ended March 31
20222021Change
Ceded premiums ratio14.7%14.3%0.4 pts
The above table reflects ceded premiums as a percent of gross premiums written for the workers' compensation business only; healthcare professional liability business is assumed net of reinsurance, as discussed above. The ceded premiums ratio reflects the weighted average reinsurance rates of all SPC programs. The increase in the ceded premiums ratio for the three months ended March 31, 2022 primarily reflected an increase in reinsurance rates.
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that the SPCs cede to external reinsurers. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Policies ceded to the SPCs are twelve month term policies and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of workers' compensation insureds' payrolls. Payroll audits are conducted subsequent to the end of the policy period and any related adjustments are recorded as fully earned in the current period.
Gross, ceded and net premiums earned were as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Gross premiums earned$21,664 $17,967 $3,697 20.6 %
Less: Ceded premiums earned2,350 2,083 267 12.8 %
Net premiums earned$19,314 $15,884 $3,430 21.6 %
The increase in net premiums earned during the three months ended March 31, 2022 primarily reflected the aforementioned effect of $3.0 million of tail premium fully written and earned during the current period and the increase in audit premium billed to policyholders, partially offset by the pro rata effect of a reduction in net premiums written during the preceding twelve months.
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Losses and Loss Adjustment Expenses
The following table summarizes the calendar year net loss ratios by separating losses between the current accident year and all prior accident years. The current accident year net loss ratio reflected the aggregate loss ratio for all programs. Loss reserves are estimated for each program on a quarterly basis. Due to the size of some of the programs, quarterly loss results can create volatility in the current accident year net loss ratio from period to period.
Calendar year and current accident year net loss ratios for the three months ended March 31, 2022 and 2021 were as follows:
Three Months Ended March 31
20222021Change
Calendar year net loss ratio
59.5 %59.3 %0.2  pts
Less impact of prior accident years on the net loss ratio
(5.0 %)(9.6 %)4.6  pts
Current accident year net loss ratio
64.5 %68.9 %(4.4  pts)
The current accident year net loss ratio decreased 4.4 percentage points for the three months ended March 31, 2022 as compared to the same period of 2021. The decrease in the current accident year net loss ratio for the three months ended March 31, 2022 primarily reflected favorable trends in prior accident year claim results and their impact on our analysis of the current accident year loss estimate, partially offset by the continuation of intense price competition and the resulting renewal rate decreases in the workers' compensation business.
Calendar year incurred losses (excluding IBNR) ceded to our external reinsurers decreased $2.8 million for the three months ended March 31, 2022 as compared to the same period of 2021. Current accident year ceded incurred losses (excluding IBNR) increased $0.1 million for the 2022 three-month period as compared to the same period of 2021.
We recognized net favorable prior year reserve development of $0.9 million for the three months ended March 31, 2022 as compared to $1.4 million for the same period of 2021. The net favorable prior year reserve development for the three months ended March 31, 2022 related entirely to workers’ compensation business, which reflected overall favorable trends in claim closing patterns primarily in accident years 2019 and 2020. The net favorable prior year reserve development for the three months ended March 31, 2021 also related entirely to the workers’ compensation business which primarily reflected overall favorable claim trends in claim closing patterns in accident years 2018 and 2019.
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Underwriting, Policy Acquisition and Operating Expenses
Our Segregated Portfolio Cell Reinsurance segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended March 31
($ in thousands)20222021Change
DPAC amortization$5,294 $4,636 $658 14.2 %
Policyholder dividend expense66 173 (107)(61.8 %)
Other underwriting and operating expenses(991)216 (1,207)(558.8 %)
Total
$4,369 $5,025 $(656)(13.1 %)
DPAC amortization primarily represents ceding commissions, which vary by program and are paid to our Workers' Compensation Insurance and Specialty P&C segments for premiums assumed. Ceding commissions include an amount for fronting fees, commissions, premium taxes and risk management fees, which are reported as an offset to underwriting, policy acquisition and operating expenses within our Workers' Compensation Insurance and Specialty P&C segments. In addition, ceding commissions paid to our Workers' Compensation Insurance segment include cell rental fees which are recorded as other income and claims administration fees which are recorded as ceded ULAE within our Workers' Compensation Insurance segment.
Other underwriting and operating expenses primarily include bank fees, professional fees and changes in the allowance for expected credit losses. The decrease in other underwriting and operating expenses for the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected the change in our allowance for expected credit losses related to the collection of customer accounts that were previously written off.
The decrease in policyholder dividend expense for the three months ended March 31, 2022 as compared to the same period of 2021, related primarily to one SPC program, in which we do not participate.
Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:
Three Months Ended March 31
20222021Change
Underwriting expense ratio, as reported22.6%31.6%(9.0 pts)
Less: impact of audit premium on expense ratio(2.0%)(0.3%)(1.7 pts)
Underwriting expense ratio, excluding the effect of audit premium24.6%31.9%(7.3 pts)
Excluding the effect of audit premium, the underwriting expense ratio decreased for the 2022 three-month period. The decrease in the underwriting expense ratio for the 2022 three-month period primarily reflected the change in the allowance for expected credit losses and policyholder dividend expense, as discussed above.
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Segment Results - Lloyd's Syndicates
Our Lloyd's Syndicates segment includes the results from our participation in Syndicate 1729 and Syndicate 6131 at Lloyd's of London. In addition to our participation in Syndicate results, we have investments in and other obligations to our Lloyd's Syndicates consisting of a Syndicate Credit Agreement and FAL requirements. For the 2022 underwriting year, our FAL was comprised of investment securities and cash and cash equivalents deposited with Lloyd's which at March 31, 2022 had a fair value of approximately $37.0 million, as discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements. The discussion in our Segment Operating Results under the same heading in Item 7 of our December 31, 2021 report on Form 10-K includes additional information regarding our participation.
We normally report results from our involvement in Lloyd's Syndicates on a quarter lag, except when information is available that is material to the current period. Furthermore, the investment results associated with our FAL investments and certain U.S. paid administrative expenses are reported concurrently as that information is available on an earlier time frame.
To support and grow our core insurance operations, we reduced our participation in the results of Syndicate 1729, to 5% from 29%, and Syndicate 6131, to 50% from 100%, for the 2021 underwriting year. Due to the quarter lag, this reduced participation was not reflected in our results until the second quarter of 2021. Our participation in the results of Syndicate 1729 for the 2022 underwriting year remains unchanged from the 2021 underwriting year at 5%. Effective January 1, 2022, Syndicate 6131 ceased underwriting on a quota share basis with Syndicate 1729 as Syndicate 6131's applicable business is retained within Syndicate 1729 beginning with the 2022 year of account. The results from our participation in Syndicate 6131 from open underwriting years prior to 2022 will continue to earn out pro rata over the entire policy period of the underlying business. Due to the quarter lag, our ceased participation in Syndicate 6131 will not be reflected in our results until the second quarter of 2022.
In addition to the results of our participation in Lloyd's Syndicates, as discussed above, our Lloyd's Syndicates segment also includes 100% of the results of our wholly owned subsidiaries that support our operations at Lloyd's. For the three months ended March 31, 2022 and 2021, the results of our Lloyd's Syndicates segment were as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Gross premiums written$5,817 $14,102 $(8,285)(58.8 %)
Less: Ceded premiums written223 2,217 (1,994)(89.9 %)
Net premiums written$5,594 $11,885 $(6,291)(52.9 %)
Net premiums earned$7,746 $15,850 $(8,104)(51.1 %)
Net investment income211 729 (518)(71.1 %)
Net investment gains (losses)(399)(115)(284)(247.0 %)
Other income134 221 (87)(39.4 %)
Net losses and loss adjustment expenses(4,763)(12,967)8,204 (63.3 %)
Underwriting, policy acquisition and operating expenses(2,709)(6,591)3,882 (58.9 %)
Segment results$220 $(2,873)$3,093 107.7 %
Net loss ratio61.5%81.8%(20.3 pts)
Underwriting expense ratio35.0%41.6%(6.6 pts)
Premiums
Net premiums written decreased during the 2022 three-month period as compared to the same period of 2021 driven by our decreased participation in the results of Syndicates 1729 and 6131 for the 2021 underwriting year, partially offset by volume increases on renewal business and renewal pricing increases, primarily on casualty and property insurance coverages, as well as new business written, primarily on specialty property coverages. Net premiums earned decreased $8.1 million during the 2022 three-month period as compared to the same period of 2021 primarily attributable to the pro rata effect of a reduction in net premiums written during the preceding twelve months.
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Net Losses and Loss Adjustment Expenses
The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Net loss ratios for the period were as follows:
Net Loss Ratios
Three Months Ended March 31
20222021Change
Calendar year net loss ratio 61.5 %81.8 %(20.3  pts)
Less: impact of prior accident years on the net loss ratio19.7 %9.7 %10.0  pts
Current accident year net loss ratio 41.8 %72.1 %(30.3  pts)
The decrease in the calendar year net loss ratio for the three months ended March 31, 2022 as compared to the same period of 2021 was primarily driven by the impact of certain property and catastrophe related losses incurred during the prior year period and, to a lesser extent, decreases to certain loss estimates during the first quarter of 2022, partially offset by unfavorable prior year development. We recognized $1.5 million of unfavorable prior year development during each of the three months ended March 31, 2022 and 2021. The unfavorable prior year development for the three months ended March 31, 2022 was driven by higher than expected losses and development on certain large claims, primarily catastrophe related losses.
