UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2021~~2022 or


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-16533

ProAssurance Corporation

(Exact name of registrant as specified in its charter)

Delaware

63-1261433

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

100 Brookwood Place,

Birmingham,

35209

(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	PRA	New 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 ~~April 30, 2021,~~May 4, 2022, there were ~~53,953,399~~54,047,919 shares of the registrant’s common stock outstanding.

Table of Contents

Glossary of Terms and Acronyms

When the following terms and acronyms appear in the text of this report, they have the meanings indicated below.


Term			Meaning
AAD			Annual aggregate deductible

AOCI			Accumulated other comprehensive income (loss)
~~ASU~~			~~Accounting Standards Update~~
~~BEAT~~			~~Base erosion anti-abuse tax~~
Board			Board of Directors of ProAssurance Corporation
BOLI			Business owned life insurance
CARES Act			Coronavirus Aid, Relief and Economic Security Act

Council of Lloyd's			The governing body for Lloyd's of London
CODM			Chief Operating Decision Maker


COVID-19			Coronavirus Disease 2019
DDR			Death, disability and retirement
DPAC			Deferred policy acquisition costs
Eastern Re			Eastern Re, LTD, S.P.C.
EBUB			Earned but unbilled premium
ECO/XPL			Extra-contractual obligations/excess of policy limit claims

FAL			Funds at Lloyd's
FASB			Financial Accounting Standards Board

FHLB			Federal Home Loan Bank
FHLMC			Federal Home Loan Mortgage Corporation
FNMA			Federal National Mortgage Association
GAAP			Generally accepted accounting principles in the United States of America

GNMA			Government National Mortgage Association
HCPL			Healthcare professional liability
IBNR			Incurred but not reported
Inova Re			Inova Re, LTD, S.P.C.
IRS			Internal Revenue Service

LIBOR			London Interbank Offered Rate
LLC			Limited liability company
Lloyd's			Lloyd's of London market
LP			Limited partnership

Medical Technology Liability			Medical technology and life sciences products liability

Mortgage Loans			Two ten-year mortgage loans ~~collectively~~ with an original borrowing ~~amount~~amounts of approximately ~~$40~~$18 million and approximately $23 million, each entered into by a subsidiary of ProAssurance

NAV			Net asset value

NOL			Net operating loss

NORCAL			NORCAL Insurance Company, formally known as NORCAL Mutual Insurance Company
NRSRO			Nationally recognized statistical rating organization
NYSE			New York Stock Exchange
OCI			Other comprehensive income (loss)


PCAOB			Public Company Accounting Oversight Board


~~PDR~~PPM RRG			~~Premium deficiency reserve~~Preferred Physicians Medical Risk Retention Group, a Mutual Insurance Company


Revolving Credit Agreement			ProAssurance's $250 million revolving credit agreement
ROE			Return on equity
ROU			Right-of-use


SEC			Securities and Exchange Commission
SPA			Special Purpose Arrangement
SPC			Segregated portfolio cell

Specialty P&C			Specialty Property and Casualty

Table of Contents


Term			Meaning
Syndicate 1729			Lloyd's of London Syndicate 1729
Syndicate 6131			Lloyd's of London Syndicate 6131, a Special Purpose Arrangement with Lloyd's of London Syndicate 1729
Syndicate Credit Agreement			Unconditional revolving credit agreement with the Premium Trust Fund of Syndicate 1729

TCJA			Tax Cuts and Jobs Act H.R.1 of 2017
U.K.			United Kingdom of Great Britain and Northern Ireland
ULAE			Unallocated loss adjustment ~~expense~~expenses
VIE			Variable interest entity
VOBA			Value of business acquired

Table of Contents

Caution Regarding Forward-Looking Statements

Any statements in this Form 10-Q that are not historical facts are specifically identified as forward-looking statements. These statements are based upon our estimates and anticipation of future events and are subject to significant risks, assumptions and uncertainties that could cause actual results to vary materially from the expected results described in the forward-looking statements. Forward-looking statements are identified by words such as, but not limited to, "anticipate," "believe," "estimate," "expect," "hope," "hopeful," "intend," "likely," "may," "optimistic," "possible," "potential," "preliminary," "project," "should," "will" and other analogous expressions. There are numerous factors that could cause our actual results to differ materially from those in the forward-looking statements. Thus, sentences and phrases that we use to convey our view of future events and trends are expressly designated as forward-looking statements as are sections of this Form 10-Q that are identified as giving our outlook on future business.

Forward-looking statements relating to our business include among other things: statements concerning future liquidity and capital requirements, investment valuation and performance, return on equity, financial ratios, net income, premiums, losses and loss reserve, premium rates and retention of current business, competition and market conditions, the expansion of product lines, the development or acquisition of business in new geographical areas, the pricing or availability of acceptable reinsurance, actions by regulators and rating agencies, court actions, legislative actions, payment or performance of obligations under indebtedness, payment of dividends and other matters.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following factors that could affect the actual outcome of future events:


l			changes in general economic conditions, including the impact of inflation or deflation and unemployment;
l			our ability to maintain our dividend payments;
l			regulatory, legislative and judicial actions or decisions that could affect our business plans or operations, including changes in interpretations of certain coverages as a result of COVID-19;
l			the enactment or repeal of tort reforms;
l			formation 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;
l			changes in the interest and tax rate ~~environment, including the actions taken by the federal government and Federal Reserve in response to COVID-19;~~environment;
l			resolution of uncertain tax matters and changes in tax laws, including the impact of the CARES Act;
l			changes in laws or government regulations regarding financial markets or market activity that may affect our business;
l			changes 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;
l			performance of financial markets affecting the fair value of our investments or making it difficult to determine the value of our investments;
l			changes in requirements or accounting policies and practices that may be adopted by our regulatory agencies, the FASB, the SEC, the PCAOB or the NYSE that may affect our business;
l			changes in laws or government regulations affecting the financial services industry, the property and casualty insurance industry or particular insurance lines underwritten by our subsidiaries or by ~~Syndicates 1729 and 6131;~~Syndicate 1729;
l			the 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;
l			consolidation 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;
l			the effect of cyclical insurance industry trends on our underwriting, including demand and pricing in the insurance and reinsurance markets in which we operate;
l			uncertainties inherent in the estimate of our loss and loss adjustment expense reserve and reinsurance recoverable;
l			changes in the availability, cost, quality or collectability of insurance/reinsurance;
l			the results of litigation, including pre- or post-trial motions, trials and/or appeals we undertake;
l			effects on our claims costs from mass tort litigation that are different from that anticipated by us;
l			allegations of bad faith which may arise from our handling of any particular claim, including failure to settle;

~~Table~~ of ~~Contents~~


l			loss or consolidation of independent agents, agencies, brokers or brokerage firms;
l			changes in our organization, compensation and benefit plans;

Table of Contents


l			changes in the business or competitive environment may limit the effectiveness of our business strategy and impact our revenues;
l			our ability to retain and recruit senior management and other qualified personnel;
l			the availability, integrity and security of our technology infrastructure orand that of our third-party providers, ~~of technology infrastructure,~~ including any susceptibility to cyber-attacks which might result in a loss of information, operating capability or ~~operating capability;~~actual monetary loss;
l			the impact of a catastrophic event, including the ~~recent~~ COVID-19 pandemic, as it relates to our business and insurance operations, investment results, Lloyd's Syndicates and our insured risks;
l			the impact of the ongoing COVID-19 pandemic ~~and related economic conditions~~ on our premium volume, loss reserves, investment portfolio, asset valuations, business operations and workforce;
l			the impact of a catastrophic man-made event, such as acts of terrorism, acts of war and civil and political unrest;
l			the effects of terrorism-related insurance legislation and laws;
l			guaranty funds and other state assessments;
l			our ability to achieve continued growth through expansion into new markets or through acquisitions or business combinations;
l			failure to successfully integrate NORCAL to achieve expected results or synergies;
l			changes to the ratings assigned by rating agencies to our holding company or insurance subsidiaries, individually or as a group;
l			provisions in our charter documents, Delaware law and state insurance laws may impede attempts to replace or remove management or may impede a takeover;
l			state insurance restrictions may prohibit assets held by our insurance subsidiaries, including cash and investment securities, from being used for general corporate purposes;
l			taxing authorities can take exception to our tax positions and cause us to incur significant amounts of legal and accounting costs and, if our defense is not successful, additional tax costs, including interest and penalties; and
l			expected benefits from completed ~~and proposed~~ acquisitions may not be achieved or may be delayed longer than expected due to business disruption; loss of customers, employees or key agents; increased operating costs or inability to achieve cost savings and synergies; and assumption of greater than expected liabilities, among other reasons.
Additional risks, assumptions and uncertainties that could arise from our membership in the Lloyd's market and our participation in certain Lloyd's Syndicates include, but are not limited to, the following:
l			members of Lloyd's are subject to levies by the Council of Lloyd's based on a percentage of the member's underwriting capacity, currently a maximum of 3%5%, but can be increased by Lloyd's;
l			Syndicate results can be affected by decisions made by the Council of Lloyd's which the management of Syndicate 1729 ~~and Syndicate 6131 have~~has little ability to control, such as a decision to not approve the business plan of Syndicate 1729, ~~or Syndicate 6131,~~ or a decision to increase the capital required to continue operations, and by our obligation to pay levies to Lloyd's;
l			Lloyd's insurance and reinsurance relationships and distribution channels could be disrupted or Lloyd's trading licenses could be revoked, making it more difficult for a Lloyd's Syndicate to distribute and market its products;
l			rating agencies could downgrade their ratings of Lloyd's as a whole; and
l			Syndicate ~~1729 and Syndicate 6131~~ operations are dependent on a small, specialized management team, and the loss of their services could adversely affect the Syndicate’s business. The inability to identify, hire and retain other highly qualified personnel in the future could adversely affect the quality and profitability of Syndicate 1729’s ~~or Syndicate 6131's~~ business.

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

~~Table~~ of ~~Contents~~

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.

Table of Contents


	TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS

	CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - ~~March~~MARCH 31, ~~2021~~2022 AND DECEMBER 31, ~~2020~~2021	87

	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (UNAUDITED) - THREE MONTHS ENDED MARCH 31, ~~2021~~2022 AND ~~2020~~2021	98

	CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) - THREE MONTHS ENDED MARCH 31, ~~2021~~2022 AND ~~2020~~2021	109

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - THREE MONTHS ENDED MARCH 31, ~~2021~~2022 AND ~~2020~~2021	1110

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	1311

	BASIS OF PRESENTATION	1311

	FAIR VALUE MEASUREMENT	1512
	INVESTMENTS	2320
	~~RETROACTIVE INSURANCE CONTRACTS~~	30
	INCOME TAXES	3027
	~~GOODWILL~~	31
	RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES	3228
	COMMITMENTS AND CONTINGENCIES	3429
	~~LEASES~~	35
	DEBT	3630

	SHAREHOLDERS' EQUITY	3731
	VARIABLE INTEREST ENTITIES	3832
	EARNINGS (LOSS) PER SHARE	3832
	SEGMENT INFORMATION	3933
	~~SUBSEQUENT EVEN~~TBENEFIT PLANS	4336


ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4437

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	9781

ITEM 4.	CONTROLS AND PROCEDURES	~~100~~84

PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	~~100~~84
ITEM 1A.	RISK FACTORS	~~100~~84
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	~~100~~84
ITEM 6.	EXHIBITS	~~101~~85
SIGNATURE		~~102~~86

Table of Contents

ProAssurance Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Assets	Assets					Assets
Investments	Investments					Investments
Fixed maturities, available-for-sale, at fair value (amortized cost, $2,509,623 and $2,361,575, respectively; allowance for expected credit losses, NaN as of March 31, 2021 and $552 as of December 31, 2020)		$	2,563,273	$	2,457,531
Fixed maturities, trading, at fair value (cost, $44,819 and $47,907, respectively)		45,151		48,456
Equity investments, at fair value (cost, $74,083 and $113,709, respectively)		77,537		120,101
Fixed maturities, available-for-sale, at fair value (amortized cost, $3,861,574 and $3,814,847, respectively; allowance for expected credit losses, none as of each respective period end)						Fixed maturities, available-for-sale, at fair value (amortized cost, $3,861,574 and $3,814,847, respectively; allowance for expected credit losses, none as of each respective period end)	$	3,700,821	$	3,833,722
Fixed maturities, trading, at fair value (cost, $49,986 and $43,914, respectively)						Fixed maturities, trading, at fair value (cost, $49,986 and $43,914, respectively)	49,421		43,670
Equity investments, at fair value (cost, $211,962 and $211,356, respectively)						Equity investments, at fair value (cost, $211,962 and $211,356, respectively)	203,925		214,807
Short-term investments	Short-term investments	280,993		337,813		Short-term investments	233,345		216,987
Business owned life insurance	Business owned life insurance	66,932		67,847		Business owned life insurance	80,879		81,767
Investment in unconsolidated subsidiaries	Investment in unconsolidated subsidiaries	299,360		310,529		Investment in unconsolidated subsidiaries	321,402		335,576
Other investments (at fair value, $69,251 and $44,116, respectively, otherwise at cost or amortized cost)		71,621		47,068
Other investments (at fair value, $100,678 and $98,611, respectively, otherwise at cost or amortized cost)						Other investments (at fair value, $100,678 and $98,611, respectively, otherwise at cost or amortized cost)	103,876		101,794
Total Investments	Total Investments	3,404,867		3,389,345		Total Investments	4,693,669		4,828,323
Cash and cash equivalents	Cash and cash equivalents	214,835		215,782		Cash and cash equivalents	72,101		143,602

Premiums receivable, net		210,560		201,395
Premiums receivable (allowance for expected credit losses, $7,711 as of March 31, 2022 and $7,436 as of December 31, 2021)						Premiums receivable (allowance for expected credit losses, $7,711 as of March 31, 2022 and $7,436 as of December 31, 2021)	260,929		241,095
Receivable from reinsurers on paid losses and loss adjustment expenses	Receivable from reinsurers on paid losses and loss adjustment expenses	10,451		14,370		Receivable from reinsurers on paid losses and loss adjustment expenses	14,310		14,599
Receivable from reinsurers on unpaid losses and loss adjustment expenses	Receivable from reinsurers on unpaid losses and loss adjustment expenses	393,420		385,087		Receivable from reinsurers on unpaid losses and loss adjustment expenses	464,780		451,741
Prepaid reinsurance premiums	Prepaid reinsurance premiums	34,802		35,885		Prepaid reinsurance premiums	32,198		24,571
Deferred policy acquisition costs	Deferred policy acquisition costs	47,616		47,196		Deferred policy acquisition costs	65,491		58,940
Deferred tax asset, net	Deferred tax asset, net	67,699		57,105		Deferred tax asset, net	157,214		117,613
Real estate, net	Real estate, net	30,594		30,529		Real estate, net	30,117		30,342
Operating lease ROU assets	Operating lease ROU assets	18,219		19,013		Operating lease ROU assets	17,989		19,595
Intangible assets, net	Intangible assets, net	64,173		65,720		Intangible assets, net	71,717		73,336
Goodwill	Goodwill	49,610		49,610		Goodwill	49,610		49,610
Other assets	Other assets	127,692		143,766		Other assets	128,473		138,110
Total Assets	Total Assets	$	4,674,538	$	4,654,803	Total Assets	$	6,058,598	$	6,191,477
Liabilities and Shareholders' Equity	Liabilities and Shareholders' Equity					Liabilities and Shareholders' Equity
Liabilities	Liabilities					Liabilities
Policy liabilities and accruals	Policy liabilities and accruals					Policy liabilities and accruals
Reserve for losses and loss adjustment expenses	Reserve for losses and loss adjustment expenses	$	2,438,250	$	2,417,179	Reserve for losses and loss adjustment expenses	$	3,603,246	$	3,579,940
Unearned premiums	Unearned premiums	375,246		361,547		Unearned premiums	486,693		433,961
Reinsurance premiums payable	Reinsurance premiums payable	31,039		39,998		Reinsurance premiums payable	24,891		22,627
Total Policy Liabilities		2,844,535		2,818,725
Total Policy Liabilities and Accruals						Total Policy Liabilities and Accruals	4,114,830		4,036,528

Operating lease liabilities	Operating lease liabilities	19,168		20,116		Operating lease liabilities	19,190		20,844
Other liabilities	Other liabilities	205,097		182,039		Other liabilities	217,280		280,732
Debt less unamortized debt issuance costs	Debt less unamortized debt issuance costs	284,422		284,713		Debt less unamortized debt issuance costs	425,530		424,986
Total Liabilities	Total Liabilities	3,353,222		3,305,593		Total Liabilities	4,776,830		4,763,090
Shareholders' Equity	Shareholders' Equity					Shareholders' Equity
Common shares (par value $0.01 per share, 100,000,000 shares authorized, 63,277,721 and 63,217,708 shares issued, respectively)		633		632
Common shares (par value $0.01 per share, 100,000,000 shares authorized, 63,371,520 and 63,308,741 shares issued, respectively)						Common shares (par value $0.01 per share, 100,000,000 shares authorized, 63,371,520 and 63,308,741 shares issued, respectively)	634		633
Additional paid-in capital	Additional paid-in capital	388,924		388,150		Additional paid-in capital	393,433		392,941
Accumulated other comprehensive income (loss) (net of deferred tax expense (benefit) of $11,065 and $19,386, respectively)		41,522		75,227
Accumulated other comprehensive income (loss) (net of deferred tax expense (benefit) of ($33,755) and $4,423, respectively)						Accumulated other comprehensive income (loss) (net of deferred tax expense (benefit) of ($33,755) and $4,423, respectively)	(124,566)		16,284
Retained earnings	Retained earnings	1,306,199		1,301,163		Retained earnings	1,428,229		1,434,491
Treasury shares, at cost (9,325,180 shares as of each respective period end)	Treasury shares, at cost (9,325,180 shares as of each respective period end)	(415,962)		(415,962)		Treasury shares, at cost (9,325,180 shares as of each respective period end)	(415,962)		(415,962)
Total Shareholders' Equity	Total Shareholders' Equity	1,321,316		1,349,210		Total Shareholders' Equity	1,281,768		1,428,387
Total Liabilities and Shareholders' Equity	Total Liabilities and Shareholders' Equity	$	4,674,538	$	4,654,803	Total Liabilities and Shareholders' Equity	$	6,058,598	$	6,191,477

See accompanying notes.

Table of Contents

ProAssurance Corporation and Subsidiaries

Condensed Consolidated Statements of Changes in Capital (Unaudited)

(In thousands)

ProAssurance Shareholders' Equity
Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total
Balance at December 31, 2020 $ 632 $ 388,150 $ 75,227 $ 1,301,163 $ (415,962) $ 1,349,210
Common shares issued for compensation and effect of shares reissued to stock purchase plan — 8 — — — 8
Share-based compensation — 1,024 — — — 1,024
Net effect of restricted and performance shares issued 1 (258) — — — (257)
Dividends to shareholders — — — (2,699) — (2,699)
Other comprehensive income (loss) — — (33,705) — — (33,705)
Net income (loss) — — — 7,735 — 7,735
Balance at March 31, 2021 $ 633 $ 388,924 $ 41,522 $ 1,306,199 $ (415,962) $ 1,321,316


	ProAssurance Shareholders' Equity
	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock		Total










Balance at December 31, 2021	$	633	$	392,941	$	16,284	$	1,434,491	$	(415,962)	$	1,428,387

Common shares issued for compensation and effect of shares reissued to stock purchase plan	—		7		—		—		—		7
Share-based compensation	—		1,342		—		—		—		1,342
Net effect of restricted and performance shares issued	1		(857)		—		—		—		(856)
Dividends to shareholders	—		—		—		(2,702)		—		(2,702)



Other comprehensive income (loss)	—		—		(140,850)		—		—		(140,850)
Net income (loss)	—		—		—		(3,560)		—		(3,560)
Balance at March 31, 2022	$	634	$	393,433	$	(124,566)	$	1,428,229	$	(415,962)	$	1,281,768


		Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock		Total			Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock		Total
Balance at December 31, 2019		$	631	$	384,551	$	36,955	$	1,505,738	$	(415,962)	$	1,511,913
Cumulative-effect adjustment- ASU 2016-13 adoption		—		—		—		(4,076)		—		(4,076)
Balance at December 31, 2020														Balance at December 31, 2020	$	632	$	388,150	$	75,227	$	1,301,163	$	(415,962)	$	1,349,210

Common shares issued for compensation and effect of shares reissued to stock purchase plan	Common shares issued for compensation and effect of shares reissued to stock purchase plan	—		33		—		—		—		33		Common shares issued for compensation and effect of shares reissued to stock purchase plan	—		8		—		—		—		8
Share-based compensation	Share-based compensation	—		1,017		—		—		—		1,017		Share-based compensation	—		1,024		—		—		—		1,024
Net effect of restricted and performance shares issued	Net effect of restricted and performance shares issued	1		(869)		—		—		—		(868)		Net effect of restricted and performance shares issued	1		(258)		—		—		—		(257)
Dividends to shareholders	Dividends to shareholders	—		—		—		(16,691)		—		(16,691)		Dividends to shareholders	—		—		—		(2,699)		—		(2,699)
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		(41,865)		—		—		(41,865)		Other comprehensive income (loss)	—		—		(33,705)		—		—		(33,705)
Net income (loss)	Net income (loss)	—		—		—		(21,954)		—		(21,954)		Net income (loss)	—		—		—		7,735		—		7,735
Balance at March 31, 2020		$	632	$	384,732	$	(4,910)	$	1,463,017	$	(415,962)	$	1,427,509
Balance at March 31, 2021														Balance at March 31, 2021	$	633	$	388,924	$	41,522	$	1,306,199	$	(415,962)	$	1,321,316

See accompanying notes.

Table of Contents

ProAssurance Corporation and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)

(In thousands, except per share data)


		Three Months Ended March 31						Three Months Ended March 31
			2021		2020				2022		2021
Revenues	Revenues						Revenues
Net premiums earned	Net premiums earned		$	187,358	$	203,855	Net premiums earned		$	265,711	$	187,358
Net investment income	Net investment income		15,017		20,830		Net investment income		20,443		15,017
Equity in earnings (loss) of unconsolidated subsidiaries	Equity in earnings (loss) of unconsolidated subsidiaries		6,788		(1,562)		Equity in earnings (loss) of unconsolidated subsidiaries		7,620		6,788
Net realized investment gains (losses):
Impairment losses			0		(1,817)
Portion of impairment losses recognized in other comprehensive income (loss) before taxes			0		654
Net impairment losses recognized in earnings			0		(1,163)
Other net realized investment gains (losses)			8,849		(27,510)
Total net realized investment gains (losses)			8,849		(28,673)
Net investment gains (losses):							Net investment gains (losses):

Other net investment gains (losses)							Other net investment gains (losses)		(13,506)		8,849
Total net investment gains (losses)							Total net investment gains (losses)		(13,506)		8,849
Other income	Other income		2,005		2,251		Other income		2,804		2,005
Total revenues	Total revenues		220,017		196,701		Total revenues		283,072		220,017
Expenses	Expenses						Expenses

Net losses and loss adjustment expenses	Net losses and loss adjustment expenses		149,785		164,832		Net losses and loss adjustment expenses		209,423		149,785
Underwriting, policy acquisition and operating expenses:	Underwriting, policy acquisition and operating expenses:						Underwriting, policy acquisition and operating expenses:
Operating expense	Operating expense		31,522		34,773		Operating expense		38,810		31,522
DPAC amortization	DPAC amortization		24,929		27,283		DPAC amortization		32,966		24,929
SPC U.S. federal income tax expense	SPC U.S. federal income tax expense		356		222		SPC U.S. federal income tax expense		642		356
SPC dividend expense (income)	SPC dividend expense (income)		1,742		(508)		SPC dividend expense (income)		2,367		1,742
Interest expense	Interest expense		3,212		4,129		Interest expense		4,441		3,212

Total expenses	Total expenses		211,546		230,731		Total expenses		288,649		211,546

Income (loss) before income taxes	Income (loss) before income taxes		8,471		(34,030)		Income (loss) before income taxes		(5,577)		8,471
Provision for income taxes:	Provision for income taxes:						Provision for income taxes:
Current expense (benefit)	Current expense (benefit)		3,008		(1,852)		Current expense (benefit)		(607)		3,008
Deferred expense (benefit)	Deferred expense (benefit)		(2,272)		(10,224)		Deferred expense (benefit)		(1,410)		(2,272)
Total income tax expense (benefit)	Total income tax expense (benefit)		736		(12,076)		Total income tax expense (benefit)		(2,017)		736
Net income (loss)	Net income (loss)		7,735		(21,954)		Net income (loss)		(3,560)		7,735
Other comprehensive income (loss), after tax, net of reclassification adjustments	Other comprehensive income (loss), after tax, net of reclassification adjustments		(33,705)		(41,865)		Other comprehensive income (loss), after tax, net of reclassification adjustments		(140,850)		(33,705)
Comprehensive income (loss)	Comprehensive income (loss)		$	(25,970)	$	(63,819)	Comprehensive income (loss)		$	(144,410)	$	(25,970)
Earnings (loss) per share
Earnings (loss) per share:							Earnings (loss) per share:
Basic	Basic		$	0.14	$	(0.41)	Basic		$	(0.07)	$	0.14
Diluted	Diluted		$	0.14	$	(0.41)	Diluted		$	(0.07)	$	0.14
Weighted average number of common shares outstanding:	Weighted average number of common shares outstanding:						Weighted average number of common shares outstanding:
Basic	Basic		53,918		53,808		Basic		54,012		53,918
Diluted	Diluted		53,998		53,885		Diluted		54,143		53,998
Cash dividends declared per common share	Cash dividends declared per common share		$	0.05	$	0.31	Cash dividends declared per common share		$	0.05	$	0.05

See accompanying notes.

109

Table of Contents

ProAssurance Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Three Months Ended March 31
2021 2020
Operating Activities
Net income (loss) $ 7,735 $ (21,954)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization, net of accretion 6,722 4,734
(Increase) decrease in cash surrender value of BOLI 915 (457)
Net realized investment (gains) losses (8,849) 28,673
Share-based compensation 1,031 1,011
Deferred income tax expense (benefit) (2,272) (10,224)
Policy acquisition costs, net of amortization (net deferral) (420) (599)
Equity in (earnings) loss of unconsolidated subsidiaries (6,788) 1,562
Distributed earnings from unconsolidated subsidiaries 5,658 1,585
Other (661) (703)
Other changes in assets and liabilities:
Premiums receivable (9,165) (22,442)
Reinsurance related assets and liabilities (12,290) (4,623)
Other assets 13,151 14,268
Reserve for losses and loss adjustment expenses 21,071 (15,478)
Unearned premiums 13,699 30,202
Other liabilities (837) (17,604)
Net cash provided (used) by operating activities 28,700 (12,049)
Investing Activities
Purchases of:
Fixed maturities, available-for-sale (342,197) (227,503)
Equity investments (38,232) (23,136)
Other investments (33,252) (6,065)
Investment in unconsolidated subsidiaries (5,319) (17,180)
Proceeds from sales or maturities of:
Fixed maturities, available-for-sale 195,266 180,698
Equity investments 82,048 157,652
Other investments 12,026 6,026
Net sales or (purchases) of fixed maturities, trading 3,163 (407)
Return of invested capital from unconsolidated subsidiaries 17,618 1,481
Net sales or maturities (purchases) of short-term investments 56,836 (7,441)
Unsettled security transactions, net change 27,025 12,656
Purchases of capital assets (1,243) (2,750)
Other 0 (2,206)
Net cash provided (used) by investing activities (26,261) 71,825
Continued on the following page.

~~Table~~ of ~~Contents~~


		Three Months Ended March 31					Three Months Ended March 31
		2021		2020			2022		2021
Continued from the previous page.
Operating Activities						Operating Activities
Net income (loss)						Net income (loss)	$	(3,560)	$	7,735
Adjustments to reconcile net income (loss) to net cash provided by operating activities:						Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization, net of accretion						Depreciation and amortization, net of accretion	10,350		6,722

(Increase) decrease in cash surrender value of BOLI						(Increase) decrease in cash surrender value of BOLI	888		915
Net investment (gains) losses						Net investment (gains) losses	13,506		(8,849)
Share-based compensation						Share-based compensation	1,343		1,031
Deferred income tax expense (benefit)						Deferred income tax expense (benefit)	(1,410)		(2,272)
Policy acquisition costs, net of amortization (net deferral)						Policy acquisition costs, net of amortization (net deferral)	(6,551)		(420)
Equity in (earnings) loss of unconsolidated subsidiaries						Equity in (earnings) loss of unconsolidated subsidiaries	(7,620)		(6,788)
Distributed earnings from unconsolidated subsidiaries						Distributed earnings from unconsolidated subsidiaries	14,176		5,658

Other, net						Other, net	(1,056)		(661)
Change in:						Change in:
Premiums receivable						Premiums receivable	(19,834)		(9,165)
Reinsurance related assets and liabilities						Reinsurance related assets and liabilities	(18,113)		(12,290)
Other assets						Other assets	12,367		13,151
Reserve for losses and loss adjustment expenses						Reserve for losses and loss adjustment expenses	23,306		21,071
Unearned premiums						Unearned premiums	52,732		13,699
Other liabilities						Other liabilities	(56,259)		(837)
Net cash provided (used) by operating activities						Net cash provided (used) by operating activities	14,265		28,700
Investing Activities						Investing Activities
Purchases of:						Purchases of:
Fixed maturities, available-for-sale						Fixed maturities, available-for-sale	(231,557)		(342,197)
Equity investments						Equity investments	(28,129)		(38,232)
Other investments						Other investments	(12,757)		(33,252)

Investment in unconsolidated subsidiaries						Investment in unconsolidated subsidiaries	(9,685)		(5,319)
Proceeds from sales or maturities of:						Proceeds from sales or maturities of:
Fixed maturities, available-for-sale						Fixed maturities, available-for-sale	176,820		195,266
Equity investments						Equity investments	27,305		82,048
Other investments						Other investments	9,205		12,026
Net sales or (purchases) of fixed maturities, trading						Net sales or (purchases) of fixed maturities, trading	(6,119)		3,163
Return of invested capital from unconsolidated subsidiaries						Return of invested capital from unconsolidated subsidiaries	17,302		17,618
Net sales or maturities (purchases) of short-term investments						Net sales or maturities (purchases) of short-term investments	(16,632)		56,836
Unsettled security transactions, net change						Unsettled security transactions, net change	(2,076)		27,025
Purchases of capital assets						Purchases of capital assets	(811)		(1,243)

Net cash provided (used) by investing activities						Net cash provided (used) by investing activities	(77,134)		(26,261)

Financing Activities	Financing Activities					Financing Activities

Repayments of Mortgage Loans	Repayments of Mortgage Loans	(390)		(376)		Repayments of Mortgage Loans	—		(390)

Dividends to shareholders	Dividends to shareholders	(2,686)		(16,714)		Dividends to shareholders	(2,691)		(2,686)
Capital contribution received from (return of capital to) external segregated portfolio cell participants	Capital contribution received from (return of capital to) external segregated portfolio cell participants	(53)		204		Capital contribution received from (return of capital to) external segregated portfolio cell participants	(5,085)		(53)

Other	Other	(257)		(1,090)		Other	(856)		(257)
Net cash provided (used) by financing activities	Net cash provided (used) by financing activities	(3,386)		(17,976)		Net cash provided (used) by financing activities	(8,632)		(3,386)
Increase (decrease) in cash and cash equivalents	Increase (decrease) in cash and cash equivalents	(947)		41,800		Increase (decrease) in cash and cash equivalents	(71,501)		(947)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	215,782		175,369		Cash and cash equivalents at beginning of period	143,602		215,782
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	214,835	$	217,169	Cash and cash equivalents at end of period	$	72,101	$	214,835
Significant Non-Cash Transactions	Significant Non-Cash Transactions					Significant Non-Cash Transactions
Dividends declared and not yet paid	Dividends declared and not yet paid	$	2,699	$	16,691	Dividends declared and not yet paid	$	2,702	$	2,699

See accompanying notes.

1210

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of ProAssurance Corporation, ~~and~~ its wholly owned subsidiaries and VIEs in which ProAssurance is the primary beneficiary (ProAssurance, PRA or the Company). See Note 9 for more information on ProAssurance's VIE interests. The financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included. ProAssurance’s results for the three months ended March 31, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes contained in ProAssurance’s December 31, ~~2020~~2021 report on Form 10-K. In connection with its preparation of the Condensed Consolidated Financial Statements, ProAssurance evaluated events that occurred subsequent to March 31, 2021 for recognition or disclosure in its financial statements and notes to financial statements. Please see Note 15 for additional information.

ProAssurance operates in 5 reportable segments as follows: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance, Lloyd's Syndicates and Corporate. For more information on the Company's segment reporting, including the nature of products and services provided and financial information by segment, refer to Note ~~14.~~11.

~~Certain insignificant prior~~During the first quarter of 2022, ProAssurance revised its estimate of ULAE as a result of substantially integrating NORCAL into the Specialty P&C segment operations. ULAE are costs that cannot be attributed to processing a specific claim and are allocated to net losses and loss adjustment expenses on the Condensed Consolidated Statement of Income and Comprehensive Income. ProAssurance accounted for this change prospectively as a change in accounting estimate. Changes in accounting estimate are reflected prospectively beginning in the period the change in estimate occurs. The change in the Company's estimate of ULAE resulted in an increase of $7.3 million to underwriting, policy acquisition and operating expenses with an offsetting decrease of $7.3 million to net losses and loss adjustment expenses when compared to amounts that would have been ~~reclassified to conform to~~estimated as ULAE under the ~~current period presentation.~~Company's previous methodology. There was no impact on total expenses or net income (loss) in the Company's Condensed Consolidated Statement of Income and Comprehensive Income for the three months ended March 31, 2022 as a result of this change in the estimate.

Accounting Policies

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosures related to these amounts at the date of the financial statements. The Company evaluates these estimates and assumptions on an ongoing basis based on current and historical developments, market conditions, industry trends and other information that the Company believes to be reasonable under the circumstances, including the potential impacts of the COVID-19 pandemic (see "Item 1A, Risk Factors" in ProAssurance's December 31, ~~2020~~2021 report on Form 10-K for additional information). The Company can make no assurance that actual results will conform to its estimates and assumptions; reported results of operations may be materially affected by changes in these estimates and assumptions.

The significant accounting policies followed by ProAssurance in making estimates that materially affect financial reporting are summarized in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, ~~2020~~2021 report on Form 10-K.

Accounting Changes Adopted

~~Clarifying~~ProAssurance has not adopted any accounting changes during the ~~Interactions between Investments - Equity Securities, Investments - Equity Method and Joint Ventures, and Derivatives and Hedging (ASU 2020-01)~~

~~Effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, the FASB amended guidance~~three months ended March 31, 2022 that clarifies the accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. ProAssurance adopted the guidance beginning January 1, 2021, and adoption had noa material effect on ~~ProAssurance's~~its results of operations, financial position or cash flows.

Accounting Changes Not Yet Adopted

ProAssurance is not aware of any accounting changes not yet adopted as of March 31, ~~2021~~2022 that could have a material impact on its results of operations, financial position or cash flows.

~~Table of Contents~~

~~ProAssurance Corporation and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~March 31, 2021~~

~~Credit Losses~~

ProAssurance's premiums receivable and reinsurance receivables are exposed to credit losses but to-date have not experienced any significant amount of credit losses. See Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K for further information on how the Company estimates and measures expected credit losses on its premiums receivable and reinsurance receivables. ProAssurance's available-for-sale fixed maturity investments are also exposed to credit losses. See Note 3 for information on ProAssurance's allowance for expected credit losses on it's available-for-sale fixed maturities.

ProAssurance’s premiums receivable on its Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 is reported net of the related allowance for expected credit losses of $6.1 million in each period. The following tables present a roll forward of the allowance for expected credit losses related to the Company's premiums receivable for the three months ended March 31, 2021 and 2020.

(In thousands) Premiums Receivable, Net Allowance for Expected Credit Losses
Balance, December 31, 2020 $ 201,395 $ 6,131
Provision for expected credit losses 105
Write offs charged against the allowance (232)
Recoveries of amounts previously written off 78
Balance, March 31, 2021 $ 210,560 $ 6,082

(In thousands) Premiums Receivable, Net Allowance for Expected Credit Losses
Balance, December 31, 2019 $ 249,540 $ 1,590
Cumulative-effect adjustment, before tax* 5,160
Provision for expected credit losses 88
Write offs charged against the allowance (689)
Recoveries of amounts previously written off 48
Balance, March 31, 2020 $ 266,822 $ 6,197
*Due to the adoption of ASU 2016-13, ProAssurance recorded a cumulative-effect adjustment to beginning retained earnings as of January 1, 2020 to increase its consolidated allowance for expected credit losses related to its premiums receivable. See Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K.

ProAssurance’s expected credit losses associated with its reinsurance receivables (related to both paid and unpaid losses) were nominal in amount as of March 31, 2021 and December 31, 2020. ProAssurance has other financial assets and off-balance-sheet commitments that are exposed to credit losses; however, expected credit losses associated with these assets and commitments were nominal in amount as of March 31, 2021 and December 31, 2020.

~~Other Liabilities~~

~~Other liabilities consisted of the following:~~

(In thousands) March 31, 2021 December 31, 2020
SPC dividends payable $ 69,732 $ 68,865
Unpaid shareholder dividends 2,699 2,694
All other 132,666 110,480
Total other liabilities $ 205,097 $ 182,039

SPC dividends payable represents the undistributed equity contractually payable to the external cell participants of SPCs operated by ProAssurance's Cayman Islands subsidiaries, Inova Re and Eastern Re.

~~Unpaid shareholder dividends represent common stock dividends declared by ProAssurance's Board that had not yet been paid as of March 31, 2021.~~

1411

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

2. Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level hierarchy has been established for valuing assets and liabilities based on how transparent (observable) the inputs are that are used to determine fair value, with the inputs considered most observable categorized as Level 1 and those that are the least observable categorized as Level 3. Hierarchy levels are defined as follows:


			Level 1:			quoted (unadjusted) market prices in active markets for identical assets and liabilities. For ProAssurance, Level 1 inputs are generally quotes for securities actively traded in exchange or over-the-counter markets.


			Level 2:			market data obtained from sources independent of the reporting entity (observable inputs). For ProAssurance, Level 2 inputs generally include quoted prices in markets that are not active, quoted prices for similar assets or liabilities, and results from pricing models that use observable inputs such as interest rates and yield curves that are generally available at commonly quoted intervals.


			Level 3:			the reporting entity’s own assumptions about market participant assumptions based on the best information available in the circumstances (non-observable inputs). For ProAssurance, Level 3 inputs are used in situations where little or no Level 1 or 2 inputs are available or are inappropriate given the particular circumstances. Level 3 inputs include results from pricing models for which some or all of the inputs are not observable, discounted cash flow methodologies, single non-binding broker quotes and adjustments to externally quoted prices that are based on management judgment or estimation.

Fair values of assets measured at fair value on a recurring basis as of March 31, ~~2021~~2022 and December 31, ~~2020~~2021 are shown in the following tables. Where applicable, the tables also indicate the fair value hierarchy of the valuation techniques utilized to determine those fair values. For some assets, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When this is the case, the asset is categorized based on the level of the most significant input to the fair value measurement. Assessments of the significance of a particular input to the fair value measurement require judgment and consideration of factors specific to the assets being valued. For more information on the valuation methodologies used regarding securities in the Level 2 and Level 3 categories, see Note 3 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2021 report on Form 10-K.

1512

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022


		March 31, 2021									March 31, 2022
		Fair Value Measurements Using						Total			Fair Value Measurements Using						Total
(In thousands)	(In thousands)	Level 1		Level 2		Level 3		Fair Value		(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:	Assets:									Assets:
Fixed maturities, available-for-sale	Fixed maturities, available-for-sale									Fixed maturities, available-for-sale
U.S. Treasury obligations	U.S. Treasury obligations	$	0	$	102,877	$	0	$	102,877	U.S. Treasury obligations	$	—	$	225,676	$	—	$	225,676
U.S. Government-sponsored enterprise obligations	U.S. Government-sponsored enterprise obligations	0		11,944		0		11,944		U.S. Government-sponsored enterprise obligations	—		16,733		—		16,733
State and municipal bonds	State and municipal bonds	0		322,465		0		322,465		State and municipal bonds	—		492,291		—		492,291
Corporate debt, multiple observable inputs	Corporate debt, multiple observable inputs	0		1,421,097		0		1,421,097		Corporate debt, multiple observable inputs	—		1,816,931		—		1,816,931
Corporate debt, limited observable inputs	Corporate debt, limited observable inputs	0		0		7,769		7,769		Corporate debt, limited observable inputs	—		—		53,325		53,325

Residential mortgage-backed securities	Residential mortgage-backed securities	0		270,059		1,489		271,548		Residential mortgage-backed securities	—		417,276		572		417,848
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	0		13,718		0		13,718		Agency commercial mortgage-backed securities	—		12,847		—		12,847
Other commercial mortgage-backed securities	Other commercial mortgage-backed securities	0		121,319		0		121,319		Other commercial mortgage-backed securities	—		222,800		582		223,382
Other asset-backed securities	Other asset-backed securities	0		282,712		7,824		290,536		Other asset-backed securities	—		433,639		8,149		441,788
Fixed maturities, trading	Fixed maturities, trading	0		45,151		0		45,151		Fixed maturities, trading	—		49,421		—		49,421
Equity investments	Equity investments									Equity investments
Financial										Financial	12,074		2,289		—		14,363
Utilities/Energy										Utilities/Energy	1,099		—		—		1,099

Industrial										Industrial	—		—		2,500		2,500
Bond funds	Bond funds	60,264		0		0		60,264		Bond funds	170,338		—		—		170,338
All other	All other	17,273		0		0		17,273		All other	15,625		—		—		15,625
Short-term investments	Short-term investments	259,075		21,918		0		280,993		Short-term investments	210,122		23,223		—		233,345
Other investments	Other investments	29		67,070		2,152		69,251		Other investments	1,789		95,449		3,440		100,678
Other assets	Other assets	0		836		0		836		Other assets	—		1,663		—		1,663
Total assets categorized within the fair value hierarchy	Total assets categorized within the fair value hierarchy	$	336,641	$	2,681,166	$	19,234	3,037,041		Total assets categorized within the fair value hierarchy	$	411,047	$	3,810,238	$	68,568	4,289,853
Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:	Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:									Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:

Investment in unconsolidated subsidiaries	Investment in unconsolidated subsidiaries							226,898		Investment in unconsolidated subsidiaries							267,125
Total assets at fair value	Total assets at fair value							$	3,263,939	Total assets at fair value							$	4,556,978

Liabilities:										Liabilities:
Other liabilities										Other liabilities	$	—	$	—	$	24,000	$	24,000
Total liabilities categorized within the fair value hierarchy										Total liabilities categorized within the fair value hierarchy	$	—	$	—	$	24,000	$	24,000

1613

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022


		December 31, 2020									December 31, 2021
		Fair Value Measurements Using						Total			Fair Value Measurements Using						Total
(In thousands)	(In thousands)	Level 1		Level 2		Level 3		Fair Value		(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:	Assets:									Assets:
Fixed maturities, available-for-sale	Fixed maturities, available-for-sale									Fixed maturities, available-for-sale
U.S. Treasury obligations	U.S. Treasury obligations	$	0	$	107,059	$	0	$	107,059	U.S. Treasury obligations	$	—	$	238,507	$	—	$	238,507
U.S. Government-sponsored enterprise obligations	U.S. Government-sponsored enterprise obligations	0		12,261		0		12,261		U.S. Government-sponsored enterprise obligations	—		20,234		—		20,234
State and municipal bonds	State and municipal bonds	0		332,920		0		332,920		State and municipal bonds	—		519,196		—		519,196
Corporate debt, multiple observable inputs	Corporate debt, multiple observable inputs	0		1,326,077		0		1,326,077		Corporate debt, multiple observable inputs	—		1,851,427		—		1,851,427
Corporate debt, limited observable inputs	Corporate debt, limited observable inputs	0		0		3,265		3,265		Corporate debt, limited observable inputs	—		—		47,129		47,129

Residential mortgage-backed securities	Residential mortgage-backed securities	0		274,509		2,032		276,541		Residential mortgage-backed securities	—		453,644		297		453,941
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	0		13,310		0		13,310		Agency commercial mortgage-backed securities	—		14,141		—		14,141
Other commercial mortgage-backed securities	Other commercial mortgage-backed securities	0		113,092		0		113,092		Other commercial mortgage-backed securities	—		231,483		—		231,483
Other asset-backed securities	Other asset-backed securities	0		266,345		6,661		273,006		Other asset-backed securities	—		451,459		6,205		457,664
Fixed maturities, trading	Fixed maturities, trading	0		48,456		0		48,456		Fixed maturities, trading	—		43,670		—		43,670
Equity investments	Equity investments									Equity investments
Financial	Financial	13,810		0		0		13,810		Financial	6,615		855		—		7,470
Utilities/Energy		564		0		0		564
Consumer oriented		1,262		0		0		1,262

Industrial	Industrial	2,240		0		0		2,240		Industrial	—		—		2,500		2,500
Bond funds	Bond funds	69,475		0		0		69,475		Bond funds	187,059		—		—		187,059
All other	All other	20,202		0		0		20,202		All other	17,778		—		—		17,778
Short-term investments	Short-term investments	307,695		30,118		0		337,813		Short-term investments	174,944		42,043		—		216,987
Other investments	Other investments	1,509		42,607		0		44,116		Other investments	1,889		95,288		1,434		98,611
Other assets	Other assets	0		329		0		329		Other assets	—		649		—		649
Total assets categorized within the fair value hierarchy	Total assets categorized within the fair value hierarchy	$	416,757	$	2,567,083	$	11,958	2,995,798		Total assets categorized within the fair value hierarchy	$	388,285	$	3,962,596	$	57,565	4,408,446
Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:	Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:									Assets carried at NAV, which approximates fair value and which are not categorized within the fair value hierarchy, reported as a part of:
Equity investments								12,548

Investment in unconsolidated subsidiaries	Investment in unconsolidated subsidiaries							233,711		Investment in unconsolidated subsidiaries							270,816
Total assets at fair value	Total assets at fair value							$	3,242,057	Total assets at fair value							$	4,679,262

Liabilities:										Liabilities:
Other liabilities										Other liabilities	$	—	$	—	$	24,000	$	24,000
Total liabilities categorized within the fair value hierarchy										Total liabilities categorized within the fair value hierarchy	$	—	$	—	$	24,000	$	24,000

The fair values for securities included in the Level 2 category, with the few exceptions described below, were developed by one of several third party, nationally recognized pricing services, including services that price only certain types of securities. Each service uses complex methodologies to determine values for securities and subject the values they develop to quality control reviews. Management selected a primary source for each type of security in the portfolio and reviewed the values provided for reasonableness by comparing data to alternate pricing services and to available market and trade data. Values that appeared inconsistent were further reviewed for appropriateness. Any value that did not appear reasonable was discussed with the service that provided the value and adjusted, if necessary. There were no material changes to the values supplied by the pricing services as of March 31, 2021 and December 31, 2020.

1714

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

~~Level 2 Valuations~~

~~Below is a summary description of the valuation methodologies primarily used by the pricing services for securities in the Level 2 category, by security type:~~

~~U.S. Treasury obligations~~ were valued based on quoted prices for identical assets, or, in markets that are not active, quotes for similar assets, taking into consideration adjustments for variations in contractual cash flows and yields to maturity.

~~U.S. Government-sponsored enterprise obligations~~ were valued using pricing models that consider current and historical market data, normal trading conventions, credit ratings and the particular structure and characteristics of the security being valued, such as yield to maturity, redemption options, and contractual cash flows. Adjustments to model inputs or model results were included in the valuation process when necessary to reflect recent regulatory, government or corporate actions or significant economic, industry or geographic events affecting the security’s fair value.

~~State and municipal bonds~~ were valued using a series of matrices that considered credit ratings, the structure of the security, the sector in which the security falls, yields and contractual cash flows. Valuations were further adjusted, when necessary, to reflect the expected effect on fair value of recent significant economic or geographic events or ratings changes.

~~Corporate debt, multiple observable inputs~~ consisted primarily of corporate bonds, but also included a small number of bank loans. The methodology used to value Level 2 corporate bonds was the same as the methodology previously described for U.S. Government-sponsored enterprise obligations. Bank loans were valued based on an average of broker quotes for the loans in question, if available. If quotes were not available, the loans were valued based on quoted prices for comparable loans or, if the loan was newly issued, by comparison to similar seasoned issues. Broker quotes were compared to actual trade prices to permit assessment of the reliability of the quotes; unreliable quotes were not considered in quoted averages.

~~Residential and commercial mortgage-backed securities~~ were valued using a pricing matrix which considers the issuer type, coupon rate and longest cash flows outstanding. The matrix used was based on the most recently available market information. Agency and non-agency collateralized mortgage obligations were both valued using models that consider the structure of the security, current and historical information regarding prepayment speeds, ratings and ratings updates, and current and historical interest rate and interest rate spread data.

~~Other asset-backed securities~~ were valued using models that consider the structure of the security, monthly payment information, current and historical information regarding prepayment speeds, ratings and ratings updates, and current and historical interest rate and interest rate spread data. Spreads and prepayment speeds consider collateral type.

~~Fixed maturities, trading~~, are held by the Lloyd's Syndicates segment and include U.S. Treasury obligations, corporate debt with multiple observable inputs and other asset-backed securities. These securities were valued using the respective valuation methodologies discussed above for each security type.

~~Short-term investments~~ ~~were securities maturing within one year, carried at fair value which approximated the cost of the securities due to their short-term nature.~~

~~Other investments~~ consisted primarily of convertible bonds valued using a pricing model that incorporated selected dealer quotes as well as current market data regarding equity prices and risk free rates. If dealer quotes were unavailable for the security being valued, quotes for securities with similar terms and credit status were used in the pricing model. Dealer quotes selected for use were those considered most accurate based on parameters such as underwriter status and historical reliability.

~~Other assets~~ consisted of an interest rate cap derivative instrument, valued using a model which considers the volatilities from other instruments with similar maturities, strike prices, durations and forward yield curves. Under the terms of the interest rate cap agreement, ProAssurance paid a premium of $2 million for the right to receive cash payments based upon a notional amount of $35 million if and when the three-month LIBOR rises above 2.35%. The Company's variable-rate Mortgage Loans bear an interest rate of three-month LIBOR plus 1.325%.

~~Table of Contents~~

~~ProAssurance Corporation and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~March 31, 2021~~

Level 3 Valuations

~~Below is~~Other than as described below, see Note 3 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2021 report on Form 10-K for a summary description of the valuation methodologies used ~~as well as quantitative information~~ regarding securities in the Level 3 category, by security ~~type:~~type.

Level 3 Valuation Methodologies

~~Corporate debt, limited observable inputs~~ consisted of corporate bonds valued using dealer quotes for similar securities or discounted cash flow models using yields currently available for similar securities. Similar securities are defined as securities of comparable credit quality that have like terms and payment features. Assessments of credit quality were based on NRSRO ratings, if available, or were determined by management if not available. At March 31, 2021, 61% of the securities were rated and the average rating was BB+. At December 31, 2020, 100% of the securities were rated and the average rating was BB+.

Residential mortgage-backed, other commercial mortgage-backed securities and other asset-backed securities consisted of securitizations of receivables valued using dealer quotes for similar securities or discounted cash flow models using yields currently available for similar securities. Similar securities are defined as securities of comparable credit quality that have like terms and payment features. Assessments of credit quality were based on NRSRO ratings, if available, or were subjectively determined by management if not available. At March 31, ~~2021, 83%~~2022, 100% of the securities were rated and the average rating was ~~AA+.~~A. At December 31, ~~2020, 51%~~2021, 100% of the securities were rated and the average rating was ~~AA-.~~

~~Other investments~~ consisted of convertible securities for which limited observable inputs were available at March 31, 2021. The securities were valued internally based on expected cash flows, including the expected final recovery, discounted at a yield that considered the lack of liquidity and the financial status of the issuer.BBB+.

Quantitative Information Regarding Level 3 Valuations

Fair Value at
($ in thousands) March 31, 2021 December 31, 2020 Valuation Technique Unobservable Input Range
(Weighted Average)
Assets:
Corporate debt, limited observable inputs $7,769 $3,265 Market Comparable
Securities Comparability Adjustment 0% - 5% (2.5%)
Discounted Cash Flows Comparability Adjustment 0% - 5% (2.5%)
Residential mortgage-backed securities $1,489 $2,032 Market Comparable
Securities Comparability Adjustment 0% - 5% (2.5%)
Discounted Cash Flows Comparability Adjustment 0% - 5% (2.5%)
Other asset-backed securities $7,824 $6,661 Market Comparable
Securities Comparability Adjustment 0% - 5% (2.5%)
Discounted Cash Flows Comparability Adjustment 0% - 5% (2.5%)
Other investments $2,152 $0 Discounted Cash Flows Comparability Adjustment 0% - 10% (5%)
Below is a quantitative information regarding securities in the Level 3 category, by security type:

Fair Value at

($ in thousands)

March 31, 2022

December 31, 2021

Valuation Technique

Unobservable Input

Range
(Weighted Average)

Assets:

Corporate debt, limited observable inputs

$53,325

$47,129

Market Comparable
Securities

Comparability Adjustment

0% - 5% (2.5%)

Discounted Cash Flows

Comparability Adjustment

0% - 5% (2.5%)

Residential mortgage-backed securities

$572

$297

Market Comparable
Securities

Comparability Adjustment

0% - 5% (2.5%)

Discounted Cash Flows

Comparability Adjustment

0% - 5% (2.5%)

Other commercial mortgage-backed securities

$582

$—

Market Comparable
Securities

Comparability Adjustment

0% - 5% (2.5%)

Discounted Cash Flows

Comparability Adjustment

0% - 5% (2.5%)

Other asset-backed securities

$8,149

$6,205

Market Comparable
Securities

Comparability Adjustment

0% - 5% (2.5%)

Discounted Cash Flows

Comparability Adjustment

0% - 5% (2.5%)

Equity investments

$2,500

Discounted Cash Flows

Comparability Adjustment

0% - 10% (5%)

Other investments

$3,440

$1,434

Discounted Cash Flows

Comparability Adjustment

0% - 10% (5%)

Liabilities:

Other liabilities

$24,000

Stochastic Model/Discounted Cash Flows

N/A

0% - 10% (8%)

The significant unobservable inputs used in the fair value measurement of the above listed securities were the valuations of comparable securities with similar issuers, credit quality and maturity. Changes in the availability of comparable securities could result in changes in the fair value measurements.

1915

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

Fair Value Measurements - Level 3 Assets

The following tables ~~(the Level 3 Tables)~~ present summary information regarding changes in the fair value of assets measured ~~at fair value~~ using Level 3 inputs.


											March 31, 2022
		March 31, 2021									Level 3 Fair Value Measurements - Assets
		Level 3 Fair Value Measurements – Assets
(In thousands)	(In thousands)	Corporate Debt		Asset-backed Securities		Other Investments		Total		(In thousands)	Corporate Debt		Asset-backed Securities		Equity Investments		Other Investments		Total
Balance December 31, 2020		$	3,265	$	8,693	$	0	$	11,958
Balance, December 31, 2021										Balance, December 31, 2021	$	47,129	$	6,502	$	2,500	$	1,434	$	57,565
Total gains (losses) realized and unrealized:	Total gains (losses) realized and unrealized:									Total gains (losses) realized and unrealized:
Included in earnings, as a part of:	Included in earnings, as a part of:									Included in earnings, as a part of:
Net investment income	Net investment income	1		(2)		0		(1)		Net investment income	—		1		—		—		1

Net realized investment gains (losses)		0		(11)		0		(11)
Net investment gains (losses)										Net investment gains (losses)	—		—		—		110		110

Included in other comprehensive income	Included in other comprehensive income	20		(179)		0		(159)		Included in other comprehensive income	(993)		(260)		—		—		(1,253)
Purchases	Purchases	4,875		7,357		0		12,232		Purchases	9,711		5,585		—		1,483		16,779

Sales	Sales	(17)		(304)		0		(321)		Sales	(1,019)		(5)		—		(116)		(1,140)
Transfers in	Transfers in	858		0		2,152		3,010		Transfers in	1,000		—		—		529		1,529
Transfers out	Transfers out	(1,233)		(6,241)		0		(7,474)		Transfers out	(2,503)		(2,520)		—		—		(5,023)
Balance March 31, 2021		$	7,769	$	9,313	$	2,152	$	19,234
Balance, March 31, 2022										Balance, March 31, 2022	$	53,325	$	9,303	$	2,500	$	3,440	$	68,568
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	$	0	$	0	$	0	$	0	Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	$	—	$	—	$	—	$	64	$	64


		March 31, 2020									March 31, 2021
		Level 3 Fair Value Measurements – Assets									Level 3 Fair Value Measurements – Assets
(In thousands)	(In thousands)	Corporate Debt		Asset-backed Securities		Other Investments		Total		(In thousands)	Corporate Debt		Asset-backed Securities		Other Investments		Total
Balance December 31, 2019		$	5,079	$	2,992	$	3,086	$	11,157
Balance, December 31, 2020										Balance, December 31, 2020	$	3,265	$	8,693	$	—	$	11,958
Total gains (losses) realized and unrealized:	Total gains (losses) realized and unrealized:									Total gains (losses) realized and unrealized:
Included in earnings, as a part of:	Included in earnings, as a part of:									Included in earnings, as a part of:
Net investment income										Net investment income	1		(2)		—		(1)

Net realized investment gains (losses)		0		0		(222)		(222)
Net investment gains (losses)										Net investment gains (losses)	—		(11)		—		(11)
Included in other comprehensive income	Included in other comprehensive income	(83)		(122)		0		(205)		Included in other comprehensive income	20		(179)		—		(159)
Purchases	Purchases	0		3,422		0		3,422		Purchases	4,875		7,357		—		12,232
Sales	Sales	(1,707)		0		0		(1,707)		Sales	(17)		(304)		—		(321)
Transfers in	Transfers in	945		605		0		1,550		Transfers in	858		—		2,152		3,010
Transfers out	Transfers out	(794)		0		(1,526)		(2,320)		Transfers out	(1,233)		(6,241)		—		(7,474)
Balance March 31, 2020		$	3,440	$	6,897	$	1,338	$	11,675
Balance, March 31, 2021										Balance, March 31, 2021	$	7,769	$	9,313	$	2,152	$	19,234
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	$	0	$	0	$	(222)	$	(222)	Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	$	—	$	—	$	—	$	—

Fair Value Measurements - Level 3 Liabilities

There was no change in the fair value of the contingent consideration from the date of the NORCAL acquisition on May 5, 2021 to December 31, 2021 or March 31, 2022.

Transfers

Transfers shown in the preceding Level 3 tables were as of the end of the period in which the transfer occurred. All transfers were to or from Level 2.

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

All transfers in and out of Level 3 during the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 related to securities held for which the level of market activity for identical or nearly identical securities varies from period to period. The securities were valued using multiple observable inputs when those inputs were available; otherwise the securities were valued using limited observable inputs.

~~Table of Contents~~

~~ProAssurance Corporation and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~March 31, 2021~~

Fair Values Not Categorized

At March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, certain LPs/LLCs and investment funds measure fund assets at fair value on a recurring basis and provide a NAV for ProAssurance's interest. The carrying value of these interests is based on the NAV provided and was considered to approximate the fair value of the interests. For investment in unconsolidated subsidiaries, ProAssurance recognizes any changes in the NAV of its interests in equity in earnings (loss) of unconsolidated subsidiaries during the period of change. In accordance with GAAP, the fair value of these investments was not classified within the fair value hierarchy. The amount of ProAssurance's unfunded commitments related to these investments as of March 31, ~~2021~~2022 and fair values of these investments as of March 31, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows:


		Unfunded Commitments	Fair Value					Unfunded Commitments	Fair Value
(In thousands)	(In thousands)	March 31, 2021	March 31, 2021		December 31, 2020		(In thousands)	March 31, 2022	March 31, 2022		December 31, 2021
Equity investments:
Mortgage fund (1)		NaN	$	0	$	12,548

Investment in unconsolidated subsidiaries:	Investment in unconsolidated subsidiaries:						Investment in unconsolidated subsidiaries:
Private debt funds ~~(2)~~(1)	Private debt funds ~~(2)~~(1)	$11,308	16,317		16,387		Private debt funds ~~(2)~~(1)	$4,515	$	17,674	$	18,465

Long/short equity funds ~~(3)~~(2)	Long/short equity funds ~~(3)~~(2)	NaN	632		596		Long/short equity funds ~~(3)~~(2)	None	209		655
Non-public equity funds ~~(4)~~(3)	Non-public equity funds ~~(4)~~(3)	$42,554	137,648		138,357		Non-public equity funds ~~(4)~~(3)	$55,591	158,286		160,219

Credit funds ~~(5)~~(4)	Credit funds ~~(5)~~(4)	$1,653	26,943		34,848		Credit funds ~~(5)~~(4)	$51,868	45,174		47,300

Strategy focused funds ~~(6)~~(5)	Strategy focused funds ~~(6)~~(5)	$36,927	45,358		43,523		Strategy focused funds ~~(6)~~(5)	$28,244	45,782		44,177
			226,898		233,711
Total investments carried at NAV	Total investments carried at NAV		$	226,898	$	246,259	Total investments carried at NAV		$	267,125	$	270,816

Below is additional information regarding each of the investments listed in the table above as of March 31, ~~2021.~~2022.

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

~~(2)~~This investment is comprised of interests in 2 unrelated LP funds that are structured to provide interest distributions primarily through diversified portfolios of private debt instruments. NaN 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.

~~(3)~~(2)This investment holds primarily long and short North American equities and targets absolute returns using strategies designed to take advantage of market opportunities. Redemptions are permitted; however, redemptions above specified thresholds (lowest threshold is 90%) may be only partially payable until after a fund audit is completed and are then payable within 30 days.

~~(4)~~(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.

~~(5)~~(4)This investment is comprised of 4multiple 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. ~~A third fund focuses~~The remaining funds focus on private middle market company mezzanine and senior secured loans, ~~while the remaining fund seeks event driven~~ opportunities across the ~~corporate~~ credit ~~spectrum. Two funds are allowed~~spectrum, mortgage backed-loans, as well as various types of loan-backed investments. One fund allows redemptions at any quarter-end with a prior notice ~~requirement of 90 days; one fund permits redemption at any quarter-end with a prior notice requirement~~requirements of 180 days, ~~and one fund does~~while two other funds allow for redemptions with consent of the General Partner. The remaining funds do not allow redemptions. For the ~~fund~~funds that ~~does~~do not allow redemptions, income and capital are to be periodically distributed at the discretion of the LP over time frames ~~that are anticipated to span up to twelve years.~~throughout the remaining life of the funds.

2117

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

~~(6)~~(5)This investment is comprised of multiple unrelated LPs/LLCs funds. One fund is aan LLC focused on investing in North American consumer products companies, comprised of equity and equity-related securities, as well as debt instruments. A second fund is focused on aircraft investments, along with components and assets related to aircrafts. For both funds, redemptions are not permitted. Another fund is aan LP focused on North American energy infrastructure assets that allows redemption with consent of the General Partner. The remaining funds are real estate focused LPs, one of which allows for redemption with prior notice.

ProAssurance may not sell, transfer or assign its interest in any of the above LPs/LLCs without special consent from the LPs/LLCs.

Nonrecurring Fair Value Measurement

ProAssurance did 0tnot have any assets or liabilities that were measured at fair value on a nonrecurring basis at March 31, ~~2021or~~2022 or December 31, ~~2020.~~2021.

Financial Instruments - Methodologies Other Than Fair Value

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


		March 31, 2021				December 31, 2020					March 31, 2022				December 31, 2021
(In thousands)	(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value		(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:	Financial assets:									Financial assets:
BOLI	BOLI	$	66,932	$	66,932	$	67,847	$	67,847	BOLI	$	80,879	$	80,879	$	81,767	$	81,767
Other investments	Other investments	$	2,370	$	2,370	$	2,952	$	2,952	Other investments	$	3,198	$	3,198	$	3,183	$	3,183
Other assets	Other assets	$	33,869	$	33,885	$	31,128	$	31,141	Other assets	$	33,029	$	33,016	$	40,581	$	40,583
Financial liabilities:	Financial liabilities:									Financial liabilities:
Senior notes due 2023*	Senior notes due 2023*	$	250,000	$	271,105	$	250,000	$	269,160	Senior notes due 2023*	$	250,000	$	255,913	$	250,000	$	264,000

Mortgage Loans*		$	35,723	$	35,723	$	36,113	$	36,113

Contribution Certificates										Contribution Certificates	$	176,351	$	161,533	$	175,900	$	179,892

Other liabilities	Other liabilities	$	32,548	$	32,548	$	30,334	$	30,334	Other liabilities	$	31,446	$	31,446	$	52,332	$	52,332
* Carrying value excludes unamortized debt issuance costs.

The fair value of the BOLI was equal to the cash surrender value associated with the policies on the valuation date.

Other investments listed in the table above include FHLB common stock carried at cost and an annuity investment carried at amortized cost. ~~Two~~Three of ProAssurance's insurance subsidiaries are members of an FHLB. The estimated fair value of the FHLB common stock was based on the amount the subsidiaries would receive if their memberships were canceled, as the memberships cannot be sold. The fair value of the annuity represents the present value of the expected future cash flows discounted using a rate available in active markets for similarly structured instruments.

