Segment Information

ProAssurance operates in four segments that are organized around the nature of the products and services provided: Specialty P&C, Workers' Compensation, Lloyd's Syndicates and Corporate. A description of each segment follows.

Specialty P&C is primarily focused on professional liability insurance and medical technology liability insurance. Professional liability insurance is primarily offered to healthcare providers and institutions and 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. Prior to 2018, the Specialty P&C segment ceded certain premium to the Lloyd's Syndicates segment under a quota share agreement with Syndicate 1729; however, this agreement was not renewed on January 1, 2018. As discussed below, the Lloyd's Syndicates segment results are typically reported on a quarter delay. For consistency purposes, results from this ceding arrangement, other than cash receipts or disbursements, have been reported within the Specialty P&C segment on the same one-quarter delay.

Workers' Compensation provides workers' compensation products primarily to employers with 1,000 or fewer employees. The segment also offers alternative market solutions whereby policies written are 100% ceded either to captive insurers unaffiliated with ProAssurance or to SPCs operated by wholly owned subsidiaries of ProAssurance. Each SPC is owned, fully or in part, by an agency, group or association. Operating results (underwriting profit or loss, plus investment results reported in the Corporate segment) of the SPCs are due to the owners of that cell.

During the first quarter of 2018, ProAssurance reorganized its Cayman Islands SPC operations. Beginning in 2018, all new and renewing alternative market business previously ceded to the SPCs at Eastern Re, with the exception of one program, is now ceded to SPCs operated by a newly formed wholly owned Cayman Islands subsidiary, Inova Re. As part of the reorganization, all SPCs previously operated by Eastern Re, with the exception of one program, ceased assuming new and renewing business on or after January 1, 2018. The external cell owners' cumulative undistributed earnings and the results of all SPCs for the current period due to external cell owners continue to be reported as SPC dividends payable and SPC dividend expense, respectively.

Lloyd's Syndicates includes operating results from ProAssurance's participation in Lloyd's of London Syndicate 1729 and Syndicate 6131, which is a newly formed SPA operating within Syndicate 1729. The results of this segment are normally reported on a quarter delay, 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. Beginning in 2018, ProAssurance increased its participation in the operating results of Syndicate 1729 from 58% to 62% and began its 100% participation in the operating results of Syndicate 6131 which began active operations effective January 1, 2018; however, due to the quarter delay these changes were not reflected in the Lloyd's Syndicates segment results until the second quarter of 2018. Syndicate 1729 underwrites risks over a wide range of property and casualty insurance and reinsurance lines in both the U.S. and international markets. Syndicate 6131 focuses on contingency and specialty property business.

Corporate includes ProAssurance's investment operations, interest expense and U.S. income taxes, all of which are managed at the corporate level with the exception of investment assets solely allocated to Lloyd's Syndicate operations as discussed above. The segment also includes non-premium revenues generated outside of the Company's insurance entities and corporate expenses.

The accounting policies of the segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2017 report on Form 10-K and Note 1 of the Notes to Condensed Consolidated Financial Statements. ProAssurance evaluates performance of its Specialty P&C and Workers' Compensation segments based on before tax underwriting profit or loss, which excludes investment performance. Performance of the Lloyd's Syndicates segment is evaluated based on underwriting profit or loss, plus 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 and other assets are not managed at the segment level.

Financial results by segment were as follows:



	Three Months Ended June 30, 2018
(In thousands)	Specialty P&C			Workers' Compensation			Lloyd's Syndicates			Corporate			Inter-segment Eliminations			Consolidated
Net premiums earned	$	143,847		$	62,254		$	17,490		$	—		$	—		$	223,591
Net investment income	—			—			836			21,548			—			22,384
Equity in earnings (loss) of unconsolidated subsidiaries	—			—			—			5,380			—			5,380
Net realized gains (losses)	—			—			(252		)	3,047			—			2,795
Other income (expense)	1,262			212			(436		)	1,095			(89		)	2,044
Net losses and loss adjustment expenses	(111,838		)	(37,385		)	(12,505		)	—			—			(161,728		)
Underwriting, policy acquisition and operating expenses	(28,050		)	(17,969		)	(8,060		)	(5,621		)	89			(59,611		)
Segregated portfolio cells dividend (expense) income	(118		)	(2,751		)	—			84			—			(2,785		)
Interest expense	—			—			—			(3,958		)	—			(3,958		)
Income tax benefit (expense)	—			—			—			311			—			311
Segment operating results	$	5,103		$	4,361		$	(2,927	)	$	21,886		$	—		$	28,423
Significant non-cash items:
Depreciation and amortization, net of accretion	$	1,761		$	958		$	(2	)	$	2,240		$	—		$	4,957



	Six Months Ended June 30, 2018
(In thousands)	Specialty P&C			Workers' Compensation			Lloyd's Syndicates			Corporate			Inter-segment Eliminations			Consolidated
Net premiums earned	$	260,125		$	120,660		$	29,965		$	—		$	—		$	410,750
Net investment income	—			—			1,587			42,824			—			44,411
Equity in earnings (loss) of unconsolidated subsidiaries	—			—			—			7,019			—			7,019
Net realized gains (losses)	—			—			(306		)	(9,416		)	—			(9,722		)
Other income (expense)	2,519			578			(105		)	2,037			(262		)	4,767
Net losses and loss adjustment expenses	(196,425		)	(74,099		)	(20,991		)	—			—			(291,515		)
Underwriting, policy acquisition and operating expenses	(56,327		)	(35,301		)	(15,306		)	(10,297		)	262			(116,969		)
Segregated portfolio cells dividend (expense) income	(88		)	(4,645		)	—			201			—			(4,532		)
Interest expense	—			—			—			(7,663		)	—			(7,663		)
Income tax benefit (expense)	—			—			(6		)	3,739			—			3,733
Segment operating results	$	9,804		$	7,193		$	(5,162	)	$	28,444		$	—		$	40,279
Significant non-cash items:
Depreciation and amortization, net of accretion	$	3,628		$	1,914		$	(3	)	$	5,497		$	—		$	11,036



