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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 June 30, 2024 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 August 5, 2024, there were 51,156,383 shares of the registrant’s common stock outstanding.

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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
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
ERCEmployee Retention Credit
FALFunds at Lloyd's
FASBFinancial Accounting Standards Board
FHLBFederal Home Loan Bank
FHLMCFederal Home Loan Mortgage Corporation
FNMAFederal National Mortgage Association
FSMAFinancial Services and Markets Act
GAAPGenerally accepted accounting principles in the United States of America
GNMAGovernment National Mortgage Association
IBNRIncurred but not reported
Inova ReInova Re, LTD, S.P.C.
Interest Rate SwapsProAssurance's two forward-starting interest rate swap agreements associated with its Revolving Credit Agreement and Term Loan
IRSInternal Revenue Service
LLCLimited liability company
Lloyd'sLloyd's of London market
LPLimited partnership
MPLMedical professional liability
Medical Technology LiabilityMedical technology and life sciences products liability
NAVNet asset value
NOLNet operating loss
NORCALNORCAL Insurance Company, formerly 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
SOFRSecured Overnight Financing Rate
SPCSegregated portfolio cell
Specialty P&CSpecialty Property and Casualty
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TermMeaning
Syndicate 1729Lloyd's of London Syndicate 1729
Syndicate 6131Lloyd's of London Syndicate 6131 was a Special Purpose Arrangement with Lloyd's of London Syndicate 1729.
TCJATax Cuts and Jobs Act H.R.1 of 2017
Term LoanProAssurance's $125 million delayed draw term loan
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 or explicitly stated as an opinion 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, including medical and social inflation, and unemployment;
lregulatory, legislative and judicial actions or decisions that could affect our business plans or operations;
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;
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 governments of states in which we are domiciled, 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, the workers' compensation insurance industry or particular insurance lines underwritten by our subsidiaries;
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 alter or 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 new systems or systems consolidation on our information technology infrastructure;
lthe impact of machine learning and artificial intelligence on the insurance industry as well as on our insureds and certain risks we insure;
lthe impact of a catastrophe, natural or man-made, including a pandemic event, as it relates to our business and insurance operations, investment results and our insured risks;
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;
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; and
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.
Our results may differ materially from those we expect and discuss in any forward-looking statements. The principal risk factors that may cause these material differences are described in "Item 1A, Risk Factors" in our December 31, 2023 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)
June 30,
2024		December 31,
2023
Assets
Investments
Fixed maturities, available-for-sale, at fair value (amortized cost, $3,852,408 and $3,758,720, respectively; allowance for expected credit losses, $1,602 as of June 30, 2024 and $555 as of December 31, 2023)
$3,583,505 $3,493,597 
Fixed maturities, trading, at fair value (cost, $51,939 and $48,449, respectively)
51,782 48,324 
Equity investments, at fair value (cost, $145,032 and $164,262, respectively)
128,860 151,295 
Short-term investments219,600 235,785 
Business owned life insurance79,191 78,205 
Investment in unconsolidated subsidiaries283,037 276,756 
Other investments (at fair value, $2,224 and $62,604, respectively, otherwise at cost or amortized cost)
6,288 65,819 
Total Investments4,352,263 4,349,781 
Cash and cash equivalents36,877 65,898 
Premiums receivable, net (allowance for expected credit losses, $8,120 as of June 30, 2024 and $7,809 as of December 31, 2023)
248,372 235,569 
Receivable from reinsurers on paid losses and loss adjustment expenses7,518 21,122 
Receivable from reinsurers on unpaid losses and loss adjustment expenses447,866 445,573 
Prepaid reinsurance premiums33,517 31,149 
Deferred policy acquisition costs61,041 60,336 
Deferred tax asset, net183,164 186,164 
Real estate, net30,016 29,757 
Operating lease ROU assets16,799 16,275 
Intangible assets, net57,131 60,308 
Goodwill5,500 5,500 
Other assets134,900 124,493 
Total Assets$5,614,964 $5,631,925 
Liabilities and Shareholders' Equity
Liabilities
Policy liabilities and accruals
Reserve for losses and loss adjustment expenses$3,367,540 $3,401,281 
Unearned premiums437,691 433,715 
Reinsurance premiums payable28,491 24,019 
Total Policy Liabilities and Accruals3,833,722 3,859,015 
Operating lease liabilities17,757 17,179 
Other liabilities204,203 216,618 
Debt less unamortized debt issuance costs
426,854 427,133 
Total Liabilities4,482,536 4,519,945 
Shareholders' Equity
Common shares (par value $0.01 per share, 100,000,000 shares authorized, 63,730,374 and 63,576,932 shares issued, respectively)
637 636 
Additional paid-in capital405,415 403,554 
Accumulated other comprehensive income (loss) (net of deferred tax expense (benefit) of ($55,905) and ($55,738), respectively)
(206,037)(204,489)
Retained earnings1,402,115 1,381,981 
Treasury shares, at cost (12,606,968 shares as of each respective period end)
(469,702)(469,702)
Total Shareholders' Equity1,132,428 1,111,980 
Total Liabilities and Shareholders' Equity$5,614,964 $5,631,925 
See accompanying notes.
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ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Capital (Unaudited)
(In thousands)

Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotal
Balance at April 1, 2024$636 $402,485 $(206,961)$1,386,607 $(469,702)$1,113,065 
Common shares issued for compensation1 1,616 — — — 1,617 
Share-based compensation— 1,334 — — — 1,334 
Net effect of restricted and performance shares issued— (20)— — — (20)
Other comprehensive income (loss)— — 924 — — 924 
Net income (loss)— — — 15,508 — 15,508 
Balance at June 30, 2024$637 $405,415 $(206,037)$1,402,115 $(469,702)$1,132,428 
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotal
Balance at December 31, 2023$636 $403,554 $(204,489)$1,381,981 $(469,702)$1,111,980 
Common shares issued for compensation— 570 — — — 570 
Share-based compensation— 2,280 — — — 2,280 
Net effect of restricted and performance shares issued1 (989)— — — (988)
Other comprehensive income (loss)— — (1,548)— — (1,548)
Net income (loss)— — — 20,134 — 20,134 
Balance at June 30, 2024$637 $405,415 $(206,037)$1,402,115 $(469,702)$1,132,428 
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotal
Balance at April 1, 2023
$635 $398,436 $(255,978)$1,414,411 $(419,214)$1,138,290 
Common shares reacquired— — — — (19,971)(19,971)
Common shares issued for compensation — 1,054 — — — 1,054 
Share-based compensation— 1,228 — — — 1,228 
Net effect of restricted and performance shares issued1 (13)— — — (12)
Other comprehensive income (loss)— — (11,502)— — (11,502)
Net income (loss)— — — 10,627 — 10,627 
Balance at June 30, 2023$636 $400,705 $(267,480)$1,425,038 $(439,185)$1,119,714 
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotal
Balance at December 31, 2022$634 $397,919 $(298,607)$1,423,286 $(419,214)$1,104,018 
Common shares reacquired— — — — (19,971)(19,971)
Common shares issued for compensation — 1,064 — — — 1,064 
Share-based compensation— 2,374 — — — 2,374 
Net effect of restricted and performance shares issued2 (652)— — — (650)
Dividends to shareholders— — — (2,701)— (2,701)
Other comprehensive income (loss)— — 31,127 — — 31,127 
Net income (loss)— — — 4,453 — 4,453 
Balance at June 30, 2023$636 $400,705 $(267,480)$1,425,038 $(439,185)$1,119,714 
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 June 30Six Months Ended June 30
 
2024202320242023
Revenues
Net premiums earned$239,867 $247,862 $484,017 $487,649 
Net investment income36,558 31,650 70,455 61,960 
Equity in earnings (loss) of unconsolidated subsidiaries8,652 6,632 11,616 5,511 
Net investment gains (losses):
Impairment losses9 (43)(1,501)(2,976)
Portion of impairment losses recognized in other comprehensive income (loss) before taxes(474)— 102 — 
Net impairment losses recognized in earnings(465)(43)(1,399)(2,976)
Other net investment gains (losses)3,628 2,989 4,294 8,834 
Total net investment gains (losses)3,163 2,946 2,895 5,858 
Other income2,115 2,741 6,070 3,528 
Total revenues290,355 291,831 575,053 564,506 
Expenses
Net losses and loss adjustment expenses186,000 191,058 380,694 396,354 
Underwriting, policy acquisition and operating expenses:
Operating expense46,199 42,177 90,512 77,261 
DPAC amortization33,818 34,799 67,511 67,503 
SPC U.S. federal income tax expense (benefit)249 994 666 1,526 
SPC dividend expense (income)512 3,747 1,119 5,689 
Interest expense5,648 5,502 11,305 10,965 
Total expenses272,426 278,277 551,807 559,298 
Income (loss) before income taxes17,929 13,554 23,246 5,208 
Provision for income taxes:
Current expense (benefit)581 319 18 776 
Deferred expense (benefit)1,840 2,608 3,094 (21)
Total income tax expense (benefit)2,421 2,927 3,112 755 
Net income (loss)15,508 10,627 20,134 4,453 
Other comprehensive income (loss), after tax, net of reclassification adjustments924 (11,502)(1,548)31,127 
Comprehensive income (loss)$16,432 $(875)$18,586 $35,580 
Earnings (loss) per share:
Basic$0.30 $0.20 $0.39 $0.08 
Diluted$0.30 $0.20 $0.39 $0.08 
Weighted average number of common shares outstanding:
Basic51,060 53,815 51,036 53,900 
Diluted51,225 53,918 51,187 54,017 
Cash dividends declared per common share$— $— $— $0.05 
See accompanying notes.
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ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended June 30
 20242023
Operating Activities
Net income (loss)$20,134 $4,453 
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation and amortization, net of accretion9,765 13,631 
(Increase) decrease in cash surrender value of BOLI(986)816 
Net investment (gains) losses(2,895)(5,858)
Share-based compensation2,280 2,374 
Deferred income tax expense (benefit)3,094 (21)
Policy acquisition costs, net of amortization (net deferral)(705)(4,851)
Equity in (earnings) loss of unconsolidated subsidiaries(11,616)(5,511)
Distributed earnings from unconsolidated subsidiaries6,121 4,678 
Other, net625 913 
Change in:
Premiums receivable(12,803)(12,773)
Reinsurance related assets and liabilities13,415 (11,546)
Other assets(4,253)(328)
Reserve for losses and loss adjustment expenses(33,741)(50,222)
Unearned premiums3,976 16,606 
Other liabilities(16,910)(14,203)
Net cash provided (used) by operating activities(24,499)(61,842)
Investing Activities
Purchases of:
Fixed maturities, available-for-sale(464,055)(134,223)
Equity investments(440)(932)
Other investments(18,543)(14,645)
Investment in unconsolidated subsidiaries(15,963)(16,072)
Proceeds from sales or maturities of:
Fixed maturities, available-for-sale360,157 275,630 
Equity investments21,630 1,026 
Other investments78,123 47,257 
Net sales or (purchases) of fixed maturities, trading (3,274)(2,253)
Return of invested capital from unconsolidated subsidiaries15,177 16,087 
Net sales or maturities (purchases) of short-term investments19,869 (68,927)
Unsettled security transactions, net change8,053 2,439 
Purchases of capital assets(2,704)(2,120)
Other— 2,659 
Net cash provided (used) by investing activities(1,970)105,926 
Continued on the following page.
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Six Months Ended June 30
 20242023
Continued from the previous page.
Financing Activities
Borrowings (repayments) under Revolving Credit Agreement(1,562)— 
Repurchase of common stock— (19,971)
Dividends to shareholders— (5,379)
Capital contribution received from (return of capital to) external segregated portfolio cell participants— 50 
Other(990)(2,709)
Net cash provided (used) by financing activities(2,552)(28,009)
Increase (decrease) in cash and cash equivalents(29,021)16,075 
Cash and cash equivalents at beginning of period65,898 29,959 
Cash and cash equivalents at end of period$36,877 $46,034 
Significant Non-Cash Transactions
Operating lease liabilities arising from obtaining ROU assets$1,988 $— 
Increase (decrease) in fair value of contingent consideration issued in NORCAL acquisition$(6,500)$(4,000)
See accompanying notes.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024

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, ProAssurance Group, PRA or the Company). See Note 10 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 six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes contained in ProAssurance’s December 31, 2023 report on Form 10-K.
Beginning in the third quarter of 2023, ProAssurance operates in four reportable segments as follows: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance 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 12.
Reclassifications
As a result of the third quarter 2023 segment reorganization, prior period segment information in Note 12 has been recast to conform to the Company's current segment reporting.
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. 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, 2023 report on Form 10-K.
Accounting Changes Adopted
The Company did not adopt any new accounting standards during the six months ended June 30, 2024.
Accounting Changes Not Yet Adopted
Disclosure Improvements (ASU 2023-06)
In October 2023, the FASB amended guidance to clarify or improve disclosure and presentation requirements of a variety of topics, which will allow users to more easily compare entities subject to the SEC's existing disclosures with those entities that were not previously subject to the requirements and align the requirements in the Codification with the SEC's regulations. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X becomes effective, with early adoption prohibited. ProAssurance does not expect the updated guidance will have material effect on the Company's Consolidated Financial Statements and related disclosures.
Improvements to Reportable Segment Disclosures (ASU 2023-07)
Effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, and requiring retrospective application to all prior periods presented in the financial statements, the FASB amended disclosure requirements for segment reporting by modifying and adding disclosure requirements, primarily related to significant segment expenses which are regularly provided to the Company’s CODM. ProAssurance is currently evaluating the effect the updated guidance will have on the Company's financial statement disclosures.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
Improvements to Income Tax Disclosures (ASU 2023-09)
Effective for fiscal years beginning after December 31, 2024, the FASB amended disclosure requirements to provide greater transparency on income tax disclosures, including the disaggregation of existing disclosures related to the tax rate reconciliation and income taxes paid. ProAssurance is currently evaluating the effect the updated guidance will have on the Company's financial statement disclosures.

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 June 30, 2024 and December 31, 2023 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 2 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2023 report on Form 10-K.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
June 30, 2024
Fair Value Measurements UsingTotal
(In thousands)Level 1Level 2Level 3Fair Value
Assets:
Fixed maturities, available-for-sale
U.S. Treasury obligations$— $240,992 $— $240,992 
U.S. Government-sponsored enterprise obligations— 19,011 — 19,011 
State and municipal bonds— 456,114 — 456,114 
Corporate debt, multiple observable inputs— 1,660,872 — 1,660,872 
Corporate debt, limited observable inputs— — 66,951 66,951 
Residential mortgage-backed securities— 467,156 — 467,156 
Agency commercial mortgage-backed securities— 7,611 — 7,611 
Other commercial mortgage-backed securities— 238,255 — 238,255 
Other asset-backed securities— 425,819 724 426,543 
Fixed maturities, trading— 51,782 — 51,782 
Equity investments
Financial9,190 2,272 283 11,745 
Utilities/Energy843 — — 843 
Industrial— — 3,955 3,955 
Bond funds101,104 — — 101,104 
All other11,213 — — 11,213 
Short-term investments130,887 88,713 — 219,600 
Other investments— 1,724 500 2,224 
Other assets— 8,022 — 8,022 
Total assets categorized within the fair value hierarchy$253,237 $3,668,343 $72,413 3,993,993 
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 subsidiaries248,177 
Total assets at fair value$4,242,170 
Liabilities:
Other liabilities$9,430 $— $— $9,430 
Total liabilities categorized within the fair value hierarchy$9,430 $— $— $9,430 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
December 31, 2023
Fair Value Measurements UsingTotal
(In thousands)Level 1Level 2Level 3Fair Value
Assets:
Fixed maturities, available-for-sale
U.S. Treasury obligations$— $243,525 $— $243,525 
U.S. Government-sponsored enterprise obligations— 18,724 — 18,724 
State and municipal bonds— 454,381 — 454,381 
Corporate debt, multiple observable inputs— 1,668,197 — 1,668,197 
Corporate debt, limited observable inputs— — 82,377 82,377 
Residential mortgage-backed securities— 429,883 254 430,137 
Agency commercial mortgage-backed securities— 8,387 — 8,387 
Other commercial mortgage-backed securities— 188,464 1,010 189,474 
Other asset-backed securities— 395,245 3,150 398,395 
Fixed maturities, trading— 48,324 — 48,324 
Equity investments
Financial9,464 2,287 291 12,042 
Utilities/Energy1,256 — — 1,256 
Industrial— — 4,946 4,946 
Bond funds114,901 — — 114,901 
All other18,150 — — 18,150 
Short-term investments163,499 72,286 — 235,785 
Other investments— 57,478 5,126 62,604 
Other assets— 3,876 — 3,876 
Total assets categorized within the fair value hierarchy$307,270 $3,591,057 $97,154 3,995,481 
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 subsidiaries245,455 
Total assets at fair value$4,240,936 
Liabilities:
Other liabilities$4,030 $— $6,500 $10,530 
Total liabilities categorized within the fair value hierarchy$4,030 $— $6,500 $10,530 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
Level 3 Valuations
See Note 2 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2023 report on Form 10-K for a summary description of the valuation methodologies used regarding securities in the Level 3 category, by security type.
Quantitative Information Regarding Level 3 Valuations
Below is quantitative information regarding securities in the Level 3 category, by security type:
Fair Value at
($ in thousands)June 30, 2024December 31, 2023Valuation TechniqueUnobservable InputRange
(Weighted Average)
Assets:
Corporate debt, limited observable inputs$66,951$82,377Market Comparable
Securities		Comparability Adjustment
0% - 5% (2.5%)
Discounted Cash FlowsComparability Adjustment
0% - 5% (2.5%)
Residential mortgage-backed, other commercial mortgage-backed and other asset-backed securities$724$4,414Market Comparable
Securities		Comparability Adjustment
0% - 5% (2.5%)
Discounted Cash FlowsComparability Adjustment
0% - 5% (2.5%)
Equity investments$4,238$5,237Discounted Cash FlowsComparability Adjustment
0% - 10% (5%)
Other investments$500$5,126Discounted Cash FlowsComparability Adjustment
0% - 10% (5%)
Liabilities:
Other liabilities$—$6,500Stochastic Model/Discounted Cash FlowsWeighted Average Cost of Capital
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)
June 30, 2024
Fair Value Measurements - Level 3 Assets & Liabilities
The following tables present summary information regarding changes in the fair value of assets and liabilities measured using Level 3 inputs.
 June 30, 2024
 Level 3 Fair Value Measurements
AssetsLiabilities
(In thousands)Corporate DebtAsset-backed SecuritiesEquity InvestmentsOther Investments
Total Assets
Other LiabilitiesTotal Liabilities
Balance, March 31, 2024$66,208 $2,141 $5,234 $742 $74,325 $(6,500)$(6,500)
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment gains (losses)— — (996)10 (986)6,500 6,500 
Included in other comprehensive income (loss)27 6 — — 33 — — 
Purchases4,567 — — — 4,567 — — 
Sales(837)(217)— (252)(1,306)— — 
Transfers in— — — — — — — 
Transfers out(3,014)(1,206)— — (4,220)— — 
Balance, June 30, 2024$66,951 $724 $4,238 $500 $72,413 $— $— 
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end$— $— $(996)$— $(996)$— $— 
 June 30, 2024
 Level 3 Fair Value Measurements
AssetsLiabilities
(In thousands)Corporate DebtAsset-backed SecuritiesEquity InvestmentsOther InvestmentsTotal AssetsOther LiabilitiesTotal Liabilities
Balance, December 31, 2023$82,377 $4,414 $5,237 $5,126 $97,154 $(6,500)$(6,500)
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment gains (losses)— — (999)98 (901)6,500 6,500 
Included in other comprehensive income (loss)(144)(22)— — (166)— — 
Purchases6,768 1,200 — — 7,968 — — 
Sales(1,539)(217)— (252)(2,008)— — 
Transfers in— — — — — — — 
Transfers out(20,511)(4,651)— (4,472)(29,634)— — 
Balance, June 30, 2024$66,951 $724 $4,238 $500 $72,413 $— $— 
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets and liabilities held at period-end$— $— $(999)$88 $(911)$— $— 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
 June 30, 2023
 Level 3 Fair Value Measurements
AssetsLiabilities
(In thousands)Corporate DebtAsset-backed SecuritiesEquity InvestmentsOther Investments
Total Assets
Other LiabilitiesTotal Liabilities
Balance, March 31, 2023$76,157 $5,054 $2,800 $500 $84,511 $(13,000)$(13,000)
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income(23)— — — (23)— — 
Net investment gains (losses)(3)— (737)— (740)2,000 2,000 
Included in other comprehensive income (loss)(142)(13)— — (155)— — 
Purchases4,084 — 3,171 — 7,255 — — 
Sales(3,595)(396)— — (3,991)— 
Transfers out(9,084)(3,416)— — (12,500)— — 
Balance, June 30, 2023$67,394 $1,229 $5,234 $500 $74,357 $(11,000)$(11,000)
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end$— $— $(737)$— $(737)$— $— 
 June 30, 2023
 Level 3 Fair Value Measurements
AssetsLiabilities
(In thousands)Corporate DebtAsset-backed SecuritiesEquity InvestmentsOther InvestmentsTotal AssetsOther LiabilitiesTotal Liabilities
Balance, December 31, 2022$63,973 $2,954 $2,803 $1,783 $71,513 $(15,000)$(15,000)
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income (loss)(23)— — — (23)— — 
Net investment gains (losses)13 — (740)— (727)3,000 3,000 
Operating expense
— — — — — 1,000 1,000 
Included in other comprehensive income (loss)67 26 — — 93 — — 
Purchases10,406 1,863 3,171 — 15,440 — — 
Sales(4,027)(396)— — (4,423)— — 
Transfers in11,220 1,779 — — 12,999 — — 
Transfers out(14,235)(4,997)— (1,283)(20,515)— — 
Balance, June 30, 2023$67,394 $1,229 $5,234 $500 $74,357 $(11,000)$(11,000)
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets and liabilities held at period-end$— $— $(740)$— $(740)$— $— 

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.
