| Segment Information |
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 was not 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. ProAssurance does not consider a gain on bargain purchase or transaction-related costs for completed business combinations, including any related tax impacts, in assessing the financial performance of its operating and reportable segments, and thus are included in the reconciliation of segment results to consolidated results. Financial results by segment were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2022 | | (In thousands) | Specialty P&C | | Workers' Compensation Insurance | | Segregated Portfolio Cell Reinsurance | | Lloyd's Syndicates | | Corporate | | Inter-segment Eliminations | | Consolidated | | Net premiums earned | $ | 183,547 | | | $ | 41,709 | | | $ | 16,222 | | | $ | 5,793 | | | $ | — | | | $ | — | | | $ | 247,271 | | | Net investment income | — | | | — | | | 211 | | | 143 | | | 21,590 | | | — | | | 21,944 | | | Equity in earnings (loss) of unconsolidated subsidiaries | — | | | — | | | — | | | — | | | 5,180 | | | — | | | 5,180 | | | Net investment gains (losses) | — | | | — | | | (2,782) | | | (485) | | | (20,617) | | | — | | | (23,884) | | Other income (expense)(1) | 1,903 | | | 517 | | | 1 | | | 129 | | | 3,626 | | | (862) | | | 5,314 | | Net losses and loss adjustment expenses(2) | (137,002) | | | (27,947) | | | (9,272) | | | (3,449) | | | — | | | — | | | (177,670) | | Underwriting, policy acquisition and operating expenses(1)(2) | (48,077) | | | (13,669) | | | (5,237) | | | (1,508) | | | (9,019) | | | 862 | | | (76,648) | | SPC U.S. federal income tax expense(3) | — | | | — | | | (349) | | | — | | | — | | | — | | | (349) | | | SPC dividend (expense) income | — | | | — | | | 854 | | | — | | | — | | | — | | | 854 | | | Interest expense | — | | | — | | | — | | | — | | | (4,919) | | | — | | | (4,919) | | | Income tax benefit (expense) | — | | | — | | | — | | | — | | | 1,789 | | | — | | | 1,789 | | | Segment results | $ | 371 | | | $ | 610 | | | $ | (352) | | | $ | 623 | | | $ | (2,370) | | | $ | — | | | (1,118) | | | Reconciliation of segments to consolidated results: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Transaction-related costs, net(4) | | | | | | | | | | | | | (541) | | | Net income (loss) | | | | | | | | | | | | | $ | (1,659) | | | Significant non-cash items: | | | | | | | | | | | | | | | Depreciation and amortization, net of accretion | $ | 2,948 | | | $ | 874 | | | $ | 345 | | | $ | 10 | | | $ | 5,882 | | | $ | — | | | $ | 10,059 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2022 | | (In thousands) | Specialty P&C | | Workers' Compensation Insurance | | Segregated Portfolio Cell Reinsurance | | Lloyd's Syndicates | | Corporate | | Inter-segment Eliminations | | Consolidated | Net premiums earned | $ | 381,514 | | | $ | 82,393 | | | $ | 35,536 | | | $ | 13,539 | | | $ | — | | | $ | — | | | $ | 512,982 | | Net investment income | — | | | — | | | 323 | | | 355 | | | 41,709 | | | — | | | 42,387 | | Equity in earnings (loss) of unconsolidated subsidiaries | — | | | — | | | — | | | — | | | 12,799 | | | — | | | 12,799 | | | Net investment gains (losses) | — | | | — | | | (3,493) | | | (884) | | | (33,013) | | | — | | | (37,390) | | Other income (expense)(1) | 2,924 | | | 1,199 | | | 1 | | | 263 | | | 5,691 | | | (1,959) | | | 8,119 | | Net losses and loss adjustment expenses(2) | (302,960) | | | (55,158) | | | (20,763) | | | (8,212) | | | — | | | — | | | (387,093) | | Underwriting, policy acquisition and operating expenses(1)(2) | (90,958) | | | (26,669) | | | (9,605) | | | (4,218) | | | (17,756) | | | 1,959 | | | (147,247) | | SPC U.S. federal income tax expense(3) | — | | | — | | | (991) | | | — | | | — | | | — | | | (991) | | SPC dividend (expense) income | — | | | — | | | (1,513) | | | — | | | — | | | — | | | (1,513) | | Interest expense | — | | | — | | | — | | | — | | | (9,360) | | | — | | | (9,360) | | Income tax benefit (expense) | — | | | — | | | — | | | — | | | 