Underwriting, Policy Acquisition and Operating Expenses
For the 2022 three-month period, the underwriting expense ratio decreased by 6.6 percentage points as compared to the same period of 2021 which primarily reflected the impact of our reduced participation in Syndicate 1729 and Syndicate 6131 for the 2021 underwriting year. Due to the quarter lag, operating expenses incurred during the first quarter of 2022 primarily were related to the 2021 underwriting year for which our participation is 5% and 50% in Syndicate 1729 and Syndicate 6131, respectively, whereas the net premiums earned during the same period also includes premium from other open underwriting years in which we participate at a higher degree.
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Segment Results - Corporate
Our Corporate segment includes our investment operations, including the investment operations of NORCAL for the three months ended March 31, 2022 and excluding those reported in our Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments as discussed in Note 18 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K. In addition, this segment includes corporate expenses, interest expense, U.S. income taxes and non-premium revenues generated outside of our insurance entities. Segment results for the three months ended March 31, 2022 exclude transaction-related costs and the associated income tax benefit related to the NORCAL acquisition as we do not consider these items in assessing the financial performance of the segment (for additional information on the NORCAL acquisition see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K). Segment results for our Corporate segment were net earnings of $6.0 million for the three months ended March 31, 2022 as compared to $19.6 million for the same period of 2021 and included the following:
Three Months Ended March 31
($ in thousands)20222021Change
Net investment income
$20,120 $14,067 $6,053 43.0 %
Equity in earnings (loss) of unconsolidated subsidiaries
$7,620 $6,788 $832 12.3 %
Net investment gains (losses)
$(12,396)$7,977 $(20,373)(255.4 %)
Other income
$2,065 $1,894 $171 9.0 %
Operating expense
$8,739 $7,175 $1,564 21.8 %
Interest expense
$4,441 $3,212 $1,229 38.3 %
Income tax expense (benefit)
$(1,770)$736 $(2,506)(340.5 %)
Net Investment Income, Equity in Earnings (Loss) of Unconsolidated Subsidiaries, Net Investment Gains (Losses)
Net Investment Income
Net investment income is primarily derived from the income earned by our fixed maturity securities and also includes dividend income from equity securities, income from our short-term and cash equivalent investments, earnings from other investments and changes in the cash surrender value of BOLI contracts, net of investment fees and expenses. Net investment income for the three months ended March 31, 2022 also includes income earned, net of investment fees and expenses, from investments acquired from NORCAL on May 5, 2021.
Net investment income (loss) by investment category was as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Fixed maturities$21,100 $14,725 $6,375 43.3 %
Equities701 694 7 1.0 %
Short-term investments, including Other405 198 207 104.5 %
BOLI(47)444 (491)(110.6 %)
Investment fees and expenses(2,039)(1,994)(45)2.3 %
Net investment income$20,120 $14,067 $6,053 43.0 %
Fixed Maturities
Income from our fixed maturities increased during the 2022 three-month period as compared to the same period of 2021 driven by higher average investment balances primarily attributable to the addition of fixed maturity securities valued at $1.1 billion to our portfolio on May 5, 2021 as a result of the NORCAL acquisition (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K for additional information). The increase in income from our fixed maturities during the 2022 three-month period was partially offset by lower yields from our corporate debt securities and, to a lesser extent, state and municipal bonds. As a result of the NORCAL acquisition, average investment balances were approximately 66% higher for the 2022 three-month period as compared to the same period of 2021; excluding the impact of the acquisition, average investment balances were approximately 6% higher.
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Average yields for our fixed maturity portfolio were as follows:
Three Months Ended March 31
 20222021
Average income yield2.3%2.6%
Average tax equivalent income yield2.3%2.7%
Short-term Investments and Other Investments
Short-term investments, which have a maturity at purchase of one year or less are carried at fair value, which approximates their cost basis, and are primarily composed of investments in U.S. treasury obligations, commercial paper and money market funds. Income from our short-term and other investments increased during the 2022 three-month period as compared to the same period of 2021 primarily due to income contributed by investments acquired from NORCAL.
BOLI
We hold BOLI policies that are carried at the current cash surrender value of the policies, which includes the BOLI policies acquired from NORCAL. All insured individuals were members of ProAssurance or NORCAL management at the time the policies were acquired. The cash surrender value of our BOLI policies decreased for the 2022 three-month period as compared to the same period of 2021 driven by policies acquired from NORCAL.
Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Equity in earnings (loss) of unconsolidated subsidiaries was comprised as follows:
Three Months Ended March 31
($ in thousands)20222021Change
All other investments, primarily investment fund LPs/LLCs
$10,008 $9,974 $34 0.3 %
Tax credit partnerships(2,388)(3,186)798 (25.0 %)
Equity in earnings (loss) of unconsolidated subsidiaries$7,620 $6,788 $832 12.3 %
We hold interests in certain LPs/LLCs that generate earnings from trading portfolios, secured debt, debt securities, multi-strategy funds and private equity investments. The performance of the LPs/LLCs is affected by the volatility of equity and credit markets. For our investments in LPs/LLCs, we record our allocable portion of the partnership operating income or loss as the results of the LPs/LLCs become available, typically following the end of a reporting period. Our investment results from our portfolio of investments in LPs/LLCs for the 2022 three-month period included additional earnings of approximately $0.4 million from acquired interests in four LPs as a result of the NORCAL acquisition. Excluding NORCAL, our investment results from our portfolio of investments in LPs/LLCs for the 2022 three-month period as compared to the same period of 2021 decreased $0.4 million primarily due to lower earnings from an LP/LLC.
Our tax credit partnership investments are designed to generate returns in the form of tax credits and tax-deductible project operating losses and are comprised of qualified affordable housing project tax credit partnerships and a historic tax credit partnership. We account for our tax credit partnership investments under the equity method and record our allocable portion of the operating losses of the underlying properties based on estimates provided by the partnerships. For our qualified affordable housing project tax credit partnerships, we adjust our estimates of our allocable portion of operating losses periodically as actual operating results of the underlying properties become available. The primary benefit of credits and losses from our historic tax credit partnership are earned in a short period with potential for additional cash flows extending over several years. The results from our tax credit partnership investments for the three months ended March 31, 2022 reflected lower partnership operating losses as compared to the same period of 2021.
The tax benefits received from our tax credit partnerships, which are not reflected in our investment results, reduced our tax expense in 2022 and 2021 as follows:
Three Months Ended March 31
(In millions)20222021
Tax credits recognized during the period$1.2 $3.4 
Tax benefit of tax credit partnership operating losses$0.5 $0.7 
The tax credits generated from our tax credit partnership investments of $1.2 million for the three months ended March 31, 2022 were deferred for use in future periods due our expected consolidated loss calculated on a tax basis. For the three months ended March 31, 2021 the tax credits generated from our tax credit partnership investments of $3.4 million were deferred to be utilized in future periods. Not included in the table above is $2.0 million of tax credits recaptured from the 2019
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tax year during the three months ended March 31, 2022 due to the carryback of our estimated NOL for the three months ended March 31, 2022 to the 2021 tax year. The recaptured tax credits were earned in 2019 but not utilized until 2021 due to NOL's generated in both 2019 and 2020. As of March 31, 2022, we had approximately $49.9 million of available tax credit carryforwards generated from our investments in tax credit partnerships which we expect to utilize in future periods.
Tax credits provided by the underlying projects of our historic tax credit partnership are typically available in the tax year in which the project is put into active service, whereas the tax credits provided by qualified affordable housing project tax credit partnerships are provided over approximately a ten year period.
Non-GAAP Financial Measure – Tax Equivalent Investment Result
We believe that to fully understand our investment returns it is important to consider the current tax benefits associated with certain investments as the tax benefit received represents a portion of the return provided by our tax-exempt bonds, BOLI, common and preferred stocks, and tax credit partnership investments (collectively, our tax-preferred investments). We impute a pro forma tax-equivalent result by estimating the amount of fully-taxable income needed to achieve the same after-tax result as is currently provided by our tax-preferred investments. We believe this better reflects the economics behind our decision to invest in certain asset classes that are either taxed at lower rates and/or result in reductions to our current federal income tax expense. Our pro forma tax-equivalent investment result is shown in the table that follows as well as a reconciliation of our GAAP net investment result to our tax equivalent result.
Three Months Ended March 31
(In thousands)20222021
GAAP net investment result:
Net investment income$20,120 $14,067 
Equity in earnings (loss) of unconsolidated subsidiaries7,620 6,788 
GAAP net investment result$27,740 $20,855 
Pro forma tax-equivalent investment result$25,383 $22,883 
Reconciliation of pro forma and GAAP tax-equivalent investment result:
GAAP net investment result$27,740 $20,855 
Taxable equivalent adjustments, calculated using the 21% federal statutory tax rate
State and municipal bonds133 115 
BOLI(12)118 
Dividends received — 3 
Tax credit partnerships*(2,478)1,792 
Pro forma tax-equivalent investment result$25,383 $22,883 
*Due to our expected consolidated loss calculated on a tax basis for the three months ended March 31, 2022, the tax credits recognized from our tax credit partnership investments were deferred to be utilized in future periods; however, during the three months ended March 31, 2022, we recaptured a portion of tax credits earned in 2019, that were utilized in 2021, as a result of our expected carry back of our 2022 NOL to the 2021 tax year, resulting in a current tax expense related to tax credit partnerships.