All transfers in and out of Level 3 during the three and six months ended June 30, 2024 and 2023 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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
Fair Values Not Categorized
At June 30, 2024 and December 31, 2023, 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 contractual commitments related to these investments as of June 30, 2024 and fair values of these investments as of June 30, 2024 and December 31, 2023 were as follows:
 Unfunded
Contractual Commitments		Fair Value
(In thousands)June 30,
2024		June 30,
2024		December 31,
2023
Investment in unconsolidated subsidiaries:
Private debt funds (1)
$4,529$16,991 $19,886 
Long/short equity funds (2)
None4,198 4,497 
Non-public equity funds (3)
$33,308115,167 111,251 
Credit funds (4)
$30,59355,503 55,740 
Strategy focused funds (5)
$50,09056,318 54,081 
Total investments carried at NAV$248,177 $245,455 
Below is additional information regarding each of the investments listed in the table above as of June 30, 2024.
(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 is comprised of one LP fund, which holds long and short publicly traded securities that will passively generate income. Redemptions are permitted with 30 days written notice if outside of a lock-up period.
(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.
(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. A third fund is an LLC focused on acquiring ownership stakes in insurance agencies. For all three funds, redemptions are not permitted. The remaining funds are real estate focused LPs, two of which allow 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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
Nonrecurring Fair Value Measurement
ProAssurance did not have any assets or liabilities that were measured at fair value on a nonrecurring basis at June 30, 2024 or December 31, 2023.
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.
 June 30, 2024December 31, 2023
(In thousands)Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
Financial assets:
BOLI$79,191 $79,191 $78,205 $78,205 
Other investments$4,064 $4,064 $3,215 $3,215 
Other assets$34,237 $34,237 $33,231 $33,221 
Financial liabilities:
Revolving Credit Agreement*$125,000 $125,000 $125,000 $125,000 
Term Loan*
$123,438 $123,438 $125,000 $125,000 
Contribution Certificates$180,345 $151,491 $179,387 $149,782 
Other liabilities$32,926 $32,926 $32,043 $32,043 
* 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. Two 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 $33.3 million and $32.3 million at June 30, 2024 and December 31, 2023, respectively. 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 $32.9 million and $32.0 million at June 30, 2024 and December 31, 2023, respectively.
The fair value of the debt 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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
3. Investments
Available-for-sale fixed maturities at June 30, 2024 and December 31, 2023 included the following:
June 30, 2024
(In thousands)Amortized
Cost		Allowance for Expected Credit LossesGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Fixed maturities, available-for-sale
U.S. Treasury obligations$257,840 $— $43 $16,891 $240,992 
U.S. Government-sponsored enterprise obligations19,953 — — 942 19,011 
State and municipal bonds484,607 — 1,346 29,839 456,114 
Corporate debt1,862,233 1,210 2,073 135,273 1,727,823 
Residential mortgage-backed securities526,512 203 1,473 60,626 467,156 
Agency commercial mortgage-backed securities8,575 — — 964 7,611 
Other commercial mortgage-backed securities257,338 — 179 19,262 238,255 
Other asset-backed securities435,350 189 870 9,488 426,543 
$3,852,408 $1,602 $5,984 $273,285 $3,583,505 
 December 31, 2023
(In thousands)Amortized
Cost		Allowance for Expected Credit LossesGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Fixed maturities, available-for-sale
U.S. Treasury obligations$259,834 $— $165 $16,474 $243,525 
U.S. Government-sponsored enterprise obligations19,752 — 2 1,030 18,724 
State and municipal bonds482,367 — 1,885 29,871 454,381 
Corporate debt1,883,308 — 4,025 136,759 1,750,574 
Residential mortgage-backed securities481,267 211 2,876 53,795 430,137 
Agency commercial mortgage-backed securities9,369 — 5 987 8,387 
Other commercial mortgage-backed securities210,469 151 60 20,904 189,474 
Other asset-backed securities412,354 193 1,104 14,870 398,395 
$3,758,720 $555 $10,122 $274,690 $3,493,597 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
The recorded cost basis and estimated fair value of available-for-sale fixed maturities at June 30, 2024, 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$257,840 $35,067 $175,615 $27,758 $2,552 $240,992 
U.S. Government-sponsored enterprise obligations19,953 6,896 9,645 501 1,969 19,011 
State and municipal bonds484,607 33,991 155,611 152,740 113,772 456,114 
Corporate debt1,862,233 178,112 899,775 553,557 96,379 1,727,823 
Residential mortgage-backed securities526,512 467,156 
Agency commercial mortgage-backed securities8,575 7,611 
Other commercial mortgage-backed securities257,338 238,255 
Other asset-backed securities435,350 426,543 
$3,852,408 $3,583,505 
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 June 30, 2024.
Cash and securities with a carrying value of $51.9 million at June 30, 2024 were on deposit with various state insurance departments to meet regulatory requirements. ProAssurance also held securities with a carrying value of $69.2 million at June 30, 2024 that are pledged as collateral security for advances under the Company's borrowing relationships with FHLBs.
As a member of Lloyd's, ProAssurance is required to maintain capital at Lloyd's, referred to as FAL, to support the Company's previous participation in underwriting years that remain open at Syndicate 1729. At June 30, 2024, the fair value of ProAssurance's FAL investments was $16.9 million and were comprised of investment securities, primarily short-term investments, and cash and cash equivalents on deposit with Lloyd's, in order to satisfy these FAL requirements. During the second quarter of 2024, the Company received a return of approximately $5.2 million of cash from its FAL balances due to lower capital requirements for the 2023 underwriting year.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
Investments Held in a Loss Position
The following tables provide summarized information with respect to investments held in an unrealized loss position at June 30, 2024 and December 31, 2023, including the length of time the investment had been held in a continuous unrealized loss position.
June 30, 2024
 TotalLess than 12 months12 months or longer
 FairUnrealizedFairUnrealizedFairUnrealized
(In thousands)ValueLossValueLossValueLoss
Fixed maturities, available-for-sale
U.S. Treasury obligations$227,781 $16,891 $45,217 $1,329 $182,564 $15,562 
U.S. Government-sponsored enterprise obligations19,011 942 7,375 225 11,636 717 
State and municipal bonds370,653 29,839 86,490 4,416 284,163 25,423 
Corporate debt1,501,075 135,273 477,006 34,389 1,024,069 100,884 
Residential mortgage-backed securities375,776 60,626 171,829 17,320 203,947 43,306 
Agency commercial mortgage-backed securities7,611 964 2,556 332 5,055 632 
Other commercial mortgage-backed securities219,756 19,262 99,039 7,258 120,717 12,004 
Other asset-backed securities262,488 9,488 152,069 3,344 110,419 6,144 
$2,984,151 $273,285 $1,041,581 $68,613 $1,942,570 $204,672 

December 31, 2023
 TotalLess than 12 months12 months or longer
 FairUnrealizedFairUnrealizedFairUnrealized
(In thousands)ValueLossValueLossValueLoss
Fixed maturities, available-for-sale
U.S. Treasury obligations$213,634 $16,474 $32,925 $1,364 $180,709 $15,110 
U.S. Government-sponsored enterprise obligations18,428 1,030 4,128 242 14,300 788 
State and municipal bonds378,313 29,871 48,960 2,287 329,353 27,584 
Corporate debt1,524,940 136,759 84,221 5,054 1,440,719 131,705 
Residential mortgage-backed securities313,082 53,795 74,463 10,271 238,619 43,524 
Agency commercial mortgage-backed securities7,955 987 212 1 7,743 986 
Other commercial mortgage-backed securities184,416 20,904 18,092 1,140 166,324 19,764 
Other asset-backed securities293,447 14,870 30,115 867 263,332 14,003 
$2,934,215 $274,690 $293,116 $21,226 $2,641,099 $253,464 
As of June 30, 2024, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 2,565 debt securities (64.2% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 1,322 issuers. The greatest and second greatest unrealized loss positions among those securities were approximately $5.4 million and $3.4 million, respectively. The securities were evaluated for impairment as of June 30, 2024.
As of December 31, 2023, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 2,531 debt securities (65.6% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 1,319 issuers. The greatest and second greatest unrealized loss positions among those securities were approximately $5.0 million and $3.2 million, respectively. The securities were evaluated for impairment as of December 31, 2023.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
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, 2023 report on Form 10-K.
Fixed maturity securities held in an unrealized loss position at June 30, 2024, 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 June 30, 2024 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.
The following tables present a roll forward of the allowance for expected credit losses on available-for-sale fixed maturities for the three and six months ended June 30, 2024 and 2023.
Three Months Ended June 30, 2024
(In thousands)Corporate DebtResidential mortgage-backed securitiesOther asset-backed securitiesTotal
Balance, at April 1, 2024
$740 $207 $190 $1,137 
Additional credit losses related to securities for which:
An allowance for credit losses was recorded in a previous period470 — — 470 
Reductions related to:
Securities sold during the period— (4)(1)(5)
Balance, at June 30, 2024
$1,210 $203 $189 $1,602 
Six Months Ended June 30, 2024
(In thousands)Corporate DebtResidential mortgage-backed securitiesOther commercial mortgage-backed securitiesOther asset-backed securitiesTotal
Balance, at December 31, 2023$— $211 $151 $193 $555 
Additional credit losses related to securities for which:
No allowance for credit losses has been previously recognized740 — — — 740 
An allowance for credit losses was recorded in a previous period470 — — — 470 
Reductions related to:
Securities sold during the period— (8)(151)(4)(163)
Balance, at June 30, 2024$1,210 $203 $— $189 $1,602 
Three Months Ended June 30, 2023
(In thousands)Residential mortgage-backed securitiesOther asset-backed securitiesTotal
Balance, at April 1, 2023
$227 $197 $424 
Reductions related to:
Securities sold during the period(4)(1)(5)
Balance, at June 30, 2023$223 $196 $419 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
Six Months Ended June 30, 2023
(In thousands)Residential mortgage-backed securitiesOther asset-backed securitiesTotal
Balance, at December 31, 2022$229 $198 $427 
Reductions related to:
Securities sold during the period(6)(2)(8)
Balance, at June 30, 2023$223 $196 $419 
Other information regarding sales and purchases of fixed maturity available-for-sale securities is as follows:
Three Months Ended June 30Six Months Ended June 30
(In millions)2024202320242023
Proceeds from sales (exclusive of maturities and paydowns)$41.2 $19.6 $58.3 $23.4 
Purchases$233.6 $65.4 $464.1 $134.2 
Net Investment Income
Net investment income (loss) by investment category was as follows:
Three Months Ended
June 30		Six Months Ended
June 30
(In thousands)2024202320242023
Fixed maturities$33,607 $27,951 $65,058 $55,278 
Equities1,164 1,105 2,056 1,912 
Short-term investments, including Other3,140 4,034 6,551 7,384 
BOLI534 459 986 1,116 
Investment fees and expenses(1,887)(1,899)(4,196)(3,730)
Net investment income$36,558 $31,650 $70,455 $61,960 
Investment in Unconsolidated Subsidiaries
ProAssurance's investment in unconsolidated subsidiaries were as follows:
 June 30, 2024Carrying Value
(In thousands)Percentage
Ownership		June 30,
2024		December 31,
2023
Qualified affordable housing project tax credit partnershipsSee below$750 $666 
All other investments, primarily investment fund LPs/LLCs
See below282,287 276,090 
$283,037 $276,756 
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 June 30, 2024 and December 31, 2023, ProAssurance did not have an ownership percentage greater than 20% in any tax credit partnership interests. 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 10.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
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% at June 30, 2024 and December 31, 2023 which is likely to be reduced as the funds mature and other investors participate in the funds; these investments had a carrying value of $24.0 million at June 30, 2024 and $23.0 million at December 31, 2023. ProAssurance's ownership percentage relative to the remaining investments and LPs/LLCs is less than 25%; these interests had a carrying value of $258.3 million at June 30, 2024 and $253.1 million at December 31, 2023. ProAssurance does not have the ability to exert control over any of these funds.
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
June 30		Six Months Ended
June 30
(In thousands)2024202320242023
Qualified affordable housing project tax credit partnerships
Losses (gains) recorded
$(391)$1,511 $(288)$1,865 
Tax credits recognized$8 $29 $16 $72 
ProAssurance accounts for its tax credit partnership investments under the equity method of accounting and records its allocable portion of the operating losses of the underlying properties based on estimates provided by the partnerships. For the Company's qualified affordable housing project tax credit partnerships, it adjusts its estimates of their allocable portion of operating losses periodically as actual operating results of the underlying properties become available. The primary benefits of tax credits and tax-deductible operating losses from the historic tax credit partnerships are earned in a short period with potential for additional cash flows extending over several years. For the three and six months ended June 30, 2024 and 2023, the Company generated a nominal amount of tax credits from its tax credit partnership investments, which were deferred and are expected to be utilized in future periods. As of June 30, 2024, the Company had approximately $52.7 million of available tax credit carryforwards generated from its investments in tax credit partnerships which they expect to utilize in future periods.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
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
June 30		Six Months Ended
June 30
(In thousands)2024202320242023
Total impairment losses:
Corporate debt$4 $(48)$(1,312)$(2,984)
Asset-backed securities5 5 (189)8 
Portion of impairment losses recognized in other comprehensive income before taxes:
Corporate debt(474)— 102 — 
Net impairment losses recognized in earnings
(465)(43)(1,399)(2,976)
Gross realized gains, available-for-sale fixed maturities306 460 672 539 
Gross realized (losses), available-for-sale fixed maturities(970)(767)(2,069)(1,224)
Net realized gains (losses), trading fixed maturities(2)2 13 (106)
Net realized gains (losses), equity investments2,195 17 1,939 101 
Net realized gains (losses), other investments(2,357)(2,115)(581)(1,886)
Change in unrealized holding gains (losses), trading fixed maturities (44)54 170 151 
Change in unrealized holding gains (losses), equity investments(3,991)(1,130)(3,217)2,616 
Change in unrealized holding gains (losses), convertible securities, carried at fair value 1,725 2,929 606 4,061 
Other(1)
6,766 3,539 6,761 4,582 
Net investment gains (losses)$3,163 $2,946 $2,895 $5,858 
(1) Includes a gain of $6.5 million related to the decrease in the contingent consideration liability during the 2024 three- and six-month periods. For the 2023 three- and six-month periods, includes a gain of $2.0 million and $3.0 million, respectively, related to the decrease in the contingent consideration liability. See further discussion on the contingent consideration in Note 2 and Note 6 and discussion on the Company's accounting policy in Note 1 in its December 31, 2023 report on Form 10-K.
For the three and six months ended June 30, 2024, ProAssurance recognized $0.5 million and $1.4 million of credit-related impairment losses in earnings, respectively. For the three months ended June 30, 2024, the Company recognized a reversal of non-credit impairment losses in OCI of $0.5 million due to changes in projected future cash flows related to a corporate bond in the consumer sector. For the three and six months ended June 30, 2023, ProAssurance recognized a nominal amount and $3.0 million of credit-related impairment losses in earnings, respectively, related to two corporate bonds in the financial sector. The Company did not recognize any non-credit impairment losses in OCI during the three and six months ended June 30, 2023.
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
June 30		Six Months Ended
June 30
(In thousands)2024202320242023
Balance beginning of period$797 $57 $57 $57 
Additional credit losses recognized during the period, related to securities for which:
No impairment has been previously recognized— — 740 — 
Impairment has been previously recognized470 — 470 — 
Balance June 30
$1,267 $57 $1,267 $57 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
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. If 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 would utilize the discrete effective tax rate method. For the three and six months ended June 30, 2024 and 2023, the Company utilized the estimated annual effective tax rate method. Under this 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. For the three and six months ended June 30, 2024 and 2023, the provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income (loss) before income taxes primarily due to the decrease in the contingent consideration liability related to the NORCAL acquisition, all of which was non-taxable. See further discussion on the Company's contingent consideration in Note 2 and Note 6.
ProAssurance had a liability for U.S. federal and U.K. income taxes carried as a part of other liabilities of $3.6 million as of June 30, 2024 and $4.0 million as of December 31, 2023. At June 30, 2024 and December 31, 2023, the liability for unrecognized tax benefits, which is included in the total liability for U.S. federal and U.K. income taxes, was $5.5 million and $5.3 million, respectively, which included an accrued liability for interest of approximately $0.7 million and $0.5 million, respectively.
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 7 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2023 report on Form 10-K.
Activity in the reserve for losses and loss adjustment expenses is summarized as follows:
(In thousands)Six Months Ended June 30, 2024Six Months Ended June 30, 2023Year Ended December 31, 2023
Balance, beginning of year$3,401,281 $3,471,147 $3,471,147 
Less reinsurance recoverables on unpaid losses and loss adjustment expenses445,573 431,889 431,889 
Net balance, beginning of year2,955,708 3,039,258 3,039,258 
Net losses:
Current year
387,630 395,632 794,848 
(Favorable) unfavorable development of reserves established in prior years, net(1)
(6,936)722 5,646 
Total380,694 396,354 800,494 
Paid related to:
Current year(33,436)(33,129)(101,996)
Prior years(383,292)(407,118)(782,048)
Total paid(416,728)(440,247)(884,044)
Net balance, end of period2,919,674 2,995,365 2,955,708 
Plus reinsurance recoverables on unpaid losses and loss adjustment expenses447,866 425,560 445,573 
Balance, end of period$3,367,540 $3,420,925 $3,401,281 
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Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
(1) Net prior year reserve development recognized for the six months ended June 30, 2024 and 2023 as well as the year ended December 31, 2023 included $3.3 million, $5.0 million and $8.3 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.
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 consolidated net favorable prior year reserve development recognized for the six months ended June 30, 2024 primarily reflected:
•Net favorable development recognized in the Specialty P&C segment of $7.4 million driven primarily by $2.5 million of net favorable development in each of the segment's MPL and Medical Technology Liability lines of business, principally related to accident years 2017 and prior.
•Consolidated net favorable loss development recognized in the six months ended June 30, 2024 was partially offset by unfavorable reserve development of $0.9 million attributable to the Company's Lloyd’s Syndicates operations in the Specialty P&C segment and net unfavorable reserve development of $0.5 million recognized in the Segregated Portfolio Cell Reinsurance segment. The net unfavorable development in the Segregated Portfolio Cell Reinsurance segment includes favorable development related to workers' compensation business of $0.9 million that was more than offset by unfavorable development of $1.4 million related to medical professional liability business due to higher than expected claim frequency in one program in which the Company does not participate in the underwriting results.
For additional information regarding ProAssurance's prior year reserve development recognized for the six months ended June 30, 2023 and the year ended December 31, 2023, see Note 5 of the Notes to Condensed Consolidated Financial Statements included in ProAssurance's June 30, 2023 report on Form 10-Q and Note 7 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2023 report on Form 10-K, respectively.
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, 2023 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 June 30, 2024, there were no material reserves established for corporate legal actions.
As a member of Lloyd's, ProAssurance has obligations to Syndicate 1729 including FAL requirements. ProAssurance provides FAL to support its previous participation in underwriting years that remain open at Syndicate 1729, which is comprised of investment securities, primarily short-term investments, and cash and cash equivalents deposited with Lloyd's, with a total fair value of approximately $16.9 million at June 30, 2024 (see Note 3). During the second quarter of 2024, the Company received a return of approximately $5.2 million of cash from its FAL balances due to lower capital requirements for the 2023 underwriting year.
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 June 30, 2024, ProAssurance had total funding commitments related to non-public investment entities as well as the short-term loan commitment of approximately $152.9 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. As such, ProAssurance’s expected credit losses associated with this short-term loan commitment were nominal in amount as of June 30, 2024.
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
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Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
amount of up to approximately $84 million. As defined in the purchase agreement, the contingent consideration is dependent upon the after-tax development of NORCAL's ultimate net losses for accident years ended on or before December 31, 2020 determined as of December 31, 2023 by a mutually agreed upon independent actuarial consultant. In June 2024, the independent actuarial consulting firm completed its estimate, and based on that estimate no additional consideration is due. The Committee appointed by NORCAL prior to the close of the acquisition reviewed the work of the independent actuarial consultant and accepted the conclusion that no additional consideration is due; therefore, the liability was reduced to zero as of June 30, 2024. As of December 31, 2023, the contingent consideration liability was $6.5 million carried at fair value utilizing a stochastic model. As of December 31, 2023, the remaining uncertainty around the analysis to be performed by the independent actuary was a significant component in the determination of the fair value of the liability. See further discussion around the contingent consideration in Note 2.
7. Debt
ProAssurance’s outstanding debt consisted of the following:
($ in thousands)June 30,
2024		December 31,
2023
Contribution Certificates due 2031, interest at 3.0% (effective interest rate at 4.35%) paid annually in April
$180,345 $179,387 
Revolving Credit Agreement, outstanding borrowings are not permitted to exceed $300 million aggregately, including a $50 million accordion feature; Revolving Credit Agreement expires in 2028. The effective interest rate was 7.56% as of June 30, 2024
125,000 125,000 
Term Loan, principal repayments in quarterly installments began June 30, 2024; Term Loan expires in 2028. The effective interest rate was 7.68% as of June 30, 2024
123,438 125,000 
Total principal428,783 429,387 
Less unamortized debt issuance costs1,929 2,254 
Debt less unamortized debt issuance costs$426,854 $427,133 
Covenant Compliance
There are no financial covenants associated with the Contribution Certificates due 2031.
The Revolving Credit Agreement contains customary representations, covenants and events constituting default, and remedies for default, as previously discussed. As of June 30, 2024, ProAssurance is in compliance with all covenants of the Revolving Credit Agreement.
Additional Information
For additional information regarding ProAssurance's debt, see Note 10 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2023 report on Form 10-K.
8. Derivatives
ProAssurance is exposed to certain risks relating to its ongoing business and investment activities. ProAssurance utilizes derivative instruments as part of its risk management strategy to reduce the market risk related to fluctuations in future interest rates associated with a portion of its variable-rate debt. See Note 1 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2023 report on Form 10-K for the Company's accounting policy regarding derivative instruments.