Other assets and other liabilities primarily consisted of related investment assets and liabilities associated with funded deferred compensation agreements. The fair value of the funded deferred compensation assets was based upon quoted market prices, which is categorized as a Level 1 valuation, and had a fair value of ~~$32.8~~$32.0 million and ~~$30.6~~$39.5 million at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The ~~deferred compensation liabilities are adjusted to match the~~ fair value of the funded deferred compensation ~~assets.~~assets at December 31, 2021 included assets from a rabbi trust plan acquired in the NORCAL acquisition that was terminated during the three months ended March 31, 2022. The rabbi trust assets consisted entirely of cash equivalents and mutual funds and had a total fair value of $5.2 million as of December 31, 2021 (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K for additional information on the NORCAL acquisition). Other assets also included an unsecured note ~~receivable under a separate line of credit agreement.~~receivable. The fair value of the note receivable was based on the present value of expected cash flows from the note receivable, discounted at market rates on the valuation date for receivables with similar credit standings and similar payment structures. Other liabilities primarily consisted of liabilities associated with funded deferred compensation agreements. The reported balance is determined based on the amount of elective deferrals and employer contributions adjusted for periodic changes in the fair value of the participant balances based on the performance of the funds selected by the participants and had a fair value of $31.4 million and $52.3 million at March 31, 2022 and December 31, 2021, respectively. The fair value of the funded deferred compensation liabilities at December 31, 2021 included liabilities from deferred compensation arrangements assumed in the NORCAL acquisition that were terminated during the three months ended March 31, 2022 using the associated

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

rabbit trust assets and cash; the termination of these deferred compensation arrangements did not result in a gain or loss during the current period. The funded deferred compensation liabilities had a total fair value of $18.4 million as of December 31, 2021 (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K for additional information).

The fair value of the debt, excluding the Contribution Certificates, was estimated based on the present value of expected future cash outflows, discounted at rates available on the valuation date for similar debt issued by entities with a similar credit standing to ProAssurance.

The fair value of the Contribution Certificates was estimated based on a binomial option pricing model. The Contribution Certificates is a portion of the purchase consideration for the NORCAL acquisition and are issued to certain NORCAL policyholders in the conversion, and those instruments are an obligation of NORCAL Insurance Company, the successor of NORCAL Mutual Insurance Company (see Note 2 and Note 13 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K for further discussion of the terms of the Contribution Certificates).

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

3. Investments

Available-for-sale fixed maturities at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 included the following:


		March 31, 2021						March 31, 2022
(In thousands)	(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities, available-for-sale	Fixed maturities, available-for-sale										Fixed maturities, available-for-sale
U.S. Treasury obligations	U.S. Treasury obligations	$	101,045	$	2,088	$	256		$	102,877	U.S. Treasury obligations	$	237,899	$	240	$	12,463	$	225,676
U.S. Government-sponsored enterprise obligations	U.S. Government-sponsored enterprise obligations	11,959		106		121			11,944		U.S. Government-sponsored enterprise obligations	17,650		15		932		16,733
State and municipal bonds	State and municipal bonds	312,809		11,196		1,540			322,465		State and municipal bonds	511,863		1,368		20,940		492,291
Corporate debt	Corporate debt	1,395,466		42,572		9,172			1,428,866		Corporate debt	1,955,390		4,593		89,727		1,870,256
Residential mortgage-backed securities	Residential mortgage-backed securities	268,344		5,727		2,523			271,548		Residential mortgage-backed securities	441,565		2,142		25,859		417,848
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	13,196		537		15			13,718		Agency commercial mortgage-backed securities	13,231		46		430		12,847
Other commercial mortgage-backed securities	Other commercial mortgage-backed securities	119,145		3,254		1,080			121,319		Other commercial mortgage-backed securities	232,924		471		10,013		223,382
Other asset-backed securities	Other asset-backed securities	287,659		3,227		350			290,536		Other asset-backed securities	451,052		2,065		11,329		441,788
		$	2,509,623	$	68,707	$	15,057		$	2,563,273		$	3,861,574	$	10,940	$	171,693	$	3,700,821


		December 31, 2020											December 31, 2021
(In thousands)	(In thousands)	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities, available-for-sale	Fixed maturities, available-for-sale											Fixed maturities, available-for-sale
U.S. Treasury obligations	U.S. Treasury obligations	$	104,097	$	0	$	2,985	$	23	$	107,059	U.S. Treasury obligations	$	239,765	$	1,166	$	2,424	$	238,507
U.S. Government-sponsored enterprise obligations	U.S. Government-sponsored enterprise obligations	12,103		0		158		0		12,261		U.S. Government-sponsored enterprise obligations	20,467		29		262		20,234
State and municipal bonds	State and municipal bonds	316,022		0		16,937		39		332,920		State and municipal bonds	511,750		9,620		2,174		519,196
Corporate debt	Corporate debt	1,267,992		552		63,204		1,302		1,329,342		Corporate debt	1,884,455		29,050		14,949		1,898,556
Residential mortgage-backed securities	Residential mortgage-backed securities	269,752		0		7,171		382		276,541		Residential mortgage-backed securities	455,438		4,254		5,751		453,941
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	12,623		0		687		—		13,310		Agency commercial mortgage-backed securities	13,909		294		62		14,141
Other commercial mortgage-backed securities	Other commercial mortgage-backed securities	109,244		0		4,788		940		113,092		Other commercial mortgage-backed securities	231,226		2,530		2,273		231,483
Other asset-backed securities	Other asset-backed securities	269,742		0		4,006		742		273,006		Other asset-backed securities	457,837		2,747		2,920		457,664
		$	2,361,575	$	552	$	99,936	$	3,428	$	2,457,531		$	3,814,847	$	49,690	$	30,815	$	3,833,722

2320

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

The recorded cost basis and estimated fair value of available-for-sale fixed maturities at March 31, ~~2021,~~2022, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


(In thousands)	(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		(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	Fixed maturities, available-for-sale													Fixed maturities, available-for-sale
U.S. Treasury obligations	U.S. Treasury obligations	$	101,045	$	23,143	$	70,919	$	8,815	$	0	$	102,877	U.S. Treasury obligations	$	237,899	$	21,181	$	128,387	$	74,586	$	1,522	$	225,676
U.S. Government-sponsored enterprise obligations	U.S. Government-sponsored enterprise obligations	11,959		3,870		5,044		2,887		143		11,944		U.S. Government-sponsored enterprise obligations	17,650		1,798		11,029		3,774		132		16,733
State and municipal bonds	State and municipal bonds	312,809		6,114		153,779		144,719		17,853		322,465		State and municipal bonds	511,863		22,193		159,219		188,721		122,158		492,291
Corporate debt	Corporate debt	1,395,466		140,572		755,625		481,431		51,238		1,428,866		Corporate debt	1,955,390		141,092		848,525		774,223		106,416		1,870,256
Residential mortgage-backed securities	Residential mortgage-backed securities	268,344										271,548		Residential mortgage-backed securities	441,565										417,848
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	13,196										13,718		Agency commercial mortgage-backed securities	13,231										12,847
Other commercial mortgage-backed securities	Other commercial mortgage-backed securities	119,145										121,319		Other commercial mortgage-backed securities	232,924										223,382
Other asset-backed securities	Other asset-backed securities	287,659										290,536		Other asset-backed securities	451,052										441,788
		$	2,509,623									$	2,563,273		$	3,861,574									$	3,700,821

Excluding obligations of the U.S. Government, U.S. Government-sponsored enterprises and a U.S. Government obligations money market fund, 0no investment in any entity or its affiliates exceeded 10% of shareholders’ equity at March 31, ~~2021.~~2022.

Cash and securities with a carrying value of ~~$41.7~~$54.5 million at March 31, ~~2021~~2022 were on deposit with various state insurance departments to meet regulatory requirements.

As a member of Lloyd's, ProAssurance is required to maintain capital at Lloyd's, referred to as FAL, to support underwriting by Syndicate ~~1729 and Syndicate 6131.~~1729. At March 31, ~~2021,~~2022, ProAssurance's FAL investments were comprised of available-for-sale fixed maturities with a fair value of ~~$102.8~~$36.9 million and cash and cash equivalents of ~~$4.0~~$0.1 million on deposit with Lloyd's in order to satisfy these FAL requirements.

2421

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

Investments Held in a Loss Position

The following tables provide summarized information with respect to investments held in an unrealized loss position at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, including the length of time the investment had been held in a continuous unrealized loss position.


		March 31, 2021													March 31, 2022
		Total				Less than 12 months				12 months or longer					Total				Less than 12 months				12 months or longer
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In thousands)	(In thousands)	Value		Loss		Value		Loss		Value		Loss		(In thousands)	Value		Loss		Value		Loss		Value		Loss
Fixed maturities, available-for-sale	Fixed maturities, available-for-sale													Fixed maturities, available-for-sale
U.S. Treasury obligations	U.S. Treasury obligations	$	26,250	$	256	$	26,250	$	256	$	0	$	0	U.S. Treasury obligations	$	208,608	$	12,463	$	195,658	$	11,629	$	12,950	$	834
U.S. Government-sponsored enterprise obligations	U.S. Government-sponsored enterprise obligations	5,714		121		5,714		121		0		0		U.S. Government-sponsored enterprise obligations	16,601		932		12,835		599		3,766		333
State and municipal bonds	State and municipal bonds	67,604		1,540		67,604		1,540		0		0		State and municipal bonds	372,603		20,940		357,967		19,551		14,636		1,389
Corporate debt	Corporate debt	397,470		9,172		370,642		8,704		26,828		468		Corporate debt	1,437,296		89,727		1,292,183		75,597		145,113		14,130
Residential mortgage-backed securities	Residential mortgage-backed securities	105,643		2,523		99,580		2,253		6,063		270		Residential mortgage-backed securities	367,247		25,859		316,182		20,314		51,065		5,545
Agency commercial mortgage-backed securities	Agency commercial mortgage-backed securities	1,276		15		1,276		15		0		0		Agency commercial mortgage-backed securities	9,835		430		9,695		416		140		14
Other commercial mortgage-backed securities	Other commercial mortgage-backed securities	41,832		1,080		35,400		437		6,432		643		Other commercial mortgage-backed securities	204,736		10,013		194,654		9,310		10,082		703
Other asset-backed securities	Other asset-backed securities	71,365		350		59,054		280		12,311		70		Other asset-backed securities	375,684		11,329		360,024		10,477		15,660		852
		$	717,154	$	15,057	$	665,520	$	13,606	$	51,634	$	1,451		$	2,992,610	$	171,693	$	2,739,198	$	147,893	$	253,412	$	23,800


		December 31, 2020													December 31, 2021
		Total				Less than 12 months				12 months or longer					Total				Less than 12 months				12 months or longer
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In thousands)	(In thousands)	Value		Loss		Value		Loss		Value		Loss		(In thousands)	Value		Loss		Value		Loss		Value		Loss
Fixed maturities, available-for-sale	Fixed maturities, available-for-sale													Fixed maturities, available-for-sale
U.S. Treasury obligations	U.S. Treasury obligations	$	14,390	$	23	$	14,390	$	23	$	0	$	0	U.S. Treasury obligations	$	190,054	$	2,424	$	181,689	$	2,206	$	8,365	$	218

U.S. Government-sponsored enterprise obligations														U.S. Government-sponsored enterprise obligations	16,287		262		16,287		262		—		—
State and municipal bonds	State and municipal bonds	6,416		39		6,416		39		0		0		State and municipal bonds	175,442		2,174		171,930		2,039		3,512		135
Corporate debt	Corporate debt	94,695		1,302		79,436		1,020		15,259		282		Corporate debt	945,196		14,949		866,731		11,828		78,465		3,121
Residential mortgage-backed securities	Residential mortgage-backed securities	34,928		382		34,509		381		419		1		Residential mortgage-backed securities	326,248		5,751		290,019		4,320		36,229		1,431

Agency commercial mortgage-backed securities														Agency commercial mortgage-backed securities	4,529		62		4,355		54		174		8
Other commercial mortgage-backed securities	Other commercial mortgage-backed securities	18,766		940		18,480		935		286		5		Other commercial mortgage-backed securities	151,827		2,273		145,467		1,884		6,360		389
Other asset-backed securities	Other asset-backed securities	43,739		742		37,850		701		5,889		41		Other asset-backed securities	278,915		2,920		271,463		2,796		7,452		124
		$	212,934	$	3,428	$	191,081	$	3,099	$	21,853	$	329		$	2,088,498	$	30,815	$	1,947,941	$	25,389	$	140,557	$	5,426

As of March 31, ~~2021,~~2022, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were ~~784~~2,504 debt securities ~~(28.5%~~(64.6% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing ~~514~~1,288 issuers. The greatest and second greatest unrealized loss positions among those securities were approximately $2.3 million and $2.0 million, respectively. The securities were evaluated for impairment as of March 31, 2022.

As of December 31, 2021, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 1,766 debt securities (45.8% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 998 issuers. The greatest and second greatest unrealized loss positions among those securities were each approximately ~~$0.5~~$0.4 million. ~~The securities were evaluated for impairment as of March 31, 2021.~~

As of December 31, 2020, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 292 debt securities (11.1% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 229 issuers. The greatest and second greatest unrealized loss positions among those securities were approximately $0.4 million and $0.2 million, respectively. The securities were evaluated for impairment as of December 31, ~~2020.~~2021.

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

Each quarter, ProAssurance performs a detailed analysis for the purpose of assessing whether any of the securities it holds in an unrealized loss position has suffered an impairment due to credit or non-credit factors. A detailed discussion of the factors considered in the assessment is included in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, ~~2020~~2021 report on Form 10-K.

~~Table of Contents~~

~~ProAssurance Corporation and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~March 31, 2021~~

Fixed maturity securities held in an unrealized loss position at March 31, ~~2021,~~2022, excluding asset-backed securities, have paid all scheduled contractual payments and are expected to ~~continue doing so.~~continue. Expected future cash flows of asset-backed securities, excluding those issued by GNMA, FNMA and FHLMC, held in an unrealized loss position were estimated as part of the March 31, ~~2021~~2022 impairment evaluation using the most recently available six-month historical performance data for the collateral (loans) underlying the security or, if historical data was not available, sector based assumptions, and equaled or exceeded the current amortized cost basis of the security.

There was no allowance for expected credit losses for the three months ended March 31, 2022.

The following ~~tables present~~table presents a roll forward of the allowance for expected credit losses on available-for-sale fixed maturities for the three months ended March 31, ~~2021 and 2020.~~2021.

Three Months Ended March 31, 2021
(In thousands) Corporate Debt Total
Balance at December 31, 2020 $ 552 $ 552
Reductions related to:
Securities sold during the period (552) (552)
Balance at March 31, 2021 $ 0 $ 0

Three Months Ended March 31, 2020
(In thousands) Corporate Debt Total
Balance at December 31, 2019 $ 0 $ 0
Additional credit losses related to securities for which:
No allowance for credit losses has been previously recognized 1,163 1,163
Balance at March 31, 2020 $ 1,163 $ 1,163


	Three Months Ended March 31, 2021
(In thousands)	Corporate Debt		Total
Balance, at December 31, 2020	$	552	$	552




Reductions related to:
Securities sold during the period	(552)		(552)



Balance, at March 31, 2021	$	—	$	—

Other information regarding sales and purchases of fixed maturity available-for-sale securities is as follows:


		Three Months Ended March 31						Three Months Ended March 31
(In millions)	(In millions)		2021		2020		(In millions)		2022		2021
Proceeds from sales (exclusive of maturities and paydowns)	Proceeds from sales (exclusive of maturities and paydowns)		$	61.9	$	64.9	Proceeds from sales (exclusive of maturities and paydowns)		$	63.5	$	61.9
Purchases	Purchases		$	342.2	$	227.5	Purchases		$	231.6	$	342.2

Equity Investments

ProAssurance's equity investments are carried at fair value with changes in fair value recognized in income as a component of net ~~realized~~ investment gains (losses) during the period of change. Equity investments on the Condensed Consolidated Balance Sheets as of March 31, ~~2021~~2022 and December 31, ~~2020~~2021 primarily included ~~stocks,~~ bond funds and, to a lesser degree, stocks and investment funds.

Short-term Investments

ProAssurance's short-term investments, which have a maturity at purchase of one year or less, are primarily comprised of investments in U.S. treasury obligations, commercial paper and money market funds. Short-term investments are carried at fair value which approximates the cost of the securities due to their short-term nature.

BOLI

ProAssurance holds BOLI policies that are carried at the current cash surrender value of the policies (original cost ~~$33~~$42 million), which includes the BOLI policies acquired from NORCAL (original cost $10 million). All insured individuals were members of ProAssurance or NORCAL management at the time the policies were acquired. The primary purpose of the program is to offset future employee benefit expenses through earnings on the cash value of the policies. ProAssurance is the owner and beneficiary of these policies.

2623

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

Net Investment Income

Net investment income (loss) by investment category was as follows:


		Three Months Ended March 31			Three Months Ended March 31
(In thousands)	(In thousands)		2021			2020		(In thousands)	2022		2021
Fixed maturities	Fixed maturities		$	15,692		$	18,285	Fixed maturities	$	21,544	$	15,692
Equities	Equities		694			1,909		Equities	701		694
Short-term investments, including Other	Short-term investments, including Other		273			1,472		Short-term investments, including Other	426		273
BOLI	BOLI		444			456		BOLI	(47)		444
Investment fees and expenses	Investment fees and expenses		(2,086)			(1,292)		Investment fees and expenses	(2,181)		(2,086)
Net investment income	Net investment income		$	15,017		$	20,830	Net investment income	$	20,443	$	15,017

Investment in Unconsolidated Subsidiaries

ProAssurance's investment in unconsolidated subsidiaries were as follows:


		March 31, 2021	Carrying Value					March 31, 2022	Carrying Value
(In thousands)	(In thousands)	Percentage Ownership	March 31, 2021		December 31, 2020		(In thousands)	Percentage Ownership	March 31, 2022		December 31, 2021
Qualified affordable housing project tax credit partnerships	Qualified affordable housing project tax credit partnerships	See below	$	24,351	$	27,719	Qualified affordable housing project tax credit partnerships	See below	$	10,036	$	12,424

All other investments, primarily investment fund LPs/LLCs	All other investments, primarily investment fund LPs/LLCs	See below	275,009		282,810		All other investments, primarily investment fund LPs/LLCs	See below	311,366		323,152
			$	299,360	$	310,529			$	321,402	$	335,576

Qualified affordable housing project tax credit partnership interests held by ProAssurance generate investment returns by providing tax benefits to fund investors in the form of tax credits and project operating losses. The carrying value of these investments reflects ProAssurance's total commitments (both funded and unfunded) to the partnerships, less any amortization. At March 31, 2022, ProAssurance's ownership percentage relative to 1 of the tax credit partnership interests is almost 100%; this interest had a carrying value of $2.0 million. At December 31, 2021, ProAssurance's ownership percentage relative to 2 of the tax credit partnership interests iswas almost 100%; these interests had a carrying value of ~~$8.1 million at March 31, 2021 and $9.4~~$3.2 million at December 31, ~~2020.~~2021. ProAssurance's ownership percentage relative to the remaining tax credit partnership interests is less than 20%; these interests had a carrying value of ~~$16.3~~$8.0 million at March 31, ~~2021~~2022 and ~~$18.3~~$9.2 million at December 31, ~~2020.~~2021. Since ProAssurance has the ability to exert influence over the partnerships but does not control them, all are accounted for using the equity method. See further discussion of the entities in which ProAssurance holds passive interests in Note ~~12.~~9.

ProAssurance holds interests in investment fund LPs/LLCs and other equity method investments and LPs/LLCs which are not considered to be investment funds. ProAssurance's ownership percentage relative to 4 of the LPs/LLCs is greater than 25%, which is expected to be reduced as the funds mature and other investors participate in the funds; these investments had a carrying value of ~~$47.0~~$49.3 million at March 31, ~~2021~~2022 and ~~$46.2~~$49.0 million at December 31, ~~2020.~~2021. ProAssurance's ownership percentage relative to the remaining investments and LPs/LLCs is less than 25%; these interests had a carrying value of ~~$228.0~~$262.1 million at March 31, ~~2021~~2022 and ~~$236.6~~$274.2 million at December 31, ~~2020.~~2021. ProAssurance does not have the ability to exert control over any of these funds.

2724

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

Equity in Earnings (Loss) of Unconsolidated Subsidiaries

Equity in earnings (loss) of unconsolidated subsidiaries included losses from qualified affordable housing project tax credit partnerships and a historic tax credit partnership. Investment results recorded reflect ProAssurance's allocable portion of partnership operating results. Tax credits reduce income tax expense in the period they are ~~recognized.~~utilized. The results recorded and tax credits recognized related to ProAssurance's tax credit partnership investments were as follows:


		Three Months Ended March 31						Three Months Ended March 31
(In thousands)	(In thousands)		2021		2020		(In thousands)		2022		2021
Qualified affordable housing project tax credit partnerships	Qualified affordable housing project tax credit partnerships						Qualified affordable housing project tax credit partnerships
Losses recorded	Losses recorded		$	3,368	$	4,342	Losses recorded		$	2,388	$	3,368
Tax credits recognized	Tax credits recognized		$	3,324	$	4,369	Tax credits recognized		$	1,205	$	3,324

Historic tax credit partnership*	Historic tax credit partnership*						Historic tax credit partnership*
Losses (gains) recorded	Losses (gains) recorded		$	(182)	$	323	Losses (gains) recorded		$	—	$	(182)
Tax credits recognized	Tax credits recognized		$	50	$	103	Tax credits recognized		$	—	$	50
* ProAssurance holds a historic tax credit partnership which was fully amortized in 2020. ProAssurance received a distribution associated with this investment during the three months ended March 31, 2021 as a result of positive cash flows from a project recognizing an operating gain. See further discussion on this investment in Note 3 of the Notes to the Consolidated Financial Statements in ProAssurance’s December 31, 2020 report on Form 10-K.
*ProAssurance holds a historic tax credit partnership which was fully amortized in 2020. This partnership generated investment returns by providing benefits to fund investors in the form of tax credits, tax deductible project operating losses and positive cash flows. ProAssurance received a distribution associated with this investment during the first quarter of 2021, as a result of positive cash flows from a completed project, which was recognized as an operating gain.							*ProAssurance holds a historic tax credit partnership which was fully amortized in 2020. This partnership generated investment returns by providing benefits to fund investors in the form of tax credits, tax deductible project operating losses and positive cash flows. ProAssurance received a distribution associated with this investment during the first quarter of 2021, as a result of positive cash flows from a completed project, which was recognized as an operating gain.

The tax credits generated from the Company's tax credit partnership investments of ~~$3.4~~$1.2 million for the three months ended March 31, 2022 were deferred for use in future periods due to the Company's expected consolidated loss calculated on a tax basis. For the three months ended March 31, 2021 the tax credits generated from the Company's tax credit partnership investments of $3.4 million were deferred and are expected to be utilized in future periods. Not included in the table above is $2.0 million of tax credits recaptured from 2019 during the three months ended March 31, 2022 due to the carryback of the Company's estimated NOL for the three months ended March 31, 2022 to the 2021 tax year. The recaptured tax credits were earned in 2019 but not utilized until 2021 due to NOL's generated in both 2019 and 2020. As of March 31, 2022, the Company had approximately $49.9 million of available tax credit carryforwards generated from its investments in tax credit partnerships which they expect to utilize in future periods.

Tax credits provided by the underlying projects of the Company's historic tax credit partnership are typically available in the tax year in which the project is put into active service, whereas the tax credits provided by qualified affordable housing project tax credit partnerships are provided over approximately a ten year period.

Significant Equity Method ~~Investee~~Investees

As previously discussed, ProAssurance holds certain investments that are measured using the equity method of accounting, primarily investments in LPs/LLCs, which are carried as a part of Investment in Unconsolidated Subsidiaries on the Condensed Consolidated Balance ~~Sheet.~~Sheets. Each quarter, ProAssurance assesses the significance of its equity method investees. As of March 31, 2022 ProAssurance determined one equity method investee, Prime Storage Fund II, LP, to be significant. This fund invests primarily in self-storage real estate. As of March 31, 2021, ProAssurance determined one equity method investee, NB Private Equity Credit Opportunities Fund LP, to be significant. ~~This~~NB Private Equity Credit Opportunities Fund LP fund invests primarily in senior/junior debt instruments of private equity backed companies, including secured and unsecured loans, bonds and other instruments. The following table presents gross summarized financial information for ~~this fund,~~significant funds, including the portion not attributable to ProAssurance, derived from the fund's financial statements which are prepared in accordance with GAAP. As the majority of ProAssurance's equity method investments report their results to the Company on a one quarter lag, the summarized financial information below ~~represents this fund's results~~is for the three months ended December 31, ~~2020.~~2021 and 2020, respectively.

~~Three Months Ended March 31, 2021~~

~~(In thousands)~~

~~Net investment income~~

~~40,636~~

~~Net realized investment gains (losses)~~

~~14,587~~

~~Net change in unrealized appreciation (depreciation)~~

~~61,777~~

~~Net gain (loss)~~

~~117,000~~

Net gain (loss) attributable to ProAssurance*

~~2,056~~

*Represents ProAssurance's share of the fund's aggregate income or loss, which is included as a component of equity in earnings (loss) of unconsolidated subsidiaries in its Condensed Consolidated Statement of Income and Comprehensive Income for the three months ended March 31, 2021.

2825

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022


(In thousands)	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
	Prime Storage Fund II LP		NB Private Equity Credit Opportunities Fund LP
Net investment income	$	28,691	$	40,636
Net investment gains (losses)	22,438		14,587
Net change in unrealized appreciation (depreciation)	235,525		61,777
Net gain (loss)	$	286,654	$	117,000

Net gain (loss) attributable to ProAssurance*	$	1,457	$	2,056
*Represents ProAssurance's share of the fund's aggregate income or loss, which is included as a component of equity in earnings (loss) of unconsolidated subsidiaries in its Condensed Consolidated Statement of Income and Comprehensive Income for the three months ended March 31, 2022 and 2021.

Net ~~Realized~~ 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 ~~realized~~ investment gains (losses):


		Three Months Ended March 31					Three Months Ended March 31
(In thousands)	(In thousands)		2021		2020			(In thousands)	2022		2021
Total impairment losses:

Corporate debt			$	0	$	(1,817)

Portion of impairment losses recognized in other comprehensive income before taxes:

Corporate debt			—		654

Net impairment losses recognized in earnings			0		(1,163)

Gross realized gains, available-for-sale fixed maturities	Gross realized gains, available-for-sale fixed maturities		4,294		2,427			Gross realized gains, available-for-sale fixed maturities	$	1,187	$	4,294
Gross realized (losses), available-for-sale fixed maturities	Gross realized (losses), available-for-sale fixed maturities		(187)		(1,403)			Gross realized (losses), available-for-sale fixed maturities	(1,124)		(187)

Net realized gains (losses), trading fixed maturities	Net realized gains (losses), trading fixed maturities		72		103			Net realized gains (losses), trading fixed maturities	(75)		72
Net realized gains (losses), equity investments	Net realized gains (losses), equity investments		4,189		15,190			Net realized gains (losses), equity investments	(220)		4,189
Net realized gains (losses), other investments	Net realized gains (losses), other investments		3,196		48			Net realized gains (losses), other investments	650		3,196
Change in unrealized holding gains (losses), trading fixed maturities	Change in unrealized holding gains (losses), trading fixed maturities		(214)		(118)			Change in unrealized holding gains (losses), trading fixed maturities	(326)		(214)
Change in unrealized holding gains (losses), equity investments	Change in unrealized holding gains (losses), equity investments		(2,937)		(38,477)			Change in unrealized holding gains (losses), equity investments	(11,485)		(2,937)
Change in unrealized holding gains (losses), convertible securities, carried at fair value	Change in unrealized holding gains (losses), convertible securities, carried at fair value		(190)		(5,273)			Change in unrealized holding gains (losses), convertible securities, carried at fair value	(2,476)		(190)

Other	Other		626		(7)			Other	363		626
Net realized investment gains (losses)			$	8,849	$	(28,673)
Net investment gains (losses)								Net investment gains (losses)	$	(13,506)	$	8,849

For the three months ended March 31, 2022 and 2021, ProAssurance did not recognize any credit-related impairment losses in earnings or non-credit impairment losses in OCI. For the three months ended March 31, 2020, ProAssurance recognized credit-related impairment losses in earnings of $1.2 million and non-credit impairment losses in OCI of $0.7 million. The credit-related impairment losses related to four corporate bonds in the energy, consumer and entertainment sectors. The non-credit related impairment losses related to three corporate bonds in the energy and consumer sectors.

ProAssurance recognized $8.8 million of net realized investment gains during the three months ended March 31, 2021, driven primarily by realized gains on the sale of available-for-sale fixed maturities and equity investments. ProAssurance recognized $28.7 million of net realized investment losses during the three months ended March 31, 2020 driven by the impact of decreases in fair value on its equity portfolio of $38.5 million and convertible securities of $5.3 million attributable to disruptions in the global financial markets related to COVID-19 during the first quarter of 2020.

The following table presents a roll forward of cumulative credit losses recorded in earnings related to impaired debt securities for which a portion of the impairment was recorded in OCI.


		Three Months Ended March 31						Three Months Ended March 31
(In thousands)	(In thousands)		2021		2020		(In thousands)		2022		2021
Balance beginning of period	Balance beginning of period		$	552	$	470	Balance beginning of period		$	—	$	552
Additional credit losses recognized during the period, related to securities for which:
No impairment has been previously recognized			0		1,064

Reductions due to:	Reductions due to:						Reductions due to:
Securities sold during the period (realized)	Securities sold during the period (realized)		(552)		0		Securities sold during the period (realized)		—		(552)

Balance March 31	Balance March 31		$	0	$	1,534	Balance March 31		$	—	$	—

2926

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

4. ~~Retroactive Insurance Contracts~~

ProAssurance offers custom alternative risk solutions which includes assumed reinsurance. In the first quarter of 2021, ProAssurance entered into an assumed reinsurance arrangement with a regional hospital group. As the contract included both prospective coverage and retroactive coverage, ProAssurance bifurcated the provisions of the contract and accounted for each component separately. As of the contract effective date, ProAssurance recognized total net premiums written of $4.5 million, comprised of $2.2 million of prospective coverage and $2.3 million of retroactive coverage, total net premiums earned of $3.0 million, comprised of $0.7 million of prospective coverage and $2.3 million of retroactive coverage and total net losses and loss adjustment expenses of $2.9 million in the Condensed Consolidated Statement of Income and Comprehensive Income for the three months ended March 31, 2021. For additional information regarding ProAssurance's accounting policy for retroactive insurance contracts, see Note 1 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2020 report on Form 10-K.

5. Income Taxes

For interim periods, ProAssurance generally utilizes the estimated annual effective tax rate method under which the Company determines its provision (benefit) for income taxes based on the current estimate of its annual effective tax rate. For the three months ended March 31, 2022, ProAssurance utilized the discrete effective tax rate method for recording income taxes after the estimated annual effective tax rate method produced an unreliable estimated effective annual tax rate. The discrete method is applied when the application of the estimated annual effective tax rate method is impractical and does not provide a reliable estimate of the annual effective tax rate. The Company believes the use of the discrete effective tax rate method is more appropriate than the annual effective tax rate method for the three months ended March 31, 2022 as minor changes in the Company's estimated ordinary income would have a significant effect on the estimated annual effective tax rate and would result in sizable variations in the customary relationship between income tax expense (benefit) and pre-tax accounting income (loss). ProAssurance will reevaluate its use of this method each quarter until the Company believes a return to the estimated annual effective tax rate method is deemed appropriate. For the three months ended March 31, 2021, ProAssurance utilized the estimated annual effective tax rate method. Under the estimated annual effective tax rate method, items which are unusual, infrequent, or that cannot be reliably estimated are considered in the effective tax rate in the period in which the item is included in income, and are referred to as discrete items. In calculating the Company's year-to-date income tax expense (benefit) under the estimated annual effective tax rate method, it includes the estimated benefit of tax credits for the year-to-date period based on the most recently available information provided by the tax credit partnerships; the actual amounts of credits provided by the tax credit partnerships may prove to be different than our estimates. The effect of such a difference is recognized in the period identified.

For the three months ended March 31, 2022, the provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes primarily because ProAssurance recognizes tax credit benefits transferred from tax credit partnership investments. In calculating the Company's year-to-date income tax expense (benefit), the Company ~~includes~~included the estimated benefit of tax credits for the year-to-date period based on the most recently available information provided by the tax credit partnerships; the actual amounts of credits provided by the tax credit partnerships may prove to be different than the Company's estimates. The effect of such a difference is recognized in the period identified.

ProAssurance had a receivable for U.S. federal and U.K. income taxes carried as a part of other assets as of ~~$6.6 million at~~ March 31, ~~2021~~2022 and ~~$18.9 million at~~ December 31, ~~2020. The~~2021 of $7.9 million in each period. At March 31, 2022 and December 31, 2021, the liability for unrecognized tax benefits, which is included in the total receivable for U.S. federal and U.K. income taxes, was ~~$5.8~~$3.4 million ~~and $5.7 million at March 31, 2021 and December 31, 2020, respectively,~~in each period which included an accrued liability for interest of approximately ~~$0.6~~$0.4 million in each period.

NORCAL Acquisition

As a result of the NORCAL acquisition, ProAssurance has U.S. federal NOL carryforwards which as of March 31, 2022 were approximately $43.0 million and ~~$0.5 million, respectively.~~will begin to expire in 2035. See Note 7 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K for more information.

Coronavirus Aid, Relief and Economic Security Act

In response to COVID-19, the CARES Act was signed into law on March 27, 2020 and contains several provisions for corporations and ~~eases~~eased certain deduction limitations originally imposed by the TCJA. See further discussion in Note 57 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, ~~2020~~2021 report on Form 10-K. As a result of the CARES Act, ProAssurance ~~now has the ability~~was permitted to carryback NOLs generated in tax years ~~2018,~~ 2019 and 2020 for up to five years. ~~The Company has~~ProAssurance generated an NOL of approximately ~~$45.3~~$33.3 million from the 2020 tax year that ~~will be~~was carried back to the 2015 tax year ~~and is expected to generate~~which resulted in a ~~tax~~claim for a refund of approximately ~~$15.9~~$11.7 million. Additionally, the Company had an NOL of approximately $25.6 million from the 2019 tax year which was carried back to the 2014 tax year and generated a tax refund of approximately $9.0 million which the Company received in February 2021.

~~American Rescue Plan Act of 2021~~

In response to economic concerns associated with COVID-19, the American Rescue Plan Act of 2021 was signed into law on March 11, 2021 and includes an expansion of the number of employees covered by the limitation on the deductibility of compensation in excess of $1 million. This provision is effective for tax years beginning after December 31, 2026. The Company has evaluated this provision as well as the other provisions of the American Rescue Plan Act of 2021 and concluded that they will not have a material impact on ProAssurance's financial position or results of operations as of March 31, 2021.

3027

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

~~6. Goodwill~~

Goodwill is recognized in conjunction with business acquisitions as the excess of the purchase consideration for the business acquisition over the fair value of identifiable assets acquired and liabilities assumed. The fair value of identifiable assets and liabilities, and thus goodwill, is subject to redetermination within a measurement period of up to one year following completion of a business acquisition.

Goodwill is tested for impairment annually or more frequently if circumstances indicate an impairment may have occurred. The date of the Company's annual goodwill impairment test is October 1. Impairment of goodwill is tested at the reporting unit level, which is consistent with the Company's reportable segments identified in Note 14. See Note 1 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K for further information on how the Company tests goodwill for impairment.

Of the Company's 5 reporting units, 2 have net goodwill: Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance. The table below presents the carrying amount of goodwill and accumulated impairment losses by reporting unit at March 31, 2021 and December 31, 2020:

Reporting Unit
(In thousands) Specialty P&C Workers' Compensation Insurance Segregated Portfolio Cell Reinsurance Total
Goodwill, gross as of January 1, 2020 $ 161,115 $ 44,110 $ 5,500 $ 210,725
Accumulated impairment losses* (161,115) 0 0 (161,115)
Goodwill, net as of December 31, 2020 0 44,110 5,500 49,610
Accumulated impairment losses 0 0 0 0
Goodwill, net as of March 31, 2021 $ 0 $ 44,110 $ 5,500 $ 49,610

*Accumulated impairment losses in 2020 represent the pre-tax impairment loss of $161.1 million recognized during the third quarter of 2020 in relation to the Specialty P&C reporting unit. There were no other impairment losses taken prior to 2020. For additional information regarding ProAssurance's goodwill impairment in 2020, see Note 1 and Note 6 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2020 report on Form 10-K.

~~Table of Contents~~

~~ProAssurance Corporation and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~March 31, 2021~~

7.5. 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.

~~ProAssurance believes that the methods it uses to establish reserves are reasonable and appropriate. Each year, ProAssurance uses internal actuaries to review the~~ For additional information regarding ProAssurance's reserve for losses, of each insurance subsidiary. ProAssurance also engages consulting actuaries to review ProAssurance claims data and provide observations regarding cost trends, rate adequacy and ultimate loss costs. The statutory filings of each insurance company with the insurance regulators must be accompanied by a consulting actuary's certification as to their respective reserves. ProAssurance considers the views of the actuaries as well as other factors, such as premium rates, historical paid and incurred loss development trends, and an evaluation of the current loss environment including frequency, severity, the expected effect of inflation, general economic and social trends, and the legal and political environment in establishing the amount of its reserve for losses. The Company expects there will be impacts to these factors as well as to the timing of loss emergence and ultimate loss ratios for certain coverages it underwrites as a result of COVID-19 and the related economic shutdown; however, the extent to which COVID-19 impacts these factors is highly uncertain and cannot be predicted (see "Item 1A, Risk Factors"see Note 1 and Note 810 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, ~~2020~~2021 report on Form 10-K for additional information). The industry is experiencing new conditions, including the postponement of court cases, changes in settlement trends and a significant reduction in economic activity and insured exposure in some classes. ProAssurance's booked reserves as of March 31, 2021 include consideration of these factors, but the duration and degree to which these issues persist, along with potential legislative, regulatory or judicial actions, could result in significant changes to the Company's reserve estimates in future periods.

ProAssurance partitions its reserve by accident year, which is the year in which the claim becomes its liability. For claims-made policies, the insured event generally becomes a liability when the event is first reported to the Company. For occurrence policies, the insured event becomes a liability when the event takes place. For retroactive coverages, the insured event becomes a liability at inception of the underlying contract. As claims are incurred (reported) and claim payments are made, they are aggregated by accident year for analysis purposes. ProAssurance also partitions its reserve by reserve type: case reserves and IBNR reserves. Case reserves are established by the claims department based upon the particular circumstances of each reported claim and represent ProAssurance’s estimate of the future loss costs (often referred to as expected losses) that will be paid on reported claims. Case reserves are decremented as claim payments are made and are periodically adjusted upward or downward as estimates regarding the amount of future losses are revised; a reported loss for an individual claim equates to the case reserve at any point in time plus the claim payments that have been made to date. IBNR reserves represent an estimate, in the aggregate, of future development on losses that have been reported to ProAssurance plus an estimate of losses that have been incurred but not reported.

~~Development of Prior Accident Years~~

In addition to setting the initial reserve for the current accident year, each period ProAssurance reassesses the amount of reserve required for prior accident years. The foundation of ProAssurance’s reserve re-estimation process is an actuarial analysis that is performed by both the internal and consulting actuaries. This detailed analysis projects ultimate losses based on partitions which include line of business, geography, coverage layer and accident year. The procedure uses the most representative data for each partition, capturing its unique patterns of development and trends. ProAssurance believes that the use of consulting actuaries provides an independent view of the loss data as well as a broader perspective on industry loss trends.

~~Table of Contents~~

~~ProAssurance Corporation and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~March 31, 2021~~

10-K.

Activity in the reserve for losses and loss adjustment expenses is summarized as follows:


(In thousands)	(In thousands)	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020		Year Ended December 31, 2020		(In thousands)	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021		Year Ended December 31, 2021
Balance, beginning of year	Balance, beginning of year	$	2,417,179	$	2,346,526	$	2,346,526	Balance, beginning of year	$	3,579,940	$	2,417,179	$	2,417,179
Less reinsurance recoverables on unpaid losses and loss adjustment expenses	Less reinsurance recoverables on unpaid losses and loss adjustment expenses	385,087		390,708		390,708		Less reinsurance recoverables on unpaid losses and loss adjustment expenses	451,741		385,087		385,087
Net balance, beginning of year	Net balance, beginning of year	2,032,092		1,955,818		1,955,818		Net balance, beginning of year	3,128,199		2,032,092		2,032,092

Net reserves acquired from NORCAL acquisition								Net reserves acquired from NORCAL acquisition	—		—		1,089,103
Net losses:	Net losses:							Net losses:
Current year~~(3)~~(1)	Current year~~(3)~~(1)	154,634		170,874		711,846		Current year~~(3)~~(1)	214,753		154,634		797,732
Favorable development of reserves established in prior years, net(2)	Favorable development of reserves established in prior years, net(2)	(4,849)		(6,042)		(50,399)		Favorable development of reserves established in prior years, net(2)	(5,330)		(4,849)		(45,483)
Total	Total	149,785		164,832		661,447		Total	209,423		149,785		752,249
Paid related to:	Paid related to:							Paid related to:
Current year	Current year	(10,513)		(15,876)		(83,204)		Current year	(13,179)		(10,513)		(109,925)
Prior years	Prior years	(126,534)		(163,518)		(501,969)		Prior years	(185,977)		(126,534)		(635,320)
Total paid	Total paid	(137,047)		(179,394)		(585,173)		Total paid	(199,156)		(137,047)		(745,245)
Net balance, end of period	Net balance, end of period	2,044,830		1,941,256		2,032,092		Net balance, end of period	3,138,466		2,044,830		3,128,199
Plus reinsurance recoverables on unpaid losses and loss adjustment expenses	Plus reinsurance recoverables on unpaid losses and loss adjustment expenses	393,420		389,792		385,087		Plus reinsurance recoverables on unpaid losses and loss adjustment expenses	464,780		393,420		451,741
Balance, end of period	Balance, end of period	$	2,438,250	$	2,331,048	$	2,417,179	Balance, end of period	$	3,603,246	$	2,438,250	$	3,579,940

(1) Current year net losses for the year ended December 31, 2020 included $9.2 million of amortization of a PDR which offsets the impact of the losses incurred associated with the premium earned related to a large national healthcare account's claims-made policy in the Specialty P&C segment. For additional information regarding the PDR, see Note 7 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2020 report on Form 10-K.

~~(2)~~ During the second quarter of 2020, the aforementioned large national healthcare account did not renew on terms offered by the Company and exercised its contractual option to purchase extended reporting endorsement or "tail" coverage. As a result, ProAssurance recognized total current year losses of $60.0 million (assumes a full limit loss) within the Specialty P&C segment for the year ended December 31, 2020 (see Note 7 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2020 report on Form 10-K).

~~(3)~~ Current year net losses for the three months ended March 31, 2022 and year ended December 31, 2021 included ~~incurred~~$2.5 million and $6.7 million, respectively, of amortization of the negative VOBA associated with NORCAL's assumed unearned premium, which is being amortized over a period in proportion to the earn-out of the associated premium as a reduction to current accident year net losses (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K).

(2) Net favorable prior year reserve development recognized for the three months ended March 31, 2022 and year ended December 31, 2021 included $2.9 million and $7.9 million, respectively, of amortization of the purchase accounting fair value adjustment on NORCAL's assumed net reserve and amortization of the negative VOBA associated with NORCAL's DDR reserve which is recorded as a reduction to prior accident year net losses and loss adjustment expenses (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K). ProAssurance has not recognized any development related to ~~an assumed reinsurance arrangement entered into during~~NORCAL's prior accident year reserves since the ~~first quarter~~date of ~~2021 in the Specialty P&C segment (see Note 4).~~acquisition on May 5, 2021.

Estimating liability reserves is complex and requires the use of many assumptions. As time passes and ultimate losses for prior years are either known or become subject to a more precise estimation, ProAssurance increases or decreases the reserve estimates established in prior periods. The ~~consolidated~~net favorable loss development recognized in the three months ended March 31, 2022 primarily reflected overall favorable trends in claim closing patterns in the Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments. The net favorable loss development recognized in the Workers' Compensation

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

Insurance segment is primarily related to the 2019 accident year and prior. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment is primarily related to the 2019 and 2020 accident years. Net favorable development recognized during the three months ended March 31, 2022 was net of an increase in the Company's reserve for potential ECO/XPL claims of $4.0 million in the Specialty P&C segment. Excluding the increase in the ECO/XPL reserve and amortization of purchase accounting adjustments (see footnote 2 in the table above), ProAssurance recognized net favorable prior accident year reserve development of $5.0 million in the Specialty P&C segment, principally related to accident years 2019 through 2021. Consolidated net favorable loss development recognized in the three months ended March 31, 2022 was partially offset by unfavorable reserve development recognized in the Lloyd's Syndicates segment driven by certain catastrophe related losses.

The net favorable loss development recognized in the three months ended March 31, 2021 primarily reflected a lower than anticipated claims severity trend (i.e., the average size of a claim) in the Specialty P&C segment, primarily related to the 2017 and 2018 accident years. The net favorable development also reflected overall favorable trends in claim closing patterns in the Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments. The net favorable loss development recognized in the Workers' Compensation Insurance segment is primarily related to the 2017 accident year and prior. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment is primarily related to the 2018 and 2019 accident years. Consolidated net favorable loss development recognized in the three months ended March 31, 2021 was partially offset by unfavorable reserve development recognized in the Lloyd's Syndicates segment driven by certain property and catastrophe related losses.

The net favorable loss development recognized during the three months ended March 31, 2020 primarily reflected overall favorable trends in claim closing patterns in the Segregated Portfolio Cell Reinsurance and Workers' Compensation Insurance segments as well as a reduction in the reserve for potential ECO/XPL claims in the Specialty P&C segment. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment primarily related to the 2016 through 2018 accident years and the net favorable loss development recognized in the Workers' Compensation Insurance segment primarily related to the 2015 and 2016 accident years.

~~Table of Contents~~

~~ProAssurance Corporation and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~March 31, 2021~~

~~The net favorable loss development recognized~~ for the year ended December 31, ~~2020~~2021 primarily reflected a lower than anticipated ~~claims severity trend (i.e., the average size of a claim)~~loss emergence in the Specialty P&C segment, primarily related to the ~~2014~~2015 through ~~2017~~2020 accident years. ProAssurance did not recognize any development related to NORCAL's prior accident year reserves in 2021. Net favorable prior accident year reserve development recognized in the Specialty P&C segment also included a $1.0 million reduction in our IBNR reserve for COVID-19 during the third quarter of 2021. The net favorable development also reflected overall favorable trends in claim closing patterns in the Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance ~~and~~segments. The net favorable loss development recognized in the Workers' Compensation Insurance ~~segments.~~segment is primarily related to the 2012 through 2017 accident years. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment is primarily related to ~~the 2014 through 2019~~accident year 2015 and accident years ~~and the~~2018 through 2020. Consolidated net favorable loss development recognized in 2021 was partially offset by unfavorable reserve development recognized in the ~~Workers' Compensation Insurance~~Lloyd's Syndicates segment ~~primarily~~driven by certain catastrophe related ~~to the 2014 through 2017 accident years.~~

For additional information regarding ProAssurance's reserve for losses, see Note 1 and Note 8 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2020 report on Form 10-K.losses.

8.6. 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, ~~2020~~2021 report on Form 10-K. ProAssurance also has other direct actions against the Company unrelated to its claims activity which are evaluated and accounted for as a part of other liabilities. For these corporate legal actions, the Company evaluates each case separately and establishes what it believes is an appropriate reserve based on GAAP guidance related to contingent liabilities. As of March 31, ~~2021~~2022, there were no material reserves established for corporate legal actions.

As a member of Lloyd's, ProAssurance has obligations to Syndicate 1729 ~~and Syndicate 6131~~ including a Syndicate Credit Agreement and FAL requirements. The Syndicate Credit Agreement is an unconditional revolving credit agreement to the Premium Trust Fund of Syndicate 1729 for the purpose of providing working ~~capital with~~capital. At March 31, 2022, the maximum permitted borrowings ofunder the Syndicate Credit Agreement were approximately £30.0 million (approximately ~~$41.3~~$39.4 million ~~as of~~at March 31, ~~2021)~~2022). Effective July 1, 2022, maximum permitted borrowings will be reduced to £15.0 million (approximately $19.7 million at March 31, 2022) from £30.0 million under an amended Syndicate Credit Agreement executed in January 2022. The amended Syndicate Credit Agreement has a maturity date of ~~December 31, 2021~~June 30, 2023 and contains an annual auto-renewal feature which allows for ProAssurance to elect to non-renew if notice is given at least 30 days prior to the next auto-renewal date, which is one year prior to the maturity date. Under the Syndicate Credit Agreement, advances bear interest at 3.8% annually and may be repaid at any time but are repayable upon demand after ~~December 31, 2021,~~June 30, 2023, subject to extension through the auto-renewal feature. As of March 31, ~~2021,~~2022, there were no outstanding borrowings under the Syndicate Credit Agreement. ProAssurance provides FAL to support underwriting by Syndicate 1729 ~~and Syndicate 6131 and~~which is comprised of investment securities and cash and cash equivalents deposited with Lloyd's with a total fair value of approximately ~~$106.8~~$37.0 million at March 31, ~~2021~~2022 (see Note 3).

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

ProAssurance has entered into financial instrument transactions that may present off-balance sheet credit risk or market risk. These transactions include a short-term loan commitment and commitments to provide funding to non-public investment entities. Under the short-term loan commitment, ProAssurance has agreed to advance funds on a 30 day basis to a counterparty provided there is no violation of any condition established in the contract. As of March 31, ~~2021,~~2022, ProAssurance had total funding commitments related to non-public investment entities as well as the short-term loan commitment of approximately ~~$190.5~~$234.2 million which included the amount at risk if the full short-term loan is extended and the counterparties default. However, the credit risk associated with the short-term loan commitment is minimal as the counterparties to the contract are highly rated commercial institutions and to-date have been performing in accordance with their contractual obligations. ProAssurance’s expected credit losses associated with this short-term loan commitment were nominal in amount as of March 31, ~~2021.~~

~~Table of Contents~~2022.

ProAssurance ~~Corporation and Subsidiaries~~

~~Notes~~has previously entered into a services agreement with a company to ~~Condensed Consolidated Financial Statements (Unaudited)~~

~~March 31,~~provide data analytics services for certain product lines within the Company's HCPL book of business. In November 2021,

~~9. Leases~~

ProAssurance ~~is involved in a number~~executed an amendment to this services agreement which extended the Company's commitment an additional three years for an annual fee of ~~operating leases primarily for office facilities. Office facility leases have remaining lease terms ranging from one year~~approximately $3.5 million. In addition, the amended services agreement contains an annual one-year auto-extension feature unless either party elects to ~~eleven years; some of which include options~~non-renew the services agreement by providing notice at least six-months prior to ~~extend~~ the leases for up to fifteen years, and some of which include an option to terminate the lease within one year. ProAssurance subleases certain office facilities to third parties and classifies these leases as operating leases.

~~The following table provides a summary~~end of the ~~components~~contract. ProAssurance incurred operating expenses associated with this services agreement of ~~net lease expense as well as the reporting location in the Condensed Consolidated Statements of Income~~$0.9 million and ~~Comprehensive Income~~$0.6 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the remaining commitment under this agreement was estimated to be approximately $9.0 million.

The purchase consideration in the NORCAL acquisition included contingent consideration. NORCAL policyholders who elected to receive NORCAL stock and tender it to ProAssurance are eligible for a share of contingent consideration in an amount of up to approximately $84 million depending upon the after-tax development of NORCAL's ultimate net losses between December 31, 2020 and December 31, 2023. The estimated fair value of this contingent consideration was $24 million as of March 31, 2022, which is unchanged from the acquisition date of May 5, 2021, and ~~2020.~~

(In thousands) Location in the Condensed Consolidated Statements of Income and Comprehensive Income Three Months Ended March 31
2021 2020
Operating lease expense (1)
Operating expense $ 938 $ 1,625
Sublease income (2)
Other income (54) (38)
Net lease expense $ 884 $ 1,587

~~(1)~~ ~~Includes short-term lease costs~~was derived utilizing a stochastic model. This estimate does not guarantee that contingent consideration will ultimately be paid. Depending on NORCAL's actual ultimate net loss development between December 31, 2020 and ~~variable lease costs, if applicable. For~~December 31, 2023, the ~~three months ended March 31, 2021~~actual amount due to eligible policyholders may be greater than or less than the $24 million current fair value estimate. See further discussion around the contingent consideration in Note 2 and ~~2020, no short-term lease costs were recognized and variable lease costs were nominal~~further discussion on the NORCAL acquisition in ~~amount.~~

~~(2)~~ ~~Sublease income excludes rental income from owned properties of $0.6 million during each~~Note 2 of the ~~three months ended March 31, 2021 and 2020 which is~~Notes to Consolidated Financial Statements included ~~in other income. See “Item 2. Properties”~~ in ProAssurance's December 31, ~~2020~~2021 report on Form ~~10-K for a listing of currently owned properties.~~

~~The following table provides supplemental lease information for operating leases on the Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020.~~

($ in thousands) March 31, 2021 December 31, 2020
Operating lease ROU assets $ 18,219 $ 19,013
Operating lease liabilities $ 19,168 $ 20,116
Weighted-average remaining lease term 8.26 years 8.31 years
Weighted-average discount rate 2.98 % 2.97 %

~~The following table provides supplemental lease information for the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020.~~

Three Months Ended March 31
(In thousands) 2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 1,089 $ 1,017

~~Table of Contents~~

~~ProAssurance Corporation and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~March 31, 2021~~

The following table is a schedule of remaining future minimum lease payments for operating leases that had an initial or remaining non-cancellable lease term in excess of one year as of March 31, 2021.

(In thousands)
2021 $ 3,057
2022 3,306
2023 2,608
2024 2,026
2025 1,783
Thereafter 8,875
Total future minimum lease payments 21,655
Less: Imputed interest 2,487
Total operating lease liabilities $ 19,168
10-K.

~~10.~~7. Debt

ProAssurance’s outstanding debt consisted of the following:


($ in thousands)	($ in thousands)	March 31, 2021		December 31, 2020		($ in thousands)	March 31, 2022		December 31, 2021
Senior Notes due 2023, unsecured, interest at 5.3% annually	Senior Notes due 2023, unsecured, interest at 5.3% annually	$	250,000	$	250,000	Senior Notes due 2023, unsecured, interest at 5.3% annually	$	250,000	$	250,000
Contribution Certificates due 2031, interest at 3.0% (effective interest rate at 4.35%) paid annually beginning April 2022						Contribution Certificates due 2031, interest at 3.0% (effective interest rate at 4.35%) paid annually beginning April 2022	176,351		175,900

Mortgage Loans, outstanding borrowings are secured by first priority liens on two office buildings, and bear an interest rate of three-month LIBOR plus 1.325% (1.51% and 1.58%, respectively) determined on a quarterly basis		35,723		36,113

Total principal	Total principal	285,723		286,113		Total principal	426,351		425,900
Less unamortized debt issuance costs	Less unamortized debt issuance costs	1,301		1,400		Less unamortized debt issuance costs	821		914
Debt less unamortized debt issuance costs	Debt less unamortized debt issuance costs	$	284,422	$	284,713	Debt less unamortized debt issuance costs	$	425,530	$	424,986

Revolving Credit Agreement

ProAssurance has a Revolving Credit Agreement with 7 participating lenders. The Revolving Credit Agreement, which expires November 2024 ~~that~~ may be used for general corporate purposes, including, but not limited to, short-term working capital, share repurchases as authorized by the Board and support for other activities. ProAssurance's Revolving Credit Agreement permits borrowings up to $250 million, and has available a $50 million accordion feature which, if successfully subscribed, would expand the permitted borrowings to a maximum of $300 million. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, there were 0no outstanding borrowings on the Revolving Credit Agreement.

Covenant Compliance

There are no financial covenants associated with the Senior Notes or the Contribution Certificates due ~~2023.~~2023 and 2031, respectively.

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

The Revolving Credit Agreement contains customary representations, covenants and events constituting default, and remedies for default. The Revolving Credit Agreement also defines financial covenants regarding permitted leverage ratios. ProAssurance is currently in compliance with all covenants of the Revolving Credit Agreement. On April 19, 2021, ProAssurance amended and restated its Revolving Credit Agreement to allow for additional indebtedness of a subsidiary in preparation of the close of the NORCAL acquisition. This amendment to the Revolving Credit Agreement is included as Exhibit 10.1 of this report.

The Mortgage Loans contain customary representations, covenants and events constituting default, and remedies for default. The Mortgage Loans also define a financial covenant regarding a permitted leverage ratio for each of the two ProAssurance subsidiaries that entered into the Mortgage Loans. ProAssurance's subsidiaries are currently in compliance with the financial covenant of the Mortgage Loans.

Additional Information

For additional information regarding ProAssurance's debt, see Note 1113 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, ~~2020~~2021 report on Form 10-K.

~~Table of Contents~~

~~ProAssurance Corporation and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~March 31, 2021~~

~~11.~~8. Shareholders’ Equity

At March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, ProAssurance had 100 million shares of authorized common stock and 50 million shares of authorized preferred stock. The Board has the authority to determine provisions for the issuance of preferred shares, including the number of shares to be issued, the designations, powers, preferences and rights, and the qualifications, limitations or restrictions of such shares.

ProAssurance declared cash dividends of $0.05 ~~and $0.31~~ per share during the first quarter of ~~2021~~both 2022 and ~~2020, respectively.~~2021. Dividends declared during the ~~2021~~2022 and ~~2020~~2021 three-month periods totaled $2.7 million ~~and $16.7 million, respectively.~~in each period. Any decision to pay future cash dividends is subject to the Board’s final determination after a comprehensive review of financial performance, future expectations and other factors deemed relevant by the Board. See Note 1214 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, ~~2020~~2021 report on Form 10-K for additional information.

At March 31, ~~2021,~~2022, Board authorizations for the repurchase of common shares or the retirement of outstanding debt of $110 million remained available for use. ProAssurance did 0tnot repurchase any common shares during the three months ended March 31, ~~2021~~2022 or ~~2020.~~2021.

Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)

The following tables provide a detailed breakout of the components of AOCI and the amounts reclassified from AOCI to net income (loss). The tax effects of all amounts in the tables below, except for an immaterial amount of unrealized gains and losses on available-for-sale securities held at the Company's U.K. subsidiary, were computed using the enacted U.S. federal corporate tax rate of 21%. ~~For the three months ended March 31, 2021 and 2020,~~ OCI included a deferred tax benefit of $38.2 million and $8.3 million for the three months ended March 31, 2022 and ~~$11.0 million,~~2021, respectively.

The changes in the balance of each component of AOCI for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 were as follows:


(In thousands)	(In thousands)	Unrealized Investment Gains (Losses)		Non-credit Impairments		Unrecognized Change in Defined Benefit Plan Liabilities*		Accumulated Other Comprehensive Income (Loss)		(In thousands)	Unrealized Investment Gains (Losses)		Unrecognized Change in Defined Benefit and Post Retirement Liabilities		Accumulated Other Comprehensive Income (Loss)
Balance December 31, 2020		$	75,388	$	(57)	$	(104)	$	75,227
Balance, December 31, 2021										Balance, December 31, 2021	$	14,929	$	1,355	$	16,284
OCI, before reclassifications, net of tax	OCI, before reclassifications, net of tax	(30,415)		0		0		(30,415)		OCI, before reclassifications, net of tax	(140,808)		—		(140,808)
Amounts reclassified from AOCI, net of tax	Amounts reclassified from AOCI, net of tax	(3,347)		57		0		(3,290)		Amounts reclassified from AOCI, net of tax	(28)		(14)		(42)
Net OCI, current period	Net OCI, current period	(33,762)		57		0		(33,705)		Net OCI, current period	(140,836)		(14)		(140,850)
Balance March 31, 2021		$	41,626	$	0	$	(104)	$	41,522
Balance, March 31, 2022										Balance, March 31, 2022	$	(125,907)	$	1,341	$	(124,566)


(In thousands)	(In thousands)	Unrealized Investment Gains (Losses)		Non-credit Impairments		Unrecognized Change in Defined Benefit Plan Liabilities*		Accumulated Other Comprehensive Income (Loss)		(In thousands)	Unrealized Investment Gains (Losses)		Non-credit Impairments		Unrecognized Change in Defined Benefit Plan Liabilities(1)		Accumulated Other Comprehensive Income (Loss)
Balance December 31, 2019		$	36,577	$	300	$	78	$	36,955
Balance, December 31, 2020										Balance, December 31, 2020	$	75,388	$	(57)	$	(104)	$	75,227
OCI, before reclassifications, net of tax	OCI, before reclassifications, net of tax	(42,497)		517		0		(41,980)		OCI, before reclassifications, net of tax	(30,415)		—		—		(30,415)
Amounts reclassified from AOCI, net of tax	Amounts reclassified from AOCI, net of tax	115		0		0		115		Amounts reclassified from AOCI, net of tax	(3,347)		57		—		(3,290)
Net OCI, current period	Net OCI, current period	(42,382)		517		0		(41,865)		Net OCI, current period	(33,762)		57		—		(33,705)
Balance March 31, 2020		$	(5,805)	$	817	$	78	$	(4,910)
* Represents the re-estimation of the defined benefit plan liability assumed in the Eastern acquisition. The defined benefit plan is frozen as to the earnings of additional benefits and the benefit plan liability is re-estimated annually.
Balance, March 31, 2021										Balance, March 31, 2021	$	41,626	$	—	$	(104)	$	41,522
(1)For three months ended March 31, 2021, amounts represent the re-estimation of the defined benefit plan liability assumed in the Eastern acquisition. The defined benefit plan was frozen as to the earnings of additional benefits and the benefit plan liability was reestimated annually. The Company terminated Eastern's defined benefit plan during the third quarter of 2021.										(1)For three months ended March 31, 2021, amounts represent the re-estimation of the defined benefit plan liability assumed in the Eastern acquisition. The defined benefit plan was frozen as to the earnings of additional benefits and the benefit plan liability was reestimated annually. The Company terminated Eastern's defined benefit plan during the third quarter of 2021.

3731

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

~~12.~~9. Variable Interest Entities

ProAssurance holds passive interests in a number of entities that are considered to be VIEs under GAAP guidance. ProAssurance's VIE interests principally consist of interests in LPs/LLCs formed for the purpose of achieving diversified equity and debt returns. ProAssurance's VIE interests, carried as a part of investment in unconsolidated subsidiaries, totaled ~~$270.8~~$291.4 million at March 31, ~~2021~~2022 and ~~$282.2~~$303.7 million at December 31, ~~2020.~~

2021. ProAssurance does not have power over the activities that most significantly impact the economic performance of these VIEs and thus is not the primary beneficiary. Investments in entities where ProAssurance holds a greater than minor interest but does not hold a controlling interest are accounted for using the equity method. Therefore, ProAssurance has not consolidated these VIEs. ProAssurance’s involvement with each ~~VIE~~of these VIEs is limited to its direct ownership interest in the VIE. Except for the funding commitments disclosed in Note 8,6, ProAssurance has no arrangements with any of ~~the~~these VIEs to provide other financial support to or on behalf of the VIE. At March 31, ~~2021,~~2022, ProAssurance’s maximum loss exposure relative to these investments was limited to the carrying value of ProAssurance’s investment in the VIE.

As a result of the Company's acquisition of NORCAL (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K), ProAssurance is the primary beneficiary of PPM RRG. While there is no direct ownership of PPM RRG by ProAssurance, it manages the business operations of PPM RRG through its management services agreement and has effective control of the PPM RRG's Board of Directors through an irrevocable voting proxy. The management services agreement allows ProAssurance to provide management and oversight services to the RRG, which includes the ability to make business decisions impacting the operations of PPM RRG. PPM RRG has a $5 million surplus note to NORCAL which is its only source of capital. ProAssurance has consolidated the account balances and transactions of PPM RRG beginning on the NORCAL acquisition date of May 5, 2021. At March 31, 2022, approximately $141 million of ProAssurance's assets and approximately $141 million of its liabilities included on the Condensed Consolidated Balance Sheet were related to PPM RRG.

~~13.~~

10. Earnings (Loss) Per Share

Diluted weighted average shares is calculated as basic weighted average shares plus the effect, calculated using the treasury stock method, of assuming that restricted share units and performance share units have vested. The following table provides a reconciliation between the Company's basic weighted average number of common shares outstanding to its diluted weighted average number of common shares outstanding:


(In thousands, except per share data)	(In thousands, except per share data)	Three Months Ended March 31			(In thousands, except per share data)	Three Months Ended March 31
			2021				2020		(In thousands, except per share data)	2022		2021
Weighted average number of common shares outstanding, basic	Weighted average number of common shares outstanding, basic		53,918				53,808			54,012		53,918
Dilutive effect of securities:	Dilutive effect of securities:								Dilutive effect of securities:
Restricted Share Units	Restricted Share Units		76				74		Restricted Share Units	114		76
Performance Share Units	Performance Share Units		4				3		Performance Share Units	17		4

Weighted average number of common shares outstanding, diluted	Weighted average number of common shares outstanding, diluted		53,998				53,885		Weighted average number of common shares outstanding, diluted	54,143		53,998
Effect of dilutive shares on earnings (loss) per share	Effect of dilutive shares on earnings (loss) per share		$	0			$	0	Effect of dilutive shares on earnings (loss) per share	$	—	$	—

Dilutive common share equivalents are reflected in the earnings (loss) per share calculation while antidilutive common share equivalents are not reflected in the earnings (loss) per share calculation. ~~There were no antidilutive common share equivalents for the three months ended March 31, 2021.~~ For the three months ended March 31, ~~2020,~~2022, all incremental common share equivalents were not included in the computation of diluted earnings (loss) per share because to do so would have been antidilutive for the period. There were no antidilutive common share equivalents for the three months ended March 31, 2021.

3832

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

~~14.~~11. Segment Information

ProAssurance's segments are based on the Company's internal management reporting structure for which financial results are regularly evaluated by the Company's CODM to determine resource allocation and assess operating performance. The Company continually assesses its internal management reporting structure and information evaluated by its CODM to determine whether any changes have occurred that would impact its segment reporting structure.

