Fair Value Measurement (Tables)

6 Months Ended

Jun. 30, 2018

Assets and liabilities measured at fair value

Fair values of assets measured at fair value on a recurring basis as of June 30, 2018 and December 31, 2017 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.



	June 30, 2018
	Fair Value Measurements Using						Total
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:
Fixed maturities, available for sale
U.S. Treasury obligations	$	—	$	146,457	$	—	$	146,457
U.S. Government-sponsored enterprise obligations	—		31,702		—		31,702
State and municipal bonds	—		331,100		—		331,100
Corporate debt, multiple observable inputs	2,262		1,184,985		—		1,187,247
Corporate debt, limited observable inputs	—		—		8,380		8,380
Residential mortgage-backed securities	—		204,236		—		204,236
Agency commercial mortgage-backed securities	—		13,812		—		13,812
Other commercial mortgage-backed securities	—		32,715		—		32,715
Other asset-backed securities	—		160,852		9,420		170,272
Fixed maturities, trading
Corporate debt	—		29,772		—		29,772
Equity investments
Financial	74,656		—		—		74,656
Utilities/Energy	57,936		—		—		57,936
Consumer oriented	55,459		—		—		55,459
Industrial	46,285		—		—		46,285
Bond funds	146,795		—		—		146,795
All other	94,638		—		—		94,638
Short-term investments	200,366		12,579		—		212,945
Other investments	—		33,015		5		33,020
Other assets	—		2,588		—		2,588
Total assets categorized within the fair value hierarchy	$	678,397	$	2,183,813	$	17,805	2,880,015
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							20,257
Investment in unconsolidated subsidiaries							277,505
Total assets at fair value							$	3,177,777



	December 31, 2017
	Fair Value Measurements Using						Total
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets:
Fixed maturities, available for sale
U.S. Treasury obligations	$	—	$	133,627	$	—	$	133,627
U.S. Government-sponsored enterprise obligations	—		20,956		—		20,956
State and municipal bonds	—		632,243		—		632,243
Corporate debt, multiple observable inputs	2,371		1,151,084		—		1,153,455
Corporate debt, limited observable inputs	—		—		13,703		13,703
Residential mortgage-backed securities	—		196,789		1,055		197,844
Agency commercial mortgage-backed securities	—		10,742		—		10,742
Other commercial mortgage-backed securities	—		15,961		—		15,961
Other asset-backed securities	—		97,780		3,931		101,711
Equity investments
Financial	76,051		—		—		76,051
Utilities/Energy	54,388		—		—		54,388
Consumer oriented	54,529		—		—		54,529
Industrial	53,936		—		—		53,936
Bond funds	156,563		—		—		156,563
All other	75,142		—		—		75,142
Short-term investments	404,204		27,922		—		432,126
Other investments	607		31,155		409		32,171
Other assets	—		1,731		—		1,731
Total assets categorized within the fair value hierarchy	$	877,791	$	2,319,990	$	19,098	3,216,879
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							210,759
Other investments							20,130
Total assets at fair value							$	3,447,768

Summary of quantitative information about Level 3 fair value measurements

Quantitative Information Regarding Level 3 Valuations



	Fair Value at
(In thousands)	June 30, 2018	December 31, 2017	Valuation Technique	Unobservable Input	Range (Weighted Average)
Assets:
Corporate debt, limited observable inputs	$8,380	$13,703	Market Comparable Securities	Comparability Adjustment	0% - 5% (2.5%)
			Discounted Cash Flows	Comparability Adjustment	0% - 5% (2.5%)
Residential mortgage-backed and other asset-backed securities	$9,420	$4,986	Market Comparable Securities	Comparability Adjustment	0% - 5% (2.5%)
			Discounted Cash Flows	Comparability Adjustment	0% - 5% (2.5%)
Other investments	$5	$409	Discounted Cash Flows	Comparability Adjustment	0% - 10% (5%)

Summary of changes in the fair value of assets measured at fair value

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.



	June 30, 2018
	Level 3 Fair Value Measurements – Assets
(In thousands)	Corporate Debt			Asset-backed Securities			Other investments			Total
Balance March 31, 2018	$	15,097		$	17,323		$	365		$	32,785
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income	(36		)	1			—			(35		)
Net realized investment gains (losses)	(8		)	—			6			(2		)
Included in other comprehensive income	(90		)	(111		)	—			(201		)
Purchases	—			3,225			—			3,225
Sales	(1,644		)	(158		)	(366		)	(2,168		)
Transfers in	558			—			—			558
Transfers out	(5,497		)	(10,860		)	—			(16,357		)
Balance June 30, 2018	$	8,380		$	9,420		$	5		$	17,805
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	$	—		$	—		$	—		$	—



	June 30, 2018
	Level 3 Fair Value Measurements – Assets
(In thousands)	Corporate Debt			Asset-backed Securities			Other investments			Total
Balance December 31, 2017	$	13,703		$	4,986		$	409		$	19,098
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income	(74		)	1			—			(73		)
Net realized investment gains (losses)	(8		)	—			(38		)	(46		)
Included in other comprehensive income	(128		)	(141		)	—			(269		)
Purchases	6,005			16,678			—			22,683
Sales	(4,549		)	(185		)	(366		)	(5,100		)
Transfers in	2,627			—			—			2,627
Transfers out	(9,196		)	(11,919		)	—			(21,115		)
Balance June 30, 2018	$	8,380		$	9,420		$	5		$	17,805
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	$	—		$	—		$	—		$	—



