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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

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

For the quarterly period ended September 30, 2021 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, | AL |  |  |  |  |  | 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 November 3, 2021, there were 53,983,561 shares of the registrant’s common stock outstanding.

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

Term | Meaning
AAD | Annual aggregate deductible
AOCI | Accumulated other comprehensive income (loss)
ASU | Accounting Standards Update
Board | Board of Directors of ProAssurance Corporation
BOLI | Business owned life insurance
CARES Act | Coronavirus Aid, Relief and Economic Security Act
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 with original borrowing amounts of approximately $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)
PBO | Projected benefit obligations
PCAOB | Public Company Accounting Oversight Board
PDR | Premium deficiency reserve
PPM RRG | 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

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Term | Meaning
SPC | Segregated portfolio cell
Specialty P&C | Specialty Property and Casualty
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
VIE | Variable interest entity
VOBA | Value of business acquired

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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:

• | changes in general economic conditions, including the impact of inflation or deflation and unemployment;
• | our ability to maintain our dividend payments;
• | 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;
• | the enactment or repeal of tort reforms;
• | 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;
• | changes in the interest and tax rate environment, including the actions taken by the federal government and Federal Reserve in response to COVID-19;
• | resolution of uncertain tax matters and changes in tax laws, including the impact of the CARES Act;
• | changes in laws or government regulations regarding financial markets or market activity that may affect our business;
• | 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;
• | performance of financial markets affecting the fair value of our investments or making it difficult to determine the value of our investments;
• | 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;
• | 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;
• | 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;
• | 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;
• | the effect of cyclical insurance industry trends on our underwriting, including demand and pricing in the insurance and reinsurance markets in which we operate;
• | uncertainties inherent in the estimate of our loss and loss adjustment expense reserve and reinsurance recoverable;
• | changes in the availability, cost, quality or collectability of insurance/reinsurance;
• | the results of litigation, including pre- or post-trial motions, trials and/or appeals we undertake;
• | effects on our claims costs from mass tort litigation that are different from that anticipated by us;
• | allegations of bad faith which may arise from our handling of any particular claim, including failure to settle;
• | loss or consolidation of independent agents, agencies, brokers or brokerage firms;
• | changes in our organization, compensation and benefit plans;

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• | changes in the business or competitive environment may limit the effectiveness of our business strategy and impact our revenues;
• | our ability to retain and recruit senior management and other qualified personnel;
• | the availability, integrity and security of our technology infrastructure or that of our third-party providers of technology infrastructure, including any susceptibility to cyber-attacks which might result in a loss of information or operating capability;
• | 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;
• | the impact of the COVID-19 pandemic and related economic conditions on our premium volume, loss reserves, investment portfolio, asset valuations, business operations and workforce;
• | the impact of a catastrophic man-made event, such as acts of terrorism, acts of war and civil and political unrest;
• | the effects of terrorism-related insurance legislation and laws;
• | guaranty funds and other state assessments;
• | our ability to achieve continued growth through expansion into new markets or through acquisitions or business combinations;
• | failure to successfully integrate NORCAL to achieve expected results or synergies;
• | changes to the ratings assigned by rating agencies to our holding company or insurance subsidiaries, individually or as a group;
• | provisions in our charter documents, Delaware law and state insurance laws may impede attempts to replace or remove management or may impede a takeover;
• | state insurance restrictions may prohibit assets held by our insurance subsidiaries, including cash and investment securities, from being used for general corporate purposes;
• | 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
• | expected benefits from completed 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 Lloyd's Syndicates include, but are not limited to, the following:
• | 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%, but can be increased by Lloyd's;
• | Syndicate results can be affected by decisions made by the Council of Lloyd's which the management of Syndicate 1729 and Syndicate 6131 have 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;
• | 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;
• | rating agencies could downgrade their ratings of Lloyd's as a whole; and
• | 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.

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, 2020 report on Form 10-K and other documents we file with the SEC, such as our quarterly reports on Form 10-Q.
We caution readers not to place undue reliance on any such forward-looking statements, which are based upon conditions existing only as of the date made, and advise readers that these factors could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. Except as required by law or regulations, we do not undertake and specifically decline any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
5

Table of Contents

| TABLE OF CONTENTS |
PART I. FINANCIAL INFORMATION |
ITEM 1. | FINANCIAL STATEMENTS |
| CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - SEPTEMBER 30, 2021 AND DECEMBER 31, 2020 | 7
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (UNAUDITED) - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 | 8
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) - THREE AND NINE MONTHS ENDED SE PTEMBER 30, 2021 AND 2020 | 10
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 | 11
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | 13
| BASIS OF PRESENTATION | 13
| BUSINESS COMBINATION | 16
| FAIR VALUE MEASUREMENT | 20
| INVESTMENTS | 30
| RETROACTIVE INSURANCE CONTRACTS | 37
| INCOME TAXES | 37
| GOODWILL | 39
| RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES | 40
| COMMITMENTS AND CONTINGENCIES | 42
| LEASES | 43
| DEBT | 44
| SHAREHOLDERS' EQUITY | 45
| VARIABLE INTEREST ENTITIES | 47
| EARNINGS (LOSS) PER SHARE | 47
| SEGMENT INFORMATION | 48
| BENEFIT PLANS | 53
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 54
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 120
ITEM 4. | CONTROLS AND PROCEDURES | 123
PART II. OTHER INFORMATION |
ITEM 1. | LEGAL PROCEEDINGS | 123
ITEM 1A. | RISK FACTORS | 123
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 124
ITEM 6. | EXHIBITS | 125
SIGNATURE | 126

6

Table of Contents
ProAssurance Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)

| September 30, 2021 |  | December 31, 2020
Assets |  |  |
Investments |  |  |
Fixed maturities, available-for-sale, at fair value (amortized cost, $3,850,889 and $2,361,575, respectively; allowance for expected credit losses, none as of September 30, 2021 and $552 as of December 31, 2020) | $ | 3,904,136 |  |  | $ | 2,457,531 |
Fixed maturities, trading, at fair value (cost, $45,307 and $47,907, respectively) | 45,049 |  |  | 48,456 |
Equity investments, at fair value (cost, $210,320 and $113,709, respectively) | 214,530 |  |  | 120,101 |
Short-term investments | 151,708 |  |  | 337,813 |
Business owned life insurance | 80,821 |  |  | 67,847 |
Investment in unconsolidated subsidiaries | 317,869 |  |  | 310,529 |
Other investments (at fair value, $106,842 and $44,116, respectively, otherwise at cost or amortized cost) | 110,012 |  |  | 47,068 |
Total Investments | 4,824,125 |  |  | 3,389,345 |
Cash and cash equivalents | 202,953 |  |  | 215,782 |
Premiums receivable, net | 288,819 |  |  | 201,395 |
Receivable from reinsurers on paid losses and loss adjustment expenses | 17,872 |  |  | 14,370 |
Receivable from reinsurers on unpaid losses and loss adjustment expenses | 476,315 |  |  | 385,087 |
Prepaid reinsurance premiums | 32,275 |  |  | 35,885 |
Deferred policy acquisition costs | 57,929 |  |  | 47,196 |
Deferred tax asset, net | 117,940 |  |  | 57,105 |
Real estate, net | 30,547 |  |  | 30,529 |
Operating lease ROU assets | 20,253 |  |  | 19,013 |
Intangible assets, net | 74,955 |  |  | 65,720 |
Goodwill | 49,610 |  |  | 49,610 |
Other assets | 133,675 |  |  | 143,766 |
Total Assets | $ | 6,327,268 |  |  | $ | 4,654,803 |
Liabilities and Shareholders' Equity |  |  |
Liabilities |  |  |
Policy liabilities and accruals |  |  |
Reserve for losses and loss adjustment expenses | $ | 3,632,686 |  |  | $ | 2,417,179 |
Unearned premiums | 509,317 |  |  | 361,547 |
Reinsurance premiums payable | 36,459 |  |  | 39,998 |
Total Policy Liabilities | 4,178,462 |  |  | 2,818,725 |
Operating lease liabilities | 21,670 |  |  | 20,116 |
Other liabilities | 279,276 |  |  | 182,039 |
Debt less unamortized debt issuance costs | 424,758 |  |  | 284,713 |
Total Liabilities | 4,904,166 |  |  | 3,305,593 |
Shareholders' Equity |  |  |
Common shares (par value $0.01 per share, 100,000,000 shares authorized, 63,308,434 and 63,217,708 shares issued, respectively) | 633 |  |  | 632 |
Additional paid-in capital | 391,875 |  |  | 388,150 |
Accumulated other comprehensive income (loss) (net of deferred tax expense (benefit) of $11,100 and $19,386, respectively) | 41,507 |  |  | 75,227 |
Retained earnings | 1,405,049 |  |  | 1,301,163 |
Treasury shares, at cost (9,325,180 shares as of each respective period end) | (415,962) |  |  | (415,962) |
Total Shareholders' Equity | 1,423,102 |  |  | 1,349,210 |
Total Liabilities and Shareholders' Equity | $ | 6,327,268 |  |  | $ | 4,654,803 |

See accompanying notes.
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Table of Contents
ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Capital (Unaudited)
(In thousands)

|  | Common Stock |  | Additional Paid-in Capital |  | Accumulated Other Comprehensive Income (Loss) |  | Retained Earnings |  | Treasury Stock |  | Total
Balance at July 1, 2021 |  | $ | 633 |  |  | $ | 390,748 |  |  | $ | 53,072 |  |  | $ | 1,395,549 |  |  | $ | (415,962) |  |  | $ | 1,424,040 |
Common shares issued for compensation and effect of shares reissued to stock purchase plan |  | — |  |  | 7 |  |  | — |  |  | — |  |  | — |  |  | 7 |
Share-based compensation |  | — |  |  | 1,132 |  |  | — |  |  | — |  |  | — |  |  | 1,132 |
Net effect of restricted and performance shares issued |  | — |  |  | (12) |  |  | — |  |  | — |  |  | — |  |  | (12) |
Dividends to shareholders |  | — |  |  | — |  |  | — |  |  | (2,700) |  |  | — |  |  | (2,700) |
Other comprehensive income (loss) |  | — |  |  | — |  |  | (11,565) |  |  | — |  |  | — |  |  | (11,565) |
Net income (loss) |  | — |  |  | — |  |  | — |  |  | 12,200 |  |  | — |  |  | 12,200 |
Balance at September 30, 2021 |  | $ | 633 |  |  | $ | 391,875 |  |  | $ | 41,507 |  |  | $ | 1,405,049 |  |  | $ | (415,962) |  |  | $ | 1,423,102 |
|  | 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 |  | — |  |  | 693 |  |  | — |  |  | — |  |  | — |  |  | 693 |
Share-based compensation |  | — |  |  | 3,309 |  |  | — |  |  | — |  |  | — |  |  | 3,309 |
Net effect of restricted and performance shares issued |  | 1 |  |  | (277) |  |  | — |  |  | — |  |  | — |  |  | (276) |
Dividends to shareholders |  | — |  |  | — |  |  | — |  |  | (8,098) |  |  | — |  |  | (8,098) |
Other comprehensive income (loss) |  | — |  |  | — |  |  | (33,720) |  |  | — |  |  | — |  |  | (33,720) |
Net income (loss) |  | — |  |  | — |  |  | — |  |  | 111,984 |  |  | — |  |  | 111,984 |
Balance at September 30, 2021 |  | $ | 633 |  |  | $ | 391,875 |  |  | $ | 41,507 |  |  | $ | 1,405,049 |  |  | $ | (415,962) |  |  | $ | 1,423,102 |
Continued on the following page.