The Company operates in 5 segments that are organized around the nature of the products and services provided: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance, Lloyd's Syndicates and Corporate. Additional information regarding ProAssurance's segments is included in Note 18 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2021 report on Form 10-K. A description of each of ProAssurance's 5 operating and reportable segments follows.

•Specialty P&C includes professional liability insurance and medical technology liability insurance. Professional liability insurance is primarily comprised of medical professional liability products offered to healthcare providers and institutions. The Company also offers, to a lesser extent, professional liability insurance to attorneys and their firms. Medical technology liability insurance is offered to medical technology and life sciences companies that manufacture or distribute products including entities conducting human clinical trials. In addition, the Company also offers custom alternative risk solutions including loss portfolio transfers, assumed reinsurance and captive cell programs for healthcare professional liability insureds. For the alternative market captive cell programs, the Specialty P&C segment cedes either all or a portion of the premium to certain SPCs in the Company's Segregated Portfolio Cell Reinsurance segment.

•Workers' Compensation Insurance includes workers' compensation insurance products which are provided primarily to employers with 1,000 or fewer employees. The segment's products include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and alternative market solutions. Alternative market program premiums include program design, fronting, claims administration, risk management, SPC rental, asset management and SPC management services. Alternative market program premiums are 100% ceded to either SPCs in the Company's Segregated Portfolio Cell Reinsurance segment or, to a limited extent, to a captive insurer unaffiliated with ProAssurance.

•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. Each SPC is owned, fully or in part, by an agency, group or association, and the results of the SPCs are attributable to the participants of that cell. ProAssurance participates to a varying degree in the results of selected SPCs. SPC results attributable to external cell participants are reflected as SPC dividend expense (income) in the Segregated Portfolio Cell Reinsurance segment and in ProAssurance's Condensed Consolidated Statements of Income and Comprehensive Income. In addition, the Segregated Portfolio Cell Reinsurance segment includes the investment results of the SPCs as the investments are solely for the benefit of the cell participants, and investment results attributable to external cell participants are reflected in SPC dividend expense (income). The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from the Company's Workers' Compensation Insurance and Specialty P&C segments.

•Lloyd's Syndicates includes the results from ProAssurance's participation in Lloyd's of London Syndicate 1729 and Syndicate 6131. The results of this segment are normally reported on a quarter lag, except when information is available that is material to the current period. Furthermore, investment results associated with the majority of investment assets solely allocated to Lloyd's Syndicate operations and certain U.S. paid administrative expenses are reported concurrently as that information is available on an earlier time frame. Syndicate 1729 underwrites risks over a wide range of property and casualty insurance and reinsurance lines in both the U.S. and international markets while Syndicate 6131 focuses on contingency and specialty property business, also within the U.S. and international markets. To support and grow the Company's core insurance operations, ProAssurance decreased itsProAssurance's participation in the results of Syndicate 1729 for the 2022 underwriting year remains unchanged from the 2021 underwriting year toat 5% ~~from 29%~~. Effective January 1, 2022, Syndicate 6131 ~~is an SPA that underwrites~~ceased underwriting on a quota share basis with Syndicate ~~1729. Effective July 1, 2020,~~1729 as Syndicate ~~6131 entered into a six-month quota share reinsurance agreement with an unaffiliated insurer. Under this agreement, Syndicate 6131 ceded essentially half of the premium assumed from~~6131's applicable business is retained within Syndicate 1729 tobeginning with the ~~unaffiliated insurer; the agreement was non-renewed on January 1, 2021 and the Company decreased its participation in the results~~2022 year of ~~Syndicate 6131 to 50% from 100% for the 2021 underwriting year.~~account. Due to the quarter lag, the ~~change in the~~ Company's ceased participation in ~~the results of Syndicates 1729 and~~Syndicate 6131 will not be reflected in ~~its~~the Company's results until the second quarter of ~~2021.~~2022.

•Corporate includes ProAssurance's investment operations ~~other than~~and excludes those reported in the Company's Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates ~~segments,~~segments. In addition, this segment includes corporate expenses, interest ~~expense and~~expense. U.S. income ~~taxes. The segment also includes~~taxes and non-premium revenues generated outside of the Company's insurance ~~entities and corporate expenses.~~entities.

The accounting policies of the segments are described in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, ~~2020~~2021 report on Form 10-K. ProAssurance evaluates the performance of its Specialty P&C and Workers' Compensation Insurance segments based on before tax underwriting profit or loss. ProAssurance evaluates the performance of its Segregated Portfolio Cell Reinsurance segment based on operating profit or loss, which includes investment

~~Table of Contents~~

~~ProAssurance Corporation and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~March 31, 2021~~

results of investment assets solely allocated to SPC operations, net of U.S. federal income taxes. Performance of the Lloyd's Syndicates segment is evaluated based on operating profit or loss, which includes investment results of investment assets solely allocated to Lloyd's Syndicate operations, net of U.K. income tax expense. Performance of the Corporate segment is evaluated based on the contribution made to consolidated after-tax results. ProAssurance accounts for inter-segment transactions as if the transactions were to third parties at current market prices. Assets are not allocated to segments because investments, other than the investments discussed above that are solely allocated to the Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments, and other assets are not managed at the segment level. The tabular information that follows shows the financial results of the Company's reportable segments reconciled to results reflected in the Condensed Consolidated Statements of Income and Comprehensive Income. Beginning in the second quarter of 2021, transaction-related costs rose to a significant level; therefore, management determined that transaction-related costs will not be included in a segment on a prospective basis beginning in the second quarter of 2021 as ProAssurance does not consider ~~asset impairments, including goodwill and intangible asset impairments,~~these costs in assessing the financial performance of any of its operating ~~and~~or reportable ~~segments, and thus~~segments. As a result, transaction-related costs are included in the reconciliation of segment results to consolidated ~~results.~~

~~Financial~~ results ~~by segment were as follows:~~

Three Months Ended March 31, 2021
(In thousands) Specialty P&C Workers' Compensation Insurance Segregated Portfolio Cell Reinsurance Lloyd's Syndicates Corporate Inter-segment Eliminations Consolidated
Net premiums earned $ 115,613 $ 40,011 $ 15,884 $ 15,850 $ 0 $ 0 $ 187,358
Net investment income 0 0 221 729 14,067 0 15,017
Equity in earnings (loss) of unconsolidated subsidiaries 0 0 0 0 6,788 0 6,788
Net realized gains (losses) 0 0 987 (115) 7,977 0 8,849
Other income (expense)(1)
469 392 1 221 1,894 (972) 2,005
Net losses and loss adjustment expenses (101,186) (26,207) (9,425) (12,967) 0 0 (149,785)
Underwriting, policy acquisition and operating expenses(1)
(26,346) (12,286) (5,025) (6,591) (7,175) 972 (56,451)
SPC U.S. federal income tax expense(2)
0 0 (356) 0 0 0 (356)
SPC dividend (expense) income 0 0 (1,742) 0 0 0 (1,742)
Interest expense 0 0 0 0 (3,212) 0 (3,212)
Income tax benefit (expense) 0 0 0 0 (736) 0 (736)
Segment results $ (11,450) $ 1,910 $ 545 $ (2,873) $ 19,603 $ 0 7,735
Net income (loss) $ 7,735
Significant non-cash items:
Depreciation and amortization, net of accretion $ 2,171 $ 903 $ 316 $ 15 $ 3,317 $ 0 $ 6,722
for the three months ended March 31, 2022.

4033

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

Three Months Ended March 31, 2020
(In thousands) Specialty P&C Workers' Compensation Insurance Segregated Portfolio Cell Reinsurance Lloyd's Syndicates Corporate Inter-segment Eliminations Consolidated
Net premiums earned $ 120,359 $ 44,515 $ 16,980 $ 22,001 $ 0 $ 0 $ 203,855
Net investment income 0 0 254 1,159 19,417 0 20,830
Equity in earnings (loss) of unconsolidated subsidiaries 0 0 0 0 (1,562) 0 (1,562)
Net realized gains (losses) 0 0 (3,207) 81 (25,547) 0 (28,673)
Other income (expense)(1)
1,698 757 136 (232) 633 (741) 2,251
Net losses and loss adjustment expenses (110,931) (29,769) (9,352) (14,780) 0 0 (164,832)
Underwriting, policy acquisition and operating expenses(1)
(29,585) (14,164) (5,079) (9,142) (4,827) 741 (62,056)
SPC U.S. federal income tax expense(2)
0 0 (222) 0 0 0 (222)
SPC dividend (expense) income 0 0 508 0 0 0 508
Interest expense 0 0 0 0 (4,129) 0 (4,129)
Income tax benefit (expense) 0 0 0 29 12,047 0 12,076
Segment results $ (18,459) $ 1,339 $ 18 $ (884) $ (3,968) $ 0 (21,954)
Net income (loss) $ (21,954)
Significant non-cash items:
Depreciation and amortization, net of accretion $ 1,580 $ 926 $ 69 $ 9 $ 2,150 $ 0 $ 4,734
(1) Certain fees for services provided to the SPCs at Inova Re and Eastern Re are recorded as expenses within the Segregated Portfolio Cell Reinsurance segment and as other income within the Workers' Compensation Insurance segment. These fees are primarily SPC rental fees and are eliminated between segments in consolidation.
(2) 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.
Financial results by segment were as follows:


	Three Months Ended March 31, 2022
(In thousands)	Specialty P&C		Workers' Compensation Insurance		Segregated Portfolio Cell Reinsurance		Lloyd's Syndicates		Corporate		Inter-segment Eliminations		Consolidated
Net premiums earned	$	197,967	$	40,684	$	19,314	$	7,746	$	—	$	—	$	265,711
Net investment income	—		—		112		211		20,120		—		20,443
Equity in earnings (loss) of unconsolidated subsidiaries	—		—		—		—		7,620		—		7,620
Net investment gains (losses)	—		—		(711)		(399)		(12,396)		—		(13,506)
Other income (expense)(1)	1,019		682		1		134		2,065		(1,097)		2,804
Net losses and loss adjustment expenses(2)	(165,958)		(27,211)		(11,491)		(4,763)		—		—		(209,423)
Underwriting, policy acquisition and operating expenses(1)(2)	(42,878)		(13,001)		(4,369)		(2,709)		(8,739)		1,097		(70,599)
SPC U.S. federal income tax expense(3)	—		—		(642)		—		—		—		(642)
SPC dividend (expense) income	—		—		(2,367)		—		—		—		(2,367)
Interest expense	—		—		—		—		(4,441)		—		(4,441)
Income tax benefit (expense)	—		—		—		—		1,770		—		1,770
Segment results	$	(9,850)	$	1,154	$	(153)	$	220	$	5,999	$	—	(2,630)
Reconciliation of segments to consolidated results:



Transaction-related costs, net(4)													(930)
Net income (loss)													$	(3,560)
Significant non-cash items:

Depreciation and amortization, net of accretion	$	2,592	$	874	$	370	$	14	$	6,500	$	—	$	10,350


	Three Months Ended March 31, 2021
(In thousands)	Specialty P&C		Workers' Compensation Insurance		Segregated Portfolio Cell Reinsurance		Lloyd's Syndicates		Corporate		Inter-segment Eliminations		Consolidated
Net premiums earned	$	115,613	$	40,011	$	15,884	$	15,850	$	—	$	—	$	187,358
Net investment income	—		—		221		729		14,067		—		15,017
Equity in earnings (loss) of unconsolidated subsidiaries	—		—		—		—		6,788		—		6,788
Net investment gains (losses)	—		—		987		(115)		7,977		—		8,849
Other income (expense)(1)	469		392		1		221		1,894		(972)		2,005
Net losses and loss adjustment expenses	(101,186)		(26,207)		(9,425)		(12,967)		—		—		(149,785)
Underwriting, policy acquisition and operating expenses(1)	(26,346)		(12,286)		(5,025)		(6,591)		(7,175)		972		(56,451)
SPC U.S. federal income tax expense(3)	—		—		(356)		—		—		—		(356)
SPC dividend (expense) income	—		—		(1,742)		—		—		—		(1,742)
Interest expense	—		—		—		—		(3,212)		—		(3,212)
Income tax benefit (expense)	—		—		—		—		(736)		—		(736)
Segment results	$	(11,450)	$	1,910	$	545	$	(2,873)	$	19,603	$	—	7,735



Net income (loss)													$	7,735
Significant non-cash items:

Depreciation and amortization, net of accretion	$	2,171	$	903	$	316	$	15	$	3,317	$	—	$	6,722

(1) Certain fees for services provided to the SPCs at Inova Re and Eastern Re are recorded as expenses within the Segregated Portfolio Cell Reinsurance segment and as other income within the Workers' Compensation Insurance segment. These fees are primarily SPC rental fees and are eliminated between segments in consolidation.
(2) During the first quarter of 2022, ProAssurance revised its estimate of ULAE as a result of substantially integrating NORCAL into the Specialty P&C segment operations. The change in the Company's estimate of ULAE increased underwriting, policy acquisition and operating expenses with an offsetting decrease to net losses and loss adjustment expenses in the Specialty P&C segment; there was no impact on segment results for the three months ended March 31, 2022. See further discussion on this change in estimate in Note 1.
(3) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
(4) Represents the transaction-related costs, after-tax, associated with the acquisition of NORCAL. Pre-tax transaction-related costs of approximately $1.2 million were included as a component of consolidated operating expense and the associated income tax benefit of approximately $0.3 million were included as a component of consolidated income tax benefit (expense) on the Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2022.

4134

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

The following table provides detailed information regarding ProAssurance's gross premiums earned by product as well as a reconciliation to net premiums earned. All gross premiums earned are from external customers except as noted. ProAssurance's insured risks are primarily within the U.S.


		Three Months Ended March 31						Three Months Ended March 31
(In thousands)	(In thousands)		2021		2020		(In thousands)		2022		2021
Specialty P&C Segment	Specialty P&C Segment						Specialty P&C Segment
Gross premiums earned:	Gross premiums earned:						Gross premiums earned:
HCPL	HCPL		$	97,045	$	103,467	HCPL		$	175,547	$	97,045
Small Business Unit	Small Business Unit		25,925		26,650		Small Business Unit		26,538		25,925
Medical Technology Liability	Medical Technology Liability		8,938		8,529		Medical Technology Liability		10,000		8,938
Other	Other		152		377		Other		194		152
Ceded premiums earned	Ceded premiums earned		(16,447)		(18,664)		Ceded premiums earned		(14,312)		(16,447)
Segment net premiums earned	Segment net premiums earned		115,613		120,359		Segment net premiums earned		197,967		115,613

Workers' Compensation Insurance Segment	Workers' Compensation Insurance Segment						Workers' Compensation Insurance Segment
Gross premiums earned:	Gross premiums earned:						Gross premiums earned:

Traditional business	Traditional business		41,743		47,485		Traditional business		43,156		41,743
Alternative market business	Alternative market business		16,889		18,128		Alternative market business		17,878		16,889
Ceded premiums earned	Ceded premiums earned		(18,621)		(21,098)		Ceded premiums earned		(20,350)		(18,621)
Segment net premiums earned	Segment net premiums earned		40,011		44,515		Segment net premiums earned		40,684		40,011

Segregated Portfolio Cell Reinsurance Segment	Segregated Portfolio Cell Reinsurance Segment						Segregated Portfolio Cell Reinsurance Segment
Gross premiums earned:	Gross premiums earned:						Gross premiums earned:
Workers' compensation(1)	Workers' compensation(1)		16,115		17,513		Workers' compensation(1)		17,178		16,115
HCPL(2)	HCPL(2)		1,852		1,677		HCPL(2)		4,486		1,852

Ceded premiums earned	Ceded premiums earned		(2,083)		(2,210)		Ceded premiums earned		(2,350)		(2,083)
Segment net premiums earned	Segment net premiums earned		15,884		16,980		Segment net premiums earned		19,314		15,884

Lloyd's Syndicates Segment	Lloyd's Syndicates Segment						Lloyd's Syndicates Segment
Gross premiums earned:	Gross premiums earned:						Gross premiums earned:
Property and casualty	Property and casualty		20,385		28,196		Property and casualty		9,232		20,385
Ceded premiums earned	Ceded premiums earned		(4,535)		(6,195)		Ceded premiums earned		(1,486)		(4,535)
Segment net premiums earned	Segment net premiums earned		15,850		22,001		Segment net premiums earned		7,746		15,850

Consolidated net premiums earned	Consolidated net premiums earned		$	187,358	$	203,855	Consolidated net premiums earned		$	265,711	$	187,358

(1) Premium for all periods is assumed from the Workers' Compensation Insurance segment.

(2) Premium for all periods is assumed from the Specialty P&C segment.

4235

Table of Contents

ProAssurance Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, ~~2021~~2022

~~15. Subsequent Event~~12. Benefit Plans

OnProAssurance assumed a defined benefit pension plan on May 5, 2021 ~~ProAssurance completed~~as a result of its acquisition of NORCAL, ~~by purchasing over 98%~~which covers substantially all NORCAL employees (except those that were previous employees of Medicus Insurance Company and FD Insurance Company, employees of PPM RRG as well as new hires after December 31, 2013). Benefits are based on years of service and the employee’s average of the ~~converted company stock~~highest five years of annual compensation. Annual contributions to the defined benefit pension plan are not less than the minimum funding standards outlined in ~~exchange~~the Employee Retirement Income Security Act of 1974, as amended. ProAssurance makes contributions to the defined benefit pension plan with the goal of ensuring that it is adequately funded to meet its future obligations. ProAssurance did not make any contributions to the pension plan during the three months ended March 31, 2022 and does not anticipate making any contributions for ~~base consideration~~the remainder of ~~$441 million, which includes cash from ProAssurance of $248 million.~~2022. The ~~cash consideration from ProAssurance~~defined benefit pension plan no longer has future service accruals or compensation increases because this plan was ~~funded by cash on hand as of May 5, 2021. On May 6, 2021, ProAssurance borrowed $15 million under its Revolving Credit Agreement to pay certain transaction-related expenses (see Note 10~~frozen effective December 31, 2015. See Notes 2 and 19 of the Notes to ~~Condensed~~ Consolidated Financial Statements for further discussion of the terms of the Revolving Credit Agreement). The consideration also includes contribution certificates as well as contingent consideration depending upon the development of NORCAL's ultimate net losses over a three-year period beginningin ProAssurance's December 31, 2020. The contribution certificates will be issued to certain NORCAL policyholders in the conversion of NORCAL Mutual, and those instruments are an obligation of NORCAL Insurance Company, the successor of NORCAL. The base consideration and maximum contingent consideration are subject to final verification as the equity allocation is reviewed and finalized post close.

The determination of the fair value of the contingent consideration, along with the allocation of the final purchase consideration to the assets acquired and liabilities assumed was not complete as of the date of this report. The required disclosures related to this acquisition will be provided in ProAssurance's June 30, 2021 report on Form ~~10-Q upon completion~~10-K for more information regarding ProAssurance's acquisition of NORCAL and defined benefit pension plan, respectively.

The components of the ~~valuation of~~net periodic benefit cost (income) for the ~~assets acquired and liabilities assumed.~~three months ended March 31, 2022 were as follows:

NORCAL is an underwriter of medical professional liability insurance and this transaction will provide strategic and financial benefits including additional scale and geographic diversification in the physician professional liability market and is expected to be accretive to earnings over time.


($ in thousands)	Three Months Ended March 31, 2022

Components of net periodic benefit cost (income):

Interest cost	$	711
Expected return on Plan assets	(989)


Total net periodic benefit cost (income)*	$	(278)
*Net periodic benefit cost (income) is included as a component of operating expense on the Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2022.

4336

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes to those statements which accompany this report. Throughout the discussion we use certain terms and abbreviations, which can be found in the Glossary of Terms and Acronyms at the beginning of this report. In addition, a glossary of insurance terms and phrases is available on the investor section of our website. Throughout the discussion, references to "ProAssurance," "PRA," "Company," "we," "us" and "our" refer to ProAssurance Corporation and its consolidated subsidiaries. The discussion contains certain forward-looking information that involves significant risks, assumptions and uncertainties. As discussed under the heading "Caution Regarding Forward-Looking Statements," our actual financial condition and results of operations could differ significantly from these forward-looking statements.

ProAssurance Overview

ProAssurance Corporation is a holding company for property and casualty insurance companies. Our wholly owned insurance subsidiaries provide professional liability insurance, liability insurance for medical technology and life sciences risks and workers' compensation insurance. We also provide capital to Syndicate 1729 ~~and Syndicate 6131~~ at Lloyd's of London.

We operate in five segments which are based on our internal management reporting structure for which financial results are regularly evaluated by our CODM to determine resource allocation and assess operating ~~performance. Descriptions of~~performance: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Reinsurance, Lloyd's Syndicates and Corporate. Additional information on ProAssurance's five operating and reportable segments ~~are as follows:~~

•~~Specialty P&C~~ - This segment includes our professional liability business and medical technology liability business. Our professional liability insurance is primarily comprised of medical professional liability products offered to healthcare providers and institutions. We also offer, to a lesser extent, professional liability insurance to attorneys and their firms. Medical technology liability insurance is offered to medical technology and life sciences companies that manufacture or distribute products including entities conducting human clinical trials. We also offer custom alternative risk solutions including loss portfolio transfers, assumed reinsurance and captive cell programs for healthcare professional liability insureds. For our alternative market captive cell programs, we cede either all or a portion of the premium to certain SPCs in our Segregated Portfolio Cell Reinsurance segment.

•~~Workers' Compensation Insurance~~ - This segment includes our workers' compensation insurance business which is provided primarily to employers with 1,000 or fewer employees. Our workers' compensation products include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and alternative market solutions. Alternative market program premiums are 100% ceded to either SPCs in our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer.

•~~Segregated Portfolio Cell Reinsurance~~ - This 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. Each SPC is owned, fully or in part, by an agency, group or association, and the results of the SPCs are attributable to the participants of that cell. We participate to a varying degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC results attributable to external cell participants are reflected as an SPC dividend expense (income) in our Segregated Portfolio Cell Reinsurance segment. The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from our Workers' Compensation Insurance and Specialty P&C segments.

•~~Lloyd's Syndicates~~ - This segment includes the results from our participation in Lloyd's of London Syndicate 1729 and Syndicate 6131. The results of this segment are normally reported on a quarter lag, except when information is available that is material to the current period. Syndicate 1729 underwrites risks over a wide range of property and casualty insurance and reinsurance lines in both the U.S. and international markets while Syndicate 6131 focuses on contingency and specialty property business, also within the U.S. and international markets. To support and grow our core insurance operations, we decreased our participation in the results of Syndicate 1729 for the 2021 underwriting year to 5% from 29%. Syndicate 6131 is an SPA that underwrites on a quota share basis with Syndicate 1729. Effective July 1, 2020, Syndicate 6131 entered into a six-month quota share reinsurance agreement with an unaffiliated insurer. Under this agreement, Syndicate 6131 ceded essentially half of the premium assumed from Syndicate 1729 to the unaffiliated insurer; the agreement was non-renewed on January 1, 2021 and we decreased our participation in the results of Syndicate 6131 to 50% from 100% for the 2021 underwriting year. Due to the quarter lag, the change in our participation in the results of Syndicates 1729 and 6131 will not be reflected in our results until the second quarter of 2021.

~~Table of Contents~~

•~~Corporate~~ - This segment includes our investment operations, other than those reported in our Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments, interest expense and U.S. income taxes. This segment also includes non-premium revenues generated outside of our insurance entities and corporate expenses.

~~Additional information regarding our segments~~ is included in Note 1418 of the Notes to ~~Condensed~~ Consolidated Financial Statements in our December 31, 2021 report on Form 10-K and in the Segment Results sections herein that follow.

Critical Accounting Estimates

Our Condensed Consolidated Financial Statements are prepared in conformity with GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the amounts we report on those statements. We evaluate these estimates and assumptions on an ongoing basis based on current and historical developments, market conditions, industry trends and other information that we believe to be reasonable under the circumstances, including the potential impacts of the COVID-19 pandemic (see "Item 1A, Risk Factors" ~~and "Critical Accounting Estimates"~~ in our December 31, ~~2020~~2021 report on Form 10-K for additional information). We can make no assurance that actual results will conform to our estimates and assumptions; reported results of operations may be materially affected by changes in these estimates and assumptions.

~~For further information on the significant~~ A detailed discussion of our critical accounting ~~policies we follow~~estimates is included in ~~making estimates that materially affect financial reporting please refer to the Notes to Consolidated Financial Statements~~our Critical Accounting Estimates section in Item 7 of our December 31, ~~2020~~2021 report on Form 10-K.

Management considers the following accounting estimates to be critical because they involve significant judgment by management and those judgments could result in a material effect on our financial ~~statements.~~statements:

•Reserve ~~for Losses and Loss Adjustment Expenses~~

~~The largest component of our liabilities is our reserve~~ for losses and loss adjustment expenses ("reserve for losses" or "reserve"), and the largest component of expense for our operations is incurred losses and loss adjustment expenses (also referred to as “losses and loss adjustment expenses,” “incurred losses,” “losses incurred” and “losses”). Incurred losses reported in any period reflect our estimate of losses incurred related to the premiums earned in that period as well as any changes to our previous estimate of the reserve required for prior periods.

As of March 31, 2021, our reserve is comprised almost entirely of long-tail exposures. The estimation of long-tailed losses is inherently difficult and is subject to significant judgment on the part of management. Due to the nature of our claims, our loss costs, even for claims with similar characteristics, can vary significantly depending upon many factors, including but not limited to the specific characteristics of the claim and the manner in which the claim is resolved. Long-tailed insurance is characterized by the extended period of time typically required both to assess the viability of a claim and potential damages, if any, and to reach a resolution of the claim. The claims resolution process may extend to more than five years. The combination of continually changing conditions and the extended time required for claim resolution results in a loss cost estimation process that requires actuarial skill and the application of significant judgment, and such estimates require periodic modification.

Our reserve is established by management after taking into consideration a variety of factors including premium rates, historical paid and incurred loss development trends and our evaluation of the current loss environment including frequency, severity, the expected effect of inflation, general economic and social trends, and the legal and political environment. We also take into consideration the conclusions reached by our internal and consulting actuaries. We update and review the data underlying the estimation of our reserve for losses each reporting period and make adjustments to loss estimation assumptions that we believe best reflect emerging data. Both our internal and consulting actuaries perform an in-depth review of our reserve for losses on at least a semi-annual basis using the loss and exposure data of our insurance subsidiaries.

Our reserving process can be broadly grouped into three areas: the establishment of the reserve for the current accident year (the initial reserve), the re-estimation of the reserve for prior accident years (development of prior accident years) and the establishment of the initial reserve for risks assumed in business combinations, applicable only in periods in which acquisitions occur (the acquired reserve).

~~Current Accident Year - Initial Reserve~~

Considerable judgment is required in establishing our initial reserve for any current accident year period, as there is limited data available upon which to base our estimate (see further discussion that follows under heading "Use of Judgment"). Our process for setting an initial reserve considers the unique characteristics of each product, but in general we rely heavily on the loss assumptions that were used to price business, as our pricing reflects our analysis of loss costs that we expect to incur relative to the insurance product being priced.

~~Specialty P&C Segment.~~ Loss costs within this segment are impacted by many factors including but not limited to the nature of the claim, including whether or not the claim is an individual or a mass tort claim, the personal situation of the claimant or the claimant's family, the outcome of jury trials, the legislative and judicial climate where any potential litigation may occur, general economic and social trends and, for claims involving bodily injury, the trend of healthcare costs. Within our

~~Table of Contents~~

Specialty P&C segment, for our professional liability business (80% of our consolidated gross reserve for losses and loss adjustment expenses as of December 31, 2020; predominately comprised of our HCPL products), we set an initial reserve based upon our evaluation of the current loss environment including frequency, severity, economic inflation, social inflation and legal trends.

We observed a reduction in claims frequency in 2020 that has continued into 2021, some of which is likely associated with the COVID-19 pandemic; however, we continue to remain cautious in recognizing these favorable frequency trends in our current accident year reserve due to the long-tailed nature of our HCPL claims as well as the uncertainty surrounding the length and severity of the pandemic. See further discussion in our Segment Results - Specialty Property & Casualty section that follows under the heading "Losses and Loss Adjustment Expenses."

The risks insured in our Medical Technology Liability business (3% of our consolidated gross reserve for losses and loss adjustment expenses as of December 31, 2020) are more varied, and policies are individually priced based on the risk characteristics of the policy and the account. The insured risks range from startup operations to large multinational entities, and the larger entities often have significant deductibles or self-insured retentions. Reserves are established using our most recently developed actuarial estimates of losses expected to be incurred based on factors which include results from prior analysis of similar business, industry indications, observed trends and judgment. Claims in this line of business primarily involve bodily injury to individuals and are affected by factors similar to those of our HCPL line of business. For the Medical Technology Liability business, we also establish an initial reserve using a loss ratio approach, including a provision in consideration of historical loss volatility that this line of business has exhibited.

~~Workers' Compensation Insurance Segment~~. Many factors affect the ultimate losses incurred for our workers' compensation coverages (8% of our consolidated gross reserve for losses and loss adjustment expenses as of December 31, 2020) including but not limited to the type and severity of the injury, the age, health and occupation of the injured worker, the estimated length of disability, medical treatment and related costs, and the jurisdiction and workers' compensation laws of the state of the injury occurrence.

We use various actuarial methodologies in developing our workers’ compensation reserve, combined with a review of the payroll exposure base. For the current accident year, given the lack of seasoned information, the different actuarial methodologies produce results with significant variability; therefore, more emphasis is placed on supplementing results from the actuarial methodologies with trends in exposure base, medical expense inflation, general inflation, severity, and claim counts, among other things, to select an expected loss ratio.

As in our Specialty P&C segment, we observed a reduction in claims frequency in 2020 that has continued into 2021 in our Workers' Compensation Insurance segment, some of which is likely associated with the COVID-19 pandemic. While we reduced our current accident year loss ratio in 2020 in our Workers' Compensation Insurance segment in response to these favorable trends as these claims are shorter-tailed in nature as compared to our HCPL claims, we continue to remain cautious in our evaluation of the current accident year reserve due to the uncertainty surrounding the length and severity of the pandemic. Furthermore, the impact of legislative and regulatory bodies in certain states changing or attempting to broaden compensability requirements for COVID-19 claims could, if successful, have an adverse impact on the frequency and severity related to COVID-19 claims. See further discussion in the "Insurance Regulatory Matters" section in Part 1, Item 1 of our December 31, 2020 report on Form 10-K. Furthermore, as it relates to both our Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments, the current economic conditions resulting from the COVID-19 pandemic have introduced significant risk of a prolonged recession, which could have an adverse impact on our return to wellness efforts and the ability of injured workers to return to work, resulting in a potential reduction in favorable claim trends in future periods.

~~Segregated Portfolio Cell Reinsurance Segment.~~ The factors that affect the ultimate losses incurred for the workers' compensation and HCPL coverages assumed by the SPCs at Inova Re and Eastern Re (4% of our consolidated gross reserve for losses and loss adjustment expenses as of December 31, 2020) are consistent with that of our Workers’ Compensation Insurance and Specialty P&C segments, respectively.

~~Lloyd's Syndicates Segment~~. Initial reserves for Syndicate 1729 and Syndicate 6131 are primarily recorded using the loss assumptions by risk category incorporated into each Syndicate's business plan submitted to Lloyd's with consideration given to loss experience incurred to date (5% of our consolidated gross reserve for losses and loss adjustment expenses as of December 31, 2020). The assumptions used in each business plan are consistent with loss results reflected in Lloyd's historical data for similar risks. The loss ratios may also fluctuate due to the mix of earned premium from different open underwriting years which we participate in to varying degrees, as well as the timing of earned premium adjustments. Such adjustments may be the result of premiums for certain policies and assumed reinsurance contracts being reported subsequent to the coverage period and may be subject to adjustment based on loss experience. Premium and exposure for some of Syndicate 1729's insurance policies and reinsurance contracts are initially estimated and subsequently recorded over an extended period of time as reports are received under delegated underwriting authority programs. When reports are received, the premium, exposure and corresponding loss estimates are revised accordingly. Changes in loss estimates due to premium or exposure fluctuations are incurred in the accident year in which the premium is earned.

~~Table of Contents~~

For significant property catastrophe exposures, Syndicate 1729 uses third-party catastrophe models to accumulate a listing of potentially affected policies. Each identified policy is given an estimate of loss severity based upon a combination of factors including the probable maximum loss of each policy, market share analytics, underwriting judgment, client/broker estimates and historical loss trends for similar events. These models are inherently uncertain, reliant upon key assumptions and management judgment and are not always a representation of actual events and ensuing potential loss exposure. Determination of actual losses may take an extended period of time until claims are reported and resolved, including coverage litigation.

~~Development of Prior Accident Years~~

~~In addition to setting the initial reserve for the current accident year, each period we reassess the amount of reserve required for prior accident years.~~

Our reserve re-estimation process is 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. Changes to previously established reserve estimates are recognized in the current period if management’s best estimate of ultimate losses differs from the estimate previously established. While management considers a variety of variables in determining its best estimate, in general, as claims age, our methodologies give more weight to actual loss costs which, for the majority of our reserves, continue to indicate that ultimate loss costs will be lower than our previous estimates. The discussion in our Critical Accounting Estimates section in Item 7 of our December 31, 2020 report on Form 10-K includes additional information regarding the methodologies used to evaluate our reserve.

Any change in our estimate of net ultimate losses for prior accident years is reflected in net income (loss) in the period in which such changes are made. In recent years such changes have reduced our estimate of consolidated net ultimate losses, resulting in a reduction of reported losses for the period and a corresponding increase in pre-tax income.

Due to the size of our consolidated reserve for losses and the large number of claims outstanding at any point in time, even a small percentage adjustment to our total reserve estimate could have a material effect on our results of operations for the period in which the adjustment is made. Please refer to the Executive Summary of Operations and Segment Results sections that follow for a discussion on consolidated and segment prior accident year loss development recognized in the current period.

~~Use of Judgment~~

The process of estimating reserves involves a high degree of judgment and is subject to a number of variables. These variables can be affected by both views of internal and external events, such as changes in views of economic inflation, legal trends and legislative changes, as well as differentiating views of individuals involved in the reserve estimation process, among others. We continually refine our estimates in a regular, ongoing process as historical loss experience develops and additional claims are reported and settled. Our objective is to consider all significant facts and circumstances known at the time.

Changes in economic conditions and steps taken by the federal government and the Federal Reserve in response to COVID-19 could lead to inflation trends that are different from those we anticipated when establishing our reserves, which could in turn lead to an increase or decrease in our loss costs and the need to strengthen or reduce reserves. These impacts of inflation on loss costs and reserves could be more pronounced for our HCPL line of business as that business generally requires a longer period of time to settle claims for a given accident year and, accordingly, is relatively more inflation sensitive.

We use various actuarial methods in the process of setting reserves. Each actuarial method generally returns a different value, and for the more recent accident years the variations among the various methodologies can be significant. In order to project ultimate losses, we partition our reserves for analysis such as by line of business, geography, coverage layer or accident year. For each partition of our reserves, we evaluate the results of the various methods, along with the supplementary statistical data regarding such factors as closed with and without indemnity ratios, claim severity trends, the expected duration of such trends, changes in the legal and legislative environment and the current economic environment to develop a point estimate based upon management's judgment and past experience. The series of selected point estimates is then combined to produce an overall point estimate for ultimate losses.

~~HCPL.~~ Over the past several years the most influential factor affecting the analysis of our HCPL reserves and the related development recognized has been an observed increase in claim severity for the broader medical professional liability industry as well as higher initial loss expectations on incurred claims. The severity trend is an explicit component of our pricing models and directly impacts the reserving process. Our estimate of this trend and our expectations about changes in this trend impact a variety of factors, from the selection of expected loss ratios to the ultimate point estimates established by management.

Because of the implicit and wide-ranging nature of severity trend assumptions on the loss reserving process, it is not practical to specifically isolate the impact of changing severity trends. However, because severity is an explicit component of our HCPL pricing process we can better isolate the impact that changing severity can have on our loss costs and loss ratios in regards to our pricing models for this business component. Our current HCPL pricing models assume severity trends in the

~~Table of Contents~~

range of 2% to 5% depending on state, territory and specialty. In some portions of our HCPL business we have observed and reflected higher severity trends in our estimates of losses and loss adjustment expenses.

Due to the long-tailed nature of our claims and the previously discussed historical volatility of loss costs, selection of a severity trend assumption is a subjective process that is inherently likely to prove inaccurate over time. Given the long tail and volatility, we are generally cautious in making changes to the severity assumptions within our pricing models. All open claims and accident years are generally impacted by a change in the severity trend, which compounds the effect of such a change.

Although the future degree and impact of the ultimate severity trend remains uncertain due to the long-tailed nature of our business, we have given consideration to observed loss costs in setting our rates. For our HCPL business, this practice had generally resulted in rate reductions as claim frequency declined and remained at historically low levels. However, from early 2017 to the current period, the average pricing on renewed business has steadily increased reflective of the rising loss cost environment, and we anticipate further renewal pricing increases due to increasing loss severity.

More recently, another factor affecting our analysis of our HCPL reserves and the related development recognized is the reduction in claims frequency in 2020, some of which is likely associated with the COVID-19 pandemic, as previously discussed. In 2020, we established a $10 million reserve related to COVID-19. This reserve represents our best estimate of ultimate COVID-19 related losses based on currently available information and reported incidents. Similar to our views on our current accident year reserve, we remain cautious in recognizing these favorable frequency trends in our prior accident year reserve due to the long-tailed nature of our HCPL claims as well as the uncertainty surrounding the length and severity of the pandemic. Accordingly, no adjustment has been made to this reserve since 2020.

~~Workers' Compensation~~. The projection of changes in claim severity trend has not historically been an influential factor affecting our analysis of workers' compensation reserves, as claims are typically resolved more quickly than the industry norm. As previously mentioned, the determination and calculation of loss development factors, in particular, the selection of tail factors which are used to extend the projection of losses beyond historical data, requires considerable judgment.

~~Investment Valuations~~

We record the majority of our investments at fair value as shown in the table below. At March 31, 2021, the distribution of our investments based on GAAP fair value hierarchies (levels) was as follows:

Distribution by GAAP Fair Value Hierarchy
Level 1 Level 2 Level 3 Not Categorized Total
Investments
Investments recorded at:
Fair value 10% 78% 1% 7% 96%
Other valuations 4%
Total Investments 100%

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. All of our fixed maturity and equity investments are carried at fair value. The fair value of our short-term securities approximates the cost of the securities due to their short-term nature.

Because of the number of securities we own and the complexity of developing accurate fair values, we utilize multiple independent pricing services to assist us in establishing the fair value of individual securities. The pricing services provide fair values based on exchange-traded prices, if available. If an exchange-traded price is not available, the pricing services, if possible, provide a fair value that is based on multiple broker/dealer quotes or that has been developed using pricing models. Pricing models vary by asset class and utilize currently available market data for securities comparable to ours to estimate a fair value for our securities. The pricing services scrutinize market data for consistency with other relevant market information before including the data in the pricing models. The pricing services disclose the types of pricing models used and the inputs used for each asset class. Determining fair values using these pricing models requires the use of judgment to identify appropriate comparable securities and to choose a valuation methodology that is appropriate for the asset class and available data.

The pricing services provide a single value per instrument quoted. We review the values provided for reasonableness each quarter by comparing market yields generated by the supplied value versus market yields observed in the marketplace. We also compare yields indicated by the provided values to appropriate benchmark yields and review for values that are unchanged or that reflect an unanticipated variation as compared to prior period values. We utilize a primary pricing service for each security type and compare provided information for consistency with alternate pricing services, known market data and information from our own trades, considering both values and valuation trends. We also review weekly trades versus the prices supplied by the services. If a supplied value appears unreasonable, we discuss the valuation in question with the pricing service and make

~~Table of Contents~~

adjustments if deemed necessary. Historically our review has not resulted in any material changes to the values supplied by the pricing services. The pricing services do not provide a fair value unless an exchange-traded price or multiple observable inputs are available. As a result, the pricing services may provide a fair value for a security in some periods but not others, depending upon the level of recent market activity for the security or comparable securities.

~~Level 1 Investments~~

Fair values for a majority of our equity securities and portions of our short-term and convertible securities are determined using exchange-traded prices. There is little judgment involved when fair value is determined using an exchange-traded price. In accordance with GAAP, we classify securities valued using an exchange-traded price as Level 1 securities.

~~Level 2 Investments~~

Most fixed income securities do not trade daily; thus, exchange-traded prices are generally not available for these securities. However, market information (often referred to as observable inputs or market data, including but not limited to, last reported trade, non-binding broker quotes, bids, benchmark yield curves, issuer spreads, two-sided markets, benchmark securities, offers and recent data regarding assumed prepayment speeds, cash flow and loan performance data) is available for most of our fixed income securities. We determine fair value for a large portion of our fixed income securities using available market information. In accordance with GAAP, we classify securities valued based on multiple market observable inputs as Level 2 securities.

~~Level 3 Investments~~

When a pricing service does not provide a value for one of our fixed maturity securities, management estimates fair value using either a single non-binding broker quote or pricing models that utilize market based assumptions which have limited observable inputs. The process involves significant judgment in selecting the appropriate data and modeling techniques to use in the valuation process. In accordance with GAAP, we classify securities valued using limited observable inputs as Level 3 securities.

~~Fair Values Not Categorized~~

We hold interests in certain investment funds, primarily LPs/LLCs, which measure fund assets at fair value on a recurring basis and provide us with a NAV for our interest. As a practical expedient, we consider the NAV provided to approximate the fair value of the interest. In accordance with GAAP, we do not categorize these investments within the fair value hierarchy.

~~Nonrecurring Fair Value Measurements~~

We measure the fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. These assets include investments carried principally at cost, investments in tax credit partnerships, fixed assets, goodwill and other intangible assets. These assets would also include any equity method investments that do not provide a NAV. We did not have any assets or liabilities that were measured at fair value on a nonrecurring basis at March 31, 2021 or December 31, 2020.

~~Investments - Other Valuation Methodologies~~

Certain of our investments, in accordance with GAAP for the type of investment, are measured using methodologies other than fair value. At March 31, 2021, these investments represented approximately 4% of total investments, and are detailed in the following table. Additional information about these investments is provided in Notes 2 and 3 of the Notes to Condensed Consolidated Financial Statements.


~~(In millions)~~	~~Carrying Value~~		~~GAAP Measurement Method~~
~~Other investments:~~

~~Other, principally FHLB capital stock~~	$	~~2.4~~	~~Principally Cost~~

~~Investment in unconsolidated subsidiaries:~~
~~Investments in tax credit partnerships~~	~~24.4~~		~~Equity~~
~~Equity method investments, primarily LPs/LLCs~~	~~48.1~~		~~Equity~~
	~~72.5~~
~~BOLI~~	~~66.9~~		~~Cash surrender value~~
~~Total investments - Other valuation methodologies~~	$	~~141.8~~

~~Table of Contents~~

~~Impairments~~

We evaluate our available-for-sale investment securities, which at March 31, 2021 and December 31, 2020 consisted entirely of fixed maturity securities, on at least a quarterly basis for the purpose of determining whether declines in fair value below recorded cost basis represent an impairment loss. We consider a credit-related impairment loss to have occurred:

•~~if there is intent to sell the security;~~

•~~if it is more likely than not that the security will be required to be sold before full recovery of its amortized cost basis; or~~Reinsurance

•~~if the entire amortized basis~~Valuation of ~~the security is not expected to be recovered.~~

~~The assessment~~investments and impairment of whether the amortized cost basis of a security is expected to be recovered requires management to make assumptions regarding various matters affecting future cash flows. The choice of assumptions is subjective and requires the use of judgment. Actual credit losses experienced in future periods may differ from management’s estimates of those credit losses. Methodologies used to estimate the present value of expected cash flows are:

The estimate of expected cash flows is determined by projecting a recovery value and a recovery time frame and assessing whether further principal and interest will be received. We consider various factors in projecting recovery values and recovery time frames, including the following:

•~~third-party research and credit rating reports;~~securities

•~~the current credit standing of the issuer, including credit rating downgrades, whether before or after the balance sheet date;~~Goodwill

•~~the extent to which the decline in fair value is attributable to credit risk specifically associated with the security or its issuer;~~

•internal assessments and the assessments of external portfolio managers regarding specific circumstances surrounding an investment, which indicate the investment is more or less likely to recover its amortized cost than other investments with a similar structure;

•for asset-backed securities, the origination date of the underlying loans, the remaining average life, the probability that credit performance of the underlying loans will deteriorate in the future and our assessment of the quality of the collateral underlying the loan;

•~~failure of the issuer of the security to make scheduled interest or principal payments;~~

•~~any changes to the rating of the security by a rating agency;~~

•~~recoveries or additional declines in fair value subsequent to the balance sheet date;~~

•~~adverse legal or regulatory events;~~

•~~significant deterioration in the market environment that may affect the value of collateral (e.g. decline in real estate prices);~~

•~~significant deterioration in economic conditions; and~~

•~~disruption in the business model resulting from changes in technology or new entrants to the industry.~~

If deemed appropriate and necessary, a discounted cash flow analysis is performed to confirm whether a credit loss exists and, if so, the amount of the credit loss. We use the single best estimate approach for available-for-sale debt securities and consider all reasonably available data points, including industry analyses, credit ratings, expected defaults and the remaining payment terms of the debt security. For fixed rate available-for-sale debt securities, cash flows are discounted at the security's effective interest rate implicit in the security at the date of acquisition. If the available-for-sale debt security’s contractual interest rate varies based on subsequent changes in an independent factor, such as an index or rate, for example, the prime rate, the LIBOR, or the U.S. Treasury bill weekly average, that security’s effective interest rate is calculated based on the factor as it changes over the life of the security. If we intend to sell a debt security or believe we will more likely than not be required to sell a debt security before the amortized cost basis is recovered, any existing allowance will be written off against the security's amortized cost basis, with any remaining difference between the debt security's amortized cost basis and fair value recognized as an impairment loss in earnings.

Exclusive of securities where there is an intent to sell or where it is not more likely than not that the security will be required to be sold before recovery of its amortized cost basis, impairment for debt securities is separated into a credit component and a non-credit component. The credit component of an impairment is the difference between the security’s amortized cost basis and the present value of its expected future cash flows, while the non-credit component is the remaining difference between the security’s fair value and the present value of expected future cash flows. An allowance for expected credit losses will be recorded for the expected credit losses through income and the non-credit component is recognized in OCI. The amount of impairment recognized is limited to the excess of the amortized cost over the fair value of the available-for-sale debt security.

~~Table of Contents~~

~~Deferred Policy Acquisition Costs~~

Policy acquisition costs (primarily commissions, premium taxes and underwriting salaries) which are directly related to the successful acquisition of new and renewal premiums are capitalized as DPAC and charged to expense, net of ceding commissions earned, as the related premium revenue is recognized. We evaluate the recoverability of our DPAC typically at the segment level each reporting period or in a manner that is consistent with the way we manage our business. Any amounts estimated to be unrecoverable are charged to expense in the current period.

As part of our evaluation of the recoverability of DPAC, we also evaluate our unearned premiums for premium deficiencies. A premium deficiency is recognized if the sum of anticipated losses and loss adjustment expenses, unamortized DPAC and maintenance costs, net of anticipated investment income, exceeds the related unearned premium. If a premium deficiency is identified, the associated DPAC is written off, and a PDR is recorded for the excess deficiency as a component of net losses and loss adjustment expenses in our Condensed Consolidated Statement of Income and Comprehensive Income and as a component of the reserve for losses on our Condensed Consolidated Balance Sheet. During the three months ended March 31, 2021 we did not determine any DPAC to be unrecoverable.

taxes

Estimation of Taxes / Tax Credits

For interim periods, we generally utilize the estimated annual effective tax rate method under which we determine our provision (benefit) for income taxes based on the current estimate of our annual effective tax rate. For the three months ended March 31, 2022, we utilized the discrete effective tax rate method for recording income taxes after the estimated annual effective tax rate method produced an unreliable estimated annual effective tax rate. The discrete method is applied when the application of the estimated annual effective tax rate method is impractical and does not provide a reliable estimate of the annual effective tax rate. We believe the use of the discrete effective tax rate method is more appropriate than the annual effective tax rate method for the three months ended March 31, 2022 as minor changes in our estimated ordinary income would have a significant effect on the estimated annual effective tax rate and would result in sizable variations in the customary relationship between income tax expense (benefit) and pre-tax accounting income (loss). For the three months ended March 31, 2021, we utilized the estimated annual effective tax rate method. Under the estimated annual effective tax rate method, items which are unusual, infrequent, or that cannot be reliably estimated are considered in the effective tax rate in the period in which the item is included in income, and are referred to as discrete items. In calculating our year-to-date income tax expense (benefit), under the estimated annual effective tax rate method, we include the estimated benefit of tax credits for the year-to-date period based on the most recently available information provided by the tax credit partnerships; the actual amounts of credits provided by the tax credit partnerships may prove to be different than our estimates. The effect of such a difference is recognized in the period identified.

~~Deferred Taxes~~

Deferred federal income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Our temporary differences principally relate to our loss reserves, unearned and advanced premiums, DPAC, tax credit carryforwards, compensation related items, unrealized investment gains (losses) and basis differences on fixed assets, intangible assets and operating leases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to be in effect when such benefits are realized. We review our deferred tax assets quarterly for impairment. If we determine that it is more likely than not that some or all of a deferred tax asset will not be realized, a valuation allowance is recorded to reduce the carrying value of the asset. In assessing the need for a valuation allowance, management is required to make certain judgments and assumptions about our future operations based on historical experience and information as of the measurement period regarding reversal of existing temporary differences, carryback capacity, future taxable income of the appropriate character (including its capital and operating characteristics) and tax planning strategies.

A valuation allowance was established in a prior year against the deferred tax asset related to the NOL carryforwards for the U.K. operations. In addition, a valuation allowance was established in 2020 against a portion of the deferred tax asset related to the U.S. state NOL carryforwards. Management concluded that it was more likely than not that these deferred tax assets will not be realized. We also established a valuation allowance in a prior year against the deferred tax assets of certain SPCs at our wholly owned Cayman Islands reinsurance subsidiary, Inova Re. Due to the limited operations of these SPCs, management concluded that a valuation allowance was required. As of March 31, 2021, management concluded that a valuation allowance was still required against the deferred tax assets related to the NOL carryforwards for the U.K. operations, against the deferred tax assets related to the U.S. state NOL carryforwards and against the deferred tax assets of certain SPCs at Inova Re. See further discussion in Note 5 of the Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K.

~~U.S. Tax Legislation~~

~~Coronavirus Aid, Relief and Economic Security Act~~

In response to COVID-19, the CARES Act was signed into law on March 27, 2020 and contains several provisions for corporations and eases certain deduction limitations originally imposed by the TCJA. See further discussion in Note 5 of the Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K. We anticipate the temporary changes regarding NOL carryback provisions included in the CARES Act will have a favorable impact on our liquidity (see discussion that follows in the Liquidity and Capital Resources and Financial Condition section under the heading "Taxes").

Table of Contents

~~American Rescue Plan Act of 2021~~

In response to economic concerns associated with COVID-19, the American Rescue Plan Act of 2021 was signed into law on March 11, 2021 and includes an expansion of the number of employees covered by the limitation on the deductibility of compensation in excess of $1 million. This provision is effective for tax years beginning after December 31, 2026. We have evaluated this provision as well as the other provisions of the American Rescue Plan Act of 2021 and concluded that they will not have a material impact on our financial position or results of operations as of March 31, 2021. See further discussion in Note 5 of the Notes to Condensed Consolidated Financial Statements.

~~Unrecognized Tax Benefits~~

We evaluate tax positions taken on tax returns and recognize positions in our financial statements when it is more likely than not that we will sustain the position upon resolution with a taxing authority. If recognized, the benefit is measured as the largest amount of benefit that has a greater than 50% probability of being realized. We review uncertain tax positions each quarter, considering changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law, and make adjustments as we consider necessary. Adjustments to our unrecognized tax benefits may affect our income tax expense, and settlement of uncertain tax positions may require the use of cash. Other than differences related to timing, no significant adjustments were considered necessary during the three months ended March 31, 2021 or 2020. At March 31, 2021, our liability for unrecognized tax benefits approximated $5.2 million.

~~Goodwill / Intangibles~~

Goodwill and intangible assets are tested for impairment annually or more frequently if circumstances indicate an impairment may have occurred. The date of our annual impairment testing is October 1. Impairment of goodwill is tested at the reporting unit level, which is consistent with our reportable segments identified in Note 14 of the Notes to Condensed Consolidated Financial Statements. Of the five reporting units, two have net goodwill - Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance. For our last annual impairment test at October 1, 2020, we performed qualitative assessments for our Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance reporting units (see Note 6 of the Notes to Condensed Consolidated Financial Statements). Management concluded that it was not more likely than not that the fair value of each of our two reporting units that have net goodwill was less than the carrying value of each reporting unit as of the testing date; therefore no further impairment testing was required. In addition, there were no triggering events as of March 31, 2021 that would suggest an updated impairment test would be needed for our goodwill and intangible assets. Additional information regarding our goodwill and intangible assets is included Note 1 and Note 6 of the Notes to Consolidated Financial Statements included in our December 31, 2020 report on Form 10-K.

Given the evolving, uncertain nature of the COVID-19 pandemic, the estimates and assumptions used by management in these impairment tests have inherent uncertainties, and different assumptions could lead to materially different results including impairment charges in the future. Management expects to continue to monitor developments and perform updated analyses as necessary.

Accounting Changes

During the first quarter of 2022, we revised our estimate of ULAE as a result of substantially integrating NORCAL into our Specialty P&C segment operations. ULAE are costs that cannot be attributed to processing a specific claim and are allocated to net losses and loss adjustment expenses on the Condensed Consolidated Statement of Income and Comprehensive Income. We have accounted for this change prospectively as a change in accounting estimate. Changes in accounting estimate are reflected prospectively beginning in the period the change in estimate occurs. The change in our estimate of ULAE resulted in an increase to underwriting, policy acquisition and operating expenses with an offsetting decrease to net losses and loss adjustment expenses in our Specialty P&C segment; there was no impact on total expenses or net income (loss) in our Condensed Consolidated Statement of Income and Comprehensive Income for the three months ended March 31, 2022. See further discussion on this change in estimate in the Segment Results - Specialty Property & Casualty section that follows and in Note 1 of the Notes to Condensed Consolidated Financial Statements as a result of this change in the estimate.

We did not have any other change in accounting estimate or policy that had a material effect on our results of operations or financial position during the three months ended March 31, ~~2021.~~2022. We are not aware of any accounting changes not yet adopted as of March 31, ~~2021~~2022 that could have a material impact on our results of operations, financial position or cash flows.

Liquidity and Capital Resources and Financial Condition

Overview

ProAssurance Corporation is a holding company and is a legal entity separate and distinct from its subsidiaries. As a holding company, our principal source of external revenue is our investment revenues. In addition, dividends from our operating subsidiaries represent another source of funds for our obligations, including debt service and shareholder dividends. We also charge our operating subsidiaries within our Specialty P&C (including the acquired operating subsidiaries of

NORCAL effective January 1, 2022) and Workers' Compensation Insurance segments a management fee based on the extent to which services are provided to the subsidiary and the amount of gross premium written by the subsidiary. At March 31, ~~2021,~~2022, we held cash and liquid investments of approximately ~~$250~~$65 million outside our insurance subsidiaries that were available for use without regulatory approval or other restriction. We also have $250 million in permitted borrowings available under our Revolving Credit Agreement as well as the possibility of a $50 million accordion feature, if successfully subscribed. As of ~~April 30, 2021,~~May 4, 2022, no borrowings were outstanding under our Revolving Credit Agreement.

~~Table of Contents~~

To date, during ~~2021,~~2022, our operating subsidiaries have paid dividends to us of approximately ~~$15 million, all of which were paid in April 2021. Dividends paid in April 2021 have not been included in our cash and liquid investments held outside of our insurance subsidiaries at March 31, 2021.~~$1 million. In the aggregate, our insurance subsidiaries are permitted to pay dividends of approximately ~~$92~~$148 million over the remainder of ~~2021~~2022 without prior approval of state insurance regulators. However, the payment of any dividend requires prior notice to the insurance regulator in the state of domicile, and the regulator may reduce or prevent the dividend if, in its judgment, payment of the dividend would have an adverse effect on the surplus of the insurance subsidiary. We make the decision to pay dividends from an insurance subsidiary based on the capital needs of that subsidiary and may pay less than the permitted dividend or may also request permission to pay an additional amount (an extraordinary dividend).

~~Cash Flows~~

~~Cash flows between periods compare as follows:~~

Three Months Ended March 31
(In thousands) 2021 2020 Change
Net cash provided (used) by:
Operating activities $ 28,700 $ (12,049) $ 40,749
Investing activities (26,261) 71,825 (98,086)
Financing activities (3,386) (17,976) 14,590
Increase (decrease) in cash and cash equivalents $ (947) $ 41,800 $ (42,747)

Three Months Ended March 31
(In thousands) 2020 2019 Change
Net cash provided (used) by:
Operating activities $ (12,049) $ 34,392 $ (46,441)
Investing activities 71,825 3,868 67,957
Financing activities (17,976) (46,901) 28,925
Increase (decrease) in cash and cash equivalents $ 41,800 $ (8,641) $ 50,441

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 for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 of $40.7 million was primarily due to a decrease in paid losses of $54.5 million driven by our Specialty P&C and Segregated Portfolio Cell Reinsurance segments. The decrease in paid losses in our Specialty P&C segment was primarily due to a smaller number of claims resolved with large indemnity payments as compared to the prior year period, some of which is likely associated with the ~~COVID-19 pandemic including the disruption of the court systems~~. The decrease in paid losses in our Segregated Portfolio Cell Reinsurance segment reflected the effect of the payment of a $10 million claim during the first quarter of 2020 by an SPC at Eastern Re in which we do not participate. This claim payment related to a reserve established by the SPC in 2019 related to an errors and omissions liability policy. Additionally, the increase in operating cash flows reflected a decrease in cash paid for operating expenses of $17.7 million driven by a decrease in various operational expenses in our Specialty P&C, Workers' Compensation Insurance and Corporate segments resulting from improvements over the past year including organizational structure enhancements and improved operating efficiencies. In addition, the decrease in cash paid for operating expenses was due to our decreased participation in the results of Syndicate 1729 for the 2020 underwriting year. Furthermore, the increase in operating cash flows reflected a tax refund of approximately $9.0 million which we received in February 2021 (see additional discussion within this section under the heading "Taxes" that follows). The increase in operating cash flows was partially offset by a decrease in net premium receipts of $33.6 million driven by our Lloyd's Syndicates and Specialty P&C segments. The decrease in premium receipts in our Lloyd's Syndicates segment reflected our decreased participation in the results of Syndicate 1729 for the 2020 underwriting year. The decrease in premium receipts in our Specialty P&C segment was due to our re-underwriting efforts and the dissolution of our arrangement with CAPAssurance. The remaining variance in operating cash flows for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was comprised of individually insignificant components.

~~Table of Contents~~

The decrease in operating cash flows for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 of $46.4 million was primarily due to an increase in paid losses of $54.2 million and a decrease in net premium receipts of $9.3 million. The increase in paid losses was driven by our Specialty P&C and Segregated Portfolio Cell Reinsurance segments. The increase in paid losses in our Specialty P&C segment was primarily due to higher average claim payments. The increase in paid losses in our Segregated Portfolio Cell Reinsurance segment reflected the aforementioned payment of a $10 million claim by an SPC at Eastern Re. The decrease in net premium receipts was primarily due to a decline in written premium in our Specialty P&C and Workers' Compensation Insurance segments. The decrease in operating cash flows was somewhat offset by a decrease in 2020 tax payments as compared to 2019 of $6.4 million and a decrease in paid bonuses of $3.0 million. The decrease in tax payments was primarily due to refunds received during the three months ended March 31, 2020. The remaining variance in operating cash flows for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 was comprised of individually insignificant components.

We manage our investing cash flows to ensure that we will have sufficient liquidity to meet our obligations, taking into consideration the timing of cash flows from our investments, including interest payments, dividends and principal payments, as well as the expected cash flows to be generated by our operations as discussed in this section under the heading "Investing Activities and Related Cash Flows."

Our financing cash flows are primarily comprised of dividend payments and borrowings and repayments under our Revolving Credit Agreement. See further discussion of our financing activities in this section under the heading "Financing Activities and Related Cash Flows."

5438

Table of Contents

Operating Activities and Related Cash Flows

Reinsurance

Within our Specialty P&C segment, we use insurance and reinsurance (collectively, “reinsurance”) to provide capacity to write larger limits of liability, to provide reimbursement for losses incurred under the higher limit coverages we offer and to provide protection against losses in excess of policy limits. Within our Workers' Compensation Insurance segment, we use reinsurance to reduce our net liability on individual risks, to mitigate the effect of significant loss occurrences (including catastrophic events), to stabilize underwriting results and to increase underwriting capacity by decreasing leverage. In both our Specialty P&C and Workers' Compensation Insurance segments, we use reinsurance in risk sharing arrangements to align our objectives with those of our strategic business partners and to provide custom insurance solutions for large customer groups. Within our Lloyd's Syndicates segment, Syndicate 1729 utilizes reinsurance to provide capacity to write larger limits of liability on individual risks, to provide protection against catastrophic loss and to provide protection against losses in excess of policy limits. The discussion in our Liquidity section under the same heading in Item 7 of our December 31, ~~2020~~2021 report on Form 10-K includes additional information regarding our reinsurance agreements.

~~Excess of Loss Reinsurance Agreements~~

We generally reinsure risks under treaties (our excess of loss reinsurance agreements) pursuant to which the reinsurers agree to assume all or a portion of all risks that we insure above our individual risk retention levels, up to the maximum individual limits offered. Generally, these agreements are negotiated and renewed annually. Our HCPL treaty renews annually on October 1 and, for the October 1, 2020 renewal, we increased our retention to $2 million from $1 million and added provisions for reinstatement premiums which resulted in a reduction to the gross rate paid under the renewed treaty. Historically, our Medical Technology Liability treaty renewed annually on January 1; however, the treaty that renewed on January 1, 2020 renewed on a short-term basis and was renewed again for a full year term on October 1, 2020 along with our HCPL treaty. Our Medical Technology Liability treaty which renewed on October 1, 2020 renewed at a lower rate than the previous agreement, with an increase in retention to $2 million from $1 million. Our Workers' Compensation treaty renews annually on May 1. Our traditional workers' compensation treaty renewed May 1, 2020 at a higher rate than the previous agreement, with an increase in the AAD to 3.16% from 2.1% of ceded earned premium, in excess of the $0.5 million retention per loss occurrence; all other material treaty terms were consistent with the expiring agreement. The significant coverages provided by our current excess of loss reinsurance agreements are detailed in the following table.

~~Table of Contents~~

Excess of Loss Reinsurance Agreements

Healthcare Professional Liability

Medical Technology & Life Sciences Products

Workers'
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 5%2.5% to 32.5%.

(4) Historically, retention has ranged from $1M to $2M.

(5) Includes an AAD where retention is ~~3.16%~~3.5% of subject earned premium in annual losses otherwise recoverable in excess of the $500K retention per loss occurrence.

Large HCPL risks that are above the limits of our basic reinsurance treaties are reinsured on a facultative basis, whereby the reinsurer agrees to insure a particular risk up to a designated limit. We also have in place a number of risk sharing arrangements that apply to the first $2 million of losses for certain large healthcare systems and other insurance entities, as well as with certain insurance agencies that produce business for us.

5639

Table of Contents

~~Other Reinsurance Arrangements~~

For the workers' compensation business ceded to Inova Re and Eastern Re, each SPC has in place its own reinsurance arrangements; which are illustrated in the following table.

Segregated Portfolio Cell Reinsurance


Per Occurrence Coverage						Aggregate 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.

~~Each SPC has participants~~

Cash Flows

Cash flows between periods compare as follows:


	Three Months Ended March 31
(In thousands)	2022		2021		Change
Net cash provided (used) by:
Operating activities	$	14,265	$	28,700	$	(14,435)
Investing activities	(77,134)		(26,261)		(50,873)
Financing activities	(8,632)		(3,386)		(5,246)
Increase (decrease) in cash and cash equivalents	$	(71,501)	$	(947)	$	(70,554)

The principal components of our operating cash flows are the excess of premiums collected and net investment income over losses paid and operating costs, including income taxes. Timing delays exist between the collection of premiums and the ~~profit or loss~~payment of ~~each cell accrues fully to these cell participants. As previously discussed, we participate~~losses associated with the premiums. Premiums are generally collected within the twelve-month period after the policy is written, while our claim payments are generally paid over a more extended period of time. Likewise, timing delays exist between the payment of claims and the collection of any associated reinsurance recoveries.

The decrease in ~~certain SPCs to a varying degree. Each SPC maintains a loss fund initially equal~~operating cash flows of $14.4 million for the three months ended March 31, 2022 as compared to the ~~difference between premium assumed~~three months ended March 31, 2021 was primarily due to:

•An increase in paid losses of $67.8 million driven by ~~the cell~~our Specialty P&C segment primarily due to NORCAL paid losses and the ~~ceding commission.~~payment of three large claims totaling $16.4 million during the first quarter of 2022.

Table of Contents

•An increase in cash paid for operating expenses of $51.7 million driven by our Specialty P&C and Corporate segments. The ~~external participants~~increase in cash paid for operating expenses in our Specialty P&C and Corporate segments was driven by an increase in compensation-related costs primarily attributable to an increase in headcount due to the addition of ~~each cell provide collateral to us, typically~~NORCAL employees. Furthermore, the increase in our Specialty P&C segment reflected an increase in commissions paid driven by additional premiums from our acquisition of NORCAL. Additionally, the increase reflected the termination of deferred compensation arrangements assumed in the ~~form~~NORCAL acquisition during the first quarter of 2022 totaling approximately $13.2 million. See further discussion of NORCAL's deferred compensation arrangements in Note 2 to the Notes to Condensed Consolidated Financial Statements.