3,559 | | | — | | | 3,559 | | Segment results | $ | (9,480) | | | $ | 1,765 | | | $ | (505) | | | $ | 843 | | | $ | 3,629 | | | $ | — | | | (3,748) | | | Reconciliation of segments to consolidated results: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Transaction-related costs, net(4) | | | | | | | | | | | | | (1,471) | | | Net income (loss) | | | | | | | | | | | | | $ | (5,219) | | | Significant non-cash items: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization, net of accretion | $ | 5,540 | | | $ | 1,748 | | | $ | 715 | | | $ | 24 | | | $ | 12,382 | | | $ | — | | | $ | 20,409 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2021 | | (In thousands) | Specialty P&C | | Workers' Compensation Insurance | | Segregated Portfolio Cell Reinsurance | | Lloyd's Syndicates | | Corporate | | Inter-segment Eliminations | | Consolidated | | Net premiums earned | $ | 168,635 | | | $ | 40,626 | | | $ | 16,272 | | | $ | 13,460 | | | $ | — | | | $ | — | | | $ | 238,993 | | | Net investment income | — | | | — | | | 206 | | | 518 | | | 16,693 | | | — | | | 17,417 | | | Equity in earnings (loss) of unconsolidated subsidiaries | — | | | — | | | — | | | — | | | 11,927 | | | — | | | 11,927 | | | Net realized gains (losses) | — | | | — | | | 1,580 | | | 89 | | | 9,164 | | | — | | | 10,833 | | Other income (expense)(1) | 1,471 | | | 900 | | | 1 | | | 361 | | | 351 | | | (626) | | | 2,458 | | | Net losses and loss adjustment expenses | (140,214) | | | (27,751) | | | (8,443) | | | (5,444) | | | — | | | — | | | (181,852) | | Underwriting, policy acquisition and operating expenses(1) | (28,877) | | | (12,712) | | | (5,293) | | | (4,721) | | | (5,929) | | | 626 | | | (56,906) | | SPC U.S. federal income tax expense(2) | — | | | — | | | (504) | | | — | | | — | | | — | | | (504) | | | SPC dividend (expense) income | — | | | — | | | (2,864) | | | — | | | — | | | — | | | (2,864) | | | Interest expense | — | | | — | | | — | | | — | | | (5,176) | | | — | | | (5,176) | | | Income tax benefit (expense) | — | | | — | | | — | | | — | | | (220) | | | — | | | (220) | | | Segment results | $ | 1,015 | | | $ | 1,063 | | | $ | 955 | | | $ | 4,263 | | | $ | 26,810 | | | $ | — | | | 34,106 | | | Reconciliation of segments to consolidated results: | | | | | | | | | | | | Gain on bargain purchase | | | | | | | | | | | | | 74,408 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Transaction-related costs, net(4) | | | | | | | | | | | | | (16,464) | | | Net income (loss) | | | | | | | | | | | | | $ | 92,050 | | | Significant non-cash items: | | | | | | | | | | | | | | | Gain on bargain purchase | | | | | | | | | | | | | $ | 74,408 | | | Depreciation and amortization, net of accretion | $ | 3,134 | | | $ | 903 | | | $ | 361 | | | $ | 16 | | | $ | 5,183 | | | $ | — | | | $ | 9,597 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2021 | | (In thousands) | Specialty P&C | | Workers' Compensation Insurance | | Segregated Portfolio Cell Reinsurance | | Lloyd's Syndicates | | Corporate | | Inter-segment Eliminations | | Consolidated | | Net premiums earned | $ | 284,249 | | | $ | 80,636 | | | $ | 32,156 | | | $ | 29,310 | | | $ | — | | | $ | — | | | $ | 426,351 | | | Net investment income | — | | | — | | | 427 | | | 1,246 | | | 30,761 | | | — | | | 32,434 | | | Equity in earnings (loss) of unconsolidated subsidiaries | — | | | — | | | — | | | — | | | 18,715 | | | — | | | 18,715 | | | Net investment gains (losses) | — | | | — | | | 2,568 | | | (26) | | | 17,140 | | | — | | | 19,682 | | Other income (expense)(1) | 1,939 | | | 1,293 | | | 2 | | | 582 | | | 2,245 | | | (1,599) | | | 4,462 | | Net losses and loss adjustment expenses | (241,400) | | | (53,958) | | | (17,867) | | | (18,411) | | | — | | | — | | | (331,636) | | Underwriting, policy acquisition and operating expenses(1) | (55,223) | | | (24,998) | | | (10,320) | | | (11,311) | | | (12,177) | | | 1,599 | | | (112,430) | | SPC U.S. federal income tax expense(3) | — | | | — | | | (860) | | | — | | | — | | | — | | | (860) | | SPC