	June 30, 2017
	Level 3 Fair Value Measurements – Assets
(In thousands)	Corporate Debt			Asset-backed Securities		Other investments			Total
Balance March 31, 2017	$	18,914		$	3,002	$	903		$	22,819
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income	(34		)	—		—			(34		)
Net realized investment gains (losses)	—			—		(124		)	(124		)
Included in other comprehensive income	(70		)	3		138			71
Purchases	4,841			—		—			4,841
Sales	(1,848		)	—		(912		)	(2,760		)
Transfers in	10			—		—			10
Transfers out	(3,964		)	—		—			(3,964		)
Balance June 30, 2017	$	17,849		$	3,005	$	5		$	20,859
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	$	—		$	—	$	—		$	—



	June 30, 2017
	Level 3 Fair Value Measurements – Assets
(In thousands)	Corporate Debt			Asset-backed Securities			Other investments			Total
Balance December 31, 2016	$	14,810		$	3,007		$	3		$	17,820
Total gains (losses) realized and unrealized:
Included in earnings, as a part of:
Net investment income	(73		)	—			—			(73		)
Net realized investment gains (losses)	13			—			(124		)	(111		)
Included in other comprehensive income	(278		)	(2		)	140			(140		)
Purchases	11,889			—			—			11,889
Sales	(3,560		)	—			(912		)	(4,472		)
Transfers in	10			—			898			908
Transfers out	(4,962		)	—			—			(4,962		)
Balance June 30, 2017	$	17,849		$	3,005		$	5		$	20,859
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end	$	—		$	—		$	—		$	—

Investments in Limited liability companies and limited partnerships

At June 30, 2018 and December 31, 2017, 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 June 30, 2018 and fair values of these investments as of June 30, 2018 and December 31, 2017 was as follows:



	Unfunded Commitments	Fair Value
(In thousands)	June 30, 2018	June 30, 2018		December 31, 2017
Equity investments:
Mortgage fund ^(1)*	None	$	20,257	$	—
Investment in unconsolidated subsidiaries:
Private debt funds ⁽²⁾	$4,945	26,174		42,206
Long equity fund ⁽³⁾	None	7,712		7,847
Long/short equity funds ⁽⁴⁾	None	32,134		31,352
Non-public equity funds ⁽⁵⁾	$78,693	109,337		100,062
Multi-strategy fund of funds ⁽⁶⁾	None	9,357		9,100
Credit funds ⁽⁷⁾	None	18,075		6,561
Long/short commodities fund ⁽⁸⁾	None	13,380		13,025
Strategy focused funds ⁽⁹⁾	$19,247	61,336		606
		277,505		210,759
Other investments:
Mortgage fund ^(1)*	See above	—		20,130

Total investments carried at NAV		$	297,762	$	230,889
* In the first quarter of 2018, ProAssurance began presenting this investment previously reported as a part of other investments as a part of equity investments on the Condensed Consolidated Balance Sheet. Prior year amounts have not been reclassified.

Below is additional information regarding each of the investments listed in the table above as of June 30, 2018.


⁽¹⁾	This investment fund is focused on the structured mortgage market. The fund will primarily invest 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⁾

The investment is comprised of interests in two unrelated LP funds that are structured to provide interest distributions primarily through diversified portfolios of private debt instruments. One LP allows redemption by special consent; 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⁾	The fund is a LP that holds long equities of public international companies. Redemptions are allowed at the end of any calendar month with a prior notice requirement of 15 days and are paid within 10 days of the end of the calendar month of the redemption request.

⁽⁴⁾

The investment is comprised of interests in multiple unrelated LP funds. The funds hold primarily long and short North American equities and target absolute returns using strategies designed to take advantage of market opportunities. The funds generally permit quarterly or semi-annual capital redemptions subject to notice requirements of 30 to 90 days. For some funds, 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.

⁽⁵⁾

The 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 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 nine years.


⁽⁶⁾	This fund is a LLC structured to build and manage low volatility, multi-manager portfolios that have little or no correlation to the broader fixed income and equity security markets. Redemptions are not permitted but offers to repurchase units of the LLC may be extended periodically.

⁽⁷⁾

The investment is comprised of two unrelated LP funds. One fund seeks to obtain superior risk-adjusted absolute returns through a diversified portfolio of debt securities, including bonds, loans and other asset-backed instruments. The second fund seeks event driven opportunities across the corporate credit spectrum. For both funds, redemptions are allowed at any quarter-end with a prior notice requirement of 90 days.


⁽⁸⁾	This fund is a LLC invested across a broad range of commodities and focuses primarily on market neutral, relative value strategies, seeking to generate absolute returns with low correlation to broad commodity, equity and fixed income markets. Following an initial one-year lock-up period, redemptions are allowed with a prior notice requirement of 30 days and are payable within 30 days.

⁽⁹⁾ The investment is comprised of multiple unrelated LPs/LLCs funds. One fund is a LLC focused on investing in North American consumer products companies, comprised of equity and equity-related securities, as well as debt instruments. Redemptions are not permitted. Another fund is a 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.

Financial instruments not measured at fair value

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



	June 30, 2018				December 31, 2017
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
BOLI	$	63,017	$	63,017	$	62,113	$	62,113
Other investments	$	2,889	$	2,889	$	58,546	$	69,095
Other assets	$	37,745	$	37,411	$	34,020	$	33,742
Financial liabilities:
Senior notes due 2023*	$	250,000	$	263,943	$	250,000	$	273,153
Revolving Credit Agreement*	$	—	$	—	$	123,000	$	123,000
Mortgage loans*	$	39,762	$	39,762	$	40,460	$	40,460
Other liabilities	$	22,303	$	22,303	$	21,154	$	21,154
* Carrying value excludes debt issuance costs.