•The effect of a ~~letter~~tax refund of ~~credit, that is initially equal~~approximately $9.0 million which we received in February 2021. See additional discussion on this refund in our Liquidity section under the heading "Taxes" in Item 7 of our December 31, 2021 report on Form 10-K.

The decrease in operating cash flows was partially offset by:

•An increase in net premium receipts of $95.4 million primarily driven by our Specialty P&C segment, partially offset by a decrease in our Lloyd's Syndicates segment. The increase in our Specialty P&C segment was due to additional premiums from our acquisition of NORCAL and the beneficial impacts of our re-underwriting efforts and focus on rate adequacy. The decrease in premium receipts in our Lloyd's Syndicates segment reflected our decreased participation in the results of Syndicate 1729 and Syndicate 6131 for the 2021 underwriting year.

•An increase in cash received from investment income of $18.6 million driven by an increase in distributed earnings and redemptions from our portfolio of investments in LPs/LLCs. The increase in the current period also reflected an increase in our investment balances due to the ~~difference between~~acquisition of NORCAL.

The remaining variance in operating cash flows for the ~~loss fund~~three months ended March 31, 2022 as compared to the same period of 2021 was composed of individually insignificant components.

We manage our investing cash flows to ensure that we will have sufficient liquidity to meet our obligations, taking into consideration the ~~SPC (amount~~timing of ~~funds available to pay losses after deduction of ceding commission)~~cash flows from our investments, including interest payments, dividends and principal payments, as well as the ~~aggregate attachment point of the reinsurance. Over time, an SPC's retained profits are considered in the determination of the collateral amount required~~expected cash flows to be ~~provided~~generated by our operations as discussed in this section under the ~~cell's external participants.~~heading "Investing Activities and Related Cash Flows."

Our financing cash flows are primarily comprised of dividend payments. See further discussion of our financing activities in this section under the heading "Financing Activities and Related Cash Flows."

Taxes

We are subject to the tax laws and regulations of the U.S., Cayman Islands and U.K. We file a consolidated U.S. federal income tax return that includes the parent company and its U.S. ~~subsidiaries.~~subsidiaries, except for ProAssurance American Mutual, A Risk Retention Group. Our filing obligations include a requirement to make quarterly payments of estimated taxes to the IRS using the corporate tax rate effective for the tax year. We did not make any quarterly estimated tax payments during the three months ended March 31, ~~2021~~2022 or ~~2020.~~2021.

As a result of the CARES Act that was signed into law on March 27, 2020 ~~as previously discussed,~~ we ~~now have the ability~~were permitted to carryback NOLs generated in tax years ~~2018,~~ 2019 and 2020 for up to five years. See further discussion in the Critical Accounting Estimate section under the heading "U.S. Tax Legislation" and Note 57 of the Notes to Consolidated Financial Statements ~~included~~ in our December 31, ~~2020~~2021 report on Form 10-K. We ~~have~~generated an NOL of approximately ~~$45.3~~$33.3 million from the 2020 tax year that ~~will be~~was carried back to the 2015 tax year ~~and is expected to generate~~that resulted in a ~~tax~~claim for a refund of approximately ~~$15.9 million. Additionally, we had an NOL of approximately $25.6 million from the 2019 tax year which was carried back to the 2014 tax year and generated a tax refund of approximately $9.0~~$11.7 million, which we ~~received~~anticipate to receive during 2022.

As a result of our acquisition of NORCAL, we recorded $46.8 million of net deferred tax assets reflecting the remeasurement of NORCAL's historical net deferred tax assets at the acquisition date of May 5, 2021. The net deferred tax assets acquired from NORCAL were subject to recalculation following application of all purchase accounting adjustments and our assessment of the realizability of NORCAL's deferred tax assets. As a result of the NORCAL acquisition, we have U.S. federal NOL carryforwards which as of March 31, 2022 were approximately $43.0 million. These NOL carryforwards are subject to limitation by Internal Revenue Code Section 382 and will begin to expire in ~~February 2021.~~2035. For additional information on the NORCAL acquisition see Note 2 and Note 7 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K.

5741

Table of Contents

Investing Activities and Related Cash Flows

Our investments at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 are comprised as follows:


		March 31, 2021				December 31, 2020					March 31, 2022				December 31, 2021
($ in thousands)	($ in thousands)	Carrying Value		% of Total Investment		Carrying Value		% of Total Investment		($ in thousands)	Carrying Value		% of Total Investment		Carrying Value		% of Total Investment
Fixed maturities, available-for-sale	Fixed maturities, available-for-sale									Fixed maturities, available-for-sale
U.S. Treasury obligations	U.S. Treasury obligations	$	102,877	3	%	$	107,059	3	%	U.S. Treasury obligations	$	225,676	5	%	$	238,507	5	%
U.S. Government-sponsored enterprise obligations	U.S. Government-sponsored enterprise obligations	11,944		1	%	12,261		1	%	U.S. Government-sponsored enterprise obligations	16,733		1	%	20,234		1	%
State and municipal bonds	State and municipal bonds	322,465		9	%	332,920		10	%	State and municipal bonds	492,291		10	%	519,196		11	%
Corporate debt	Corporate debt	1,428,866		42	%	1,329,342		39	%	Corporate debt	1,870,256		40	%	1,898,556		39	%
Residential mortgage-backed securities	Residential mortgage-backed securities	271,548		8	%	276,541		8	%	Residential mortgage-backed securities	417,848		9	%	453,941		9	%
Commercial mortgage-backed securities	Commercial mortgage-backed securities	135,037		4	%	126,402		4	%	Commercial mortgage-backed securities	236,229		5	%	245,624		5	%
Other asset-backed securities	Other asset-backed securities	290,536		9	%	273,006		8	%	Other asset-backed securities	441,788		9	%	457,664		9	%
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	2,563,273		76	%	2,457,531		73	%	Total fixed maturities, available-for-sale	3,700,821		79	%	3,833,722		79	%
Fixed maturities, trading	Fixed maturities, trading	45,151		1	%	48,456		1	%	Fixed maturities, trading	49,421		1	%	43,670		1	%
Total fixed maturities	Total fixed maturities	2,608,424		77	%	2,505,987		74	%	Total fixed maturities	3,750,242		80	%	3,877,392		80	%
Equity investments		77,537		2	%	120,101		4	%

Equity investments(1)										Equity investments(1)	203,925		4	%	214,807		4	%
Short-term investments	Short-term investments	280,993		8	%	337,813		10	%	Short-term investments	233,345		5	%	216,987		4	%
BOLI	BOLI	66,932		2	%	67,847		2	%	BOLI	80,879		2	%	81,767		2	%
Investment in unconsolidated subsidiaries	Investment in unconsolidated subsidiaries	299,360		9	%	310,529		9	%	Investment in unconsolidated subsidiaries	321,402		7	%	335,576		7	%
Other investments	Other investments	71,621		2	%	47,068		1	%	Other investments	103,876		2	%	101,794		3	%
Total investments	Total investments	$	3,404,867	100	%	$	3,389,345	100	%	Total investments	$	4,693,669	100	%	$	4,828,323	100	%
(1) Includes $170.3 million and $187.1 million of investment grade bond funds as of March 31, 2022 December 31, 2021, respectively, which are not subject to significant equity price risk.										(1) Includes $170.3 million and $187.1 million of investment grade bond funds as of March 31, 2022 December 31, 2021, respectively, which are not subject to significant equity price risk.

At March 31, ~~2021,~~2022, 99% of our investments in available-for-sale fixed maturity securities were rated and the average rating was A+. The distribution of our investments in available-for-sale fixed maturity securities by rating were as follows:


		March 31, 2021				December 31, 2020					March 31, 2022				December 31, 2021
($ in thousands)	($ in thousands)	Carrying Value		% of Total Investment		Carrying Value		% of Total Investment		($ in thousands)	Carrying Value		% of Total Investment		Carrying Value		% of Total Investment
Rating*	Rating*									Rating*
AAA	AAA	$	721,870	28	%	$	717,187	29	%	AAA	$	1,055,035	28	%	$	1,129,136	29	%
AA+	AA+	100,285		4	%	103,996		4	%	AA+	117,938		3	%	130,077		3	%
AA	AA	170,503		7	%	168,452		7	%	AA	243,342		6	%	254,570		7	%
AA-	AA-	116,165		4	%	122,733		5	%	AA-	188,939		5	%	194,661		5	%
A+	A+	207,918		8	%	197,274		8	%	A+	223,591		6	%	221,473		6	%
A	A	360,371		14	%	323,044		13	%	A	506,730		14	%	521,598		14	%
A-	A-	244,943		10	%	245,464		10	%	A-	341,477		9	%	364,147		9	%
BBB+	BBB+	196,769		8	%	189,971		8	%	BBB+	285,373		8	%	292,984		8	%
BBB	BBB	210,681		8	%	190,385		8	%	BBB	291,795		8	%	300,650		8	%
BBB-	BBB-	82,604		3	%	59,847		2	%	BBB-	143,304		4	%	127,982		3	%
Below investment grade	Below investment grade	138,949		5	%	133,607		5	%	Below investment grade	299,304		8	%	296,444		8	%
Not rated	Not rated	12,215		1	%	5,571		1	%	Not rated	3,993		1	%	—		—	%
Total	Total	$	2,563,273	100	%	$	2,457,531	100	%	Total	$	3,700,821	100	%	$	3,833,722	100	%
*Average of three NRSRO sources, presented as an S&P equivalent. Source: S&P, Copyright ©2021, S&P Global Market Intelligence
*Average of three NRSRO sources, presented as an S&P equivalent. Source: S&P, Copyright ©2022, S&P Global Market Intelligence										*Average of three NRSRO sources, presented as an S&P equivalent. Source: S&P, Copyright ©2022, S&P Global Market Intelligence

5842

Table of Contents

A detailed listing of our investment holdings as of March 31, ~~2021~~2022 is located under the Financial Information heading on the Investor Relations page of our website which can be reached directly at ~~www.proassurance.com/investmentholdings~~https://investor.proassurance.com/financial-information/quarterly-investment-supplements/default.aspx or through links from the Investor Relations section of our website, investor.proassurance.com.

We manage our investments to ensure that we will have sufficient liquidity to meet our obligations, taking into consideration the timing of cash flows from our investments, including interest payments, dividends and principal payments, as well as the expected cash flows to be generated by our operations. ~~Furthermore, we have managed our investments as part of our capital planning in anticipation of closing our acquisition of NORCAL.~~ In addition to the interest and dividends we will receive from our investments, we anticipate that between ~~$40~~$70 million and ~~$110~~$130 million of our portfolio will mature (or be paid down) each quarter over the next twelve months and become available, if needed, to meet our cash flow requirements. The primary outflow of cash at our insurance subsidiaries is related to paid losses and operating costs, including income taxes. The payment of individual claims cannot be predicted with certainty; therefore, we rely upon the history of paid claims in estimating the timing of future claims payments with consideration to current and anticipated industry trends and macroeconomic conditions. To the extent that we may have an unanticipated shortfall in cash, we may either liquidate securities or borrow funds under existing borrowing arrangements through our Revolving Credit Agreement and the FHLB system. Permitted borrowings under our Revolving Credit Agreement are $250 million with the possibility of an additional $50 million accordion feature, if successfully subscribed. Given the duration of our investments, we do not foresee a shortfall that would require us to meet operating cash needs through additional borrowings. Additional information regarding our Revolving Credit Agreement is detailed in Note 107 of the Notes to Condensed Consolidated Financial Statements.

At March 31, ~~2021,~~2022, our FAL was comprised of fixed maturity securities with a fair value of ~~$102.8~~$36.9 million and cash and cash equivalents of ~~$4.0~~$0.1 million deposited with Lloyd's. See further discussion in Note 3 of the Notes to Condensed Consolidated Financial Statements.

Our investment portfolio continues to be primarily composed of high quality fixed income securities with approximately ~~94%~~91% of our fixed maturities being investment grade securities as determined by national rating agencies. The weighted average effective duration of our fixed maturity securities at March 31, ~~2021~~2022 was ~~3.39~~3.78 years; the weighted average effective duration of our fixed maturity securities combined with our short-term securities was ~~3.06~~3.55 years.

The carrying value and unfunded commitments for certain of our investments were as follows:


		Carrying Value				March 31, 2021				Carrying Value				March 31, 2022
($ in thousands, except expected funding period)	($ in thousands, except expected funding period)	March 31, 2021		December 31, 2020		Unfunded Commitment		Expected funding period in years	($ in thousands, except expected funding period)	March 31, 2022		December 31, 2021		Unfunded Commitment		Expected funding period in years
Qualified affordable housing project tax credit partnerships (1)	Qualified affordable housing project tax credit partnerships (1)	$	24,351	$	27,719	$	744	6	Qualified affordable housing project tax credit partnerships (1)	$	10,036	$	12,424	$	581	5

All other investments, primarily investment fund LPs/LLCs	All other investments, primarily investment fund LPs/LLCs	275,009		282,810		116,508		3	All other investments, primarily investment fund LPs/LLCs	311,366		323,152		158,580		5
Total	Total	$	299,360	$	310,529	$	117,252		Total	$	321,402	$	335,576	$	159,161
(1) The carrying value reflects our total commitments (both funded and unfunded) to the partnerships, less any amortization, since our initial investment. We fund these investments based on funding schedules maintained by the partnerships.	(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.								(1) The carrying value reflects our total commitments (both funded and unfunded) to the partnerships, less any amortization, since our initial investment. We fund these investments based on funding schedules maintained by the partnerships.

Investment fund LPs/LLCs are by nature less liquid and may involve more risk than other investments. We manage our risk through diversification of asset class and geographic location. At March 31, ~~2021,~~2022, we had investments in 3034 separate investment funds with a total carrying value of ~~$275.0~~$311.4 million which represented approximately 8%7% of our total investments. Our investment fund LPs/LLCs generate earnings from trading portfolios, secured debt, debt securities, multi-strategy funds and private equity investments, and the performance of these LPs/LLCs is affected by the volatility of equity and credit markets. For our investments in LPs/LLCs, we record our allocable portion of the partnership operating income or loss as the results of the LPs/LLCs become available, typically following the end of a reporting period.

5943

Table of Contents

~~Acquisitions~~

On May 5, 2021, we completed the acquisition of NORCAL by purchasing over 98% of the converted company stock in exchange for base consideration of $441 million, which includes cash from ProAssurance of $248 million. The cash consideration from ProAssurance was funded by cash on hand as of May 5, 2021. The final purchase consideration also includes contribution certificates as well as contingent consideration depending upon the development of NORCAL's ultimate net losses over a three-year period beginning December 31, 2020. The base consideration and maximum contingent consideration are subject to final verification as the equity allocation is reviewed and finalized post close. The Agreement and Plan of Acquisition was previously filed as Exhibit 10.19 to our December 31, 2020 report on Form 10-K. Additional information regarding our acquisition of NORCAL is included in Note 15 of the Notes to Condensed Consolidated Financial Statements.

~~Financing Activities and Related Cash Flows~~

~~Treasury Shares~~

~~During the three months ended March 31, 2021 and 2020, we did not repurchase any common shares and, as of April 30, 2021, our remaining Board authorization was approximately $110 million.~~

~~ProAssurance Shareholder Dividends~~

Our Board declared quarterly cash dividends of $0.05 and $0.31 per share during the first quarter of 2021 and 2020, respectively. Dividends are paid the month following the quarter in which they are declared. 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.

Debt

At March 31, ~~2021~~2022 our debt included $250 million of outstanding unsecured senior notes. The notes bear interest at 5.3% annually and are due in November 2023 although they may be redeemed in whole or part prior to maturity. There are no financial covenants associated with these notes.

NORCAL Insurance Company, successor to NORCAL Mutual Insurance Company, issued Contribution Certificates, which bear interest at 3.0% annually and are due in 2031, to certain NORCAL policyholders in the conversion. The Contribution Certificates have a principal amount of $191 million and were recorded at their fair value of $175 million at the date of the NORCAL acquisition on May 5, 2021. The difference of $16 million between the recorded acquisition date fair value and the principal balance of the Contribution Certificates will be accreted utilizing the effective interest method over the term of the certificates of ten years as an increase to interest expense. Furthermore, interest payments are subject to deferral if we do not receive permission from the California Department of Insurance prior to payment. We received permission from the California Department of Insurance to pay the first annual interest payment which was paid in April 2022. See Note 2 and Note 13 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for additional information on the Contribution Certificates issued in the NORCAL acquisition. There are no financial covenants associated with these certificates.

We have a Revolving Credit Agreement, which expires in November 2024, that may be used for general corporate purposes, including, but not limited to, short-term working capital, share repurchases as authorized by the Board and support for other activities. Our Revolving Credit Agreement permits borrowings of up to $250 million as well as the possibility of a $50 million accordion feature, if successfully subscribed. At March 31, ~~2021,~~2022, there were no outstanding borrowings on our Revolving Credit Agreement; we are in compliance with the financial covenants of the Revolving Credit Agreement. On May 6, 2021, we borrowed $15 million under our Revolving Credit Agreement to pay certain transaction-related expenses associated with our acquisition of NORCAL (see Note 15 of the Notes to Condensed Consolidated Financial Statements for additional information).

We have Mortgage Loans with one lender in connection with the recapitalization of two office buildings, which mature in December 2027. The Mortgage Loans accrue interest at three-month LIBOR plus 1.325% with principal and interest payable on a quarterly basis. At March 31, 2021, the outstanding balance of the Mortgage Loans was approximately $36 million; we are in compliance with the financial covenant of the Mortgage Loans.

Additional information regarding our debt is provided in Note 107 of the Notes to Condensed Consolidated Financial Statements.

We utilize an interest rate cap agreement with a notional amount of $35 million to manage our exposure to increases in LIBOR on our Mortgage Loans. Per the interest rate cap agreement, we are entitled to receive cash payments if and when the three-month LIBOR exceeds 2.35%. Additional information on our interest rate cap agreement is provided in Note 11 of the Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K.

~~Two~~Three of our insurance subsidiaries are members of an FHLB. Through membership, those subsidiaries have access to secured cash advances which can be used for liquidity purposes or other operational needs. In order for us to use FHLB proceeds, regulatory approvals may be required depending on the nature of the transaction. To date, those subsidiaries have not materially utilized their membership for borrowing purposes.

6044

Table of Contents

Results of Operations – Three Months Ended March 31, ~~2021~~2022 Compared to Three Months Ended March 31, ~~2020~~2021

Selected consolidated financial data for each period is summarized in the table below.


		Three Months Ended March 31												Three Months Ended March 31
($ in thousands, except per share data)	($ in thousands, except per share data)			2021			2020			Change			($ in thousands, except per share data)		2022			2021			Change
Revenues:	Revenues:												Revenues:
Net premiums written	Net premiums written			$	202,270		$	232,217		$	(29,947)		Net premiums written		$	310,915		$	202,270		$	108,645

Net premiums earned	Net premiums earned			$	187,358		$	203,855		$	(16,497)		Net premiums earned		$	265,711		$	187,358		$	78,353

Net investment result	Net investment result			21,805			19,268			2,537			Net investment result		28,063			21,805			6,258
Net realized investment gains (losses)				8,849			(28,673)			37,522
Net investment gains (losses)													Net investment gains (losses)		(13,506)			8,849			(22,355)
Other income	Other income			2,005			2,251			(246)			Other income		2,804			2,005			799
Total revenues	Total revenues			220,017			196,701			23,316			Total revenues		283,072			220,017			63,055

Expenses:	Expenses:												Expenses:

Net losses and loss adjustment expenses	Net losses and loss adjustment expenses			149,785			164,832			(15,047)			Net losses and loss adjustment expenses		209,423			149,785			59,638
Underwriting, policy acquisition and operating expenses	Underwriting, policy acquisition and operating expenses			56,451			62,056			(5,605)			Underwriting, policy acquisition and operating expenses		71,776			56,451			15,325
SPC U.S. federal income tax expense	SPC U.S. federal income tax expense			356			222			134			SPC U.S. federal income tax expense		642			356			286
SPC dividend expense (income)	SPC dividend expense (income)			1,742			(508)			2,250			SPC dividend expense (income)		2,367			1,742			625
Interest expense	Interest expense			3,212			4,129			(917)			Interest expense		4,441			3,212			1,229

Total expenses	Total expenses			211,546			230,731			(19,185)			Total expenses		288,649			211,546			77,103

Income (loss) before income taxes	Income (loss) before income taxes			8,471			(34,030)			42,501			Income (loss) before income taxes		(5,577)			8,471			(14,048)
Income tax expense (benefit)	Income tax expense (benefit)			736			(12,076)			12,812			Income tax expense (benefit)		(2,017)			736			(2,753)
Net income (loss)	Net income (loss)			$	7,735		$	(21,954)		$	29,689		Net income (loss)		$	(3,560)		$	7,735		$	(11,295)
Non-GAAP operating income (loss)	Non-GAAP operating income (loss)			$	2,085		$	(1,146)		$	3,231		Non-GAAP operating income (loss)		$	7,683		$	2,085		$	5,598
Earnings (loss) per share:	Earnings (loss) per share:												Earnings (loss) per share:
Basic	Basic			$	0.14		$	(0.41)		$	0.55		Basic		$	(0.07)		$	0.14		$	(0.21)
Diluted	Diluted			$	0.14		$	(0.41)		$	0.55		Diluted		$	(0.07)		$	0.14		$	(0.21)
Non-GAAP operating income (loss) per share:	Non-GAAP operating income (loss) per share:												Non-GAAP operating income (loss) per share:
Basic	Basic			$	0.04		$	(0.02)		$	0.06		Basic		$	0.14		$	0.04		$	0.10
Diluted	Diluted			$	0.04		$	(0.02)		$	0.06		Diluted		$	0.14		$	0.04		$	0.10
Net loss ratio	Net loss ratio			79.9		%	80.9		%	(1.0		pts)	Net loss ratio		78.8		%	79.9		%	(1.1		pts)
Underwriting expense ratio	Underwriting expense ratio			30.1		%	30.4		%	(0.3		pts)	Underwriting expense ratio		27.0		%	30.1		%	(3.1		pts)
Combined ratio	Combined ratio			110.0		%	111.3		%	(1.3		pts)	Combined ratio		105.8		%	110.0		%	(4.2		pts)
Operating ratio	Operating ratio			102.0		%	101.1		%	0.9		pts	Operating ratio		98.1		%	102.0		%	(3.9		pts)
Effective tax rate	Effective tax rate			8.7		%	35.5		%	(26.8		pts)	Effective tax rate		36.2		%	8.7		%	27.5		pts
Return on equity*	Return on equity*			2.3		%	(6.0		%)	8.3		pts	Return on equity*		(0.8		%)	2.3		%	(3.1		pts)

*Annualized
*Annualized. See further discussion on this calculation in the Executive Summary of Operations section under the heading "ROE."													*Annualized. See further discussion on this calculation in the Executive Summary of Operations section under the heading "ROE."
In all tables that follow, the abbreviation "nm" indicates that the information or the percentage change is not meaningful.	In all tables that follow, the abbreviation "nm" indicates that the information or the percentage change is not meaningful.		In all tables that follow, the abbreviation "nm" indicates that the information or the percentage change is not meaningful.

6145

Table of Contents

Executive Summary of Operations

The following sections provide an overview of our consolidated and segment results of operations for the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020.~~2021. Our results for the three months ended March 31, 2022 include NORCAL's results. See the Segment Results sections that follow for additional information regarding each segment's results.

Revenues

The following table shows our consolidated and segment net premiums earned:


		Three Months Ended March 31				Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020			Change				($ in thousands)	2022				2021		Change
Net premiums earned	Net premiums earned														Net premiums earned
Specialty P&C	Specialty P&C			$	115,613		$	120,359	$	(4,746)			(3.9	%)	Specialty P&C	$	197,967	$	115,613	$	82,354	71.2	%
Workers' Compensation Insurance	Workers' Compensation Insurance			40,011			44,515		(4,504)				(10.1	%)	Workers' Compensation Insurance	40,684		40,011		673		1.7	%
Segregated Portfolio Cell Reinsurance	Segregated Portfolio Cell Reinsurance			15,884			16,980		(1,096)				(6.5	%)	Segregated Portfolio Cell Reinsurance	19,314		15,884		3,430		21.6	%
Lloyd's Syndicates	Lloyd's Syndicates			15,850			22,001		(6,151)				(28.0	%)	Lloyd's Syndicates	7,746		15,850		(8,104)		(51.1	%)
Consolidated total	Consolidated total			$	187,358		$	203,855	$	(16,497)			(8.1	%)	Consolidated total	$	265,711	$	187,358	$	78,353	41.8	%

~~All of our operating segments saw a decrease in consolidated net premiums earned during~~For the three months ended March 31, ~~2021~~2022, consolidated net premiums earned included additional earned premiums of $80.8 million in our Specialty P&C segment from our acquisition of NORCAL. Excluding NORCAL, consolidated net premiums earned decreased $2.5 million during the 2022 three-month period as compared to the same period of ~~2020, particularly~~2021 driven by a decrease in net premiums earned in our Lloyd's Syndicates segment, partially offset by an increase in net premiums earned in our Segregated Portfolio Cell Reinsurance, Specialty P&C and Workers' Compensation Insurance segments. The decrease in our Lloyd's Syndicates segment was due to our decreased participation in the results of Syndicate 1729 and Syndicate 6131 for the ~~2020~~2021 underwriting ~~year~~year. Net premiums earned in our Segregated Portfolio Cell Reinsurance segment increased during the 2022 three-month period driven by tail coverage premiums primarily related to ~~29% from 61%. The decrease~~one program in ~~net~~which we do not participate, which resulted in $3.0 million of one-time premium written and fully earned. Net premiums earned in our Specialty P&C segment, ~~was primarily~~excluding NORCAL, increased during the 2022 three-month period due to the beneficial impacts of our re-underwriting efforts ~~as we continue to emphasize careful risk selection,~~and focus on rate ~~adequacy and a willingness to walk away from business that does not fit our goal of achieving long-term underwriting profit, as well as competitive professional liability market conditions.~~adequacy. For both our Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments, the decrease in net premiums earned reflected the competitive workers' compensation market conditions and, for our Workers' Compensation Insurance segment, ~~a decrease~~the increase in ~~audit~~net premium ~~and~~earned during the 2022 three-month period reflected the prior year effect of a reduction in our EBUB ~~estimate.~~estimate and the impact of audit premium billed to policyholders during the current period.

The following table shows our consolidated net investment result:


		Three Months Ended March 31						Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020		Change					($ in thousands)				2022	2021	Change
Net investment income	Net investment income			$	15,017	$	20,830		$	(5,813)		(27.9	%)	Net investment income			$	20,443	$	15,017	$	5,426	36.1	%
Equity in earnings (loss) of unconsolidated subsidiaries*	Equity in earnings (loss) of unconsolidated subsidiaries*			6,788		(1,562)			8,350			534.6	%	Equity in earnings (loss) of unconsolidated subsidiaries*			7,620		6,788		832		12.3	%
Net investment result	Net investment result			$	21,805	$	19,268		$	2,537		13.2	%	Net investment result			$	28,063	$	21,805	$	6,258	28.7	%
*Equity in earnings (loss) of unconsolidated subsidiaries includes our share of the operating results of interests we hold in certain LPs/LLCs as well as operating losses associated with our tax credit partnership investments, which are designed to generate returns in the form of tax credits and tax-deductible project operating losses.

~~The increase in our~~Our consolidated net investment result for the three months ended March 31, ~~2021~~2022 included additional net investment income of approximately $6.5 million from NORCAL. Excluding NORCAL, consolidated net investment income decreased $1.1 million during the 2022 three-month period as compared to the same period of ~~2020 was~~2021 driven ~~by higher earnings from a few LPs/LLCs, partially offset~~ by lower yields on our corporate debt securities and, ~~short-term investments given the actions taken by the Federal Reserve to aggressively reduce interest rates in response to COVID-19 and,~~ to a lesser extent, ~~a decrease~~state and municipal bonds. The increase in our ~~allocation~~equity in earnings (loss) of unconsolidated subsidiaries for the three months ended March 31, 2022 as compared to ~~equities. Furthermore,~~ the ~~decline~~same period of 2021 was due to lower project operating losses associated with our tax credit partnerships which is an offset to earnings from our LP/LLC portfolio. The increase in ~~net investment income during~~our equity in earnings (loss) of unconsolidated subsidiaries for the ~~2021 three-month period reflected the impact~~three months ended March 31, 2022 also included additional earnings from our acquired interests in four LPs from NORCAL of ~~capital planning in anticipation of closing our acquisition of NORCAL.~~approximately $0.4 million.

6246

Table of Contents

Expenses

The following table shows our consolidated and segment net loss ratios and net ~~loss development:~~prior accident year reserve development.


		Three Months Ended March 31				Three Months Ended March 31
($ in millions)	($ in millions)		2021				2020			Change			($ in millions)	2022			2021			Change
Current accident year net loss ratio	Current accident year net loss ratio												Current accident year net loss ratio
Consolidated ratio	Consolidated ratio		82.5		%		83.8		%	(1.3		pts)	Consolidated ratio	80.8		%	82.5		%	(1.7		pts)
Specialty P&C	Specialty P&C		89.8		%		94.2		%	(4.4		pts)	Specialty P&C	85.8		%	89.8		%	(4.0		pts)
Workers' Compensation Insurance	Workers' Compensation Insurance		71.0		%		70.2		%	0.8		pts	Workers' Compensation Insurance	71.8		%	71.0		%	0.8		pts
Segregated Portfolio Cell Reinsurance	Segregated Portfolio Cell Reinsurance		68.9		%		65.7		%	3.2		pts	Segregated Portfolio Cell Reinsurance	64.5		%	68.9		%	(4.4		pts)
Lloyd's Syndicates	Lloyd's Syndicates		72.1		%		68.7		%	3.4		pts	Lloyd's Syndicates	41.8		%	72.1		%	(30.3		pts)

Calendar year net loss ratio	Calendar year net loss ratio												Calendar year net loss ratio
Consolidated ratio	Consolidated ratio		79.9		%		80.9		%	(1.0		pts)	Consolidated ratio	78.8		%	79.9		%	(1.1		pts)
Specialty P&C	Specialty P&C		87.5		%		92.2		%	(4.7		pts)	Specialty P&C	83.8		%	87.5		%	(3.7		pts)
Workers' Compensation Insurance	Workers' Compensation Insurance		65.5		%		66.9		%	(1.4		pts)	Workers' Compensation Insurance	66.9		%	65.5		%	1.4		pts
Segregated Portfolio Cell Reinsurance	Segregated Portfolio Cell Reinsurance		59.3		%		55.1		%	4.2		pts	Segregated Portfolio Cell Reinsurance	59.5		%	59.3		%	0.2		pts
Lloyd's Syndicates	Lloyd's Syndicates		81.8		%		67.2		%	14.6		pts	Lloyd's Syndicates	61.5		%	81.8		%	(20.3		pts)

Favorable (unfavorable) reserve development, prior accident years	Favorable (unfavorable) reserve development, prior accident years												Favorable (unfavorable) reserve development, prior accident years
Consolidated	Consolidated		$	4.8			$	6.0		$	(1.2)		Consolidated	$	5.3		$	4.8		$	0.5
Specialty P&C	Specialty P&C		$	2.7			$	2.4		$	0.3		Specialty P&C	$	3.9		$	2.7		$	1.2
Workers' Compensation Insurance	Workers' Compensation Insurance		$	2.2			$	1.5		$	0.7		Workers' Compensation Insurance	$	2.0		$	2.2		$	(0.2)
Segregated Portfolio Cell Reinsurance	Segregated Portfolio Cell Reinsurance		$	1.4			$	1.8		$	(0.4)		Segregated Portfolio Cell Reinsurance	$	0.9		$	1.4		$	(0.5)
Lloyd's Syndicates	Lloyd's Syndicates		$	(1.5)			$	0.3		$	(1.8)		Lloyd's Syndicates	$	(1.5)		$	(1.5)		$	—

~~Our~~The primary drivers of the change in our consolidated current accident year net loss ratio for the ~~2021 three-month period decreased by 1.3 percentage points~~three months ended March 31, 2022 as compared to the same period of ~~2020~~2021 were as follows:


									Increase (Decrease) 2022 versus 2021

Estimated ratio increase (decrease) attributable to:
NORCAL Operations									4.7 pts
NORCAL Acquisition - Purchase Accounting Adjustment									(0.9 pts)
Change in Estimate of ULAE									(2.7 pts)
All other, net									(2.8 pts)
Decrease in the consolidated current accident year net loss ratio									(1.7 pts)

Excluding the impact of the items specifically identified in the table above, our consolidated current accident year net loss ratio for the three months ended March 31, 2022 decreased 2.8 percentage points as compared to the prior year period driven by ~~a lower~~our Specialty P&C, Lloyd's Syndicates and Segregated Portfolio Cell Reinsurance segments, partially offset by our Workers' Compensation Insurance segment. The improvement in the current accident year net loss ratio in our Specialty P&C segment ~~partially offset~~for the three months ended March 31, 2022 was driven by a ~~higher~~decrease to certain loss ratios in our Standard Physician line of business, which we began recognizing in the second half of 2021 and, to a lesser extent, changes in the mix of business. For our Lloyd's Syndicates segment, the lower current accident year net loss ratio reflected the impact of certain property and catastrophe related losses incurred during the prior year period and, to a lesser extent, decreases to certain loss estimates during the first quarter of 2022. The decrease in the current accident year net loss ratio in our Lloyd's Syndicates and Workers' Compensation Insurance segments. The lower current accident year net loss ratio in our Specialty P&C segment during the 2021 three-month period was primarily due to decreases to certain loss ratios during the current period in our Standard Physician and Specialty lines of business as we continue to recognize the beneficial impacts of our re-underwriting efforts and focus on rate adequacy. The higher current accident year net loss ratio in our Lloyd's SyndicatesSegregated Portfolio Cell Reinsurance segment was driven by ~~certain property~~favorable trends in prior accident year claim results and ~~catastrophe related losses. For~~their impact on our ~~Workers' Compensation Insurance segment,~~analysis of the ~~higher~~ current accident year ~~net~~ loss ~~ratio was driven~~estimate, partially offset by the continuation of intense price competition and the resulting renewal rate decreases in the workers' compensation business. In our Workers' Compensation Insurance segment, the increase in the current accident year net loss ratio primarily reflects the continuation of intense price competition and the resulting renewal rate decreases, partially offset by the impact of favorable prior year claim trends on the current year estimate. The Workers' Compensation Insurance segment's current accident year net loss ratio for the three months ended March 31, 2022 also reflects an expectation that the labor shortage will continue to have an impact on claim activity during 2022.

Table of Contents

As shown in the previous table, initial loss ratios associated with NORCAL policies were higher than the average for the other books of business in our Specialty P&C segment. The impact of NORCAL operations resulted in a ~~lesser extent,~~4.7 percentage point increase in our consolidated current accident year net loss ratio for the ~~effect~~three months ended March 31, 2022. Also as a result of ~~lower~~our acquisition of NORCAL, our consolidated current accident year net ~~premiums earned (see previous discussion under~~loss ratio for the ~~heading "Revenues").~~three months ended March 31, 2022 was impacted by amortization of the negative VOBA associated with NORCAL's assumed unearned premium which is recorded as a reduction to current accident year net losses and accounted for a 0.9 percentage point decrease in our current period ratio. The remaining unamortized negative VOBA will be fully amortized in the second quarter of 2022.

During the first quarter of 2022, we decreased our estimate of ULAE in our Specialty P&C segment as a result of substantially integrating NORCAL into our operations, which accounted for a 2.7 percentage point decrease in our current period consolidated current accident year net loss ratio with an offsetting 2.7 percentage point increase in our current period consolidated expense ratio with no impact to our consolidated combined ratio, total expenses or net income. See additional information on this change in ULAE estimate in the Segment Results - Specialty Property and Casualty section that follows.

In both the 2022 and 2021 ~~and 2020~~ three-month ~~period,~~periods, our consolidated calendar year net loss ratio was lower than our consolidated current accident year net loss ratio due to the recognition of net favorable prior year reserve development, as shown in the previous table. ~~Consolidated net~~Net favorable prior accident year ~~reserve~~ development recognized was net of an increase in ~~the 2021 three-month period was lower~~our reserve for potential ECO/XPL claims of $4.0 million for three months ended March 31, 2022 as compared to a reduction in this same reserve of $0.2 million during the same period of ~~2020 due to unfavorable~~2021. Further, net favorable development recognized during the 2022 three-month period included $2.9 million related to the amortization of the purchase accounting fair value adjustment on NORCAL's assumed net reserve and amortization of the negative VOBA associated with NORCAL's DDR reserve which is recorded as a reduction to prior accident year net losses and loss adjustment expenses. We have not recognized any development related to NORCAL's prior accident year reserves since the date of acquisition on May 5, 2021. See Note 2 of the Notes to Consolidated Financial Statements in our ~~Lloyd's Syndicates segment driven primarily by catastrophe~~December 31, 2021 report on Form 10-K for additional information on the NORCAL acquisition and the related ~~losses. In~~purchase accounting adjustments. Excluding the increase in the ECO/XPL reserve and amortization of purchase accounting adjustments, we recognized net favorable prior accident year reserve development of $5.0 million in our Specialty P&C segment ~~we continue~~during the three months ended March 31, 2022, principally related to have concerns around elevated loss severity in the broader medical professional liability industry. In both our Specialty P&C and Workers' Compensation Insurance segments, we observed a reduction in claims frequency in 2020 that has continued into 2021, some of which is likely associated with the COVID-19 pandemic including the disruption of the court systems. Inaccident years 2019 through 2021. For our Workers' Compensation Insurance ~~segment, we reduced our current accident year loss ratio in 2020 in response to these~~and Segregated Portfolio Cell Reinsurance segments, the net favorable ~~frequency trends as these claims are shorter-tailed in nature as compared to our HCPL claims. Due to~~development recognized during the ~~long-tailed nature of our HCPL claims, we have not yet recognized these~~three months ended March 31, 2022 reflected overall favorable ~~frequency~~ trends in ~~our HCPL reserves.~~claim closing patterns.

We continue to remain cautious in our evaluation of our reserves in both our Specialty P&C and Workers' Compensation Insurance segments due to the uncertainty surrounding the length and severity of the pandemic. As it relates to our Workers' Compensation Insurance segment, legislative and regulatory bodies in certain states have changed or are considering changing compensability requirements and presumptions for certain types of workers related to COVID-19 claims. Such changes could have an adverse impact on the frequency and severity related to COVID-19 claims in that segment.

~~Table of Contents~~

Our consolidated and segment underwriting expense ratios were as follows:


		Three Months Ended March 31					Three Months Ended March 31
			2021		2020			Change			2022		2021		Change
Underwriting Expense Ratio	Underwriting Expense Ratio									Underwriting Expense Ratio
Consolidated(1)	Consolidated(1)		30.1	%	30.4	%		(0.3	pts)	Consolidated(1)	27.0	%	30.1	%	(3.1	pts)
Specialty P&C	Specialty P&C		22.8	%	24.6	%		(1.8	pts)	Specialty P&C	21.7	%	22.8	%	(1.1	pts)
Workers' Compensation Insurance	Workers' Compensation Insurance		30.7	%	31.8	%		(1.1	pts)	Workers' Compensation Insurance	32.0	%	30.7	%	1.3	pts
Segregated Portfolio Cell Reinsurance	Segregated Portfolio Cell Reinsurance		31.6	%	29.9	%		1.7	pts	Segregated Portfolio Cell Reinsurance	22.6	%	31.6	%	(9.0	pts)
Lloyd's Syndicates	Lloyd's Syndicates		41.6	%	41.6	%		—	pts	Lloyd's Syndicates	35.0	%	41.6	%	(6.6	pts)
Corporate*			3.8	%	2.4	%		1.4	pts
*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 premium earned).
Corporate (2)										Corporate (2)	3.3	%	3.8	%	(0.5	pts)
(1) Consolidated underwriting expenses include transaction-related costs associated with our acquisition of NORCAL. Beginning in the second quarter of 2021, transaction-related costs rose to a significant level; therefore, management determined that transaction-related costs will not be included in a segment on a prospective basis beginning in the second quarter of 2021 as we do not consider these costs in assessing the financial performance of any of our operating or reportable segments. While transaction-related costs are included in the Corporate segment's underwriting expense ratio for the 2021 three-month period, they did not have a significant impact on the ratio. See Note 11 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results.										(1) Consolidated underwriting expenses include transaction-related costs associated with our acquisition of NORCAL. Beginning in the second quarter of 2021, transaction-related costs rose to a significant level; therefore, management determined that transaction-related costs will not be included in a segment on a prospective basis beginning in the second quarter of 2021 as we do not consider these costs in assessing the financial performance of any of our operating or reportable segments. While transaction-related costs are included in the Corporate segment's underwriting expense ratio for the 2021 three-month period, they did not have a significant impact on the ratio. See Note 11 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results.
(2) There are no net premiums earned associated with the Corporate segment. Ratios shown are the contribution of the Corporate segment to the consolidated ratio (Corporate operating expenses divided by consolidated net premiums earned).										(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).

~~Despite~~

Table of Contents

The change in our consolidated underwriting expense ratio for the ~~decrease~~2022 three-month period as compared to the same period of 2021 was primarily attributable to the following:


									Increase (Decrease) 2022 versus 2021
(In percentage points)									Comparative three-month period
Estimated ratio increase (decrease) attributable to:
Increase in Net Premiums Earned and DPAC amortization(1)									(0.6 pts)
Change in Estimate of ULAE									2.7 pts
Tail Premium(2)									(1.4 pts)

All other, net									(3.8 pts)
Decrease in the underwriting expense ratio									(3.1 pts)
(1) Excludes tail premium for the three months ended March 31, 2022 and 2021.
(2) Represents the effect of the premium earned from tail policies for the three months ended March 31, 2022 as compared to the same period on 2021 as there is typically minimal deferred acquisition costs associated with tail premium (see further discussion in the Segment Results - Specialty Property and Casualty and Segregated Portfolio Cell Reinsurance sections that follow).

Excluding the impact of the items specifically identified in ~~earned premium in all of our operating segments, as previously discussed,~~the table above, our consolidated underwriting expense ratio for the three months ended March 31, ~~2021 remained relatively unchanged as compared~~2022 decreased 3.8 percentage points driven by lower operating expenses due to the ~~same period of 2020 driven by decreased operating expenses resulting~~benefits from prior organizational restructurings and proactive expense management as well as expense synergies recognized from the ~~operational and structural changes implemented over~~NORCAL acquisition in our Specialty P&C segment. The decrease in the ~~past year and a half. Furthermore,~~current period ratio also reflected the change in our allowance for expected credit losses in our Segregated Portfolio Cell Reinsurance segment related to the collection of customer accounts that were previously written off.

As shown in the previous table, the consolidated underwriting expense ratio ~~for the three months ended March 31, 2021~~ reflected a ~~reduction in employer contributions to the ProAssurance Savings Plan (see Note 17 of the Notes to Consolidated Financial Statements~~decrease in our ~~December 31, 2020 report on Form 10-K). The favorable impact~~estimate of ~~these reductions was partially offset by an increase~~ULAE which resulted in ~~professional fees~~approximately $7.3 million of expenses remaining in operating expenses instead of being allocated to net losses and loss adjustment expenses. As a result, this change in ULAE estimate had offsetting impacts to our ~~Corporate segment driven by higher transaction-related costs associated with our acquisition of NORCAL (see Note 8 of the Notes to Condensed Consolidated Financial Statements).~~

~~For the three months ended March 31, 2021, the underwriting~~consolidated loss and expense ratios during the period with no impact to our consolidated combined ratio, total expenses or net income. See additional discussion on this change in ~~our Specialty P&C and Corporate segments also reflected~~ULAE estimate in the ~~impact of a reduction to the management fee charged to the operating subsidiaries of our Specialty P&C segment by our Corporate segment effective January 1, 2021 (see further discussion in our~~ Segment Results - Specialty Property &and Casualty ~~and Segment Results - Corporate sections~~section that ~~follow). This change had no impact to our consolidated underwriting expense ratio.~~follows.

Taxes

Our provision for income taxes and effective tax rates for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 were as follows:


($ in thousands)	($ in thousands)	Three Months Ended March 31											($ in thousands)	Three Months Ended March 31
		2021			2020			Change						2022		2021		Change
Income (loss) before income taxes	Income (loss) before income taxes	$	8,471		$	(34,030)		$	42,501		124.9	%	Income (loss) before income taxes	$	(5,577)	$	8,471	$	(14,048)	(165.8	%)
Less: Income tax expense (benefit)	Less: Income tax expense (benefit)	736			(12,076)			12,812			106.1	%	Less: Income tax expense (benefit)	(2,017)		736		(2,753)		374.0	%
Net income (loss)	Net income (loss)	$	7,735		$	(21,954)		$	29,689		135.2	%	Net income (loss)	$	(3,560)	$	7,735	$	(11,295)	(146.0	%)
Effective tax rate	Effective tax rate	8.7		%	35.5		%	(26.8		pts)			Effective tax rate	36.2%		8.7%		27.5 pts

We recognized an income tax benefit of $2.0 million and income tax expense of $0.7 million during the three months ended March 31, 2022 and 2021, ~~as compared to an income tax benefit of $12.1 million during the same period of 2020;~~respectively; however, the comparability of our effective tax rates is impacted by the consolidated pre-tax ~~income~~loss recognized during the ~~2021~~2022 three-month period as compared to ~~the~~ consolidated pre-tax ~~loss~~income recognized in the ~~2020~~2021 three-month period. Furthermore, the comparability of our effective tax rates is impacted by our use of the discrete effective tax rate method for the three months ended March 31, 2022 versus our use of the estimated annual effective tax rate method for the three months ended March 31, 2021 (see further discussion on these methods in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits").

Our effective tax ~~rates~~rate for both the ~~2021~~2022 and ~~2020~~2021 three-month periods ~~were~~was different from the statutory federal income tax rate of 21% primarily due to the benefit recognized from the tax credits transferred to us from our tax credit partnership investments. See further discussion of other notable items impacting our effective tax rate in the Segment Operating Results - Corporate section that follows under the heading "Taxes."

Our projected annual effective tax rate was (38.4 %) as of March 31, 2021 before discrete items were considered and represents an expected tax benefit. Discrete items increased our effective tax rate by 47.1% for the 2021 three-month period mainly due to the treatment of net realized investment gains. This discrete treatment of net realized investment gains of $8.0 million in our Corporate segment for the three months ended March 31, 2021 accounted for an increase of 19.8% in the effective tax rate. Our projected annual effective tax rate as of March 31, 2021 was different from the statutory federal income tax rate of 21% primarily due to the benefit we expect to recognize from the tax credits transferred to us from our tax credit partnership investments. For further discussion in the Segment Results - Corporate section that follows under the heading "Taxes."

6449

Table of Contents

Operating Ratio

Our operating ratio is our combined ratio, less our investment income ratio. This ratio provides the combined effect of underwriting profitability and investment income. Our operating ratio for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 was as follows:


		Three Months Ended March 31				Three Months Ended March 31
			2021		2020		Change			2022		2021		Change
Combined ratio	Combined ratio		110.0	%	111.3	%	(1.3	pts)	Combined ratio	105.8	%	110.0	%	(4.2	pts)
Less: investment income ratio	Less: investment income ratio		8.0	%	10.2	%	(2.2	pts)	Less: investment income ratio	7.7	%	8.0	%	(0.3	pts)
Operating ratio	Operating ratio		102.0	%	101.1	%	0.9	pts	Operating ratio	98.1	%	102.0	%	(3.9	pts)

Combined ratio, excluding transaction-related costs*									Combined ratio, excluding transaction-related costs*	105.4	%	109.6	%	(4.2	pts)
*Our consolidated combined ratio for the 2022 and 2021 three-month periods includes $1.2 million and $0.9 million, respectively, of transaction-related costs included in consolidated operating expenses associated with our acquisition of NORCAL. Given these costs do not reflect normal operating expenses, we have excluded their impact from our calculation of the consolidated combined ratio. See previous discussion under the heading "Expenses."									*Our consolidated combined ratio for the 2022 and 2021 three-month periods includes $1.2 million and $0.9 million, respectively, of transaction-related costs included in consolidated operating expenses associated with our acquisition of NORCAL. Given these costs do not reflect normal operating expenses, we have excluded their impact from our calculation of the consolidated combined ratio. See previous discussion under the heading "Expenses."

~~Our~~The primary drivers of the change in our operating ratio were as follows:


			Increase (Decrease) 2022 versus 2021
(In percentage points)			Comparative three-month periods
Estimated ratio increase (decrease) attributable to:

NORCAL Acquisition - Purchase Accounting Adjustments			(2.1 pts)
NORCAL Investment Results			(2.4 pts)



Investment Results (1)			2.7 pts
All other, net			(2.1 pts)
Decrease in the operating ratio			(3.9 pts)
(1) Excludes net investment income contributed by NORCAL for the 2022 three-month period.

Excluding the impact of the items specifically identified in the table above, our operating ratio for the ~~three months ended March 31, 2021~~2022 three-month period improved by 2.1 percentage points as compared to the same period of ~~2020 increased approximately 0.9 percentage points driven by a lower investment income~~2021 primarily due to an improvement in our expense ratio ~~largely offset by a lower combined~~and net loss ratio in our Specialty P&C ~~segment. The lower investment income ratio was primarily due to lower yields on our corporate debt securities~~ and ~~short-term investments given the actions taken~~Lloyd's Syndicates segments, partially offset by ~~the Federal Reserve in response to COVID-19 and, to~~ a ~~lesser extent, a decrease in our allocation to equities. The lower combined~~higher net loss ratio in our ~~Specialty P&C segment was driven by improvement in the current accident year net loss ratio primarily due to our re-underwriting efforts and focus on rate adequacy.~~Workers' Compensation Insurance. See previous discussion in this section under the heading "Expenses" and further discussion in our Segment Operating Results ~~- Specialty Property & Casualty section~~sections that ~~follows under the heading "Losses and Loss Adjustment Expenses."~~follow.

ROE

ROE is calculated as annualized net income (loss) for the period divided by the average of beginning and ending shareholders’ equity. This ratio measures our overall after-tax profitability and shows how efficiently capital is being used. Beginning in the second quarter of 2021, transaction-related costs rose to a significant level; therefore, management determined prospectively that transaction-related costs associated with our acquisition of NORCAL will not be annualized in our quarterly calculation of ROE as these costs are considered non-recurring in nature. ROE for the three months ended March 31, 2022 and 2021 ~~and 2020 was~~were as follows:

Three Months Ended March 31
2021 2020 Change
ROE 2.3 % (6.0 %) 8.3 pts


	Three Months Ended March 31
	2022		2021		Change
ROE	(0.8	%)	2.3	%	(3.1	pts)

~~The increase in our~~Our ROE for the current year period was impacted by purchase accounting adjustments associated with our acquisition of NORCAL which increased our ROE by 1.7 percentage points. See Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for additional information on the NORCAL acquisition and the related purchase accounting adjustments. Excluding the purchase accounting adjustments, ROE for the 2022 three-month period ~~as compared to the same period of 2020 was~~decreased 4.8 percentage points driven by unrealized holding losses resulting from changes in the ~~change in~~ fair value of our equity ~~portfolio and convertible securities, higher earnings from a few LPS/LLCs and improved underwriting results (see previous discussion in this section under~~investments which decreased our ROE by 4.3 percentage points during the ~~heading "Investments").~~current period.

Table of Contents

Book Value per Share

Book value per share is calculated as total shareholders’ equity at the balance sheet date divided by the total number of common shares outstanding. This ratio measures the net worth of the Company to shareholders on a per share basis. Our book value per share at March 31, ~~2021~~2022 as compared to December 31, ~~2020~~2021 is shown in the following table.


	Book Value Per Share
Book Value Per Share at December 31, ~~2020~~2021	$	~~25.04~~26.46
Increase (decrease) to book value per share during the three months ended March 31, ~~2021~~2022 attributable to:
Dividends declared	(0.05)


Net income (loss)	~~0.14~~(0.07)
OCI(1)	~~(0.63)~~(2.61)
Other~~(2)~~	(0.01)
Book Value Per Share at March 31, ~~2021~~2022	$	~~24.49~~23.72

(1)Primarily the impact of unrealized ~~investment gains (losses)~~holding losses on our available-for-sale fixed maturity investments. See Note 118 of the Notes to Condensed Consolidated Financial Statements for additional information.

~~(2)Includes the impact of share-based compensation.~~

6551

Table of Contents

Non-GAAP Financial Measures

Non-GAAP operating income (loss) is a financial measure that is widely used to evaluate performance within the insurance sector. In calculating Non-GAAP operating income (loss), we have excluded the effects of the items listed in the following table that do not reflect normal results. We believe Non-GAAP operating income (loss) presents a useful view of the performance of our insurance operations, however it should be considered in conjunction with net income (loss) computed in accordance with GAAP.

The following table is a reconciliation of net income (loss) to Non-GAAP operating income (loss):


		Three Months Ended March 31			Three Months Ended March 31
(In thousands, except per share data)	(In thousands, except per share data)		2021			2020		(In thousands, except per share data)	2022		2021
Net income (loss)	Net income (loss)		$	7,735		$	(21,954)	Net income (loss)	$	(3,560)	$	7,735
Items excluded in the calculation of Non-GAAP operating income (loss):	Items excluded in the calculation of Non-GAAP operating income (loss):							Items excluded in the calculation of Non-GAAP operating income (loss):
Net realized investment (gains) losses			(8,849)			28,673
Net realized gains (losses) attributable to SPCs which no profit/loss is retained (1)			789			(2,498)
Net investment (gains) losses								Net investment (gains) losses	13,506		(8,849)
Net investment gains (losses) attributable to SPCs which no profit/loss is retained (1)								Net investment gains (losses) attributable to SPCs which no profit/loss is retained (1)	(602)		789
Transaction-related costs (2)	Transaction-related costs (2)		925			—		Transaction-related costs (2)	1,177		925

Guaranty fund assessments (recoupments)	Guaranty fund assessments (recoupments)		4			(2)		Guaranty fund assessments (recoupments)	13		4

Pre-tax effect of exclusions	Pre-tax effect of exclusions		(7,131)			26,173		Pre-tax effect of exclusions	14,094		(7,131)

Tax effect, at 21% (3)	Tax effect, at 21% (3)		1,481			(5,365)		Tax effect, at 21% (3)	(2,851)		1,481
After-tax effect of exclusions	After-tax effect of exclusions		(5,650)			20,808		After-tax effect of exclusions	11,243		(5,650)
Non-GAAP operating income (loss)	Non-GAAP operating income (loss)		$	2,085		$	(1,146)	Non-GAAP operating income (loss)	$	7,683	$	2,085

Per diluted common share:	Per diluted common share:							Per diluted common share:
Net income (loss)	Net income (loss)		$	0.14		$	(0.41)	Net income (loss)	$	(0.07)	$	0.14
Effect of exclusions	Effect of exclusions		(0.10)			0.39		Effect of exclusions	0.21		(0.10)
Non-GAAP operating income (loss) per diluted common share	Non-GAAP operating income (loss) per diluted common share		$	0.04		$	(0.02)	Non-GAAP operating income (loss) per diluted common share	$	0.14	$	0.04
(1) Net realized investment gains (losses) on investments related to SPCs are recognized in our Segregated Portfolio Cell Reinsurance segment. SPC results, including any realized 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 realized investment gains (losses) recognized in earnings, we are excluding the portion of net realized investment gains (losses) that is included in the SPC dividend expense (income) which is attributable to the external cell participants.
(2) Transaction-related costs associated with our acquisition of NORCAL. Given the significance of these transaction-related costs to the current period, we are excluding these costs as they do not reflect normal operating results and are unique and non-recurring in nature.
(3) The 21% rate is the annual expected statutory tax rate associated with the taxable or tax deductible items listed above. Our effective tax rate for the respective periods was applied to these items in calculating net income (loss), excluding net realized investment gains (losses) and related adjustments. Net realized investment gains (losses) in our Corporate segment are discrete items and are tax affected at the annual expected statutory tax rate (21%) in the period they are included in our consolidated tax provision and net income (loss). See previous discussion in this section under the heading "Taxes." The taxes associated with the net realized 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 realized investment gains (losses) from our Segregated Portfolio Cell Reinsurance segment and the adjustment to exclude the portion of net realized investment gains (losses) included in the SPC dividend expense (income) in the table above are not tax effected.
(1) Net investment gains (losses) on investments related to SPCs are recognized in our Segregated Portfolio Cell Reinsurance segment. SPC results, including any net investment gain or loss, that are attributable to external cell participants are reflected in the SPC dividend expense (income). To be consistent with our exclusion of net investment gains (losses) recognized in earnings, we are excluding the portion of net investment gains (losses) that is included in the SPC dividend expense (income) which is attributable to the external cell participants.								(1) Net investment gains (losses) on investments related to SPCs are recognized in our Segregated Portfolio Cell Reinsurance segment. SPC results, including any net investment gain or loss, that are attributable to external cell participants are reflected in the SPC dividend expense (income). To be consistent with our exclusion of net investment gains (losses) recognized in earnings, we are excluding the portion of net investment gains (losses) that is included in the SPC dividend expense (income) which is attributable to the external cell participants.
(2) Transaction-related costs associated with our acquisition of NORCAL. We are excluding these costs as they do not reflect normal operating results and are unique and non-recurring in nature.								(2) Transaction-related costs associated with our acquisition of NORCAL. We are excluding these costs as they do not reflect normal operating results and are unique and non-recurring in nature.

(3) The 21% rate is the annual expected statutory tax rate associated with the taxable or tax deductible items listed above. We utilized the discrete effective tax rate method for the three months ended March 31, 2022 while we utilized the estimated annual effective tax rate method for the three months ended March 31, 2021. For the 2022 period, our statutory tax rate was applied to these items in calculating net income (loss). For the 2021 period, our effective tax rate was applied to these items in calculating net income (loss), excluding net investment gains (losses) and related adjustments. See further discussion on these methods in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits". Under both methods, net investment gains (losses) in our Corporate segment are treated as discrete items and are tax effected at the annual expected statutory tax rate (21%) in the period they are included in our consolidated tax provision and net income (loss). The taxes associated with the net investment gains (losses) related to SPCs in our Segregated Portfolio Cell Reinsurance segment are paid by the individual SPCs and are not included in our consolidated tax provision or net income (loss); therefore, both the net investment gains (losses) from our Segregated Portfolio Cell Reinsurance segment and the adjustment to exclude the portion of net investment gains (losses) included in the SPC dividend expense (income) in the table above are not tax effected.								(3) The 21% rate is the annual expected statutory tax rate associated with the taxable or tax deductible items listed above. We utilized the discrete effective tax rate method for the three months ended March 31, 2022 while we utilized the estimated annual effective tax rate method for the three months ended March 31, 2021. For the 2022 period, our statutory tax rate was applied to these items in calculating net income (loss). For the 2021 period, our effective tax rate was applied to these items in calculating net income (loss), excluding net investment gains (losses) and related adjustments. See further discussion on these methods in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits". Under both methods, net investment gains (losses) in our Corporate segment are treated as discrete items and are tax effected at the annual expected statutory tax rate (21%) in the period they are included in our consolidated tax provision and net income (loss). The taxes associated with the net investment gains (losses) related to SPCs in our Segregated Portfolio Cell Reinsurance segment are paid by the individual SPCs and are not included in our consolidated tax provision or net income (loss); therefore, both the net investment gains (losses) from our Segregated Portfolio Cell Reinsurance segment and the adjustment to exclude the portion of net investment gains (losses) included in the SPC dividend expense (income) in the table above are not tax effected.

6652

Table of Contents

Segment Results - Specialty Property & Casualty

Our Specialty P&C segment focuses on professional liability insurance and medical technology liability insurance as discussed in Note 1418 of the Notes to ~~Condensed~~ Consolidated Financial ~~Statements.~~Statements in our December 31, 2021 report on Form 10-K. On May 5, 2021, we completed our acquisition of NORCAL, an underwriter of healthcare professional liability insurance (Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K provides additional information regarding this acquisition). Segment results reflected pre-tax underwriting profit or loss from these insurance ~~lines.~~lines, and for the three months ended March 31, 2022, included the pre-tax underwriting results of NORCAL as well as certain purchase accounting adjustments. Segment results for the three months ended March 31, 2022 exclude transaction-related costs as we do not consider these costs in assessing the financial performance of the segment. Segment results included the following:


		Three Months Ended March 31											Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020			Change					($ in thousands)			2022	2021		Change
Net premiums written	Net premiums written			$	121,313		$	131,255		$	(9,942)	(7.6	%)	Net premiums written		$	234,838	$	121,313	$	113,525	93.6	%
Net premiums earned	Net premiums earned			$	115,613		$	120,359		$	(4,746)	(3.9	%)	Net premiums earned		$	197,967	$	115,613	$	82,354	71.2	%
Other income	Other income			469			1,698			(1,229)		(72.4	%)	Other income		1,019		469		550		117.3	%
Net losses and loss adjustment expenses	Net losses and loss adjustment expenses			(101,186)			(110,931)			9,745		(8.8	%)	Net losses and loss adjustment expenses		(165,958)		(101,186)		(64,772)		64.0	%
Underwriting, policy acquisition and operating expenses	Underwriting, policy acquisition and operating expenses			(26,346)			(29,585)			3,239		(10.9	%)	Underwriting, policy acquisition and operating expenses		(42,878)		(26,346)		(16,532)		62.7	%
Segment results	Segment results			$	(11,450)		$	(18,459)		$	7,009	38.0	%	Segment results		$	(9,850)	$	(11,450)	$	1,600	14.0	%

Net loss ratio	Net loss ratio			87.5		%	92.2		%	(4.7 pts)				Net loss ratio		83.8%		87.5%		(3.7 pts)
Underwriting expense ratio	Underwriting expense ratio			22.8		%	24.6		%	(1.8 pts)				Underwriting expense ratio		21.7%		22.8%		(1.1 pts)

Premiums Written

Changes in our premium volume within our Specialty P&C segment are generally driven by ~~four~~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 and (4) the timing of premium written through multi-period policies.~~purchase. In addition, premium volume may periodically be affected by shifts in the timing of renewals between periods. For the three months ended March 31, 2022, our premium volume was primarily affected by our acquisition of NORCAL.

The professional liability market, which accounts for a majority of the revenues in this segment, remains challenging as physicians continue joining hospitals or larger group practices and, therefore, are ~~thus~~ no longer purchasing individual or group policies in the standard market. In addition, some competitors have chosen to compete primarily on price; both factors may impact our ability to write new business and retain existing business. Furthermore, the insurance and reinsurance markets have historically been cyclical, characterized by extended periods of intense price competition and other periods of reduced competition. The professional liability ~~area~~market has been particularly affected by these cycles. Underwriting cycles are generally driven by an excess of capacity available and actively pursuing business that is deemed profitable. Changes in the frequency and severity of losses may affect the cycles of the insurance and reinsurance markets significantly. During “soft markets” where price competition is high and underwriting profits are poor, growth and retention of business become challenging which may result in reduced premium volumes.