To manage the Company's exposure to variability in cash flows of forecasted interest payments attributable to variability in the selected base rates on borrowings under both the Revolving Credit Agreement and Term Loan, ProAssurance entered into two forward-starting interest rate swap agreements ("Interest Rate Swaps") on May 2, 2023, each with an effective date of December 29, 2023 and a maturity date of March 31, 2028. As ProAssurance's Interest Rate Swaps are designated and qualify as highly effective cash flow hedges, changes in the fair value of the Interest Rate Swaps are recorded in AOCI, net of tax, and are reclassified into earnings when the hedged cash flows impact earnings. The Interest Rate Swap hedging the variability in cash flows associated with interest payments on the Revolving Credit Agreement will have a constant $125 million notional amount throughout the term of the swap, while the Interest Rate Swap hedging the variability in cash flows associated with interest payments on the Term Loan will have an amortizing $125 million notional amount, which is designed to match the outstanding principal on the Term Loan throughout the term of the swap. Borrowings under the Revolving Credit Agreement
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Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
and Term Loan will accrue interest at a selected base rate, adjusted by a margin. The Interest Rate Swaps effectively fix the base rate on borrowings under the Revolving Credit Agreement and Term Loan to 3.187% and 3.207%, respectively. The margin component of the interest rate, which can vary from 0% to 2.375%, will remain variable and is based on ProAssurance’s debt to capitalization ratio. As of June 30, 2024, the margin component of the interest rate on the outstanding borrowings under the Revolving Credit Agreement and Term Loan was 2.23% and 2.35%, respectively, based on ProAssurance's debt to capitalization ratio as of March 31, 2024 resulting in a total interest rate of 5.42% and 5.56%, respectively, including the effect of the Interest Rate Swaps on the base rate. Additional information regarding the Company's Revolving Credit Agreement and Term Loan is provided in Note 10 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2023 report on Form 10-K.
ProAssurance received cash collateral from the counterparty to secure the net present value of future cash flows associated with the Interest Rate Swaps which is reflected as a component of other liabilities on the Condensed Consolidated Balance Sheet. Those cash collateral balances were $9.4 million and $4.0 million at June 30, 2024 and December 31, 2023, respectively.
The following table provides a summary of the volume and fair value position of the Interest Rate Swaps as well as the reporting location in the Condensed Consolidated Balance Sheet as of June 30, 2024 and December 31, 2023.
($ in thousands)June 30, 2024December 31, 2023
Derivatives Designated and Qualifying as Cash Flow Hedging InstrumentsLocation in the Condensed Consolidated Balance SheetsNumber of Instruments
Aggregate Notional Amount(1)
Estimated Fair Value(2)
Number of Instruments
Aggregate Notional Amount(1)
Estimated Fair Value(2)
Interest Rate SwapsOther Assets2$248,438$8,0222$250,000$3,876
(1) Volume is represented by the derivative instruments' notional amount.
(2) Additional information regarding the fair value of the Company's Interest Rate Swaps is provided in Note 2.
For the three and six months ended June 30, 2024, ProAssurance reclassified a gain on the Interest Rate Swaps from AOCI, net of tax, into earnings as shown in the table below:
Qualifying Cash Flow Hedges - Gains (Losses) Reclassified from AOCI, net of tax, to Earnings
(In thousands)Three Months Ended June 30Six Months Ended June 30
Derivatives Designated as Hedging Instruments
Location in the Condensed Consolidated Statements of Income and Comprehensive Income
2024202320242023
Interest Rate Swaps
Interest Expense$1,051 $— $2,124 $— 

At June 30, 2024, management estimates that it will reclassify approximately $4.3 million of pre-tax net gains on the Interest Rate Swaps from AOCI to earnings over the next twelve months, which will be recorded to interest expense. See additional information on gains or losses related to the Interest Rate Swaps reported as a component of AOCI in Note 9.
As a result of the Interest Rate Swaps, ProAssurance is exposed to risk that the counterparty will fail to meet its contractual obligations. To mitigate this counterparty credit risk, ProAssurance only enters into derivative contracts with carefully selected major financial institutions based upon their credit ratings and monitors their creditworthiness. As of June 30, 2024, the counterparty had an investment grade rating of A and has performed in accordance with their contractual obligations.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
9. Shareholders’ Equity
At June 30, 2024 and December 31, 2023, 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 2023 totaling $2.7 million. In light of the price range in which the Company's stock traded in the second quarter of 2023, the Board decided to suspend payment of a quarterly cash dividend. Instead, the Company used available capital to repurchase shares pursuant to the existing share repurchase authorization. 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 12 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2023 report on Form 10-K for additional information.
At June 30, 2024, Board authorizations for the repurchase of common shares or the retirement of outstanding debt of $55.9 million remained available for use. ProAssurance did not repurchase any common shares during the three and six months ended June 30, 2024. ProAssurance repurchased approximately 1.4 million common shares at a cost of $20.0 million during the second quarter of 2023.
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 $0.2 million for the three and six months ended June 30, 2024 and a deferred tax benefit of $2.7 million and deferred tax expense of $8.1 million for the three and six months ended June 30, 2023, respectively.
The changes in the balance of each component of AOCI for the three and six months ended June 30, 2024 and 2023 were as follows:
(In thousands)
Unrealized Investment Gains (Losses)
Cash Flow Hedging Gains (Losses) (1)
Non-credit ImpairmentsUnrecognized Change in Defined Benefit Plan LiabilitiesAccumulated Other Comprehensive Income (Loss)
Balance, April 1, 2024$(211,345)$6,027 $(466)$(1,177)$(206,961)
OCI, before reclassifications, net of tax(597)1,326 — — 729 
Amounts reclassified from AOCI, net of tax872 (1,051)374 — 195 
Net OCI, current period275 275 374 — 924 
Balance at June 30, 2024$(211,070)$6,302 $(92)$(1,177)$(206,037)
(In thousands)
Unrealized Investment Gains (Losses)
Cash Flow Hedging Gains (Losses) (1)
Non-credit ImpairmentsUnrecognized Change in Defined Benefit Plan LiabilitiesAccumulated Other Comprehensive Income (Loss)
Balance, December 31, 2023$(206,327)$3,026 $(11)$(1,177)$(204,489)
OCI, before reclassifications, net of tax(6,936)5,400 (455)— (1,991)
Amounts reclassified from AOCI, net of tax2,193 (2,124)374 — 443 
Net OCI, current period(4,743)3,276 (81)— (1,548)
Balance, June 30, 2024$(211,070)$6,302 $(92)$(1,177)$(206,037)
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Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024

(In thousands)Unrealized Investment Gains (Losses)
Cash Flow Hedging Gains (Losses) (1)
Non-credit Impairments
Unrecognized Change in Defined Benefit Plan Liabilities
Accumulated Other Comprehensive Income (Loss)
Balance, April 1, 2023$(254,513)$— $(11)$(1,454)$(255,978)
OCI, before reclassifications, net of tax(16,074)4,310 — — (11,764)
Amounts reclassified from AOCI, net of tax262 — — — 262 
Net OCI, current period(15,812)4,310 — — (11,502)
Balance at June 30, 2023$(270,325)$4,310 $(11)$(1,454)$(267,480)
(In thousands)Unrealized Investment Gains (Losses)
Cash Flow Hedging Gains (Losses) (1)
Non-credit ImpairmentsUnrecognized Change in Defined Benefit Plan LiabilitiesAccumulated Other Comprehensive Income (Loss)
Balance, December 31, 2022$(297,142)$— $(11)$(1,454)$(298,607)
OCI, before reclassifications, net of tax23,933 4,310 — — 28,243 
Amounts reclassified from AOCI, net of tax2,884 — — — 2,884 
Net OCI, current period26,817 4,310 — — 31,127 
Balance, June 30, 2023$(270,325)$4,310 $(11)$(1,454)$(267,480)
(1) ProAssurance entered into two forward-starting interest rate swap agreements ("Interest Rate Swaps") on May 2, 2023, which are designated and qualify as highly effective cash flow hedges. See Note 8 for additional information on the Interest Rate Swaps.
10. 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 $257.0 million at June 30, 2024 and $250.4 million at December 31, 2023. 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 June 30, 2024, ProAssurance’s maximum loss exposure relative to these investments was limited to the carrying value of ProAssurance’s investment in the VIE.
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 PPM 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. At June 30, 2024 and December 31, 2023, approximately $134 million and $142 million of ProAssurance's assets, respectively, and approximately $134 million and $142 million of its liabilities, respectively, included on the Condensed Consolidated Balance Sheet were related to PPM RRG.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
11. Earnings (Loss) Per Share
Diluted weighted average shares is calculated as basic weighted average shares plus the effect, calculated using the treasury stock method, of assuming that restricted share units and performance share units have vested. The following table provides a reconciliation between the Company's basic weighted average number of common shares outstanding to its diluted weighted average number of common shares outstanding:
(In thousands, except per share data)
Three Months Ended
June 30		Six Months Ended
June 30
2024202320242023
Weighted average number of common shares outstanding, basic51,060 53,815 51,036 53,900 
Dilutive effect of securities:
Restricted Share Units128 87 120 95 
Performance Share Units37 16 31 22 
Weighted average number of common shares outstanding, diluted51,225 53,918 51,187 54,017 
Effect of dilutive shares on earnings (loss) per share$— $— $— $— 
The diluted weighted average number of common shares outstanding for the three and six months ended June 30, 2024 excluded approximately 143,000 and 197,000, respectively, of common share equivalents issuable under the Company's stock compensation plans, as compared to approximately 339,000 and 170,000 during the same respective periods of 2023, as their effect would have been antidilutive.
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.
12. 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.
Segment Reorganization
Effective September 2023, ProAssurance elected to discontinue its participation in the results of Syndicate 1729 beginning with the 2024 underwriting year. The results from the Company's participation in Syndicate 1729 from open underwriting years prior to 2024 will continue to earn out pro rata over the entire policy period of the underlying business. Further, ProAssurance received proceeds of $1.5 million during the second quarter of 2023 associated with the sale of a portion of the Company's ownership interest in the underwriting and operations entity associated with Syndicate 1729 to an unrelated third party. The Company's remaining ownership interest in this entity of $5.4 million was sold during the fourth quarter of 2023.
During the third quarter of 2023, ProAssurance reorganized the financial results evaluated by its CODM; therefore, ProAssurance changed its operating and reportable segments to align with how the CODM currently oversees the business, allocates resources and evaluates operating performance. As a result, ProAssurance now reports the underwriting results from its participation in Lloyd’s Syndicates in the Specialty P&C segment and the investment results of assets solely allocated to its Lloyd's Syndicate operations and U.K. income taxes in the Corporate segment. All prior period segment information has been recast to conform to the current period presentation. The segment reorganization had no impact on previously reported consolidated financial results.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
The Company operates in four segments that are organized around the nature of the products and services provided: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance and Corporate. Additional information regarding ProAssurance's segments is included in Note 16 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2023 report on Form 10-K. A description of each of ProAssurance's four operating and reportable segments follows.
•Specialty P&C primarily includes medical professional liability insurance and medical technology liability insurance. The Specialty P&C segment also includes the underwriting results from ProAssurance's participation in Lloyd's of London Syndicate 1729 and Syndicate 6131.
•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.
•Corporate includes ProAssurance's investment operations excluding those reported in the Company's Segregated Portfolio Cell Reinsurance segment. In addition, this segment includes corporate expenses, interest expense, U.S. and U.K. 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, 2023 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 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 segment, 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 goodwill or intangible asset impairments, changes in the fair value of contingent consideration 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, 2024
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell ReinsuranceCorporateInter-segment EliminationsConsolidated
Net premiums earned$184,546 $41,770 $13,551 $— $— $239,867 
Net investment income— — 985 35,573 — 36,558 
Equity in earnings (loss) of unconsolidated subsidiaries— — — 8,652 — 8,652 
Net investment gains (losses)— — 258 (3,835)— (3,577)
Other income (expense)(1)
1,023 469 1 1,968 (1,346)2,115 
Net losses and loss adjustment expenses(145,234)(32,149)(8,617)— — (186,000)
Underwriting, policy acquisition and operating expenses(1)
(50,871)(15,139)(5,250)(9,783)1,346 (79,697)
SPC U.S. federal income tax benefit (expense)(2)
— — (249)— — (249)
SPC dividend (expense) income— — (512)— — (512)
Interest expense— — — (5,648)— (5,648)
Income tax benefit (expense)— — — (2,488)— (2,488)
Segment results$(10,536)$(5,049)$167 $24,439 $— 9,021 
Reconciliation of segments to consolidated results:
Contingent Consideration(3)
6,740 
Transaction-related costs, net(4)
(253)
Net income (loss)$15,508 
Significant non-cash items:
Depreciation and amortization, net of accretion$2,290 $1,313 $(620)$1,450 $— $4,433 
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Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
Six Months Ended June 30, 2024
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell Reinsurance CorporateInter-segment EliminationsConsolidated
Net premiums earned
$373,433 $82,864 $27,720 $— $— $484,017 
Net investment income
— — 1,678 68,777 — 70,455 
Equity in earnings (loss) of unconsolidated subsidiaries
— — — 11,616 — 11,616 
Net investment gains (losses)— — 1,728 (5,573)— (3,845)
Other income (expense)(1)
2,377 946 — 5,028 (2,281)6,070 
Net losses and loss adjustment expenses(298,227)(63,786)(18,681)— — (380,694)
Underwriting, policy acquisition and operating expenses(1)
(101,922)(29,628)(9,961)(18,473)2,281 (157,703)
SPC U.S. federal income tax benefit (expense)(2)
— — (666)— — (666)
SPC dividend (expense) income
— — (1,119)— — (1,119)
Interest expense
— — — (11,305)— (11,305)
Income tax benefit (expense)
— — — (3,179)— (3,179)
Segment results
$(24,339)$(9,604)$699 $46,891 $— 13,647 
Reconciliation of segments to consolidated results:
Contingent Consideration(3)
6,740 
Transaction-related costs, net(4)
(253)
Net income (loss)$20,134 
Significant non-cash items:
Depreciation and amortization, net of accretion$4,719 $2,477 $(990)$3,559 $— $9,765 
Three Months Ended June 30, 2023
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell Reinsurance CorporateInter-segment EliminationsConsolidated
Net premiums earned$182,750 $41,018 $24,094 $— $— $247,862 
Net investment income— — 603 31,047 — 31,650 
Equity in earnings (loss) of unconsolidated subsidiaries— — — 6,632 — 6,632 
Net investment gains (losses)— — 1,194 (248)— 946 
Other income (expense)(1)
1,026 651 1 2,173 (1,110)2,741 
Net losses and loss adjustment expenses(147,480)(29,762)(13,816)— — (191,058)
Underwriting, policy acquisition and operating expenses(1)
(48,873)(14,400)(6,538)(8,275)1,110 (76,976)
SPC U.S. federal income tax benefit (expense)(2)
— — (994)— — (994)
SPC dividend (expense) income— — (3,747)— — (3,747)
Interest expense— — — (5,502)— (5,502)
Income tax benefit (expense)— — — (2,927)— (2,927)
Segment results$(12,577)$(2,493)$797 $22,900 $— 8,627 
Reconciliation of segments to consolidated results:
Contingent Consideration (3)
2,000 
Net income (loss)$10,627 
Significant non-cash items:
Depreciation and amortization, net of accretion$2,559 $854 $(552)$3,093 $— $5,954 
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2024
Six Months Ended June 30, 2023
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell Reinsurance CorporateInter-segment EliminationsConsolidated
Net premiums earned$366,434 $81,821 $39,394 $— $— $487,649 
Net investment income— — 1,024 60,936 — 61,960 
Equity in earnings (loss) of unconsolidated subsidiaries— — — 5,511 — 5,511 
Net investment gains (losses)— — 2,355 503 — 2,858 
Other income (expense)(1)
2,016 1,232 1 2,500 (2,221)3,528 
Net losses and loss adjustment expenses
(313,510)(60,606)(22,238)— — (396,354)
Underwriting, policy acquisition and operating expenses(1)
(91,554)(27,379)(11,575)(16,477)2,221 (144,764)
SPC U.S. federal income tax benefit (expense)(2)
— — (1,526)— — (1,526)
SPC dividend (expense) income
— — (5,689)— — (5,689)
Interest expense
— — — (10,965)— (10,965)
Income tax benefit (expense)
— — — (755)— (755)
Segment results
$(36,614)$(4,932)$1,746 $41,253 $— 1,453 
Reconciliation of segments to consolidated results:
Contingent Consideration(3)
3,000 
Net income (loss)$4,453 
Significant non-cash items:
Depreciation and amortization, net of accretion$5,199 $1,723 $(488)$7,197 $— $13,631 
(1) Includes certain fees for services provided by the Workers' Compensation Insurance segment to the SPCs at Inova Re and Eastern Re which 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) 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.
(3) Represents the change in the fair value of contingent consideration issued in connection with the NORCAL acquisition and, for the three and six months ended June 30, 2024, the reversal of a nominal amount of associated contingent investment banker fees accrued during purchase accounting, both of which are included as a component of consolidated net investment gains (losses) on the Condensed Consolidated Statements of Income and Comprehensive Income. See further discussion on the contingent consideration in Note 2.
(4) Represents actuarial consulting fees, after-tax, paid in connection with the final determination of contingent consideration associated with the acquisition of NORCAL. For the three and six months ended June 30, 2024, pre-tax transaction-related costs of approximately $0.3 million were included as a component of consolidated operating expense and the associated nominal income tax benefit was included as a component of consolidated income tax benefit (expense) on the Condensed Consolidated Statements of Income and Comprehensive Income.
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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 30Six Months Ended June 30
(In thousands)2024202320242023
Specialty P&C Segment
Gross premiums earned:
MPL
$180,671 $188,342 $365,415 $370,142 
Medical Technology Liability
10,996 10,610 21,934 21,156 
Lloyd's Syndicates
4,425 4,522 9,359 9,568 
Other5,601 6,517 11,612 13,178 
Ceded premiums earned(17,147)(27,241)(34,887)(47,610)
Segment net premiums earned184,546 182,750 373,433 366,434 
Workers' Compensation Insurance Segment
Gross premiums earned:
Traditional business45,786 44,660 90,162 88,200 
Alternative market business
16,293 17,484 33,456 35,110 
Ceded premiums earned(20,309)(21,126)(40,754)(41,489)
Segment net premiums earned41,770 41,018 82,864 81,821 
Segregated Portfolio Cell Reinsurance Segment
Gross premiums earned:
Workers' compensation(1)
14,805 16,329 30,672 32,633 
MPL(2)
821 10,061 1,364 11,360 
Ceded premiums earned(2,075)(2,296)(4,316)(4,599)
Segment net premiums earned13,551 24,094 27,720 39,394 
Consolidated net premiums earned$239,867 $247,862 $484,017 $487,649 
(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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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," "ProAssurance Group," "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 insurance subsidiaries provide medical professional liability insurance, liability insurance for medical technology and life sciences risks and workers' compensation insurance.
We have also provided capital to Syndicate 1729 at Lloyd's of London to support our previous participation in underwriting years that remain open. Effective September 2023, we elected to discontinue our participation in the results of Syndicate 1729 beginning with the 2024 underwriting year. The results from our participation in Syndicate 1729 from open underwriting years prior to 2024 will continue to earn out pro rata over the entire policy period of the underlying business. Furthermore, we received proceeds of $1.5 million during the second quarter of 2023 associated with the sale of a portion of our ownership interest in the underwriting and operations entity associated with Syndicate 1729 to an unrelated third party. Our remaining ownership interest in this entity of $5.4 million was sold during the fourth quarter of 2023.
Our operating segments 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. As a result of our decision to no longer participate in the results of Syndicate 1729 beginning with the 2024 underwriting year, we reorganized our segment reporting during the third quarter of 2023 to align with how our CODM currently oversees the business, allocates resources and evaluates operating performance and, as a result, the number of our operating and reportable segments decreased from five to four: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance and Corporate. As a result of the segment reorganization, we now report the underwriting results from our participation in Lloyd’s Syndicates in the Specialty P&C segment and the investment results of assets solely allocated to our Lloyd's Syndicate operations and U.K. income taxes in our Corporate segment. All prior period segment information has been recast to conform to the current period presentation and the segment reorganization had no impact on previously reported consolidated financial results.
Additional information on ProAssurance's four operating and reportable segments is included in Note 12 of the Notes to Condensed Consolidated Financial Statements, Note 16 of the Notes to Consolidated Financial Statements in our December 31, 2023 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. 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, 2023 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
•Income taxes
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Estimation of Taxes
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 and six months ended June 30, 2024 and June 30, 2023, we utilized the estimated annual effective tax rate method. Under this 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. See further discussion on this method in Note 4 of the Notes to Condensed Consolidated Financial Statements.
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, if declared. We also charge our core domestic operating subsidiaries within our Specialty P&C 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 June 30, 2024, we held cash and liquid investments of approximately $49 million outside our insurance subsidiaries that were available for use without regulatory approval or other restriction. As of August 5, 2024, we also have an additional $125 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 discussed in this section under the heading "Debt."
Our operating subsidiaries have not paid us any dividends during 2024. Our insurance subsidiaries, in the aggregate, are permitted to pay dividends of approximately $145 million over the remainder of 2024 without prior approval of state insurance regulators. However, the payment of any dividend requires prior notice to the insurance regulator in the state of domicile, and the regulator may reduce or prevent the dividend if, in its judgment, payment of the dividend would have an adverse effect on the surplus of the insurance subsidiary. We make the decision to pay dividends from an insurance subsidiary based on the capital needs of that subsidiary and may pay less than the permitted dividend or may also request permission to pay an additional amount (an extraordinary dividend).
Cash Flows
Cash flows between periods compare as follows:
Six Months Ended June 30
(In thousands)20242023Change
Net cash provided (used) by:
Operating activities$(24,499)$(61,842)$37,343 
Investing activities(1,970)105,926 (107,896)
Financing activities(2,552)(28,009)25,457 
Increase (decrease) in cash and cash equivalents$(29,021)$16,075 $(45,096)
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 increase in operating cash flows of $37.3 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily due to:
•A decrease in paid losses of $38.9 million driven by our Specialty P&C segment due to the timing of loss payments driven by a lower number of claims resolved with large indemnity payments as compared to the prior year period. Claim costs in our MPL line of business continue to be pressured by social inflation and higher than anticipated loss severity trends.
•A decrease in cash paid for operating expenses of $3.5 million driven by a decrease in compensation-related costs primarily as a result of a decrease in paid bonuses and timing differences related to a decrease in agency commissions in our Specialty P&C segment, partially offset by an increase in paid interest due to an increase in the
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borrowings on our Revolving Credit Agreement and Term Loan to refinance our Senior Notes that matured in November 2023.