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Net Investment Gains (Losses)
The following table provides detailed information regarding our net investment gains (losses).
Three Months Ended March 31
(In thousands)20222021
Gross realized gains, available-for-sale fixed maturities$1,105 $4,163 
Gross realized (losses), available-for-sale fixed maturities(1,094)(187)
Net realized gains (losses), equity investments(693)4,156 
Net realized gains (losses), other investments650 3,196 
Change in unrealized holding gains (losses), equity investments(10,252)(3,788)
Change in unrealized holding gains (losses), convertible securities, carried at fair value as a part of other investments(2,475)(190)
Other363 627 
Net investment gains (losses)$(12,396)$7,977 
We did not recognize any credit-related impairment losses in earnings or non-credit impairment losses in OCI for the three months ended March 31, 2022 or March 31, 2021.
We recognized $12.4 million of net investment losses during the 2022 three-month period which include approximately $8.8 million of net investment losses during the 2022 three-month period related to investments acquired from NORCAL. Net investment losses during the 2022 three-month period were driven by unrealized holding losses resulting from changes in the fair value of our equity investments. We recognized $8.0 million of net investment gains during the 2021 three-month period, driven primarily by realized gains on the sale of certain available-for-sale fixed maturities and equity investments.
Operating Expenses
Corporate segment operating expenses were comprised as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Operating expenses$10,681 $9,719 $962 9.9 %
Management fee offset(1,942)(2,544)602 (23.7 %)
Total$8,739 $7,175 $1,564 21.8 %
Operating expenses increased $1.0 million during the 2022 three-month period as compared to the same respective period of 2021 primarily due to an increase in compensation-related costs and, to a lesser extent, share-based compensation expenses, partially offset by a decrease in professional fees. The increase in compensation-related costs during the 2022 three-month period was driven by an increase in segment headcount due to the addition of Corporate NORCAL employees. Subsequent to acquisition on May 5, 2021, compensation-related costs of all NORCAL employees were reported in our Specialty P&C segment. Beginning in 2022, compensation-related costs for Corporate NORCAL employees are reported in our Corporate segment. In addition, the increase in compensation-related costs also reflected higher amounts accrued for performance-related incentive plans due to our improved performance metrics. The increase in share-based compensation expense in the 2022 three-month period was attributable to the effect of the incorporation of certain NORCAL employees into our share-based compensation plans beginning in 2022.
Operating subsidiaries within our Specialty P&C segment and our Workers' Compensation Insurance segment are charged a management fee by the Corporate segment for services provided to these subsidiaries. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. Under the arrangement, the expenses associated with such services are reported as expenses of the Corporate segment, and the management fees charged are reported as an offset to Corporate operating expenses. Fluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period. Due to continued organizational structure enhancements in our Specialty P&C segment during 2021 as well as operational alignments as a result of the integration of NORCAL, the extent to which services are provided by the Corporate segment to the operating subsidiaries within the Specialty P&C segment decreased further effective January 1, 2022. Accordingly, we reduced the fee charged to the operating subsidiaries within the Specialty P&C segment during the 2022 three-month period. Also effective January 1, 2022, the management agreement included operating subsidiaries of NORCAL contributing to $0.6 million of additional management fees in the current period. There were no changes to the extent to which
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services are provided by the Corporate segment to the operating subsidiaries within our Workers' Compensation Insurance segment in 2022.
Interest Expense
Consolidated interest expense for the three months ended March 31, 2022 and 2021 was comprised as follows:
Three Months Ended March 31
($ in thousands)20222021Change
Senior Notes due 2023$3,357 $3,357 $— — %
Contribution Certificates (including accretion)(1)
1,853 — 1,853 nm
Revolving Credit Agreement (including fees and amortization)(2)
246 214 32 15.0 %
Mortgage Loans (including amortization)— 148 (148)nm
(Gain)/loss on interest rate cap(1,015)(507)(508)(100.2 %)
Interest expense$4,441 $3,212 $1,229 38.3 %
(1) Includes accretion of approximately $0.5 million for the three months ended March 31, 2022 which is recorded as an increase to interest expense as a result of the difference between the recorded acquisition date fair value and the principal balance of the Contribution Certificates associated with our acquisition of NORCAL.
(2) Primarily reflects unused commitment fees as there were no outstanding borrowings during either period.