Gross, ceded and net premiums written were as follows:


		Three Months Ended March 31						Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020		Change					($ in thousands)				2022	2021	Change
Gross premiums written	Gross premiums written			$	138,289	$	155,381		$	(17,092)		(11.0	%)	Gross premiums written			$	257,672	$	138,289	$	119,383	86.3	%
Less: Ceded premiums written	Less: Ceded premiums written			16,976		24,126			(7,150)			(29.6	%)	Less: Ceded premiums written			22,834		16,976		5,858		34.5	%
Net premiums written	Net premiums written			$	121,313	$	131,255		$	(9,942)		(7.6	%)	Net premiums written			$	234,838	$	121,313	$	113,525	93.6	%

6753

Table of Contents

Gross Premiums Written

During the second quarter of 2020, 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 March 31						Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020		Change					($ in thousands)				2022	2021	Change
Professional Liability	Professional Liability													Professional Liability
HCPL	HCPL													HCPL
Standard Physician(1)	Standard Physician(1)													Standard Physician(1)			$	52,653	$	52,617	$	36	0.1	%
Twelve month term				$	52,617	$	56,918		$	(4,301)		(7.6	%)
Twenty-four month term				—		7,366			(7,366)			nm
NORCAL Standard Physician(2)														NORCAL Standard Physician(2)			106,476		—		106,476		nm
Total Standard Physician	Total Standard Physician			52,617		64,284			(11,667)			(18.1	%)	Total Standard Physician			159,129		52,617		106,512		202.4	%
Specialty	Specialty													Specialty
Custom Physician(2)(10)				15,837		30,399			(14,562)			(47.9	%)
Hospitals and Facilities(3)(10)				16,341		16,357			(16)			(0.1	%)
Senior Care(4)(10)				5,041		3,885			1,156			29.8	%
Reinsurance (assumed)(5)				10,437		4,789			5,648			117.9	%
Custom Physician(3)														Custom Physician(3)			7,407		15,837		(8,430)		(53.2	%)
NORCAL Custom Physician(4)														NORCAL Custom Physician(4)			11,638		—		11,638		nm
Hospitals and Facilities(5)														Hospitals and Facilities(5)			14,197		16,341		(2,144)		(13.1	%)
NORCAL Hospitals and Facilities(6)														NORCAL Hospitals and Facilities(6)			3,067		—		3,067		nm
Senior Care(7)(12)														Senior Care(7)(12)			4,493		5,041		(548)		(10.9	%)
Reinsurance assumed(8)														Reinsurance assumed(8)			9,761		10,437		(676)		(6.5	%)

Total Specialty	Total Specialty			47,656		55,430			(7,774)			(14.0	%)	Total Specialty			50,563		47,656		2,907		6.1	%
Total HCPL	Total HCPL			100,273		119,714			(19,441)			(16.2	%)	Total HCPL			209,692		100,273		109,419		109.1	%
Small Business Unit(6)				22,766		22,901			(135)			(0.6	%)
Tail Coverages(7)(10)				8,138		6,189			1,949			31.5	%
Small Business Unit(9)														Small Business Unit(9)			22,519		22,766		(247)		(1.1	%)
Tail Coverages(10)(12)														Tail Coverages(10)(12)			9,838		8,138		1,700		20.9	%
NORCAL Tail Coverages(10)														NORCAL Tail Coverages(10)			7,733		—		7,733		nm
Total Professional Liability	Total Professional Liability			131,177		148,804			(17,627)			(11.8	%)	Total Professional Liability			249,782		131,177		118,605		90.4	%
Medical Technology Liability(8)				6,984		6,219			765			12.3	%
Other(9)				128		358			(230)			(64.2	%)
Medical Technology Liability(11)														Medical Technology Liability(11)			7,700		6,984		716		10.3	%
Other														Other			190		128		62		48.4	%
Total	Total			$	138,289	$	155,381		$	(17,092)		(11.0	%)	Total			$	257,672	$	138,289	$	119,383	86.3	%

(1) Standard Physician premium ~~was our greatest source of premium revenues in both 2021 and 2020 and is predominately comprised of twelve month term policies. The decrease in twelve month term policies~~remained relatively unchanged during the ~~2021~~2022 three-month period ~~was driven by~~as compared to the same period of 2021 as retention losses ~~partially~~were offset by an increase in renewal pricing, the conversion of twenty-four month term policies ~~an increase in renewal pricing~~ and, to a lesser extent, new business written. Renewal pricing increases ~~in 2021~~during the 2022 three-month period reflect the rising loss cost environment and new business written reflects general market conditions. Retention losses ~~in 2021~~during the 2022 three-month period were largely attributable to our targeted state strategy to reassess our underwriting appetite in certain unprofitable states. We will continue to perform a detailed evaluation of venues, specialties and other areas to improve our underwriting results. We also continue to focus on underwriting discipline as we emphasize careful risk selection, rate adequacy, improved contract terms and a willingness to walk away from business that does not fit our goal of achieving a long-term underwriting profit. While retention in the current period has recovered somewhat from the impact of our re-underwriting efforts over the past year and a half, it remains lower than our historical average for this line of business as we continue to reevaluate certain states and set our rates to reflect our observations of higher severity trends. Retention losses during the ~~2021~~2022 three-month period also reflected the loss of ~~two large policies totaling $1.4~~a $2.0 million policy that chose to utilize self-insurance as well as the loss of a $1.0 million policy due to price competition. ~~Standard Physician premium in the 2020 three-month period also included twenty-four month term premiums that were offered to physician insureds in one selected jurisdiction.~~ We ceased offering twenty-four month term policies beginning in the second quarter of 2020, and the majority of the policies that were up for renewal in ~~the current period~~2021 were renewed to twelve month term policies; however, a portion of the premium from ~~the~~ 2020 ~~three-month period reflected~~related to policies that ~~will be~~are subject to renewal and conversion in 2022.

(3) Custom Physician premium includes large complex physician groups, multi-state physician groups and non-standard physicians and is written primarily on an excess and surplus lines basis. The decrease in Custom Physician premium during the ~~2021~~2022 three-month period as compared to the same period of ~~2020~~2021 was driven by retention losses, partially offset by an increase in renewal pricing and, to a lesser extent, new business written. Retention losses for the ~~mutual decision~~2022 three-month period were driven by the loss of two large policies totaling approximately $9.0 million due to ~~dissolve our arrangement with CAPAssurance as a result of our acquisition of NORCAL,~~price competition, which resulted in ~~the loss of~~ a ~~large program and two large policies in California totaling $10.2 million. The~~ decrease in our Specialty retention rate of 18.9 percentage points. Renewal pricing increases for the 2022 three-month period reflect the rising loss cost environment and new business written reflects general market conditions.

Table of Contents

(4) NORCAL Custom Physician premium represents premium contributed by NORCAL and includes large complex physician groups, multi-state physician groups and non-standard physicians and is written primarily on an excess and surplus lines basis. NORCAL Custom Physician premium during the ~~2021~~2022 three-month period ~~also reflected~~was impacted by retention losses, partially offset by an increase in renewal pricing and, to a lesser extent, new business written.

(5) Hospitals and Facilities premium (which includes hospitals, surgery centers and miscellaneous medical facilities) decreased during the 2022 three-month period as compared to the same period of 2021 driven by retention losses and, to a lesser extent, the timing of the renewal of a $1.6 million policy between periods; this policy will renew in the second quarter of 2022 as compared to the first quarter of 2021. Retention losses in the 2022 three-month period were largely attributable to the loss of a $1.4 million policy due to the insured entering into a captive arrangement and our non-renewal of a $1.2 million policy due to our focus on underwriting ~~discipline as we continue to emphasize careful risk selection, rate adequacy, improved contract terms and a willingness to walk away from business that does not fit our goal~~

~~Table of Contents~~

~~of achieving a long-term underwriting profit, which resulted in the non-renewal of two large policies totaling $7.3 million.~~discipline. The decrease in ~~Custom Physician~~Hospitals and Facilities premium for the 2022 three-month period was partially offset by new business written, primarily miscellaneous medical facilities, and, to a lesser extent, an increase in renewal pricing. Renewal pricing increases for the 2021 three-month period reflect the rising loss cost environment and new business written reflects general market conditions. The lower retention for the 2021 three-month period also reflects the aforementioned dissolution of our arrangement with CAPAssurance, which resulted in a decrease to our Specialty retention rate of 22.6 percentage points. We anticipate retention rates to begin to normalize going forward as we substantially completed our re-underwriting efforts as of the end of 2020, except for a large program that was renewed on a two-year term in 2019 that was carefully evaluated and subsequently non-renewed in the current quarter, as previously discussed.

~~(3)~~ Hospitals and Facilities premium (which includes hospitals, surgery centers and miscellaneous medical facilities) was relatively unchanged during the 2021 three-month period as compared to the same period of 2020 as retention losses were almost entirely offset by new business written, an increase in renewal pricing and, to a lesser extent, net timing differences of $0.5 million. Renewal pricing increases for the 20212022 three-month period reflect rate increases and contract modifications that we believe are appropriate given the current loss environment and new business written reflects general market conditions. ~~Retention losses in~~

(6) NORCAL Hospitals and Facilities premium represents premium contributed by NORCAL and includes hospitals, surgery centers and miscellaneous medical facilities. NORCAL Hospitals and Facilities premium during the ~~2021~~2022 three-month period ~~were driven~~was impacted by ~~our decision not~~retention losses, partially offset by new business written and, to ~~renew certain products. As we substantially completed our re-underwriting efforts on certain books of business as of the end of the third quarter of 2020, retention rates have started to normalize.~~a lesser extent, an increase in renewal pricing.

~~(4)~~(7) Senior Care premium includes facilities specializing in long term residential care primarily for the elderly ranging from independent living through skilled nursing. Our Senior Care premium ~~increased~~decreased for the ~~2021~~2022 three-month period as compared to the same period of ~~2020~~2021 driven by ~~renewal pricing increases and, to a lesser extent, new business written,~~retention losses, partially offset by ~~retention losses.~~new business written. The ~~increase in renewal pricing in 2021~~lower premium retention was primarily due to a large account renewing with a meaningful reduction in exposure. Renewal pricing for the ~~result of an increase in the rate charged for certain renewed policies in select states. Retention losses in the 2021~~2022 three-month period ~~were driven by our decision not~~remained relatively unchanged as compared to ~~renew certain classes~~the same period of Senior Care business based on our expectations of poor loss performance. As we completed our re-underwriting efforts on certain books of business during the third quarter of 2020, retention rates have started to normalize.2021.

~~(5)~~(8) We offer custom alternative risk solutions including assumed reinsurance. The ~~increase~~decrease in premium during the ~~2021~~2022 three-month period primarily reflected the impact of an assumed reinsurance arrangement with a regional hospital group entered into during the ~~current period,~~first quarter of 2021 which resulted in $4.5 million of premium written, comprised of $2.3 million of retroactive premium written and fully earned and $2.2 million of prospective premium ~~written. See~~written (see Note 45 of the Notes to ~~Condensed~~ Consolidated Financial Statements ~~for further information~~in our December 31, 2021 report on ~~this transaction. Our custom alternative risk solutions also include~~Form 10-K). The decrease in premium during the 2022 three-month period was largely offset by an increase in premiums assumed on a quota share basis through a strategic partnership in place since 2016 with an international medical professional liability insurer. ~~For~~In 2021, we increased our participation in the original program and entered into another program with this insurer in a new international territory. ~~Thus, we~~We anticipate the volume of premium assumed through this partnership will continue to grow going forward.

~~(6)~~(9) Our Small Business Unit is primarily comprised of premium associated with podiatrists, legal professionals, dentists and chiropractors. Our Small Business Unit premium ~~was~~remained relatively unchanged ~~for~~during the ~~2021~~2022 three-month period as compared to the same period of ~~2020~~2021 as retention losses were ~~largely~~almost entirely offset by new business written and, to a lesser extent, an increase in renewal pricing. The increase in renewal pricing ~~in 2021~~during the 2022 three-month period was primarily the result of an increase in the rate charged for certain renewed policies in select states.

~~(7)~~(10) We offer extended reporting endorsement or "tail" coverage to insureds who discontinue their claims-made coverage with us, and we also periodically offer tail coverage through stand-alone policies. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. The amount of tail coverage premium written can vary significantly from period to period. The increase during the 2021 three-month period as compared to the same period of 2020 was primarily due to two large tail policies written and fully earned in the current period totaling $2.1 million.

~~(8)~~(11) Our Medical Technology Liability business is marketed throughout the U.S.; coverage is typically offered on a primary basis, within specified limits, to manufacturers and distributors of medical technology and life sciences products including entities conducting human clinical trials. In addition to the previously listed factors that affect our premium volume, our Medical Technology Liability premium is also impacted by the sales volume of insureds. Our Medical Technology Liability premium increased during the ~~2021~~2022 three-month period as compared to the same period of ~~2020~~2021 due to new business written ~~including the addition of a few large policies totaling $1.1 million, partially offset by retention losses~~ and, to a lesser extent, ~~renewal pricing decreases. Retention losses in the 2021 three-month period are primarily attributable to~~ an increase in ~~competition on terms and pricing.~~renewal pricing, partially offset by retention losses. Renewal pricing ~~decreases~~increases during the ~~2021~~2022 three-month period are primarily due to changes in the sales volume of certain insureds, including changes in ~~exposure~~exposure. Retention losses during the 2022 three-month period are primarily attributable to an increase in competition on ~~several renewing policies.~~terms and pricing, as well as merger activity within the industry.

~~(9)~~ ~~This component of gross premiums written includes all other product lines within our Specialty P&C segment.~~

6955

Table of Contents

~~(10)~~(12) Certain components of our gross premiums written include alternative market premiums. We currently cede either all or a portion of the alternative market premium, net of reinsurance, to three SPCs of our wholly owned Cayman Islands reinsurance subsidiaries, Inova Re and Eastern Re, which are reported in our Segregated Portfolio Cell Reinsurance segment (see further discussion in the Ceded Premiums Written section that follows). The portion not ceded to the SPCs is retained within our Specialty P&C segment.


		Three Months Ended March 31						Three Months Ended March 31
($ in millions)	($ in millions)		2021	2020		Change					($ in millions)				2022	2021	Change

Custom Physician				$	—	$	0.1		$	(0.1)		nm
Hospitals and Facilities				—		0.1			(0.1)			nm

Senior Care	Senior Care			4.2		3.6			0.6			16.7	%	Senior Care			$	3.9	$	4.2	$	(0.3)	(7.1	%)
Tail Coverages	Tail Coverages			0.3		—			0.3			nm		Tail Coverages			3.0		0.3		2.7		900.0	%
Total	Total			$	4.5	$	3.8		$	0.7		18.4	%	Total			$	6.9	$	4.5	$	2.4	53.3	%

Alternative market gross premiums written increased during the ~~2021~~2022 three-month period as compared to the same period of ~~2020~~2021 driven by ~~renewal pricing increases, primarily due to~~ an increase in ~~the rate charged for~~tail coverage premium, primarily related to one ~~program and, to a lesser extent, the addition of a tail policy.~~program.

We are committed to a rate structure that will allow us to fulfill our obligations to our insureds while generating competitive long-term returns for our shareholders. Our pricing continues to be based on expected losses as indicated by our historical loss data and available industry loss data. In recent years, this practice has resulted in gradual rate increases and we anticipate further rate increases due to indications of increasing projected loss severity. Additionally, the pricing of our business includes the effects of filed rates, surcharges and discounts. Renewal pricing also reflects changes in our exposure base, deductibles, self-insurance retention limits and other policy terms and conditions. See further explanation of changes in renewal pricing above under the heading "Gross Premiums Written".

The change in renewal pricing for our Specialty P&C segment, including by major component, was as follows:


	Three Months Ended March 31
	~~2021~~2022
Specialty P&C segment	69	%
HCPL
Standard Physician~~(1)~~	610	%
Specialty~~(1)~~	86	%
Total HCPL	69	%
Small Business Unit~~(1)~~	45	%
Medical Technology Liability~~(1)~~	(210	%)

~~(1)~~ ~~See Gross Premiums Written section for further explanation of changes in renewal pricing.~~

New business written by major component on a direct basis was as follows:


		Three Months Ended March 31						Three Months Ended March 31
(In millions)	(In millions)		2021		2020		(In millions)		2022		2021
HCPL	HCPL						HCPL
Standard Physician(1)	Standard Physician(1)		$	0.6	$	0.6	Standard Physician(1)		$	1.8	$	0.6
Specialty(1)	Specialty(1)		8.7		1.9		Specialty(1)		3.7		8.7
Total HCPL	Total HCPL		9.3		2.5		Total HCPL		5.5		9.3
Small Business Unit	Small Business Unit		1.0		1.2		Small Business Unit		1.0		1.0
Medical Technology Liability	Medical Technology Liability		1.8		0.7		Medical Technology Liability		1.7		1.8
Total	Total		$	12.1	$	4.4	Total		$	8.2	$	12.1
(1) Includes premium contributed by NORCAL during the 2022 three-month period.							(1) Includes premium contributed by NORCAL during the 2022 three-month period.

7056

Table of Contents

For our Specialty P&C segment, we calculate retention as annualized renewed premium divided by all annualized premium subject to renewal. Retention is affected by a number of factors. We may lose insureds to competitors or to alternative insurance mechanisms such as risk retention groups, captive arrangements or self-insurance entities (often when physicians join hospitals or large group practices) or due to pricing or other issues. We may choose not to renew an insured as a result of our underwriting evaluation. Insureds may also terminate coverage because they have left the practice of medicine for various reasons, principally for retirement, death or disability, but also for personal reasons.

Retention for our Specialty P&C segment, including by major component, was as follows:


		Three Months Ended March 31						Three Months Ended March 31
			2021		2020				2022		2021
Specialty P&C segment	Specialty P&C segment		77	%	81	%	Specialty P&C segment		83	%	77	%
HCPL	HCPL						HCPL
Standard Physician(1)	Standard Physician(1)		86	%	80	%	Standard Physician(1)		88	%	86	%
Specialty(1)	Specialty(1)		56	%	82	%	Specialty(1)		61	%	56	%
Total HCPL	Total HCPL		73	%	81	%	Total HCPL		82	%	73	%
Small Business Unit	Small Business Unit		91	%	85	%	Small Business Unit		91	%	91	%
Medical Technology Liability(2)	Medical Technology Liability(2)		87	%	78	%	Medical Technology Liability(2)		84	%	87	%
(1) See Gross Premiums Written section for further explanation of retention decline in 2021.
(1) Includes premium contributed by NORCAL during the 2022 three-month period. We continue the process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies, which will likely impact retention in future quarters.							(1) Includes premium contributed by NORCAL during the 2022 three-month period. We continue the process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies, which will likely impact retention in future quarters.
(2) See Gross Premiums Written section for further explanation of retention decline in 2022.							(2) See Gross Premiums Written section for further explanation of retention decline in 2022.

Ceded Premiums Written

Ceded premiums represent the amounts owed to our reinsurers for their assumption of a portion of our losses. ~~For our~~Our HCPL and Medical Technology Liability excess of loss reinsurance arrangements renew annually on October 1. For those excess of loss reinsurance arrangements in effect prior to October 1, ~~2020,~~2021, we generally retained the first $1$2 million in risk insured by us and ceded coverages in excess of this amount. Effective October 1, ~~2020,~~2021, our HCPL treaty renewed at a lower gross rate and we generally ~~retain the first $2 million in risk insured by us and cede coverages in excess of this amount. For our HCPL coverages, we also~~ retain from 0% to ~~14.5%~~5% of the next $24 million of risk for our HCPL coverages in excess of $2 million. Our HCPL excess of loss reinsurance arrangement that renewed on October 1, 2021 also incorporated NORCAL policies. Prior to October 1, 2021, NORCAL policies were reinsured under separate reinsurance agreements, primarily excess of loss, which have historically renewed annually on January 1. For the NORCAL excess of loss reinsurance arrangement that renewed on January 1, 2021, retention was generally the first $2 million in risk and coverages in excess of this amount were ceded up to $24 million. For our Medical Technology Liability treaty which also renewed effective October 1, ~~2020,~~2021, we also retain 2.5% of the next $8 million of risk for coverages in excess of $2 million. ~~These~~There were no significant changes in ~~terms for both~~the cost or structure of our ~~HCPL and~~ Medical Technology Liability ~~treaties resulted in a reduction to~~treaty upon the ~~gross rate paid for the treaty year effective~~ October ~~1, 2020. We pay our reinsurers a ceding premium in exchange for their accepting the risk, and in~~2021 renewal.

In certain of our excess of loss arrangements, the ultimate amount of ~~which~~ceded premium is determined by the loss experience of the business ceded, subject to certain minimum and maximum amounts.

Given the length of time that it takes to resolve our claims, many years may elapse before all losses recoverable under a reinsurance arrangement are known. As a part of the process of estimating our loss reserve we also make estimates regarding the amounts recoverable under our reinsurance arrangements. As a result, we may have an adjustment to our estimate of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. Any changes to estimates of premiums ceded related to prior accident years are fully earned in the period the changes in estimates occur.

Table of Contents

Ceded premiums written were as follows:


		Three Months Ended March 31									Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020		Change				($ in thousands)			2022	2021		Change
Excess of loss reinsurance arrangements (1)	Excess of loss reinsurance arrangements (1)			$	7,678	$	8,617	$	(939)	(10.9	%)	Excess of loss reinsurance arrangements (1)		$	9,496	$	7,678	$	1,818	23.7	%
Other shared risk arrangements (2)	Other shared risk arrangements (2)			3,963		10,864		(6,901)		(63.5	%)	Other shared risk arrangements (2)		4,336		3,963		373		9.4	%
Premium ceded to SPCs (3)	Premium ceded to SPCs (3)			4,469		3,784		685		18.1	%	Premium ceded to SPCs (3)		6,881		4,469		2,412		54.0	%
Other ceded premiums written				866		861		5		0.6	%

Other ceded premiums written(4)												Other ceded premiums written(4)		2,121		866		1,255		144.9	%

Total ceded premiums written	Total ceded premiums written			$	16,976	$	24,126	$	(7,150)	(29.6	%)	Total ceded premiums written		$	22,834	$	16,976	$	5,858	34.5	%

~~Table of Contents~~

the same period of ~~2020~~2021 was driven by additional ceded premiums of $4.4 million as a result of incorporating NORCAL policies into our existing HCPL excess of loss reinsurance arrangements with the October 1, 2021 renewal, as previously discussed. Excluding NORCAL, ceded premiums written under our excess of loss reinsurance arrangements decreased by approximately $2.4 million primarily ~~reflected~~due to a decrease in the overall volume of gross premiums written subject to cession and, to a lesser extent, the reduced rate on the treaty year effective October 1, ~~2020.~~2021.

(2) We have entered into various shared risk arrangements, including quota share, fronting, and captive arrangements, with certain large healthcare systems and other insurance entities. While we cede a large portion of the premium written under these arrangements, they provide us an opportunity to grow net premium through strategic partnerships. These arrangements primarily include our Ascension Health ~~program and, prior to the fourth quarter of 2020, our CAPAssurance~~ program. Our CAPAssurance program was mutually dissolved on October 1, 2020 as a result of our acquisition of NORCAL and their concentration in the state of California. In addition, we entered into a new shared risk arrangement with a regional hospital group during the current period. The decrease in cededCeded premiums written under our shared risk arrangements during the ~~2021~~2022 three-month period remained relatively unchanged as compared to the same period of 2020 was primarily due to the aforementioned dissolution of our arrangement with CAPAssurance, our non-renewal of two large policies in certain of our other shared risk arrangements effective May 1, 2020 and, to a lesser extent, a decrease in premium ceded to our Ascension Health program, somewhat offset by the premium ceded under our new shared risk arrangement, as previously discussed.2021.

(3) As previously discussed, as a part of our alternative market solutions, all or a portion of certain healthcare premium written is ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. See the Segment Results - Segregated Portfolio Cell Reinsurance section for further discussion on the cession to the SPCs from our Specialty P&C segment. The increase in premiums ceded to SPCs during the ~~2021~~2022 three-month period as compared to the same period of ~~2020~~2021 was driven by ~~renewal pricing increases~~the impact of tail coverages, primarily related to one program (see discussion in footnote 1012 under the heading "Gross Premiums Written").

(4) The increase in other ceded premiums written during the 2022 three-month period as compared to the same period of 2021 was primarily driven by the incorporation of NORCAL's cyber liability coverages into our existing HCPL cyber liability arrangement with the October 1, 2021 renewal.

Ceded Premiums Ratio

The ceded premiums ratio was as follows:

Three Months Ended March 31
2021 2020 Change
Ceded premiums ratio 12.3% 15.5% (3.2 pts)


	Three Months Ended March 31
		2022	2021	Change
Ceded premiums ratio		8.9%	12.3%	(3.4 pts)

The above table reflects ceded premiums written as a percent of gross premiums written. The decrease in ~~the~~our ceded premiums ratio ~~during~~for the ~~2021~~2022 three-month period as compared to the same period of 2021 was ~~primarily due~~driven by the reduced rate on our excess of loss reinsurance arrangements for the treaty year effective October 1, 2021 as well as the impact of the addition of the NORCAL gross written premium base for the 2022 three-month period. The decrease in our ceded premiums ratio for the 2022 three-month period as compared to ~~a decrease~~the same period of 2021 was partially offset by an increase in premiums ceded ~~under our shared risk arrangements and,~~ to a lesser extent, the effect of the aforementioned assumed reinsurance program entered into during the current period with a regional hospital group (increase in gross premiums written with no premium ceded).SPCs. See ~~further discussion on the assumed reinsurance program in footnote 5 under the heading "Gross Premiums Written" and~~ additional discussion on ~~our shared risk arrangements~~NORCAL ceded premiums and premiums ceded to SPCs above under the heading "Ceded Premiums Written."

Table of Contents

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. ~~Generally,~~The majority of our policies carry a term of one year; however, some of our Medical Technology Liability policies have a multi-year term and some of our NORCAL Standard Physician policies have a three-month term. In addition, prior to the third quarter of 2020, we wrote certain Standard Physician policies with a twenty-four month ~~term, and a few 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 March 31						Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020		Change					($ in thousands)				2022	2021	Change
Gross premiums earned	Gross premiums earned			$	132,060	$	139,023		$	(6,963)		(5.0	%)	Gross premiums earned			$	212,279	$	132,060	$	80,219	60.7	%
Less: Ceded premiums earned	Less: Ceded premiums earned			16,447		18,664			(2,217)			(11.9	%)	Less: Ceded premiums earned			14,312		16,447		(2,135)		(13.0	%)
Net premiums earned	Net premiums earned			$	115,613	$	120,359		$	(4,746)		(3.9	%)	Net premiums earned			$	197,967	$	115,613	$	82,354	71.2	%

Gross premiums earned during the ~~2021~~2022 three-month period included ~~$2.3~~additional earned premiums of approximately $79.7 million from our acquisition of ~~retroactive premium written and fully earned~~NORCAL. Excluding premiums associated with ~~an assumed reinsurance program (see previous discussion in footnote 5 under~~ the ~~heading "Gross Premiums Written"). After removing the impact of the retroactive premium,~~NORCAL acquisition, gross premiums earned ~~decreased $9.3 million~~remained relatively unchanged during the ~~2021~~2022 three-month period as compared to the same period of ~~2020 driven by the pro rata effect of a decrease in the volume of written premium~~2021.

Ceded premiums earned decreased during the ~~preceding twelve months, predominantly in our Specialty line of business, due to our re-~~

~~Table of Contents~~

~~underwriting efforts and, to a lesser extent, the dissolution of our arrangement with CAPAssurance, partially offset by two large tail policies written and fully earned in the current period.~~

~~The decrease in ceded premiums earned during the 2021~~2022 three-month period as compared to the same period of ~~2020 was~~2021 driven by the pro rata effect of a decrease in premium ceded under our shared risk and excess of loss arrangements during the preceding twelve months.

Losses and Loss Adjustment Expenses

The determination of calendar year losses involves the actuarial evaluation of incurred losses for the current accident year and the actuarial re-evaluation of incurred losses for prior accident years, including an evaluation of the reserve amounts required for ECO/XPL losses. As part of the review of our prior accident year reserves, we also make estimates of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. This analysis may result in ~~reductions~~changes to estimates of premiums owed under reinsurance agreements for prior accident years which ~~impacts~~impact net premiums earned (the denominator of the net loss ratio) in the period the adjustment is ~~made; no~~made. No such adjustments were made during the three months ended March 31, ~~2021~~2022 or ~~2020.~~2021. See previous discussion under the heading "Ceded Premiums Written" for additional information.

Accident year refers to the accounting period in which the insured event becomes a liability of the insurer. For claims-made policies, which represent the majority of the premiums written in our Specialty P&C segment, the insured event generally becomes a liability when the event is first reported to us. For occurrence policies, the insured event becomes a liability when the event takes place. For retroactive coverages, the insured event becomes a liability at inception of the underlying contract. We believe that measuring losses on an accident year basis is the best measure of the underlying profitability of the premiums earned in that period, since it associates policy premiums earned with the estimate of the losses incurred related to those policy premiums.

Table of Contents

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~~ In addition, net loss ratios for ~~our Specialty P&C segment were as follows:~~the three months ended March 31, 2022 in the following table include the impact of NORCAL.


			Net Loss Ratios (1)							Net Loss Ratios (1)
		Three Months Ended March 31						Three Months Ended March 31
			2021		2020		Change				2022			2021			Change

Calendar year net loss ratio	Calendar year net loss ratio		87.5	%	92.2	%	(4.7	pts)	Calendar year net loss ratio			83.8	%		87.5	%		(3.7	pts)
Less impact of prior accident years on the net loss ratio	Less impact of prior accident years on the net loss ratio		(2.3	%)	(2.0	%)	(0.3	pts)	Less impact of prior accident years on the net loss ratio			(2.0	%)		(2.3	%)		0.3	pts
Current accident year net loss ratio(2)	Current accident year net loss ratio(2)		89.8	%	94.2	%	(4.4	pts)	Current accident year net loss ratio (2)			85.8	%		89.8	%		(4.0	pts)

(1)Net losses, as specified, divided by net premiums earned.

(2)~~For~~Our current accident year net loss ratio (as shown in the table above) decreased 4.0 percentage points during the three months ended March 31, ~~2021,~~2022 as compared to the same period of 2021. The change in our current accident year net loss ratio in each period was primarily attributable to the following:

(In percentage points)

Increase (Decrease)
2022 versus 2021

Comparative
three-month
period

Estimated ratio increase (decrease) attributable to:

NORCAL Operations

4.0 pts

NORCAL Acquisition - Purchase Accounting Adjustment

(1.2 pts)

Change in Estimate of ULAE

(3.7 pts)

All other, net

(3.1 pts)

Decrease in current accident year net loss ratio

(4.0 pts)

Excluding the impact of the items specifically identified in the table above, our current accident year net loss ratio for the three months ended March 31, 2022 improved ~~4.4~~3.1 percentage points as compared to the ~~same~~prior year period ~~of 2020~~ driven by ~~decreases~~a decrease to certain loss ratios ~~during the current period~~ in our Standard Physician ~~and Specialty lines~~line of business, aswhich we began recognizing in the second half of 2021 and, to a lesser extent, changes in the mix of business. We continue to ~~recognize the beneficial impacts~~observe a reduction in claims frequency that started to emerge in 2020, some of which is due to our re-underwriting efforts and ~~focus~~some of which, we believe, is associated with the COVID-19 pandemic including the disruption of the court systems. Given the consistent and prolonged nature of this favorable claims frequency trend, we reduced certain loss ratios in our Standard Physician line of business during the third and fourth quarters of 2021. We continue to remain cautious in recognizing the full impact of these favorable trends in our current accident year reserve due to the long-tailed nature of our HCPL claims as well as the uncertainty surrounding the length and severity of the pandemic.

Initial loss ratios associated with NORCAL policies were higher than the average for our other books of business in this segment. The impact of NORCAL operations resulted in a 4.0 percentage point increase in our current accident year net loss ratio for the three months ended March 31, 2022. We continue the process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies. Also as a result of our acquisition of NORCAL, our current accident year net loss ratio for the three months ended March 31, 2022 was impacted by amortization of the negative VOBA associated with NORCAL's assumed unearned premium which is recorded as a reduction to current accident year net losses and accounted for a 1.2 percentage point decrease in our current period ratio. The remaining unamortized negative VOBA will be fully amortized in the second quarter of 2022 (see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on ~~rate adequacy.~~Form 10-K for additional information on the remaining expected amortization of the NORCAL acquisition purchase accounting adjustments).

During the first quarter of 2022, we decreased our estimate of ULAE as a result of substantially integrating NORCAL into our Specialty P&C segment operations, which accounted for a 3.7 percentage point decrease in our current period accident year loss ratio with an offsetting 3.7 percentage point increase in our current period expense ratio with no impact to our combined ratio or segment results (see discussion on our expense ratio in the following section under the heading "Underwriting, Policy Acquisition and Operating Expenses"). This change in estimated ULAE had no impact on our combined ratio or segment results.

We re-evaluate our previously established reserve each quarter based upon the most recently completed actuarial analysis supplemented by any new analysis, information or trends that have emerged since the date of that study. We also take into account currently available industry trend information. ~~We observed a reduction in claims frequency in 2020 that has continued into 2021, some~~

Table of ~~which is likely associated with the~~ ContentsCOVID-19 pandemic including the disruption of the court systems; however, we continue to remain cautious in recognizing these favorable frequency trends in our current accident year reserve due to the possibility of delays in reporting and ~~uncertainty surrounding the length and severity of the pandemic~~.

We recognized net favorable prior accident year reserve development of ~~$2.7~~$3.9 million ~~and $2.4 million for~~during the three months ended March 31, 2022 as compared to $2.7 million during the same period of 2021. Net favorable development recognized during the three months ended March 31, 2022 was net of an increase in our reserve for potential ECO/XPL claims of $4.0 million as compared to a reduction in this same reserve of $0.2 million during the same period of 2021. Furthermore, net favorable development recognized during the three months ended March 31, 2022 included $2.9 million related to the amortization of the purchase accounting fair value adjustment on NORCAL's assumed net reserve and amortization of the negative VOBA associated with NORCAL's DDR reserve which is recorded as a reduction to prior accident year net losses and loss adjustment expenses. See Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for additional information on the remaining expected amortization of the NORCAL acquisition purchase accounting adjustments. We have not recognized any development related to NORCAL's prior accident year reserves since the date of acquisition on May 5, 2021. Excluding the increase in the ECO/XPL reserve and ~~2020, respectively.~~amortization of purchase accounting adjustments, we recognized net favorable prior accident year reserve development of $5.0 million during the three months ended March 31, 2022, principally related to accident years 2019 through 2021. Development recognized during the three months ended March 31, 2021 principally related to accident years 2017 and 2018. Prior accident year reserve development recognized for the three months ended March 31, 2020 was due to a reduction in our reserve for potential ECO/XPL claims; prior accident year development recognized in the current period included a reduction to this same reserve of $0.2 million.

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" ~~and~~ in our December 31, ~~2020~~2021 report on Form ~~10-K under the same heading.~~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

~~Table of Contents~~

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 ~~2021~~2022 and ~~2020.~~2021.

Underwriting, Policy Acquisition and Operating Expenses

Our Specialty P&C segment underwriting, policy acquisition and operating expenses, including NORCAL expenses for the 2022 three-month period, were comprised as follows:


		Three Months Ended March 31				Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020			Change				($ in thousands)	2022				2021		Change
DPAC amortization	DPAC amortization			$	12,396		$	13,916	$	(1,520)			(10.9	%)	DPAC amortization	$	21,740	$	12,396	$	9,344	75.4	%
Management fees	Management fees			1,001			1,832		(831)				(45.4	%)	Management fees	1,402		1,001		401		40.1	%
Other underwriting and operating expenses	Other underwriting and operating expenses			12,949			13,837		(888)				(6.4	%)	Other underwriting and operating expenses	19,736		12,949		6,787		52.4	%
Total	Total			$	26,346		$	29,585	$	(3,239)			(10.9	%)	Total	$	42,878	$	26,346	$	16,532	62.7	%

DPAC amortization~~decreased~~ for the ~~three months ended March~~2022 three-month period included approximately $8.1 million of DPAC amortization associated with NORCAL policies written subsequent to our acquisition; however, this level of DPAC amortization is approximately $1.0 million lower than would be considered normal for the quarter due to the application of GAAP purchase accounting rules whereby the capitalized policy acquisition costs for policies written prior to the acquisition date were written off through purchase accounting on May 5, 2021 rather than being expensed pro rata over the remaining term of the associated policies (see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for more information). The remaining increase in DPAC amortization for the 2022 three-month period as compared to the same period of ~~2020 driven by a decrease~~2021 reflected an increase in ~~earned premium. In addition,~~brokerage expenses due to our increased participation with an international medical professional liability insurer in our Specialty line of business (see discussion under the decrease in DPAC amortization during the 2021 three-month period reflected a decrease in compensation-related expenses driven by a reduction in headcount as a result of the 2020 organizational restructuring. Partially offsetting the decrease in DPAC amortization for the 2021 three-month period was a decrease in ceding commission income, which is an offset to expense, from certain of our shared risk arrangements.heading "Gross Premiums Written").

Management fees are charged pursuant to a management agreement by the Corporate segment to the operating subsidiaries within our Specialty P&C segment for services provided based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. Fluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period. Due to continued organizational structure enhancements in our Specialty P&C segment during ~~2020,~~2021 as well as operational alignments as a result of the integration of NORCAL, the extent to which services are provided by the Corporate segment to the operating subsidiaries within the segment decreased further effective January 1, ~~2021.~~2022. Accordingly, we reduced the fee charged to the ~~segment's~~ operating subsidiaries ~~during~~in 2022. Also effective January 1, 2022, the ~~2021 three-month~~management agreement included operating subsidiaries of NORCAL contributing to $0.6 million of additional management fees in the current period.

Other underwriting and operating expenses~~decreased~~ increased during the ~~2021~~2022 three-month period ~~as compared~~primarily due to the ~~same period~~addition of ~~2020 driven~~expenses contributed by ~~decreased operating~~NORCAL as well as a decrease in our estimate of ULAE which resulted in approximately $7.3 million of expenses ~~resulting from the operational and structural changes implemented over the past year and a half. The decrease~~remaining in operating expenses instead of being allocated to net losses and loss adjustment expenses. As a result, this change in ULAE estimate had offsetting impacts to our loss and expense ratios during the ~~2021 three-month~~ period ~~also reflected the effect of $1.4 million of one-time expenses incurred during the prior year period primarily related~~with no impact to ~~the restructuring of~~ our ~~HCPL field office organization and, to a lesser extent, a decrease~~combined ratio or segment results. See additional discussion on this change in ~~employer contributions to the ProAssurance Savings Plan~~ULAE estimate in the ~~current period (see Note 17~~previous section under the heading "Losses and Loss Adjustment Expenses." Excluding expenses contributed by NORCAL and the impact of the ~~Notes to Consolidated Financial Statements~~ change

Table of Contents

in ~~our December 31, 2020 report on Form 10-K). The remaining variance in~~ULAE, other underwriting and operating expenses ~~for~~decreased due to benefits from prior organizational restructurings and proactive expense management, somewhat offset by one-time expenses of $1.6 million incurred during the ~~2021 three-month~~current period ~~as compared to the same period of 2020 was~~mainly comprised of ~~individually insignificant components.~~one-time bonuses, employee severance charges and lease exit costs.

Underwriting Expense Ratio (the Expense Ratio)

Our expense ratio for the Specialty P&C segment was as follows:

Three Months Ended March 31
2021 2020 Change
Underwriting expense ratio 22.8 % 24.6 % (1.8 pts)


	Three Months Ended March 31
	2022		2021		Change
Underwriting expense ratio	21.7	%	22.8	%	(1.1	pts)

The ~~underwriting expense ratio~~change in the current period also included the effect of one-time retroactive premium earned associated with a new assumed reinsurance program (net premiums earned with no associated operating expenses). Excluding the impact of the retroactive premium, theour expense ratio for the ~~2021~~2022 three-month period ~~was 23.2% which reflects the impact of a reduction~~as compared to the ~~management fee charged by~~same period of 2021 was primarily attributable to the ~~Corporate segment, as previously discussed, as well as a decrease~~following:


			Increase (Decrease) 2022 versus 2021
(In percentage points)			Comparative three-month period
Estimated ratio increase (decrease) attributable to:
Increase in Net Premiums Earned and DPAC amortization(1)			0.3 pts




Change in Estimate of ULAE			3.7 pts

Tail Premium(2)			(1.2 pts)
All other, net			(3.9 pts)
Decrease in the underwriting expense ratio			(1.1 pts)
(1) Excludes tail premium for the three months ended March 31, 2022 and 2021.
(2) Represents the effect of the premium earned from tail policies for the three months ended March 31, 2022 as compared to the same period of 2021 as there is typically minimal expense associated with tail premium (see discussion under the heading "Gross Premiums Written").

Excluding the items specifically identified in ~~various operational expenses resulting from improvements over~~ the ~~past year including organizational structure enhancements and improved operating efficiencies. The underwriting~~table above, our expense ratio for the ~~three months ended March 31, 2020 also reflected~~2022 three-month period decreased by 3.9 percentage points primarily due to lower operating expenses due to the ~~effect~~benefits from prior organizational restructurings and proactive expense management as well as expense synergies recognized from the NORCAL acquisition. However, as previously discussed, DPAC amortization associated with NORCAL recorded during the 2022 three-month period was lower than would be considered normal for the quarter due to the application of ~~one-time expenses related to~~GAAP purchase accounting rules. Normalizing this amortization would have increased our ~~HCPL field office reorganization which increased the~~ expense ratio for the 2022 three-month period by ~~1.2~~an estimated 0.5 percentage ~~points in the prior year period.~~points.

7462

Table of Contents

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 1418 of the Notes to ~~Condensed~~ Consolidated Financial ~~Statements.~~Statements in our December 31, 2021 report on Form 10-K. Workers' compensation products offered include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and alternative market programs. Alternative market programs include program design, fronting, claims administration, risk management, SPC rental, asset management and SPC management services. Alternative market program premiums are 100% ceded to either the SPCs within our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer for one program. Our Workers' Compensation Insurance segment results ~~reflected~~reflect pre-tax underwriting profit or loss from these workers' compensation products, exclusive of investment results, which are included in our Corporate segment. Segment results included the following:


		Three Months Ended March 31									Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020		Change				($ in thousands)			2022	2021	Change
Net premiums written	Net premiums written			$	46,884	$	50,312	$	(3,428)	(6.8	%)	Net premiums written			$	45,266	$	46,884	$	(1,618)	(3.5	%)

Net premiums earned	Net premiums earned			$	40,011	$	44,515	$	(4,504)	(10.1	%)	Net premiums earned			$	40,684	$	40,011	$	673	1.7	%
Other income	Other income			392		757		(365)		(48.2	%)	Other income			682		392		290		74.0	%
Net losses and loss adjustment expenses	Net losses and loss adjustment expenses			(26,207)		(29,769)		3,562		(12.0	%)	Net losses and loss adjustment expenses			(27,211)		(26,207)		(1,004)		3.8	%
Underwriting, policy acquisition and operating expenses	Underwriting, policy acquisition and operating expenses			(12,286)		(14,164)		1,878		(13.3	%)	Underwriting, policy acquisition and operating expenses			(13,001)		(12,286)		(715)		5.8	%
Segment results	Segment results			$	1,910	$	1,339	$	571	42.6	%	Segment results			$	1,154	$	1,910	$	(756)	(39.6	%)

Net loss ratio	Net loss ratio			65.5%		66.9%		(1.4 pts)				Net loss ratio			66.9%		65.5%		1.4 pts
Underwriting expense ratio	Underwriting expense ratio			30.7%		31.8%		(1.1 pts)				Underwriting expense ratio			32.0%		30.7%		1.3 pts

Premiums Written

Our workers’ compensation premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of our existing book of business, (3) premium rates charged on our renewal book of business, (4) changes in payroll exposure and (5) audit premium.

Gross, ceded and net premiums written were as follows:

Three Months Ended March 31
($ in thousands) 2021 2020 Change
Gross premiums written $ 72,328 $ 79,243 $ (6,915) (8.7 %)
Less: Ceded premiums written 25,444 28,931 (3,487) (12.1 %)
Net premiums written $ 46,884 $ 50,312 $ (3,428) (6.8 %)

~~Table of Contents~~


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums written			$	72,118	$	72,328	$	(210)	(0.3	%)
Less: Ceded premiums written			26,852		25,444		1,408		5.5	%
Net premiums written			$	45,266	$	46,884	$	(1,618)	(3.5	%)

Gross Premiums Written

Gross premiums written by product were as follows:


		Three Months Ended March 31						Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020		Change					($ in thousands)				2022	2021	Change
Traditional business:	Traditional business:													Traditional business:
Guaranteed cost	Guaranteed cost			$	38,196	$	42,062		$	(3,866)		(9.2	%)	Guaranteed cost			$	35,503	$	38,196	$	(2,693)	(7.1	%)
Policyholder dividend	Policyholder dividend			7,520		8,031			(511)			(6.4	%)	Policyholder dividend			7,862		7,520		342		4.5	%
Deductible	Deductible			2,052		1,926			126			6.5	%	Deductible			2,120		2,052		68		3.3	%
Retrospective(1)	Retrospective(1)			455		344			111			32.3	%	Retrospective(1)			646		455		191		42.0	%
Other	Other			1,600		1,781			(181)			(10.2	%)	Other			1,615		1,600		15		0.9	%
Alternative market business(2)	Alternative market business(2)			23,715		25,959			(2,244)			(8.6	%)	Alternative market business(2)			24,372		23,715		657		2.8	%
Change in EBUB estimate	Change in EBUB estimate			(1,210)		(860)			(350)			40.7	%	Change in EBUB estimate			—		(1,210)		1,210		nm
Total	Total			$	72,328	$	79,243		$	(6,915)		(8.7	%)	Total			$	72,118	$	72,328	$	(210)	(0.3	%)

(1) The change in ~~retrospectively-related~~retrospectively-rated policies included ~~adjustments~~an adjustment that decreased premium by $0.1 million ~~and $0.2 million~~ for each of the three months ended March 31, ~~2021~~2022 and ~~2020, respectively.~~2021.

Table of Contents

(2) A majority of alternative market premiums are ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment. See further discussion on alternative market gross premiums written in our Segment Operating Results - Segregated Portfolio Cell Reinsurance section under the heading "Gross Premiums Written" that follows.

Gross premiums written ~~decreased~~remained relatively unchanged during the three months ended March 31, ~~2021~~2022 as compared to the same period of ~~2020, which primarily reflected a decrease~~2021 as decreases in new business, renewal retention and renewal rate changes were largely offset by an increase in audit premium aand the prior year impact of the reduction of our EBUB ~~estimate and the continuation of competitive market conditions.~~estimate. Policy audits processed during the ~~first quarter of 2021~~2022 three-month period resulted in audit premium ~~returned~~billed to policyholders totaling ~~$0.8~~$1.7 million as compared to audit premium ~~billed~~returned to policyholders of ~~$0.9~~$0.8 million for the same period ~~of 2020. In addition,~~in 2021. We did not adjust our EBUB estimate for the 2022 three-month period; however, we reduced our EBUB estimate by $1.2 million and $0.9 million during the three months ended March 31, 2021 and 2020, respectively. The decrease in audit premium processed as well as the reduction of our EBUB estimate primarily reflected the impact of COVID-19 on both actual and expected final payroll audits for policies written prior to the onset of the pandemic in 2020. The competitive market conditions resulted in renewal rate decreases of 3% for the ~~three months ended March 31, 2021~~same period in 2021. Renewal rate retention was 88% for the 2022 three-month period as compared to 90% for the same period of 2021. Renewal rate decreased 4% during the 2022 three-month period as compared to 3% during the same period of ~~2020. Additionally, new~~2021. New business written decreased ~~$2.4~~$2.1 million ~~for~~during the ~~three months ended March 31, 2021~~2022 three-month period as compared to the same period of ~~2020. The renewal rate decreases~~2021, reflecting the competitive workers' compensation market conditions and ~~reduction~~a decrease in new business ~~were partially offset by an improvement~~submissions in ~~renewal retention, which was 90% for~~ the ~~three months ended March 31, 2021 as compared to 83% for the same period in 2020. The 2020 renewal retention was impacted by the reduction in premium funding for a large alternative market program.~~ 2022 three-month period.

We retained 100% of the nine workers’ compensation alternative market programs that were up for renewal during the ~~first quarter of 2021.~~three months ended March 31, 2022.

New business, audit premium, renewal retention and renewal price changes for ~~both the~~our traditional business and the alternative market business are shown in the table below:

Three Months Ended March 31
2021 2020
($ in millions) Traditional Business Alternative Market Business Segment
Results Traditional Business Alternative Market Business Segment
Results
New business $ 5.9 $ 0.8 $ 6.7 $ 8.0 $ 1.1 $ 9.1
Audit premium (including EBUB) $ (2.2) $ 0.2 $ (2.0) $ 0.3 $ (0.3) $ —
Retention rate (1)
89 % 92 % 90 % 85 % 78 % 83 %
Change in renewal pricing (2)
(2 %) (5 %) (3 %) (4 %) (6 %) (4 %)
(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.

~~Table of Contents~~










	Three Months Ended March 31
	2022									2021
($ in millions)	Traditional Business			Alternative Market Business			Segment Results			Traditional Business			Alternative Market Business			Segment Results
New business	$	3.5		$	1.1		$	4.6		$	5.9		$	0.8		$	6.7
Audit premium (excluding EBUB)	$	0.1		$	1.6		$	1.7		$	(1.0)		$	0.2		$	(0.8)
Retention rate (1)	85		%	92		%	88		%	89		%	92		%	90		%
Change in renewal pricing (2)	(4		%)	(3		%)	(4		%)	(2		%)	(5		%)	(3		%)

(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.

Ceded Premiums Written

Ceded premiums written were as follows:


		Three Months Ended March 31						Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020		Change					($ in thousands)				2022	2021	Change
Premiums ceded to SPCs	Premiums ceded to SPCs			$	20,682	$	23,356		$	(2,674)		(11.4	%)	Premiums ceded to SPCs			$	21,488	$	20,682	$	806	3.9	%
Premiums ceded to external reinsurers	Premiums ceded to external reinsurers			2,974		3,245			(271)			(8.4	%)	Premiums ceded to external reinsurers			3,155		2,974		181		6.1	%
Premiums ceded to unaffiliated captive insurer	Premiums ceded to unaffiliated captive insurer			3,033		2,603			430			16.5	%	Premiums ceded to unaffiliated captive insurer			2,884		3,033		(149)		(4.9	%)
Change in return premium estimate under external reinsurance	Change in return premium estimate under external reinsurance			(474)		31			(505)			(1,629.0	%)	Change in return premium estimate under external reinsurance			29		(474)		503		106.1	%
Estimated revenue share				(771)		(304)			(467)			153.6	%
Estimated revenue share under external reinsurance														Estimated revenue share under external reinsurance			(704)		(771)		67		(8.7	%)
Total ceded premiums written	Total ceded premiums written			$	25,444	$	28,931		$	(3,487)		(12.1	%)	Total ceded premiums written			$	26,852	$	25,444	$	1,408	5.5	%

Premiums ceded to SPCs ~~represents~~represent alternative market business that is ceded under 100% quota share reinsurance agreements to the SPCs in our Segregated Portfolio Cell Reinsurance segment. Premiums ceded to ~~the~~an unaffiliated captive insurer ~~reflect the~~represent alternative market business for one program that is ceded under a 100% quota share reinsurance ~~agreement for one program. The decrease~~agreement. Alternative market premiums written increased for the ~~three months ended March 31, 2021 primarily reflects~~2022 three-month period, which resulted in higher premiums ceded to SPCs. See further discussion on alternative market gross premiums written in our Segment Operating Results - Segregated Portfolio Cell Reinsurance section under the ~~competitive workers' compensation market conditions.~~heading "Gross Premiums Written" that follows.

Under our external reinsurance ~~agreement~~treaty for traditional business, we retain the first $0.5 million in risk insured by us and cede losses in excess of this amount on each loss occurrence, ~~under our primary external reinsurance treaty,~~ subject to an AAD, equal to ~~3.16%~~3.5% of ceded earned ~~premium. Per our reinsurance agreements, we cede premiums related to~~premium for the treaty year effective May 1, 2021. Premiums ceded under our traditional ~~business~~reinsurance treaty are based on anpremium earned ~~premium basis.~~

Table of Contents

during the treaty period. The ~~decrease~~increase in premiums ceded to external reinsurers during the ~~2021~~2022 three-month period primarily reflected the ~~decrease in traditional earned premium, partially offset by an~~ increase in reinsurance ~~rates.~~rates effective May 1, 2021.

Changes in the return premium estimate reflected adjustments to our estimate of expected future recovery of ceded premium based on the underlying loss experience of our reinsurance ~~contracts~~treaties that include a provision for return premium. ~~We increased~~As shown in the table above, we decreased our estimate of return premium by a nominal amount during the 2022 three-month period as compared to an increase of $0.5 million during the ~~three months ended March 31, 2021, as compared to a nominal decrease in our estimate for the~~ same respective period in ~~2020. The change~~2021. Changes in the estimated return premium ~~for the three months ended March 31, 2021~~ primarily ~~reflected favorable prior year~~reflect adjustments to loss ~~development~~estimates on previously reported reinsured claims.

~~Our reinsurance program includes~~We are party to a revenue ~~share~~sharing agreement with our reinsurance broker under which we ~~share~~participate in the broker's revenue ~~above an agreed upon minimum retention. We increased our estimate of the revenue share with~~earned under our reinsurance ~~broker related~~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 ~~current contract year during the three months ended March 31, 2021, reflecting an increase in the ceded premium under the reinsurance treaties.~~reinsurers.

Ceded Premiums Ratio

Ceded premiums ratio was as follows:


		Three Months Ended March 31					Three Months Ended March 31
			2021		2020			Change			2022		2021		Change
Ceded premiums ratio, as reported	Ceded premiums ratio, as reported		31.8	%	32.2	%		(0.4	pts)	Ceded premiums ratio, as reported	33.3	%	31.8	%	1.5	pts
Less the effect of:	Less the effect of:									Less the effect of:
Premiums ceded to SPCs (100%)	Premiums ceded to SPCs (100%)		25.9	%	24.7	%		1.2	pts	Premiums ceded to SPCs (100%)	26.1	%	25.9	%	0.2	pts

Premiums ceded to unaffiliated captive insurers (100%)	Premiums ceded to unaffiliated captive insurers (100%)		1.7	%	1.2	%		0.5	pts	Premiums ceded to unaffiliated captive insurers (100%)	1.5	%	1.7	%	(0.2	pts)
Change in EBUB	Change in EBUB		0.1	%	0.1	%		—	pts	Change in EBUB	—	%	0.1	%	(0.1	pts)
Change in return premium estimate under external reinsurance	Change in return premium estimate under external reinsurance		(1.1	%)	0.1	%		(1.2	pts)	Change in return premium estimate under external reinsurance	0.1	%	(1.1	%)	1.2	pts
Estimated revenue share	Estimated revenue share		(1.8	%)	(0.6	%)		(1.2	pts)	Estimated revenue share	(1.6	%)	(1.8	%)	0.2	pts
Assumed premiums earned (not ceded to external reinsurers)	Assumed premiums earned (not ceded to external reinsurers)		(0.3	%)	(0.2	%)		(0.1	pts)	Assumed premiums earned (not ceded to external reinsurers)	(0.3	%)	(0.3	%)	—	pts
Ceded premiums ratio (related to external reinsurance), less the effects of above	Ceded premiums ratio (related to external reinsurance), less the effects of above		7.3	%	6.9	%		0.4	pts	Ceded premiums ratio (related to external reinsurance), less the effects of above	7.5	%	7.3	%	0.2	pts

The above table reflects traditional ceded premiums earned as a percent of traditional gross premiums earned. As discussed above, ~~we cede~~ premiums ~~related to~~ceded under our traditional ~~business to external reinsurers~~reinsurance treaty are based on anpremiums earned ~~premium basis.~~during the treaty period. The increase in the ceded premiums ratio for the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020~~2021 primarily ~~reflects the~~reflected an increase in reinsurance ~~rates for the contract period beginning May 1, 2020.~~

~~Table of Contents~~

rates.

Net Premiums Earned

Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to SPCs in our Segregated Portfolio Cell Reinsurance segment, external reinsurers (including changes related to the return premium and revenue share estimates) and the unaffiliated captive insurer. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Our workers’ compensation policies are twelve month term policies, and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of our insureds' payrolls, changes in our EBUB estimate and premium adjustments related to retrospectively-rated policies. Payroll audits are conducted subsequent to the end of the policy period and any related premium adjustments processed are recorded as fully earned in the current period. In addition, we record an estimate for EBUB and evaluate the estimate on a quarterly basis.

Net premiums earned were as follows:


		Three Months Ended March 31									Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020		Change				($ in thousands)			2022	2021	Change
Gross premiums earned	Gross premiums earned			$	58,632	$	65,613	$	(6,981)	(10.6	%)	Gross premiums earned			$	61,034	$	58,632	$	2,402	4.1	%
Less: Ceded premiums earned	Less: Ceded premiums earned			18,621		21,098		(2,477)		(11.7	%)	Less: Ceded premiums earned			20,350		18,621		1,729		9.3	%
Net premiums earned	Net premiums earned			$	40,011	$	44,515	$	(4,504)	(10.1	%)	Net premiums earned			$	40,684	$	40,011	$	673	1.7	%

Table of Contents

The ~~decrease~~increase in net premiums earned during the three months ended March 31, ~~2021~~2022 as compared to the same period ~~of 2020~~in 2021 primarily reflected the impact of the adjustment to EBUB in the prior year period. Excluding the adjustment to EBUB during the 2021 three-month period, net premiums earned decreased during the three months ended March 31, 2022 as compared to the same period in 2021 primarily due to the pro rata effect of a reduction in net premiums written during the preceding twelve ~~months, a~~months. The decrease in audit premium and, to a lesser extent, the reduction in our EBUB estimate, partially offset by an increase in broker revenue sharing and, to a lesser extent, return premium estimates under our reinsurance contracts. We reduced our EBUB estimate by $1.2 million and $0.9 millionnet premiums earned during the three months ended March 31, ~~2021 and 2020, respectively. The reduction~~2022 was partially offset by an increase in ~~our EBUB estimate during the current period primarily reflected the impact of COVID-19 on both actual and expected final payroll audits for policies written prior~~audit premium billed to ~~the onset of the pandemic in 2020. Please see "Item 1A, Risk Factors" in our December 31, 2020 report on Form 10-K for additional information on the economic impact of COVID-19.~~policyholders.

~~Table of Contents~~

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 ~~an expected loss ratio. Incurred losses~~various internal analyses and ~~loss adjustment expenses for the current accident year are determined by applying the expected loss ratio to net premiums earned for the respective period.~~supplemental information. The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Calendar year and current accident year net loss ratios by component were as follows:


		Three Months Ended March 31					Three Months Ended March 31
			2021		2020			Change			2022		2021		Change
Calendar year net loss ratio	Calendar year net loss ratio		65.5	%	66.9	%		(1.4	pts)	Calendar year net loss ratio	66.9	%	65.5	%	1.4	pts
Less impact of prior accident years on the net loss ratio	Less impact of prior accident years on the net loss ratio		(5.5	%)	(3.3	%)		(2.2	pts)	Less impact of prior accident years on the net loss ratio	(4.9	%)	(5.5	%)	0.6	pts
Current accident year net loss ratio	Current accident year net loss ratio		71.0	%	70.2	%		0.8	pts	Current accident year net loss ratio	71.8	%	71.0	%	0.8	pts

The increase in the current accident year net loss ratio ~~for~~during the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected the continuation of intense price competition and the resulting renewal rate decreases, ~~as well as~~partially offset by the ~~effect~~impact of ~~lower net premiums earned driven by a reduction in audit premium and our EBUB estimate, as previously discussed.~~favorable prior year claim trends on the current year estimate. The ~~increase in the~~ current accident year net loss ratio ~~was partially offset by favorable claim trends in prior accident year claim results and their~~for the three months ended March 31, 2022 also reflects an expectation that the labor shortage will continue to have an impact on our analysis of the current accident year loss estimate. As a result of the COVID-19 pandemic, legislative and regulatory bodies in certain states have changed or are considering changes to compensability requirements and presumptions for certain types of workers related to COVID-19 claims. Such changes could have an adverse impact on the frequency and severity related to COVID-19 claims.claim activity during 2022.

Calendar year incurred losses (excluding IBNR) ~~ceded to~~in excess of our external reinsurers decreased $0.5 million for the three months ended March 31, 2021 as compared to the same period of 2020. There were no current accident year ceded incurred losses (excluding IBNR) during the three months ended March 31, 2021 or 2020, reflecting lower claim severity and the impactper occurrence reinsurance retention, before consideration of the AAD (see previous discussion under the heading "Ceded Premiums Written")~~. The decrease in ceded incurred losses~~, increased $1.7 million for

the three months ended March 31, ~~2021 reflects favorable development on prior~~2022 as compared to the same period of 2021; however, of the $1.7 million, we retained losses in excess of our per occurrence retention totaling $1.0 million which reflected losses within the AAD. There were no current accident year ~~reinsured claims.~~reported losses ceded to reinsurers during the three months ended March 31, 2022 or 2021.

We recognized net favorable prior year development related to our previously established reserve of ~~$2.2 million and $1.5~~$2.0 million for the three months ended March 31, ~~2021 and 2020, respectively.~~2022 as compared to $2.2 million for the same period of 2021. The net favorable prior year reserve development for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 reflected overall favorable trends in claim closing patterns. Net favorable development for the 2022 three months ended was primarily related to accident years 2019 and prior. Net favorable development for the 2021 three-month period was primarily related to ~~the~~accident years 2017 ~~accident year~~ and prior. ~~Net favorable development for the 2020 three-month period was related to the 2015 and 2016 accident years.~~

Table of Contents

Underwriting, Policy Acquisition and Operating Expenses

Underwriting, policy acquisition and operating expenses ~~includes~~include the amortization of commissions, premium taxes and underwriting salaries, which are capitalized and deferred over the related workers’ compensation policy period, net of ceding commissions earned. The capitalization of underwriting salaries can vary as they are subject to the success rate of our contract acquisition efforts. These expenses also include a management fee charged by our Corporate segment, which represents intercompany charges pursuant to a management agreement, and the amortization of intangible assets, primarily related to the acquisition of Eastern by ProAssurance. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary.

Our Workers' Compensation Insurance segment underwriting, policy acquisition and operating expenses were comprised as follows:

Three Months Ended March 31
($ in thousands) 2021 2020 Change
DPAC amortization $ 6,741 $ 7,850 $ (1,109) (14.1 %)
Management fees 542 601 (59) (9.8 %)
Other underwriting and operating expenses 8,521 10,032 (1,511) (15.1 %)
SPC ceding commission offset (3,518) (4,319) 801 (18.5 %)
Total $ 12,286 $ 14,164 $ (1,878) (13.3 %)

~~Table of Contents~~


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
DPAC amortization			$	7,061	$	6,741	$	320	4.7	%
Management fees			541		542		(1)		(0.2	%)
Other underwriting and operating expenses			8,868		8,252		616		7.5	%
Policyholder dividend expense			209		269		(60)		(22.3	%)
SPC ceding commission offset			(3,678)		(3,518)		(160)		4.5	%
Total			$	13,001	$	12,286	$	715	5.8	%

The ~~decrease~~increase in DPAC amortization for the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020~~2021 primarily ~~reflects~~reflected the ~~decrease~~increase in ~~net~~gross premiums earned.

The ~~decrease~~increase in other underwriting and operating expenses for the three months ended March 31, ~~2021~~2022 as compared to the same period of ~~2020~~2021 primarily reflected ~~a decrease~~an increase in ~~compensation-related costs and, to a lesser extent, a decrease in travel-related~~ costs related to compensation, business-related travel, lease exit costs and an increase in the ~~COVID-19 pandemic. The decrease in compensation-related~~allowance for credit losses. Marketing costs ~~during the 2021 three-month period was driven by a reduction in headcount~~included advertising and website-related activities that were planned for 2022. Business-related travel has increased as a result of the ~~2020 organizational restructuring and, to a lesser extent, a decrease in employer contributions~~easing of pandemic-related restrictions. During the first quarter of 2022, we recognized one-time lease exit costs of $0.2 million due to the ~~ProAssurance Savings Plan (see Note 17~~early termination of an office lease; however, as a result, we anticipate annual expense savings of approximately $0.1 million. The increase in the ~~Notes to Consolidated Financial Statements~~allowance for credit losses primarily reflects an increase in ~~our December 31, 2020 report on Form 10-K).~~accounts greater than 90 days old, which we believe is a timing issue that will reverse in future periods.

As previously discussed, alternative market premiums written ~~through~~by our Workers' Compensation Insurance ~~segment's alternative market business unit~~segment are 100% ceded, less a ceding commission, to either the SPCs in our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer. The ceding commission charged to the SPCs consists of an amount for fronting fees, cell rental fees, commissions, premium taxes and risk management fees. The fronting fees, commissions, premium taxes and risk management fees are recorded as an offset to underwriting, policy acquisition and operating expenses. Cell rental fees are recorded as a component of other income and claims administration fees are recorded as ceded ULAE. The ~~decrease~~increase in SPC ceding commissions earned for the three months ended March 31, ~~2021~~2022 as compared to the same ~~respective~~ period of ~~2020,~~2021, primarily ~~reflects~~reflected the ~~decrease~~increase in alternative market ceded earned premium.

Underwriting Expense Ratio (the Expense Ratio)

The underwriting expense ratio included the impact of the following:


		Three Months Ended March 31					Three Months Ended March 31
			2021		2020			Change			2022		2021		Change
Underwriting expense ratio, as reported	Underwriting expense ratio, as reported		30.7	%	31.8	%		(1.1	pts)	Underwriting expense ratio, as reported	32.0	%	30.7	%	1.3	pts
Less estimated ratio increase (decrease) attributable to:	Less estimated ratio increase (decrease) attributable to:									Less estimated ratio increase (decrease) attributable to:
Impact of ceding commissions received from SPCs	Impact of ceding commissions received from SPCs		2.9	%	2.3	%		0.6	pts	Impact of ceding commissions received from SPCs	3.5	%	2.9	%	0.6	pts
Retrospective premium adjustment			—	%	0.1	%		(0.1	pts)

Impact of audit premium	Impact of audit premium		1.0	%	(0.2	%)		1.2	pts	Impact of audit premium	(0.1	%)	1.0	%	(1.1	pts)
Change in return premium estimate under external reinsurance	Change in return premium estimate under external reinsurance		(0.2	%)	—	%		(0.2	pts)	Change in return premium estimate under external reinsurance	—	%	(0.2	%)	0.2	pts
Estimated revenue share	Estimated revenue share		(0.4	%)	(0.1	%)		(0.3	pts)	Estimated revenue share	(0.3	%)	(0.4	%)	0.1	pts
Underwriting expense ratio, less listed effects	Underwriting expense ratio, less listed effects		27.4	%	29.7	%		(2.3	pts)	Underwriting expense ratio, less listed effects	28.9	%	27.4	%	1.5	pts

Excluding the items noted in the table above, the expense ratio ~~decreased~~increased for the three months ended March 31, ~~2021,~~2022, primarily reflecting the ~~decrease~~increase in ~~compensation-related costs~~other underwriting and ~~to a lesser extent, travel-related costs, partially offset by the decrease in net premiums earned.~~operating expenses, as previously discussed.

8067

Table of Contents

Premiums Written

Changes in our premium volume within our Specialty P&C segment are generally driven by three primary factors: (1) the amount of new business written, (2) our retention of existing business and (3) the premium charged for business that is renewed, which is affected by rates charged and by the amount and type of coverage an insured chooses to purchase. In addition, premium volume may periodically be affected by shifts in the timing of renewals between periods. For the three months ended March 31, 2022, our premium volume was primarily affected by our acquisition of NORCAL.

The professional liability market, which accounts for a majority of the revenues in this segment, remains challenging as physicians continue joining hospitals or larger group practices and, therefore, are no longer purchasing individual or group policies in the standard market. In addition, some competitors have chosen to compete primarily on price; both factors may impact our ability to write new business and retain existing business. Furthermore, the insurance and reinsurance markets have historically been cyclical, characterized by extended periods of intense price competition and other periods of reduced competition. The professional liability market has been particularly affected by these cycles. Underwriting cycles are generally driven by an excess of capacity available and actively pursuing business that is deemed profitable. Changes in the frequency and severity of losses may affect the cycles of the insurance and reinsurance markets significantly. During “soft markets” where price competition is high and underwriting profits are poor, growth and retention of business become challenging which may result in reduced premium volumes.