8

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Continued from the previous page.
|  | Common Stock |  | Additional Paid-in Capital |  | Accumulated Other Comprehensive Income (Loss) |  | Retained Earnings |  | Treasury Stock |  | Total
Balance at July 1, 2020 |  | $ | 632 |  |  | $ | 386,365 |  |  | $ | 61,130 |  |  | $ | 1,442,225 |  |  | $ | (415,962) |  |  | $ | 1,474,390 |
Common shares issued for compensation and effect of shares reissued to stock purchase plan |  | — |  |  | 8 |  |  | — |  |  | — |  |  | — |  |  | 8 |
Share-based compensation |  | — |  |  | 1,017 |  |  | — |  |  | — |  |  | — |  |  | 1,017 |
Net effect of restricted and performance shares issued |  | — |  |  | (4) |  |  | — |  |  | — |  |  | — |  |  | (4) |
Dividends to shareholders |  | — |  |  | — |  |  | — |  |  | (2,694) |  |  | — |  |  | (2,694) |
Other comprehensive income (loss) |  | — |  |  | — |  |  | 7,155 |  |  | — |  |  | — |  |  | 7,155 |
Net income (loss) |  | — |  |  | — |  |  | — |  |  | (149,979) |  |  | — |  |  | (149,979) |
Balance at September 30, 2020 |  | $ | 632 |  |  | $ | 387,386 |  |  | $ | 68,285 |  |  | $ | 1,289,552 |  |  | $ | (415,962) |  |  | $ | 1,329,893 |
|  | 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) |
Common shares issued for compensation and effect of shares reissued to stock purchase plan |  | — |  |  | 683 |  |  | — |  |  | — |  |  | — |  |  | 683 |
Share-based compensation |  | — |  |  | 3,061 |  |  | — |  |  | — |  |  | — |  |  | 3,061 |
Net effect of restricted and performance shares issued |  | 1 |  |  | (909) |  |  | — |  |  | — |  |  | — |  |  | (908) |
Dividends to shareholders |  | — |  |  | — |  |  | — |  |  | (22,078) |  |  | — |  |  | (22,078) |
Other comprehensive income (loss) |  | — |  |  | — |  |  | 31,330 |  |  | — |  |  | — |  |  | 31,330 |
Net income (loss) |  | — |  |  | — |  |  | — |  |  | (190,032) |  |  | — |  |  | (190,032) |
Balance at September 30, 2020 |  | $ | 632 |  |  | $ | 387,386 |  |  | $ | 68,285 |  |  | $ | 1,289,552 |  |  | $ | (415,962) |  |  | $ | 1,329,893 |

See accompanying notes.
9

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 September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | 2021 |  | 2020
Revenues |  |  |  |  |  |  |
Net premiums earned | $ | 272,248 |  |  | $ | 194,559 |  |  | $ | 698,598 |  |  | $ | 605,708 |
Net investment income | 19,278 |  |  | 16,924 |  |  | 51,713 |  |  | 55,877 |
Equity in earnings (loss) of unconsolidated subsidiaries | 15,244 |  |  | 4,853 |  |  | 33,959 |  |  | (22,065) |
Net realized investment gains (losses): |  |  |  |  |  |  |
Impairment losses | — |  |  | — |  |  | — |  |  | (1,745) |
Portion of impairment losses recognized in other comprehensive income (loss) before taxes | — |  |  | — |  |  | — |  |  | 237 |
Net impairment losses recognized in earnings | — |  |  | — |  |  | — |  |  | (1,508) |
Other net realized investment gains (losses) | 530 |  |  | 8,838 |  |  | 20,212 |  |  | 1,658 |
Total net realized investment gains (losses) | 530 |  |  | 8,838 |  |  | 20,212 |  |  | 150 |
Other income | 2,400 |  |  | 1,723 |  |  | 6,862 |  |  | 5,668 |
Total revenues | 309,700 |  |  | 226,897 |  |  | 811,344 |  |  | 645,338 |
Expenses |  |  |  |  |  |  |
Net losses and loss adjustment expenses | 223,393 |  |  | 145,581 |  |  | 555,030 |  |  | 521,412 |
Underwriting, policy acquisition and operating expenses: |  |  |  |  |  |  |
Operating expense | 38,659 |  |  | 32,419 |  |  | 120,721 |  |  | 96,650 |
DPAC amortization | 28,153 |  |  | 27,014 |  |  | 79,729 |  |  | 83,528 |
SPC U.S. federal income tax expense | 431 |  |  | 871 |  |  | 1,291 |  |  | 1,573 |
SPC dividend expense (income) | 1,320 |  |  | 3,854 |  |  | 5,926 |  |  | 7,988 |
Interest expense | 5,814 |  |  | 3,881 |  |  | 14,203 |  |  | 11,725 |
Goodwill impairment | — |  |  | 161,115 |  |  | — |  |  | 161,115 |
Total expenses | 297,770 |  |  | 374,735 |  |  | 776,900 |  |  | 883,991 |
Gain on bargain purchase | — |  |  | — |  |  | 74,408 |  |  | — |
Income (loss) before income taxes | 11,930 |  |  | (147,838) |  |  | 108,852 |  |  | (238,653) |
Provision for income taxes: |  |  |  |  |  |  |
Current expense (benefit) | 3,692 |  |  | 11,314 |  |  | 2,643 |  |  | (26,621) |
Deferred expense (benefit) | (3,962) |  |  | (9,173) |  |  | (5,775) |  |  | (22,000) |
Total income tax expense (benefit) | (270) |  |  | 2,141 |  |  | (3,132) |  |  | (48,621) |
Net income (loss) | 12,200 |  |  | (149,979) |  |  | 111,984 |  |  | (190,032) |
Other comprehensive income (loss), after tax, net of reclassification adjustments | (11,565) |  |  | 7,155 |  |  | (33,720) |  |  | 31,330 |
Comprehensive income (loss) | $ | 635 |  |  | $ | (142,824) |  |  | $ | 78,264 |  |  | $ | (158,702) |
Earnings (loss) per share |  |  |  |  |  |  |
Basic | $ | 0.23 |  |  | $ | (2.78) |  |  | $ | 2.08 |  |  | $ | (3.53) |
Diluted | $ | 0.23 |  |  | $ | (2.78) |  |  | $ | 2.07 |  |  | $ | (3.53) |
Weighted average number of common shares outstanding: |  |  |  |  |  |  |
Basic | 53,982 |  |  | 53,889 |  |  | 53,955 |  |  | 53,854 |
Diluted | 54,078 |  |  | 53,918 |  |  | 54,042 |  |  | 53,896 |
Cash dividends declared per common share | $ | 0.05 |  |  | $ | 0.05 |  |  | $ | 0.15 |  |  | $ | 0.41 |

See accompanying notes.
10

Table of Contents
ProAssurance Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

| Nine Months Ended September 30
| 2021 |  | 2020
Operating Activities |  |  |
Net income (loss) | $ | 111,984 |  |  | $ | (190,032) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |  |
Goodwill impairment | — |  |  | 161,115 |
Gain on bargain purchase | (74,408) |  |  | — |
Depreciation and amortization, net of accretion | 26,566 |  |  | 16,168 |
(Increase) decrease in cash surrender value of BOLI | (393) |  |  | (1,281) |
Net realized investment (gains) losses | (20,212) |  |  | (150) |
Share-based compensation | 3,318 |  |  | 3,052 |
Deferred income tax expense (benefit) | (5,775) |  |  | (22,000) |
Policy acquisition costs, net of amortization (net deferral) | (10,733) |  |  | 2,529 |
Equity in (earnings) loss of unconsolidated subsidiaries | (33,959) |  |  | 22,065 |
Distributed earnings from unconsolidated subsidiaries | 20,921 |  |  | 29,844 |
Other | (194) |  |  | 2,605 |
Other changes in assets and liabilities: |  |  |
Premiums receivable | 23,482 |  |  | 6,486 |
Reinsurance related assets and liabilities | (4,791) |  |  | (11,079) |
Other assets | 21,358 |  |  | (13,297) |
Reserve for losses and loss adjustment expenses | 33,062 |  |  | 60,962 |
Unearned premiums | (30,630) |  |  | 2,098 |
Other liabilities | 9,767 |  |  | 4,088 |
Net cash provided (used) by operating activities | 69,363 |  |  | 73,173 |
Investing Activities |  |  |
Purchases of: |  |  |
Fixed maturities, available-for-sale | (1,169,582) |  |  | (689,429) |
Equity investments | (140,550) |  |  | (63,386) |
Other investments | (61,104) |  |  | (26,432) |
Investment in unconsolidated subsidiaries | (15,316) |  |  | (32,768) |
Proceeds from sales or maturities of: |  |  |
Fixed maturities, available-for-sale | 777,783 |  |  | 635,392 |
Equity investments | 425,039 |  |  | 174,130 |
Other investments | 35,087 |  |  | 27,279 |
Net sales or (purchases) of fixed maturities, trading | 2,935 |  |  | (4,893) |
Return of invested capital from unconsolidated subsidiaries | 47,963 |  |  | 26,831 |
Net sales or maturities (purchases) of short-term investments | 247,085 |  |  | (37,549) |
Unsettled security transactions, net change | 49,905 |  |  | 21,498 |
Purchases of capital assets | (3,200) |  |  | (6,665) |
Purchases of intangible assets | — |  |  | (1,198) |
Cash paid for acquisitions, net of cash acquired | (221,576) |  |  | — |
Other | — |  |  | (811) |
Net cash provided (used) by investing activities | (25,531) |  |  | 21,999 |
Continued on the following page. |  |  |

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Table of Contents

| Nine Months Ended September 30
| 2021 |  | 2020
Continued from the previous page. |  |  |
Financing Activities |  |  |
Repayments of Mortgage Loans | (36,113) |  |  | (1,127) |
Dividends to shareholders | (8,067) |  |  | (35,978) |
Capital contribution received from (return of capital to) external segregated portfolio cell participants | (9,114) |  |  | (581) |
Purchase of non-controlling interest | (3,089) |  |  | — |
Other | (278) |  |  | (907) |
Net cash provided (used) by financing activities | (56,661) |  |  | (38,593) |
Increase (decrease) in cash and cash equivalents | (12,829) |  |  | 56,579 |
Cash and cash equivalents at beginning of period | 215,782 |  |  | 175,369 |
Cash and cash equivalents at end of period | $ | 202,953 |  |  | $ | 231,948 |
Significant Non-Cash Transactions |  |  |
Dividends declared and not yet paid | $ | 2,700 |  |  | $ | 2,694 |
Operating ROU assets obtained in exchange for operating lease liabilities | $ | 5,275 |  |  | $ | 478 |
Fair value of Contribution Certificates issued in NORCAL acquisition | $ | 174,999 |  |  | $ | — |
Fair value of contingent consideration in NORCAL acquisition | $ | 24,000 |  |  | $ | — |