•An increase in cash received from investment income of $3.5 million driven by higher average book yields as we continue to reinvest at higher rates as our portfolio matures.
•An increase in net premium receipts of $3.4 million primarily driven by a decrease in cash paid to reinsurers primarily associated with a shared risk arrangement and the timing of payments between periods, partially offset by the competitive market conditions on terms and pricing in our Specialty P&C and Workers' Compensation Insurance segments.
The increase in operating cash flows was partially offset by:
•The effect of a tax refund of approximately $11.7 million which we received in February 2023 (see additional discussion within this section under the heading "Taxes" that follows).
The remaining variance in operating cash flows for the six months ended June 30, 2024 as compared to the same period of 2023 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 share repurchases and dividend payments in the prior year period (see additional discussion on the Board's decision to suspend payment of a quarterly cash dividend of in Note 9 of the Notes to Condensed Consolidated Financial Statements).
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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. The discussion in our Liquidity section under the same heading in Item 7 of our December 31, 2023 report on Form 10-K includes additional information regarding our reinsurance agreements.
Our healthcare professional liability and Medical Technology Liability treaties renew annually on October 1 and our Workers' Compensation treaty renews annually on May 1. Our traditional workers' compensation treaty renewed May 1, 2024 at a higher contract rate than the previous treaty and included the elimination of the AAD as well as an increase in the per occurrence retention to $0.75 million from $0.5 million. Overall, the impact of our traditional workers' compensation treaty renewal is expected to increase our ceded premium ratio while losses related to the increase in the per occurrence retention are expected to be more than offset by the elimination of the AAD. The significant coverages provided by our current excess of loss reinsurance agreements are depicted in the following table.
Current Excess of Loss Reinsurance Agreements
Reinsurance Chart Updated V2.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 0% to 32.5%.
(4) Historically, retention has ranged from $1M to $2M.
(5) Subject to a limit of $20M per individual claimant. If an individual loss were to exceed this level the Company would retain this excess exposure.
(6) Historically, retention has ranged from $0.5M to $0.75M.
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For the workers' compensation business ceded to Inova Re; each SPC has in place its own reinsurance arrangements, which are illustrated in the following table.
Segregated Portfolio Cell Reinsurance
spcrecharta03.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.
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 and six months ended June 30, 2024 or 2023 as we expect NOL carryforwards to offset any income taxes due.
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. 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 tax refund of approximately $11.7 million which was received in February 2023. In addition, the CARES Act included the initial version of the ERC which was extended and expanded in December 2020 and March 2021. See further discussion of the ERC in Note 1 of the Notes to Consolidated Financial Statements in our December 31, 2023 report on Form 10-K. As an eligible employer under the provisions of the CARES Act, NORCAL filed a claim for a payroll tax refund of approximately $3.8 million during the second quarter of 2023, based on eligible wages paid during 2020.
As a result of the NORCAL acquisition, we have U.S. federal NOL carryforwards, which were approximately $30.2 million as of June 30, 2024. These NOL carryforwards are subject to limitation by Internal Revenue Code Section 382 and will begin to expire in 2041.
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Investing Activities and Related Cash Flows
Our investments at June 30, 2024 and December 31, 2023 are comprised as follows:
 June 30, 2024December 31, 2023
($ in thousands)Carrying
Value		% of Total InvestmentCarrying
Value		% of Total Investment
Fixed maturities, available-for-sale
U.S. Treasury obligations$240,992 5 %$243,525 5 %
U.S. Government-sponsored enterprise obligations19,011 1 %18,724 1 %
State and municipal bonds456,114 10 %454,381 10 %
Corporate debt1,727,823 40 %1,750,574 40 %
Residential mortgage-backed securities467,156 11 %430,137 10 %
Commercial mortgage-backed securities245,866 6 %197,861 5 %
Other asset-backed securities426,543 10 %398,395 9 %
Total fixed maturities, available-for-sale3,583,505 83 %3,493,597 80 %
Fixed maturities, trading51,782 1 %48,324 1 %
Total fixed maturities3,635,287 84 %3,541,921 81 %
Equity investments(1)
128,860 3 %151,295 4 %
Short-term investments219,600 4 %235,785 5 %
BOLI79,191 2 %78,205 2 %
Investment in unconsolidated subsidiaries283,037 6 %276,756 6 %
Other investments6,288 1 %65,819 2 %
Total investments$4,352,263 100 %$4,349,781 100 %
(1) Includes $101.1 million and $114.9 million of investment grade bond funds as of June 30, 2024 and December 31, 2023, respectively, which are not subject to significant equity price risk.
At June 30, 2024, 99% of our investments in available-for-sale fixed maturity securities were rated and the average rating was A+. The distribution of our investments in available-for-sale fixed maturity securities by rating were as follows:
June 30, 2024December 31, 2023
 ($ in thousands)
Carrying
Value		% of Total InvestmentCarrying
Value		% of Total Investment
Rating*
AAA$578,223 16 %$489,121 14 %
AA+726,079 20 %689,491 20 %
AA203,432 6 %206,471 6 %
AA-173,263 5 %180,827 5 %
A+281,475 8 %286,723 8 %
A402,987 11 %410,935 12 %
A-362,007 10 %374,612 11 %
BBB+186,800 5 %194,140 5 %
BBB293,123 8 %286,378 8 %
BBB-141,013 3 %138,399 4 %
Below investment grade234,228 7 %233,405 6 %
Not rated875 1 %3,095 1 %
Total$3,583,505 100 %$3,493,597 100 %
*Average of three NRSRO sources, presented as an S&P equivalent. Source: S&P, Copyright ©2024, S&P Global Market Intelligence
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A detailed listing of our investment holdings as of June 30, 2024 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 or used by our operations. In addition to the interest and dividends we will receive from our investments, we anticipate that between $100 million and $180 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. We have slowed our reinvestment rate of cash flows compared to recent years due to anticipated higher severity and paid loss trends in our MPL line of business and our Workers' Compensation Insurance segment. From time to time our cash balances will fluctuate depending on the actual timing of events. 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 given 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. As of August 5, 2024, $175 million could be made available for use through our Revolving Credit Agreement, as discussed in this section under the heading "Debt." 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 June 30, 2024, our FAL was comprised of investment securities, primarily short-term investments, and cash and cash equivalents deposited with Lloyd's which had a fair value of $17 million. During the second quarter of 2024, we received a return of approximately $5.2 million of cash from our FAL balances due to lower capital requirements for the 2023 underwriting year. Additional information regarding our FAL is detailed in Note 3 of the Notes to Condensed Consolidated Financial Statements.
Our investment portfolio continues to be primarily composed of high quality fixed income securities with approximately 92% of our fixed maturities being investment grade securities as determined by national rating agencies. The weighted average effective duration of our fixed maturity securities at June 30, 2024 was 3.22 years; the weighted average effective duration of our fixed maturity securities combined with our short-term securities was 3.04 years.
The carrying value and unfunded commitments for certain of our investments were as follows:
Carrying ValueJune 30, 2024
($ in thousands, except expected funding period)June 30, 2024December 31, 2023Unfunded CommitmentExpected funding period in years
Qualified affordable housing project tax credit partnerships (1)
$750 $666 $81 3
All other investments, primarily investment fund LPs/LLCs282,287 276,090 129,407 4
Total$283,037 $276,756 $129,488 
(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 June 30, 2024, we had investments in 34 separate investment funds with a total carrying value of $282.3 million which represented approximately 6% 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. As of June 30, 2024, our total funding commitments legally outstanding related to our investments in LPs/LLCs were approximately $129.4 million; however, we anticipate capital of approximately $59 million to be drawn based on our current estimates.
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Financing Activities and Related Cash Flows
Treasury Shares
ProAssurance and its consolidated subsidiaries did not repurchase any common shares during the six months ended June 30, 2024. We repurchased approximately 1.4 million common shares at a cost of approximately $20.0 million, conducted through a series of 10b5-1 stock repurchase plans during the second quarter of 2023. We did not repurchase any common shares subsequent to June 30, 2024, and as of August 5, 2024, our remaining Board authorization was approximately $55.9 million.
Debt
Our outstanding debt consisted of the following:
($ in thousands)June 30,
2024		December 31,
2023
Contribution Certificates$180,345 $179,387 
Revolving Credit Agreement
125,000 125,000 
Term Loan123,438 125,000 
Total principal428,783 429,387 
Less unamortized debt issuance costs1,929 2,254 
Debt less unamortized debt issuance costs$426,854 $427,133 
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 ten-year term of the certificates 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 annual interest payment, which was paid in April 2024. There are no financial covenants associated with these certificates.
On April 28, 2023, we amended our Revolving Credit Agreement, which expires in April 2028 and includes a $125 million delayed draw Term Loan. The Term Loan is available to be drawn during a five year period after closing, subject to customary borrowing conditions. We drew on the Revolving Credit Agreement and funded the Term Loan to refinance our Senior Notes in November 2023. The Revolving Credit Agreement 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. 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.
To manage our exposure to interest rate risk due to variability in the base rate on borrowings under the Revolving Credit Agreement and Term Loan, we entered into two forward-starting interest rate swap agreements ("Interest Rate Swaps"). Additional information regarding our Interest Rate Swaps is provided in Note 8 of the Notes to Condensed Consolidated Financial Statements.
Two 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.
Contingent Consideration
Contingent consideration is measured at fair value on the date of acquisition and remeasured at fair value each subsequent reporting period. Fair value of a liability represents the price that would be paid to transfer the liability in an orderly transaction between market participants at the measurement date considering characteristics specific to the liability. 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. As defined in the purchase agreement, the contingent consideration is dependent upon the after-tax development of NORCAL's ultimate net losses for accident years ended on or before December 31, 2020 determined as of December 31, 2023 by a mutually agreed upon independent actuarial consultant.
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In June 2024, the independent actuarial consulting firm completed its estimate, and based on that estimate no additional consideration is due. The Committee appointed by NORCAL prior to the close of the acquisition reviewed the work of the independent actuarial consultant and accepted the conclusion that no additional consideration is due; therefore, the liability was reduced to zero as of June 30, 2024. As of December 31, 2023, the contingent consideration liability was $6.5 million carried at fair value utilizing a stochastic model (see Note 2 of the Notes to Condensed Consolidated Financial Statements). As of December 31, 2023, the remaining uncertainty around the analysis to be performed by the independent actuary was a significant component in the determination of the fair value of the liability. See further discussion around the contingent consideration in Note 2 and Note 6 of the Notes to Condensed Consolidated Financial Statements.
Given the contingent consideration associated with the NORCAL acquisition was dependent upon the after-tax development of NORCAL's ultimate net losses between December 31, 2020 and December 31, 2023, we bifurcated changes in the contingent consideration for periods prior to 2024 between fair value changes and, if applicable, changes in estimates of NORCAL's ultimate net losses for accident years 2020 and prior. See further discussion regarding our estimates of ultimate net losses in this section under the heading "Reserve for Losses and Loss Adjustment Expenses" in the Critical Accounting Estimates section in Item 7 of our December 31, 2023 report on Form 10-K. Changes in the contingent consideration related to fair value are recognized in earnings as a component of net investment gains (losses) and changes in the contingent consideration related to changes in estimates of NORCAL's ultimate net losses for accident years 2020 and prior are recognized in earnings as component of operating expenses.
During the three and six months ended June 30, 2024, the $6.5 million decrease to the contingent consideration liability was recognized as a component of net investment gains (losses). During the three and six months ended June 30, 2023, we recorded a $2.0 million and $4.0 million decrease to the contingent consideration liability, respectively. The decrease recorded during the three and six months ended June 30, 2023 was comprised of $2.0 million and $3.0 million, respectively, related to the remeasurement of the liability to fair value (component of net investment gains (losses)) and $1.0 million related to the impact of unfavorable development recognized during the first quarter of 2023 on NORCAL's reserves related to accident years 2020 and prior (component of operating expenses). See further discussion that follows under the heading "Results of Operations."
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Results of Operations – Three and Six Months Ended June 30, 2024 Compared to Three and Six Months Ended June 30, 2023
Selected consolidated financial data for each period is summarized in the table below.
Three Months Ended June 30Six Months Ended June 30
($ in thousands, except per share data)20242023Change20242023Change
Revenues:
Net premiums written$202,911 $214,046 $(11,135)$485,584 $498,955 $(13,371)
Net premiums earned$239,867 $247,862 $(7,995)$484,017 $487,649 $(3,632)
Net investment result45,210 38,282 6,928 82,071 67,471 14,600 
Net investment gains (losses)3,163 2,946 217 2,895 5,858 (2,963)
Other income2,115 2,741 (626)6,070 3,528 2,542 
Total revenues290,355 291,831 (1,476)575,053 564,506 10,547 
Expenses:
Net losses and loss adjustment expenses186,000 191,058 (5,058)380,694 396,354 (15,660)
Underwriting, policy acquisition and operating expenses80,017 76,976 3,041 158,023 144,764 13,259 
SPC U.S. federal income tax expense (benefit) 249 994 (745)666 1,526 (860)
SPC dividend expense (income)512 3,747 (3,235)1,119 5,689 (4,570)
Interest expense5,648 5,502 146 11,305 10,965 340 
Total expenses272,426 278,277 (5,851)551,807 559,298 (7,491)
Income (loss) before income taxes17,929 13,554 4,375 23,246 5,208 18,038 
Income tax expense (benefit)2,421 2,927 (506)3,112 755 2,357 
Net income (loss)$15,508 $10,627 $4,881 $20,134 $4,453 $15,681 
Non-GAAP operating income (loss)$11,527 $7,713 $3,814 $15,704 $294 $15,410 
Earnings (loss) per share:
Basic$0.30 $0.20 $0.10 $0.39 $0.08 $0.31 
Diluted$0.30 $0.20 $0.10 $0.39 $0.08 $0.31 
Non-GAAP operating income (loss) per share:
Basic$0.23 $0.14 $0.09 $0.31 $0.01 $0.30 
Diluted$0.23 $0.14 $0.09 $0.31 $0.01 $0.30 
Net loss ratio77.5 %77.1 %0.4  pts78.7 %81.3 %(2.6  pts)
Underwriting expense ratio33.4 %31.1 %2.3  pts32.6 %29.7 %2.9  pts
Combined ratio110.9 %108.2 %2.7  pts111.3 %111.0 %0.3  pts
Operating ratio95.7 %95.4 %0.3  pts96.7 %98.3 %(1.6  pts)
Effective tax rate13.5 %21.6 %(8.1  pts)13.4 %14.5 %(1.1  pts)
Return on equity*5.5 %3.8 %1.7  pts3.6 %0.8 %2.8  pts
Non-GAAP operating return on equity*4.1 %2.7 %1.4  pts2.8 %0.1 %2.7  pts
*Annualized. See further discussion on this calculation in the Executive Summary of Operations section under the heading "Non-GAAP Operating ROE."
In all tables that follow, the abbreviation "nm" indicates that the information or the percentage change is not meaningful.
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Executive Summary of Operations
The following sections provide an overview of our consolidated and segment results of operations for the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023. See the Segment Results sections that follow for additional information regarding each segment's results.
As previously discussed under the heading "ProAssurance Overview," we reorganized our segment reporting in the third quarter of 2023. As a result, we now report the underwriting results from our participation in Lloyd’s Syndicates in our Specialty P&C segment and the investment results of assets solely allocated to our Lloyd's Syndicate operations and U.K. income taxes in our Corporate segment. All prior period segment information has been recast to conform to the current period presentation. The segment reorganization had no impact on previously reported consolidated financial results. See further information regarding the segment reorganization in Note 12 of the Notes to Condensed Consolidated Financial Statements.
Revenues
The following table shows our consolidated and segment net premiums earned:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Net premiums earned
Specialty P&C$184,546 $182,750 $1,796 1.0 %$373,433 $366,434 $6,999 1.9 %
Workers' Compensation Insurance41,770 41,018 752 1.8 %82,864 81,821 1,043 1.3 %
Segregated Portfolio Cell Reinsurance13,551 24,094 (10,543)(43.8 %)27,720 39,394 (11,674)(29.6 %)
Consolidated total$239,867 $247,862 $(7,995)(3.2 %)$484,017 $487,649 $(3,632)(0.7 %)
For the three and six months ended June 30, 2024, our consolidated net premiums earned decreased $8.0 million and $3.6 million, respectively, as compared to the same respective periods of 2023.
•Net premiums earned in our Segregated Portfolio Cell Reinsurance segment decreased for the 2024 three- and six-month periods as compared to the same respective periods of 2023 due to the prior year impact of $7.9 million of tail premium written and fully earned related to one program in which we do not participate in the underwriting results and was non-renewed effective January 1, 2024. Further, the $7.9 million of tail premium was subsequently cancelled and reversed during the third quarter of 2023. The decrease in premium for the 2024 three- and six-month periods also reflected the non-renewal of an additional program; however, as the underlying policies expire in that program, we expect those policies to be renewed as traditional business in our Workers' Compensation Insurance segment.
•For our Specialty P&C segment, net premiums earned increased during the 2024 three- and six-month periods as compared to the same respective periods of 2023 driven by the pro rata effect of a decrease in the volume of premium ceded during the preceding twelve months.
•For our Workers' Compensation Insurance segment, net premiums earned increased for the 2024 three- and six-month periods as compared to the same respective periods of 2023 driven by an increase in the volume of written premium during the preceding twelve months, an increase in audit premium billed to policyholders, and the renewal of certain policies as traditional business that were previously written in one of the alternative market programs in our Segregated Portfolio Cell Reinsurance segment. Partially offsetting these factors during the 2024 three- and six-month periods is an increase in our carried EBUB estimate of $0.7 million in the second quarter of 2024 as compared to $1.9 million and $2.9 million during the 2023 three- and six-month periods, respectively, and the continuation of competitive market conditions.

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The following table shows our consolidated net investment result:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Net investment income$36,558 $31,650 $4,908 15.5 %$70,455 $61,960 $8,495 13.7 %
Equity in earnings (loss) of unconsolidated subsidiaries*
8,652 6,632 2,020 30.5 %11,616 5,511 6,105 110.8 %
Net investment result$45,210 $38,282 $6,928 18.1 %$82,071 $67,471 $14,600 21.6 %
*Equity in earnings (loss) of unconsolidated subsidiaries includes our share of the operating results of interests we hold in certain LPs/LLCs as well as the operating results associated with our tax credit partnership investments, which are designed to generate returns in the form of tax credits and tax-deductible project operating losses. See further discussion around our tax credit partnership investments in the Segment Results - Corporate section under the heading "Net Investment Income" that follows.
The increase in our consolidated net investment income for the three and six months ended June 30, 2024 as compared to the same respective periods of 2023 reflected higher average book yields as we continue to reinvest at higher rates as our portfolio matures as well as an increase in average investment balances. Our equity in earnings of unconsolidated subsidiaries increased for the 2024 three- and six-month periods as compared to the same respective periods of 2023 driven by our tax credit partnership investments due to the benefit of a decrease during the current quarter in our estimate of our allocable portion of operating losses as actual operating results of the underlying properties became available. Our investment results from our portfolio of investments in LPs/LLCs were relatively unchanged for the 2024 three-month period and increased for the 2024 six-month period as compared to the same respective periods of 2023 primarily due to the performance of two LPs/LLCs which reflected higher market valuations during the fourth quarter of 2023.
The following table shows our total consolidated net investment gains (losses):
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Net impairment losses recognized in earnings$(465)$(43)$(422)981.4 %$(1,399)$(2,976)$1,577 (53.0 %)
Contingent Consideration remeasurement gain(1)
6,500 2,000 4,500 225.0 %6,500 3,000 3,500 116.7 %
Other net investment gains (losses)
(2,872)989 (3,861)(390.4 %)(2,206)5,834 (8,040)(137.8 %)
Net investment gains (losses)$3,163 $2,946 $217 7.4 %$2,895 $5,858 $(2,963)(50.6 %)
(1) Represents the change in the fair value of contingent consideration issued in connection with the NORCAL acquisition. See previous discussion under the heading "Contingent Consideration" in the Financing Activities and Related Cash Flows section. We do not consider these adjustments in assessing the financial performance of any of our segments and therefore, we have excluded them from the Segment Results sections that follow. See Note 12 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results.
For the three and six months ended June 30, 2024, we recognized $0.5 million and $1.4 million of credit-related impairment losses in earnings, respectively. For the three months ended June 30, 2024, we recognized a reversal of non-credit impairment losses in OCI of $0.5 million due to changes in projected future cash flows related to a corporate bond in the consumer sector. For the three and six months ended June 30, 2023, we recognized a nominal amount and $3.0 million of credit-related impairment losses in earnings, respectively, related to two corporate bonds in the financial sector. We did not recognize any non-credit impairment losses in OCI for the three and six months ended June 30, 2023. Additional information regarding investment impairment losses is provided in Note 3 of the Notes to Condensed Consolidated Financial Statements.
We recognized $2.9 million and $2.2 million of other net investment losses for the three and six months ended June 30, 2024, respectively, primarily driven by unrealized holding losses resulting from changes in the fair value of our equity investments as well as realized losses from the sale of certain available-for-sale fixed maturities. We recognized $1.0 million and $5.8 million of other net investment gains for the three and six months ended June 30, 2023, respectively, driven by unrealized holding gains resulting from changes in the fair value of our equity investments and convertible securities.
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Consolidated other income for the three and six months ended June 30, 2024 as compared to the same respective periods of 2023 was comprised as follows:
Three Months Ended June 30, 2024Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Foreign currency exchange rate gains (losses)
$511 $(387)$898 232.0 %$2,440 $(1,214)$3,654 301.0 %
Other1,604 3,128 (1,524)(48.7 %)3,630 4,742 (1,112)(23.5 %)
Other income$2,115 $2,741 $(626)(22.8 %)$6,070 $3,528 $2,542 72.1 %
Excluding the foreign currency exchange rate gains (losses), other income decreased for the 2024 three- and six-month periods as compared to the same respective periods of 2023 driven by proceeds of $1.5 million received in the second quarter of 2023 associated with the sale of a portion of our ownership interest in the underwriting and operations entity associated with Syndicate 1729 to an unrelated third party.