Consolidated interest expense increased during the three months ended March 31, 2022 as compared to the same period of 2021 driven by the addition of interest expense on the Contribution Certificates associated with our acquisition of NORCAL on May 5, 2021 (see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K). The increase in consolidated interest expense for the 2022 three-month period was partially offset by the change in fair value of our interest rate cap. See further discussion of our outstanding debt in Note 7 of the Notes to Condensed Consolidated Financial Statements and further discussion of our interest rate cap agreement and Contribution Certificates in Note 3 and Note 13 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K.
Taxes
Tax expense allocated to our Corporate segment includes U.S. tax only, which would include U.S. tax expense incurred from our corporate membership in Lloyd's of London. The U.K. tax expense incurred by the U.K. based subsidiaries of our Lloyd's Syndicates segment is allocated to that segment. The SPCs at Inova Re, one of our Cayman Islands reinsurance subsidiaries, have each made a 953(d) election under the U.S. Internal Revenue Code and are subject to U.S. federal income tax; therefore, tax expense allocated to our Corporate segment also includes tax expense incurred from any SPC at Inova Re in which we have a participation interest of 80% or greater as those SPCs are required to be included in our consolidated tax return. Consolidated tax expense (benefit) reflects the tax expense (benefit) of both segments and the tax impact of items excluded from segment reporting, as shown in the table below:
Three Months Ended
March 31
(In thousands)20222021
Corporate segment income tax expense (benefit)
$(1,770)$736 
Income tax expense (benefit) - transaction-related costs*(247)— 
Consolidated income tax expense (benefit)
$(2,017)$736 
*Represents the income tax benefit associated with the transaction-related costs related to our acquisition of NORCAL that are not included in a segment as we do not consider these costs in assessing the financial performance of any of our operating or reportable segments. See Note 11 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results.
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Listed below are the primary factors affecting our consolidated effective tax rate for the three months ended March 31, 2022 and 2021. The comparability of each factor's impact on our effective tax rate is affected by the consolidated pre-tax loss recognized during the three months ended March 31, 2022 as compared to the consolidated pre-tax income recognized during the same period of 2021. Factors that have the same directional impact on income tax expense in each period have an opposite impact on our effective tax rate due to the effective tax rate being calculated based upon a pre-tax loss during the three months ended March 31, 2022 versus the pre-tax income during the same period of 2021. These factors include the following:
Three Months Ended March 31
20222021
($ in thousands)Income tax (benefit) expenseRate ImpactIncome tax (benefit) expenseRate Impact
Computed "expected" tax expense (benefit) at statutory rate
$(1,171)21.0 %$1,77921.0 %
Tax-exempt income (1)
(95)1.7 %(186)(2.2 %)
Tax credits(1,205)21.6 %(3,374)(39.8 %)
Non-U.S. operating results(46)0.8 %6037.1 %
Tax deficiency (excess tax benefit) on share-based compensation340 (6.1 %)2973.5 %
Change in uncertain tax positions21 (0.4 %)570.7 %
Estimated annual tax rate differential (2)
— — %2,08724.6 %
Other 139 (2.4 %)(527)(6.2 %)
Total income tax expense (benefit)$(2,017)36.2 %$736 8.7 %
(1) Includes tax-exempt interest, dividends received deduction and change in cash surrender value of BOLI.
(2) Represents the tax rate differential between our actual effective tax rate for the three months ended March 31, 2021 and our projected annual effective tax rate as of March 31, 2021 as calculated under the estimated annual effective tax rate method. There was no tax rate differential recorded for the three months ended March 31, 2022 as we utilized the discrete effective tax rate method at March 31, 2022 (see further discussion in the Critical Accounting Estimates section).
For the three months ended March 31, 2022, we utilized the discrete effective tax rate method for recording the provision (benefit) for income taxes which treats the income tax expense (benefit) for the period as if it were the income tax expense (benefit) for the full year and determines the income tax expense (benefit) on that basis (see further discussion on this method in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits"). For the three months ended March 31, 2021, the provision (benefit) for income taxes and the effective tax rate were determined utilizing the estimated annual effective tax rate method which is based upon our current estimate of our annual effective tax rate at the end of each quarterly reporting period (the projected annual effective tax rate) plus the impact of certain discrete items that are not included in the projected annual effective tax rate. Our effective tax rates for both the 2022 and 2021 three-month periods were different from the statutory federal income tax rate of 21% primarily due to the benefit recognized from the tax credits transferred to us from our tax credit partnership investments. We recognized tax credits of $1.2 million and $3.4 million during the three months ended March 31, 2022 and 2021, respectively. While projected tax credits for 2022 are less than 2021, they continue to have a significant impact on the effective tax rate for the 2022 three-month period.