See accompanying notes.
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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of ProAssurance Corporation, its wholly owned subsidiaries and VIEs in which ProAssurance is the primary beneficiary (ProAssurance, PRA or the Company). See Note 13 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 nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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 report on Form 10-K.
ProAssurance operates in five 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 15.
Certain insignificant prior period amounts have been reclassified to conform to the current period presentation.
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 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.
Except as described below, 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 report on Form 10-K.
Business Combinations
The Company accounted for its acquisition of NORCAL in accordance with GAAP relating to business combinations which required management to make certain estimates and assumptions including determining the fair value of the non-cash components of the acquisition consideration and the acquisition date fair values of the acquired tangible and identifiable intangible assets and assumed liabilities of NORCAL. Subsequent to the preliminary valuation of the non-cash components of the purchase consideration and net assets acquired, any adjustment identified associated with the purchase price allocation will be evaluated to determine whether the adjustment represents a measurement period adjustment in accordance with GAAP. If the adjustment is deemed to be a measurement period adjustment and is identified within one year of the acquisition, then the measurement period adjustment will be recorded in the current reporting period with a corresponding adjustment to the gain on bargain purchase.
Contingent Consideration
Contingent consideration in a business combination that is classified as a liability is measured at fair value on the date of acquisition and remeasured to fair value each subsequent reporting period with changes in the fair value recognized in earnings.
VOBA
VOBA is based on actuarially determined projections and reflects the estimated fair value of in-force contracts acquired in a business combination. VOBA is recorded as an asset when the in-force contracts acquired are expected to generate underwriting income and is recorded as a liability when the in-force contracts acquired are expected to generate an underwriting loss. VOBA liabilities (negative VOBA) are recorded as a component of the reserve for losses and loss adjustment expenses on the Condensed Consolidated Balance Sheets. To the extent negative VOBA relates to unearned premium, it is amortized over a period in proportion to the earn-out of the premium as a reduction to current accident year net losses and loss adjustment expenses. To the extent negative VOBA relates to the DDR reserve, it is amortized over a period in proportion to the
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
approximate consumption of losses as a reduction to prior accident year net losses and loss adjustment expenses. See Note 2 for more information.
Accounting Policies Acquired
The significant accounting policies adopted as a result of the acquisition of NORCAL on May 5, 2021 and followed by ProAssurance in making estimates that materially affect financial reporting are summarized below.
Other Assets and Liabilities
Other assets include the acquired NORCAL investments in a deferred compensation rabbi trust which are carried at fair value. These rabbi trust assets are related to other liabilities associated with funded deferred compensation agreements with NORCAL employees and previous members of NORCAL's Board of Directors.
Other liabilities include the assumed NORCAL liability for deferred compensation balances associated with the rabbi trust assets and the reported balance is determined based on the amount of elective deferrals and employer contributions adjusted for periodic changes in fair value of the participant balances based on the performance of the funds selected by the participants.
ProAssurance recognizes the net change in the fair value of the rabbi trust assets and associated deferred compensation liabilities as a component of net investment income during the period of change.
Pension
As a result of the NORCAL acquisition, the Company sponsors a frozen defined benefit pension plan 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). Accounting for pension benefits requires the use of assumptions for the valuation of the PBO and the expected performance of the plan assets.
The Company uses December 31 as the measurement date for calculating its obligation related to this defined benefit pension plan. The PBO for pension benefits represents the present value of all future benefits earned as of the measurement date for vested and non-vested employees. At each measurement date, the Company reviews the various assumptions impacting the amounts recorded for the pension plan including the discount rates, which impacts the recorded value of the PBO and interest costs, and the expected return on plan assets.
To estimate the discount rate at the measurement date, the Company uses a bond yield curve model, developed based on pricing and yield information for high quality corporate bonds. The assumption for the expected return on plan assets is based on the anticipated returns that will be earned by the portfolio over the long term. The expected return is influenced, but not determined, by historical portfolio performance.
Accounting standards provide for the delayed recognition of differences between actual results and expected or estimated results. This delayed recognition of the differences is amortized into earnings over time. The differences between actual results and expected or estimated results are recognized in full in AOCI. Amounts recognized in AOCI are reclassified to earnings in a systematic manner over the average future service period of participants. Due to the acquisition of NORCAL and the application of GAAP purchase accounting, there were no amounts recorded in AOCI as of September 30, 2021 as the plan assets and benefit obligation are not remeasured on a quarterly basis.
Accounting Changes Adopted
Clarifying 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 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 no material effect on ProAssurance's 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 September 30, 2021 that could have a material impact on its results of operations, financial position or cash flows.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 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 4 for information on ProAssurance's allowance for expected credit losses on its available-for-sale fixed maturities.
ProAssurance’s premiums receivable on its Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 is reported net of the related allowance for expected credit losses of $7.7 million and $6.1 million, respectively. The following tables present a roll forward of the allowance for expected credit losses related to the Company's premiums receivable for the three and nine months ended September 30, 2021 and 2020.

(In thousands) |  |  |  |  | Premiums Receivable, Net |  | Allowance for Expected Credit Losses |  |
Balance, July 1, 2021 |  |  |  |  | $ | 288,589 |  |  | $ | 7,729 |  |  |
Provision for expected credit losses |  |  |  |  |  |  | 48 |  |  |
Write offs charged against the allowance |  |  |  |  |  |  | (125) |  |  |
Recoveries of amounts previously written off |  |  |  |  |  |  | 24 |  |  |
Balance, September 30, 2021 |  |  |  |  | $ | 288,819 |  |  | $ | 7,676 |  |  |

(In thousands) |  |  |  |  | Premiums Receivable, Net |  | Allowance for Expected Credit Losses |  |
Balance, December 31, 2020 |  |  |  |  | $ | 201,395 |  |  | $ | 6,131 |  |  |
Initial allowance recognized in the period for NORCAL premiums receivable(1) |  |  |  |  |  |  | 2,137 |  |  |
Provision for expected credit losses |  |  |  |  |  |  | 505 |  |  |
Write offs charged against the allowance |  |  |  |  |  |  | (1,243) |  |  |
Recoveries of amounts previously written off |  |  |  |  |  |  | 146 |  |  |
Balance, September 30, 2021 |  |  |  |  | $ | 288,819 |  |  | $ | 7,676 |  |  |

(In thousands) |  |  |  |  | Premiums Receivable, Net |  | Allowance for Expected Credit Losses
Balance, July 1, 2020 |  |  |  |  | $ | 234,840 |  |  | $ | 6,627 |
Provision for expected credit losses |  |  |  |  |  |  | 123 |
Write offs charged against the allowance |  |  |  |  |  |  | (404) |
Recoveries of amounts previously written off |  |  |  |  |  |  | 270 |
Balance, September 30, 2020 |  |  |  |  | $ | 237,894 |  |  | $ | 6,616 |

(In thousands) |  |  |  |  | Premiums Receivable, Net |  | Allowance for Expected Credit Losses
Balance, December 31, 2019 |  |  |  |  | $ | 249,540 |  |  | $ | 1,590 |
Cumulative-effect adjustment, before tax (2) |  |  |  |  |  |  | 5,160 |
Provision for expected credit losses |  |  |  |  |  |  | 616 |
Write offs charged against the allowance |  |  |  |  |  |  | (1,078) |
Recoveries of amounts previously written off |  |  |  |  |  |  | 328 |
Balance, September 30, 2020 |  |  |  |  | $ | 237,894 |  |  | $ | 6,616 |
(1) Represents an initial allowance for expected credit losses recognized during the second quarter of 2021 for NORCAL's premiums receivable to conform NORCAL to ProAssurance's accounting policies. See Note 2 for more information.
(2) 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.

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
ProAssurance’s expected credit losses associated with its reinsurance receivables (related to both paid and unpaid losses) were nominal in amount as of September 30, 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 September 30, 2021 and December 31, 2020.
Other Liabilities
Other liabilities consisted of the following:

(In thousands) |  | September 30, 2021 |  | December 31, 2020
SPC dividends payable |  | $ | 64,472 |  |  | $ | 68,865 |
Unpaid shareholder dividends |  | 2,700 |  |  | 2,694 |
Deferred compensation liabilities |  | 51,456 |  |  | 30,334 |
Contingent consideration |  | 24,000 |  |  | — |
All other |  | 136,648 |  |  | 80,146 |
Total other liabilities |  | $ | 279,276 |  |  | $ | 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 September 30, 2021.
Deferred compensation liabilities represent 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. See additional information on the deferred compensation liabilities in Note 3.
Contingent consideration represents a portion of the purchase consideration for the NORCAL acquisition and depends on the after-tax development of NORCAL's ultimate net losses over a three year period beginning on December 31, 2020. See additional information on the contingent consideration in Note 2.
2. Business Combination
On May 5, 2021, ProAssurance completed its acquisition of NORCAL by purchasing 98.8% of its stock in exchange for total consideration transferred of $448.8 million. On September 16, 2021, ProAssurance acquired the remaining 1.2% interest in NORCAL for $3.1 million of cash. The NORCAL transaction provides strategic and financial benefits including additional scale and geographic diversification in the physician professional liability market. On May 5, 2021, ProAssurance funded the acquisition with $248.0 million of cash on hand, and NORCAL paid $1.8 million to policyholders who elected to receive a discounted cash option for their allocated share of the converted company's equity. Additional consideration transferred, with a principal amount of $191.0 million and a fair value of $175.0 million, is in the form of Contribution Certificates 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 11 for further discussion of the terms of the Contribution Certificates). Policyholders who tendered NORCAL stock to ProAssurance are also eligible for a share of contingent consideration in an amount of up to approximately $84.0 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 $24.0 million as of May 5, 2021 and September 30, 2021.
ProAssurance's results for the three and nine months ended September 30, 2021 included NORCAL's results since the date of acquisition (revenue of $87.8 million and $141.1 million, respectively, and net income of $1.7 million and a net loss of $3.3 million, respectively). ProAssurance incurred expenses related to the acquisition of approximately $2.3 million and $23.5 million during the three and nine months ended September 30, 2021, respectively, and approximately $0.5 million and $1.6 million during the three and nine months ended September 30, 2020, respectively. These expenses were included as a component of operating expenses in the periods incurred in ProAssurance's Condensed Consolidated Statements of Income and Comprehensive Income.
ProAssurance accounted for its acquisition of NORCAL in accordance with GAAP relating to business combinations. The total acquisition consideration was allocated to the acquired tangible and identifiable intangible assets and assumed liabilities of NORCAL based on their preliminary estimated fair values on the acquisition date, as shown in the following table. The
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
amounts reflect preliminary allocation of assets acquired and liabilities assumed. The acquisition date fair value of certain assets acquired and liabilities assumed, including intangible assets, deferred income tax assets and liabilities, and reserves for losses and loss adjustment expenses are preliminary estimates and are subject to revisions within one year of acquisition date. Subsequent to the preliminary valuation of net assets acquired, any adjustment identified associated with the purchase price allocation will be evaluated to determine whether the adjustment represents a measurement period adjustment in accordance with GAAP. If the adjustment is deemed to be a measurement period adjustment and is identified within one year of the acquisition, then the measurement period adjustment will be recorded in the current reporting period with a corresponding adjustment to the gain on bargain purchase.
A $74.4 million gain on bargain purchase was recognized on the date of the acquisition as the fair value of the consideration transferred was less than the fair value of the net assets acquired. This gain is presented as a separate line item in ProAssurance's Condensed Consolidated Statements of Income and Comprehensive Income for the nine months ended September 30, 2021. ProAssurance believes it was able to acquire NORCAL for less than the fair value of its net assets due to several contributing factors including the soft medical professional liability market at the time the transaction was initially announced and the value attributed to certain assets. Before the acquisition, NORCAL had recorded a valuation allowance against the full value of its net deferred tax assets. In conjunction with acquisition accounting, ProAssurance recorded $46.8 million of net deferred tax assets reflecting the remeasurement of NORCAL's historical net deferred tax assets, as such deferred taxes were subject to recalculation following application of all purchase accounting adjustments, and its assessment of the realizability of NORCAL's historical deferred tax assets. Based upon the assessment of the realizability of NORCAL's historical deferred tax assets, ProAssurance management concluded that these deferred tax assets are now realizable, which increased the net assets acquired. In addition, based upon the historical performance of NORCAL, ProAssurance did not attribute any value to intangible assets in determining the initial base consideration of $450.0 million per the acquisition agreement, whereas ProAssurance identified $14.0 million of intangible assets as a part of its estimated allocation of final acquisition consideration. Other changes in the fair values of NORCAL's assets and liabilities from the time ProAssurance entered into the definitive acquisition agreement in February 2020 to the close of the transaction in May 2021 also contributed to the increase in net assets acquired and gain on bargain purchase.
The preliminary allocation of acquisition consideration is shown in the table below.