Foreign currency exchange rate changes are primarily related to foreign currency denominated loss reserves associated with premium assumed from an international medical professional liability insured in our Specialty P&C segment. Our participation in this program has grown in recent years which has led to greater volatility in our results of operations even with nominal movements in exchange rates given the size of the reserve. We mitigate foreign exchange exposure by generally matching the currency and duration of associated investments to the corresponding loss reserves. In accordance with GAAP, the impact on the market value of available-for-sale fixed maturities due to changes in foreign currency exchange rates is reflected as part of OCI. Conversely, the impact of changes in foreign currency exchange rates on loss reserves is reflected through net income (loss) as a component of other income. The effect of exchange rate changes on foreign currency denominated loss reserves are reported in our Corporate segment to be consistent with the reporting of the foreign currency denominated invested assets and associated investment income.
Expenses
The following table shows our consolidated and segment net loss ratios and net prior accident year reserve development.
Three Months Ended June 30Six Months Ended June 30
($ in millions)20242023Change20242023Change
Current accident year net loss ratio
Consolidated ratio
80.3 %79.6 %0.7  pts80.1 %81.1 %(1.0  pts)
Specialty P&C
82.0 %83.4 %(1.4  pts)81.9 %84.9 %(3.0  pts)
Workers' Compensation Insurance77.0 %72.6 %4.4  pts77.0 %72.6 %4.4  pts
Segregated Portfolio Cell Reinsurance66.1 %62.9 %3.2  pts65.6 %63.7 %1.9  pts
Calendar year net loss ratio
Consolidated ratio
77.5 %77.1 %0.4  pts78.7 %81.3 %(2.6  pts)
Specialty P&C
78.7 %80.7 %(2.0  pts)79.9 %85.6 %(5.7  pts)
Workers' Compensation Insurance
77.0 %72.6 %4.4  pts77.0 %74.1 %2.9  pts
Segregated Portfolio Cell Reinsurance
63.6 %57.3 %6.3  pts67.4 %56.5 %10.9  pts
Favorable (unfavorable) reserve development, prior accident years
Consolidated$6.5$6.3$0.2 $6.9$(0.7)$7.6
Specialty P&C$6.2$5.0$1.2 $7.4$(2.4)$9.8
Workers' Compensation Insurance
$—$—$— $—$(1.2)$1.2
Segregated Portfolio Cell Reinsurance
$0.3$1.3$(1.0)$(0.5)$2.9$(3.4)
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Each segment's contribution to the change in our consolidated current accident year net loss ratios for the three and six months ended June 30, 2024 as compared to the same respective periods of 2023 is as follows:
Increase (Decrease)
 2024 versus 2023
(In percentage points)Comparative
three-month
periods		Comparative
six-month
periods
Estimated ratio increase (decrease) attributable to:
Specialty P&C(0.9 pts)(2.2 pts)
Workers' Compensation Insurance0.7 pts0.7 pts
Segregated Portfolio Cell Reinsurance0.9 pts0.5 pts
Increase (decrease) in the consolidated current accident year net loss ratio0.7 pts(1.0 pts)
•The improvement in the current accident year net loss ratio for our Specialty P&C segment was driven by our continued underwriting actions as well as our focus on achieving appropriate pricing leading to a decrease to certain expected loss ratios in our MPL line of business during the first quarter of 2024.
•The higher current accident year net loss ratio in our Workers' Compensation Insurance segment reflected higher loss trends that we began to observe in our average cost per claim during the second half of 2023; however, the segment's current period ratio of 77.0% has improved 4.3 percentage points from the current accident year net loss ratio for the year ended December 31, 2023 of 81.3% reflecting underwriting actions taken during 2023 and a slight improvement in loss trends during the first half of 2024.
•The higher current accident year net loss ratio in our Segregated Portfolio Cell Reinsurance segment reflected elevated reported loss activity in the current period.
Our consolidated calendar year net loss ratio can be lower than or higher than our consolidated current accident year net loss ratio due to the recognition of either favorable or unfavorable prior accident year reserve development, respectively. For both the three and six months ended June 30, 2024 and 2023, total net prior accident year reserve development included the favorable impacts of purchase accounting amortization, as shown in the following table.
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Net favorable (unfavorable) reserve development$4,865 $3,824 $1,041 27.2 %$3,624$(5,743)$9,367 163.1 %
NORCAL Acquisition - Purchase Accounting Amortization
1,656 2,510 (854)(34.0 %)3,3125,021(1,709)(34.0 %)
Total net favorable (unfavorable) reserve development$6,521 $6,334 $187 3.0 %$6,936$(722)$7,658 1060.7 %
See the Segment Results sections that follow for additional information regarding each segment's current accident year net loss ratio and net prior accident year reserve development.
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Our consolidated and segment underwriting expense ratios were as follows:
Three Months Ended June 30Six Months Ended June 30
Underwriting Expense Ratio
20242023Change20242023Change
Consolidated (1)
33.4 %31.1 %2.3  pts32.6 %29.7 %2.9  pts
Specialty P&C27.6 %26.7 %0.9  pts27.3 %25.0 %2.3  pts
Workers' Compensation Insurance36.2 %35.1 %1.1  pts35.8 %33.5 %2.3  pts
Segregated Portfolio Cell Reinsurance38.7 %27.1 %11.6  pts35.9 %29.4 %6.5  pts
Corporate (2)
4.1 %3.3 %0.8  pts3.8 %3.4 %0.4  pts
(1) Consolidated underwriting expenses for the three and six months ended June 30, 2024 include $0.3 million of actuarial consulting fees paid in connection with the final determination of contingent consideration associated with the acquisition of NORCAL. These transaction-related costs 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. We did not incur any transaction-related costs during the three and six months ended June 30, 2023. See Note 12 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).
The change in our consolidated underwriting expense ratios for the 2024 three- and six-month periods as compared to the same respective periods of 2023 was primarily attributable to the following:
Increase (Decrease)
 2024 versus 2023
(In percentage points)Comparative three-month periods
Comparative six-month periods
Estimated ratio increase (decrease) attributable to:
Tail Premium1.1 pts0.6 pts
Employee Retention Credit(1)
— pts0.8 pts
Contingent Consideration Remeasurement Adjustment(1)
— pts0.2 pts
All other, net1.2 pts1.3 pts
Increase in the underwriting expense ratio
2.3 pts2.9 pts
(1) See further discussion in our June 30, 2023 report on Form 10-Q within Item 7, Management's Discussion and Analysis, in the Executive Summary of Operations section under the heading "Expenses."
•Excluding the impact of the items specifically identified in the table above, our consolidated underwriting expense ratios for the 2024 three- and six-month periods increased by 1.2 and 1.3 percentage points, respectively, as compared to the same respective periods of 2023 driven by an increase in compensation-related costs in our Specialty P&C and Workers' Compensation Insurance segments.
•As shown in the previous table, our consolidated underwriting expense ratios for the 2024 three- and six-month periods reflected the prior year impact of the change in premium earned from tail policies as there is typically minimal associated acquisition costs. The increase for the 2024 three- and six-month periods primarily reflected the prior year impact of medical professional liability tail coverage in our Segregated Portfolio Cell Reinsurance segment, which was written and fully earned during the second quarter of 2023. See previous discussion under the heading "Revenues" and further discussion in the Segment Results - Specialty Property and Casualty and Segregated Portfolio Cell Reinsurance sections that follow.
Taxes
Our consolidated provision for income taxes and effective tax rates for the six months ended June 30, 2024 and 2023 were as follows:
($ in thousands)
Six Months Ended June 30
20242023Change
Income (loss) before income taxes$23,246 $5,208 $18,038 346.4 %
Income tax expense (benefit)3,112 755 2,357 312.2 %
Net income (loss)$20,134 $4,453 $15,681 352.1 %
Effective tax rate13.4%14.5%(1.1 pts)
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Six Months Ended June 30
20242023
Projected annual effective tax rate
14.1 %16.2 %
Tax effect of discrete items
(0.7 %)(1.7 %)
Total effective tax rate
13.4 %14.5 %
See further discussion of our effective tax rate in the Segment Results - Corporate section that follows under the heading "Taxes."
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 ratios for the three and six months ended June 30, 2024 and 2023 were as follows:
Three Months Ended June 30Six Months Ended June 30
20242023Change20242023Change
Combined ratio110.9 %108.2 %2.7  pts111.3 %111.0 %0.3  pts
Less: investment income ratio15.2 %12.8 %2.4  pts14.6 %12.7 %1.9  pts
Operating ratio
95.7 %95.4 %0.3  pts96.7 %98.3 %(1.6  pts)
The primary drivers of the change in our operating ratios were as follows:
Increase (Decrease)
 2024 versus 2023
(In percentage points)Comparative
three-month
periods		Comparative
six-month
periods
Estimated ratio increase (decrease) attributable to:
NORCAL Acquisition - Purchase Accounting Amortization
0.3 pts0.3 pts
Contingent Consideration Remeasurement Adjustment— pts0.2 pts
Employee Retention Credit— pts0.8 pts
Investment Income
(2.4 pts)(1.9 pts)
Change in Prior Accident Year Reserve Development (1)
(0.5 pts)(1.9 pts)
All other, net2.9 pts0.9 pts
Increase (decrease) in the operating ratio
0.3 pts(1.6 pts)
(1) Excludes the impact of purchase accounting amortization on prior accident year reserve development.
Excluding the impact of the items specifically identified in the table above, our operating ratios for the 2024 three- and six-month periods increased 2.9 and 0.9 percentage points, respectively, as compared to the same respective periods of 2023 driven by an increase in the consolidated underwriting expense ratio, primarily attributable to the prior year impact tail premium and, to a lesser extent, an increase in the current accident year net loss ratio in our Workers' Compensation Insurance segment. See previous discussion in this section under the heading "Expenses" and further discussion in our Segment Results sections that follow.
Non-GAAP Financial Measures
Non-GAAP Operating Income (Loss)
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.
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The following table is a reconciliation of net income (loss) to Non-GAAP operating income (loss):
Three Months Ended
June 30		Six Months Ended
June 30
(In thousands, except per share data)2024202320242023
Net income (loss)$15,508 $10,627 $20,134 $4,453 
Items excluded in the calculation of Non-GAAP operating income (loss):
Net investment (gains) losses (1)
(3,163)(2,946)(2,895)(5,858)
Net investment gains (losses) attributable to SPCs which no profit/loss is retained (2)
175 939 1,327 1,852 
Transaction-related costs (3)
320 — 320 — 
Foreign currency exchange rate (gains) losses (4)
(511)387 (2,440)1,214 
Non-operating income (5)
— (1,462)— (1,462)
Guaranty fund assessments (recoupments)(59)1 28 (74)
Pre-tax effect of exclusions(3,238)(3,081)(3,660)(4,328)
Tax effect, at 21% (6)
(743)167 (770)169 
After-tax effect of exclusions(3,981)(2,914)(4,430)(4,159)
Non-GAAP operating income (loss)$11,527 $7,713 $15,704 $294 
Per diluted common share:
Net income (loss)$0.30 $0.20 $0.39 $0.08 
Effect of exclusions(0.07)(0.06)(0.08)(0.07)
Non-GAAP operating income (loss) per diluted common share$0.23 $0.14 $0.31 $0.01 
(1) Net investment gains (losses) for the three and six months ended June 30, 2024 include the $6.5 million decrease to the contingent consideration liability. In addition, net investment gains (losses) during the three and six months ended June 30, 2023 include gains of $2.0 million and $3.0 million, respectively, related to the remeasurement of the contingent consideration liability to fair value. We have excluded these adjustments as they do not reflect normal operating results. See further discussion around the contingent consideration in Notes 2 and 6 of the Notes to Condensed Consolidated Financial Statements.
(2) 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.
(3) Transaction-related costs are attributable to actuarial consulting fees paid during the second quarter of 2024 in relation to the final determination of contingent consideration associated with the NORCAL acquisition. See previous discussion under the heading "Contingent Consideration" in the Financing Activities and Related Cash Flows section. We are excluding these costs as they do not reflect normal operating results and are unique and non-recurring in nature.
(4) Foreign currency exchange rate gains (losses) relate to the impact of foreign exchange rate movements on foreign currency denominated loss reserves predominately associated with premium assumed from an international medical professional liability insured in our Specialty P&C segment. Our participation in this program has grown in recent years which has led to greater volatility in our results of operations even with nominal movements in exchange rates given the size of the reserve. We mitigate foreign exchange rate exposure on our Condensed Consolidated Balance Sheet by generally matching the currency and duration of associated investments to the corresponding loss reserves. In accordance with GAAP, the impact on the market value of available-for-sale fixed maturities due to changes in foreign currency exchange rates is reflected as a part of OCI. Conversely, the impact of changes in foreign currency exchange rates on loss reserves is reflected through net income (loss) as a component of other income. Therefore, we believe foreign currency exchange rate gains (losses) in our Condensed Consolidated Statements of Income and Comprehensive Income in isolation are not indicative of our operating performance.
(5) Proceeds associated with the sale of a portion of our ownership interest in the underwriting and operations entity associated with Syndicate 1729 to an unrelated third party recognized in other income in our Corporate segment. We are excluding these costs as they do not reflect normal operating results and are unique and non-recurring in nature.
(6) The 21% rate is the annual expected statutory tax rate associated with the taxable or tax deductible items listed above. We utilized the estimated annual effective tax rate method for the three and six months ended June 30, 2024 and 2023. See further discussion on this method in the Critical Accounting Estimates section under the heading "Estimation of Taxes" and in Note 4 of the Notes to Condensed Consolidated Financial Statements. For the 2024 and 2023 periods, our effective tax rate was applied to these items in calculating net income (loss), excluding net investment gains (losses) and related adjustments which were treated as discrete items and were tax effected at the annual expected statutory tax rate (21%) in the period they were included in our consolidated tax provision and net income (loss). Changes in the contingent consideration liability are non-taxable and therefore had no associated income tax impact. 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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Non-GAAP Operating ROE
Non-GAAP operating ROE is a financial measure that is calculated as annualized Non-GAAP operating income (loss) for the period divided by the average of beginning and ending total GAAP shareholders’ equity. As previously discussed, in calculating Non-GAAP operating income (loss), we have excluded the effects of certain items that do not reflect normal results. Non-GAAP operating ROE measures the overall after-tax profitability of our insurance operations and shows how efficiently capital is being used; however, it should be considered in conjunction with ROE computed in accordance with GAAP. The following table is a reconciliation of ROE to Non-GAAP operating ROE for the three and six months ended June 30, 2024 and 2023:
Three Months Ended
June 30		Six Months Ended
June 30
20242023Change20242023Change
ROE(1)
5.5 %3.8 %1.7  pts3.6 %0.8 %2.8  pts
Pre-tax effect of items excluded in the calculation of Non-GAAP operating ROE(1.1 %)(1.2 %)0.1  pts(0.7 %)(0.7 %)—  pts
Tax effect, at 21%(2)
(0.3 %)0.1 %(0.4  pts)(0.1 %)— %(0.1  pts)
Non-GAAP operating ROE4.1 %2.7 %1.4  pts2.8 %0.1 %2.7  pts
(1) ROE is calculated as annualized net income (loss) for the period divided by the average of beginning and ending shareholders' equity.
(2) The 21% rate is the annual expected statutory tax rate associated with the taxable or tax deductible items. See further discussion in footnote 6 in this section under the heading "Non-GAAP Operating Income."
Non-GAAP operating ROE for the 2024 three- and six-month periods increased by 1.4 and 2.7 percentage points, respectively, as compared to the same respective periods of 2023 driven by an increase in our net investment result, an improvement in the current accident year net loss ratio in our Specialty P&C segment and, for the 2024 six-month period, improvement in prior accident year reserve development in our Specialty P&C and Workers' Compensation Insurance segments. See previous discussions in this section under the headings "Executive Summary of Operations" and further discussion in our Segment Results sections that follow.
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Non-GAAP Adjusted Book Value per Share
Book value per share is calculated as total GAAP shareholders’ equity divided by the total number of common shares outstanding at the balance sheet date. This ratio measures the net worth of the Company to shareholders on a per share basis.
Non-GAAP adjusted book value per share is a Non-GAAP measure widely used within the insurance sector and is calculated as shareholders’ equity, excluding AOCI, divided by the total number of common shares outstanding at the balance sheet date. This Non-GAAP calculation measures the net worth of the Company to shareholders on a per share basis excluding AOCI to eliminate the temporary and potentially significant effects of fluctuations in interest rates on our fixed income portfolio; however, it should be considered in conjunction with book value per share computed in accordance with GAAP. Higher interest rates have led to significant unrealized holding losses on our available-for-sale fixed maturity investments resulting in volatility in AOCI in 2023 and 2024. See Note 9 of the Notes to Condensed Consolidated Financial Statements for additional information.
The following table is a reconciliation of our book value per share to Non-GAAP adjusted book value per share at December 31, 2023 and June 30, 2024:
Book Value Per Share
Book Value Per Share at December 31, 2023$21.82 
Less: AOCI Per Share(1)
(4.01)
Non-GAAP Adjusted Book Value Per Share at December 31, 202325.83
Increase (decrease) to Non-GAAP Adjusted Book Value Per Share during the six months ended June 30, 2024 attributable to:
Net income (loss)0.39 
Other(2)
(0.04)
Non-GAAP Adjusted Book Value Per Share at June 30, 2024
26.18 
Add: AOCI Per Share(1)
(4.03)
Book Value Per Share at June 30, 2024$22.15 
(1) Primarily the impact of accumulated unrealized investment gains (losses) on our available-for-sale fixed maturity investments. See Note 9 of the Notes to Condensed Consolidated Financial Statements for additional information.
(2) Includes the impact of share-based compensation.

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Segment Results - Specialty Property & Casualty
Our Specialty P&C segment primarily focuses on medical professional liability insurance and medical technology liability insurance as discussed in Note 16 of the Notes to Consolidated Financial Statements in our December 31, 2023 report on Form 10-K. As previously discussed under the heading "ProAssurance Overview," we reorganized our segment reporting in the third quarter of 2023. As a result, the underwriting results from our participation in the results of Syndicate 1729 and Syndicate 6131 at Lloyd's of London which were previously reported in our Lloyd’s Syndicates segment are now reported in our Specialty P&C segment. 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. All prior period segment information has been recast to conform to the current period presentation and the segment reorganization had no impact on previously reported consolidated financial results. See further information regarding the segment reorganization in Note 12 of the Notes to Condensed Consolidated Financial Statements.
Segment results reflected pre-tax underwriting profit or loss from these insurance lines and included the amortization of certain purchase accounting adjustments. Segment results included the following:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Net premiums written
$149,020 $148,666 $354 0.2 %$367,719 $366,056 $1,663 0.5 %
Net premiums earned
$184,546 $182,750 $1,796 1.0 %$373,433 $366,434 $6,999 1.9 %
Other income
1,023 1,026 (3)(0.3 %)2,377 2,016 361 17.9 %
Net losses and loss adjustment expenses(145,234)(147,480)2,246 (1.5 %)(298,227)(313,510)15,283 (4.9 %)
Underwriting, policy acquisition and operating expenses
(50,871)(48,873)(1,998)4.1 %(101,922)(91,554)(10,368)11.3 %
Segment results$(10,536)$(12,577)$2,041 16.2 %$(24,339)$(36,614)$12,275 33.5 %
Net loss ratio
78.7%80.7%(2.0 pts)79.9%85.6%(5.7 pts)
Underwriting expense ratio
27.6%26.7%0.9 pts27.3%25.0%2.3 pts
Premiums Written
Changes in our premium volume within our Specialty P&C segment are generally driven by three primary factors: (1) the amount of new business written, (2) our retention of existing business and (3) the premium charged for business that is renewed, which is affected by rates charged and by the amount and type of coverage an insured chooses to purchase. In addition, premium volume may periodically be affected by shifts in the timing of renewals between periods.
The medical professional liability market, which accounts for a majority of the revenues in this segment, remains challenging as physicians continue joining hospitals or larger group practices and, therefore, are no longer purchasing individual or group policies in the standard market. In addition, some competitors have chosen to compete primarily on price. Both factors may impact our ability to write new business and retain existing business. Furthermore, the insurance and reinsurance markets have historically been cyclical, characterized by extended periods of intense price competition and other periods of reduced capacity. The medical professional liability market has been particularly affected by these cycles. Underwriting cycles are driven, among other reasons, by excess capacity available to compete for the business. Changes in the frequency and severity of losses may also affect the cycles of the insurance and reinsurance markets significantly.
Gross, ceded and net premiums written were as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Gross premiums written$163,176 $175,171 $(11,995)(6.8 %)$401,894 $417,535 $(15,641)(3.7 %)
Less: Ceded premiums written14,156 26,505 (12,349)(46.6 %)34,175 51,479 (17,304)(33.6 %)
Net premiums written$149,020 $148,666 $354 0.2 %$367,719 $366,056 $1,663 0.5 %
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Gross Premiums Written
During the first quarter of 2024, we restructured the Small Business Unit line of business within our Specialty P&C segment. As a result, we moved the podiatric, chiropractic and dental coverages from the Small Business Unit into HCPL, renaming the unit Medical Professional Liability. By combining these resources, we will have a single unit dedicated to all of our healthcare insurance specialty areas and be able to meet customer needs more efficiently and effectively in order to better serve this market. As a result, we reorganized our presentation of gross premiums written by component and related metrics below to better align with the current internal management reporting structure within the segment. All prior period information has been recast to conform to the current period presentation.