Our effective tax rate for the 2021 three-month period, as shown in the table above, differed from our projected annual effective tax rate of (38.4%) due to certain discrete items. These discrete items increased our effective tax rate by 47.1% for the 2021 three-month period mainly due to the treatment of net investment gains. When we utilize the estimated annual effective tax rate method, net investment gains and losses are treated as discrete items and reflected in the effective tax rate in the period in which they are included in income. This treatment of net investment gains of $8.0 million in our Corporate segment for the three months ended March 31, 2021 accounted for an increase of 19.8% in the projected annual effective tax rate. The remaining discrete items that affected our effective tax rate for the 2021 three-month period were comprised of individually insignificant components.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We believe that we are principally exposed to two types of market risk: interest rate risk and credit risk. We have limited exposure to foreign currency risk as we issue few insurance contracts denominated in currencies other than the U.S. dollar and we have few monetary assets or obligations denominated in foreign currencies.
Interest Rate Risk
Investments
Our fixed maturities portfolio is exposed to interest rate risk. Fluctuations in interest rates have a direct impact on the market valuation of these securities. As interest rates rise, market values of fixed income portfolios fall and vice versa. Certain of the securities are held in an unrealized loss position; we do not intend to sell and believe we will not be required to sell any debt security held in an unrealized loss position before its anticipated recovery.
The following tables summarize estimated changes in the fair value of our available-for-sale fixed maturity securities for specific hypothetical changes in interest rates by asset class at March 31, 2022 and December 31, 2021. There are principally two factors that determine interest rates on a given security: changes in the level of yield curves and credit spreads. As different asset classes can be affected in different ways by movements in those two factors, we have separated our portfolio by asset class in the following tables.
Interest Rate Shift in Basis Points
March 31, 2022
($ in millions)(200)(100)Current100200
Fair Value:
Fixed maturities, available-for-sale:
U.S. Treasury obligations$245 $235 $226 $217 $209 
U.S. Government-sponsored enterprise obligations18 17 17 16 16 
State and municipal bonds536 514 492 471 451 
Corporate debt2,029 1,948 1,870 1,797 1,727 
Asset-backed securities1,163 1,130 1,096 1,061 1,026 
Total fixed maturities, available-for-sale$3,991 $3,844 $3,701 $3,562 $3,429 
Duration:
Fixed maturities, available-for-sale:
U.S. Treasury obligations4.174.094.023.953.88
U.S. Government-sponsored enterprise obligations2.523.013.163.223.22
State and municipal bonds4.074.134.254.374.46
Corporate debt4.114.104.084.033.96
Asset-backed securities2.542.773.013.163.23
Total fixed maturities, available-for-sale3.643.713.783.813.80

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Interest Rate Shift in Basis Points
December 31, 2021
($ in millions)(200)(100)Current100200
Fair Value:
Fixed maturities, available-for-sale:
U.S. Treasury obligations$260 $249 $239 $229 $219 
U.S. Government-sponsored enterprise obligations21 21 20 20 19 
State and municipal bonds564 541 519 498 478 
Corporate debt2,063 1,979 1,899 1,821 1,748 
Asset-backed securities1,211 1,186 1,157 1,123 1,087 
Total fixed maturities, available-for-sale$4,119 $3,976 $3,834 $3,691 $3,551 
Duration:
Fixed maturities, available-for-sale:
U.S. Treasury obligations4.424.334.254.184.10
U.S. Government-sponsored enterprise obligations1.581.632.642.842.85
State and municipal bonds4.224.204.264.364.49
Corporate debt4.174.134.134.144.11
Asset-backed securities2.332.252.673.133.39
Total fixed maturities, available-for-sale3.643.583.713.863.93
Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including the maintenance of the existing level and composition of fixed income security assets, and should not be relied on as indicative of future results.
Certain shortcomings are inherent in the method of analysis presented in the computation of the fair value of fixed rate instruments. Actual values may differ from the projections presented should market conditions vary from assumptions used in the calculation of the fair value of individual securities, including non-parallel shifts in the term structure of interest rates and changing individual issuer credit spreads.
At March 31, 2022, our fixed maturities portfolio includes fixed maturities classified as trading securities which do not have a significant amount of exposure to market interest rates or credit spreads.
Our cash and short-term investments at March 31, 2022 were carried at fair value which approximates their cost basis due to their short-term nature. Our cash and short-term investments lack significant interest rate sensitivity due to their short duration.
Debt
Our Revolving Credit Agreement is exposed to interest rate risk as it is LIBOR based and a 1% change in LIBOR will impact annual interest expense only to the extent that there is an outstanding balance. For every $100 million drawn on our Revolving Credit Agreement, a 1% change in interest rates will change our annual interest expense by $1 million. Any outstanding balances on the Revolving Credit Agreement can be repaid on each maturity date, which has typically ranged from one to three months. As of March 31, 2022, no borrowings were outstanding under our Revolving Credit Agreement.