(In thousands) |
Fixed maturities, available for sale | $ | 1,100,058 |
Equity investments, available for sale | 374,484 |
Short-term investments | 61,289 |
Business owned life insurance | 12,581 |
Investment in unconsolidated subsidiaries | 26,948 |
Other investments | 32,461 |
Cash and cash equivalents | 28,233 |
Premiums receivable | 110,905 |
Receivable from reinsurers on paid losses and loss adjustment expenses | 266 |
Receivable from reinsurers on unpaid losses and loss adjustment expenses | 93,342 |
Prepaid reinsurance premiums | 9,238 |
Deferred tax asset, net | 46,759 |
Operating lease ROU assets | 4,385 |
Intangible assets | 14,000 |
Other assets | 38,648 |
Reserve for losses and loss adjustment expenses | (1,182,445) |
Unearned premiums | (178,400) |
Reinsurance premiums payable | (12,981) |
Operating lease liabilities | (5,275) |
Other liabilities | (51,279) |
Total identifiable net assets acquired | $ | 523,217 |
Gain on bargain purchase | (74,408) |
Total acquisition consideration | $ | 448,809 |

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
The estimated fair values of intangible assets were determined based on 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. Intangible assets were identified that met either the separability criterion or the contractual-legal criterion under the acquisition method of accounting. Intangible assets acquired included the following:

(In thousands) | Estimated Fair Value on Acquisition Date |  | Estimated Useful Life
Trade name | $ | 1,000 |  |  | 3
Licenses | 13,000 |  |  | Indefinite
Total | $ | 14,000 |  |  |

The estimated fair value of the reserve for losses and loss adjustment expenses and related reinsurance recoverables was based on three components: an actuarial estimate of the expected future net cash flows, a reduction to those cash flows for the time value of money determined utilizing the U.S. Treasury Yield Curve and a risk margin adjustment to reflect the net present value of profit that an investor would demand in return for the assumption of the development risk associated with the reserve. The fair value of the net reserve, including the risk margin adjustment and related reinsurance receivables, exceeded the actuarial estimate of NORCAL’s undiscounted loss reserve as of May 5, 2021. On May 5, 2021, the fair value adjustment on the gross reserve of approximately $42.2 million was recorded to the reserve for losses and loss adjustment expenses and the fair value adjustment on the related reinsurance recoverables of approximately $3.5 million was recorded to the receivable from reinsurers on unpaid losses and loss adjustment expenses on the Condensed Consolidated Balance Sheets. These net fair value adjustments of $38.7 million will be amortized over a period utilizing loss payment patterns as a net reduction to prior accident year net losses and loss adjustment expenses.
The estimated fair value of VOBA was determined based on 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 estimated using the income approach. The estimated negative VOBA recorded on the assumed unearned premium of $12.4 million was recorded to the reserve for losses and loss adjustment expenses and the fair value adjustment on the related reinsurance recoverables of $0.7 million was recorded to receivable from reinsurers on unpaid losses and loss adjustment expenses on the Condensed Consolidated Balance Sheets. The net VOBA on unearned premium of $11.7 million will be amortized over a period in proportion to the earn-out of the premium as a reduction to current accident year net losses and loss adjustment expenses. The estimated negative VOBA recorded on the assumed DDR reserve totaling $3.5 million was also recorded to the reserve for losses and loss adjustment expenses on the Condensed Consolidated Balance Sheets and will be amortized over a period in proportion to the approximate consumption of losses as a reduction to prior accident year net losses and loss adjustment expenses.
The following table reflects the fair value adjustment on the net reserve for losses and loss adjustment expenses, the negative net VOBA recorded on the assumed unearned premium and negative VOBA recorded on the DDR reserve, as well as the expected amortization of each for the five years following the acquisition.

(In thousands) | Amount at May 5, 2021 |  | Estimated amortization period (years) |  | Expected pre-tax amortization for year following the acquisition
|  | 2021 |  | 2022 |  | 2023 |  | 2024 |  | 2025 |  | Thereafter
Fair value adjustment on reserves, net (1) | $ | 38,701 |  |  | 7 |  | $ | 7,768 |  |  | $ | 10,595 |  |  | $ | 8,090 |  |  | $ | 5,083 |  |  | $ | 3,107 |  |  | $ | 4,058 |
Unearned premium VOBA, net (2) | 11,676 |  |  | 1 |  | 6,737 |  |  | 4,939 |  |  | — |  |  | — |  |  | — |  |  | — |
DDR reserve VOBA (1) | 3,467 |  |  | 15 |  | 139 |  |  | 224 |  |  | 243 |  |  | 243 |  |  | 243 |  |  | 2,375 |
Total | $ | 53,844 |  |  |  |  | $ | 14,644 |  |  | $ | 15,758 |  |  | $ | 8,333 |  |  | $ | 5,326 |  |  | $ | 3,350 |  |  | $ | 6,433 |
(1) Amortization will be recorded as a reduction to prior accident year net losses and loss adjustment expenses.
(2) Amortization will be recorded as a reduction to current accident year net losses and loss adjustment expenses

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
Unaudited Supplemental Pro Forma Information
The following table provides Pro Forma Consolidated Results and Actual Consolidated Results for the three and nine months ended September 30, 2021 and 2020 as if the NORCAL transaction had occurred on January 1, 2020.
The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the operating results that may have actually occurred had the acquisition of NORCAL been completed on January 1, 2020. In addition, the unaudited pro forma financial information does not give effect to any anticipated cost savings, operating efficiencies or other synergies that may be associated with the acquisition, or any estimated costs that have been or will be incurred to integrate the assets and operations of NORCAL.

| Three Months Ended September 30 |  | Nine Months Ended September 30
(In thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Revenue: |  |  |  |  |  |  |
ProAssurance Pro Forma Consolidated Results | $ | 305,927 |  |  | $ | 340,428 |  |  | $ | 930,350 |  |  | $ | 943,268 |
ProAssurance Actual Consolidated Results | $ | 309,700 |  |  | $ | 226,897 |  |  | $ | 811,344 |  |  | $ | 645,338 |
Net income (loss): |  |  |  |  |  |  |
ProAssurance Pro Forma Consolidated Results | $ | 13,366 |  |  | $ | (158,620) |  |  | $ | 58,692 |  |  | $ | (117,906) |
ProAssurance Actual Consolidated Results | $ | 12,200 |  |  | $ | (149,979) |  |  | $ | 111,984 |  |  | $ | (190,032) |

The ProAssurance Pro Forma Consolidated Results reflect pro forma adjustments, net of related tax effects, to give effect to certain events that are directly attributable to the acquisition. These pro forma adjustments primarily include:
•The addition of NORCAL's operating results prior to the acquisition to ProAssurance's Actual Consolidated Results in all periods shown.
•A reduction in expenses for the three and nine months ended September 30, 2021 and the three months ended September 30, 2020 and a corresponding increase for the nine months ended September 30, 2020 for transaction-related costs, including other costs associated with the acquisition such as compensation costs related to change in control payments.
•The effect of the amortization of intangible assets, VOBA and the fair value adjustment on the reserve. See previous amortization schedules for reference.
•The non-taxable gain on bargain purchase of $74.4 million that was included in ProAssurance's Actual Consolidated Results for the nine months ended September 30, 2021 has been reported in the Pro Forma Consolidated Results as being recognized during the nine months ended September 30, 2020.
•An adjustment to net investment income for the amortization of the fair value adjustment to NORCAL's investments.
•An increase to interest expense for the interest on the Contribution Certificates (see Note 11 for further discussion of the terms of the Contribution Certificates).
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
3. 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 September 30, 2021 and December 31, 2020 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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021

| September 30, 2021
| 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 | $ | — |  |  | $ | 242,705 |  |  | $ | — |  |  | $ | 242,705 |
U.S. Government-sponsored enterprise obligations | — |  |  | 20,468 |  |  | — |  |  | 20,468 |
State and municipal bonds | — |  |  | 522,707 |  |  | — |  |  | 522,707 |
Corporate debt, multiple observable inputs | — |  |  | 1,943,401 |  |  | — |  |  | 1,943,401 |
Corporate debt, limited observable inputs | — |  |  | — |  |  | 19,712 |  |  | 19,712 |
Residential mortgage-backed securities | — |  |  | 473,674 |  |  | 4,235 |  |  | 477,909 |
Agency commercial mortgage-backed securities | — |  |  | 14,942 |  |  | — |  |  | 14,942 |
Other commercial mortgage-backed securities | — |  |  | 219,024 |  |  | — |  |  | 219,024 |
Other asset-backed securities | — |  |  | 432,261 |  |  | 11,007 |  |  | 443,268 |
Fixed maturities, trading | — |  |  | 45,049 |  |  | — |  |  | 45,049 |
Equity investments |  |  |  |  |  |  |
Financial | — |  |  | 868 |  |  | — |  |  | 868 |
Utilities/Energy | — |  |  | — |  |  | 69 |  |  | 69 |
Industrial | — |  |  | — |  |  | 2,500 |  |  | 2,500 |
Bond funds | 191,834 |  |  | — |  |  | — |  |  | 191,834 |
All other | 19,259 |  |  | — |  |  | — |  |  | 19,259 |
Short-term investments | 112,706 |  |  | 39,002 |  |  | — |  |  | 151,708 |
Other investments | 1,864 |  |  | 104,978 |  |  | — |  |  | 106,842 |
Other assets | — |  |  | 601 |  |  | — |  |  | 601 |
Total assets categorized within the fair value hierarchy | $ | 325,663 |  |  | $ | 4,059,680 |  |  | $ | 37,523 |  |  | 4,422,866 |
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 |  |  |  |  |  |  | 251,675 |
Total assets at fair value |  |  |  |  |  |  | $ | 4,674,541 |
Liabilities: |  |  |  |  |  |  |
Other liabilities | $ | — |  |  | $ | — |  |  | $ | 24,000 |  |  | $ | 24,000 |
Total liabilities categorized within the fair value hierarchy | $ | — |  |  | $ | — |  |  | $ | 24,000 |  |  | $ | 24,000 |