Gross premiums written by component were as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Medical Professional Liability (1)(2)
$145,274 $151,863 $(6,589)(4.3 %)$364,240 $373,694 $(9,454)(2.5 %)
Medical Technology Liability (3)
11,029 12,039 (1,010)(8.4 %)20,448 21,109 (661)(3.1 %)
Lloyd's Syndicates (4)
1,535 4,997 (3,462)(69.3 %)5,245 8,486 (3,241)(38.2 %)
Other (5)
5,337 6,273 (936)(14.9 %)11,961 14,246 (2,285)(16.0 %)
Total Gross Premiums Written$163,175 $175,172 $(11,997)(6.8 %)$401,894 $417,535 $(15,641)(3.7 %)
        
(1) Medical Professional Liability premium was our greatest source of premium revenues in 2024 and 2023. We target the full spectrum of the medical professional liability market, covering multiple categories of healthcare professionals, institutions (which includes hospitals, surgery centers and miscellaneous medical facilities) and, to a lesser extent, facilities specializing in long term residential care. While a majority of our business is written in the standard market, we also offer professional liability insurance on an excess and surplus lines basis through our specialty business. The decrease in MPL premium for the 2024 three- and six-month periods as compared to the same respective periods of 2023 was driven by the prior year impact of $7.9 million of tail coverage primarily related to one SPC in which we do not participate in the underwriting results (see additional information in footnote 2 below). Excluding the effect of this tail coverage, MPL premium increased $1.3 million and decreased $1.6 million for the 2024 three- and six-month periods, respectively, as compared to the same respective periods of 2023. The increase for the 2024 three-month period was driven by an increase in renewal pricing, net timing differences of $6.1 million and, to a lesser extent, new business written, partially offset by retention losses. The decrease for the 2024 six-month period was driven by retention losses, partially offset by an increase in renewal pricing, new business written and, to a lesser extent, net timing differences of $10.1 million. Retention losses during the 2024 three- and six-month periods generally reflect our pursuit of rate adequacy in a competitive market where other carriers may not have the same profitability objectives, appreciate the rate need, or are attempting to gain market share despite near term underwriting losses. Renewal pricing increases during the 2024 three- and six-month periods reflect the rising loss cost environment and new business written reflects the competitive market conditions.
(2) We offer alternative risk and self-insurance products on a customized basis. Our custom alternative risk solutions include a turnkey captive solution whereby we cede either all or a portion of the alternative market premium, net of reinsurance, to two SPCs of our wholly owned Cayman Islands reinsurance subsidiary, Inova Re, which is reported in our Segregated Portfolio Cell Reinsurance segment (see further discussion in the Ceded Premiums Written section that follows). For the three and six months ended June 30, 2024, our MPL line of business included $3.3 million and $3.1 million of alternative market gross premium written, respectively, as compared to $11.3 million and $14.2 million for the same respective periods of 2023. The decrease for the 2024 three- and six-month periods reflected the prior year effect of $7.9 million of tail coverage written and fully earned related to one program in which we do not participate in the underwriting results and was non-renewed effective January 1, 2024. Further, the $7.9 million of tail premium was subsequently cancelled and reversed during the third quarter of 2023.
(3) 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 decreased during the 2024 three- and six-month periods as compared to the same respective periods of 2023 driven by retention losses, partially offset by new business written and, to a lesser extent, an increase in renewal pricing. Retention losses during the 2024 three- and six-month periods are primarily attributable to insureds no longer needing coverage, an increase in competition on terms and pricing, as well as merger activity within the industry. Renewal pricing increases
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during the 2024 three- and six-month periods are primarily due to changes in the sales volume and changes in exposure of certain insureds.
(4) Our Lloyd's Syndicates business includes the results from our participation in Syndicate 1729 at Lloyd's of London. Effective September 2023, we elected to discontinue our participation in the results of Syndicate 1729 beginning with the 2024 underwriting year. For the 2023 underwriting year our participation in the results of Syndicate 1729 was approximately 5%. Our Lloyd’s Syndicates premium for the 2024 three- and six-month periods reflected the impact of our ceased participation.
(5) This component of gross premiums written includes all other product lines within our Specialty P&C segment, primarily professional liability coverage to attorneys and their firms in select areas of practice.
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 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 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
June 30		Six Months Ended
June 30
20242024
Specialty P&C segment*
9 %8 %
MPL
9 %8 %
Medical Technology Liability4 %3 %
Other
3 %3 %
* Excludes Lloyd's Syndicates premium.
New business written by major component on a direct basis was as follows:
Three Months Ended
June 30		Six Months Ended
June 30
(In millions)2024202320242023
MPL
$4.2 $9.7 $13.5 $19.1 
Medical Technology Liability
0.7 2.4 1.6 3.5 
Other
0.1 0.2 0.3 0.5 
Total
$5.0 $12.3 $15.4 $23.1 
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. See further explanation of changes in retention above under the heading "Gross Premiums Written".
Retention for our Specialty P&C segment, including by major component, was as follows:
Three Months Ended
June 30		Six Months Ended
June 30
2024202320242023
Specialty P&C segment*
84 %83 %85 %84 %
MPL
83 %83 %85 %84 %
Medical Technology Liability90 %82 %92 %85 %
Other
82 %83 %80 %84 %
* Excludes Lloyd's Syndicates premium.
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Ceded Premiums Written
Ceded premiums represent the amounts owed to our reinsurers for their assumption of a portion of our losses. See previous discussion in our Liquidity and Capital Resources and Financial Condition section under the heading "Reinsurance" for information regarding our healthcare professional liability and Medical Technology Liability excess of loss reinsurance arrangements.
We pay our reinsurers a ceding premium in exchange for their accepting the risk, and in certain of our excess of loss arrangements, the ultimate amount of which 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.
Ceded premiums written were as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Excess of loss reinsurance arrangements (1)
$8,976 $8,816 $160 1.8 %$20,759 $20,040 $719 3.6 %
Premium ceded to SPCs (2)
2,043 10,396 (8,353)(80.3 %)1,980 13,285 (11,305)(85.1 %)
Other ceded premiums written (3)
3,137 7,293 (4,156)(57.0 %)11,436 15,954 (4,518)(28.3 %)
Adjustment to premiums owed under reinsurance agreements, prior accident years, net (4)
— — — — %— 2,200 (2,200)nm
Total ceded premiums written$14,156 $26,505 $(12,349)(46.6 %)$34,175 $51,479 $(17,304)(33.6 %)
(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. Premium due to reinsurers is based on a rate factor applied to gross premiums written subject to cession under the arrangement.
(2) As previously discussed, as a part of our alternative market solutions, all or a portion of certain medical professional liability 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. Premiums ceded to SPCs decreased during the 2024 three- and six-month periods as compared to the same respective periods of 2023 due to the prior year impact of tail coverage, primarily related to one program (see previous discussion in footnote 2 under the heading "Gross Premiums Written"). See the Segment Results - Segregated Portfolio Cell Reinsurance section for further discussion on the cession to the SPCs from our Specialty P&C segment.
(3) Our other ceded premiums written is primarily comprised of various shared risk arrangements and cyber liability coverages.
(4) 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 previously discussed, the premiums ultimately ceded under certain of our swing rated excess of loss reinsurance arrangements are subject to the losses ceded under the arrangements. As part of the review of our reserves during the 2024 three- and six-month periods and 2023 three-month period, we concluded that our estimate of expected losses and associated recoveries for prior year ceded losses was reasonable; therefore, we did not adjust our estimate of ceded premiums owed to reinsurers. As part of our review of our reserves for 2023 six-month period, we recorded an increase in our estimate of ceded premiums owed to reinsurers due to an increase in our estimate of expected losses and associated recoveries for prior year ceded losses. 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 Ratio
As shown in the table below, our ceded premiums ratio was affected during the 2023 six-month period by a revision to our estimate of premiums owed to reinsurers related to coverages provided in prior accident years. The ceded premiums ratio was as follows:
Three Months Ended June 30Six Months Ended June 30
 20242023Change20242023Change
Ceded premiums ratio8.7 %15.1 %(6.4  pts)8.5 %12.3 %(3.8  pts)
Less the effect of adjustments in premiums owed under reinsurance agreements, prior accident years (as previously discussed)— %— %—  pts— %0.5 %(0.5  pts)
Ratio, current accident year8.7 %15.1 %(6.4  pts)8.5 %11.8 %(3.3  pts)
The above table reflects ceded premiums written, excluding the effect of prior year ceded premium adjustments, as previously discussed, as a percent of gross premiums written. Our current accident year ceded premiums ratios decreased for the 2024 three- and six-month periods as compared to the same respective periods of 2023 primarily due to a decrease in premium ceded to SPCs, which accounted for 4.2 and 2.4 percentage points, respectively, of the decrease in the ratios (see previous discussion in footnote 2 under the heading "Gross Premiums Written"). The decrease in our current accident year ceded premium ratios for the 2024 three- and six-month periods also reflected our ceased participation in Syndicate 1729 for the 2024 underwriting year.
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. 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 June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Gross premiums earned$201,693 $209,991 $(8,298)(4.0 %)$408,320 $414,044 $(5,724)(1.4 %)
Less: Ceded premiums earned17,147 27,241 (10,094)(37.1 %)34,887 47,610 (12,723)(26.7 %)
Net premiums earned$184,546 $182,750 $1,796 1.0 %$373,433 $366,434 $6,999 1.9 %
Gross premiums earned decreased during the 2024 three- and six-month periods as compared to the same respective periods of 2023 driven by the prior year impact of tail premium, all of which was ceded to an SPC in our Segregated Portfolio Cell Reinsurance segment and therefore this tail coverage had no impact on our Specialty P&C segment's net premiums earned. After removing the effect of this tail coverage, gross premium earned remained relatively unchanged for the 2024 three-month period and increased $2.2 million for the 2024 six-month period due to an increase in the volume of written premium during the preceding twelve months, primarily in our MPL line of business.
Ceded premiums earned decreased during the 2024 three- and six-month periods as compared to the same respective periods of 2023 primarily due to tail premium in the prior year period, all of which was ceded to an SPC in our Segregated Portfolio Cell Reinsurance segment (see previous discussion in footnote 2 under the heading "Ceded Premiums Written"). Ceded premiums earned during the 2023 six-month period included a prior accident year ceded premium adjustment of $2.2 million made during the first quarter of 2023 which increased ceded premiums owed under our swing rated reinsurance arrangements related to prior accident year losses (see previous discussion in footnote 4 under the heading "Ceded Premiums Written").
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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.
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 and the policy that is in effect at that time covers the claim. For occurrence policies, the insured event becomes a liability when the event takes place even though the claim may be reported to us at a later date. 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.
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. The net loss ratios for our Specialty P&C segment were as follows:
Net Loss Ratios (1)
Three Months Ended June 30Six Months Ended June 30
20242023Change20242023Change
Calendar year net loss ratio 78.7 %80.7 %(2.0  pts)79.9 %85.6 %(5.7  pts)
Less impact of prior accident years on the net loss ratio(3.3 %)(2.7 %)(0.6  pts)(2.0 %)0.7 %(2.7  pts)
Current accident year net loss ratio(2)
82.0 %83.4 %(1.4  pts)81.9 %84.9 %(3.0  pts)
(1)Net losses, as specified, divided by net premiums earned.
(2)For the three and six months ended June 30, 2024, our current accident year net loss ratios (as shown in the table above), improved 1.4 and 3.0 percentage points, respectively, as compared to the same respective periods of 2023. The change in our current accident year net loss ratios were primarily attributable to the following:
(In percentage points)Increase (Decrease)
2024 versus 2023
Comparative
three-month
periods		Comparative
six-month
periods
Estimated ratio increase (decrease) attributable to:
Lloyd's Syndicates0.7 pts0.3 pts
Change in ULAE
(0.6 pts)(0.4 pts)
Ceded Premium Adjustment, Prior Accident Years(1)
— pts(0.6 pts)
All other, net(1.5 pts)(2.3 pts)
Decrease in current accident year net loss ratio(1.4 pts)(3.0 pts)
(1) See previous discussion in footnote 4 under the heading "Ceded Premiums Written" for additional information.
•Excluding the impact of the items specifically identified in the table above, our current accident year net loss ratios for the three and six months ended June 30, 2024 as compared to the same respective periods of 2023 improved 1.5 and 2.3 percentage points, respectively, driven by our continued underwriting actions as well as our focus on achieving appropriate pricing leading to a decrease to certain expected loss ratios in our MPL line of business during the first quarter of 2024 and, to a lesser extent, changes in the mix of business.
•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 estimate ULAE at the beginning of each year based on projected allocable expenses and will periodically adjust if actual expenses differ from our initial estimate. During the three and six months ended June 30, 2024, ULAE decreased due to lower actual headcount in our claims department as well as lower allocable IT expenses.
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 (unfavorable) prior accident year reserve development as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Total net favorable (unfavorable) reserve development$6,181 $4,988 $1,193 23.9 %$7,431$(2,362)$9,793 414.6 %
The following table shows net favorable (unfavorable) development by component for the three and six months ended June 30, 2024 and 2023:
7696581419639
•Net favorable reserve development recognized during the three and six months ended June 30, 2024 principally related to accident years 2017 and prior. Net favorable reserve development during the three months ended June 30, 2023 principally related to accident years 2014 through 2017.
•The loss environment in our MPL line of business continues to be challenging in many jurisdictions, as claim costs are pressured by social inflation and higher than anticipated loss severity trends. Following a period of benign loss development trends due to the pandemic, higher severity trends started to reemerge in the fourth quarter of 2022, mostly returning to pre-pandemic levels but higher than pre-pandemic levels in certain jurisdictions. We are monitoring the impact that these trends have on our open case reserves and prior year development. We strengthened case reserves related to four large claims in our MPL line of business during the first quarter of 2023, resulting in $10.1 million of unfavorable development, primarily related to NORCAL's accident years 2016 and 2020.
•Net unfavorable development associated with our Lloyd’s Syndicates operations during the three and six months ended June 30, 2024 and 2023 was driven by higher than expected losses and development on certain large claims, primarily catastrophe related losses.
A detailed discussion of factors influencing our recognition of loss development is included in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses" in our December 31, 2023 report on Form 10-K. Assumptions used in establishing our reserve are regularly reviewed and updated by management as new data becomes available. Any adjustments necessary are reflected in the then current operations. Due to the size of our reserve, even a small percentage adjustment to the assumptions can have a material effect on our results of operations for the period in which the change is made, as was the case in both 2024 and 2023.
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Underwriting, Policy Acquisition and Operating Expenses
Our Specialty P&C segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
DPAC amortization$25,758 $23,642 $2,116 9.0 %$51,600 $48,448 $3,152 6.5 %
Management fees780 799 (19)(2.4 %)1,925 1,963 (38)(1.9 %)
Other underwriting and operating expenses24,333 24,432 (99)(0.4 %)48,397 41,143 7,254 17.6 %
Total$50,871 $48,873 $1,998 4.1 %$101,922 $91,554 $10,368 11.3 %
DPAC amortization increased for the 2024 three- and six-month periods as compared to the same respective periods of 2023 primarily driven by a decrease in ceding commission income, which is an offset to expense, and, to a lesser extent, an increase in compensation-related costs due to higher capitalized salaries. Ceding commission income in the current year periods was lower than the prior year periods driven by commission income recorded in the second quarter of 2023 associated with a large tail policy written and ceded to an SPC in our Segregated Portfolio Cell Reinsurance segment (see previous discussion under the heading "Gross Premiums Written"). Partially offsetting these factors during the 2024 three- and six-month periods was a decrease in commission and brokerage expenses as compared to the same respective periods of 2023.
Management fees are charged pursuant to a management agreement by the Corporate segment to the core domestic 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. While the terms of the management agreement were generally consistent between 2024 and 2023, 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.
Other underwriting and operating expenses remained relatively unchanged for the 2024 three-month period and increased for the 2024 six-month period as compared to the same respective periods of 2023 primarily attributable to the following:
•Certain one-time items that are unique or non-recurring in nature during the first quarter of 2023 that resulted in a benefit to operating expenses. We recognized a claim for a payroll tax refund of $3.8 million related to the employee retention credit and a reduction to operating expenses of $1 million related to the reduction to the contingent consideration liability associated with the NORCAL acquisition. See additional discussion on these items in our June 30, 2023 report on Form 10-Q within Item 7, Management's Discussion and Analysis, in the Segment Results - Specialty Property & Casualty section under the heading "Underwriting, Policy Acquisition and Operating Expenses."
•An increase in compensation-related expenses, partially offset by lower external audit fees. The increase in compensation-related costs in the 2024 six-month period as compared to the same period of 2023 was primarily due to higher amounts accrued for performance-related incentive plans due to the improvement in the related performance metrics and, to a lesser extent, an increase in salaries due to annual merit adjustments. The remaining variance in other underwriting and operating expenses for the 2024 six-month period as compared to the same period of 2023 was comprised of individually insignificant components.
Underwriting Expense Ratio (the Expense Ratio)
Our expense ratio for the Specialty P&C segment was as follows:
 Three Months Ended June 30Six Months Ended June 30
 20242023Change20242023Change
Underwriting expense ratio
27.6 %26.7 %0.9  pts27.3 %25.0 %2.3  pts
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The change in our expense ratios for the 2024 three- and six-month periods as compared to the same respective periods of 2023 were primarily attributable to the following:
Increase (Decrease)
 2024 versus 2023
(In percentage points)Comparative three-month periods
Comparative six-month periods
Estimated ratio increase (decrease) attributable to:
Change in Net Premiums Earned and DPAC amortization(1)
1.0 pts0.6 pts
Employee Retention Credit— pts1.0 pts
Contingent Consideration Remeasurement Adjustment— pts0.3 pts
All other, net(0.1 pts)0.4 pts
Increase in the underwriting expense ratio
0.9 pts2.3 pts
(1) Excludes tail premium.
As shown in the previous table, our consolidated underwriting expense ratios for the 2024 three- and six-month periods reflected higher DPAC amortization in relation to the change in net premiums earned, excluding tail premium, resulting in a 1.0 and 0.6 percentage point increase in our current period ratios as compared to the same respective periods of 2023. See previous discussion under the heading "DPAC Amortization."
Excluding the impact of the items specifically identified in the table above, our expense ratio for the 2024 three-month period remained relatively unchanged and increased by 0.4 percentage points for the 2024 six-month period as compared to the same respective periods of 2023. The increase for the 2024 six-month period was driven by an increase in compensation-related costs, largely offset by the impact of higher net premiums earned and lower external audit fees.
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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 16 of the Notes to Consolidated Financial Statements in our December 31, 2023 report on Form 10-K. Segment results included the following:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Net premiums written$39,993 $42,323 $(2,330)(5.5 %)$90,346 $89,894 $452 0.5 %
Net premiums earned$41,770 $41,018 $752 1.8 %$82,864 $81,821 $1,043 1.3 %
Other income469 651 (182)(28.0 %)946 1,232 (286)(23.2 %)
Net losses and loss adjustment expenses(32,149)(29,762)(2,387)8.0 %(63,786)(60,606)(3,180)5.2 %
Underwriting, policy acquisition and operating expenses(15,139)(14,400)(739)5.1 %(29,628)(27,379)(2,249)8.2 %
Segment results$(5,049)$(2,493)$(2,556)102.5 %$(9,604)$(4,932)$(4,672)(94.7 %)
Net loss ratio77.0%72.6%4.4 pts77.0%74.1%2.9 pts
Underwriting expense ratio36.2%35.1%1.1 pts35.8%33.5%2.3 pts
Premiums Written
Our workers’ compensation premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of our existing book of business, (3) premium rates charged on our renewal book of business, (4) changes in payroll exposure and (5) audit premium.
Gross, ceded and net premiums written were as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Gross premiums written
$60,745 $62,757 $(2,012)(3.2 %)$133,360 $136,187 $(2,827)(2.1 %)
Less: Ceded premiums written
20,752 20,434 318 1.6 %43,014 46,293 (3,279)(7.1 %)
Net premiums written
$39,993 $42,323 $(2,330)(5.5 %)$90,346 $89,894 $452 0.5 %
Gross Premiums Written
Gross premiums written by product were as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Traditional business:
Guaranteed cost$32,853 $33,769 $(916)(2.7 %)$73,597 $71,568 $2,029 2.8 %
Policyholder dividend5,297 5,795 (498)(8.6 %)13,383 12,966 417 3.2 %
Deductible463 428 35 8.2 %3,736 2,759 977 35.4 %
Retrospective3,147 2,535 612 24.1 %3,153 2,839 314 11.1 %
Other1,618 1,558 60 3.9 %3,149 3,260 (111)(3.4 %)
Change in EBUB estimate650 1,900 (1,250)(65.8 %)650 2,900 (2,250)(77.6 %)
Total traditional business (1)
44,028 45,985 (1,957)(4.3 %)97,668 96,292 1,376 1.4 %
Alternative market business(2)
16,717 16,772 (55)(0.3 %)35,692 39,895 (4,203)(10.5 %)
Total$60,745 $62,757 $(2,012)(3.2 %)$133,360 $136,187 $(2,827)(2.1 %)
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(1) Gross premiums written decreased for the 2024 three-month period and increased for the 2024 six-month period as compared to the same respective periods of 2023. The decrease for the 2024 three-month period was driven by the change in our EBUB estimate, retention losses and renewal rate decreases, partially offset by higher audit premium. The increase for the 2024 six-month period was primarily driven by positive mid-term policy endorsements, higher audit premium and the renewal of certain policies as traditional business that were previously written in one of the alternative market programs in our Segregated Portfolio Cell Reinsurance segment, partially offset by retention losses and renewal rate decreases. Premium related to policies that renewed as traditional business that were previously written in one of the programs in our Segregated Portfolio Cell Reinsurance segment for the 2024 three- and six-month periods totaled $0.5 million and $1.6 million, respectively. Gross premiums written in our traditional business also reflect the continuation of competitive workers' compensation market conditions, including the impact of compounded state loss cost reductions in our core operating territories.
(2) A majority of alternative market premiums are ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment. See further discussion on alternative market gross premiums written in our Segment Results - Segregated Portfolio Cell Reinsurance section under the heading "Gross Premiums Written" that follows. We retained fourteen of the sixteen (seven in the second quarter) workers’ compensation alternative market programs that were up for renewal during the six months ended June 30, 2024. Effective January 1, 2024, two programs were non-renewed and placed into run-off; however, as the underlying policies expire in that program, we expect those policies to be renewed as traditional business in our Workers' Compensation Insurance segment, as previously discussed. The other program, in which we do not participate in the underwriting results, assumed both workers' compensation insurance and medical professional liability insurance and we elected to non-renew this program.