Gross, ceded and net premiums written were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums written			$	257,672	$	138,289	$	119,383	86.3	%
Less: Ceded premiums written			22,834		16,976		5,858		34.5	%
Net premiums written			$	234,838	$	121,313	$	113,525	93.6	%

Table of Contents

Gross Premiums Written

Gross premiums written by component were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Professional Liability
HCPL
Standard Physician(1)			$	52,653	$	52,617	$	36	0.1	%
NORCAL Standard Physician(2)			106,476		—		106,476		nm
Total Standard Physician			159,129		52,617		106,512		202.4	%
Specialty
Custom Physician(3)			7,407		15,837		(8,430)		(53.2	%)
NORCAL Custom Physician(4)			11,638		—		11,638		nm
Hospitals and Facilities(5)			14,197		16,341		(2,144)		(13.1	%)
NORCAL Hospitals and Facilities(6)			3,067		—		3,067		nm
Senior Care(7)(12)			4,493		5,041		(548)		(10.9	%)
Reinsurance assumed(8)			9,761		10,437		(676)		(6.5	%)

Total Specialty			50,563		47,656		2,907		6.1	%
Total HCPL			209,692		100,273		109,419		109.1	%
Small Business Unit(9)			22,519		22,766		(247)		(1.1	%)
Tail Coverages(10)(12)			9,838		8,138		1,700		20.9	%
NORCAL Tail Coverages(10)			7,733		—		7,733		nm
Total Professional Liability			249,782		131,177		118,605		90.4	%
Medical Technology Liability(11)			7,700		6,984		716		10.3	%
Other			190		128		62		48.4	%
Total			$	257,672	$	138,289	$	119,383	86.3	%

(1) Standard Physician premium remained relatively unchanged during the 2022 three-month period as compared to the same period of 2021 as retention losses were offset by an increase in renewal pricing, the conversion of twenty-four month term policies and, to a lesser extent, new business written. Renewal pricing increases during the 2022 three-month period reflect the rising loss cost environment and new business written reflects general market conditions. Retention losses during the 2022 three-month period were largely attributable to our targeted state strategy to reassess our underwriting appetite in certain unprofitable states. We will continue to perform a detailed evaluation of venues, specialties and other areas to improve our underwriting results. We also continue to focus on underwriting discipline as we emphasize careful risk selection, rate adequacy, improved contract terms and a willingness to walk away from business that does not fit our goal of achieving a long-term underwriting profit. Retention losses during the 2022 three-month period also reflected the loss of a $2.0 million policy that chose to utilize self-insurance as well as the loss of a $1.0 million policy due to price competition. We ceased offering twenty-four month term policies beginning in the second quarter of 2020, and the majority of the policies that were up for renewal in 2021 were renewed to twelve month term policies; however, a portion of the premium from 2020 related to policies that are subject to renewal and conversion in 2022.

(3) Custom Physician premium includes large complex physician groups, multi-state physician groups and non-standard physicians and is written primarily on an excess and surplus lines basis. The decrease in Custom Physician premium during the 2022 three-month period as compared to the same period of 2021 was driven by retention losses, partially offset by an increase in renewal pricing and, to a lesser extent, new business written. Retention losses for the 2022 three-month period were driven by the loss of two large policies totaling approximately $9.0 million due to price competition, which resulted in a decrease in our Specialty retention rate of 18.9 percentage points. Renewal pricing increases for the 2022 three-month period reflect the rising loss cost environment and new business written reflects general market conditions.

Table of Contents

(4) NORCAL Custom Physician premium represents premium contributed by NORCAL and includes large complex physician groups, multi-state physician groups and non-standard physicians and is written primarily on an excess and surplus lines basis. NORCAL Custom Physician premium during the 2022 three-month period was impacted by retention losses, partially offset by an increase in renewal pricing and, to a lesser extent, new business written.

(5) Hospitals and Facilities premium (which includes hospitals, surgery centers and miscellaneous medical facilities) decreased during the 2022 three-month period as compared to the same period of 2021 driven by retention losses and, to a lesser extent, the timing of the renewal of a $1.6 million policy between periods; this policy will renew in the second quarter of 2022 as compared to the first quarter of 2021. Retention losses in the 2022 three-month period were largely attributable to the loss of a $1.4 million policy due to the insured entering into a captive arrangement and our non-renewal of a $1.2 million policy due to our focus on underwriting discipline. The decrease in Hospitals and Facilities premium for the 2022 three-month period was partially offset by new business written, primarily miscellaneous medical facilities, and, to a lesser extent, an increase in renewal pricing. Renewal pricing increases for the 2022 three-month period reflect rate increases and contract modifications that we believe are appropriate given the current loss environment and new business written reflects general market conditions.

(6) NORCAL Hospitals and Facilities premium represents premium contributed by NORCAL and includes hospitals, surgery centers and miscellaneous medical facilities. NORCAL Hospitals and Facilities premium during the 2022 three-month period was impacted by retention losses, partially offset by new business written and, to a lesser extent, an increase in renewal pricing.

(7) Senior Care premium includes facilities specializing in long term residential care primarily for the elderly ranging from independent living through skilled nursing. Our Senior Care premium decreased for the 2022 three-month period as compared to the same period of 2021 driven by retention losses, partially offset by new business written. The lower premium retention was primarily due to a large account renewing with a meaningful reduction in exposure. Renewal pricing for the 2022 three-month period remained relatively unchanged as compared to the same period of 2021.

(8) We offer custom alternative risk solutions including assumed reinsurance. The decrease in premium during the 2022 three-month period primarily reflected the impact of an assumed reinsurance arrangement with a regional hospital group entered into during the first quarter of 2021 which resulted in $4.5 million of premium written, comprised of $2.3 million of retroactive premium written and fully earned and $2.2 million of prospective premium written (see Note 5 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K). The decrease in premium during the 2022 three-month period was largely offset by an increase in premiums assumed on a quota share basis through a strategic partnership in place since 2016 with an international medical professional liability insurer. In 2021, we increased our participation in the original program and entered into another program with this insurer in a new international territory. We anticipate the volume of premium assumed through this partnership will continue to grow going forward.

(9) Our Small Business Unit is primarily comprised of premium associated with podiatrists, legal professionals, dentists and chiropractors. Our Small Business Unit premium remained relatively unchanged during the 2022 three-month period as compared to the same period of 2021 as retention losses were almost entirely offset by new business written and, to a lesser extent, an increase in renewal pricing. The increase in renewal pricing during the 2022 three-month period was primarily the result of an increase in the rate charged for certain renewed policies in select states.

(10) We offer extended reporting endorsement or "tail" coverage to insureds who discontinue their claims-made coverage with us, and we also periodically offer tail coverage through stand-alone policies. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. The amount of tail coverage premium written can vary significantly from period to period.

(11) Our Medical Technology Liability business is marketed throughout the U.S.; coverage is typically offered on a primary basis, within specified limits, to manufacturers and distributors of medical technology and life sciences products including entities conducting human clinical trials. In addition to the previously listed factors that affect our premium volume, our Medical Technology Liability premium is also impacted by the sales volume of insureds. Our Medical Technology Liability premium increased during the 2022 three-month period as compared to the same period of 2021 due to new business written and, to a lesser extent, an increase in renewal pricing, partially offset by retention losses. Renewal pricing increases during the 2022 three-month period are primarily due to changes in the sales volume of certain insureds, including changes in exposure. Retention losses during the 2022 three-month period are primarily attributable to an increase in competition on terms and pricing, as well as merger activity within the industry.

Table of Contents

(12) Certain components of our gross premiums written include alternative market premiums. We currently cede either all or a portion of the alternative market premium, net of reinsurance, to three SPCs of our wholly owned Cayman Islands reinsurance subsidiaries, Inova Re and Eastern Re, which are reported in our Segregated Portfolio Cell Reinsurance segment (see further discussion in the Ceded Premiums Written section that follows). The portion not ceded to the SPCs is retained within our Specialty P&C segment.


	Three Months Ended March 31
($ in millions)		2022	2021		Change



Senior Care			$	3.9	$	4.2	$	(0.3)	(7.1	%)
Tail Coverages			3.0		0.3		2.7		900.0	%
Total			$	6.9	$	4.5	$	2.4	53.3	%

Alternative market gross premiums written increased during the 2022 three-month period as compared to the same period of 2021 driven by an increase in tail coverage premium, primarily related to one program.

The change in renewal pricing for our Specialty P&C segment, including by major component, was as follows:


	Three Months Ended March 31
	2022
Specialty P&C segment	9	%
HCPL
Standard Physician	10	%
Specialty	6	%
Total HCPL	9	%
Small Business Unit	5	%
Medical Technology Liability	10	%

New business written by major component on a direct basis was as follows:


	Three Months Ended March 31
(In millions)		2022		2021
HCPL
Standard Physician(1)		$	1.8	$	0.6
Specialty(1)		3.7		8.7
Total HCPL		5.5		9.3
Small Business Unit		1.0		1.0
Medical Technology Liability		1.7		1.8
Total		$	8.2	$	12.1
(1) Includes premium contributed by NORCAL during the 2022 three-month period.

Table of Contents

Retention for our Specialty P&C segment, including by major component, was as follows:


	Three Months Ended March 31
		2022		2021
Specialty P&C segment		83	%	77	%
HCPL
Standard Physician(1)		88	%	86	%
Specialty(1)		61	%	56	%
Total HCPL		82	%	73	%
Small Business Unit		91	%	91	%
Medical Technology Liability(2)		84	%	87	%
(1) Includes premium contributed by NORCAL during the 2022 three-month period. We continue the process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies, which will likely impact retention in future quarters.
(2) See Gross Premiums Written section for further explanation of retention decline in 2022.

Ceded Premiums Written

Ceded premiums represent the amounts owed to our reinsurers for their assumption of a portion of our losses. Our HCPL and Medical Technology Liability excess of loss reinsurance arrangements renew annually on October 1. For those excess of loss reinsurance arrangements in effect prior to October 1, 2021, we generally retained the first $2 million in risk insured by us and ceded coverages in excess of this amount. Effective October 1, 2021, our HCPL treaty renewed at a lower gross rate and we generally retain from 0% to 5% of the next $24 million of risk for our HCPL coverages in excess of $2 million. Our HCPL excess of loss reinsurance arrangement that renewed on October 1, 2021 also incorporated NORCAL policies. Prior to October 1, 2021, NORCAL policies were reinsured under separate reinsurance agreements, primarily excess of loss, which have historically renewed annually on January 1. For the NORCAL excess of loss reinsurance arrangement that renewed on January 1, 2021, retention was generally the first $2 million in risk and coverages in excess of this amount were ceded up to $24 million. For our Medical Technology Liability treaty which also renewed effective October 1, 2021, we also retain 2.5% of the next $8 million of risk for coverages in excess of $2 million. There were no significant changes in the cost or structure of our Medical Technology Liability treaty upon the October 2021 renewal.

In certain of our excess of loss arrangements, the ultimate amount of ceded premium is determined by the loss experience of the business ceded, subject to certain minimum and maximum amounts. Given the length of time that it takes to resolve our claims, many years may elapse before all losses recoverable under a reinsurance arrangement are known. As a part of the process of estimating our loss reserve we also make estimates regarding the amounts recoverable under our reinsurance arrangements. As a result, we may have an adjustment to our estimate of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. Any changes to estimates of premiums ceded related to prior accident years are fully earned in the period the changes in estimates occur.

Table of Contents

Ceded premiums written were as follows:


	Three Months Ended March 31
($ in thousands)		2022			2021			Change
Excess of loss reinsurance arrangements (1)			$	9,496		$	7,678		$	1,818	23.7	%
Other shared risk arrangements (2)			4,336			3,963			373		9.4	%
Premium ceded to SPCs (3)			6,881			4,469			2,412		54.0	%

Other ceded premiums written(4)			2,121			866			1,255		144.9	%

Total ceded premiums written			$	22,834		$	16,976		$	5,858	34.5	%

(1) We generally reinsure risks under our excess of loss reinsurance arrangements pursuant to which the reinsurers agree to assume all or a portion of all risks that we insure above our individual risk retention levels, up to the maximum individual limits offered. Premium due to reinsurers also fluctuates with the volume of written premium subject to cession under the arrangement. In certain of our excess of loss reinsurance arrangements, the premium due to the reinsurer is determined by the loss experience of that business reinsured, subject to certain minimum and maximum amounts. The increase in ceded premiums written under our excess of loss reinsurance arrangements during the 2022 three-month period as compared to the same period of 2021 was driven by additional ceded premiums of $4.4 million as a result of incorporating NORCAL policies into our existing HCPL excess of loss reinsurance arrangements with the October 1, 2021 renewal, as previously discussed. Excluding NORCAL, ceded premiums written under our excess of loss reinsurance arrangements decreased by approximately $2.4 million primarily due to a decrease in the overall volume of gross premiums written subject to cession and, to a lesser extent, the reduced rate on the treaty year effective October 1, 2021.

(3) As previously discussed, as a part of our alternative market solutions, all or a portion of certain healthcare premium written is ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. See the Segment Results - Segregated Portfolio Cell Reinsurance section for further discussion on the cession to the SPCs from our Specialty P&C segment. The increase in premiums ceded to SPCs during the 2022 three-month period as compared to the same period of 2021 was driven by the impact of tail coverages, primarily related to one program (see discussion in footnote 12 under the heading "Gross Premiums Written").

Ceded Premiums Ratio

The ceded premiums ratio was as follows:


	Three Months Ended March 31
		2022	2021	Change
Ceded premiums ratio		8.9%	12.3%	(3.4 pts)

The above table reflects ceded premiums written as a percent of gross premiums written. The decrease in our ceded premiums ratio for the 2022 three-month period as compared to the same period of 2021 was driven by the reduced rate on our excess of loss reinsurance arrangements for the treaty year effective October 1, 2021 as well as the impact of the addition of the NORCAL gross written premium base for the 2022 three-month period. The decrease in our ceded premiums ratio for the 2022 three-month period as compared to the same period of 2021 was partially offset by an increase in premiums ceded to SPCs. See additional discussion on NORCAL ceded premiums and premiums ceded to SPCs above under the heading "Ceded Premiums Written."

Table of Contents

Net Premiums Earned

Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to our reinsurers for their assumption of a portion of our losses. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. The majority of our policies carry a term of one year; however, some of our Medical Technology Liability policies have a multi-year term and some of our NORCAL Standard Physician policies have a three-month term. In addition, prior to the third quarter of 2020, we wrote certain Standard Physician policies with a twenty-four month term. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. Retroactive coverage premiums are 100% earned at the inception of the contract, as all of the associated underlying loss events occurred in the past. Additionally, any ceded premium changes due to changes to estimates of premiums owed under reinsurance agreements for prior accident years are fully earned in the period of change.

Net premiums earned were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums earned			$	212,279	$	132,060	$	80,219	60.7	%
Less: Ceded premiums earned			14,312		16,447		(2,135)		(13.0	%)
Net premiums earned			$	197,967	$	115,613	$	82,354	71.2	%

Gross premiums earned during the 2022 three-month period included additional earned premiums of approximately $79.7 million from our acquisition of NORCAL. Excluding premiums associated with the NORCAL acquisition, gross premiums earned remained relatively unchanged during the 2022 three-month period as compared to the same period of 2021.

Ceded premiums earned decreased during the 2022 three-month period as compared to the same period of 2021 driven by the pro rata effect of a decrease in premium ceded under our shared risk and excess of loss arrangements during the preceding twelve months.

Losses and Loss Adjustment Expenses

The determination of calendar year losses involves the actuarial evaluation of incurred losses for the current accident year and the actuarial re-evaluation of incurred losses for prior accident years, including an evaluation of the reserve amounts required for ECO/XPL losses. As part of the review of our prior accident year reserves, we also make estimates of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. This analysis may result in changes to estimates of premiums owed under reinsurance agreements for prior accident years which impact net premiums earned (the denominator of the net loss ratio) in the period the adjustment is made. No such adjustments were made during the three months ended March 31, 2022 or 2021. See previous discussion under the heading "Ceded Premiums Written" for additional information.

Table of Contents

The following table summarizes calendar year net loss ratios for our Specialty P&C segment by separating losses between the current accident year and all prior accident years. In addition, net loss ratios for the three months ended March 31, 2022 in the following table include the impact of NORCAL.


		Net Loss Ratios (1)
	Three Months Ended March 31
		2022		2021		Change

Calendar year net loss ratio		83.8	%	87.5	%	(3.7	pts)
Less impact of prior accident years on the net loss ratio		(2.0	%)	(2.3	%)	0.3	pts
Current accident year net loss ratio (2)		85.8	%	89.8	%	(4.0	pts)

(1)Net losses, as specified, divided by net premiums earned.

(2)Our current accident year net loss ratio (as shown in the table above) decreased 4.0 percentage points during the three months ended March 31, 2022 as compared to the same period of 2021. The change in our current accident year net loss ratio in each period was primarily attributable to the following:

(In percentage points)

Increase (Decrease)
2022 versus 2021

Comparative
three-month
period

Estimated ratio increase (decrease) attributable to:

NORCAL Operations

4.0 pts

NORCAL Acquisition - Purchase Accounting Adjustment

(1.2 pts)

Change in Estimate of ULAE

(3.7 pts)

All other, net

(3.1 pts)

Decrease in current accident year net loss ratio

(4.0 pts)

Excluding the impact of the items specifically identified in the table above, our current accident year net loss ratio for the three months ended March 31, 2022 improved 3.1 percentage points as compared to the prior year period driven by a decrease to certain loss ratios in our Standard Physician line of business, which we began recognizing in the second half of 2021 and, to a lesser extent, changes in the mix of business. We continue to observe a reduction in claims frequency that started to emerge in 2020, some of which is due to our re-underwriting efforts and some of which, we believe, is associated with the COVID-19 pandemic including the disruption of the court systems. Given the consistent and prolonged nature of this favorable claims frequency trend, we reduced certain loss ratios in our Standard Physician line of business during the third and fourth quarters of 2021. We continue to remain cautious in recognizing the full impact of these favorable trends in our current accident year reserve due to the long-tailed nature of our HCPL claims as well as the uncertainty surrounding the length and severity of the pandemic.

Initial loss ratios associated with NORCAL policies were higher than the average for our other books of business in this segment. The impact of NORCAL operations resulted in a 4.0 percentage point increase in our current accident year net loss ratio for the three months ended March 31, 2022. We continue the process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies. Also as a result of our acquisition of NORCAL, our current accident year net loss ratio for the three months ended March 31, 2022 was impacted by amortization of the negative VOBA associated with NORCAL's assumed unearned premium which is recorded as a reduction to current accident year net losses and accounted for a 1.2 percentage point decrease in our current period ratio. The remaining unamortized negative VOBA will be fully amortized in the second quarter of 2022 (see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for additional information on the remaining expected amortization of the NORCAL acquisition purchase accounting adjustments).

Table of Contents

We recognized net favorable prior accident year reserve development of $3.9 million during the three months ended March 31, 2022 as compared to $2.7 million during the same period of 2021. Net favorable development recognized during the three months ended March 31, 2022 was net of an increase in our reserve for potential ECO/XPL claims of $4.0 million as compared to a reduction in this same reserve of $0.2 million during the same period of 2021. Furthermore, net favorable development recognized during the three months ended March 31, 2022 included $2.9 million related to the amortization of the purchase accounting fair value adjustment on NORCAL's assumed net reserve and amortization of the negative VOBA associated with NORCAL's DDR reserve which is recorded as a reduction to prior accident year net losses and loss adjustment expenses. See Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for additional information on the remaining expected amortization of the NORCAL acquisition purchase accounting adjustments. We have not recognized any development related to NORCAL's prior accident year reserves since the date of acquisition on May 5, 2021. Excluding the increase in the ECO/XPL reserve and amortization of purchase accounting adjustments, we recognized net favorable prior accident year reserve development of $5.0 million during the three months ended March 31, 2022, principally related to accident years 2019 through 2021. Development recognized during the three months ended March 31, 2021 principally related to accident years 2017 and 2018.

A detailed discussion of factors influencing our recognition of loss development is included in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses" in our December 31, 2021 report on Form 10-K. Assumptions used in establishing our reserve are regularly reviewed and updated by management as new data becomes available. Any adjustments necessary are reflected in the then current operations. Due to the size of our reserve, even a small percentage adjustment to the assumptions can have a material effect on our results of operations for the period in which the change is made, as was the case in both 2022 and 2021.

Underwriting, Policy Acquisition and Operating Expenses

Our Specialty P&C segment underwriting, policy acquisition and operating expenses, including NORCAL expenses for the 2022 three-month period, were comprised as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
DPAC amortization	$	21,740	$	12,396	$	9,344	75.4	%
Management fees	1,402		1,001		401		40.1	%
Other underwriting and operating expenses	19,736		12,949		6,787		52.4	%
Total	$	42,878	$	26,346	$	16,532	62.7	%

DPAC amortization for the 2022 three-month period included approximately $8.1 million of DPAC amortization associated with NORCAL policies written subsequent to our acquisition; however, this level of DPAC amortization is approximately $1.0 million lower than would be considered normal for the quarter due to the application of GAAP purchase accounting rules whereby the capitalized policy acquisition costs for policies written prior to the acquisition date were written off through purchase accounting on May 5, 2021 rather than being expensed pro rata over the remaining term of the associated policies (see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for more information). The remaining increase in DPAC amortization for the 2022 three-month period as compared to the same period of 2021 reflected an increase in brokerage expenses due to our increased participation with an international medical professional liability insurer in our Specialty line of business (see discussion under the heading "Gross Premiums Written").

Management fees are charged pursuant to a management agreement by the Corporate segment to the operating subsidiaries within our Specialty P&C segment for services provided based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. Fluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period. Due to continued organizational structure enhancements in our Specialty P&C segment during 2021 as well as operational alignments as a result of the integration of NORCAL, the extent to which services are provided by the Corporate segment to the operating subsidiaries within the segment decreased further effective January 1, 2022. Accordingly, we reduced the fee charged to the operating subsidiaries in 2022. Also effective January 1, 2022, the management agreement included operating subsidiaries of NORCAL contributing to $0.6 million of additional management fees in the current period.

Other underwriting and operating expenses increased during the 2022 three-month period primarily due to the addition of expenses contributed by NORCAL as well as a decrease in our estimate of ULAE which resulted in approximately $7.3 million of expenses remaining in operating expenses instead of being allocated to net losses and loss adjustment expenses. As a result, this change in ULAE estimate had offsetting impacts to our loss and expense ratios during the period with no impact to our combined ratio or segment results. See additional discussion on this change in ULAE estimate in the previous section under the heading "Losses and Loss Adjustment Expenses." Excluding expenses contributed by NORCAL and the impact of the change

Table of Contents

in ULAE, other underwriting and operating expenses decreased due to benefits from prior organizational restructurings and proactive expense management, somewhat offset by one-time expenses of $1.6 million incurred during the current period mainly comprised of one-time bonuses, employee severance charges and lease exit costs.

Underwriting Expense Ratio (the Expense Ratio)

Our expense ratio for the Specialty P&C segment was as follows:


	Three Months Ended March 31
	2022		2021		Change
Underwriting expense ratio	21.7	%	22.8	%	(1.1	pts)

The change in our expense ratio for the 2022 three-month period as compared to the same period of 2021 was primarily attributable to the following:


			Increase (Decrease) 2022 versus 2021
(In percentage points)			Comparative three-month period
Estimated ratio increase (decrease) attributable to:
Increase in Net Premiums Earned and DPAC amortization(1)			0.3 pts




Change in Estimate of ULAE			3.7 pts

Tail Premium(2)			(1.2 pts)
All other, net			(3.9 pts)
Decrease in the underwriting expense ratio			(1.1 pts)
(1) Excludes tail premium for the three months ended March 31, 2022 and 2021.
(2) Represents the effect of the premium earned from tail policies for the three months ended March 31, 2022 as compared to the same period of 2021 as there is typically minimal expense associated with tail premium (see discussion under the heading "Gross Premiums Written").

Excluding the items specifically identified in the table above, our expense ratio for the 2022 three-month period decreased by 3.9 percentage points primarily due to lower operating expenses due to the benefits from prior organizational restructurings and proactive expense management as well as expense synergies recognized from the NORCAL acquisition. However, as previously discussed, DPAC amortization associated with NORCAL recorded during the 2022 three-month period was lower than would be considered normal for the quarter due to the application of GAAP purchase accounting rules. Normalizing this amortization would have increased our expense ratio for the 2022 three-month period by an estimated 0.5 percentage points.

Table of Contents

Segment Results - Workers' Compensation Insurance

Our Workers' Compensation Insurance segment includes workers' compensation products provided to employers generally with 1,000 or fewer employees, as discussed in Note 18 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K. Workers' compensation products offered include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and alternative market programs. Alternative market programs include program design, fronting, claims administration, risk management, SPC rental, asset management and SPC management services. Alternative market program premiums are 100% ceded to either the SPCs within our Segregated Portfolio Cell Reinsurance segment ~~includes the~~or, to a limited extent, an unaffiliated captive insurer for one program. Our Workers' Compensation Insurance segment results ~~(underwriting~~reflect pre-tax underwriting profit or loss ~~plus~~from these workers' compensation products, exclusive of investment results, which are included in our Corporate segment. Segment results included the following:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Net premiums written			$	45,266	$	46,884	$	(1,618)	(3.5	%)

Net premiums earned			$	40,684	$	40,011	$	673	1.7	%
Other income			682		392		290		74.0	%
Net losses and loss adjustment expenses			(27,211)		(26,207)		(1,004)		3.8	%
Underwriting, policy acquisition and operating expenses			(13,001)		(12,286)		(715)		5.8	%
Segment results			$	1,154	$	1,910	$	(756)	(39.6	%)

Net loss ratio			66.9%		65.5%		1.4 pts
Underwriting expense ratio			32.0%		30.7%		1.3 pts

Premiums Written

Gross, ceded and net ~~of U.S. federal income taxes) of SPCs at Inova Re and Eastern Re, our Cayman Islands SPC operations,~~premiums written were as ~~discussed~~follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums written			$	72,118	$	72,328	$	(210)	(0.3	%)
Less: Ceded premiums written			26,852		25,444		1,408		5.5	%
Net premiums written			$	45,266	$	46,884	$	(1,618)	(3.5	%)

Gross Premiums Written

Gross premiums written by product were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Traditional business:
Guaranteed cost			$	35,503	$	38,196	$	(2,693)	(7.1	%)
Policyholder dividend			7,862		7,520		342		4.5	%
Deductible			2,120		2,052		68		3.3	%
Retrospective(1)			646		455		191		42.0	%
Other			1,615		1,600		15		0.9	%
Alternative market business(2)			24,372		23,715		657		2.8	%
Change in EBUB estimate			—		(1,210)		1,210		nm
Total			$	72,118	$	72,328	$	(210)	(0.3	%)

(1) The change in ~~Note 14~~retrospectively-rated policies included an adjustment that decreased premium by $0.1 million for each of the ~~Notes~~three months ended March 31, 2022 and 2021.

Table of Contents

(2) A majority of alternative market premiums are ceded to ~~Condensed Consolidated Financial Statements.~~ SPCs are segregated pools of assets and liabilities that provide an insurance facility for a defined set of risks. Assets of each SPC are solely for the benefit of that individual cell and each SPC is solely responsible for the liabilities of that individual cell. Assets of one SPC are statutorily protected from the creditors of the others. Each SPC is owned, fully or in part, by an agency, group or association and the results of the SPCs are attributable to the participants of that cell. We participate to a varying degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC results attributable to external cell participants are reported as an SPC dividend (expense) income in our Segregated Portfolio Cell Reinsurance segment. ~~In addition,~~See further discussion on alternative market gross premiums written in our Segment Operating Results - Segregated Portfolio Cell Reinsurance section under the heading "Gross Premiums Written" that follows.

Gross premiums written remained relatively unchanged during the three months ended March 31, 2022 as compared to the same period of 2021 as decreases in new business, renewal retention and renewal rate changes were largely offset by an increase in audit premium and the prior year impact of the reduction of our EBUB estimate. Policy audits processed during the 2022 three-month period resulted in audit premium billed to policyholders totaling $1.7 million as compared to audit premium returned to policyholders of $0.8 million for the same period in 2021. We did not adjust our EBUB estimate for the 2022 three-month period; however, we reduced our EBUB estimate by $1.2 million for the same period in 2021. Renewal rate retention was 88% for the 2022 three-month period as compared to 90% for the same period of 2021. Renewal rate decreased 4% during the 2022 three-month period as compared to 3% during the same period of 2021. New business written decreased $2.1 million during the 2022 three-month period as compared to the same period of 2021, reflecting the competitive workers' compensation market conditions and a decrease in new business submissions in the 2022 three-month period.

We retained 100% of the nine workers’ compensation alternative market programs that were up for renewal during the three months ended March 31, 2022.

New business, audit premium, renewal retention and renewal price changes for our traditional business and the alternative market business are shown in the table below:










	Three Months Ended March 31
	2022									2021
($ in millions)	Traditional Business			Alternative Market Business			Segment Results			Traditional Business			Alternative Market Business			Segment Results
New business	$	3.5		$	1.1		$	4.6		$	5.9		$	0.8		$	6.7
Audit premium (excluding EBUB)	$	0.1		$	1.6		$	1.7		$	(1.0)		$	0.2		$	(0.8)
Retention rate (1)	85		%	92		%	88		%	89		%	92		%	90		%
Change in renewal pricing (2)	(4		%)	(3		%)	(4		%)	(2		%)	(5		%)	(3		%)

(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.

Ceded Premiums Written

Ceded premiums written were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Premiums ceded to SPCs			$	21,488	$	20,682	$	806	3.9	%
Premiums ceded to external reinsurers			3,155		2,974		181		6.1	%
Premiums ceded to unaffiliated captive insurer			2,884		3,033		(149)		(4.9	%)
Change in return premium estimate under external reinsurance			29		(474)		503		106.1	%
Estimated revenue share under external reinsurance			(704)		(771)		67		(8.7	%)
Total ceded premiums written			$	26,852	$	25,444	$	1,408	5.5	%

Premiums ceded to SPCs represent alternative market business that is ceded under 100% quota share reinsurance agreements to the SPCs in our Segregated Portfolio Cell Reinsurance segment. Premiums ceded to an unaffiliated captive insurer represent alternative market business for one program that is ceded under a 100% quota share reinsurance agreement. Alternative market premiums written increased for the 2022 three-month period, which resulted in higher premiums ceded to SPCs. See further discussion on alternative market gross premiums written in our Segment Operating Results - Segregated Portfolio Cell Reinsurance section under the heading "Gross Premiums Written" that follows.

Under our external reinsurance treaty for traditional business, we retain the first $0.5 million in risk insured by us and cede losses in excess of this amount on each loss occurrence, subject to an AAD, equal to 3.5% of ceded earned premium for the treaty year effective May 1, 2021. Premiums ceded under our traditional reinsurance treaty are based on premium earned

Table of Contents

during the treaty period. The increase in premiums ceded to external reinsurers during the 2022 three-month period primarily reflected the increase in reinsurance rates effective May 1, 2021.

Changes in the return premium estimate reflected adjustments to our estimate of expected future recovery of ceded premium based on the underlying loss experience of our reinsurance treaties that include a provision for return premium. As shown in the table above, we decreased our estimate of return premium by a nominal amount during the 2022 three-month period as compared to an increase of $0.5 million during the same respective period in 2021. Changes in the estimated return premium primarily reflect adjustments to loss estimates on previously reported reinsured claims.

We are party to a revenue sharing agreement with our reinsurance broker under which we participate in the broker's revenue earned under our reinsurance treaties based on the volume of premium ceded. We estimate the amount of revenue we expect to receive under this agreement as premiums are recognized and ceded to the reinsurers.

Ceded Premiums Ratio

Ceded premiums ratio was as follows:


	Three Months Ended March 31
		2022		2021		Change
Ceded premiums ratio, as reported		33.3	%	31.8	%	1.5	pts
Less the effect of:
Premiums ceded to SPCs (100%)		26.1	%	25.9	%	0.2	pts

Premiums ceded to unaffiliated captive insurers (100%)		1.5	%	1.7	%	(0.2	pts)
Change in EBUB		—	%	0.1	%	(0.1	pts)
Change in return premium estimate under external reinsurance		0.1	%	(1.1	%)	1.2	pts
Estimated revenue share		(1.6	%)	(1.8	%)	0.2	pts
Assumed premiums earned (not ceded to external reinsurers)		(0.3	%)	(0.3	%)	—	pts
Ceded premiums ratio (related to external reinsurance), less the effects of above		7.5	%	7.3	%	0.2	pts

The above table reflects traditional ceded premiums earned as a percent of traditional gross premiums earned. As discussed above, premiums ceded under our traditional reinsurance treaty are based on premiums earned during the treaty period. The increase in the ceded premiums ratio for the three months ended March 31, 2022 as compared to the same period in 2021 primarily reflected an increase in reinsurance rates.

Net Premiums Earned

Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to SPCs in our Segregated Portfolio Cell Reinsurance segment, ~~includes~~external reinsurers (including changes related to the ~~investment results~~return premium and revenue share estimates) and the unaffiliated captive insurer. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Our workers’ compensation policies are twelve month term policies, and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of our insureds' payrolls, changes in our EBUB estimate and premium adjustments related to retrospectively-rated policies. Payroll audits are conducted subsequent to the end of the ~~SPCs~~policy period and any related premium adjustments processed are recorded as fully earned in the ~~investments are solely~~current period. In addition, we record an estimate for EBUB and evaluate the estimate on a quarterly basis.

Net premiums earned were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums earned			$	61,034	$	58,632	$	2,402	4.1	%
Less: Ceded premiums earned			20,350		18,621		1,729		9.3	%
Net premiums earned			$	40,684	$	40,011	$	673	1.7	%

Table of Contents

The increase in net premiums earned during the three months ended March 31, 2022 as compared to the same period in 2021 primarily reflected the impact of the adjustment to EBUB in the prior year period. Excluding the adjustment to EBUB during the 2021 three-month period, net premiums earned decreased during the three months ended March 31, 2022 as compared to the same period in 2021 primarily due to the pro rata effect of a reduction in net premiums written during the preceding twelve months. The decrease in net premiums earned during the three months ended March 31, 2022 was partially offset by an increase in audit premium billed to policyholders.

Losses and Loss Adjustment Expenses

We estimate our current accident year loss and loss adjustment expenses by developing actual reported losses using historical loss development factors, adjusted to reflect current and expected trends based on various internal analyses and supplemental information. The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Calendar year and current accident year net loss ratios by component were as follows:


	Three Months Ended March 31
		2022		2021		Change
Calendar year net loss ratio		66.9	%	65.5	%	1.4	pts
Less impact of prior accident years on the net loss ratio		(4.9	%)	(5.5	%)	0.6	pts
Current accident year net loss ratio		71.8	%	71.0	%	0.8	pts

The increase in the current accident year net loss ratio during the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected the continuation of intense price competition and the resulting renewal rate decreases, partially offset by the impact of favorable prior year claim trends on the current year estimate. The current accident year net loss ratio for the ~~benefit~~three months ended March 31, 2022 also reflects an expectation that the labor shortage will continue to have an impact on claim activity during 2022.

Calendar year incurred losses (excluding IBNR) in excess of our per occurrence reinsurance retention, before consideration of the ~~cell participants~~AAD (see previous discussion under the heading "Ceded Premiums Written"), increased $1.7 million for the three months ended March 31, 2022 as compared to the same period of 2021; however, of the $1.7 million, we retained losses in excess of our per occurrence retention totaling $1.0 million which reflected losses within the AAD. There were no current accident year reported losses ceded to reinsurers during the three months ended March 31, 2022 or 2021.

We recognized net favorable prior year development related to our previously established reserve of $2.0 million for the three months ended March 31, 2022 as compared to $2.2 million for the same period of 2021. The net favorable prior year reserve development for the three months ended March 31, 2022 and ~~investment results attributable~~2021 reflected overall favorable trends in claim closing patterns. Net favorable development for the 2022 three months ended was primarily related to ~~external cell participants~~accident years 2019 and prior. Net favorable development for the 2021 three-month period was primarily related to accident years 2017 and prior.

Table of Contents

Underwriting, Policy Acquisition and Operating Expenses

Underwriting, policy acquisition and operating expenses include the amortization of commissions, premium taxes and underwriting salaries, which are capitalized and deferred over the related workers’ compensation policy period, net of ceding commissions earned. The capitalization of underwriting salaries can vary as they are subject to the success rate of our contract acquisition efforts. These expenses also include a management fee charged by our Corporate segment, which represents intercompany charges pursuant to a management agreement, and the amortization of intangible assets, primarily related to the acquisition of Eastern by ProAssurance. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary.

Our Workers' Compensation Insurance segment underwriting, policy acquisition and operating expenses were comprised as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
DPAC amortization			$	7,061	$	6,741	$	320	4.7	%
Management fees			541		542		(1)		(0.2	%)
Other underwriting and operating expenses			8,868		8,252		616		7.5	%
Policyholder dividend expense			209		269		(60)		(22.3	%)
SPC ceding commission offset			(3,678)		(3,518)		(160)		4.5	%
Total			$	13,001	$	12,286	$	715	5.8	%

The increase in DPAC amortization for the three months ended March 31, 2022 as compared to the same period in 2021 primarily reflected the increase in gross premiums earned.

The increase in other underwriting and operating expenses for the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected an increase in costs related to compensation, business-related travel, lease exit costs and an increase in the ~~SPC dividend (expense) income. As of March 31, 2021, there~~allowance for credit losses. Marketing costs included advertising and website-related activities that were ~~27 (3 inactive) SPCs. The SPCs assume workers' compensation insurance, healthcare professional liability insurance or~~planned for 2022. Business-related travel has increased as a ~~combination~~result of the ~~two from~~easing of pandemic-related restrictions. During the first quarter of 2022, we recognized one-time lease exit costs of $0.2 million due to the early termination of an office lease; however, as a result, we anticipate annual expense savings of approximately $0.1 million. The increase in the allowance for credit losses primarily reflects an increase in accounts greater than 90 days old, which we believe is a timing issue that will reverse in future periods.

As previously discussed, alternative market premiums written by our Workers' Compensation Insurance and Specialty P&C segments. As of March 31, 2021, there were two SPCs that assumed both workers' compensation insurance and healthcare professional liability insurance and one SPC that assumed only healthcare professional liability insurance.

~~Segment results reflects our share of the underwriting and investment results of~~segment are 100% ceded, less a ceding commission, to either the SPCs in ~~which we participate,~~our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer. The ceding commission charged to the SPCs consists of an amount for fronting fees, cell rental fees, commissions, premium taxes and risk management fees. The fronting fees, commissions, premium taxes and risk management fees are recorded as an offset to underwriting, policy acquisition and operating expenses. Cell rental fees are recorded as a component of other income and claims administration fees are recorded as ceded ULAE. The increase in SPC ceding commissions earned for the three months ended March 31, 2022 as compared to the same period of 2021, primarily reflected the increase in alternative market ceded earned premium.

Underwriting Expense Ratio (the Expense Ratio)

The underwriting expense ratio included the impact of the following:

Three Months Ended March 31
($ in thousands) 2021 2020 Change
Net premiums written $ 22,188 $ 23,990 $ (1,802) (7.5 %)
Net premiums earned $ 15,884 $ 16,980 $ (1,096) (6.5 %)
Net investment income 221 254 (33) (13.0 %)
Net realized gains (losses) 987 (3,207) 4,194 130.8 %
Other income 1 136 (135) (99.3 %)
Net losses and loss adjustment expenses (9,425) (9,352) (73) 0.8 %
Underwriting, policy acquisition and operating expenses (5,025) (5,079) 54 (1.1 %)
SPC U.S. federal income tax expense (1)
(356) (222) (134) 60.4 %
SPC net results 2,287 (490) 2,777 566.7 %
SPC dividend (expense) income (2)
(1,742) 508 (2,250) 442.9 %
Segment results (3)
$ 545 $ 18 $ 527 2,927.8 %
Net loss ratio 59.3 % 55.1 % 4.2 pts
Underwriting expense ratio 31.6 % 29.9 % 1.7 pts
(1) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
(2) Represents the net (profit) loss attributable to external cell participants.
(3) Represents our share of the net profit (loss) of the SPCs in which we participate.


	Three Months Ended March 31
		2022		2021		Change
Underwriting expense ratio, as reported		32.0	%	30.7	%	1.3	pts
Less estimated ratio increase (decrease) attributable to:
Impact of ceding commissions received from SPCs		3.5	%	2.9	%	0.6	pts

Impact of audit premium		(0.1	%)	1.0	%	(1.1	pts)
Change in return premium estimate under external reinsurance		—	%	(0.2	%)	0.2	pts
Estimated revenue share		(0.3	%)	(0.4	%)	0.1	pts
Underwriting expense ratio, less listed effects		28.9	%	27.4	%	1.5	pts

Excluding the items noted in the table above, the expense ratio increased for the three months ended March 31, 2022, primarily reflecting the increase in other underwriting and operating expenses, as previously discussed.

8167

Table of Contents

Premiums Written

~~Premiums~~Changes in our ~~Segregated Portfolio Cell Reinsurance~~premium volume within our Specialty P&C segment are ~~assumed from either our Workers' Compensation Insurance or Specialty P&C segments. Premium volume is~~generally driven by ~~five~~three primary factors: (1) the amount of new business written, (2) our retention of existing business and (3) the premium charged for business that is renewed, which is affected by rates charged and by the amount and type of coverage an insured chooses to purchase. In addition, premium volume may periodically be affected by shifts in the timing of renewals between periods. For the three months ended March 31, 2022, our premium volume was primarily affected by our acquisition of NORCAL.

The professional liability market, which accounts for a majority of the revenues in this segment, remains challenging as physicians continue joining hospitals or larger group practices and, therefore, are no longer purchasing individual or group policies in the standard market. In addition, some competitors have chosen to compete primarily on price; both factors may impact our ability to write new business and retain existing ~~book~~business. Furthermore, the insurance and reinsurance markets have historically been cyclical, characterized by extended periods of intense price competition and other periods of reduced competition. The professional liability market has been particularly affected by these cycles. Underwriting cycles are generally driven by an excess of capacity available and actively pursuing business that is deemed profitable. Changes in the frequency and severity of losses may affect the cycles of the insurance and reinsurance markets significantly. During “soft markets” where price competition is high and underwriting profits are poor, growth and retention of business ~~(3)~~become challenging which may result in reduced premium ~~rates charged on the renewal book of business and, for workers' compensation business, (4) changes in payroll exposure and (5) audit premium.~~volumes.

Gross, ceded and net premiums written were as follows:


		Three Months Ended March 31						Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020		Change					($ in thousands)				2022	2021	Change
Gross premiums written	Gross premiums written			$	25,151	$	27,140		$	(1,989)		(7.3	%)	Gross premiums written			$	257,672	$	138,289	$	119,383	86.3	%
Less: Ceded premiums written	Less: Ceded premiums written			2,963		3,150			(187)			(5.9	%)	Less: Ceded premiums written			22,834		16,976		5,858		34.5	%
Net premiums written	Net premiums written			$	22,188	$	23,990		$	(1,802)		(7.5	%)	Net premiums written			$	234,838	$	121,313	$	113,525	93.6	%

Table of Contents

Gross Premiums Written

Gross premiums written ~~reflected reinsurance premiums assumed~~ by component were as follows:

Three Months Ended March 31
($ in thousands) 2021 2020 Change
Workers' compensation $ 20,682 $ 23,356 $ (2,674) (11.4 %)
Healthcare professional liability 4,469 3,784 685 18.1 %
Gross Premiums Written $ 25,151 $ 27,140 $ (1,989) (7.3 %)


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Professional Liability
HCPL
Standard Physician(1)			$	52,653	$	52,617	$	36	0.1	%
NORCAL Standard Physician(2)			106,476		—		106,476		nm
Total Standard Physician			159,129		52,617		106,512		202.4	%
Specialty
Custom Physician(3)			7,407		15,837		(8,430)		(53.2	%)
NORCAL Custom Physician(4)			11,638		—		11,638		nm
Hospitals and Facilities(5)			14,197		16,341		(2,144)		(13.1	%)
NORCAL Hospitals and Facilities(6)			3,067		—		3,067		nm
Senior Care(7)(12)			4,493		5,041		(548)		(10.9	%)
Reinsurance assumed(8)			9,761		10,437		(676)		(6.5	%)

Total Specialty			50,563		47,656		2,907		6.1	%
Total HCPL			209,692		100,273		109,419		109.1	%
Small Business Unit(9)			22,519		22,766		(247)		(1.1	%)
Tail Coverages(10)(12)			9,838		8,138		1,700		20.9	%
NORCAL Tail Coverages(10)			7,733		—		7,733		nm
Total Professional Liability			249,782		131,177		118,605		90.4	%
Medical Technology Liability(11)			7,700		6,984		716		10.3	%
Other			190		128		62		48.4	%
Total			$	257,672	$	138,289	$	119,383	86.3	%

Gross premiums written for the three months ended March 31, 2021 and 2020 were primarily comprised of workers' compensation coverages assumed from our Workers' Compensation Insurance segment. The decrease in workers' compensation gross premiums written(1) Standard Physician premium remained relatively unchanged during the ~~three months ended March 31, 2021~~2022 three-month period as compared to the same period of 2021 as retention losses were offset by an increase in ~~2020 primarily~~renewal pricing, the conversion of twenty-four month term policies and, to a lesser extent, new business written. Renewal pricing increases during the 2022 three-month period reflect the rising loss cost environment and new business written reflects general market conditions. Retention losses during the 2022 three-month period were largely attributable to our targeted state strategy to reassess our underwriting appetite in certain unprofitable states. We will continue to perform a detailed evaluation of venues, specialties and other areas to improve our underwriting results. We also continue to focus on underwriting discipline as we emphasize careful risk selection, rate adequacy, improved contract terms and a willingness to walk away from business that does not fit our goal of achieving a long-term underwriting profit. Retention losses during the 2022 three-month period also reflected the ~~competitive workers’ compensation market conditions~~loss of a $2.0 million policy that chose to utilize self-insurance as well as the loss of a $1.0 million policy due to price competition. We ceased offering twenty-four month term policies beginning in the second quarter of 2020, and the ~~resulting~~majority of the policies that were up for renewal ~~rate decreases~~in 2021 were renewed to twelve month term policies; however, a portion of ~~5%,~~the premium from 2020 related to policies that are subject to renewal and conversion in 2022.

(2) NORCAL Standard Physician premium represents premium contributed by NORCAL and is comprised of three and twelve month term policies. NORCAL Standard Physician premium during the 2022 three-month period was impacted by retention losses, including the loss of one large policy, partially offset by an improvement in the renewal retention rate. The renewal retention rate for the three months ended March 31, 2020 included the impact of a reduction in premium funding for a large workers' compensation alternative market program. We do not participate in this program; therefore, the reduction in premium funding had no effect on the segment results for the three months ended March 31, 2020. The increase in ~~healthcare professional liability gross premiums~~renewal pricing and, to a lesser extent, new business written.

(3) Custom Physician premium includes large complex physician groups, multi-state physician groups and non-standard physicians and is written primarily on an excess and surplus lines basis. The decrease in Custom Physician premium during the ~~three months ended March 31, 2021~~2022 three-month period as compared to the same period ~~in 2020~~of 2021 was driven by retention losses, partially offset by an increase in renewal pricing ~~increases, primarily~~and, to a lesser extent, new business written. Retention losses for the 2022 three-month period were driven by the loss of two large policies totaling approximately $9.0 million due to ~~increases~~price competition, which resulted in ~~exposure for one program. We retained 100%~~a decrease in our Specialty retention rate of ~~the eight workers' compensation programs and one healthcare professional liability program up for renewal during the three months ended March 31, 2021.~~

~~New business, audit premium, retention and renewal price changes~~18.9 percentage points. Renewal pricing increases for the ~~assumed workers' compensation premium is shown in~~2022 three-month period reflect the ~~table below:~~

Three Months Ended March 31
($ in millions) 2021 2020
New business $ 0.8 $ 1.1
Audit premium (including EBUB) $ 0.2 $ (0.3)
Retention rate (1)
92 % 78 %
Change in renewal pricing (2)
(5 %) (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.
rising loss cost environment and new business written reflects general market conditions.

8254

Table of Contents

(4) NORCAL Custom Physician premium represents premium contributed by NORCAL and includes large complex physician groups, multi-state physician groups and non-standard physicians and is written primarily on an excess and surplus lines basis. NORCAL Custom Physician premium during the 2022 three-month period was impacted by retention losses, partially offset by an increase in renewal pricing and, to a lesser extent, new business written.

(5) Hospitals and Facilities premium (which includes hospitals, surgery centers and miscellaneous medical facilities) decreased during the 2022 three-month period as compared to the same period of 2021 driven by retention losses and, to a lesser extent, the timing of the renewal of a $1.6 million policy between periods; this policy will renew in the second quarter of 2022 as compared to the first quarter of 2021. Retention losses in the 2022 three-month period were largely attributable to the loss of a $1.4 million policy due to the insured entering into a captive arrangement and our non-renewal of a $1.2 million policy due to our focus on underwriting discipline. The decrease in Hospitals and Facilities premium for the 2022 three-month period was partially offset by new business written, primarily miscellaneous medical facilities, and, to a lesser extent, an increase in renewal pricing. Renewal pricing increases for the 2022 three-month period reflect rate increases and contract modifications that we believe are appropriate given the current loss environment and new business written reflects general market conditions.

(6) NORCAL Hospitals and Facilities premium represents premium contributed by NORCAL and includes hospitals, surgery centers and miscellaneous medical facilities. NORCAL Hospitals and Facilities premium during the 2022 three-month period was impacted by retention losses, partially offset by new business written and, to a lesser extent, an increase in renewal pricing.

Table of Contents


	Three Months Ended March 31
($ in millions)		2022	2021		Change



Senior Care			$	3.9	$	4.2	$	(0.3)	(7.1	%)
Tail Coverages			3.0		0.3		2.7		900.0	%
Total			$	6.9	$	4.5	$	2.4	53.3	%

The change in renewal pricing for our Specialty P&C segment, including by major component, was as follows:


	Three Months Ended March 31
	2022
Specialty P&C segment	9	%
HCPL
Standard Physician	10	%
Specialty	6	%
Total HCPL	9	%
Small Business Unit	5	%
Medical Technology Liability	10	%

New business written by major component on a direct basis was as follows:


	Three Months Ended March 31
(In millions)		2022		2021
HCPL
Standard Physician(1)		$	1.8	$	0.6
Specialty(1)		3.7		8.7
Total HCPL		5.5		9.3
Small Business Unit		1.0		1.0
Medical Technology Liability		1.7		1.8
Total		$	8.2	$	12.1
(1) Includes premium contributed by NORCAL during the 2022 three-month period.

Table of Contents

Retention for our Specialty P&C segment, including by major component, was as follows:


	Three Months Ended March 31
		2022		2021
Specialty P&C segment		83	%	77	%
HCPL
Standard Physician(1)		88	%	86	%
Specialty(1)		61	%	56	%
Total HCPL		82	%	73	%
Small Business Unit		91	%	91	%
Medical Technology Liability(2)		84	%	87	%
(1) Includes premium contributed by NORCAL during the 2022 three-month period. We continue the process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies, which will likely impact retention in future quarters.
(2) See Gross Premiums Written section for further explanation of retention decline in 2022.

Ceded Premiums Written

Table of Contents

Ceded premiums written were as follows:


		Three Months Ended March 31									Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020		Change				($ in thousands)			2022	2021		Change
Ceded premiums written				$	2,963	$	3,150	$	(187)	(5.9	%)
Excess of loss reinsurance arrangements (1)												Excess of loss reinsurance arrangements (1)		$	9,496	$	7,678	$	1,818	23.7	%
Other shared risk arrangements (2)												Other shared risk arrangements (2)		4,336		3,963		373		9.4	%
Premium ceded to SPCs (3)												Premium ceded to SPCs (3)		6,881		4,469		2,412		54.0	%

Other ceded premiums written(4)												Other ceded premiums written(4)		2,121		866		1,255		144.9	%

Total ceded premiums written												Total ceded premiums written		$	22,834	$	16,976	$	5,858	34.5	%

~~For~~(1) We generally reinsure risks under our excess of loss reinsurance arrangements pursuant to which the ~~workers' compensation business, each SPC has in place its own external reinsurance arrangements. The healthcare professional liability business is assumed net~~reinsurers agree to assume all or a portion of ~~reinsurance from~~all risks that we insure above our ~~Specialty P&C segment; therefore, there are no ceded premiums related~~individual risk retention levels, up to the ~~healthcare professional liability business reflected in~~maximum individual limits offered. Premium due to reinsurers also fluctuates with 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. Per the SPC external reinsurance agreements, premiums are ceded on avolume of written premium ~~basis.~~subject to cession under the arrangement. In certain of our excess of loss reinsurance arrangements, the premium due to the reinsurer is determined by the loss experience of that business reinsured, subject to certain minimum and maximum amounts. The ~~decrease~~increase in ceded premiums written under our excess of loss reinsurance arrangements during the ~~three months ended March 31, 2021~~2022 three-month period as compared to the same period of ~~2020,~~2021 was driven by additional ceded premiums of $4.4 million as a result of incorporating NORCAL policies into our existing HCPL excess of loss reinsurance arrangements with the October 1, 2021 renewal, as previously discussed. Excluding NORCAL, ceded premiums written under our excess of loss reinsurance arrangements decreased by approximately $2.4 million primarily due to a decrease in ~~workers' compensation~~the overall volume of gross premiums written subject to cession and, ~~was partially offset by~~to a lesser extent, the reduced rate on the treaty year effective October 1, 2021.

(3) As previously discussed, as a part of our alternative market solutions, all or a portion of certain healthcare premium written is ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. See the Segment Results - Segregated Portfolio Cell Reinsurance section for further discussion on the cession to the SPCs from our Specialty P&C segment. The increase in ~~reinsurance rates for programs~~premiums ceded to SPCs during the 2022 three-month period as compared to the same period of 2021 was driven by the impact of tail coverages, primarily related to one program (see discussion in footnote 12 under the heading "Gross Premiums Written").

Ceded Premiums Ratio

The ceded premiums ratio was as follows:


	Three Months Ended March 31
		2022	2021	Change
Ceded premiums ratio		8.9%	12.3%	(3.4 pts)

Table of Contents

Net Premiums Earned

Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to our reinsurers for their assumption of a portion of our losses. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. The majority of our policies carry a term of one year; however, some of our Medical Technology Liability policies have a multi-year term and some of our NORCAL Standard Physician policies have a three-month term. In addition, prior to the third quarter of 2020, we wrote certain Standard Physician policies with a twenty-four month term. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. Retroactive coverage premiums are 100% earned at the inception of the contract, as all of the associated underlying loss events occurred in the past. Additionally, any ceded premium changes due to changes to estimates of premiums owed under reinsurance agreements for prior accident years are fully earned in the period of change.

Net premiums earned were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums earned			$	212,279	$	132,060	$	80,219	60.7	%
Less: Ceded premiums earned			14,312		16,447		(2,135)		(13.0	%)
Net premiums earned			$	197,967	$	115,613	$	82,354	71.2	%

Losses and Loss Adjustment Expenses

The determination of calendar year losses involves the actuarial evaluation of incurred losses for the current accident year and the actuarial re-evaluation of incurred losses for prior accident years, including an evaluation of the reserve amounts required for ECO/XPL losses. As part of the review of our prior accident year reserves, we also make estimates of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. This analysis may result in changes to estimates of premiums owed under reinsurance agreements for prior accident years which impact net premiums earned (the denominator of the net loss ratio) in the period the adjustment is made. No such adjustments were made during the three months ended March 31, 2022 or 2021. See previous discussion under the heading "Ceded Premiums Written" for additional information.

Table of Contents


		Net Loss Ratios (1)
	Three Months Ended March 31
		2022		2021		Change

Calendar year net loss ratio		83.8	%	87.5	%	(3.7	pts)
Less impact of prior accident years on the net loss ratio		(2.0	%)	(2.3	%)	0.3	pts
Current accident year net loss ratio (2)		85.8	%	89.8	%	(4.0	pts)

(1)Net losses, as specified, divided by net premiums earned.

(In percentage points)

Increase (Decrease)
2022 versus 2021

Comparative
three-month
period

Estimated ratio increase (decrease) attributable to:

NORCAL Operations

4.0 pts

NORCAL Acquisition - Purchase Accounting Adjustment

(1.2 pts)

Change in Estimate of ULAE

(3.7 pts)

All other, net

(3.1 pts)

Decrease in current accident year net loss ratio

(4.0 pts)

Initial loss ratios associated with NORCAL policies were higher than the average for our other books of business in this segment. The impact of NORCAL operations resulted in a 4.0 percentage point increase in our current accident year net loss ratio for the three months ended March 31, 2022. We continue the process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies. Also as a result of our acquisition of NORCAL, our current accident year net loss ratio for the three months ended March 31, 2022 was impacted by amortization of the negative VOBA associated with NORCAL's assumed unearned premium which is recorded as a reduction to current accident year net losses and accounted for a 1.2 percentage point decrease in our current period ratio. The remaining unamortized negative VOBA will be fully amortized in the second quarter of 2022 (see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for additional information on the remaining expected amortization of the NORCAL acquisition purchase accounting adjustments).

Table of Contents

A detailed discussion of factors influencing our recognition of loss development is included in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses" in our December 31, 2021 report on Form 10-K. Assumptions used in establishing our reserve are regularly reviewed and updated by management as new data becomes available. Any adjustments necessary are reflected in the then current operations. Due to the size of our reserve, even a small percentage adjustment to the assumptions can have a material effect on our results of operations for the period in which the change is made, as was the case in both 2022 and 2021.

Underwriting, Policy Acquisition and Operating Expenses

Our Specialty P&C segment underwriting, policy acquisition and operating expenses, including NORCAL expenses for the 2022 three-month period, were comprised as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
DPAC amortization	$	21,740	$	12,396	$	9,344	75.4	%
Management fees	1,402		1,001		401		40.1	%
Other underwriting and operating expenses	19,736		12,949		6,787		52.4	%
Total	$	42,878	$	26,346	$	16,532	62.7	%

Management fees are charged pursuant to a management agreement by the Corporate segment to the operating subsidiaries within our Specialty P&C segment for services provided based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. Fluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period. Due to continued organizational structure enhancements in our Specialty P&C segment during 2021 as well as operational alignments as a result of the integration of NORCAL, the extent to which services are provided by the Corporate segment to the operating subsidiaries within the segment decreased further effective January 1, 2022. Accordingly, we reduced the fee charged to the operating subsidiaries in 2022. Also effective January 1, 2022, the management agreement included operating subsidiaries of NORCAL contributing to $0.6 million of additional management fees in the current period.

Table of Contents

Underwriting Expense Ratio (the Expense Ratio)

Our expense ratio for the Specialty P&C segment was as follows:


	Three Months Ended March 31
	2022		2021		Change
Underwriting expense ratio	21.7	%	22.8	%	(1.1	pts)

The change in our expense ratio for the 2022 three-month period as compared to the same period of 2021 was primarily attributable to the following:


			Increase (Decrease) 2022 versus 2021
(In percentage points)			Comparative three-month period
Estimated ratio increase (decrease) attributable to:
Increase in Net Premiums Earned and DPAC amortization(1)			0.3 pts




Change in Estimate of ULAE			3.7 pts

Tail Premium(2)			(1.2 pts)
All other, net			(3.9 pts)
Decrease in the underwriting expense ratio			(1.1 pts)
(1) Excludes tail premium for the three months ended March 31, 2022 and 2021.
(2) Represents the effect of the premium earned from tail policies for the three months ended March 31, 2022 as compared to the same period of 2021 as there is typically minimal expense associated with tail premium (see discussion under the heading "Gross Premiums Written").

Table of Contents

Segment Results - Workers' Compensation Insurance

Our Workers' Compensation Insurance segment includes workers' compensation products provided to employers generally with 1,000 or fewer employees, as discussed in Note 18 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K. Workers' compensation products offered include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and alternative market programs. Alternative market programs include program design, fronting, claims administration, risk management, SPC rental, asset management and SPC management services. Alternative market program premiums are 100% ceded to either the SPCs within our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer for one program. Our Workers' Compensation Insurance segment results reflect pre-tax underwriting profit or loss from these workers' compensation products, exclusive of investment results, which are included in our Corporate segment. Segment results included the following:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Net premiums written			$	45,266	$	46,884	$	(1,618)	(3.5	%)

Net premiums earned			$	40,684	$	40,011	$	673	1.7	%
Other income			682		392		290		74.0	%
Net losses and loss adjustment expenses			(27,211)		(26,207)		(1,004)		3.8	%
Underwriting, policy acquisition and operating expenses			(13,001)		(12,286)		(715)		5.8	%
Segment results			$	1,154	$	1,910	$	(756)	(39.6	%)

Net loss ratio			66.9%		65.5%		1.4 pts
Underwriting expense ratio			32.0%		30.7%		1.3 pts

Premiums Written

Gross, ceded and net premiums written were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums written			$	72,118	$	72,328	$	(210)	(0.3	%)
Less: Ceded premiums written			26,852		25,444		1,408		5.5	%
Net premiums written			$	45,266	$	46,884	$	(1,618)	(3.5	%)

Gross Premiums Written

Gross premiums written by product were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Traditional business:
Guaranteed cost			$	35,503	$	38,196	$	(2,693)	(7.1	%)
Policyholder dividend			7,862		7,520		342		4.5	%
Deductible			2,120		2,052		68		3.3	%
Retrospective(1)			646		455		191		42.0	%
Other			1,615		1,600		15		0.9	%
Alternative market business(2)			24,372		23,715		657		2.8	%
Change in EBUB estimate			—		(1,210)		1,210		nm
Total			$	72,118	$	72,328	$	(210)	(0.3	%)

(1) The change in retrospectively-rated policies included an adjustment that decreased premium by $0.1 million for each of the three months ended March 31, 2022 and 2021.

Table of Contents

We retained 100% of the nine workers’ compensation alternative market programs that were up for renewal during the three months ended March 31, 2022.

New business, audit premium, renewal retention and renewal price changes for our traditional business and the alternative market business are shown in the table below:










	Three Months Ended March 31
	2022									2021
($ in millions)	Traditional Business			Alternative Market Business			Segment Results			Traditional Business			Alternative Market Business			Segment Results
New business	$	3.5		$	1.1		$	4.6		$	5.9		$	0.8		$	6.7
Audit premium (excluding EBUB)	$	0.1		$	1.6		$	1.7		$	(1.0)		$	0.2		$	(0.8)
Retention rate (1)	85		%	92		%	88		%	89		%	92		%	90		%
Change in renewal pricing (2)	(4		%)	(3		%)	(4		%)	(2		%)	(5		%)	(3		%)

(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.

Ceded Premiums Written

Ceded premiums written were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Premiums ceded to SPCs			$	21,488	$	20,682	$	806	3.9	%
Premiums ceded to external reinsurers			3,155		2,974		181		6.1	%
Premiums ceded to unaffiliated captive insurer			2,884		3,033		(149)		(4.9	%)
Change in return premium estimate under external reinsurance			29		(474)		503		106.1	%
Estimated revenue share under external reinsurance			(704)		(771)		67		(8.7	%)
Total ceded premiums written			$	26,852	$	25,444	$	1,408	5.5	%

Table of Contents

during the treaty period. The increase in premiums ceded to external reinsurers during the 2022 three-month period primarily reflected the increase in reinsurance rates effective May 1, 2021.

Changes in the return premium estimate reflected adjustments to our estimate of expected future recovery of ceded premium based on the underlying loss experience of our reinsurance treaties that include a provision for return premium. As shown in the table above, we decreased our estimate of return premium by a nominal amount during the 2022 three-month period as compared to an increase of $0.5 million during the same respective period in 2021. Changes in the estimated return premium primarily reflect adjustments to loss estimates on previously reported reinsured claims.

Ceded Premiums Ratio

Ceded premiums ratio was as follows:

Three Months Ended March 31
2021 2020 Change
Ceded premiums ratio 14.3% 13.5% 0.8 pts


	Three Months Ended March 31
		2022		2021		Change
Ceded premiums ratio, as reported		33.3	%	31.8	%	1.5	pts
Less the effect of:
Premiums ceded to SPCs (100%)		26.1	%	25.9	%	0.2	pts

Premiums ceded to unaffiliated captive insurers (100%)		1.5	%	1.7	%	(0.2	pts)
Change in EBUB		—	%	0.1	%	(0.1	pts)
Change in return premium estimate under external reinsurance		0.1	%	(1.1	%)	1.2	pts
Estimated revenue share		(1.6	%)	(1.8	%)	0.2	pts
Assumed premiums earned (not ceded to external reinsurers)		(0.3	%)	(0.3	%)	—	pts
Ceded premiums ratio (related to external reinsurance), less the effects of above		7.5	%	7.3	%	0.2	pts

Net Premiums Earned

Net premiums earned were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums earned			$	61,034	$	58,632	$	2,402	4.1	%
Less: Ceded premiums earned			20,350		18,621		1,729		9.3	%
Net premiums earned			$	40,684	$	40,011	$	673	1.7	%

Table of Contents

Losses and Loss Adjustment Expenses

We estimate our current accident year loss and loss adjustment expenses by developing actual reported losses using historical loss development factors, adjusted to reflect current and expected trends based on various internal analyses and supplemental information. The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Calendar year and current accident year net loss ratios by component were as follows:


	Three Months Ended March 31
		2022		2021		Change
Calendar year net loss ratio		66.9	%	65.5	%	1.4	pts
Less impact of prior accident years on the net loss ratio		(4.9	%)	(5.5	%)	0.6	pts
Current accident year net loss ratio		71.8	%	71.0	%	0.8	pts

The increase in the current accident year net loss ratio during the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected the continuation of intense price competition and the resulting renewal rate decreases, partially offset by the impact of favorable prior year claim trends on the current year estimate. The current accident year net loss ratio for the three months ended March 31, 2022 also reflects an expectation that the labor shortage will continue to have an impact on claim activity during 2022.