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021

| December 31, 2020
| 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 | $ | — |  |  | $ | 107,059 |  |  | $ | — |  |  | $ | 107,059 |
U.S. Government-sponsored enterprise obligations | — |  |  | 12,261 |  |  | — |  |  | 12,261 |
State and municipal bonds | — |  |  | 332,920 |  |  | — |  |  | 332,920 |
Corporate debt, multiple observable inputs | — |  |  | 1,326,077 |  |  | — |  |  | 1,326,077 |
Corporate debt, limited observable inputs | — |  |  | — |  |  | 3,265 |  |  | 3,265 |
Residential mortgage-backed securities | — |  |  | 274,509 |  |  | 2,032 |  |  | 276,541 |
Agency commercial mortgage-backed securities | — |  |  | 13,310 |  |  | — |  |  | 13,310 |
Other commercial mortgage-backed securities | — |  |  | 113,092 |  |  | — |  |  | 113,092 |
Other asset-backed securities | — |  |  | 266,345 |  |  | 6,661 |  |  | 273,006 |
Fixed maturities, trading | — |  |  | 48,456 |  |  | — |  |  | 48,456 |
Equity investments |  |  |  |  |  |  |
Financial | 13,810 |  |  | — |  |  | — |  |  | 13,810 |
Utilities/Energy | 564 |  |  | — |  |  | — |  |  | 564 |
Consumer oriented | 1,262 |  |  | — |  |  | — |  |  | 1,262 |
Industrial | 2,240 |  |  | — |  |  | — |  |  | 2,240 |
Bond funds | 69,475 |  |  | — |  |  | — |  |  | 69,475 |
All other | 20,202 |  |  | — |  |  | — |  |  | 20,202 |
Short-term investments | 307,695 |  |  | 30,118 |  |  | — |  |  | 337,813 |
Other investments | 1,509 |  |  | 42,607 |  |  | — |  |  | 44,116 |
Other assets | — |  |  | 329 |  |  | — |  |  | 329 |
Total assets categorized within the fair value hierarchy | $ | 416,757 |  |  | $ | 2,567,083 |  |  | $ | 11,958 |  |  | 2,995,798 |
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 |  |  |  |  |  |  | 233,711 |
Total assets at fair value |  |  |  |  |  |  | $ | 3,242,057 |

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 September 30, 2021 and December 31, 2020.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
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.
Equity investments were securities not traded on an exchange on the valuation date. The securities were valued using the most recently available quotes for the securities.
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%.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
Level 3 Valuations
Below is a summary description of the valuation methodologies used as well as quantitative information regarding securities in the Level 3 category, by security 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 September 30, 2021, 100% of the securities were rated and the average rating was BBB. At December 31, 2020, 100% of the securities were rated and the average rating was BB+.
Residential mortgage-backed 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 September 30, 2021, 95% of the securities were rated and the average rating was A. At December 31, 2020, 51% of the securities were rated and the average rating was AA-.
Equity Securities consisted of a preferred stock and a mutual fund for which limited observable inputs were available at September 30, 2021. The equity securities were primarily priced using broker/dealer quotes and internal models with some inputs that are unobservable.
Other liabilities consisted of the contingent consideration which is a portion of the purchase price for the NORCAL acquisition and is recorded at fair value each reporting period. The ultimate payout under the contingent consideration is dependent on the after-tax development of NORCAL's ultimate net losses over a three-year period beginning December 31, 2020 and may total up to $84 million. See further discussion around the contingent consideration in Note 2 and Note 9.
Quantitative Information Regarding Level 3 Valuations

|  | Fair Value at |  |  |  |  |  |
($ in thousands) |  | September 30, 2021 |  | December 31, 2020 |  | Valuation Technique |  | Unobservable Input |  | Range (Weighted Average)
Assets: |  |  |  |  |  |  |  |  |  |
Corporate debt, limited observable inputs |  | $19,712 |  | $3,265 |  | Market Comparable Securities |  | Comparability Adjustment |  | 0% - 5% (2.5%)
|  |  |  |  |  | Discounted Cash Flows |  | Comparability Adjustment |  | 0% - 5% (2.5%)
Residential mortgage-backed securities |  | $4,235 |  | $2,032 |  | Market Comparable Securities |  | Comparability Adjustment |  | 0% - 5% (2.5%)
|  |  |  |  |  | Discounted Cash Flows |  | Comparability Adjustment |  | 0% - 5% (2.5%)
Other asset-backed securities |  | $11,007 |  | $6,661 |  | Market Comparable Securities |  | Comparability Adjustment |  | 0% - 5% (2.5%)
|  |  |  |  |  | Discounted Cash Flows |  | Comparability Adjustment |  | 0% - 5% (2.5%)
Equity securities |  | $2,569 |  | $— |  | 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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
Fair Value Measurements - Level 3 Assets
The following tables present summary information regarding changes in the fair value of assets measured using Level 3 inputs.

|  |  |  |  | September 30, 2021
|  |  |  |  | Level 3 Fair Value Measurements - Assets
(In thousands) |  |  |  |  | Corporate Debt |  | Asset-backed Securities |  | Equity Securities |  | Other Investments |  | Total |  |
Balance, June 30, 2021 |  |  |  |  | $ | 15,065 |  |  | $ | 9,857 |  |  | $ | 852 |  |  | $ | 2,222 |  |  | $ | 27,996 |  |  |
Total gains (losses) realized and unrealized: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings, as a part of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net realized investment gains (losses) |  |  |  |  | — |  |  | — |  |  | (2) |  |  | (639) |  |  | (641) |  |  |
Included in other comprehensive income |  |  |  |  | 49 |  |  | (74) |  |  | 18 |  |  | — |  |  | (7) |  |  |
Purchases |  |  |  |  | 10,881 |  |  | 12,666 |  |  | 2,500 |  |  | — |  |  | 26,047 |  |  |
Sales |  |  |  |  | (284) |  |  | (17) |  |  | — |  |  | — |  |  | (301) |  |  |
Transfers in |  |  |  |  | — |  |  | — |  |  | 69 |  |  | — |  |  | 69 |  |  |
Transfers out |  |  |  |  | (5,999) |  |  | (7,190) |  |  | (868) |  |  | (1,583) |  |  | (15,640) |  |  |
Balance, September 30, 2021 |  |  |  |  | $ | 19,712 |  |  | $ | 15,242 |  |  | $ | 2,569 |  |  | $ | — |  |  | $ | 37,523 |  |  |
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end |  |  |  |  | $ | — |  |  | $ | — |  |  | $ | (1) |  |  | $ | (639) |  |  | $ | (640) |  |  |
|  |  |  |  | September 30, 2021
|  |  |  |  | Level 3 Fair Value Measurements - Assets
(In thousands) |  |  |  |  | Corporate Debt |  | Asset-backed Securities |  | Equity Securities |  | Other Investments |  | Total |  |
Balance, December 31, 2020 |  |  |  |  | $ | 3,265 |  |  | $ | 8,693 |  |  | $ | — |  |  | $ | — |  |  | $ | 11,958 |  |  |
Total gains (losses) realized and unrealized: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings, as a part of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment income |  |  |  |  | 1 |  |  | (2) |  |  | — |  |  | — |  |  | (1) |  |  |
Net realized investment gains (losses) |  |  |  |  | — |  |  | (11) |  |  | (1) |  |  | (774) |  |  | (786) |  |  |
Included in other comprehensive income |  |  |  |  | 82 |  |  | (171) |  |  | 16 |  |  | — |  |  | (73) |  |  |
Purchases |  |  |  |  | 24,971 |  |  | 28,026 |  |  | 9,083 |  |  | 205 |  |  | 62,285 |  |  |
Sales |  |  |  |  | (461) |  |  | (506) |  |  | (5,730) |  |  | — |  |  | (6,697) |  |  |
Transfers in |  |  |  |  | 858 |  |  | — |  |  | 69 |  |  | 2,152 |  |  | 3,079 |  |  |
Transfers out |  |  |  |  | (9,004) |  |  | (20,787) |  |  | (868) |  |  | (1,583) |  |  | (32,242) |  |  |
Balance, September 30, 2021 |  |  |  |  | $ | 19,712 |  |  | $ | 15,242 |  |  | $ | 2,569 |  |  | $ | — |  |  | $ | 37,523 |  |  |
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end |  |  |  |  | $ | — |  |  | $ | — |  |  | $ | (1) |  |  | $ | (774) |  |  | $ | (775) |  |  |