New business, audit premium, renewal retention and renewal price changes for our traditional business and the alternative market business are shown in the table below:
Three Months Ended June 30
20242023
($ in millions)Traditional BusinessAlternative Market BusinessSegment
Results		Traditional BusinessAlternative Market BusinessSegment
Results
New business$3.7 $0.8 $4.5 $5.6 $1.5 $7.1 
Audit premium (excluding EBUB)$3.4 $1.0 $4.4 $2.3 $0.9 $3.2 
Retention rate (1)
80 %86 %81 %80 %84 %81 %
Change in renewal pricing (2)
(3 %)— %(3 %)(7 %)(6 %)(7 %)
Six Months Ended June 30
20242023
($ in millions)Traditional BusinessAlternative Market BusinessSegment
Results		Traditional BusinessAlternative Market BusinessSegment
Results
New business$11.9 $2.1 $14.0 $12.2 $2.7 $14.9 
Audit premium (excluding EBUB)$5.3 $2.4 $7.7 $4.8 $2.1 $6.9 
Retention rate (1)
83 %81 %83 %81 %88 %83 %
Change in renewal pricing (2)
(4 %)(1 %)(3 %)(7 %)(6 %)(6 %)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
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Ceded Premiums Written
Ceded premiums written were as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Premiums ceded to SPCs(1)
$13,840 $14,717 $(877)(6.0 %)$29,837 $34,709 $(4,872)(14.0 %)
Premiums ceded to external reinsurers(2)
5,018 3,739 1,279 34.2 %9,057 7,168 1,889 26.4 %
Premiums ceded to unaffiliated captive insurers(1)
2,877 2,055 822 40.0 %5,855 5,186 669 12.9 %
Change in return premium estimate under external reinsurance (3)
(766)52 (818)(1,573.1 %)(796)67 (863)(1,288.1 %)
Estimated revenue share under external reinsurance (4)
(217)(129)(88)68.2 %(939)(837)(102)12.2 %
Total ceded premiums written$20,752 $20,434 $318 1.6 %$43,014 $46,293 $(3,279)(7.1 %)
(1) Represents 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 unaffiliated captive insurers represent alternative market business for two programs that are ceded under 100% quota share reinsurance agreements. See further discussion on alternative market gross premiums written in our Segment Results - Segregated Portfolio Cell Reinsurance section under the heading "Gross Premiums Written" that follows.
(2) Premiums ceded under our traditional reinsurance treaty are based on premiums earned during the treaty period. Our ceded premium increased for the three and six months ended June 30, 2024 as compared to the same respective periods of 2023, reflecting a higher average reinsurance rate and reinstatement premium of $0.7 million that was recognized during the second quarter of 2024 related to a reserve increase on a prior year reinsured claim.
(3) Changes in the return premium estimate reflect 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. Increases in reinsured losses reduce the return premium estimate, while decreases in reinsured losses increase the return premium estimate. The change in return premium during the 2024 three- and six-month periods reflects favorable reserve development on previously reported reinsured claims.
(4) 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 June 30Six Months Ended June 30
20242023Change 20242023Change
Ceded premiums ratio, as reported32.7 %34.0 %(1.3  pts)33.0 %33.6 %(0.6  pts)
Less the effect of:
Premiums ceded to SPCs (100%)
21.1 %23.2 %(2.1  pts)22.1 %25.0 %(2.9  pts)
Premiums ceded to unaffiliated captive insurers (100%)2.8 %2.6 %0.2  pts2.7 %1.4 %1.3  pts
Change in return premium estimate under external reinsurance(1.7 %)0.1 %(1.8  pts)(0.9 %)0.1 %(1.0  pts)
Estimated revenue share(0.4 %)(0.3 %)(0.1  pts)(1.1 %)(1.0 %)(0.1  pts)
Assumed premiums earned (not ceded to external reinsurers)(0.4 %)(0.4 %)—  pts(0.3 %)(0.3 %)—  pts
Change in reinstatement premium
1.6 %— %1.6  pts0.8 %— %0.8  pts
EBUB estimate(0.2 %)(0.4 %)0.2  pts— %(0.3 %)0.3  pts
Ceded premiums ratio (related to external reinsurance), less the effects of above9.9 %9.2 %0.7  pts9.7 %8.7 %1.0  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 ratios for the three and six months ended June 30, 2024 primarily reflects a higher average reinsurance rate.
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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 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 insurers. 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 estimates related to EBUB 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 are recorded as fully earned in the current period. We evaluate our estimates related to EBUB and retrospectively-rated premium adjustments on a quarterly basis with any adjustments being included in written and earned premium in the current period.
Net premiums earned were as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Gross premiums earned$62,079 $62,144 $(65)(0.1 %)$123,618 $123,310 $308 0.2 %
Less: Ceded premiums earned20,309 21,126 (817)(3.9 %)40,754 41,489 (735)(1.8 %)
Net premiums earned$41,770 $41,018 $752 1.8 %$82,864 $81,821 $1,043 1.3 %
Net premiums earned increased during the three and six months ended June 30, 2024 as compared to the same respective periods of 2023 driven by the pro rata effect of an increase in the volume of written premium during the preceding twelve months, an increase in audit premium, and the renewal of certain policies as traditional business that were previously written in one of the alternative market programs in our Segregated Portfolio Cell Reinsurance segment, partially offset by the change in our carried EBUB estimate.
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 June 30Six Months Ended June 30
20242023Change20242023Change
Calendar year net loss ratio77.0 %72.6 %4.4  pts77.0 %74.1 %2.9  pts
Less impact of prior accident years on the net loss ratio— %— %—  pts— %1.5 %(1.5  pts)
Current accident year net loss ratio77.0 %72.6 %4.4  pts77.0 %72.6 %4.4  pts
Less estimated ratio increase (decrease) attributable to:
ULAE5.5 %6.0 %(0.5  pts)6.0 %6.6 %(0.6  pts)
Change in the AAD (1)
1.2 %3.4 %(2.2  pts)2.5 %3.4 %(0.9  pts)
Current accident year net loss ratio, excluding the effect of items above70.3 %63.2 %7.1  pts68.5 %62.6 %5.9  pts
(1) See previous discussion of the AAD under the heading "Ceded Premiums Written."
The current accident year net loss ratio for the 2024 three- and six-month periods of 77% increased as compared to the same respective periods of 2023; however, the current period ratio improved 4.3 points from the current accident year net loss ratio for the year ended December 31, 2023 of 81.3%, reflecting underwriting actions taken during 2023 and a slight improvement in loss trends. While we continue to reflect higher loss trends that we began to observe in our average cost per claim during the second half of 2023, these trends have improved slightly during the first half 2024, while reported claim frequency trends continue to be lower compared to historical results.
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Calendar year incurred losses (excluding IBNR) in excess of our per occurrence reinsurance retention, before consideration of the AAD, increased $2.6 million and $1.1 million for the 2024 three- and six-month periods, respectively, as compared to the same respective periods of 2023, which reflected net unfavorable reserve development on reinsured claims. We recognized losses within the AAD totaling $0.5 million and $2.0 million for the 2024 three- and six-month periods, respectively, as compared to $1.4 million and $2.8 million during the same respective periods of 2023. We continue to recognize losses within the AAD at the maximum exposure, based on historical reinsured loss trends; however, actual results within the AAD layer may ultimately be lower once all claims have been settled. Further, the May 1, 2024 reinsurance treaty renewal included the elimination of the AAD.
We did not recognize any prior accident year reserve development for the three and six months ended June 30, 2024 or the three months ended June 30, 2023. We recognized $1.2 million of net unfavorable prior accident year reserve development for the six months ended June 30, 2023 primarily driven by a large claim from the 1997 accident year.
Underwriting, Policy Acquisition and Operating Expenses
Underwriting, policy acquisition and operating expenses include the amortization of commissions, premium taxes and underwriting salaries, which are capitalized and deferred over the related workers’ compensation policy period, net of ceding commissions earned. The capitalization of underwriting salaries can vary as they are subject to the success rate of our contract acquisition efforts. These expenses also include a management fee charged by our Corporate segment, which represents intercompany charges pursuant to a management agreement. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary.
Our Workers' Compensation Insurance segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
DPAC amortization$7,423 $7,434 $(11)(0.1 %)$14,803 $14,444 $359 2.5 %
Management fees455 466 (11)(2.4 %)1,000 1,016 (16)(1.6 %)
Other underwriting and operating expenses10,619 10,111 508 5.0 %20,669 19,096 1,573 8.2 %
SPC ceding commission offset(3,358)(3,611)253 (7.0 %)(6,844)(7,177)333 (4.6 %)
Total$15,139 $14,400 $739 5.1 %$29,628 $27,379 $2,249 8.2 %
DPAC amortization was relatively unchanged for 2024 three-month period and increased for the 2024 six-month period as compared to the same respective periods of 2023. The increase for the 2024 six-month period primarily reflected an increase in gross premiums earned.
Other underwriting and operating expenses increased for the three and six months ended June 30, 2024 as compared to the same respective periods of 2023, primarily reflecting an increase in compensation-related costs. The increase in compensation-related costs during the 2024 three- and six-month periods primarily reflected higher amounts accrued for performance-related incentive plans due to an improvement in the related performance metrics.
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 unaffiliated captive insurers. The ceding commission charged to the SPCs consists of an amount for fronting fees, cell rental fees, commissions, premium taxes, claims administration fees 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. SPC ceding commissions earned decreased for the three and six months ended June 30, 2024 as compared to the same respective periods of 2023 primarily reflecting the decrease in alternative market ceded premium.
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Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:
Three Months Ended June 30Six Months Ended June 30
20242023Change20242023Change
Underwriting expense ratio, as reported36.2 %35.1 %1.1  pts35.8 %33.5 %2.3  pts
Less estimated ratio increase (decrease) attributable to:
Impact of ceding commissions received from SPCs4.3 %4.3 %—  pts4.4 %3.9 %0.5  pts
Impact of audit premium(2.3 %)(2.4 %)0.1  pts(1.7 %)(2.1 %)0.4  pts
Impact of change in EBUB estimate(0.4 %)(1.2 %)0.8  pts(0.2 %)(0.8 %)0.6  pts
Underwriting expense ratio, less listed effects34.6 %34.4 %0.2  pts33.3 %32.5 %0.8  pts
Excluding the items noted in the table above, the expense ratios increased for the three and six months ended June 30, 2024 primarily reflecting the increase in other underwriting and operating expenses, as discussed above.
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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 16 of the Notes to Consolidated Financial Statements in our December 31, 2023 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. As of June 30, 2024, there were twenty-six (five inactive) SPCs. Effective January 1, 2024, two SPCs were non-renewed and placed into run-off. As the underlying policies expire that were previously written in one of the programs, we expect a majority of those policies to be renewed as traditional business in our Workers' Compensation Insurance segment. For the year ended December 31, 2023, these SPCs had workers' compensation and medical professional liability premiums written totaling $6.4 million and $3.4 million, respectively.
Segment results reflect our share of the underwriting and investment results of the SPCs in which we participate, and included the following:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Net premiums written$13,898 $23,057 $(9,159)(39.7 %)$27,519 $43,005 $(15,486)(36.0 %)
Net premiums earned$13,551 $24,094 $(10,543)(43.8 %)$27,720 $39,394 $(11,674)(29.6 %)
Net investment income985 603 382 63.3 %1,678 1,024 654 63.9 %
Net investment gains (losses)258 1,194 (936)(78.4 %)1,728 2,355 (627)(26.6 %)
Other income (expenses)
1 1 — — %— 1 (1)nm
Net losses and loss adjustment expenses(8,617)(13,816)5,199 (37.6 %)(18,681)(22,238)3,557 (16.0 %)
Underwriting, policy acquisition and operating expenses(5,250)(6,538)1,288 (19.7 %)(9,961)(11,575)1,614 (13.9 %)
SPC U.S. federal income tax (expense) benefit (1)
(249)(994)745 (74.9 %)(666)(1,526)860 (56.4 %)
SPC net results679 4,544 (3,865)(85.1 %)1,818 7,435 (5,617)(75.5 %)
SPC dividend (expense) income (2)
(512)(3,747)3,235 (86.3 %)(1,119)(5,689)4,570 (80.3 %)
Segment results (3)
$167 $797 $(630)(79.0 %)$699 $1,746 $(1,047)(60.0 %)
Net loss ratio63.6%57.3%6.3 pts67.4%56.5%10.9 pts
Underwriting expense ratio38.7%27.1%11.6 pts35.9%29.4%6.5 pts
(1) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
(2) Represents the net (profit) loss attributable to external cell participants.
(3) Represents our share of the net profit (loss) and OCI of the SPCs in which we participate.
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Premiums Written
Premiums in our Segregated Portfolio Cell Reinsurance segment are assumed from either our Workers' Compensation Insurance or Specialty P&C segments. Premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of the existing book of business, (3) premium rates charged on the renewal book of business and, for workers' compensation business, (4) changes in payroll exposure and (5) audit premium.
Gross, ceded and net premiums written were as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Gross premiums written
$15,883 $25,113 $(9,230)(36.8 %)$31,817 $47,994 $(16,177)(33.7 %)
Less: Ceded premiums written
1,985 2,056 (71)(3.5 %)4,298 4,989 (691)(13.9 %)
Net premiums written
$13,898 $23,057 $(9,159)(39.7 %)$27,519 $43,005 $(15,486)(36.0 %)
Gross Premiums Written
Gross premiums written reflected reinsurance premiums assumed by component as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Workers' compensation
$13,840 $14,717 $(877)(6.0 %)$29,837 $34,709 $(4,872)(14.0 %)
Medical professional liability
2,043 10,396 (8,353)(80.3 %)1,980 13,285 (11,305)(85.1 %)
Gross Premiums Written$15,883 $25,113 $(9,230)(36.8 %)$31,817 $47,994 $(16,177)(33.7 %)
Gross premiums written for the three and six months ended June 30, 2024 and 2023 were primarily comprised of workers' compensation coverages assumed from our Workers' Compensation Insurance segment. Workers' compensation gross premiums written decreased during the 2024 three- and six-month periods as compared to the same respective periods of 2023 due to the non-renewal of two programs effective January 1, 2024. The business written in one of those programs is expected to be renewed as traditional business in our Workers' Compensation Insurance segment as the underlying policies expire in that program. The other program, in which we do not participate in the underwriting results, assumed both workers' compensation insurance and medical professional liability insurance and we elected to non-renew this program.
The decrease in medical professional liability gross premiums written for the 2024 three- and six-month periods as compared to the same respective periods of 2023 primarily reflected the impact of $7.9 million of tail premium written and fully earned during the second quarter of 2023 related to one program in which we do not participate in the underwriting results and was non-renewed effective January 1, 2024, as discussed above. Further, the $7.9 million of tail premium was subsequently cancelled and reversed during the third quarter of 2023. See further discussion in our Segment Results - Specialty Property & Casualty section under the heading "Premiums Written."
Workers' compensation renewal premium for the three and six months ended June 30, 2024 reflected retention of 86% and 81%, respectively, and rate decreases of 0.4% and 1.1%, respectively, partially offset by an increase in payroll exposure. Retention for the six months ended June 30, 2024 primarily reflected the non-renewal of the SPC that assumed both workers' compensation and medical professional liability insurance. We retained twelve of the fourteen (six in the second quarter of 2024) workers' compensation programs and one of the two medical professional liability programs up for renewal during the six months ended June 30, 2024.
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New business, audit premium, retention and renewal price changes for the assumed workers' compensation premium is shown in the table below:
Three Months Ended June 30Six Months Ended June 30
($ in millions)2024202320242023
New business$0.8 $1.5 $2.1 $2.7 
Audit premium$1.0 $0.9 $2.4 $2.1 
Retention rate (1)
86 %84 %81 %88 %
Change in renewal pricing (2)
— %(6 %)(1 %)(6 %)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.
Ceded Premiums Written
Ceded premiums written were as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Ceded premiums written$1,985 $2,056 $(71)(3.5 %)$4,298 $4,989 $(691)(13.9 %)
For the workers' compensation business, each SPC has in place its own external reinsurance coverage. The medical professional liability business is assumed net of reinsurance from our Specialty P&C segment; therefore, there are no ceded premiums related to the medical 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 $2.1 million on a program year basis. Premiums ceded under our SPC reinsurance treaty are based on premiums written during the treaty period. The change in ceded premiums written during the three and six months ended June 30, 2024 as compared to the same respective periods of 2023 primarily reflected the decrease in workers' compensation gross premiums written and the impact of rate changes under the external reinsurance treaty. External reinsurance rates vary based on the alternative market program.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:
Three Months Ended June 30Six Months Ended June 30
20242023Change 20242023Change
Ceded premiums ratio14.3%14.0%0.3 pts14.4%14.4%— pts
The above table reflects ceded premiums as a percent of gross premiums written for the workers' compensation business only; medical professional liability business is assumed net of reinsurance, as discussed above. The ceded premiums ratio reflects the weighted average reinsurance rates of all SPC programs.
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that the SPCs cede to external reinsurers. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Policies ceded to the SPCs are twelve month term policies and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of workers' compensation insureds' payrolls. Payroll audits are conducted subsequent to the end of the policy period and any related adjustments are recorded as fully earned in the current period.
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Gross, ceded and net premiums earned were as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Gross premiums earned$15,626 $26,390 $(10,764)(40.8 %)$32,036 $43,993 $(11,957)(27.2 %)
Less: Ceded premiums earned2,075 2,296 (221)(9.6 %)4,316 4,599 (283)(6.2 %)
Net premiums earned$13,551 $24,094 $(10,543)(43.8 %)$27,720 $39,394 $(11,674)(29.6 %)
The decrease in net premiums earned during the three and six months ended June 30, 2024 as compared to the same respective periods of 2023 was primarily driven by the prior year impact of tail premium, as previously discussed, and the non-renewal of two SPCs effective January 1, 2024, as previously discussed.
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 reflects the aggregate loss ratio for all programs. Loss reserves and associated reinsurance are estimated for each program on a quarterly basis. Each SPC has in place its own reinsurance agreement, and the attachment point of aggregate reinsurance coverage varies by program. Due to the size of some of the programs, quarterly loss results, including changes in estimated aggregate reinsurance, 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 and six months ended June 30, 2024 and 2023 were as follows:
Three Months Ended June 30Six Months Ended June 30
20242023Change20242023Change
Calendar year net loss ratio
63.6 %57.3 %6.3  pts67.4 %56.5 %10.9  pts
Less impact of prior accident years on the net loss ratio
(2.5 %)(5.6 %)3.1  pts1.8 %(7.2 %)9.0  pts
Current accident year net loss ratio
66.1 %62.9 %3.2  pts65.6 %63.7 %1.9  pts
Less estimated ratio increase (decrease) attributable to:
Change in estimated aggregate reinsurance (1)
(0.9 %)0.1 %(1.0  pts)(0.1 %)0.1 %(0.2  pts)
Current accident year net loss ratio, excluding the effect of the change in estimated aggregate reinsurance67.0 %62.8 %4.2  pts65.7 %63.6 %2.1  pts
(1) See additional information regarding the SPC's aggregate reinsurance agreements in our Liquidity and Capital Resources and Financial Condition section under the heading "Operating Activities and Related Cash Flows."
The current accident year net loss ratio, excluding the effect of changes in estimated aggregate reinsurance, increased for the 2024 three- and six-month periods as compared to the same respective periods of 2023 primarily reflecting an increase in reported loss activity.
Calendar year incurred losses (excluding IBNR) ceded to our external reinsurers increased $1.5 million for the three months ended June 30, 2024 and decreased $0.4 million for the six months ended June 30, 2024 as compared to the same respective periods of 2023. Current accident year ceded incurred losses (excluding IBNR) increased $0.8 million for the 2024 three- and six-month periods as compared to the same respective periods of 2023.
We recognized net favorable prior year reserve development of $0.3 million for the three months ended June 30, 2024 and net unfavorable prior year reserve development of $0.5 million for the six months ended June 30, 2024 as compared to favorable prior year reserve development of $1.3 million and $2.9 million for the 2023 three- and six-month periods, respectively. The development for the 2024 three- and six-month periods includes net favorable development in the workers' compensation business of $0.3 million and $0.9 million, respectively, which reflected overall favorable trends in claim closing patterns primarily in accident years 2020 through 2022. More than offsetting the favorable development for the six months ended June 30, 2024 is net unfavorable development of $1.4 million in the medical professional liability business in the first quarter of 2024, which primarily reflected higher than expected claim frequency in the program that assumed both workers' compensation and medical professional liability insurance, which was non-renewed effective January 1, 2024. We do not participate in the underwriting results of this program. The development for the 2023 three- and six-month periods entirely related to the workers' compensation business and reflected overall favorable trends in claim closing patterns primarily in accident years 2018 through 2021.
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Underwriting, Policy Acquisition and Operating Expenses
Our Segregated Portfolio Cell Reinsurance segment underwriting, policy acquisition and operating expenses were comprised as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
DPAC amortization$4,292 $6,030 $(1,738)(28.8 %)$8,597 $10,606 $(2,009)(18.9 %)
Other underwriting and operating expenses958 508 450 88.6 %1,364 969 395 40.8 %
Total
$5,250 $6,538 $(1,288)(19.7 %)$9,961 $11,575 $(1,614)(13.9 %)
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. The decrease in DPAC amortization in the 2024 three- and six-month periods as compared to the same respective periods of 2023 primarily reflected the decrease in earned premium, as discussed above under the heading "Net Premiums Earned."
Other underwriting and operating expenses primarily include bank fees, professional fees, changes in the allowance for expected credit losses and policyholder dividend expense. Other underwriting and operating expenses increased for the 2024 three- and six-month periods as compared to the same respective periods of 2023 driven by an increase in the allowance for credit losses in two programs.
Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratios included the impact of the following:
Three Months Ended June 30Six Months Ended June 30
20242023Change20242023Change
Underwriting expense ratio, as reported38.7%27.1%11.6 pts35.9%29.4%6.5 pts
Less: impact of audit premium on expense ratio(3.1%)(1.1%)(2.0 pts)(3.3%)(1.6%)1.7 pts
Underwriting expense ratio, excluding the effect of audit premium41.8%28.2%13.6 pts39.2%31.0%8.2 pts
Excluding the effect of audit premium, the underwriting expense ratios increased for the 2024 three- and six-month periods as compared the same respective periods of 2023 driven by the prior year impact of the medical professional liability tail coverage, as previously discussed, which was fully earned during the second quarter of 2023 and was subject to a lower ceding commission and an increase in the allowance for credit losses in two programs.