Defined Benefit Pension Plan
We are exposed to certain economic risks related to the costs of our defined benefit pension plan, including changes in discount rates for high quality corporate bonds and changes in the expected return on plan assets. See further discussion in our December 31, 2021 report on Form 10-K within Item 7, Management's Discussion and Analysis, in the Critical Accounting Estimates section under the heading "Pension."
Credit Risk
We have exposure to credit risk primarily as a holder of fixed income securities. We control this exposure by emphasizing investment grade credit quality in the fixed income securities we purchase.
As of March 31, 2022, 91% of our fixed maturity securities were rated investment grade as determined by NRSROs, such as Fitch, Moody’s and Standard & Poor’s. We believe that this concentration in investment grade securities reduces our exposure to credit risk on our fixed income investments to an acceptable level. However, investment grade securities, in spite of
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their rating, can rapidly deteriorate and result in significant losses. Ratings published by the NRSROs are one of the tools used to evaluate the creditworthiness of our securities. The ratings reflect the subjective opinion of the rating agencies as to the creditworthiness of the securities; therefore, we may be subject to additional credit exposure should the ratings prove to be unreliable.
We also have exposure to credit risk related to our premiums receivable and receivables from reinsurers; however, to-date we have not experienced any significant amount of credit losses. At March 31, 2022, our premiums receivable was approximately $261 million, net of an allowance for expected credit losses of approximately $8 million. See Note 1 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for further information on our allowance for expected credit losses related to our premiums receivable. Our receivables from reinsurers (with regard to both paid and unpaid losses) approximated $479 million at March 31, 2022 and $466 million at December 31, 2021. We monitor the credit risk associated with our reinsurers using publicly available financial and rating agency data. We have not historically experienced material credit losses due to the financial condition of a reinsurer, and as of March 31, 2022 our expected credit losses associated with our receivables from reinsurers were nominal in amount.
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ITEM 4. CONTROLS AND PROCEDURES.
The principal executive officer and principal financial officer of the Company participated in management’s evaluation of our disclosure controls and procedures (as defined in SEC Rule 13a-15(e)) as of March 31, 2022. ProAssurance’s disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding disclosure and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based on that evaluation, the principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective.
The Company completed its acquisition of NORCAL on May 5, 2021 and has not yet included NORCAL in management's assessment of the effectiveness of our internal controls over financial reporting. We are currently integrating NORCAL into our compliance programs and internal control processes. Accordingly, pursuant to the SEC's general guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment for one year following the acquisition, the scope of management's assessment of the effectiveness of the Company's disclosure controls and procedures does not include NORCAL. NORCAL constituted approximately 30.8% of ProAssurance's total assets (inclusive of acquired intangible assets) as of March 31, 2022, and approximately 27.8% of ProAssurance's total revenue for the three months ended March 31, 2022. NORCAL will be included in management's assessment of the effectiveness of the Company's internal controls over financial reporting as of December 31, 2022.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, those controls during the quarter.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 6 of the Notes to Condensed Consolidated Financial Statements.
ITEM 1A. RISK FACTORS.
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 December 31, 2021 report on Form 10-K and other documents we file with the SEC, such as our current reports on Form 8-K. There have been no material changes to the "Risk Factors" disclosed in Part 1, Item 1A of ProAssurance's December 31, 2021 report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a)Not applicable.
(b)Not applicable.
(c)Information required by Item 703 of Regulation S-K.
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs* (In thousands)
January 1 - 31, 2022— N/A— $109,643
February 1 - 28, 2022— N/A— $109,643
March 1 - 31, 2022— N/A— $109,643
Total— $—— 
*Under its current plan begun in November 2010, the Board has authorized $600 million for the repurchase of common shares or the retirement of outstanding debt. This is ProAssurance’s only plan for the repurchase of common shares, and the plan has no expiration date.
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ITEM 6. EXHIBITS
Exhibit Number Description
Certification of Principal Executive Officer of ProAssurance as required under SEC rule 13a-14(a).
Certification of Principal Financial and Accounting Officer of ProAssurance as required under SEC rule 13a-14(a).
Certification of Principal Executive Officer of ProAssurance as required under SEC Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as amended (18 U.S.C. 1350).
Certification of Principal Financial and Accounting Officer of ProAssurance as required under SEC Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as amended (18 U.S.C. 1350).
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Labels Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PROASSURANCE CORPORATION
May 9, 2022
 
/s/    Dana S. Hendricks
Dana S. Hendricks
Chief Financial Officer
(Duly authorized officer and principal financial officer)
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