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021

|  |  |  |  | September 30, 2020
|  |  |  |  | Level 3 Fair Value Measurements – Assets
(In thousands) |  |  |  |  | Corporate Debt |  | Asset-backed Securities |  | Other Investments |  | Total
Balance, June 30, 2020 |  |  |  |  | $ | 3,117 |  |  | $ | 5,978 |  |  | $ | 1,568 |  |  | $ | 10,663 |
Total gains (losses) realized and unrealized: |  |  |  |  |  |  |  |  |  |  |
Included in earnings, as a part of: |  |  |  |  |  |  |  |  |  |  |
Net realized investment gains (losses) |  |  |  |  | — |  |  | (2) |  |  | 143 |  |  | 141 |
Included in other comprehensive income |  |  |  |  | (6) |  |  | (58) |  |  | — |  |  | (64) |
Purchases |  |  |  |  | 900 |  |  | 8,513 |  |  | — |  |  | 9,413 |
Sales |  |  |  |  | (16) |  |  | (99) |  |  | — |  |  | (115) |
Transfers out |  |  |  |  | — |  |  | (1,378) |  |  | (1,711) |  |  | (3,089) |
Balance, September 30, 2020 |  |  |  |  | $ | 3,995 |  |  | $ | 12,954 |  |  | $ | — |  |  | $ | 16,949 |
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end |  |  |  |  | $ | — |  |  | $ | — |  |  | $ | 143 |  |  | $ | 143 |
|  |  |  |  | September 30, 2020
|  |  |  |  | Level 3 Fair Value Measurements – Assets
(In thousands) |  |  |  |  | Corporate Debt |  | Asset-backed Securities |  | Other Investments |  | Total
Balance, December 31, 2019 |  |  |  |  | $ | 5,079 |  |  | $ | 2,992 |  |  | $ | 3,086 |  |  | $ | 11,157 |
Total gains (losses) realized and unrealized: |  |  |  |  |  |  |  |  |  |  |
Included in earnings, as a part of: |  |  |  |  |  |  |  |  |  |  |
Net investment income |  |  |  |  | — |  |  | (10) |  |  | — |  |  | (10) |
Net realized investment gains (losses) |  |  |  |  | — |  |  | (2) |  |  | 151 |  |  | 149 |
Included in other comprehensive income |  |  |  |  | 38 |  |  | 23 |  |  | — |  |  | 61 |
Purchases |  |  |  |  | 900 |  |  | 13,341 |  |  | — |  |  | 14,241 |
Sales |  |  |  |  | (2,173) |  |  | (888) |  |  | — |  |  | (3,061) |
Transfers in |  |  |  |  | 945 |  |  | 605 |  |  | — |  |  | 1,550 |
Transfers out |  |  |  |  | (794) |  |  | (3,107) |  |  | (3,237) |  |  | (7,138) |
Balance, September 30, 2020 |  |  |  |  | $ | 3,995 |  |  | $ | 12,954 |  |  | $ | — |  |  | $ | 16,949 |
Change in unrealized gains (losses) included in earnings for the above period for Level 3 assets held at period-end |  |  |  |  | $ | — |  |  | $ | — |  |  | $ | 151 |  |  | $ | 151 |

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 September 30, 2021.
Transfers
Transfers shown in the preceding Level 3 tables were as of the end of the period in which the transfer occurred. All transfers were to or from Level 2.
All transfers in and out of Level 3 during the three and nine months ended September 30, 2021 and 2020 related to securities held for which the level of market activity for identical or nearly identical securities varies from period to period. The securities were valued using multiple observable inputs when those inputs were available; otherwise the securities were valued using limited observable inputs.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
Fair Values Not Categorized
At September 30, 2021 and December 31, 2020, 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 September 30, 2021 and fair values of these investments as of September 30, 2021 and December 31, 2020 were as follows:

| Unfunded Commitments |  | Fair Value
(In thousands) | September 30, 2021 |  | September 30, 2021 |  | December 31, 2020
Equity investments: |  |  |  |  |
Mortgage fund (1) | None |  | $ | — |  |  | $ | 12,548 |
Investment in unconsolidated subsidiaries: |  |  |  |  |
Private debt funds (2) | $8,929 |  | 18,523 |  |  | 16,387 |
Long/short equity funds (3) | None |  | 533 |  |  | 596 |
Non-public equity funds (4) | $38,713 |  | 144,539 |  |  | 138,357 |
Credit funds (5) | $41,123 |  | 43,125 |  |  | 34,848 |
Strategy focused funds (6) | $34,988 |  | 44,955 |  |  | 43,523 |
|  |  | 251,675 |  |  | 233,711 |
Total investments carried at NAV |  |  | $ | 251,675 |  |  | $ | 246,259 |

Below is additional information regarding each of the investments listed in the table above as of September 30, 2021.
(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 two unrelated LP funds that are structured to provide interest distributions primarily through diversified portfolios of private debt instruments. One LP allows redemption by special consent, while the other does not permit redemption. Income and capital are to be periodically distributed at the discretion of the LPs over an anticipated time frame that spans from three to eight years.
(3)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)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)This investment is comprised of multiple unrelated LP funds. Two funds seek to obtain superior risk-adjusted absolute returns through a diversified portfolio of debt securities, including bonds, loans and other asset-backed instruments. The remaining funds focus on private middle market company mezzanine and senior secured loans, opportunities across the credit spectrum, mortgage backed-loans, as well as various types of loan-backed investments. Three of the funds allow redemptions at any quarter-end with prior notice requirements that vary from 90 to 180 days, while another fund allows for redemptions with consent of the General Partner. The remaining funds do not allow redemptions. For the funds that do not allow redemptions, income and capital are to be periodically distributed at the discretion of the LP over time frames throughout the remaining life of the funds.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
(6) This investment is comprised of multiple unrelated LPs/LLCs funds. One fund is an LLC focused on investing in North American consumer products companies, comprised of equity and equity-related securities, as well as debt instruments. A second fund is focused on aircraft investments, along with components and assets related to aircrafts. For both funds, redemptions are not permitted. Another fund is an 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
During the third quarter of 2020, ProAssurance recognized a nonrecurring fair value measurement related to the goodwill in its Specialty P&C reporting unit with a carrying value of $161.1 million prior to the fair value measurement. This nonrecurring fair value measurement resulted in the goodwill being written down to its implied fair value of zero resulting in an impairment of goodwill of $161.1 million. The inputs used in the fair value measurement were non-observable and, as such, were categorized as a Level 3 valuation. ProAssurance did not have any other assets or liabilities that were measured at fair value on a nonrecurring basis at September 30, 2021 or December 31, 2020.
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.

| September 30, 2021 |  | December 31, 2020
(In thousands) | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Financial assets: |  |  |  |  |  |  |
BOLI | $ | 80,821 |  |  | $ | 80,821 |  |  | $ | 67,847 |  |  | $ | 67,847 |
Other investments | $ | 3,170 |  |  | $ | 3,170 |  |  | $ | 2,952 |  |  | $ | 2,952 |
Other assets | $ | 39,584 |  |  | $ | 39,593 |  |  | $ | 31,128 |  |  | $ | 31,141 |
Financial liabilities: |  |  |  |  |  |  |
Senior notes due 2023* | $ | 250,000 |  |  | $ | 267,988 |  |  | $ | 250,000 |  |  | $ | 269,160 |
Mortgage Loans* | $ | — |  |  | $ | — |  |  | $ | 36,113 |  |  | $ | 36,113 |
Contribution Certificates | $ | 175,766 |  |  | $ | 178,728 |  |  | $ | — |  |  | $ | — |
Other liabilities | $ | 51,456 |  |  | $ | 51,456 |  |  | $ | 30,334 |  |  | $ | 30,334 |
* 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. 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 $38.5 million and $30.6 million at September 30, 2021 and December 31, 2020, respectively. The fair value of the funded deferred compensation assets as of September 30, 2021 included rabbi trust assets acquired as a result of the NORCAL acquisition, which consists entirely of cash equivalents and mutual funds with a total fair value of $5.1 million (see Note 2 for additional information on NORCAL acquisition). Other assets also included an unsecured note receivable under a separate line of credit agreement. 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
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
performance of the funds selected by the participants and had a fair value of $51.5 million and $30.3 million at September 30, 2021 and December 31, 2020, respectively. The fair value of the funded deferred compensation liabilities as of September 30, 2021 included liabilities assumed as a result of the NORCAL acquisition, with a total fair value of $18.0 million (see Note 2 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 11 for further discussion of the terms of the Contribution Certificates).
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
4. Investments
Available-for-sale fixed maturities at September 30, 2021 and December 31, 2020 included the following:

| September 30, 2021
(In thousands) | Amortized Cost |  |  |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
Fixed maturities, available-for-sale |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | $ | 241,696 |  |  |  |  | $ | 1,681 |  |  | $ | 672 |  |  | $ | 242,705 |
U.S. Government-sponsored enterprise obligations | 20,509 |  |  |  |  | 57 |  |  | 98 |  |  | 20,468 |
State and municipal bonds | 513,111 |  |  |  |  | 11,155 |  |  | 1,559 |  |  | 522,707 |
Corporate debt | 1,928,543 |  |  |  |  | 41,493 |  |  | 6,923 |  |  | 1,963,113 |
Residential mortgage-backed securities | 475,368 |  |  |  |  | 5,513 |  |  | 2,972 |  |  | 477,909 |
Agency commercial mortgage-backed securities | 14,531 |  |  |  |  | 460 |  |  | 49 |  |  | 14,942 |
Other commercial mortgage-backed securities | 216,595 |  |  |  |  | 3,545 |  |  | 1,116 |  |  | 219,024 |
Other asset-backed securities | 440,536 |  |  |  |  | 3,661 |  |  | 929 |  |  | 443,268 |
| $ | 3,850,889 |  |  |  |  | $ | 67,565 |  |  | $ | 14,318 |  |  | $ | 3,904,136 |

| December 31, 2020
(In thousands) | Amortized Cost |  | Allowance for Expected Credit Losses |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
Fixed maturities, available-for-sale |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | $ | 104,097 |  |  | $ | — |  |  | $ | 2,985 |  |  | $ | 23 |  |  | $ | 107,059 |
U.S. Government-sponsored enterprise obligations | 12,103 |  |  | — |  |  | 158 |  |  | — |  |  | 12,261 |
State and municipal bonds | 316,022 |  |  | — |  |  | 16,937 |  |  | 39 |  |  | 332,920 |
Corporate debt | 1,267,992 |  |  | 552 |  |  | 63,204 |  |  | 1,302 |  |  | 1,329,342 |
Residential mortgage-backed securities | 269,752 |  |  | — |  |  | 7,171 |  |  | 382 |  |  | 276,541 |
Agency commercial mortgage-backed securities | 12,623 |  |  | — |  |  | 687 |  |  | — |  |  | 13,310 |
Other commercial mortgage-backed securities | 109,244 |  |  | — |  |  | 4,788 |  |  | 940 |  |  | 113,092 |
Other asset-backed securities | 269,742 |  |  | — |  |  | 4,006 |  |  | 742 |  |  | 273,006 |
| $ | 2,361,575 |  |  | $ | 552 |  |  | $ | 99,936 |  |  | $ | 3,428 |  |  | $ | 2,457,531 |