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Segment Results - Corporate
Our Corporate segment includes our investment operations excluding those reported in our Segregated Portfolio Cell Reinsurance segment as discussed in Note 16 of the Notes to Consolidated Financial Statements in our December 31, 2023 report on Form 10-K. In addition, this segment includes corporate expenses, interest expense, U.S. and U.K. income taxes and non-premium revenues generated outside of our insurance entities. As previously discussed under the heading "ProAssurance Overview," we reorganized our segment reporting in the third quarter of 2023. As a result, the investment results of assets solely allocated to our Lloyd's Syndicate operations and U.K. income taxes which were previously reported in our Lloyd’s Syndicates segment are now reported in our Corporate segment. All prior period segment information has been recast to conform to the current period presentation. See further information regarding our segments in Note 12 of the Notes to Condensed Consolidated Financial Statements.
Segment results for the three and six months ended June 30, 2024 and 2023 exclude the change in fair value of contingent consideration and, for the three and six months ended June 30, 2024, transaction-related costs, including the associated income tax benefit, as we do not consider these items in assessing the financial performance of the segment. Transaction-related costs are attributable to actuarial consulting fees paid during the second quarter of 2024 in relation to the final determination of contingent consideration associated with the NORCAL acquisition. We did not incur any transaction-related costs in the three and six months ended June 30, 2023. Segment results for our Corporate segment were net earnings of $24.4 million and $46.9 million for the three and six months ended June 30, 2024, respectively, as compared to $22.9 million and $41.3 million for the same respective periods of 2023, and included the following:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Net investment income
$35,573 $31,047 $4,526 14.6 %$68,777 $60,936 $7,841 12.9 %
Equity in earnings (loss) of unconsolidated subsidiaries
$8,652 $6,632 $2,020 30.5 %$11,616 $5,511 $6,105 110.8 %
Net investment gains (losses)
$(3,835)$(248)$(3,587)(1,446.4 %)$(5,573)$503 $(6,076)(1,208.0 %)
Other income
$1,968 $2,173 $(205)(9.4 %)$5,028 $2,500 $2,528 101.1 %
Operating expense
$9,783 $8,275 $1,508 18.2 %$18,473 $16,477 $1,996 12.1 %
Interest expense
$5,648 $5,502 $146 2.7 %$11,305 $10,965 $340 3.1 %
Income tax expense (benefit)
$2,488 $2,927 $(439)(15.0 %)$3,179 $755 $2,424 321.1 %
Net Investment Income
Net investment income is primarily derived from the income earned by our fixed maturity securities and also includes dividend income from equity securities, income from our short-term and cash equivalent investments, earnings from other investments and changes in the cash surrender value of BOLI contracts, net of investment fees and expenses.
Net investment income (loss) by investment category was as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Fixed maturities$33,064 $27,614 $5,450 19.7 %$64,021 $54,634 $9,387 17.2 %
Equities1,164 1,105 59 5.3 %2,056 1,912 144 7.5 %
Short-term investments, including Other2,620 3,691 (1,071)(29.0 %)5,695 6,792 (1,097)(16.2 %)
BOLI534 459 75 16.3 %986 1,116 (130)(11.6 %)
Investment fees and expenses(1,809)(1,822)13 (0.7 %)(3,981)(3,518)(463)13.2 %
Net investment income$35,573 $31,047 $4,526 14.6 %$68,777 $60,936 $7,841 12.9 %
Fixed Maturities
Income from our fixed maturities increased during the 2024 three- and six-month periods as compared to the same respective periods of 2023 driven by higher average book yields as we continue to reinvest at higher rates as our portfolio matures. Additionally, average investment balances were approximately 2.4% and 0.6% higher for the 2024 three- and six-month periods, respectively, as compared to the same respective periods of 2023.
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Average yields for our fixed maturity portfolio were as follows:
Three Months Ended June 30Six Months Ended June 30
 2024202320242023
Average income yield3.5%3.0%3.4%3.0%
Average tax equivalent income yield3.5%3.0%3.4%3.0%
Short-term Investments and Other Investments
Short-term investments, which have a maturity at purchase of one year or less are carried at fair value, which approximates their cost basis, and are primarily composed of investments in U.S. treasury obligations, commercial paper, money market funds and a certificate of deposit. Income from our short-term and other investments decreased during the 2024 three- and six-month periods as compared to the same respective periods of 2023 primarily due to lower average investment balances.
Investment Fees and Expenses
Investment fees and expenses remained relatively unchanged for the 2024 three-month period and increased for the 2024 six-month period as compared to the same respective periods of 2023. The increase for the 2024 six-month period was primarily due to the mix of investments managers, as well as an increase in service costs.
Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Equity in earnings (loss) of unconsolidated subsidiaries was comprised as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
All other investments, primarily investment fund LPs/LLCs
$8,261 $8,143 $118 1.4 %$11,328 $7,376 $3,952 53.6 %
Tax credit partnerships391 (1,511)1,902 125.9 %288 (1,865)2,153 115.4 %
Equity in earnings (loss) of unconsolidated subsidiaries$8,652 $6,632 $2,020 30.5 %$11,616 $5,511 $6,105 110.8 %
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 were relatively unchanged for the 2024 three-month period and increased for the 2024 six-month period as compared to the same respective periods of 2023. The increase for the 2024 six-month period was primarily due to the performance of two LPs/LLCs which reflected higher market valuations during the fourth quarter of 2023.
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. These tax credit partnership investments are reaching the end of their lifecycle, therefore partnership operating losses and tax benefits associated with these investments are expected to be nominal in amount. However, we may receive distributions from time to time due to the sale of properties. The results from our tax credit partnership investments for the 2024 three- and six-month periods reflect the benefit of a decrease in our estimate of our allocable portion of operating losses of $0.9 million as compared to an increase in this estimate of $1.1 million during the prior year period and, to a lesser extent, lower partnership operating losses. See additional information on our tax credit partnership investments in Note 3 of the Notes to Condensed Consolidated Financial Statements.
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Net Investment Gains (Losses)
The following table provides detailed information regarding our net investment gains (losses).
Three Months Ended June 30Six Months Ended June 30
(In thousands)2024202320242023
Total impairment losses
Corporate debt$4 $(48)$(1,312)$(2,984)
Asset-backed securities5 5 (189)8 
Portion of impairment losses recognized in other comprehensive income before taxes:
Corporate debt(474)— 102 — 
Net impairment losses recognized in earnings(465)(43)(1,399)(2,976)
Gross realized gains, available-for-sale fixed maturities306 460 672 539 
Gross realized (losses), available-for-sale fixed maturities(950)(767)(2,049)(1,224)
Net realized gains (losses), trading fixed securities(2)2 13 (107)
Net realized gains (losses), equity investments— — (704)— 
Net realized gains (losses), other investments(2,357)(2,116)(581)(1,887)
Change in unrealized holding gains (losses), trading fixed securities(44)54 170 152 
Change in unrealized holding gains (losses), equity investments(2,072)(2,308)(2,321)361 
Change in unrealized holding gains (losses), convertible securities, carried at fair value as a part of other investments1,725 2,929 606 4,061 
Other24 1,541 20 1,584 
Net investment gains (losses)$(3,835)$(248)$(5,573)$503 
For the three and six months ended June 30, 2024, we recognized $0.5 million and $1.4 million of credit-related impairment losses in earnings, respectively. For the three months ended June 30, 2024, we recognized a reversal of non-credit impairment losses in OCI of $0.5 million due to changes in projected future cash flows related to a corporate bond in the consumer sector. For the three and six months ended June 30, 2023, we recognized a nominal amount and $3.0 million of credit-related impairment losses in earnings, respectively, related to two corporate bonds in the financial sector. We did not recognize any non-credit impairment losses in OCI during the three and six months ended June 30, 2023.
During the three and six months ended June 30, 2024, we recognized $3.8 million and $5.6 million of net investment losses, respectively, driven by unrealized holding losses resulting from changes in the fair value of our equity investments as well as realized losses from the sale of certain available-for-sale fixed maturities. The components of net investment losses for the three and six months ended June 30, 2024 also reflect realized losses from the sale of certain other investments, the majority of which are convertible securities, largely offset by the change in unrealized holding gains (losses) on other investments, reflecting a decrease in our allocation to this asset category to reinvest in available-for-sale fixed maturities at higher rates.
We recognized a nominal amount of net investment losses during the 2023 three-month period and $0.5 million of net investment gains during the 2023 six-month period. Net investment gains during the 2023 six-month period were driven by unrealized holding gains resulting from changes in the fair value of our convertible securities and, to a lesser extent, death benefit proceeds from a BOLI contract.
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Other Income
Corporate other income for the three and six months ended June 30, 2024 as compared to the same respective periods of 2023 was comprised of the following:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023
Change
20242023Change
Foreign currency exchange rate gains (losses)(1)
$511 $(364)$875 240.4 %$2,440 $(1,188)$3,628 305.4 %
Other
1,457 2,537 (1,080)(42.6 %)2,588 3,688 (1,100)(29.8 %)
Total other income
$1,968 $2,173 $(205)(9.4 %)$5,028 $2,500 $2,528 101.1 %
(1) See further information on foreign currency exchange rate gains (losses) in the Executive Summary of Operations section under the heading "Revenues."
Excluding the foreign currency exchange rate gains (losses), other income decreased for the 2024 three- and six-month periods as compared to the same respective periods of 2023 driven by proceeds of $1.5 million received in the second quarter of 2023 associated with the sale of a portion of our ownership interest in the underwriting and operations entity associated with Syndicate 1729 to an unrelated third party.
Operating Expenses
Corporate segment operating expenses were comprised as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Operating expenses$11,018 $9,540 $1,478 15.5 %$21,398 $19,456 $1,942 10.0 %
Management fee offset(1,235)(1,265)30 (2.4 %)(2,925)(2,979)54 (1.8 %)
Total$9,783 $8,275 $1,508 18.2 %$18,473 $16,477 $1,996 12.1 %
Operating expenses increased for the 2024 three- and six-month periods by $1.5 million and $1.9 million, respectively, as compared to the same respective periods of 2023 driven by an increase in compensation-related costs, certain software and equipment costs, and, to a lesser extent, brokerage expenses, partially offset by a decrease in professional fees. The increase in compensation-related costs during the 2024 three- and six-month periods primarily reflected higher amounts accrued for performance-related incentive plans due to an improvement in the related performance metrics, an increase in salaries due to annual merit adjustments and, to a lesser extent, an increase in employee headcount as we have filled open positions. The decrease in professional fees for the 2024 three- and six-month periods primarily reflected a decrease in consulting and temporary personnel fees. The increase in operating expenses for the 2024 three-month period also reflected an increase in share-based compensation expenses driven by an increase in the awards outstanding as compared to the same period of 2023. Brokerage expenses relate to coverages processed through ProAssurance Agency which is reported in our Corporate segment.
Core domestic 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. While the terms of the arrangement were generally consistent between 2024 and 2023, 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.
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Interest Expense
Consolidated interest expense for the three and six months ended June 30, 2024 and 2023 was comprised as follows:
Three Months Ended June 30Six Months Ended June 30
($ in thousands)20242023Change20242023Change
Senior Notes due 2023$— $3,357 $(3,357)nm$— $6,714 $(6,714)nm
Contribution Certificates (including accretion)(1)
1,920 1,884 36 1.9 %3,818 3,743 75 2.0 %
Revolving Credit Agreement (including fees and amortization)
2,624 261 2,363 905.4 %5,264 508 4,756 936.2 %
Term Loan (including fees and amortization)2,435 — 2,435 nm4,912 — 4,912 nm
(Gain)/loss on cash flow hedges reclassified from AOCI(1,331)— (1,331)nm(2,689)— (2,689)nm
Interest expense$5,648 $5,502 $146 2.7 %$11,305 $10,965 $340 3.1 %
(1) Includes accretion of approximately $0.5 million and $1.0 million for the three and six months ended June 30, 2024, respectively, as compared to $0.5 million and $0.9 million during the same respective periods of 2023, 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.
Consolidated interest expense increased for the three and six months ended June 30, 2024 as compared to the same respective periods of 2023 due to an increase in the borrowings on our Revolving Credit Agreement and Term Loan to refinance our Senior Notes that matured in November 2023, partially offset by the change in the fair value of our Interest Rate Swaps. The Interest Rate Swaps are designated as highly effective cash flow hedges to manage our exposure to interest rate risk due to variability in the base rates on the borrowings under both the Revolving Credit Agreement and Term Loan. Interest expense on our Revolving Credit Agreement for the three and six months ended June 30, 2023 primarily reflected unused commitment fees as there were no outstanding borrowings during either period. See further discussion on our outstanding debt in Note 7 of the Notes to Condensed Consolidated Financial Statements and additional information regarding our Interest Rate Swaps is provided in Note 8 of the Notes to Condensed Consolidated Financial Statements.
Taxes
Tax expense allocated to our Corporate segment includes U.S. and U.K. tax expense including U.S. tax expense incurred from our corporate membership in Lloyd's of London, if any. 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
June 30		Six Months Ended
June 30
(In thousands)2024202320242023
Corporate segment income tax expense (benefit)
$2,488 $2,927 $3,179 $755 
Income tax expense (benefit) - transaction-related costs*(67)— (67)— 
Consolidated income tax expense (benefit)
$2,421 $2,927 $3,112 $755 
*Represents the income tax benefit associated with actuarial consulting fees paid during the second quarter of 2024 in relation to the final determination of contingent consideration associated with the NORCAL acquisition. These costs are not included in a segment as we do not consider these costs in assessing the financial performance of any of our operating or reportable segments. See Note 12 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results.
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Listed below are the primary factors affecting our consolidated effective tax rate for the three and six months ended June 30, 2024 and 2023. These factors include the following:
Three Months Ended June 30
20242023
($ in thousands)Income tax (benefit) expenseRate ImpactIncome tax (benefit) expenseRate Impact
Computed "expected" tax expense (benefit) at statutory rate$3,765 21.0 %$2,84721.0 %
Tax-exempt income (1)
(274)(1.5 %)(186)(1.4 %)
Non-U.S. operating results(117)(0.7 %)(35)(0.3 %)
Tax deficiency (excess tax benefit) on share-based compensation291 1.6 %3— %
Non-taxable contingent consideration (2)
(1,415)(7.9 %)(420)(3.1 %)
Estimated annual tax rate differential (3)
545 3.0 %1421.0 %
State Income Taxes
(410)(2.3 %)5914.4 %
Other 36 0.3 %(15)— %
Total income tax expense (benefit)$2,421 13.5 %$2,927 21.6 %
Six Months Ended June 30
20242023
($ in thousands)Income tax (benefit) expenseRate ImpactIncome tax (benefit) expenseRate Impact
Computed "expected" tax expense (benefit) at statutory rate
$4,882 21.0 %$1,09421.0 %
Tax-exempt income (1)
(523)(2.2 %)(504)(9.6 %)
Non-U.S. operating results(404)(1.7 %)(203)(3.9 %)
Tax deficiency (excess tax benefit) on share-based compensation706 3.0 %1883.6 %
Non-taxable contingent consideration (2)
(1,415)(6.1 %)(840)(16.1 %)
Change in uncertain tax positions185 0.8 %460.9 %
Estimated annual tax rate differential (3)
(135)(0.6 %)1,57330.2 %
Interest Income from IRS refunds— — %(333)(6.4 %)
Other (184)(0.8 %)(266)(5.2 %)
Total income tax expense (benefit)$3,112 13.4 %$755 14.5 %
(1) Includes tax-exempt interest, dividends received deduction and change in cash surrender value of BOLI.
(2) Represents the tax impact of a decrease in the contingent consideration liability issued in connection with the NORCAL acquisition of $6.5 million and the reversal of a nominal amount of associated contingent investment banker fees accrued during purchase accounting for the three and six months ended June 30, 2024 as compared to a decrease in the contingent consideration liability of $2.0 million and $4.0 million for the same respective periods of 2023, all of which is non-taxable. See further discussion on the contingent consideration in Notes 2 and 6 of the Notes to Condensed Consolidated Financial Statements.
(3) Represents the tax rate differential between our actual effective tax rate for the three and six months ended June 30, 2024 and 2023 and our projected annual effective tax rate as of June 30, 2024 and June 30, 2023 as calculated under the estimated annual effective tax rate method.
For the three and six months ended June 30, 2024 and 2023 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. See further discussion on this method utilized to compute interim taxes in the Critical Accounting Estimates section under the heading "Estimation of Taxes" and in Note 4 of the Notes to Condensed Consolidated Financial Statements.
Our effective tax rates for the 2024 and 2023 three- and six-month periods were different from the statutory federal income tax rate of 21% primarily due to the decrease in the contingent consideration liability related to the NORCAL acquisition, all of which was non-taxable. See previous discussion under the heading "Contingent Consideration" in the Financing Activities and Related Cash Flows section. Further, our effective tax rates for the 2024 and 2023 three- and six-month periods were impacted by the estimated tax rate differential between our actual effective tax rate in each period and our projected annual effective tax rate as calculated under the estimated annual effective tax rate method. There were no other individually significant items impacting our effective tax rates for the 2024 and 2023 three- and six-month periods.
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Our effective tax rate for the 2024 and 2023 six-month periods, as shown in the table above, differed from our projected annual effective tax rate of 14.1% and 16.2%, respectively, due to certain discrete items. When we utilize the estimated annual effective tax rate method, certain items are treated as discrete items and are reflected in the effective tax rate in the period in which they are included in net income (loss). These discrete items decreased our effective tax rate by 0.7% and 1.7% for the 2024 and 2023 six-month periods, respectively. For the 2024 six-month period, the most significant discrete item that affected our effective tax rate was the treatment of net investment losses of $5.8 million in our Corporate segment, excluding the investment results of assets solely allocated to our Lloyd's Syndicate operations, which accounted for a decrease of 1.7% in the effective tax rate in the period. For the 2023 six-month period, these discrete items were comprised of individually insignificant components.
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 or non-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. If recovery is not anticipated, we will record an impairment loss through earnings either by establishing a credit allowance or by directly reducing the security's amortized cost basis if there is an intent to sell.
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 June 30, 2024 and December 31, 2023. 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
June 30, 2024
($ in millions)(200)(100)Current100200
Fair Value:
Fixed maturities, available-for-sale:
U.S. Treasury obligations$257 $249 $241 $233 $226 
U.S. Government-sponsored enterprise obligations20 20 19 18 18 
State and municipal bonds495 475 456 437 418 
Corporate debt1,840 1,783 1,728 1,675 1,624 
Asset-backed securities1,206 1,173 1,140 1,107 1,074 
Total fixed maturities, available-for-sale$3,818 $3,700 $3,584 $3,470 $3,360 
Duration:
Fixed maturities, available-for-sale:
U.S. Treasury obligations2.682.622.562.512.46
U.S. Government-sponsored enterprise obligations3.153.193.253.293.29
State and municipal bonds4.004.084.184.324.42
Corporate debt3.253.253.233.183.12
Asset-backed securities2.762.892.973.053.10
Total fixed maturities, available-for-sale3.153.203.223.243.23

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Interest Rate Shift in Basis Points
December 31, 2023
($ in millions)(200)(100)Current100200
Fair Value:
Fixed maturities, available-for-sale:
U.S. Treasury obligations$258 $251 $244 $237 $230 
U.S. Government-sponsored enterprise obligations20 19 19 18 18 
State and municipal bonds492 473 454 436 418 
Corporate debt1,865 1,807 1,751 1,697 1,645 
Asset-backed securities1,090 1,058 1,026 995 963 
Total fixed maturities, available-for-sale$3,725 $3,608 $3,494 $3,383 $3,274 
Duration:
Fixed maturities, available-for-sale:
U.S. Treasury obligations2.952.882.822.762.70
U.S. Government-sponsored enterprise obligations3.463.463.413.353.27
State and municipal bonds3.903.974.074.194.30
Corporate debt3.263.253.233.183.12
Asset-backed securities2.822.943.033.103.14
Total fixed maturities, available-for-sale3.193.233.253.263.25
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 June 30, 2024, 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 June 30, 2024 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
We are exposed to interest rate risk due to variability in the base rate on borrowings under our Revolving Credit Agreement and Term Loan. Borrowings under our Revolving Credit Agreement and Term Loan accrue interest at a selected SOFR base rate, adjusted by a margin. To manage our exposure to interest rate risk on any borrowings under these agreements, we entered into two Interest Rate Swaps which effectively fix the base rate on borrowings under the Revolving Credit Agreement and Term Loan to 3.187% and 3.207%, respectively. See further information regarding the Interest Rate Swaps in Note 8 of the Notes to Condensed Consolidated Financial Statements. As of June 30, 2024, the Revolving Credit Agreement and Term Loan have $125 million and $123 million in outstanding borrowings, respectively. Additional information regarding our debt is provided in Note 10 of the Notes to Consolidated Financial Statements in our December 31, 2023 report on Form 10-K.
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.
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 June 30, 2024, 92% 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
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to credit risk on our fixed income investments to an acceptable level. However, investment grade securities, in spite of 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 June 30, 2024, our premiums receivable was approximately $248 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, 2023 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 $455 million at June 30, 2024 and $467 million at December 31, 2023. 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 June 30, 2024 our expected credit losses associated with our receivables from reinsurers were nominal in amount.
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 June 30, 2024. 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.
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, 2023 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, 2023 report on Form 10-K.
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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)
April 1 - April 30, 2024— N/A— $55,902
May 1 - May 31, 2024— N/A— $55,902
June 1 - June 30, 2024— N/A— $55,903
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.
ITEM 5. OTHER INFORMATION
During the three months ended June 30, 2024, no director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.
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ITEM 6. EXHIBITS
Exhibit Number Description
ProAssurance Corporation 2024 Equity Incentive Plan, filed as an Exhibit to ProAssurance’s Registration Statement on Form S-8 (File No. 333-279628) filed on May 22, 2024 and incorporated herein by reference pursuant to SEC Rule 12b-32.*
Form of Release and Severance Compensation Agreement dated as of April 22, 2024, between ProAssurance and Robert D. Francis.
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
* Denotes a management contract or compensatory plan, contract or arrangement required to be filed as an Exhibit to this report.
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
August 8, 2024
 
/s/    Dana S. Hendricks
Dana S. Hendricks
Chief Financial Officer
(Duly authorized officer and principal financial officer)