Calendar year incurred losses (excluding IBNR) in excess of our per occurrence reinsurance retention, before consideration of the AAD (see previous discussion under the heading "Ceded Premiums Written"), increased $1.7 million for the three months ended March 31, 2022 as compared to the same period of 2021; however, of the $1.7 million, we retained losses in excess of our per occurrence retention totaling $1.0 million which reflected losses within the AAD. There were no current accident year reported losses ceded to reinsurers during the three months ended March 31, 2022 or 2021.

We recognized net favorable prior year development related to our previously established reserve of $2.0 million for the three months ended March 31, 2022 as compared to $2.2 million for the same period of 2021. The net favorable prior year reserve development for the three months ended March 31, 2022 and 2021 reflected overall favorable trends in claim closing patterns. Net favorable development for the 2022 three months ended was primarily related to accident years 2019 and prior. Net favorable development for the 2021 three-month period was primarily related to accident years 2017 and prior.

Table of Contents

Underwriting, Policy Acquisition and Operating Expenses

Our Workers' Compensation Insurance segment underwriting, policy acquisition and operating expenses were comprised as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
DPAC amortization			$	7,061	$	6,741	$	320	4.7	%
Management fees			541		542		(1)		(0.2	%)
Other underwriting and operating expenses			8,868		8,252		616		7.5	%
Policyholder dividend expense			209		269		(60)		(22.3	%)
SPC ceding commission offset			(3,678)		(3,518)		(160)		4.5	%
Total			$	13,001	$	12,286	$	715	5.8	%

The increase in DPAC amortization for the three months ended March 31, 2022 as compared to the same period in 2021 primarily reflected the increase in gross premiums earned.

The increase in other underwriting and operating expenses for the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected an increase in costs related to compensation, business-related travel, lease exit costs and an increase in the allowance for credit losses. Marketing costs included advertising and website-related activities that were planned for 2022. Business-related travel has increased as a result of the easing of pandemic-related restrictions. During the first quarter of 2022, we recognized one-time lease exit costs of $0.2 million due to the early termination of an office lease; however, as a result, we anticipate annual expense savings of approximately $0.1 million. The increase in the allowance for credit losses primarily reflects an increase in accounts greater than 90 days old, which we believe is a timing issue that will reverse in future periods.

As previously discussed, alternative market premiums written by our Workers' Compensation Insurance segment are 100% ceded, less a ceding commission, to either the SPCs in our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer. The ceding commission charged to the SPCs consists of an amount for fronting fees, cell rental fees, commissions, premium taxes and risk management fees. The fronting fees, commissions, premium taxes and risk management fees are recorded as an offset to underwriting, policy acquisition and operating expenses. Cell rental fees are recorded as a component of other income and claims administration fees are recorded as ceded ULAE. The increase in SPC ceding commissions earned for the three months ended March 31, 2022 as compared to the same period of 2021, primarily reflected the increase in alternative market ceded earned premium.

Underwriting Expense Ratio (the Expense Ratio)

The underwriting expense ratio included the impact of the following:


	Three Months Ended March 31
		2022		2021		Change
Underwriting expense ratio, as reported		32.0	%	30.7	%	1.3	pts
Less estimated ratio increase (decrease) attributable to:
Impact of ceding commissions received from SPCs		3.5	%	2.9	%	0.6	pts

Impact of audit premium		(0.1	%)	1.0	%	(1.1	pts)
Change in return premium estimate under external reinsurance		—	%	(0.2	%)	0.2	pts
Estimated revenue share		(0.3	%)	(0.4	%)	0.1	pts
Underwriting expense ratio, less listed effects		28.9	%	27.4	%	1.5	pts

Table of Contents

Segment Results - Segregated Portfolio Cell Reinsurance

The Segregated Portfolio Cell Reinsurance segment includes the results (underwriting profit or loss, plus investment results, net of U.S. federal income taxes) of SPCs at Inova Re and Eastern Re, our Cayman Islands SPC operations, as discussed in Note 18 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K. SPCs are segregated pools of assets and liabilities that provide an insurance facility for a defined set of risks. Assets of each SPC are solely for the benefit of that individual cell and each SPC is solely responsible for the liabilities of that individual cell. Assets of one SPC are statutorily protected from the creditors of the others. Each SPC is owned, fully or in part, by an individual company, agency, group or association and the results of the SPCs are attributable to the participants of that cell. We participate to a varying degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC results attributable to external cell participants are reported as an SPC dividend (expense) income in our Segregated Portfolio Cell Reinsurance segment. In addition, our Segregated Portfolio Cell Reinsurance segment includes the investment results of the SPCs as the investments are solely for the benefit of the cell participants and investment results attributable to external cell participants are reflected in the SPC dividend (expense) income. As of March 31, 2022, there were 27 (4 inactive) SPCs. The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from our Workers' Compensation Insurance and Specialty P&C segments. As of March 31, 2022, there were two SPCs that assumed both workers' compensation insurance and healthcare professional liability insurance and one SPC that assumed only healthcare professional liability insurance.

Segment results reflects our share of the underwriting and investment results of the SPCs in which we participate, and included the following:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Net premiums written	$	25,217	$	22,188	$	3,029	13.7	%

Net premiums earned	$	19,314	$	15,884	$	3,430	21.6	%
Net investment income	112		221		(109)		(49.3	%)
Net investment gains (losses)	(711)		987		(1,698)		(172.0	%)
Other income	1		1		—		—	%
Net losses and loss adjustment expenses	(11,491)		(9,425)		(2,066)		21.9	%
Underwriting, policy acquisition and operating expenses	(4,369)		(5,025)		656		(13.1	%)
SPC U.S. federal income tax expense (1)	(642)		(356)		(286)		80.3	%
SPC net results	2,214		2,287		(73)		(3.2	%)
SPC dividend (expense) income (2)	(2,367)		(1,742)		(625)		35.9	%
Segment results (3)	$	(153)	$	545	$	(698)	(128.1	%)

Net loss ratio	59.5%		59.3%		0.2 pts
Underwriting expense ratio	22.6%		31.6%		(9.0 pts)
(1) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
(2) Represents the net (profit) loss attributable to external cell participants.
(3) Represents our share of the net profit (loss) of the SPCs in which we participate.

Table of Contents

Premiums Written

Premiums in our Segregated Portfolio Cell Reinsurance segment are assumed from either our Workers' Compensation Insurance or Specialty P&C segments. Premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of the existing book of business, (3) premium rates charged on the renewal book of business and, for workers' compensation business, (4) changes in payroll exposure and (5) audit premium.

Gross, ceded and net premiums written were as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Gross premiums written	$	28,369	$	25,151	$	3,218	12.8	%
Less: Ceded premiums written	3,152		2,963		189		6.4	%
Net premiums written	$	25,217	$	22,188	$	3,029	13.7	%

Gross Premiums Written

Gross premiums written reflected reinsurance premiums assumed by component as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Workers' compensation	$	21,488	$	20,682	$	806	3.9	%
Healthcare professional liability	6,881		4,469		2,412		54.0	%

Gross Premiums Written	$	28,369	$	25,151	$	3,218	12.8	%

Gross premiums written for the three months ended March 31, 2022 and 2021 were primarily comprised of workers' compensation coverages assumed from our Workers' Compensation Insurance segment. Workers' compensation gross premiums written increased during the three months ended March 31, 2022 as compared to the same period of 2021 driven by an increase in audit premium billed to policyholders and new business written, partially offset by renewal rate decreases of 3%. Healthcare professional liability gross premiums written increased during the three months ended March 31, 2022 as compared to the same period of 2021 driven by the effect of tail coverage premium primarily related to one program in which we do not participate, which resulted in $3.0 million of one-time premium written and fully earned. We retained 100% of the eight workers' compensation programs and one healthcare professional liability program up for renewal during the three months ended March 31, 2022.

New business, audit premium, retention and renewal price changes for the assumed workers' compensation premium is shown in the table below:


	Three Months Ended March 31
($ in millions)	2022			2021
New business	$	1.1		$	0.8
Audit premium	$	1.6		$	0.2
Retention rate (1)	92		%	92		%
Change in renewal pricing (2)	(3		%)	(5		%)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.

Table of Contents

Ceded Premiums Written

Ceded premiums written were as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Ceded premiums written	$	3,152	$	2,963	$	189	6.4	%

For the workers' compensation business, each SPC has in place its own external reinsurance coverage. The healthcare professional liability business is assumed net of reinsurance from our Specialty P&C segment; therefore, there are no ceded premiums related to the healthcare professional liability business reflected in the table above. The risk retention for each loss occurrence for the workers' compensation business ranges from $0.3 million to $0.4 million based on the program, with limits up to $119.7 million. In addition, each program has aggregate reinsurance coverage between $1.1 million and $2.1 million on a program year basis. Premiums ceded under our SPC reinsurance treaty are based on premiums written during the treaty period. The change in ceded premiums written during the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected the change in workers' compensation gross premiums written and the impact of rate increases under the external reinsurance treaty. External reinsurance rates vary based on the alternative market program.

Ceded Premiums Ratio

Ceded premiums ratio was as follows:


	Three Months Ended March 31
	2022	2021	Change
Ceded premiums ratio	14.7%	14.3%	0.4 pts

The above table reflects ceded premiums as a percent of gross premiums written for the workers' compensation business only; healthcare professional liability business is assumed net of reinsurance, as discussed above. The ceded premiums ratio reflects the weighted average reinsurance rates of all SPC programs. The increase in the ceded premiums ratio for the three months ended March 31, ~~2021~~2022 primarily ~~reflects~~reflected an increase in reinsurance ~~rates for programs renewing on or after May 1, 2020.~~rates.

Net Premiums Earned

Net premiums earned consist of gross premiums earned less the portion of earned premiums that the SPCs cede to external reinsurers. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Policies ceded to the SPCs are twelve month term policies and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of workers' compensation insureds' payrolls. Payroll audits are conducted subsequent to the end of the policy period and any related adjustments are recorded as fully earned in the current period.

Gross, ceded and net premiums earned were as follows:


		Three Months Ended March 31						Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020		Change					($ in thousands)	2022		2021		Change
Gross premiums earned	Gross premiums earned			$	17,967	$	19,190		$	(1,223)	(6.4	%)	Gross premiums earned	$	21,664	$	17,967	$	3,697	20.6	%
Less: Ceded premiums earned	Less: Ceded premiums earned			2,083		2,210			(127)		(5.7	%)	Less: Ceded premiums earned	2,350		2,083		267		12.8	%
Net premiums earned	Net premiums earned			$	15,884	$	16,980		$	(1,096)	(6.5	%)	Net premiums earned	$	19,314	$	15,884	$	3,430	21.6	%

The ~~decrease~~increase in net premiums earned during the three months ended March 31, ~~2021~~2022 primarily reflected the aforementioned effect of $3.0 million of tail premium fully written and earned during the current period and the increase in audit premium billed to policyholders, partially offset by the pro rata effect of a reduction in net premiums written during the preceding twelve months.

~~Net Investment Income and Net Realized Investment Gains (Losses)~~

Net investment income for the three months ended March 31, 2021 and 2020 was primarily attributable to interest earned on available-for-sale fixed maturity investments, which primarily includes investment-grade corporate debt securities. We recognized $1.0 million of net realized investment gains during the three months ended March 31, 2021, which primarily reflected an increase in the fair value on our equity portfolio. We recognized $3.2 million of net realized investment losses during the three months ended March 31, 2020 driven by changes in the fair value of our equity portfolio attributable to the disruptions in global financial markets related to COVID-19.

8370

Table of Contents

Losses and Loss Adjustment Expenses

The following table summarizes the calendar year net loss ratios by separating losses between the current accident year and all prior accident years. The current accident year net loss ratio reflected the aggregate loss ratio for all programs. Loss reserves are estimated for each program on a quarterly basis. Due to the size of some of the programs, quarterly loss results can create volatility in the current accident year net loss ratio from period to period.

Calendar year and current accident year net loss ratios for the three months ended March 31, 2022 and 2021 ~~and 2020 was~~were as follows:


		Three Months Ended March 31							Three Months Ended March 31
		2021		2020		Change			2022		2021		Change
Calendar year net loss ratio	Calendar year net loss ratio	59.3	%	55.1	%	4.2	pts	Calendar year net loss ratio	59.5	%	59.3	%	0.2	pts
Less impact of prior accident years on the net loss ratio	Less impact of prior accident years on the net loss ratio	(9.6	%)	(10.6	%)	1.0	pts	Less impact of prior accident years on the net loss ratio	(5.0	%)	(9.6	%)	4.6	pts
Current accident year net loss ratio	Current accident year net loss ratio	68.9	%	65.7	%	3.2	pts	Current accident year net loss ratio	64.5	%	68.9	%	(4.4	pts)

The ~~increase~~current accident year net loss ratio decreased 4.4 percentage points for the three months ended March 31, 2022 as compared to the same period of 2021. The decrease in the current accident year net loss ratio for the ~~2021 three-month period~~three months ended March 31, 2022 primarily reflected favorable trends in prior accident year claim results and their impact on our analysis of ~~3.2 percentage points as compared to~~ the ~~same period of 2020 primarily reflected~~current accident year loss estimate, partially offset by the continuation of intense price competition and the resulting renewal rate decreases in the workers' compensation business. As a result of the COVID-19 pandemic, legislative and regulatory bodies in certain states have changed or are considering changes to compensability requirements and presumptions for certain types of workers related to COVID-19 claims. Such changes could have an adverse impact on the frequency and severity related to COVID-19 claims.

Calendar year incurred losses (excluding IBNR) ceded to our external reinsurers ~~increased $3.1~~decreased $2.8 million for the ~~2021~~three months ended March 31, 2022 as compared to the same period of 2021. Current accident year ceded incurred losses (excluding IBNR) increased $0.1 million for the 2022 three-month period as compared to the same period of 2020, primarily reflecting the impact of three large claims reported in the first quarter of 2021 that occurred in late 2020. Current accident year ceded incurred losses (excluding IBNR) decreased $0.4 million for the 2021 three-month period, as compared to the same period of 2020.2021.

We recognized net favorable prior year reserve development of ~~$1.4 million and $1.8~~$0.9 million for the three months ended March 31, ~~2021~~2022 as compared to $1.4 million for the same period of 2021. The net favorable prior year reserve development for the three months ended March 31, 2022 related entirely to workers’ compensation business, which reflected overall favorable trends in claim closing patterns primarily in accident years 2019 and ~~2020, respectively.~~2020. The net favorable prior year reserve development for the three months ended March 31, 2021 also related entirely to the workers’ compensation business which primarily reflected overall favorable claim trends in claim closing patterns ~~primarily~~ in ~~the~~accident years 2018 and 2019 accident years. The net favorable prior year development for the three months ended March 31, 2020 included $0.8 million and $1.0 million related to the workers' compensation and healthcare professional liability business, respectively. The workers' compensation favorable development was primarily related to the 2018 accident year, while the healthcare professional liability favorable development was primarily related to the 2016 through 2018 accident years.2019.

Table of Contents

Underwriting, Policy Acquisition and Operating Expenses

Our Segregated Portfolio Cell Reinsurance segment underwriting, policy acquisition and operating expenses were comprised as follows:


		Three Months Ended March 31				Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020			Change				($ in thousands)	2022				2021		Change
DPAC amortization	DPAC amortization			$	4,636		$	5,135	$	(499)			(9.7	%)	DPAC amortization	$	5,294	$	4,636	$	658	14.2	%
Policyholder dividend expense															Policyholder dividend expense	66		173		(107)		(61.8	%)
Other underwriting and operating expenses	Other underwriting and operating expenses			389			(56)		445				794.6	%	Other underwriting and operating expenses	(991)		216		(1,207)		(558.8	%)
Total	Total			$	5,025		$	5,079	$	(54)			(1.1	%)	Total	$	4,369	$	5,025	$	(656)	(13.1	%)

DPAC amortization primarily represents ceding commissions, which vary by program and are paid to our Workers' Compensation Insurance and Specialty P&C segments for premiums assumed. Ceding commissions include an amount for fronting fees, commissions, premium taxes and risk management fees, which are reported as an offset to underwriting, policy acquisition and operating expenses within our Workers' Compensation Insurance and Specialty P&C segments. In addition, ceding commissions paid to our Workers' Compensation Insurance segment include cell rental fees which are recorded as other income and claims administration fees which are recorded as ceded ULAE within our Workers' Compensation Insurance segment.

Other underwriting and operating expenses primarily include bank fees, professional fees and ~~bad debt expense.~~changes in the allowance for expected credit losses. The ~~increase~~decrease in other underwriting and operating expenses for the three months ended March 31, ~~2021~~2022 as compared to the same period ~~in 2020~~of 2021 primarily reflected the ~~effect of recoveries of premiums receivables during the first quarter of 2020 that were previously written off, which resulted~~change in ~~a reduction to~~ our allowance for expected credit losses ~~and,~~related to ~~a lesser extent, an increase~~the collection of customer accounts that were previously written off.

The decrease in policyholder dividend expense for the three months ended March 31, 2022 as compared to the same period of 2021, related primarily to one SPC ~~program.~~

~~Table of Contents~~

program, in which we do not participate.

Underwriting Expense Ratio (the Expense Ratio)

The underwriting expense ratio included the impact of the following:


		Three Months Ended March 31		Three Months Ended March 31
			2021		2020	Change		2022	2021	Change
Underwriting expense ratio, as reported	Underwriting expense ratio, as reported		31.6%		29.9%	1.7 pts	Underwriting expense ratio, as reported	22.6%	31.6%	(9.0 pts)
Less: impact of audit premium on expense ratio	Less: impact of audit premium on expense ratio		(0.3%)		0.6%	(0.9 pts)	Less: impact of audit premium on expense ratio	(2.0%)	(0.3%)	(1.7 pts)

Underwriting expense ratio, excluding the effect of audit premium	Underwriting expense ratio, excluding the effect of audit premium		31.9%		29.3%	2.6 pts	Underwriting expense ratio, excluding the effect of audit premium	24.6%	31.9%	(7.3 pts)

Excluding the effect of audit premium, the ~~increase~~underwriting expense ratio decreased for the 2022 three-month period. The decrease in the underwriting expense ratio ~~during~~for the ~~2021~~2022 three-month period primarily reflected the ~~effect of~~change in the ~~aforementioned premiums receivable recoveries during the first quarter of 2020~~allowance for expected credit losses and ~~the increase in~~ policyholder dividend expense, ~~partially offset by a decrease in the weighted average ceding commission percentage of all SPC programs.~~

~~SPC U.S. Federal Income Tax Expense~~

The SPCs at Inova Re have made a 953(d) election under the U.S. Internal Revenue Code and are subject to U.S. federal income tax. U.S. federal income taxes incurred totaled $0.4 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.as discussed above.

8572

Table of Contents

~~Segment Results - Lloyd's Syndicates~~Ceded Premiums Written

~~Our Lloyd's Syndicates segment includes~~Ceded premiums represent the ~~results from our participation in certain Syndicates at Lloyd's of London. In addition~~amounts owed to our ~~participation in Syndicate results, we have investments in and other obligations to our Lloyd's Syndicates consisting~~reinsurers for their assumption of a ~~Syndicate Credit Agreement~~portion of our losses. Our HCPL and ~~FAL requirements.~~Medical Technology Liability excess of loss reinsurance arrangements renew annually on October 1. For those excess of loss reinsurance arrangements in effect prior to October 1, 2021, we generally retained the first $2 million in risk insured by us and ceded coverages in excess of this amount. Effective October 1, 2021, our HCPL treaty renewed at a lower gross rate and we generally retain from 0% to 5% of the next $24 million of risk for our HCPL coverages in excess of $2 million. Our HCPL excess of loss reinsurance arrangement that renewed on October 1, 2021 also incorporated NORCAL policies. Prior to October 1, 2021, NORCAL policies were reinsured under separate reinsurance agreements, primarily excess of loss, which have historically renewed annually on January 1. For the ~~2021 underwriting year, our FAL was comprised~~NORCAL excess of investment securities and cash and cash equivalents deposited with Lloyd's which at March 31, 2021 had a fair value of approximately $106.8 million, as discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements.

~~We normally report results from our involvement in Lloyd's Syndicates on a quarter lag, except when information is available~~loss reinsurance arrangement that is material to the current period. Furthermore, the investment results associated with our FAL investments and certain U.S. paid administrative expenses are reported concurrently as that information is available on an earlier time frame.

~~Lloyd's Syndicate 1729.~~ We provide capital to Syndicate 1729, which covers a range of property and casualty insurance and reinsurance lines in both the U.S. and international markets. The remaining capital for Syndicate 1729 is provided by unrelated third parties, including private names and other corporate members. To support and grow our core insurance operations, we decreased our participation in the results of Syndicate 1729 for the 2021 underwriting year to 5% from 29% which, due to the quarter lag, will not be reflected in our results until the second quarter of 2021. Syndicate 1729's maximum underwriting capacity for the 2021 underwriting year is £185 million (approximately $255 million based on March 31, 2021 exchange rates), of which £9 million (approximately $13 million based on March 31, 2021 exchange rates) is our allocated underwriting capacity.

~~Lloyd's Syndicate 6131.~~ We provide capital to an SPA, Syndicate 6131, which focuses on contingency and specialty property business, primarily for risks in both U.S. and international markets. As an SPA, Syndicate 6131 underwrites on a quota share basis with Syndicate 1729. Effective July 1, 2020, Syndicate 6131 entered into a six-month quota share reinsurance agreement with an unaffiliated insurer. Under this agreement, Syndicate 6131 ceded essentially half of the premium assumed from Syndicate 1729 to the unaffiliated insurer; the agreement was non-renewedrenewed on January 1, 2021, retention was generally the first $2 million in risk and coverages in excess of this amount were ceded up to $24 million. For our Medical Technology Liability treaty which also renewed effective October 1, 2021, we ~~decreased our participation~~also retain 2.5% of the next $8 million of risk for coverages in excess of $2 million. There were no significant changes in the ~~results~~cost or structure of ~~Syndicate 6131 to 50% from 100% for~~our Medical Technology Liability treaty upon the October 2021 underwriting year. Due to the quarter lag, this reduced participation will not be reflected in our results until the second quarter of 2021. Syndicate 6131's maximum underwriting capacity for the 2021 underwriting year is £20 million (approximately $28 million based on March 31, 2021 exchange rates), of which £10 million (approximately $14 million based on March 31, 2021 exchange rates) is our allocated underwriting capacity.renewal.

In ~~addition to the results~~certain of our participation in Lloyd's Syndicates, as discussed above, our Lloyd's Syndicates segment also includes 100% of the results of our wholly owned subsidiaries that support our operations at Lloyd's. For the three months ended March 31, 2021 and 2020, the results of our Lloyd's Syndicates segment were as follows:

Three Months Ended March 31
($ in thousands) 2021 2020 Change
Net premiums written $ 11,885 $ 26,660 $ (14,775) (55.4 %)
Net premiums earned $ 15,850 $ 22,001 $ (6,151) (28.0 %)
Net investment income 729 1,159 (430) (37.1 %)
Net realized gains (losses) (115) 81 (196) (242.0 %)
Other income (loss) 221 (232) 453 195.3 %
Net losses and loss adjustment expenses (12,967) (14,780) 1,813 (12.3 %)
Underwriting, policy acquisition and operating expenses (6,591) (9,142) 2,551 (27.9 %)
Income tax benefit (expense) — 29 (29) nm
Segment results $ (2,873) $ (884) $ (1,989) (225.0 %)
Net loss ratio 81.8 % 67.2 % 14.6 pts
Underwriting expense ratio 41.6 % 41.6 % — pts

~~Table of Contents~~

~~Premiums Written~~

Changes in our premium volume within our Lloyd's Syndicates segment are driven by five primary factors: (1) changes in our participation in the Syndicates, (2) the amount of new business and the channels in which the business is written, (3) our retention of existing business, (4) 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, and (5) the timing of premium written through multi-period policies.

~~Gross, ceded and net premiums written were as follows:~~

Three Months Ended March 31
($ in thousands) 2021 2020 Change
Gross premiums written $ 14,102 $ 27,861 $ (13,759) (49.4 %)
Less: Ceded premiums written 2,217 1,201 1,016 84.6 %
Net premiums written $ 11,885 $ 26,660 $ (14,775) (55.4 %)

~~Gross Premiums Written~~

Gross premiums written during the three months ended March 31, 2021 consisted of property insurance coverages (35% of total gross premiums written), specialty property coverages (30%), casualty coverages (25%), contingency coverages (8%) and property reinsurance coverages (2%). The decrease in gross premiums written during the 2021 three-month period as compared to the same period of 2020 was primarily driven by our decreased participation in the results of Syndicate 1729, partially offset by new business written, primarily on specialty property coverages. In addition, the decrease in gross premiums written for the 2021 three-month period also reflected the effect of a certain type of coverage reaching capacity limits as set forth by Syndicate 1729's business plan and, to a lesser extent, the effect of estimated reinstatement premiums of $0.6 million as compared to $1.8 million in the prior year period. The reinstatement premiums represent amounts payable to Syndicate 1729 under certain excess of loss arrangements, the ultimate amount of ceded premium is determined by the loss experience of the business ceded, subject to certain minimum and maximum amounts. Given the length of time that it takes to resolve our claims, many years may elapse before all losses recoverable under a reinsurance ~~treaties, primarily~~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 ~~with property and catastrophe~~recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. Any changes to estimates of premiums ceded related ~~losses, which~~to prior accident years are fully earned in the period the changes in estimates occur.

Table of Contents

Ceded premiums written were as follows:


	Three Months Ended March 31
($ in thousands)		2022			2021			Change
Excess of loss reinsurance arrangements (1)			$	9,496		$	7,678		$	1,818	23.7	%
Other shared risk arrangements (2)			4,336			3,963			373		9.4	%
Premium ceded to SPCs (3)			6,881			4,469			2,412		54.0	%

Other ceded premiums written(4)			2,121			866			1,255		144.9	%

Total ceded premiums written			$	22,834		$	16,976		$	5,858	34.5	%

(3) As previously discussed, as a part of our alternative market solutions, all or a portion of certain healthcare premium written is ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. See the Segment Results - Segregated Portfolio Cell Reinsurance section for further discussion on the cession to the SPCs from our Specialty P&C segment. The increase in premiums ceded to SPCs during the 2022 three-month period as compared to the same period of 2021 was driven by the impact of tail coverages, primarily related to one program (see discussion in footnote 12 under the heading "Gross Premiums Written").

Ceded Premiums Ratio

The ceded premiums ratio was as follows:


	Three Months Ended March 31
		2022	2021	Change
Ceded premiums ratio		8.9%	12.3%	(3.4 pts)

Table of Contents

Net Premiums Earned

Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to our reinsurers for their assumption of a portion of our losses. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. The majority of our policies carry a term of one year; however, some of our Medical Technology Liability policies have a multi-year term and some of our NORCAL Standard Physician policies have a three-month term. In addition, prior to the third quarter of 2020, we wrote certain Standard Physician policies with a twenty-four month term. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. Retroactive coverage premiums are 100% earned at the inception of the contract, as all of the associated underlying loss events occurred in the past. Additionally, any ceded premium changes due to changes to estimates of premiums owed under reinsurance agreements for prior accident years are fully earned in the period of change.

Net premiums earned were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums earned			$	212,279	$	132,060	$	80,219	60.7	%
Less: Ceded premiums earned			14,312		16,447		(2,135)		(13.0	%)
Net premiums earned			$	197,967	$	115,613	$	82,354	71.2	%

Losses and Loss Adjustment Expenses

The determination of calendar year losses involves the actuarial evaluation of incurred losses for the current accident year and the actuarial re-evaluation of incurred losses for prior accident years, including an evaluation of the reserve amounts required for ECO/XPL losses. As part of the review of our prior accident year reserves, we also make estimates of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. This analysis may result in changes to estimates of premiums owed under reinsurance agreements for prior accident years which impact net premiums earned (the denominator of the net loss ratio) in the period the adjustment is made. No such adjustments were made during the three months ended March 31, 2022 or 2021. See previous discussion under the heading "Ceded Premiums Written" for additional information.

Table of Contents


		Net Loss Ratios (1)
	Three Months Ended March 31
		2022		2021		Change

Calendar year net loss ratio		83.8	%	87.5	%	(3.7	pts)
Less impact of prior accident years on the net loss ratio		(2.0	%)	(2.3	%)	0.3	pts
Current accident year net loss ratio (2)		85.8	%	89.8	%	(4.0	pts)

(1)Net losses, as specified, divided by net premiums earned.

(In percentage points)

Increase (Decrease)
2022 versus 2021

Comparative
three-month
period

Estimated ratio increase (decrease) attributable to:

NORCAL Operations

4.0 pts

NORCAL Acquisition - Purchase Accounting Adjustment

(1.2 pts)

Change in Estimate of ULAE

(3.7 pts)

All other, net

(3.1 pts)

Decrease in current accident year net loss ratio

(4.0 pts)

Initial loss ratios associated with NORCAL policies were higher than the average for our other books of business in this segment. The impact of NORCAL operations resulted in a 4.0 percentage point increase in our current accident year net loss ratio for the three months ended March 31, 2022. We continue the process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies. Also as a result of our acquisition of NORCAL, our current accident year net loss ratio for the three months ended March 31, 2022 was impacted by amortization of the negative VOBA associated with NORCAL's assumed unearned premium which is recorded as a reduction to current accident year net losses and accounted for a 1.2 percentage point decrease in our current period ratio. The remaining unamortized negative VOBA will be fully amortized in the second quarter of 2022 (see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for additional information on the remaining expected amortization of the NORCAL acquisition purchase accounting adjustments).

Table of Contents

A detailed discussion of factors influencing our recognition of loss development is included in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses" in our December 31, 2021 report on Form 10-K. Assumptions used in establishing our reserve are regularly reviewed and updated by management as new data becomes available. Any adjustments necessary are reflected in the then current operations. Due to the size of our reserve, even a small percentage adjustment to the assumptions can have a material effect on our results of operations for the period in which the change is made, as was the case in both 2022 and 2021.

Underwriting, Policy Acquisition and Operating Expenses

Our Specialty P&C segment underwriting, policy acquisition and operating expenses, including NORCAL expenses for the 2022 three-month period, were comprised as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
DPAC amortization	$	21,740	$	12,396	$	9,344	75.4	%
Management fees	1,402		1,001		401		40.1	%
Other underwriting and operating expenses	19,736		12,949		6,787		52.4	%
Total	$	42,878	$	26,346	$	16,532	62.7	%

Management fees are charged pursuant to a management agreement by the Corporate segment to the operating subsidiaries within our Specialty P&C segment for services provided based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. Fluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period. Due to continued organizational structure enhancements in our Specialty P&C segment during 2021 as well as operational alignments as a result of the integration of NORCAL, the extent to which services are provided by the Corporate segment to the operating subsidiaries within the segment decreased further effective January 1, 2022. Accordingly, we reduced the fee charged to the operating subsidiaries in 2022. Also effective January 1, 2022, the management agreement included operating subsidiaries of NORCAL contributing to $0.6 million of additional management fees in the current period.

Table of Contents

Underwriting Expense Ratio (the Expense Ratio)

Our expense ratio for the Specialty P&C segment was as follows:


	Three Months Ended March 31
	2022		2021		Change
Underwriting expense ratio	21.7	%	22.8	%	(1.1	pts)

The change in our expense ratio for the 2022 three-month period as compared to the same period of 2021 was primarily attributable to the following:


			Increase (Decrease) 2022 versus 2021
(In percentage points)			Comparative three-month period
Estimated ratio increase (decrease) attributable to:
Increase in Net Premiums Earned and DPAC amortization(1)			0.3 pts




Change in Estimate of ULAE			3.7 pts

Tail Premium(2)			(1.2 pts)
All other, net			(3.9 pts)
Decrease in the underwriting expense ratio			(1.1 pts)
(1) Excludes tail premium for the three months ended March 31, 2022 and 2021.
(2) Represents the effect of the premium earned from tail policies for the three months ended March 31, 2022 as compared to the same period of 2021 as there is typically minimal expense associated with tail premium (see discussion under the heading "Gross Premiums Written").

Table of Contents

Segment Results - Workers' Compensation Insurance

Our Workers' Compensation Insurance segment includes workers' compensation products provided to employers generally with 1,000 or fewer employees, as discussed in Note 18 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K. Workers' compensation products offered include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and alternative market programs. Alternative market programs include program design, fronting, claims administration, risk management, SPC rental, asset management and SPC management services. Alternative market program premiums are 100% ceded to either the SPCs within our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer for one program. Our Workers' Compensation Insurance segment results reflect pre-tax underwriting profit or loss from these workers' compensation products, exclusive of investment results, which are included in our Corporate segment. Segment results included the following:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Net premiums written			$	45,266	$	46,884	$	(1,618)	(3.5	%)

Net premiums earned			$	40,684	$	40,011	$	673	1.7	%
Other income			682		392		290		74.0	%
Net losses and loss adjustment expenses			(27,211)		(26,207)		(1,004)		3.8	%
Underwriting, policy acquisition and operating expenses			(13,001)		(12,286)		(715)		5.8	%
Segment results			$	1,154	$	1,910	$	(756)	(39.6	%)

Net loss ratio			66.9%		65.5%		1.4 pts
Underwriting expense ratio			32.0%		30.7%		1.3 pts

Premiums Written

Gross, ceded and net premiums written were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums written			$	72,118	$	72,328	$	(210)	(0.3	%)
Less: Ceded premiums written			26,852		25,444		1,408		5.5	%
Net premiums written			$	45,266	$	46,884	$	(1,618)	(3.5	%)

Gross Premiums Written

Gross premiums written by product were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Traditional business:
Guaranteed cost			$	35,503	$	38,196	$	(2,693)	(7.1	%)
Policyholder dividend			7,862		7,520		342		4.5	%
Deductible			2,120		2,052		68		3.3	%
Retrospective(1)			646		455		191		42.0	%
Other			1,615		1,600		15		0.9	%
Alternative market business(2)			24,372		23,715		657		2.8	%
Change in EBUB estimate			—		(1,210)		1,210		nm
Total			$	72,118	$	72,328	$	(210)	(0.3	%)

(1) The change in retrospectively-rated policies included an adjustment that decreased premium by $0.1 million for each of the three months ended March 31, 2022 and 2021.

Table of Contents

We retained 100% of the nine workers’ compensation alternative market programs that were up for renewal during the three months ended March 31, 2022.

New business, audit premium, renewal retention and renewal price changes for our traditional business and the alternative market business are shown in the table below:










	Three Months Ended March 31
	2022									2021
($ in millions)	Traditional Business			Alternative Market Business			Segment Results			Traditional Business			Alternative Market Business			Segment Results
New business	$	3.5		$	1.1		$	4.6		$	5.9		$	0.8		$	6.7
Audit premium (excluding EBUB)	$	0.1		$	1.6		$	1.7		$	(1.0)		$	0.2		$	(0.8)
Retention rate (1)	85		%	92		%	88		%	89		%	92		%	90		%
Change in renewal pricing (2)	(4		%)	(3		%)	(4		%)	(2		%)	(5		%)	(3		%)

(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.

Ceded Premiums Written

Ceded premiums written were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Premiums ceded to SPCs			$	21,488	$	20,682	$	806	3.9	%
Premiums ceded to external reinsurers			3,155		2,974		181		6.1	%
Premiums ceded to unaffiliated captive insurer			2,884		3,033		(149)		(4.9	%)
Change in return premium estimate under external reinsurance			29		(474)		503		106.1	%
Estimated revenue share under external reinsurance			(704)		(771)		67		(8.7	%)
Total ceded premiums written			$	26,852	$	25,444	$	1,408	5.5	%

Table of Contents

during the treaty period. The increase in premiums ceded to external reinsurers during the 2022 three-month period primarily reflected the increase in reinsurance rates effective May 1, 2021.

Changes in the return premium estimate reflected adjustments to our estimate of expected future recovery of ceded premium based on the underlying loss experience of our reinsurance treaties that include a provision for return premium. As shown in the table above, we decreased our estimate of return premium by a nominal amount during the 2022 three-month period as compared to an increase of $0.5 million during the same respective period in 2021. Changes in the estimated return premium primarily reflect adjustments to loss estimates on previously reported reinsured claims.

Ceded Premiums Ratio

Ceded premiums ratio was as follows:


	Three Months Ended March 31
		2022		2021		Change
Ceded premiums ratio, as reported		33.3	%	31.8	%	1.5	pts
Less the effect of:
Premiums ceded to SPCs (100%)		26.1	%	25.9	%	0.2	pts

Premiums ceded to unaffiliated captive insurers (100%)		1.5	%	1.7	%	(0.2	pts)
Change in EBUB		—	%	0.1	%	(0.1	pts)
Change in return premium estimate under external reinsurance		0.1	%	(1.1	%)	1.2	pts
Estimated revenue share		(1.6	%)	(1.8	%)	0.2	pts
Assumed premiums earned (not ceded to external reinsurers)		(0.3	%)	(0.3	%)	—	pts
Ceded premiums ratio (related to external reinsurance), less the effects of above		7.5	%	7.3	%	0.2	pts

Net Premiums Earned

Net premiums earned were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums earned			$	61,034	$	58,632	$	2,402	4.1	%
Less: Ceded premiums earned			20,350		18,621		1,729		9.3	%
Net premiums earned			$	40,684	$	40,011	$	673	1.7	%

Table of Contents

Losses and Loss Adjustment Expenses

We estimate our current accident year loss and loss adjustment expenses by developing actual reported losses using historical loss development factors, adjusted to reflect current and expected trends based on various internal analyses and supplemental information. The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Calendar year and current accident year net loss ratios by component were as follows:


	Three Months Ended March 31
		2022		2021		Change
Calendar year net loss ratio		66.9	%	65.5	%	1.4	pts
Less impact of prior accident years on the net loss ratio		(4.9	%)	(5.5	%)	0.6	pts
Current accident year net loss ratio		71.8	%	71.0	%	0.8	pts

The increase in the current accident year net loss ratio during the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected the continuation of intense price competition and the resulting renewal rate decreases, partially offset by the impact of favorable prior year claim trends on the current year estimate. The current accident year net loss ratio for the three months ended March 31, 2022 also reflects an expectation that the labor shortage will continue to have an impact on claim activity during 2022.

We recognized net favorable prior year development related to our previously established reserve of $2.0 million for the three months ended March 31, 2022 as compared to $2.2 million for the same period of 2021. The net favorable prior year reserve development for the three months ended March 31, 2022 and 2021 reflected overall favorable trends in claim closing patterns. Net favorable development for the 2022 three months ended was primarily related to accident years 2019 and prior. Net favorable development for the 2021 three-month period was primarily related to accident years 2017 and prior.

Table of Contents

Underwriting, Policy Acquisition and Operating Expenses

Our Workers' Compensation Insurance segment underwriting, policy acquisition and operating expenses were comprised as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
DPAC amortization			$	7,061	$	6,741	$	320	4.7	%
Management fees			541		542		(1)		(0.2	%)
Other underwriting and operating expenses			8,868		8,252		616		7.5	%
Policyholder dividend expense			209		269		(60)		(22.3	%)
SPC ceding commission offset			(3,678)		(3,518)		(160)		4.5	%
Total			$	13,001	$	12,286	$	715	5.8	%

The increase in DPAC amortization for the three months ended March 31, 2022 as compared to the same period in 2021 primarily reflected the increase in gross premiums earned.

The increase in other underwriting and operating expenses for the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected an increase in costs related to compensation, business-related travel, lease exit costs and an increase in the allowance for credit losses. Marketing costs included advertising and website-related activities that were planned for 2022. Business-related travel has increased as a result of the easing of pandemic-related restrictions. During the first quarter of 2022, we recognized one-time lease exit costs of $0.2 million due to the early termination of an office lease; however, as a result, we anticipate annual expense savings of approximately $0.1 million. The increase in the allowance for credit losses primarily reflects an increase in accounts greater than 90 days old, which we believe is a timing issue that will reverse in future periods.

Underwriting Expense Ratio (the Expense Ratio)

The underwriting expense ratio included the impact of the following:


	Three Months Ended March 31
		2022		2021		Change
Underwriting expense ratio, as reported		32.0	%	30.7	%	1.3	pts
Less estimated ratio increase (decrease) attributable to:
Impact of ceding commissions received from SPCs		3.5	%	2.9	%	0.6	pts

Impact of audit premium		(0.1	%)	1.0	%	(1.1	pts)
Change in return premium estimate under external reinsurance		—	%	(0.2	%)	0.2	pts
Estimated revenue share		(0.3	%)	(0.4	%)	0.1	pts
Underwriting expense ratio, less listed effects		28.9	%	27.4	%	1.5	pts

Table of Contents

Segment Results - Segregated Portfolio Cell Reinsurance

Segment results reflects our share of the underwriting and investment results of the SPCs in which we participate, and included the following:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Net premiums written	$	25,217	$	22,188	$	3,029	13.7	%

Net premiums earned	$	19,314	$	15,884	$	3,430	21.6	%
Net investment income	112		221		(109)		(49.3	%)
Net investment gains (losses)	(711)		987		(1,698)		(172.0	%)
Other income	1		1		—		—	%
Net losses and loss adjustment expenses	(11,491)		(9,425)		(2,066)		21.9	%
Underwriting, policy acquisition and operating expenses	(4,369)		(5,025)		656		(13.1	%)
SPC U.S. federal income tax expense (1)	(642)		(356)		(286)		80.3	%
SPC net results	2,214		2,287		(73)		(3.2	%)
SPC dividend (expense) income (2)	(2,367)		(1,742)		(625)		35.9	%
Segment results (3)	$	(153)	$	545	$	(698)	(128.1	%)

Net loss ratio	59.5%		59.3%		0.2 pts
Underwriting expense ratio	22.6%		31.6%		(9.0 pts)
(1) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
(2) Represents the net (profit) loss attributable to external cell participants.
(3) Represents our share of the net profit (loss) of the SPCs in which we participate.

Table of Contents

Premiums Written

Gross, ceded and net premiums written were as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Gross premiums written	$	28,369	$	25,151	$	3,218	12.8	%
Less: Ceded premiums written	3,152		2,963		189		6.4	%
Net premiums written	$	25,217	$	22,188	$	3,029	13.7	%

Gross Premiums Written

Gross premiums written reflected reinsurance premiums assumed by component as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Workers' compensation	$	21,488	$	20,682	$	806	3.9	%
Healthcare professional liability	6,881		4,469		2,412		54.0	%

Gross Premiums Written	$	28,369	$	25,151	$	3,218	12.8	%

New business, audit premium, retention and renewal price changes for the assumed workers' compensation premium is shown in the table below:


	Three Months Ended March 31
($ in millions)	2022			2021
New business	$	1.1		$	0.8
Audit premium	$	1.6		$	0.2
Retention rate (1)	92		%	92		%
Change in renewal pricing (2)	(3		%)	(5		%)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.

Table of Contents

Ceded Premiums Written

Ceded premiums written were as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Ceded premiums written	$	3,152	$	2,963	$	189	6.4	%

Ceded Premiums Ratio

Ceded premiums ratio was as follows:


	Three Months Ended March 31
	2022	2021	Change
Ceded premiums ratio	14.7%	14.3%	0.4 pts

The above table reflects ceded premiums as a percent of gross premiums written for the workers' compensation business only; healthcare professional liability business is assumed net of reinsurance, as discussed above. The ceded premiums ratio reflects the weighted average reinsurance rates of all SPC programs. The increase in the ceded premiums ratio for the three months ended March 31, 2022 primarily reflected an increase in reinsurance rates.

Net Premiums Earned

Gross, ceded and net premiums earned were as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Gross premiums earned	$	21,664	$	17,967	$	3,697	20.6	%
Less: Ceded premiums earned	2,350		2,083		267		12.8	%
Net premiums earned	$	19,314	$	15,884	$	3,430	21.6	%

The increase in net premiums earned during the three months ended March 31, 2022 primarily reflected the aforementioned effect of $3.0 million of tail premium fully written and earned during the current period and the increase in audit premium billed to policyholders, partially offset by the pro rata effect of a reduction in net premiums written during the preceding twelve months.

Table of Contents

Losses and Loss Adjustment Expenses

Calendar year and current accident year net loss ratios for the three months ended March 31, 2022 and 2021 were as follows:


	Three Months Ended March 31
	2022		2021		Change
Calendar year net loss ratio	59.5	%	59.3	%	0.2	pts
Less impact of prior accident years on the net loss ratio	(5.0	%)	(9.6	%)	4.6	pts
Current accident year net loss ratio	64.5	%	68.9	%	(4.4	pts)

The current accident year net loss ratio decreased 4.4 percentage points for the three months ended March 31, 2022 as compared to the same period of 2021. The decrease in the current accident year net loss ratio for the three months ended March 31, 2022 primarily reflected favorable trends in prior accident year claim results and their impact on our analysis of the current accident year loss estimate, partially offset by the continuation of intense price competition and the resulting renewal rate decreases in the workers' compensation business.

Calendar year incurred losses (excluding IBNR) ceded to our external reinsurers decreased $2.8 million for the three months ended March 31, 2022 as compared to the same period of 2021. Current accident year ceded incurred losses (excluding IBNR) increased $0.1 million for the 2022 three-month period as compared to the same period of 2021.

We recognized net favorable prior year reserve development of $0.9 million for the three months ended March 31, 2022 as compared to $1.4 million for the same period of 2021. The net favorable prior year reserve development for the three months ended March 31, 2022 related entirely to workers’ compensation business, which reflected overall favorable trends in claim closing patterns primarily in accident years 2019 and 2020. The net favorable prior year reserve development for the three months ended March 31, 2021 also related entirely to the workers’ compensation business which primarily reflected overall favorable claim trends in claim closing patterns in accident years 2018 and 2019.

Table of Contents

Underwriting, Policy Acquisition and Operating Expenses

Our Segregated Portfolio Cell Reinsurance segment underwriting, policy acquisition and operating expenses were comprised as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
DPAC amortization	$	5,294	$	4,636	$	658	14.2	%
Policyholder dividend expense	66		173		(107)		(61.8	%)
Other underwriting and operating expenses	(991)		216		(1,207)		(558.8	%)
Total	$	4,369	$	5,025	$	(656)	(13.1	%)

Other underwriting and operating expenses primarily include bank fees, professional fees and changes in the allowance for expected credit losses. The decrease in other underwriting and operating expenses for the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected the change in our allowance for expected credit losses related to the collection of customer accounts that were previously written off.

The decrease in policyholder dividend expense for the three months ended March 31, 2022 as compared to the same period of 2021, related primarily to one SPC program, in which we do not participate.

Underwriting Expense Ratio (the Expense Ratio)

The underwriting expense ratio included the impact of the following:


	Three Months Ended March 31
	2022	2021	Change
Underwriting expense ratio, as reported	22.6%	31.6%	(9.0 pts)
Less: impact of audit premium on expense ratio	(2.0%)	(0.3%)	(1.7 pts)


Underwriting expense ratio, excluding the effect of audit premium	24.6%	31.9%	(7.3 pts)

Excluding the effect of audit premium, the underwriting expense ratio decreased for the 2022 three-month period. The decrease in the underwriting expense ratio for the 2022 three-month period primarily reflected the change in the allowance for expected credit losses and policyholder dividend expense, as discussed above.

Table of Contents

Ceded Premiums Written

~~Syndicate 1729 utilizes~~Ceded premiums represent the amounts owed to our reinsurers for their assumption of a portion of our losses. Our HCPL and Medical Technology Liability excess of loss reinsurance arrangements renew annually on October 1. For those excess of loss reinsurance arrangements in effect prior to ~~provide~~October 1, 2021, we generally retained the ~~capacity to write larger limits of liability on individual risks, to provide protection against catastrophic loss~~first $2 million in risk insured by us and ~~to provide protection against losses~~ceded coverages in excess of ~~policy limits. As previously discussed, for the second half of 2020 Syndicate 6131 utilized external quota share reinsurance~~this amount. Effective October 1, 2021, our HCPL treaty renewed at a lower gross rate and we generally retain from 0% to ~~manage the net loss exposure on the specialty property and contingency coverages it assumed from Syndicate 1729 by ceding essentially half~~5% of the ~~premium assumed~~next $24 million of risk for our HCPL coverages in excess of $2 million. Our HCPL excess of loss reinsurance arrangement that renewed on October 1, 2021 also incorporated NORCAL policies. Prior to ~~an unaffiliated insurer; this agreement was non-renewed~~October 1, 2021, NORCAL policies were reinsured under separate reinsurance agreements, primarily excess of loss, which have historically renewed annually on January 1. For the NORCAL excess of loss reinsurance arrangement that renewed on January 1, ~~2021. Due to~~2021, retention was generally the ~~quarter lag, the effect~~first $2 million in risk and coverages in excess of this amount were ceded up to $24 million. For our Medical Technology Liability treaty which also renewed effective October 1, 2021, we also retain 2.5% of the next $8 million of risk for coverages in excess of $2 million. There were no significant changes in the cost or structure of our Medical Technology Liability treaty upon the October 2021 renewal.

In certain of our excess of loss arrangements, the ultimate amount of ceded premium is determined by the loss experience of the business ceded, subject to certain minimum and maximum amounts. Given the length of time that it takes to resolve our claims, many years may elapse before all losses recoverable under a reinsurance arrangement ~~was not reflected~~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 ~~our results until~~ the ~~fourth quarter~~period the changes in estimates occur.

Table of ~~2020.~~ Contents

Ceded premiums written ~~increased for~~were as follows:


	Three Months Ended March 31
($ in thousands)		2022			2021			Change
Excess of loss reinsurance arrangements (1)			$	9,496		$	7,678		$	1,818	23.7	%
Other shared risk arrangements (2)			4,336			3,963			373		9.4	%
Premium ceded to SPCs (3)			6,881			4,469			2,412		54.0	%

Other ceded premiums written(4)			2,121			866			1,255		144.9	%

Total ceded premiums written			$	22,834		$	16,976		$	5,858	34.5	%

(1) We generally reinsure risks under our excess of loss reinsurance arrangements pursuant to which the ~~three months ended March 31, 2021~~reinsurers agree to assume all or a portion of all risks that we insure above our individual risk retention levels, up to the maximum individual limits offered. Premium due to reinsurers also fluctuates with the volume of written premium subject to cession under the arrangement. In certain of our excess of loss reinsurance arrangements, the premium due to the reinsurer is determined by the loss experience of that business reinsured, subject to certain minimum and maximum amounts. The increase in ceded premiums written under our excess of loss reinsurance arrangements during the 2022 three-month period as compared to the same period of ~~2020~~2021 was driven by additional ceded premiums of $4.4 million as a result of incorporating NORCAL policies into our existing HCPL excess of loss reinsurance arrangements with the October 1, 2021 renewal, as previously discussed. Excluding NORCAL, ceded premiums written under our excess of loss reinsurance arrangements decreased by approximately $2.4 million primarily due to a decrease in the overall volume of gross premiums written subject to cession and, to a lesser extent, the reduced rate on the treaty year effective October 1, 2021.

(3) As previously discussed, as a part of our alternative market solutions, all or a portion of certain healthcare premium written is ceded to SPCs in our Segregated Portfolio Cell Reinsurance segment under either excess of loss or quota share reinsurance agreements, depending on the structure of the individual program. See the Segment Results - Segregated Portfolio Cell Reinsurance section for further discussion on the cession to the SPCs from our Specialty P&C segment. The increase in premiums ceded to SPCs during the 2022 three-month period as compared to the same period of 2021 was driven by the impact of tail coverages, primarily related to one program (see discussion in footnote 12 under the heading "Gross Premiums Written").

Ceded Premiums Ratio

The ceded ~~under Syndicate 6131's six-month quota share agreement,~~premiums ratio was as follows:


	Three Months Ended March 31
		2022	2021	Change
Ceded premiums ratio		8.9%	12.3%	(3.4 pts)

The above table reflects ceded premiums written as a percent of gross premiums written. The decrease in our ceded premiums ratio for the 2022 three-month period as compared to the same period of 2021 was driven by the reduced rate on our excess of loss reinsurance arrangements for the treaty year effective October 1, 2021 as well as the impact of the addition of the NORCAL gross written premium base for the 2022 three-month period. The decrease in our ceded premiums ratio for the 2022 three-month period as compared to the same period of 2021 was partially offset by ~~our decreased participation~~an increase in premiums ceded to SPCs. See additional discussion on NORCAL ceded premiums and premiums ceded to SPCs above under the ~~results of Syndicate 1729.~~heading "Ceded Premiums Written."

8758

Table of Contents

Net Premiums Earned

Net premiums earned consist of gross premiums earned less the portion of earned premiums that ~~the Syndicates~~we cede to our reinsurers for their assumption of a portion of our losses. ~~Premiums written through open-market channels~~Because premiums are generally earned pro rata over the entire policy period, which is predominately twelve months, whereas premiums written through delegated underwriting authority arrangements are earned over twenty-four months. Therefore, net premiums earned is affected by shifts in the mix of policies written between the open-market and delegated underwriting authority arrangements. Additionally, net premiums earned consists of a mix of policies earned from different open underwriting years. As previously discussed, we participate to a varying degree in each open underwriting year which may cause fluctuations in premiums earned. Furthermore, fluctuations in premiums earned tend to lag those of premiums written. The majority of our policies carry a term of one year; however, some of our Medical Technology Liability policies have a multi-year term and some of our NORCAL Standard Physician policies have a three-month term. In addition, prior to the third quarter of 2020, we wrote certain Standard Physician policies with a twenty-four month term. Tail coverage premiums are generally 100% earned in the period written because the policies insure only incidents that occurred in prior periods and are not cancellable. Retroactive coverage premiums are 100% earned at the inception of the contract, as all of the associated underlying loss events occurred in the past. Additionally, any ceded premium changes due to changes to estimates of premiums owed under reinsurance agreements for prior accident years are fully earned in the period of change.

Net premiums earned were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums earned			$	212,279	$	132,060	$	80,219	60.7	%
Less: Ceded premiums earned			14,312		16,447		(2,135)		(13.0	%)
Net premiums earned			$	197,967	$	115,613	$	82,354	71.2	%

Losses and Loss Adjustment Expenses

The determination of calendar year losses involves the actuarial evaluation of incurred losses for the current accident year and the actuarial re-evaluation of incurred losses for prior accident years, including an evaluation of the reserve amounts required for ECO/XPL losses. As part of the review of our prior accident year reserves, we also make estimates of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance agreements. This analysis may result in changes to estimates of premiums owed under reinsurance agreements for prior accident years which impact net premiums earned (the denominator of the net loss ratio) in the period the adjustment is made. No such adjustments were made during the three months ended March 31, 2022 or 2021. See previous discussion under the heading "Ceded Premiums Written" for additional information.

Table of Contents


		Net Loss Ratios (1)
	Three Months Ended March 31
		2022		2021		Change

Calendar year net loss ratio		83.8	%	87.5	%	(3.7	pts)
Less impact of prior accident years on the net loss ratio		(2.0	%)	(2.3	%)	0.3	pts
Current accident year net loss ratio (2)		85.8	%	89.8	%	(4.0	pts)

(1)Net losses, as specified, divided by net premiums earned.

(In percentage points)

Increase (Decrease)
2022 versus 2021

Comparative
three-month
period

Estimated ratio increase (decrease) attributable to:

NORCAL Operations

4.0 pts

NORCAL Acquisition - Purchase Accounting Adjustment

(1.2 pts)

Change in Estimate of ULAE

(3.7 pts)

All other, net

(3.1 pts)

Decrease in current accident year net loss ratio

(4.0 pts)

Initial loss ratios associated with NORCAL policies were higher than the average for our other books of business in this segment. The impact of NORCAL operations resulted in a 4.0 percentage point increase in our current accident year net loss ratio for the three months ended March 31, 2022. We continue the process of evaluating the NORCAL book of business and implementing ProAssurance's underwriting strategies. Also as a result of our acquisition of NORCAL, our current accident year net loss ratio for the three months ended March 31, 2022 was impacted by amortization of the negative VOBA associated with NORCAL's assumed unearned premium which is recorded as a reduction to current accident year net losses and accounted for a 1.2 percentage point decrease in our current period ratio. The remaining unamortized negative VOBA will be fully amortized in the second quarter of 2022 (see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for additional information on the remaining expected amortization of the NORCAL acquisition purchase accounting adjustments).

Table of Contents

A detailed discussion of factors influencing our recognition of loss development is included in our Critical Accounting Estimates section under the heading "Reserve for Losses and Loss Adjustment Expenses" in our December 31, 2021 report on Form 10-K. Assumptions used in establishing our reserve are regularly reviewed and updated by management as new data becomes available. Any adjustments necessary are reflected in the then current operations. Due to the size of our reserve, even a small percentage adjustment to the assumptions can have a material effect on our results of operations for the period in which the change is made, as was the case in both 2022 and 2021.

Underwriting, Policy Acquisition and Operating Expenses

Our Specialty P&C segment underwriting, policy acquisition and operating expenses, including NORCAL expenses for the 2022 three-month period, were comprised as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
DPAC amortization	$	21,740	$	12,396	$	9,344	75.4	%
Management fees	1,402		1,001		401		40.1	%
Other underwriting and operating expenses	19,736		12,949		6,787		52.4	%
Total	$	42,878	$	26,346	$	16,532	62.7	%

Management fees are charged pursuant to a management agreement by the Corporate segment to the operating subsidiaries within our Specialty P&C segment for services provided based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. Fluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period. Due to continued organizational structure enhancements in our Specialty P&C segment during 2021 as well as operational alignments as a result of the integration of NORCAL, the extent to which services are provided by the Corporate segment to the operating subsidiaries within the segment decreased further effective January 1, 2022. Accordingly, we reduced the fee charged to the operating subsidiaries in 2022. Also effective January 1, 2022, the management agreement included operating subsidiaries of NORCAL contributing to $0.6 million of additional management fees in the current period.

Table of Contents

Underwriting Expense Ratio (the Expense Ratio)

Our expense ratio for the Specialty P&C segment was as follows:


	Three Months Ended March 31
	2022		2021		Change
Underwriting expense ratio	21.7	%	22.8	%	(1.1	pts)

The change in our expense ratio for the 2022 three-month period as compared to the same period of 2021 was primarily attributable to the following:


			Increase (Decrease) 2022 versus 2021
(In percentage points)			Comparative three-month period
Estimated ratio increase (decrease) attributable to:
Increase in Net Premiums Earned and DPAC amortization(1)			0.3 pts




Change in Estimate of ULAE			3.7 pts

Tail Premium(2)			(1.2 pts)
All other, net			(3.9 pts)
Decrease in the underwriting expense ratio			(1.1 pts)
(1) Excludes tail premium for the three months ended March 31, 2022 and 2021.
(2) Represents the effect of the premium earned from tail policies for the three months ended March 31, 2022 as compared to the same period of 2021 as there is typically minimal expense associated with tail premium (see discussion under the heading "Gross Premiums Written").

Table of Contents

Segment Results - Workers' Compensation Insurance

Our Workers' Compensation Insurance segment includes workers' compensation products provided to employers generally with 1,000 or fewer employees, as discussed in Note 18 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K. Workers' compensation products offered include guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, deductible policies and ~~assumed~~alternative market programs. Alternative market programs include program design, fronting, claims administration, risk management, SPC rental, asset management and SPC management services. Alternative market program premiums are 100% ceded to either the SPCs within our Segregated Portfolio Cell Reinsurance segment or, to a limited extent, an unaffiliated captive insurer for one program. Our Workers' Compensation Insurance segment results reflect pre-tax underwriting profit or loss from these workers' compensation products, exclusive of investment results, which are included in our Corporate segment. Segment results included the following:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Net premiums written			$	45,266	$	46,884	$	(1,618)	(3.5	%)

Net premiums earned			$	40,684	$	40,011	$	673	1.7	%
Other income			682		392		290		74.0	%
Net losses and loss adjustment expenses			(27,211)		(26,207)		(1,004)		3.8	%
Underwriting, policy acquisition and operating expenses			(13,001)		(12,286)		(715)		5.8	%
Segment results			$	1,154	$	1,910	$	(756)	(39.6	%)

Net loss ratio			66.9%		65.5%		1.4 pts
Underwriting expense ratio			32.0%		30.7%		1.3 pts

Premiums Written

Gross, ceded and net premiums written were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums written			$	72,118	$	72,328	$	(210)	(0.3	%)
Less: Ceded premiums written			26,852		25,444		1,408		5.5	%
Net premiums written			$	45,266	$	46,884	$	(1,618)	(3.5	%)

Gross Premiums Written

Gross premiums written by product were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Traditional business:
Guaranteed cost			$	35,503	$	38,196	$	(2,693)	(7.1	%)
Policyholder dividend			7,862		7,520		342		4.5	%
Deductible			2,120		2,052		68		3.3	%
Retrospective(1)			646		455		191		42.0	%
Other			1,615		1,600		15		0.9	%
Alternative market business(2)			24,372		23,715		657		2.8	%
Change in EBUB estimate			—		(1,210)		1,210		nm
Total			$	72,118	$	72,328	$	(210)	(0.3	%)

(1) The change in retrospectively-rated policies included an adjustment that decreased premium by $0.1 million for each of the three months ended March 31, 2022 and 2021.

Table of Contents

We retained 100% of the nine workers’ compensation alternative market programs that were up for renewal during the three months ended March 31, 2022.

New business, audit premium, renewal retention and renewal price changes for our traditional business and the alternative market business are shown in the table below:










	Three Months Ended March 31
	2022									2021
($ in millions)	Traditional Business			Alternative Market Business			Segment Results			Traditional Business			Alternative Market Business			Segment Results
New business	$	3.5		$	1.1		$	4.6		$	5.9		$	0.8		$	6.7
Audit premium (excluding EBUB)	$	0.1		$	1.6		$	1.7		$	(1.0)		$	0.2		$	(0.8)
Retention rate (1)	85		%	92		%	88		%	89		%	92		%	90		%
Change in renewal pricing (2)	(4		%)	(3		%)	(4		%)	(2		%)	(5		%)	(3		%)

(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.

Ceded Premiums Written

Ceded premiums written were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Premiums ceded to SPCs			$	21,488	$	20,682	$	806	3.9	%
Premiums ceded to external reinsurers			3,155		2,974		181		6.1	%
Premiums ceded to unaffiliated captive insurer			2,884		3,033		(149)		(4.9	%)
Change in return premium estimate under external reinsurance			29		(474)		503		106.1	%
Estimated revenue share under external reinsurance			(704)		(771)		67		(8.7	%)
Total ceded premiums written			$	26,852	$	25,444	$	1,408	5.5	%

Premiums ceded to SPCs represent alternative market business that is ceded under 100% quota share reinsurance ~~contracts~~agreements to the SPCs in our Segregated Portfolio Cell Reinsurance segment. Premiums ceded to an unaffiliated captive insurer represent alternative market business for one program that is ceded under a 100% quota share reinsurance agreement. Alternative market premiums written increased for the 2022 three-month period, which resulted in higher premiums ceded to SPCs. See further discussion on alternative market gross premiums written in our Segment Operating Results - Segregated Portfolio Cell Reinsurance section under the heading "Gross Premiums Written" that follows.

Table of Contents

during the treaty period. The increase in premiums ceded to external reinsurers during the 2022 three-month period primarily reflected the increase in reinsurance rates effective May 1, 2021.

Changes in the return premium estimate reflected adjustments to our estimate of expected future recovery of ceded premium based on the underlying loss experience of our reinsurance treaties that include a provision for return premium. As shown in the table above, we decreased our estimate of return premium by a nominal amount during the 2022 three-month period as compared to an increase of $0.5 million during the same respective period in 2021. Changes in the estimated return premium primarily reflect adjustments to loss estimates on previously reported reinsured claims.

Ceded Premiums Ratio

Ceded premiums ratio was as follows:


	Three Months Ended March 31
		2022		2021		Change
Ceded premiums ratio, as reported		33.3	%	31.8	%	1.5	pts
Less the effect of:
Premiums ceded to SPCs (100%)		26.1	%	25.9	%	0.2	pts

Premiums ceded to unaffiliated captive insurers (100%)		1.5	%	1.7	%	(0.2	pts)
Change in EBUB		—	%	0.1	%	(0.1	pts)
Change in return premium estimate under external reinsurance		0.1	%	(1.1	%)	1.2	pts
Estimated revenue share		(1.6	%)	(1.8	%)	0.2	pts
Assumed premiums earned (not ceded to external reinsurers)		(0.3	%)	(0.3	%)	—	pts
Ceded premiums ratio (related to external reinsurance), less the effects of above		7.5	%	7.3	%	0.2	pts

Net Premiums Earned

Net premiums earned consist of gross premiums earned less the portion of earned premiums that we cede to SPCs in our Segregated Portfolio Cell Reinsurance segment, external reinsurers (including changes related to the return premium and revenue share estimates) and the unaffiliated captive insurer. Because premiums are generally earned pro rata over the entire policy period, fluctuations in premiums earned tend to lag those of premiums written. Our workers’ compensation policies are twelve month term policies, and premiums are earned on a pro rata basis over the policy period. Net premiums earned also include premium adjustments related to the audit of our insureds' payrolls, changes in our EBUB estimate and premium adjustments related to retrospectively-rated policies. Payroll audits are conducted subsequent to the ~~coverage~~end of the policy period ~~and/~~and any related premium adjustments processed are recorded as fully earned in the current period. In addition, we record an estimate for EBUB and evaluate the estimate on a quarterly basis.