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
The recorded cost basis and estimated fair value of available-for-sale fixed maturities at September 30, 2021, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(In thousands) | Amortized Cost |  | Due in one year or less |  | Due after one year through five years |  | Due after five years through ten years |  | Due after ten years |  | Total Fair Value
Fixed maturities, available-for-sale |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | $ | 241,696 |  |  | $ | 19,945 |  |  | $ | 133,884 |  |  | $ | 86,726 |  |  | $ | 2,150 |  |  | $ | 242,705 |
U.S. Government-sponsored enterprise obligations | 20,509 |  |  | 3,826 |  |  | 11,363 |  |  | 5,134 |  |  | 145 |  |  | 20,468 |
State and municipal bonds | 513,111 |  |  | 15,273 |  |  | 174,664 |  |  | 188,717 |  |  | 144,053 |  |  | 522,707 |
Corporate debt | 1,928,543 |  |  | 119,700 |  |  | 927,016 |  |  | 809,889 |  |  | 106,508 |  |  | 1,963,113 |
Residential mortgage-backed securities | 475,368 |  |  |  |  |  |  |  |  |  |  | 477,909 |
Agency commercial mortgage-backed securities | 14,531 |  |  |  |  |  |  |  |  |  |  | 14,942 |
Other commercial mortgage-backed securities | 216,595 |  |  |  |  |  |  |  |  |  |  | 219,024 |
Other asset-backed securities | 440,536 |  |  |  |  |  |  |  |  |  |  | 443,268 |
| $ | 3,850,889 |  |  |  |  |  |  |  |  |  |  | $ | 3,904,136 |

Excluding obligations of the U.S. Government, U.S. Government-sponsored enterprises and a U.S. Government obligations money market fund, no investment in any entity or its affiliates exceeded 10% of shareholders’ equity at September 30, 2021.
Cash and securities with a carrying value of $54.8 million at September 30, 2021 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. At September 30, 2021, ProAssurance's FAL investments were comprised of available-for-sale fixed maturities with a fair value of $64.3 million and cash and cash equivalents of $8.2 million on deposit with Lloyd's in order to satisfy these FAL requirements. During the second quarter of 2021, ProAssurance received a return of approximately $24.5 million of FAL given the reduction in the Company's participation in the results of Syndicate 1729, to 5% from 29%, and Syndicate 6131, to 50% from 100%, for the 2021 underwriting year.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
Investments Held in a Loss Position
The following tables provide summarized information with respect to investments held in an unrealized loss position at September 30, 2021 and December 31, 2020, including the length of time the investment had been held in a continuous unrealized loss position.

| September 30, 2021
| Total |  | Less than 12 months |  | 12 months or longer
| Fair |  | Unrealized |  | Fair |  | Unrealized |  | Fair |  | Unrealized
(In thousands) | Value |  | Loss |  | Value |  | Loss |  | Value |  | Loss
Fixed maturities, available-for-sale |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | $ | 162,063 |  |  | $ | 672 |  |  | $ | 157,445 |  |  | $ | 582 |  |  | $ | 4,618 |  |  | $ | 90 |
U.S. Government-sponsored enterprise obligations | 14,422 |  |  | 98 |  |  | 14,422 |  |  | 98 |  |  | — |  |  | — |
State and municipal bonds | 194,740 |  |  | 1,559 |  |  | 192,610 |  |  | 1,467 |  |  | 2,130 |  |  | 92 |
Corporate debt | 637,694 |  |  | 6,923 |  |  | 607,003 |  |  | 6,134 |  |  | 30,691 |  |  | 789 |
Residential mortgage-backed securities | 284,636 |  |  | 2,972 |  |  | 276,253 |  |  | 2,732 |  |  | 8,383 |  |  | 240 |
Agency commercial mortgage-backed securities | 4,040 |  |  | 49 |  |  | 4,040 |  |  | 49 |  |  | — |  |  | — |
Other commercial mortgage-backed securities | 77,254 |  |  | 1,116 |  |  | 72,541 |  |  | 783 |  |  | 4,713 |  |  | 333 |
Other asset-backed securities | 166,667 |  |  | 929 |  |  | 162,161 |  |  | 867 |  |  | 4,506 |  |  | 62 |
| $ | 1,541,516 |  |  | $ | 14,318 |  |  | $ | 1,486,475 |  |  | $ | 12,712 |  |  | $ | 55,041 |  |  | $ | 1,606 |

| December 31, 2020
| Total |  | Less than 12 months |  | 12 months or longer
| Fair |  | Unrealized |  | Fair |  | Unrealized |  | Fair |  | Unrealized
(In thousands) | Value |  | Loss |  | Value |  | Loss |  | Value |  | Loss
Fixed maturities, available-for-sale |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | $ | 14,390 |  |  | $ | 23 |  |  | $ | 14,390 |  |  | $ | 23 |  |  | $ | — |  |  | $ | — |
State and municipal bonds | 6,416 |  |  | 39 |  |  | 6,416 |  |  | 39 |  |  | — |  |  | — |
Corporate debt | 94,695 |  |  | 1,302 |  |  | 79,436 |  |  | 1,020 |  |  | 15,259 |  |  | 282 |
Residential mortgage-backed securities | 34,928 |  |  | 382 |  |  | 34,509 |  |  | 381 |  |  | 419 |  |  | 1 |
Other commercial mortgage-backed securities | 18,766 |  |  | 940 |  |  | 18,480 |  |  | 935 |  |  | 286 |  |  | 5 |
Other asset-backed securities | 43,739 |  |  | 742 |  |  | 37,850 |  |  | 701 |  |  | 5,889 |  |  | 41 |
| $ | 212,934 |  |  | $ | 3,428 |  |  | $ | 191,081 |  |  | $ | 3,099 |  |  | $ | 21,853 |  |  | $ | 329 |

As of September 30, 2021, excluding U.S. Government or U.S. Government-sponsored enterprise obligations, there were 1,246 debt securities (32.3% of all available-for-sale fixed maturity securities held) in an unrealized loss position representing 768 issuers. The greatest and second greatest unrealized loss positions among those securities were approximately $0.3 million and $0.2 million, respectively. The securities were evaluated for impairment as of September 30, 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.
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 report on Form 10-K.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
Fixed maturity securities held in an unrealized loss position at September 30, 2021, excluding asset-backed securities, have paid all scheduled contractual payments and are expected to continue. Expected future cash flows of asset-backed securities, excluding those issued by GNMA, FNMA and FHLMC, held in an unrealized loss position were estimated as part of the September 30, 2021 impairment evaluation using the most recently available six-month historical performance data for the collateral (loans) underlying the security or, if historical data was not available, sector based assumptions, and equaled or exceeded the current amortized cost basis of the security.
The following tables present a roll forward of the allowance for expected credit losses on available-for-sale fixed maturities for the nine months ended September 30, 2021 and three and nine months ended September 30, 2020. There was no change in the allowance for expected credit losses for the three months ended September 30, 2021.

|  |  | Nine Months Ended September 30, 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 September 30, 2021 |  |  | $ | — |  |  |  |  |  | $ | — |

|  |  | Three Months Ended September 30, 2020
(In thousands) |  |  | Corporate Debt |  |  |  |  | Total
Balance, at July 1, 2020 |  |  | $ | 1,408 |  |  |  |  |  | $ | 1,408 |
Reductions related to: |  |  |  |  |  |  |  |
Securities sold during the period |  |  | (856) |  |  |  |  |  | (856) |
Balance, at September 30, 2020 |  |  | $ | 552 |  |  |  |  |  | $ | 552 |

|  |  | Nine Months Ended September 30, 2020
(In thousands) |  |  | Corporate Debt |  |  |  |  | Total
Balance, at December 31, 2019 |  |  | $ | — |  |  |  |  |  | $ | — |
Additional credit losses related to securities for which: |  |  |  |  |  |  |  |
No allowance for credit losses has been previously recognized |  |  | 1,508 |  |  |  |  |  | 1,508 |
Reductions related to: |  |  |  |  |  |  |  |
Securities sold during the period |  |  | (956) |  |  |  |  |  | (956) |
Balance, at September 30, 2020 |  |  | $ | 552 |  |  |  |  |  | $ | 552 |

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

| Three Months Ended September 30 |  | Nine Months Ended September 30
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Proceeds from sales (exclusive of maturities and paydowns) | $ | 85.4 |  |  | $ | 86.9 |  |  | $ | 343.5 |  |  | $ | 304.6 |
Purchases | $ | 404.1 |  |  | $ | 317.5 |  |  | $ | 1,169.6 |  |  | $ | 689.4 |

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 September 30, 2021 and December 31, 2020 primarily included stocks, bond funds 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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
BOLI
ProAssurance holds BOLI policies that are carried at the current cash surrender value of the policies (original cost $43 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.
Net Investment Income
Net investment income by investment category was as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
(In thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Fixed maturities | $ | 20,121 |  |  | $ | 16,902 |  |  | $ | 53,969 |  |  | $ | 52,863 |
Equities | 648 |  |  | 706 |  |  | 1,790 |  |  | 3,598 |
Short-term investments, including Other | 587 |  |  | 405 |  |  | 1,539 |  |  | 2,386 |
BOLI | 622 |  |  | 655 |  |  | 1,752 |  |  | 1,568 |
Investment fees and expenses | (2,700) |  |  | (1,744) |  |  | (7,337) |  |  | (4,538) |
Net investment income | $ | 19,278 |  |  | $ | 16,924 |  |  | $ | 51,713 |  |  | $ | 55,877 |

Investment in Unconsolidated Subsidiaries
ProAssurance's investment in unconsolidated subsidiaries were as follows:

| September 30, 2021 |  | Carrying Value
(In thousands) | Percentage Ownership |  | September 30, 2021 |  | December 31, 2020
Qualified affordable housing project tax credit partnerships | See below |  | $ | 15,980 |  |  | $ | 27,719 |
All other investments, primarily investment fund LPs/LLCs | See below |  | 301,889 |  |  | 282,810 |
|  |  | $ | 317,869 |  |  | $ | 310,529 |

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. ProAssurance's ownership percentage relative to two of the tax credit partnership interests is almost 100%; these interests had a carrying value of $4.9 million at September 30, 2021 and $9.4 million at December 31, 2020. ProAssurance's ownership percentage relative to the remaining tax credit partnership interests is less than 20%; these interests had a carrying value of $11.1 million at September 30, 2021 and $18.3 million at December 31, 2020. 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 13.
ProAssurance holds interests in investment fund LPs/LLCs and other equity method investments and LPs/LLCs which are not considered to be investment funds. ProAssurance's ownership percentage relative to four of the LPs/LLCs is greater than 25%, which is expected to be reduced as the funds mature and other investors participate in the funds; these investments had a carrying value of $49.2 million at September 30, 2021 and $46.2 million at December 31, 2020. ProAssurance's ownership percentage relative to the remaining investments and LPs/LLCs is less than 25%; these interests had a carrying value of $252.7 million at September 30, 2021 and $236.6 million at December 31, 2020. ProAssurance does not have the ability to exert control over any of these funds.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
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. The results recorded and tax credits recognized related to ProAssurance's tax credit partnership investments were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
(In thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Qualified affordable housing project tax credit partnerships |  |  |  |  |  |  |
Losses recorded | $ | 3,591 |  |  | $ | 4,798 |  |  | $ | 11,712 |  |  | $ | 14,152 |
Tax credits recognized | $ | 3,226 |  |  | $ | 4,369 |  |  | $ | 9,880 |  |  | $ | 13,106 |
Historic tax credit partnership* |  |  |  |  |  |  |
Losses (gains) recorded | $ | — |  |  | $ | (264) |  |  | $ | (182) |  |  | $ | 1,820 |
Tax credits recognized (reversed) | $ | (100) |  |  | $ | 103 |  |  | $ | — |  |  | $ | 309 |
* ProAssurance holds a historic tax credit partnership which was fully amortized in 2020. ProAssurance received a distribution associated with this investment during the first quarter of 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.