	Three Months Ended June 30, 2017
(In thousands)	Specialty P&C			Workers' Compensation			Lloyd's Syndicates			Corporate			Inter-segment Eliminations			Consolidated
Net premiums earned	$	109,005		$	56,854		$	14,494		$	—		$	—		$	180,353
Net investment income	—			—			410			22,267			—			22,677
Equity in earnings (loss) of unconsolidated subsidiaries	—			—			—			2,516			—			2,516
Net realized gains (losses)	—			—			47			(2,266		)	—			(2,219		)
Other income (expense)	1,469			209			(151		)	778			(55		)	2,250
Net losses and loss adjustment expenses	(71,296		)	(33,486		)	(10,768		)	—			—			(115,550		)
Underwriting, policy acquisition and operating expenses	(26,239		)	(17,093		)	(6,851		)	(7,757		)	55			(57,885		)
Segregated portfolio cells dividend (expense) income ⁽¹⁾	(5,119		)	(2,698		)	—			(994		)	—			(8,811		)
Interest expense	—			—			—			(4,145		)	—			(4,145		)
Income tax benefit (expense)⁽¹⁾	—			—			548			(216		)	—			332
Segment operating results	$	7,820		$	3,786		$	(2,271	)	$	10,183		$	—		$	19,518
Significant non-cash items:
Depreciation and amortization, net of accretion	$	1,506		$	831		$	(5	)	$	3,814		$	—		$	6,146



	Six Months Ended June 30, 2017
(In thousands)	Specialty P&C			Workers' Compensation			Lloyd's Syndicates			Corporate			Inter-segment Eliminations			Consolidated
Net premiums earned	$	222,063		$	112,137		$	29,056		$	—		$	—		$	363,256
Net investment income	—			—			782			45,081			—			45,863
Equity in earnings (loss) of unconsolidated subsidiaries	—			—			—			4,324			—			4,324
Net realized gains (losses)	—			—			74			10,987			—			11,061
Other income (expense)	2,668			354			240			951			(142		)	4,071
Net losses and loss adjustment expenses	(146,291		)	(68,136		)	(20,274		)	—			—			(234,701		)
Underwriting, policy acquisition and operating expenses	(52,217		)	(33,784		)	(13,062		)	(16,073		)	142			(114,994		)
Segregated portfolio cells dividend (expense) income ⁽¹⁾	(5,091		)	(3,872		)	—			(2,223		)	—			(11,186		)
Interest expense	—			—			—			(8,278		)	—			(8,278		)
Income tax benefit (expense)⁽¹⁾	—			—			555			1,002			—			1,557
Segment operating results	$	21,132		$	6,699		$	(2,629	)	$	35,771		$	—		$	60,973
Significant non-cash items:
Depreciation and amortization, net of accretion	$	3,417		$	1,668		$	(8	)	$	8,872		$	—		$	13,949
⁽¹⁾ During the second quarter of 2017, ProAssurance recognized a $5.2 million pre-tax expense related to previously unrecognized SPC dividend expense for the cumulative earnings of unrelated parties that have owned segregated portfolio cells at various periods since 2003 in a Bermuda captive insurance operation managed by the Company's HCPL line of business within the Specialty P&C segment. The expense recorded in the second quarter of 2017 related to periods prior to the then current period and was unrelated to the captive operations of the Company's Eastern Re subsidiary. The $1.8 million tax impact of the expense recognized in the second quarter of 2017 was included in the Corporate segment's income tax benefit (expense).

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



	Three Months Ended June 30						Six Months Ended June 30
(In thousands)	2018			2017			2018			2017
Specialty P&C Segment
Gross premiums earned:
Healthcare professional liability	$	146,208		$	115,781		$	264,892		$	232,832
Legal professional liability	6,489			6,417			12,880			12,734
Medical technology liability	8,780			8,389			17,292			16,701
Other	119			101			230			203
Ceded premiums earned	(17,749		)	(21,683		)	(35,169		)	(40,407		)
Segment net premiums earned	143,847			109,005			260,125			222,063

Workers' Compensation Segment
Gross premiums earned:
Traditional business	48,632			42,501			94,662			84,269
Alternative market business	20,648			20,209			40,029			39,655
Ceded premiums earned	(7,026		)	(5,856		)	(14,031		)	(11,787		)
Segment net premiums earned	62,254			56,854			120,660			112,137

Lloyd's Syndicates Segment
Gross premiums earned:
Property and casualty*	19,273			16,960			37,240			34,145
Ceded premiums earned	(1,783		)	(2,466		)	(7,275		)	(5,089		)
Segment net premiums earned	17,490			14,494			29,965			29,056

Consolidated net premiums earned	$	223,591		$	180,353		$	410,750		$	363,256

*Includes premium assumed from the Specialty P&C segment of $1.4 million and $3.3 million for the three and six months ended June 30, 2018, respectively, and $3.1 million and $6.6 million for the same respective periods of 2017.