dividend (expense) income | — | | | — | | | (4,606) | | | — | | | — | | | — | | | (4,606) | | Interest expense | — | | | — | | | — | | | — | | | (8,389) | | | — | | | (8,389) | | Income tax benefit (expense) | — | | | — | | | — | | | — | | | (1,151) | | | — | | | (1,151) | | Segment results | $ | (10,435) | | | $ | 2,973 | | | $ | 1,500 | | | $ | 1,390 | | | $ | 47,144 | | | $ | — | | | 42,572 | | | Reconciliation of segments to consolidated results: | | | | | | | | | | | | Gain on bargain purchase | | | | | | | | | | | | | 74,408 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Transaction-related costs(4) | | | | | | | | | | | | | (17,195) | | | Net income (loss) | | | | | | | | | | | | | $ | 99,785 | | | Significant non-cash items: | | | | | | | | | | | | | | | Gain on bargain purchase | | | | | | | | | | | | | $ | 74,408 | | | Depreciation and amortization, net of accretion | $ | 5,305 | | | $ | 1,806 | | | $ | 677 | | | $ | 32 | | | $ | 8,500 | | | $ | — | | | $ | 16,320 | | | (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) Beginning in 2022, ProAssurance revised its process for estimating 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 and six months ended June 30, 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. For the three and six months ended June 30, 2022 pre-tax transaction-related costs of approximately $0.7 million and $1.9 million, respectively, as compared to $20.3 million and $21.2 million for the same respective periods of 2021 were included as a component of consolidated operating expense and the associated income tax benefit of approximately $0.2 million and $0.4 million, respectively, as compared to $3.8 million and $4.0 million for the same respective periods of 2021 were included as a component of consolidated income tax benefit (expense) on the Condensed Consolidated Statements of Income and Comprehensive Income. | |
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 June 30 | | Six Months Ended June 30 | | (In thousands) | 2022 | | 2021 | | 2022 | | 2021 | | Specialty P&C Segment | | | | | | | | | Gross premiums earned: | | | | | | | | | HCPL | $ | 165,496 | | | $ | 150,784 | | | $ | 341,043 | | | $ | 247,829 | | Small Business Unit | 26,188 | | | 25,905 | | | 52,726 | | | 51,831 | | Medical Technology Liability | 9,968 | | | 9,613 | | | 19,968 | | | 18,551 | | | Other | 203 | | | 172 | | | 397 | | | 323 | | | Ceded premiums earned | (18,308) | | | (17,839) | | | (32,620) | | | (34,285) | | | Segment net premiums earned | 183,547 | | | 168,635 | | | 381,514 | | | 284,249 | | | | | | | | | | | Workers' Compensation Insurance Segment | | | | | | | | | Gross premiums earned: | | | | | | | | | | | | | | | | | Traditional business | 45,395 | | | 43,693 | | | 88,551 | | | 85,436 | | Alternative market business | 18,126 | | | 17,017 | | | 36,004 | | | 33,906 | | | Ceded premiums earned | (21,812) | | | (20,084) | | | (42,162) | | | (38,706) | | | Segment net premiums earned | 41,709 | | | 40,626 | | | 82,393 | | | 80,636 | | | | | | | | | | | Segregated Portfolio Cell Reinsurance Segment | | | | | | | | | Gross premiums earned: | | | | | | | | Workers' compensation(1) | 17,092 | | | 16,254 | | | 34,270 | | | 32,368 | | HCPL(2) | 1,504 | | | 2,173 | | | 5,990 | | | 4,026 | | | | | | | | | | | Ceded premiums earned | (2,374) | | | (2,155) | | | (4,724) | | | (4,238) | | | Segment net premiums earned | 16,222 | | | 16,272 | | | 35,536 | | | 32,156 | | | | | | | | | | | Lloyd's Syndicates Segment | | | | | | | | | Gross premiums earned: | | | | | | | | | Property and casualty | 6,443 | | | 16,635 | | | 15,675 | | | 37,020 | | | Ceded premiums earned | (650) | | | (3,175) | | | (2,136) | | | (7,710) | | | Segment net premiums earned | 5,793 | | | 13,460 | | | 13,539 | | | 29,310 | | | | | | | | | | | Consolidated net premiums earned | $ | 247,271 | | | $ | 238,993 | | | $ | 512,982 | | | $ | 426,351 | |
(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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