Net premiums earned were as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
Gross premiums earned			$	61,034	$	58,632	$	2,402	4.1	%
Less: Ceded premiums earned			20,350		18,621		1,729		9.3	%
Net premiums earned			$	40,684	$	40,011	$	673	1.7	%

Table of Contents

Losses and Loss Adjustment Expenses

We estimate our current accident year loss and loss adjustment expenses by developing actual reported losses using historical loss development factors, adjusted to reflect current and expected trends based on various internal analyses and supplemental information. The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Calendar year and current accident year net loss ratios by component were as follows:


	Three Months Ended March 31
		2022		2021		Change
Calendar year net loss ratio		66.9	%	65.5	%	1.4	pts
Less impact of prior accident years on the net loss ratio		(4.9	%)	(5.5	%)	0.6	pts
Current accident year net loss ratio		71.8	%	71.0	%	0.8	pts

The increase in the current accident year net loss ratio during the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected the continuation of intense price competition and the resulting renewal rate decreases, partially offset by the impact of favorable prior year claim trends on the current year estimate. The current accident year net loss ratio for the three months ended March 31, 2022 also reflects an expectation that the labor shortage will continue to have an impact on claim activity during 2022.

We recognized net favorable prior year development related to our previously established reserve of $2.0 million for the three months ended March 31, 2022 as compared to $2.2 million for the same period of 2021. The net favorable prior year reserve development for the three months ended March 31, 2022 and 2021 reflected overall favorable trends in claim closing patterns. Net favorable development for the 2022 three months ended was primarily related to accident years 2019 and prior. Net favorable development for the 2021 three-month period was primarily related to accident years 2017 and prior.

Table of Contents

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 ~~adjustment~~the success rate of our contract acquisition efforts. These expenses also include a management fee charged by our Corporate segment, which represents intercompany charges pursuant to a management agreement, and the amortization of intangible assets, primarily related to the acquisition of Eastern by ProAssurance. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary.

Our Workers' Compensation Insurance segment underwriting, policy acquisition and operating expenses were comprised as follows:


	Three Months Ended March 31
($ in thousands)		2022	2021		Change
DPAC amortization			$	7,061	$	6,741	$	320	4.7	%
Management fees			541		542		(1)		(0.2	%)
Other underwriting and operating expenses			8,868		8,252		616		7.5	%
Policyholder dividend expense			209		269		(60)		(22.3	%)
SPC ceding commission offset			(3,678)		(3,518)		(160)		4.5	%
Total			$	13,001	$	12,286	$	715	5.8	%

The increase in DPAC amortization for the three months ended March 31, 2022 as compared to the same period in 2021 primarily reflected the increase in gross premiums earned.

The increase in other underwriting and operating expenses for the three months ended March 31, 2022 as compared to the same period of 2021 primarily reflected an increase in costs related to compensation, business-related travel, lease exit costs and an increase in the allowance for credit losses. Marketing costs included advertising and website-related activities that were planned for 2022. Business-related travel has increased as a result of the easing of pandemic-related restrictions. During the first quarter of 2022, we recognized one-time lease exit costs of $0.2 million due to the early termination of an office lease; however, as a result, we anticipate annual expense savings of approximately $0.1 million. The increase in the allowance for credit losses primarily reflects an increase in accounts greater than 90 days old, which we believe is a timing issue that will reverse in future periods.

Underwriting Expense Ratio (the Expense Ratio)

The underwriting expense ratio included the impact of the following:


	Three Months Ended March 31
		2022		2021		Change
Underwriting expense ratio, as reported		32.0	%	30.7	%	1.3	pts
Less estimated ratio increase (decrease) attributable to:
Impact of ceding commissions received from SPCs		3.5	%	2.9	%	0.6	pts

Impact of audit premium		(0.1	%)	1.0	%	(1.1	pts)
Change in return premium estimate under external reinsurance		—	%	(0.2	%)	0.2	pts
Estimated revenue share		(0.3	%)	(0.4	%)	0.1	pts
Underwriting expense ratio, less listed effects		28.9	%	27.4	%	1.5	pts

Table of Contents

Segment Results - Segregated Portfolio Cell Reinsurance

The Segregated Portfolio Cell Reinsurance segment includes the results (underwriting profit or loss, ~~experience. These~~plus investment results, net of U.S. federal income taxes) of SPCs at Inova Re and Eastern Re, our Cayman Islands SPC operations, as discussed in Note 18 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K. SPCs are segregated pools of assets and liabilities that provide an insurance facility for a defined set of risks. Assets of each SPC are solely for the benefit of that individual cell and each SPC is solely responsible for the liabilities of that individual cell. Assets of one SPC are statutorily protected from the creditors of the others. Each SPC is owned, fully or in part, by an individual company, agency, group or association and the results of the SPCs are attributable to the participants of that cell. We participate to a varying degree in the results of selected SPCs and, for the SPCs in which we participate, our participation interest ranges from a low of 20% to a high of 85%. SPC results attributable to external cell participants are reported as an SPC dividend (expense) income in our Segregated Portfolio Cell Reinsurance segment. In addition, our Segregated Portfolio Cell Reinsurance segment includes the investment results of the SPCs as the investments are solely for the benefit of the cell participants and investment results attributable to external cell participants are reflected in the SPC dividend (expense) income. As of March 31, 2022, there were 27 (4 inactive) SPCs. The SPCs assume workers' compensation insurance, healthcare professional liability insurance or a combination of the two from our Workers' Compensation Insurance and Specialty P&C segments. As of March 31, 2022, there were two SPCs that assumed both workers' compensation insurance and healthcare professional liability insurance and one SPC that assumed only healthcare professional liability insurance.

Segment results reflects our share of the underwriting and investment results of the SPCs in which we participate, and included the following:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Net premiums written	$	25,217	$	22,188	$	3,029	13.7	%

Net premiums earned	$	19,314	$	15,884	$	3,430	21.6	%
Net investment income	112		221		(109)		(49.3	%)
Net investment gains (losses)	(711)		987		(1,698)		(172.0	%)
Other income	1		1		—		—	%
Net losses and loss adjustment expenses	(11,491)		(9,425)		(2,066)		21.9	%
Underwriting, policy acquisition and operating expenses	(4,369)		(5,025)		656		(13.1	%)
SPC U.S. federal income tax expense (1)	(642)		(356)		(286)		80.3	%
SPC net results	2,214		2,287		(73)		(3.2	%)
SPC dividend (expense) income (2)	(2,367)		(1,742)		(625)		35.9	%
Segment results (3)	$	(153)	$	545	$	(698)	(128.1	%)

Net loss ratio	59.5%		59.3%		0.2 pts
Underwriting expense ratio	22.6%		31.6%		(9.0 pts)
(1) Represents the provision for U.S. federal income taxes for SPCs at Inova Re, which have elected to be taxed as a U.S. corporation under Section 953(d) of the Internal Revenue Code. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
(2) Represents the net (profit) loss attributable to external cell participants.
(3) Represents our share of the net profit (loss) of the SPCs in which we participate.

Table of Contents

Premiums Written

Gross, ceded and net premiums written were as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Gross premiums written	$	28,369	$	25,151	$	3,218	12.8	%
Less: Ceded premiums written	3,152		2,963		189		6.4	%
Net premiums written	$	25,217	$	22,188	$	3,029	13.7	%

Gross Premiums Written

Gross premiums written reflected reinsurance premiums assumed by component as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Workers' compensation	$	21,488	$	20,682	$	806	3.9	%
Healthcare professional liability	6,881		4,469		2,412		54.0	%

Gross Premiums Written	$	28,369	$	25,151	$	3,218	12.8	%

New business, audit premium, retention and renewal price changes for the assumed workers' compensation premium is shown in the table below:


	Three Months Ended March 31
($ in millions)	2022			2021
New business	$	1.1		$	0.8
Audit premium	$	1.6		$	0.2
Retention rate (1)	92		%	92		%
Change in renewal pricing (2)	(3		%)	(5		%)
(1) We calculate our workers' compensation retention rate as annualized expiring renewed premium divided by all annualized expiring premium subject to renewal. Our retention rate can be impacted by various factors, including price or other competitive issues, insureds being acquired, or a decision not to renew based on our underwriting evaluation.
(2) The pricing of our business includes an assessment of the underlying policy exposure and market conditions. We continue to base our pricing on expected losses, as indicated by our historical loss data.

Table of Contents

Ceded Premiums Written

Ceded premiums written were as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Ceded premiums written	$	3,152	$	2,963	$	189	6.4	%

Ceded Premiums Ratio

Ceded premiums ratio was as follows:


	Three Months Ended March 31
	2022	2021	Change
Ceded premiums ratio	14.7%	14.3%	0.4 pts

The above table reflects ceded premiums as a percent of gross premiums written for the workers' compensation business only; healthcare professional liability business is assumed net of reinsurance, as discussed above. The ceded premiums ratio reflects the weighted average reinsurance rates of all SPC programs. The increase in the ceded premiums ratio for the three months ended March 31, 2022 primarily reflected an increase in reinsurance rates.

Net Premiums Earned

Gross, ceded and net premiums earned were as follows:


		Three Months Ended March 31					Three Months Ended March 31
($ in thousands)	($ in thousands)		2021			2020				Change			($ in thousands)	2022		2021		Change
Gross premiums earned	Gross premiums earned			$	20,385			$	28,196		$	(7,811)	(27.7	%)	Gross premiums earned	$	21,664	$	17,967	$	3,697	20.6	%
Less: Ceded premiums earned	Less: Ceded premiums earned			4,535				6,195			(1,660)		(26.8	%)	Less: Ceded premiums earned	2,350		2,083		267		12.8	%
Net premiums earned	Net premiums earned			$	15,850			$	22,001		$	(6,151)	(28.0	%)	Net premiums earned	$	19,314	$	15,884	$	3,430	21.6	%

The ~~decrease~~increase in ~~gross~~net premiums earned during the three months ended March 31, 2022 primarily reflected the aforementioned effect of $3.0 million of tail premium fully written and earned during the current period and the increase in audit premium billed to policyholders, partially offset by the pro rata effect of a reduction in net premiums written during the preceding twelve months.

Table of Contents

Losses and Loss Adjustment Expenses

Calendar year and current accident year net loss ratios for the three months ended March 31, 2022 and 2021 were as follows:


	Three Months Ended March 31
	2022		2021		Change
Calendar year net loss ratio	59.5	%	59.3	%	0.2	pts
Less impact of prior accident years on the net loss ratio	(5.0	%)	(9.6	%)	4.6	pts
Current accident year net loss ratio	64.5	%	68.9	%	(4.4	pts)

The current accident year net loss ratio decreased 4.4 percentage points for the three months ended March 31, 2022 as compared to the same period of ~~2020~~2021. The decrease in the current accident year net loss ratio for the three months ended March 31, 2022 primarily reflected ~~the effect of reinstatement premiums earned during each~~favorable trends in prior accident year claim results and their impact on our analysis of the ~~first quarters~~current accident year loss estimate, partially offset by the continuation of ~~2021~~intense price competition and ~~2020 (see previous discussion under~~ the ~~heading "Gross Premiums Written"). After removing the effect of the reinstatement premiums from both periods, gross premiums earned decreased $6.6 million~~resulting renewal rate decreases in the ~~2021~~workers' compensation business.

We recognized net favorable prior year reserve development of $0.9 million for the three months ended March 31, 2022 as compared to $1.4 million for the same period of 2021. The net favorable prior year reserve development for the three months ended March 31, 2022 related entirely to workers’ compensation business, which reflected overall favorable trends in claim closing patterns primarily in accident years 2019 and 2020. The ~~decrease in gross premiums earned during~~net favorable prior year reserve development for the three months ended March 31, 2021 ~~was driven~~also related entirely to the workers’ compensation business which primarily reflected overall favorable claim trends in claim closing patterns in accident years 2018 and 2019.

Table of Contents

Underwriting, Policy Acquisition and Operating Expenses

Our Segregated Portfolio Cell Reinsurance segment underwriting, policy acquisition and operating expenses were comprised as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
DPAC amortization	$	5,294	$	4,636	$	658	14.2	%
Policyholder dividend expense	66		173		(107)		(61.8	%)
Other underwriting and operating expenses	(991)		216		(1,207)		(558.8	%)
Total	$	4,369	$	5,025	$	(656)	(13.1	%)

The decrease in policyholder dividend expense for the three months ended March 31, 2022 as compared to the same period of 2021, related primarily to one SPC program, in which we do not participate.

Underwriting Expense Ratio (the Expense Ratio)

The underwriting expense ratio included the impact of the following:


	Three Months Ended March 31
	2022	2021	Change
Underwriting expense ratio, as reported	22.6%	31.6%	(9.0 pts)
Less: impact of audit premium on expense ratio	(2.0%)	(0.3%)	(1.7 pts)


Underwriting expense ratio, excluding the effect of audit premium	24.6%	31.9%	(7.3 pts)

Table of Contents

Segment Results - Lloyd's Syndicates

Our Lloyd's Syndicates segment includes the results from our participation in Syndicate 1729 ~~somewhat offset by~~and Syndicate 6131 at Lloyd's of London.In addition to our participation in Syndicate results, we have investments in and other obligations to our Lloyd's Syndicates consisting of a Syndicate Credit Agreement and FAL requirements. For the 2022 underwriting year, our FAL was comprised of investment securities and cash and cash equivalents deposited with Lloyd's which at March 31, 2022 had a fair value of approximately $37.0 million, as discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements. The discussion in our Segment Operating Results under the same heading in Item 7 of our December 31, 2021 report on Form 10-K includes additional information regarding our participation.

We normally report results from our involvement in Lloyd's Syndicates on a quarter lag, except when information is available that is material to the current period. Furthermore, the investment results associated with our FAL investments and certain U.S. paid administrative expenses are reported concurrently as that information is available on an earlier time frame.

To support and grow our core insurance operations, we reduced our participation in the results of Syndicate 1729, to 5% from 29%, and Syndicate 6131, to 50% from 100%, for the 2021 underwriting year. Due to the quarter lag, this reduced participation was not reflected in our results until the second quarter of 2021. Our participation in the results of Syndicate 1729 for the 2022 underwriting year remains unchanged from the 2021 underwriting year at 5%. Effective January 1, 2022, Syndicate 6131 ceased underwriting on a quota share basis with Syndicate 1729 as Syndicate 6131's applicable business is retained within Syndicate 1729 beginning with the 2022 year of account. The results from our participation in Syndicate 6131 from open underwriting years prior to 2022 will continue to earn out pro rata ~~effect~~over the entire policy period of ~~higher~~the underlying business. Due to the quarter lag, our ceased participation in Syndicate 6131 will not be reflected in our results until the second quarter of 2022.

In addition to the results of our participation in Lloyd's Syndicates, as discussed above, our Lloyd's Syndicates segment also includes 100% of the results of our wholly owned subsidiaries that support our operations at Lloyd's. For the three months ended March 31, 2022 and 2021, the results of our Lloyd's Syndicates segment were as follows:


	Three Months Ended March 31
($ in thousands)	2022		2021		Change
Gross premiums written	$	5,817	$	14,102	$	(8,285)	(58.8	%)
Less: Ceded premiums written	223		2,217		(1,994)		(89.9	%)
Net premiums written	$	5,594	$	11,885	$	(6,291)	(52.9	%)
Net premiums earned	$	7,746	$	15,850	$	(8,104)	(51.1	%)
Net investment income	211		729		(518)		(71.1	%)
Net investment gains (losses)	(399)		(115)		(284)		(247.0	%)
Other income	134		221		(87)		(39.4	%)
Net losses and loss adjustment expenses	(4,763)		(12,967)		8,204		(63.3	%)
Underwriting, policy acquisition and operating expenses	(2,709)		(6,591)		3,882		(58.9	%)

Segment results	$	220	$	(2,873)	$	3,093	107.7	%
Net loss ratio	61.5%		81.8%		(20.3 pts)
Underwriting expense ratio	35.0%		41.6%		(6.6 pts)

Premiums

Net premiums written ~~at the Syndicates~~decreased during the ~~preceding twelve months, primarily property insurance and casualty coverages.~~

~~The decrease in ceded premiums earned during the 2021~~2022 three-month period as compared to the same period of ~~2020 was~~2021 driven by our decreased participation in ~~Syndicate~~the results of Syndicates 1729 and 6131 for the 2021 underwriting year, partially offset by thevolume increases on renewal business and renewal pricing increases, primarily on casualty and property insurance coverages, as well as new business written, primarily on specialty property coverages. Net premiums earned decreased $8.1 million during the 2022 three-month period as compared to the same period of 2021 primarily attributable to the pro rata effect of ~~an increase~~a reduction in net premiums ~~ceded under reinsurance arrangements~~written during the preceding twelve months.

Table of Contents

Net Losses and Loss Adjustment Expenses

Losses for the period were primarily recorded using the loss assumptions by risk category incorporated into the business plans submitted to Lloyd's for Syndicate 1729 and Syndicate 6131 with consideration given to loss experience incurred to date. The assumptions used in each business plan were consistent with loss results reflected in Lloyd's historical data for similar risks. The loss ratios may fluctuate due to the mix of earned premium and the timing of earned premium adjustments (see discussion in this section under the heading "Net Premiums Earned"). Premium and exposure for some of Syndicate 1729's insurance policies and reinsurance contracts are initially estimated and subsequently adjusted over an extended period of time as underlying premium reports are received from cedants and insureds. When reports are received, the premium, exposure and corresponding loss estimates are revised accordingly. Changes in loss estimates due to premium or exposure fluctuations are incurred in the accident year in which the premium is earned.

The following table summarizes calendar year net loss ratios by separating losses between the current accident year and all prior accident years. Net loss ratios for the period were as follows:


			Net Loss Ratios					Net Loss Ratios
		Three Months Ended March 31		Three Months Ended March 31
			2021		2020	Change		2022		2021		Change
Calendar year net loss ratio	Calendar year net loss ratio		81.8%		67.2%	14.6 pts	Calendar year net loss ratio	61.5	%	81.8	%	(20.3	pts)
Less: impact of prior accident years on the net loss ratio	Less: impact of prior accident years on the net loss ratio		9.7%		(1.5%)	11.2 pts	Less: impact of prior accident years on the net loss ratio	19.7	%	9.7	%	10.0	pts
Current accident year net loss ratio	Current accident year net loss ratio		72.1%		68.7%	3.4 pts	Current accident year net loss ratio	41.8	%	72.1	%	(30.3	pts)

~~For~~The decrease in the calendar year net loss ratio for the three months ended March 31, ~~2021, the current accident year net loss ratio increased 3.4 percentage points~~2022 as compared to the same period of ~~2020. The increase in~~2021 was primarily driven by the ~~current accident year net loss ratio was driven by~~impact of certain property and catastrophe related ~~losses.~~

losses incurred during the prior year period and, to a lesser extent, decreases to certain loss estimates during the first quarter of 2022, partially offset by unfavorable prior year development. We recognized $1.5 million of unfavorable prior year development during each of the three months ended March 31, 2022 and 2021. The unfavorable prior year development for the three months ended March 31, ~~2021 as compared to $0.3 million of favorable prior year development for the same period of 2020. The unfavorable development~~

~~Table of Contents~~

~~recognized during the three months ended March 31, 2021~~2022 was driven by higher than expected losses and development on certain large claims, primarily catastrophe related ~~losses, which resulted in unfavorable development with respect to a previous year of account.~~

We have exposures to potential COVID-19 claims through our participation in Syndicates 1729 and 6131. During the three months ended March 31, 2021, we recognized losses related to COVID-19 of approximately $0.8 million, net of reinsurance, primarily in Syndicate 6131's contingency and Syndicate 1729's casualty books of business. Please see the "Insurance Regulatory Matters" section in Part 1, Item 1 in our December 31, 2020 report on Form 10-K for additional information.losses.

Underwriting, Policy Acquisition and Operating Expenses

~~Underwriting, policy acquisition and operating expenses~~For the 2022 three-month period, the underwriting expense ratio decreased by ~~$2.6 million for the 2021 three-month period~~6.6 percentage points as compared to the same period of ~~2020 and~~2021 which primarily reflected ~~our decreased participation in Syndicate 1729.~~

~~For~~ the ~~three months ended March 31, 2021, the underwriting expense ratio was unchanged from the same period~~impact of ~~2020 driven by lower operating expenses due to~~ our reduced participation in ~~Syndicate 1729, offset by a decrease in net premiums earned, as previously discussed.~~

~~Investments~~

Syndicate 1729's fixed maturities portfolio includes certain debt securities classified as trading securities. Investment results associated with these fixed maturity trading securities are reported on the same quarter lag. The decrease in net investment income for the 2021 three-month period as compared to the same period of 2020 was primarily attributable to lower average investment balances and lower yields, primarily from investment-grade corporate debt securities. The lower average investment balances for the 2021 three-month period were driven by the return of approximately $32.3 million of cash and cash equivalents from our FAL balances given the reduction in our participation in the results of Syndicate 1729 for the 2020 underwriting year (see Note 6 of the Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K). In addition, we expect to receive a return of approximately $24 million of FAL given our additional reduction in our participation in the results of Syndicate 1729 and Syndicate 6131 for the 2021 underwriting year. Due to the quarter lag, operating expenses incurred during the first quarter of 2022 primarily were related to the 2021 underwriting year ~~as previously discussed,~~for which our participation is ~~anticipated to further impact our segment's~~5% and 50% in Syndicate 1729 and Syndicate 6131, respectively, whereas the net ~~investment income~~premiums earned during the same period also includes premium from other open underwriting years in ~~future periods.~~

~~Taxes~~

~~The results of this segment are subject to U.K. income tax law.~~which we participate at a higher degree.

8974

Table of Contents

Segment Results - Corporate

Our Corporate segment includes our investment operations, ~~other than~~including the investment operations of NORCAL for the three months ended March 31, 2022 and excluding those reported in our Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments ~~interest expense and U.S. income taxes~~ as discussed in Note 1418 of the Notes to ~~Condensed~~ Consolidated Financial ~~Statements. Our Corporate~~Statements in our December 31, 2021 report on Form 10-K. In addition, this segment ~~also~~ includes corporate expenses, interest expense, U.S. income taxes and non-premium revenues generated outside of our insurance ~~entities~~entities. Segment results for the three months ended March 31, 2022 exclude transaction-related costs and ~~corporate expenses.~~the associated income tax benefit related to the NORCAL acquisition as we do not consider these items in assessing the financial performance of the segment (for additional information on the NORCAL acquisition see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K). Segment results for our Corporate segment were net earnings of ~~$19.6~~$6.0 million for the three months ended March 31, ~~2021~~2022 as compared to ~~a $4.0~~$19.6 million ~~net loss~~ for the same period of ~~2020~~2021 and included the following:


		Three Months Ended March 31						Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020		Change					($ in thousands)	2022		2021		Change
Net investment income	Net investment income			$	14,067	$	19,417		$	(5,350)	(27.6	%)	Net investment income	$	20,120	$	14,067	$	6,053	43.0	%
Equity in earnings (loss) of unconsolidated subsidiaries	Equity in earnings (loss) of unconsolidated subsidiaries			$	6,788	$	(1,562)		$	8,350	(534.6	%)	Equity in earnings (loss) of unconsolidated subsidiaries	$	7,620	$	6,788	$	832	12.3	%
Net realized gains (losses)				$	7,977	$	(25,547)		$	33,524	131.2	%
Net investment gains (losses)													Net investment gains (losses)	$	(12,396)	$	7,977	$	(20,373)	(255.4	%)
Other income	Other income			$	1,894	$	633		$	1,261	199.2	%	Other income	$	2,065	$	1,894	$	171	9.0	%
Operating expense	Operating expense			$	7,175	$	4,827		$	2,348	48.6	%	Operating expense	$	8,739	$	7,175	$	1,564	21.8	%
Interest expense	Interest expense			$	3,212	$	4,129		$	(917)	(22.2	%)	Interest expense	$	4,441	$	3,212	$	1,229	38.3	%
Income tax expense (benefit)	Income tax expense (benefit)			$	736	$	(12,047)		$	12,783	(106.1	%)	Income tax expense (benefit)	$	(1,770)	$	736	$	(2,506)	(340.5	%)

Net Investment Income, Equity in Earnings (Loss) of Unconsolidated Subsidiaries, Net ~~Realized~~ Investment Gains (Losses)

Net Investment Income

Net investment income is primarily derived from the income earned by our fixed maturity securities and also includes dividend income from equity securities, income from our short-term and cash equivalent investments, earnings from other investments and ~~increases~~changes in the cash surrender value of BOLI contracts, net of investment fees and expenses. Net investment income for the three months ended March 31, 2022 also includes income earned, net of investment fees and expenses, from investments acquired from NORCAL on May 5, 2021.

Net investment income (loss) by investment category was as follows:


		Three Months Ended March 31				Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020			Change				($ in thousands)	2022				2021		Change
Fixed maturities	Fixed maturities			$	14,725		$	16,931	$	(2,206)			(13.0	%)	Fixed maturities	$	21,100	$	14,725	$	6,375	43.3	%
Equities	Equities			694			1,909		(1,215)				(63.6	%)	Equities	701		694		7		1.0	%
Short-term investments, including Other	Short-term investments, including Other			198			1,342		(1,144)				(85.2	%)	Short-term investments, including Other	405		198		207		104.5	%
BOLI	BOLI			444			456		(12)				(2.6	%)	BOLI	(47)		444		(491)		(110.6	%)
Investment fees and expenses	Investment fees and expenses			(1,994)			(1,221)		(773)				63.3	%	Investment fees and expenses	(2,039)		(1,994)		(45)		2.3	%
Net investment income	Net investment income			$	14,067		$	19,417	$	(5,350)			(27.6	%)	Net investment income	$	20,120	$	14,067	$	6,053	43.0	%

Fixed Maturities

Income from our fixed maturities ~~decreased~~increased during the ~~2021~~2022 three-month period as compared to the same period of ~~2020~~2021 driven by higher average investment balances primarily ~~due~~attributable to the addition of fixed maturity securities valued at $1.1 billion to our portfolio on May 5, 2021 as a result of the NORCAL acquisition (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K for additional information). The increase in income from our fixed maturities during the 2022 three-month period was partially offset by lower yields from our corporate debt securities ~~partially offset by higher~~and, to a lesser extent, state and municipal bonds. As a result of the NORCAL acquisition, average ~~investment balances. Average~~ investment balances were approximately 7%66% higher for the ~~2021~~2022 three-month period as compared to the same period of ~~2020. The decline in income from our fixed maturities during the 2021 three-month period also reflected~~2021; excluding the impact of ~~capital planning in anticipation~~the acquisition, average investment balances were approximately 6% higher.

Table of ~~closing our acquisition of NORCAL.~~Contents

Average yields for our fixed maturity portfolio were as follows:


		Three Months Ended March 31		Three Months Ended March 31
			2021		2020		2022	2021
Average income yield	Average income yield		2.6%		3.4%	Average income yield	2.3%	2.6%
Average tax equivalent income yield	Average tax equivalent income yield		2.7%		3.4%	Average tax equivalent income yield	2.3%	2.7%

~~Equities~~

~~Income from our equity portfolio decreased during the 2021 three-month period as compared to the same period of 2020 which reflected a decrease in our allocation to this asset category.~~

~~Table of Contents~~

Short-term Investments and Other Investments

Short-term investments, which have a maturity at purchase of one year or less are carried at fair value, which approximates their cost basis, and are primarily composed of investments in U.S. treasury obligations, commercial paper and money market funds. Income from our short-term and other investments ~~decreased~~increased during the ~~2021~~2022 three-month period as compared to the same period of ~~2020,~~2021 primarily ~~attributable~~due to ~~lower yields given~~income contributed by investments acquired from NORCAL.

BOLI

We hold BOLI policies that are carried at the ~~actions taken~~current cash surrender value of the policies, which includes the BOLI policies acquired from NORCAL. All insured individuals were members of ProAssurance or NORCAL management at the time the policies were acquired. The cash surrender value of our BOLI policies decreased for the 2022 three-month period as compared to the same period of 2021 driven by ~~the Federal Reserve to aggressively reduce interest rates in response to COVID-19.~~policies acquired from NORCAL.

Equity in Earnings (Loss) of Unconsolidated Subsidiaries

Equity in earnings (loss) of unconsolidated subsidiaries was comprised as follows:


		Three Months Ended March 31				Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020			Change				($ in thousands)	2022				2021		Change
All other investments, primarily investment fund LPs/LLCs	All other investments, primarily investment fund LPs/LLCs			$	9,974		$	3,103	$	6,871			221.4	%	All other investments, primarily investment fund LPs/LLCs	$	10,008	$	9,974	$	34	0.3	%
Tax credit partnerships	Tax credit partnerships			(3,186)			(4,665)		1,479				(31.7	%)	Tax credit partnerships	(2,388)		(3,186)		798		(25.0	%)
Equity in earnings (loss) of unconsolidated subsidiaries	Equity in earnings (loss) of unconsolidated subsidiaries			$	6,788		$	(1,562)	$	8,350			534.6	%	Equity in earnings (loss) of unconsolidated subsidiaries	$	7,620	$	6,788	$	832	12.3	%

We hold interests in certain LPs/LLCs that generate earnings from trading portfolios, secured debt, debt securities, multi-strategy funds and private equity investments. The performance of the LPs/LLCs is affected by the volatility of equity and credit markets. For our investments in LPs/LLCs, we record our allocable portion of the partnership operating income or loss as the results of the LPs/LLCs become available, typically following the end of a reporting period. ~~The increase~~Our investment results from our portfolio of investments in LPs/LLCs for the 2022 three-month period included additional earnings of approximately $0.4 million from acquired interests in four LPs as a result of the NORCAL acquisition. Excluding NORCAL, our investment results from our portfolio of investments in LPs/LLCs for the ~~2021~~2022 three-month period as compared to the same period of ~~2020 was~~2021 decreased $0.4 million primarily due to ~~higher~~lower earnings from ~~a few LPs/LLCs.~~an LP/LLC.

Our tax credit partnership investments are designed to generate returns in the form of tax credits and tax-deductible project operating losses and are comprised of qualified affordable housing project tax credit partnerships and a historic tax credit partnership. We account for our tax credit partnership investments under the equity method and record our allocable portion of the operating losses of the underlying properties based on estimates provided by the partnerships. For our qualified affordable housing project tax credit partnerships, we adjust our estimates of our allocable portion of operating losses periodically as actual operating results of the underlying properties become available. The primary benefit of credits and losses from our historic tax credit partnership are earned in a short period with potential for additional cash flows extending over several ~~years, and the remaining operating losses were recognized in 2020.~~years. The results from our tax credit partnership investments for the three months ended March 31, ~~2021~~2022 reflected lower partnership operating losses as compared to the same period of ~~2020.~~2021.

The tax benefits received from our tax credit partnerships, which are not reflected in our investment results, ~~above,~~ reduced our tax expense in ~~2021~~2022 and ~~2020~~2021 as follows:


		Three Months Ended March 31			Three Months Ended March 31
(In millions)	(In millions)		2021			2020		(In millions)	2022		2021
Tax credits recognized during the period	Tax credits recognized during the period		$	3.4		$	4.5	Tax credits recognized during the period	$	1.2	$	3.4
Tax benefit of tax credit partnership operating losses	Tax benefit of tax credit partnership operating losses		$	0.7		$	1.0	Tax benefit of tax credit partnership operating losses	$	0.5	$	0.7

The tax credits generated from our tax credit partnership investments of ~~$3.4~~$1.2 million for the three months ended March 31, ~~2021~~2022 were deferred ~~and are~~for use in future periods due our expected consolidated loss calculated on a tax basis. For the three months ended March 31, 2021 the tax credits generated from our tax credit partnership investments of $3.4 million were deferred to be utilized in future periods. Not included in the table above is $2.0 million of tax credits recaptured from the 2019

Table of Contents

tax year during the three months ended March 31, 2022 due to the carryback of our estimated NOL for the three months ended March 31, 2022 to the 2021 tax year. The recaptured tax credits were earned in 2019 but not utilized until 2021 due to NOL's generated in both 2019 and 2020. As of March 31, 2022, we had approximately $49.9 million of available tax credit carryforwards generated from our investments in tax credit partnerships which we expect to utilize in future periods.

Tax credits provided by the underlying projects of our historic tax credit partnership are typically available in the tax year in which the project is put into active service, whereas the tax credits provided by qualified affordable housing project tax credit partnerships are provided over approximately a ten year period.

~~Table of Contents~~

Non-GAAP Financial Measure – Tax Equivalent Investment Result

We believe that to fully understand our investment returns it is important to consider the current tax benefits associated with certain investments as the tax benefit received represents a portion of the return provided by our tax-exempt bonds, BOLI, common and preferred stocks, and tax credit partnership investments (collectively, our tax-preferred investments). We impute a pro forma tax-equivalent result by estimating the amount of fully-taxable income needed to achieve the same after-tax result as is currently provided by our tax-preferred investments. We believe this better reflects the economics behind our decision to invest in certain asset classes that are either taxed at lower rates and/or result in reductions to our current federal income tax expense. Our pro forma tax-equivalent investment result is shown in the table that follows as well as a reconciliation of our GAAP net investment result to our tax equivalent result.

Three Months Ended March 31
(In thousands) 2021 2020
GAAP net investment result:
Net investment income $ 14,067 $ 19,417
Equity in earnings (loss) of unconsolidated subsidiaries 6,788 (1,562)
GAAP net investment result $ 20,855 $ 17,855
Pro forma tax-equivalent investment result $ 22,883 $ 23,871
Reconciliation of pro forma and GAAP tax-equivalent investment result:
GAAP net investment result $ 20,855 $ 17,855
Taxable equivalent adjustments, calculated using the 21% federal statutory tax rate
State and municipal bonds 115 161
BOLI 118 121
Dividends received 3 73
Tax credit partnerships 1,792 5,661
Pro forma tax-equivalent investment result $ 22,883 $ 23,871


	Three Months Ended March 31
(In thousands)	2022		2021
GAAP net investment result:
Net investment income	$	20,120	$	14,067
Equity in earnings (loss) of unconsolidated subsidiaries	7,620		6,788
GAAP net investment result	$	27,740	$	20,855

Pro forma tax-equivalent investment result	$	25,383	$	22,883

Reconciliation of pro forma and GAAP tax-equivalent investment result:
GAAP net investment result	$	27,740	$	20,855
Taxable equivalent adjustments, calculated using the 21% federal statutory tax rate
State and municipal bonds	133		115
BOLI	(12)		118
Dividends received	—		3
Tax credit partnerships*	(2,478)		1,792
Pro forma tax-equivalent investment result	$	25,383	$	22,883
*Due to our expected consolidated loss calculated on a tax basis for the three months ended March 31, 2022, the tax credits recognized from our tax credit partnership investments were deferred to be utilized in future periods; however, during the three months ended March 31, 2022, we recaptured a portion of tax credits earned in 2019, that were utilized in 2021, as a result of our expected carry back of our 2022 NOL to the 2021 tax year, resulting in a current tax expense related to tax credit partnerships.

9277

Table of Contents

Net ~~Realized~~ Investment Gains (Losses)

The following table provides detailed information regarding our net ~~realized~~ investment gains (losses).


		Three Months Ended March 31			Three Months Ended March 31
(In thousands)	(In thousands)		2021			2020		(In thousands)	2022		2021
Total impairment losses

Corporate debt			$	—		$	(1,817)

Portion of impairment losses recognized in other comprehensive income before taxes:
Corporate debt			—			654
Net impairment losses recognized in earnings			—			(1,163)

Gross realized gains, available-for-sale fixed maturities	Gross realized gains, available-for-sale fixed maturities		4,163			2,279		Gross realized gains, available-for-sale fixed maturities	$	1,105	$	4,163
Gross realized (losses), available-for-sale fixed maturities	Gross realized (losses), available-for-sale fixed maturities		(187)			(1,403)		Gross realized (losses), available-for-sale fixed maturities	(1,094)		(187)
Net realized gains (losses), equity investments	Net realized gains (losses), equity investments		4,156			15,197		Net realized gains (losses), equity investments	(693)		4,156
Net realized gains (losses), other investments	Net realized gains (losses), other investments		3,196			48		Net realized gains (losses), other investments	650		3,196
Change in unrealized holding gains (losses), equity investments	Change in unrealized holding gains (losses), equity investments		(3,788)			(35,225)		Change in unrealized holding gains (losses), equity investments	(10,252)		(3,788)
Change in unrealized holding gains (losses), convertible securities, carried at fair value as a part of other investments	Change in unrealized holding gains (losses), convertible securities, carried at fair value as a part of other investments		(190)			(5,273)		Change in unrealized holding gains (losses), convertible securities, carried at fair value as a part of other investments	(2,475)		(190)
Other	Other		627			(7)		Other	363		627
Net realized investment gains (losses)			$	7,977		$	(25,547)
Net investment gains (losses)								Net investment gains (losses)	$	(12,396)	$	7,977

We did not recognize any credit-related impairment losses in earnings or non-credit impairment losses in OCI for the three months ended March 31, ~~2021. For the three months ended~~2022 or March 31, ~~2020, we~~2021.

We recognized ~~credit-related impairment~~$12.4 million of net investment losses ~~in earnings~~during the 2022 three-month period which include approximately $8.8 million of ~~$1.2 million and non-credit impairment~~net investment losses ~~in OCI of $0.7 million. The credit-related impairment losses~~during the 2022 three-month period related to ~~four corporate bonds~~investments acquired from NORCAL. Net investment losses during the 2022 three-month period were driven by unrealized holding losses resulting from changes in the ~~energy, consumer, and entertainment sectors. The non-credit related impairment losses related to three corporate bonds in the energy and consumer sectors.~~

fair value of our equity investments. We recognized $8.0 million of net ~~realized~~ investment gains during the 2021 three-month period, driven primarily by realized gains on the sale of certain available-for-sale fixed maturities and equity investments. We recognized $25.5 million of net realized investment losses during the 2020 three-month period driven by the impact of decreases in fair value on our equity portfolio of $35.2 million and convertible securities of $5.3 million due to the disruptions in global financial markets related to COVID-19 during the first quarter of 2020.

~~Table of Contents~~

Operating Expenses

Corporate segment operating expenses were comprised as follows:


		Three Months Ended March 31				Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020			Change				($ in thousands)	2022				2021		Change
Operating expenses	Operating expenses			$	9,719		$	9,093	$	626			6.9	%	Operating expenses	$	10,681	$	9,719	$	962	9.9	%
Management fee offset	Management fee offset			(2,544)			(4,266)		1,722				(40.4	%)	Management fee offset	(1,942)		(2,544)		602		(23.7	%)
Total	Total			$	7,175		$	4,827	$	2,348			48.6	%	Total	$	8,739	$	7,175	$	1,564	21.8	%

Operating expenses increased $1.0 million during the ~~2021~~2022 three-month period as compared to the same respective period of ~~2020~~2021 primarily due to an increase in ~~professional fees,~~compensation-related costs and, to a lesser extent, share-based compensation expenses, partially offset by a decrease in ~~compensation-related costs.~~professional fees. The increase in ~~professional fees~~compensation-related costs during the ~~2021~~2022 three-month period was driven by an increase in ~~transaction-related~~segment headcount due to the addition of Corporate NORCAL employees. Subsequent to acquisition on May 5, 2021, compensation-related costs ~~associated with~~of all NORCAL employees were reported in our ~~acquisition of~~Specialty P&C segment. Beginning in 2022, compensation-related costs for Corporate NORCAL ~~(see Note15 of~~employees are reported in our Corporate segment. In addition, the ~~Notes to Condensed Consolidated Financial Statements). The decrease~~increase in compensation-related costs ~~during~~also reflected higher amounts accrued for performance-related incentive plans due to our improved performance metrics. The increase in share-based compensation expense in the ~~2021~~2022 three-month period was ~~driven by a reduction in headcount as a result~~attributable to the effect of the ~~2020 organizational restructuring and, to a lesser extent, a decrease~~incorporation of certain NORCAL employees into our share-based compensation plans beginning in ~~employer contributions to the ProAssurance Savings Plan (see Note 17 of the Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K).~~2022.

Operating subsidiaries within our Specialty P&C segment and our Workers' Compensation Insurance ~~segments~~segment are charged a management fee by the Corporate segment for services provided to these subsidiaries. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. Under the arrangement, the expenses associated with such services are reported as expenses of the Corporate segment, and the management fees charged are reported as an offset to Corporate operating expenses. Fluctuations in the amount of premium written by each subsidiary can result in corresponding variations in the management fee charged to each subsidiary during a particular period. Due to continued organizational structure enhancements in our Specialty P&C segment during ~~2020,~~2021 as well as operational alignments as a result of the integration of NORCAL, the extent to which services are provided by the Corporate segment to the operating subsidiaries within ~~that~~the Specialty P&C segment decreased further effective January 1, ~~2021.~~2022. Accordingly, we reduced the fee charged to the operating subsidiaries within the Specialty P&C segment during the ~~2021~~2022 three-month period. Also effective January 1, 2022, the management agreement included operating subsidiaries of NORCAL contributing to $0.6 million of additional management fees in the current period. There were no changes to the extent to which

Table of Contents

services are provided by the Corporate segment to the operating subsidiaries within our Workers' Compensation Insurance segment in ~~2021.~~2022.

Interest Expense

Consolidated interest expense for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 was comprised as follows:


		Three Months Ended March 31				Three Months Ended March 31
($ in thousands)	($ in thousands)		2021	2020			Change				($ in thousands)	2022				2021		Change
Senior Notes due 2023	Senior Notes due 2023			$	3,357		$	3,357	$	—			—	%	Senior Notes due 2023	$	3,357	$	3,357	$	—	—	%
Revolving Credit Agreement (including fees and amortization)				214			184		30				16.3	%
Contribution Certificates (including accretion)(1)															Contribution Certificates (including accretion)(1)	1,853		—		1,853		nm
Revolving Credit Agreement (including fees and amortization)(2)															Revolving Credit Agreement (including fees and amortization)(2)	246		214		32		15.0	%
Mortgage Loans (including amortization)	Mortgage Loans (including amortization)			148			293		(145)				(49.5	%)	Mortgage Loans (including amortization)	—		148		(148)		nm
(Gain)/loss on interest rate cap	(Gain)/loss on interest rate cap			(507)			295		(802)				(271.9	%)	(Gain)/loss on interest rate cap	(1,015)		(507)		(508)		(100.2	%)

Interest expense	Interest expense			$	3,212		$	4,129	$	(917)			(22.2	%)	Interest expense	$	4,441	$	3,212	$	1,229	38.3	%
(1) Includes accretion of approximately $0.5 million for the three months ended March 31, 2022 which is recorded as an increase to interest expense as a result of the difference between the recorded acquisition date fair value and the principal balance of the Contribution Certificates associated with our acquisition of NORCAL.															(1) Includes accretion of approximately $0.5 million for the three months ended March 31, 2022 which is recorded as an increase to interest expense as a result of the difference between the recorded acquisition date fair value and the principal balance of the Contribution Certificates associated with our acquisition of NORCAL.
(2) Primarily reflects unused commitment fees as there were no outstanding borrowings during either period.															(2) Primarily reflects unused commitment fees as there were no outstanding borrowings during either period.

Consolidated interest expense ~~decreased~~increased during the three months ended March 31, ~~2021~~2022 as compared to the same period of ~~2020~~2021 driven by the addition of interest expense on the Contribution Certificates associated with our acquisition of NORCAL on May 5, 2021 (see Note 2 of the Notes to Consolidated Financial Statements in our December 31, 2021 report on Form 10-K). The increase in consolidated interest expense for the 2022 three-month period was partially offset by the change in ~~the~~ fair value of our interest rate cap and, to a lesser extent, lower interest expense on our Mortgage Loans. The interest rate cap is designated as an economic hedge of interest rate risk associated with our variable rate Mortgage Loans. Our Mortgage Loans accrue interest at three-month LIBOR plus 1.325%, and the decrease in interest expense during the three months ended March 31, 2021 as compared to the same period of 2020 was primarily due to a decrease in the average three-month LIBOR. Interest expense on our Revolving Credit Agreement for the three months ended March 31, 2021 and 2020 primarily reflected unused commitment fees as there were no outstanding borrowings during either period.cap. See further discussion of our outstanding debt in Note 107 of the Notes to Condensed Consolidated Financial Statements and further discussion of our interest rate cap agreement and Contribution Certificates in Note 113 and Note 13 of the Notes to Consolidated Financial Statements in our December 31, ~~2020~~2021 report on Form 10-K.

~~Table of Contents~~

Taxes

Tax expense allocated to our Corporate segment includes U.S. tax only, which would include U.S. tax expense incurred from our corporate membership in Lloyd's of London. The U.K. tax expense incurred by the U.K. based subsidiaries of our Lloyd's Syndicates segment is allocated to that segment. The SPCs at Inova Re, one of our Cayman Islands reinsurance subsidiaries, have each made a 953(d) election under the U.S. Internal Revenue Code and are subject to U.S. federal income tax; therefore, tax expense allocated to our Corporate segment also includes tax expense incurred from any SPC at Inova Re in which we have a participation interest of 80% or greater as those SPCs are required to be included in our consolidated tax return. Consolidated tax expense (benefit) reflects the tax expense (benefit) of both segments and the tax impact of items excluded from segment reporting, as shown in the table below:


		Three Months Ended March 31			Three Months Ended March 31
(In thousands)	(In thousands)		2021			2020		(In thousands)	2022		2021
Corporate segment income tax expense (benefit)	Corporate segment income tax expense (benefit)		$	736		$	(12,047)	Corporate segment income tax expense (benefit)	$	(1,770)	$	736
Lloyd's Syndicates segment income tax expense (benefit)			—			(29)

Income tax expense (benefit) - transaction-related costs*								Income tax expense (benefit) - transaction-related costs*	(247)		—
Consolidated income tax expense (benefit)	Consolidated income tax expense (benefit)		$	736		$	(12,076)	Consolidated income tax expense (benefit)	$	(2,017)	$	736
*Represents the income tax benefit associated with the transaction-related costs related to our acquisition of NORCAL that are not included in a segment as we do not consider these costs in assessing the financial performance of any of our operating or reportable segments. See Note 11 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results.								*Represents the income tax benefit associated with the transaction-related costs related to our acquisition of NORCAL that are not included in a segment as we do not consider these costs in assessing the financial performance of any of our operating or reportable segments. See Note 11 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results.

Table of Contents

Listed below are the primary factors affecting our consolidated effective tax rate for the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021. The comparability of each factor's impact on our effective tax rate is affected by the consolidated pre-tax ~~income~~loss recognized during the three months ended March 31, ~~2021~~2022 as compared to the consolidated pre-tax ~~loss~~income recognized during the same period of ~~2020.~~2021. Factors that have the same directional impact on income tax expense in each period have an opposite impact on our effective tax rate due to the effective tax rate being calculated based upon a pre-tax ~~income~~loss during the three months ended March 31, ~~2021~~2022 versus the pre-tax ~~loss~~income during the same period of ~~2020.~~2021. These factors include the following:


		Three Months Ended March 31									Three Months Ended March 31
		2021				2020					2022				2021
($ in thousands)	($ in thousands)	Income tax (benefit) expense		Rate Impact		Income tax (benefit) expense		Rate Impact		($ in thousands)	Income tax (benefit) expense		Rate Impact		Income tax (benefit) expense		Rate Impact
Computed "expected" tax expense (benefit) at statutory rate	Computed "expected" tax expense (benefit) at statutory rate	$	1,779	21.0	%	$	(7,146)	21.0	%	Computed "expected" tax expense (benefit) at statutory rate	$	(1,171)	21.0	%	$	1,779	21.0	%
Tax-exempt income (1)	Tax-exempt income (1)	(186)		(2.2	%)	(280)		0.9	%	Tax-exempt income (1)	(95)		1.7	%	(186)		(2.2	%)
Tax credits	Tax credits	(3,374)		(39.8	%)	(4,471)		13.1	%	Tax credits	(1,205)		21.6	%	(3,374)		(39.8	%)
Non-U.S. operating results	Non-U.S. operating results	603		7.1	%	186		(0.5	%)	Non-U.S. operating results	(46)		0.8	%	603		7.1	%
Tax deficiency on share-based compensation		297		3.5	%	405		(1.2	%)
Tax rate differential on loss carryback		—		—	%	(1,424)		4.2	%
Tax deficiency (excess tax benefit) on share-based compensation										Tax deficiency (excess tax benefit) on share-based compensation	340		(6.1	%)	297		3.5	%

Change in uncertain tax positions	Change in uncertain tax positions	57		0.7	%	712		(2.1	%)	Change in uncertain tax positions	21		(0.4	%)	57		0.7	%
Estimated annual tax rate differential (2)	Estimated annual tax rate differential (2)	2,087		24.6	%	—		—	%	Estimated annual tax rate differential (2)	—		—	%	2,087		24.6	%

Other	Other	(527)		(6.2	%)	(58)		0.1	%	Other	139		(2.4	%)	(527)		(6.2	%)
Total income tax expense (benefit)	Total income tax expense (benefit)	$	736	8.7	%	$	(12,076)	35.5	%	Total income tax expense (benefit)	$	(2,017)	36.2	%	$	736	8.7	%

(1) Includes tax-exempt interest, dividends received deduction and change in cash surrender value of BOLI.

(2)Represents the tax rate differential between our actual effective tax rate for the three months ended March 31, 2021 and our projected annual effective tax rate as of March 31, 2021 as calculated under the estimated annual effective tax rate method. There was no tax rate differential recorded for the three months ended March 31, ~~2020~~2022 as we ~~used~~utilized the discrete effective tax rate method at March 31, 2022 (see further discussion in the ~~first quarter of 2020~~Critical Accounting Estimates section).

For the three months ended March 31, 2022, we utilized the discrete effective tax rate method for recording the provision (benefit) for income taxes which treats the income tax expense (benefit) for the period as if it were the income tax expense (benefit) for the full year and determines the income tax expense (benefit) on that basis (see further discussion on this method in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits" ~~in our~~). For the three months ended March 31, ~~2020 report on Form 10-Q).~~

~~The~~2021, the provision (benefit) for income taxes and the effective tax rate ~~for~~were determined utilizing the ~~three months ended March 31, 2021~~estimated annual effective tax rate method which is ~~determined~~ 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 around the methods utilized to compute interim taxes under the heading "Estimation of Taxes/Tax Credits" in the Critical Accounting Estimates section.~~ Our effective tax rates for both the ~~2021~~2022 and ~~2020~~2021 three-month periods were different from the statutory federal income tax rate of 21% primarily due to the benefit recognized from the tax credits transferred to us from our tax credit partnership investments. We recognized tax credits of ~~$3.4~~$1.2 million and ~~$4.5~~$3.4 million during the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. While projected tax credits for ~~2021~~2022 are less than ~~2020,~~2021, they continue to have a significant impact on the effective tax rate for the ~~2021~~2022 three-month period. For the 2020 three-month period, our effective tax rate was also affected by the additional tax rate differential of 14% on the carryback of our 2019 NOL to the 2014 tax year as a result of changes made by the CARES Act to the NOL provisions of the tax law.

~~Table of Contents~~

Our effective tax rate for the 2021 three-month period, as shown in the table above, differed from our projected annual effective tax rate of ~~(38.4 %) as of the first quarter of 2021~~(38.4%) due to certain discrete items. These discrete items increased our effective tax rate by 47.1% for the 2021 three-month period mainly due to the treatment of net ~~realized~~ investment gains. When we utilize the estimated annual effective tax rate method, net ~~realized~~ investment gains orand losses are treated as discrete items and reflected in the effective tax rate in the period in which they are included in income. This treatment of net ~~realized~~ investment gains of $8.0 million in our Corporate segment for the three months ended March 31, 2021 accounted for an increase of 19.8% in the projected annual effective tax rate. The remaining discrete items that affected our effective tax rate for the 2021 three-month period were comprised of individually insignificant components.

9680

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We believe that we are principally exposed to ~~three~~two types of market risk: interest rate risk ~~credit risk~~ and ~~equity price~~credit risk. We have limited exposure to foreign currency risk as we issue few insurance contracts denominated in currencies other than the U.S. dollar and we have few monetary assets or obligations denominated in foreign currencies.

Interest Rate Risk

Investments

Our fixed maturities portfolio is exposed to interest rate risk. Fluctuations in interest rates have a direct impact on the market valuation of these securities. As interest rates rise, market values of fixed income portfolios fall and vice versa. ~~Future market interest rates are particularly uncertain at this time given the abrupt interest rate cuts made by the Federal Reserve in response to the COVID-19 pandemic.~~ Certain of the securities are held in an unrealized loss position; we do not intend to sell and believe we will not be required to sell any debt security held in an unrealized loss position before its anticipated recovery.

The following tables summarize estimated changes in the fair value of our available-for-sale fixed maturity securities for specific hypothetical changes in interest rates by asset class at March 31, ~~2021~~2022 and December 31, ~~2020.~~2021. There are principally two factors that determine interest rates on a given security: changes in the level of yield curves and credit spreads. As different asset classes can be affected in different ways by movements in those two factors, we have separated our portfolio by asset class in the following tables.


		Interest Rate Shift in Basis Points											Interest Rate Shift in Basis Points
		March 31, 2021											March 31, 2022
($ in millions)	($ in millions)	(200)		(100)		Current		100		200		($ in millions)	(200)		(100)		Current		100		200
Fair Value:	Fair Value:											Fair Value:
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:											Fixed maturities, available-for-sale:
U.S. Treasury obligations	U.S. Treasury obligations	$	110	$	105	$	103	$	101	$	96	U.S. Treasury obligations	$	245	$	235	$	226	$	217	$	209
U.S. Government-sponsored enterprise obligations	U.S. Government-sponsored enterprise obligations	13		12		11		12		11		U.S. Government-sponsored enterprise obligations	18		17		17		16		16
State and municipal bonds	State and municipal bonds	368		337		322		309		282		State and municipal bonds	536		514		492		471		451
Corporate debt	Corporate debt	1,588		1,481		1,429		1,380		1,284		Corporate debt	2,029		1,948		1,870		1,797		1,727
Asset-backed securities	Asset-backed securities	748		715		698		676		632		Asset-backed securities	1,163		1,130		1,096		1,061		1,026
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	$	2,827	$	2,650	$	2,563	$	2,478	$	2,305	Total fixed maturities, available-for-sale	$	3,991	$	3,844	$	3,701	$	3,562	$	3,429

Duration:	Duration:											Duration:
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:											Fixed maturities, available-for-sale:
U.S. Treasury obligations	U.S. Treasury obligations	2.36		2.32		2.27		2.23		2.18		U.S. Treasury obligations	4.17		4.09		4.02		3.95		3.88
U.S. Government-sponsored enterprise obligations	U.S. Government-sponsored enterprise obligations	1.55		1.92		2.82		2.97		2.93		U.S. Government-sponsored enterprise obligations	2.52		3.01		3.16		3.22		3.22
State and municipal bonds	State and municipal bonds	4.71		4.52		4.37		4.52		4.71		State and municipal bonds	4.07		4.13		4.25		4.37		4.46
Corporate debt	Corporate debt	3.67		3.59		3.51		3.46		3.39		Corporate debt	4.11		4.10		4.08		4.03		3.96
Asset-backed securities	Asset-backed securities	2.36		2.42		2.87		3.25		3.41		Asset-backed securities	2.54		2.77		3.01		3.16		3.23
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	3.40		3.33		3.39		3.48		3.50		Total fixed maturities, available-for-sale	3.64		3.71		3.78		3.81		3.80

9781

Table of Contents


		Interest Rate Shift in Basis Points											Interest Rate Shift in Basis Points
		December 31, 2020											December 31, 2021
($ in millions)	($ in millions)	(200)		(100)		Current		100		200		($ in millions)	(200)		(100)		Current		100		200
Fair Value:	Fair Value:											Fair Value:
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:											Fixed maturities, available-for-sale:
U.S. Treasury obligations	U.S. Treasury obligations	$	113	$	110	$	107	$	104	$	102	U.S. Treasury obligations	$	260	$	249	$	239	$	229	$	219
U.S. Government-sponsored enterprise obligations	U.S. Government-sponsored enterprise obligations	13		13		12		12		12		U.S. Government-sponsored enterprise obligations	21		21		20		20		19
State and municipal bonds	State and municipal bonds	361		347		333		320		308		State and municipal bonds	564		541		519		498		478
Corporate debt	Corporate debt	1,427		1,377		1,329		1,284		1,241		Corporate debt	2,063		1,979		1,899		1,821		1,748
Asset-backed securities	Asset-backed securities	704		690		677		659		639		Asset-backed securities	1,211		1,186		1,157		1,123		1,087
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	$	2,618	$	2,537	$	2,458	$	2,379	$	2,302	Total fixed maturities, available-for-sale	$	4,119	$	3,976	$	3,834	$	3,691	$	3,551

Duration:	Duration:											Duration:
Fixed maturities, available-for-sale:	Fixed maturities, available-for-sale:											Fixed maturities, available-for-sale:
U.S. Treasury obligations	U.S. Treasury obligations	2.65		2.60		2.56		2.51		2.46		U.S. Treasury obligations	4.42		4.33		4.25		4.18		4.10
U.S. Government-sponsored enterprise obligations	U.S. Government-sponsored enterprise obligations	1.80		1.77		2.11		2.99		3.14		U.S. Government-sponsored enterprise obligations	1.58		1.63		2.64		2.84		2.85
State and municipal bonds	State and municipal bonds	4.07		4.01		3.96		3.91		3.88		State and municipal bonds	4.22		4.20		4.26		4.36		4.49
Corporate debt	Corporate debt	3.62		3.52		3.44		3.40		3.35		Corporate debt	4.17		4.13		4.13		4.14		4.11
Asset-backed securities	Asset-backed securities	2.29		2.23		2.34		2.86		3.21		Asset-backed securities	2.33		2.25		2.67		3.13		3.39
Total fixed maturities, available-for-sale	Total fixed maturities, available-for-sale	3.27		3.19		3.16		3.28		3.34		Total fixed maturities, available-for-sale	3.64		3.58		3.71		3.86		3.93

Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including the maintenance of the existing level and composition of fixed income security assets, and should not be relied on as indicative of future results.

Certain shortcomings are inherent in the method of analysis presented in the computation of the fair value of fixed rate instruments. Actual values may differ from the projections presented should market conditions vary from assumptions used in the calculation of the fair value of individual securities, including non-parallel shifts in the term structure of interest rates and changing individual issuer credit spreads.

At March 31, ~~2021,~~2022, our fixed maturities portfolio includes fixed maturities classified as trading securities which do not have a significant amount of exposure to market interest rates or credit spreads.

Our cash and short-term investments at March 31, ~~2021~~2022 were carried at fair value which approximates their cost basis due to their short-term nature. Our cash and short-term investments lack significant interest rate sensitivity due to their short duration.

Debt

Our Mortgage Loans are exposed to interest rate risk as they accrue interest at three-month LIBOR plus 1.325%. However, a 1% change in LIBOR will not materially impact our annualized interest expense. Additionally, we have economically hedged the risk of a change in interest rates in excess of 1% on the Mortgage Loans through the purchase of an interest rate cap derivative instrument, which effectively caps our annual interest rate on the Mortgage Loans at a maximum of 3.675% (see Note 11 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K for additional information). The fair value of the interest rate cap is not materially impacted by a 1% change in LIBOR; however, the carrying value of the interest rate cap is impacted by future expectations for LIBOR as well as estimations of volatility in the future yield curve.

Our Revolving Credit Agreement is exposed to interest rate risk as it is LIBOR based and a 1% change in LIBOR will impact annual interest expense only to the extent that there is an outstanding balance. For every $100 million drawn on our Revolving Credit Agreement, a 1% change in interest rates will change our annual interest expense by $1 million. Any outstanding balances on the Revolving Credit Agreement can be repaid on each maturity date, which has typically ranged from one to three months. As of March 31, ~~2021,~~2022, no borrowings were outstanding under our Revolving Credit Agreement.

Defined Benefit Pension Plan

~~Table~~We are exposed to certain economic risks related to the costs of ~~Contents~~our defined benefit pension plan, including changes in discount rates for high quality corporate bonds and changes in the expected return on plan assets. See further discussion in our December 31, 2021 report on Form 10-K within Item 7, Management's Discussion and Analysis, in the Critical Accounting Estimates section under the heading "Pension."

Credit Risk

We have exposure to credit risk primarily as a holder of fixed income securities. We control this exposure by emphasizing investment grade credit quality in the fixed income securities we purchase.

As of March 31, ~~2021, 94%~~2022, 91% of our fixed maturity securities were rated investment grade as determined by NRSROs, such as Fitch, Moody’s and Standard & Poor’s. We believe that this concentration in investment grade securities reduces our exposure to credit risk on our fixed income investments to an acceptable level. However, investment grade securities, in spite of

Table of Contents

their rating, can rapidly deteriorate and result in significant losses. Ratings published by the NRSROs are one of the tools used to evaluate the creditworthiness of our securities. The ratings reflect the subjective opinion of the rating agencies as to the creditworthiness of the securities; therefore, we may be subject to additional credit exposure should the ratings prove to be unreliable.

We also have exposure to credit risk related to our premiums receivable and receivables from reinsurers; however, to-date we have not experienced any significant amount of credit losses. At March 31, ~~2021,~~2022, our premiums receivable was approximately ~~$211~~$261 million, net of an allowance for expected credit losses of approximately $6$8 million. See Note 1 of the Notes to ~~Condensed~~ Consolidated Financial Statements in our December 31, 2021 report on Form 10-K for further information on our allowance for expected credit losses related to our premiums receivable. Our receivables from reinsurers (with regard to both paid and unpaid losses) approximated ~~$404~~$479 million at March 31, ~~2021~~2022 and ~~$399~~$466 million at December 31, ~~2020.~~2021. We monitor the credit risk associated with our reinsurers using publicly available financial and rating agency data. We have not historically experienced material credit losses due to the financial condition of a reinsurer, and as of March 31, ~~2021~~2022 our expected credit losses associated with our receivables from reinsurers were nominal in amount.

9983

Table of Contents

ITEM 4. CONTROLS AND PROCEDURES.

The principal executive officer and principal financial officer of the Company participated in management’s evaluation of our disclosure controls and procedures (as defined in SEC Rule 13a-15(e)) as of March 31, ~~2021.~~2022. ProAssurance’s disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding disclosure and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based on that evaluation, the principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective.

The Company completed its acquisition of NORCAL on May 5, 2021 and has not yet included NORCAL in management's assessment of the effectiveness of our internal controls over financial reporting. We are currently integrating NORCAL into our compliance programs and internal control processes. Accordingly, pursuant to the SEC's general guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment for one year following the acquisition, the scope of management's assessment of the effectiveness of the Company's disclosure controls and procedures does not include NORCAL. NORCAL constituted approximately 30.8% of ProAssurance's total assets (inclusive of acquired intangible assets) as of March 31, 2022, and approximately 27.8% of ProAssurance's total revenue for the three months ended March 31, 2022. NORCAL will be included in management's assessment of the effectiveness of the Company's internal controls over financial reporting as of December 31, 2022.

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, those controls during the quarter.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

See Note 86 of the Notes to Condensed Consolidated Financial Statements.

ITEM 1A. RISK FACTORS.

Our results may differ materially from those we expect and discuss in any forward-looking statements. The principal risk factors that may cause these differences are described in "Item 1A, Risk Factors" in our December 31, 2021 report on Form 10-K and other documents we file with the SEC, such as our current reports on Form 8-K. There ~~are~~have been no material changes to the "Risk Factors" disclosed in Part 1, Item 1A of ProAssurance's December 31, ~~2020~~2021 report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(a)Not applicable.

(b)Not applicable.

(c)Information required by Item 703 of Regulation S-K.


Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs* (In thousands)
January 1 - 31, ~~2021~~2022	—	N/A	—	$109,643
February 1 - 28, ~~2021~~2022	—	N/A	—	$109,643
March 1 - 31, ~~2021~~2022	—	N/A	—	$109,643
Total	—	$—	—

*Under its current plan begun in November 2010, the Board has authorized $600 million for the repurchase of common shares or the retirement of outstanding debt. This is ProAssurance’s only plan for the repurchase of common shares, and the plan has no expiration date.

~~100~~84

Table of Contents

ITEM 6. EXHIBITS


Exhibit Number						Description

~~10.1~~						Amendment No. 1 to amended and restated Revolving Credit Agreement, dated as of April 19, 2021, between ProAssurance and U.S. Bank N.A., Wells Fargo Bank N.A., Keybank N.A., Regions Bank, Trust Bank, Cadence Bank N.A., and First Horizon Bank



31.1						Certification of Principal Executive Officer of ProAssurance as required under SEC rule 13a-14(a).

31.2						Certification of Principal Financial and Accounting Officer of ProAssurance as required under SEC rule 13a-14(a).

32.1						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).

32.2						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).

101.INS						XBRL Instance Document

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						XBRL Taxonomy Extension Labels Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

~~101~~85

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


PROASSURANCE CORPORATION

May ~~7, 2021~~9, 2022


/s/ Dana S. Hendricks
Dana S. Hendricks
Chief Financial Officer
(Duly authorized officer and principal financial officer)

~~102~~86


	Reporting Unit
(In thousands)	Specialty P&C		Workers' Compensation Insurance		Segregated Portfolio Cell Reinsurance		Total
Goodwill, gross as of January 1, 2020	$	161,115	$	44,110	$	5,500	$	210,725
Accumulated impairment losses*	(161,115)		0		0		(161,115)
Goodwill, net as of December 31, 2020	0		44,110		5,500		49,610
Accumulated impairment losses	0		0		0		0
Goodwill, net as of March 31, 2021	$	0	$	44,110	$	5,500	$	49,610


(In thousands)	Location in the Condensed Consolidated Statements of Income and Comprehensive Income	Three Months Ended March 31
			2021		2020
Operating lease expense (1)	Operating expense		$	938	$	1,625
Sublease income (2)	Other income		(54)		(38)
Net lease expense			$	884	$	1,587


(In thousands)
2021	$	3,057
2022	3,306
2023	2,608
2024	2,026
2025	1,783
Thereafter	8,875
Total future minimum lease payments	21,655
Less: Imputed interest	2,487
Total operating lease liabilities	$	19,168