The tax credits generated from the Company's tax credit partnership investments of $3.1 million and $9.9 million for the three and nine months ended September 30, 2021, respectively, were deferred and are expected to be utilized 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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 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 September 30 |  | Nine Months Ended September 30 |  |
(In thousands) | 2021 |  | 2020 |  | 2021 |  | 2020 |  |  |  |
Total impairment losses: |  |  |  |  |  |  |  |  |  |  |
Corporate debt | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (1,745) |  |  |  |  |
Portion of impairment losses recognized in other comprehensive income before taxes: |  |  |  |  |  |  |  |  |  |  |
Corporate debt | — |  |  | — |  |  | — |  |  | 237 |  |  |  |  |
Net impairment losses recognized in earnings | — |  |  | — |  |  | — |  |  | (1,508) |  |  |  |  |
Gross realized gains, available-for-sale fixed maturities | 2,225 |  |  | 3,996 |  |  | 12,540 |  |  | 10,941 |  |  |  |  |
Gross realized (losses), available-for-sale fixed maturities | (259) |  |  | (396) |  |  | (798) |  |  | (2,266) |  |  |  |  |
Net realized gains (losses), trading fixed maturities | (47) |  |  | 116 |  |  | 17 |  |  | 268 |  |  |  |  |
Net realized gains (losses), equity investments | 426 |  |  | 31 |  |  | 6,616 |  |  | 10,589 |  |  |  |  |
Net realized gains (losses), other investments | 1,699 |  |  | 530 |  |  | 6,192 |  |  | 2,442 |  |  |  |  |
Change in unrealized holding gains (losses), trading fixed maturities | (49) |  |  | 373 |  |  | (489) |  |  | 637 |  |  |  |  |
Change in unrealized holding gains (losses), equity investments | (945) |  |  | 2,766 |  |  | (2,182) |  |  | (21,012) |  |  |  |  |
Change in unrealized holding gains (losses), convertible securities, carried at fair value | (2,457) |  |  | 1,170 |  |  | (2,118) |  |  | (190) |  |  |  |  |
Other | (63) |  |  | 252 |  |  | 434 |  |  | 249 |  |  |  |  |
Net realized investment gains (losses) | $ | 530 |  |  | $ | 8,838 |  |  | $ | 20,212 |  |  | $ | 150 |  |  |  |  |

ProAssurance did not recognize any credit-related impairment losses in earnings or non-credit impairment losses in OCI during the three and nine months ended September 30, 2021 or the three months ended September 30, 2020. ProAssurance recognized credit-related impairment losses in earnings of $1.5 million and a nominal amount of non-credit impairment losses in OCI for the nine months ended September 30, 2020. The credit-related impairment losses recognized during the 2020 nine-month period related to corporate bonds in the energy and consumer sectors. Additionally, the 2020 nine-month period included credit-related impairment losses related to four corporate bonds in various sectors, which were sold during 2020. The non-credit related impairment losses recognized during the 2020 nine-month period related to three corporate bonds in the energy and consumer sectors.
ProAssurance recognized $0.5 million and $20.2 million of net realized investment gains during the three and nine months ended September 30, 2021, respectively, driven primarily by realized gains on the sale of certain available-for-sale fixed maturities and other investments, which were partially offset by unrealized holding losses resulting from changes in the fair value of our convertible securities. ProAssurance recognized $8.8 million and $0.2 million of net realized investment gains during the three and nine months ended September 30, 2020, respectively. Net realized investment gains during the 2020 three-month period were driven by gains in the Company's available-for-sale fixed maturities due to the sale of corporate bonds and, to a lesser extent, unrealized holding gains resulting from an increase in the fair value of the Company's equity portfolio and convertible securities. Net realized investment gains for the 2020 nine-month period were driven by realized gains on the sale of available-for-sale fixed maturities and equity investments and, to a lesser extent, unrealized holding gains on trading securities, which were almost entirely offset by unrealized holding losses resulting from decreases in the fair value of the Company's equity portfolio due to the volatility in the global financial markets related to COVID-19.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
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 September 30 |  | Nine Months Ended September 30
(In thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Balance, beginning of period | $ | — |  |  | $ | 1,322 |  |  | $ | 552 |  |  | $ | 470 |
Additional credit losses recognized during the period, related to securities for which: |  |  |  |  |  |  |
No impairment has been previously recognized | — |  |  | — |  |  | — |  |  | 1,064 |
Impairment has been previously recognized | — |  |  | — |  |  | — |  |  | 258 |
Reductions due to: |  |  |  |  |  |  |
Securities sold during the period (realized) | — |  |  | (770) |  |  | (552) |  |  | (1,240) |
Balance, September 30 | $ | — |  |  | $ | 552 |  |  | $ | — |  |  | $ | 552 |

5. Retroactive Insurance Contracts
ProAssurance offers custom alternative risk solutions which include 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. In the first quarter of 2021, 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 Statements of Income and Comprehensive Income. 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.
6. 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 nine months ended September 30, 2021, ProAssurance utilized the discrete effective tax rate method to record its provision for income taxes after the estimated annual effective tax rate method produced an unreliable estimated annual tax rate. The discrete effective tax rate method is applied when the application of the estimated annual effective tax rate method is impractical because it is not possible to reliably estimate the annual effective tax rate. The Company believes the use of the discrete effective tax rate method is more appropriate for the current period than the annual effective tax rate method as minor changes in the Company's estimated ordinary income would result in sizable variations in the customary relationship between income tax expense (benefit) and pretax accounting income (loss).
For the nine months ended September 30, 2021, 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 due to the gain on bargain purchase of $74.4 million as a result of the Company's acquisition of NORCAL, all of which was non-taxable. See further discussion on the gain on bargain purchase in Note 2. In addition, the provision for income taxes is also different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes 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 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. Furthermore, the Company's pre-tax loss for the nine months ended September 30, 2020 included a $161.1 million goodwill impairment recognized in relation to the Specialty P&C reporting unit during the third quarter of 2020 which was treated as a discrete item as the Company considered it to be an unusual and infrequent item. Of the $161.1 million goodwill impairment, $149.6 million was non-deductible for which no tax benefit was recognized while the remaining $11.5 million was deductible for which a 21% tax benefit was recognized. See further discussion on this goodwill impairment in Note 1 and Note 6 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2020 report on Form 10-K.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
ProAssurance had a receivable for U.S. federal and U.K. income taxes carried as a part of other assets of $6.7 million at September 30, 2021 and $18.9 million at December 31, 2020. 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 million and $5.7 million at September 30, 2021 and December 31, 2020, respectively, which included an accrued liability for interest of approximately $0.6 million and $0.5 million, respectively.
NORCAL Acquisition
As a result of ProAssurance's acquisition of NORCAL, the Company recorded $46.8 million of net deferred tax assets reflecting the remeasurement of NORCAL's historical net deferred tax assets, as such deferred taxes were subject to recalculation following application of all purchase accounting adjustments, and management's assessment of the realizability of NORCAL's deferred tax assets. Also as a result of the NORCAL acquisition, ProAssurance has U.S. federal NOL carryforwards of approximately $68.0 million that will begin to expire in 2035. ProAssurance currently expects to utilize a portion of these NOLs in 2021. See Note 2 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 certain deduction limitations originally imposed by the TCJA. See further discussion in Note 5 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K. As a result of the CARES Act, ProAssurance now has the ability to carryback NOLs generated in tax years 2019 and 2020 for up to five years. The Company has an NOL of approximately $33.3 million from the 2020 tax year that will be carried back to the 2015 tax year and is expected to generate a tax refund of approximately $11.7 million. Additionally, the Company had an NOL of approximately $25.6 million from the 2019 tax year that 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 September 30, 2021.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
7. 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 acquired and liabilities assumed, 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 15. 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 five reporting units, two 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 September 30, 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) |  |  | — |  |  | — |  |  | (161,115) |
Goodwill, net as of December 31, 2020 | — |  |  | 44,110 |  |  | 5,500 |  |  | 49,610 |
Accumulated impairment losses | — |  |  | — |  |  | — |  |  | — |
Goodwill, net as of September 30, 2021 | $ | — |  |  | $ | 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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
8. 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 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, 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" and Note 8 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 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 September 30, 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.
Acquired Reserve
The acquisition of NORCAL increased ProAssurance's net reserves by $1.1 billion which represented the fair value of NORCAL's reserve, net of related reinsurance recoverables, at the time of acquisition including a fair value adjustment on the reserve as well as negative VOBA recorded on NORCAL's unearned premium and DDR reserve. The reserve fair value adjustment will be amortized utilizing loss payment patterns and the negative VOBAs will be amortized over a period in proportion to the earn-out of the premium or in-line with the approximate consumption of losses. Such amortization is recorded as a reduction to net losses and loss adjustment expenses. See Note 2 for more information.
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.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
Activity in the reserve for losses and loss adjustment expenses is summarized as follows:

(In thousands) | Nine Months Ended September 30, 2021 |  | Nine Months Ended September 30, 2020 |  | Year Ended December 31, 2020 |  |
Balance, beginning of year | $ | 2,417,179 |  |  | $ | 2,346,526 |  |  | $ | 2,346,526 |  |  |
Less reinsurance recoverables on unpaid losses and loss adjustment expenses | 385,087 |  |  | 390,708 |  |  | 390,708 |  |  |
Net balance, beginning of year | 2,032,092 |  |  | 1,955,818 |  |  | 1,955,818 |  |  |
Net reserves acquired from NORCAL acquisition | 1,089,103 |  |  | — |  |  | — |  |  |
Net losses: |  |  |  |  |  |  |
Current year(1)(2)(3) | 582,235 |  |  | 555,969 |  |  | 711,846 |  |  |
Favorable development of reserves established in prior years, net | (27,205) |  |  | (34,557) |  |  | (50,399) |  |  |
Total | 555,030 |  |  | 521,412 |  |  | 661,447 |  |  |
Paid related to: |  |  |  |  |  |  |
Current year | (62,276) |  |  | (60,449) |  |  | (83,204) |  |  |
Prior years | (457,578) |  |  | (400,930) |  |  | (501,969) |  |  |
Total paid | (519,854) |  |  | (461,379) |  |  | (585,173) |  |  |
Net balance, end of period | 3,156,371 |  |  | 2,015,851 |  |  | 2,032,092 |  |  |
Plus reinsurance recoverables on unpaid losses and loss adjustment expenses | 476,315 |  |  | 391,637 |  |  | 385,087 |  |  |
Balance, end of period | $ | 3,632,686 |  |  | $ | 2,407,488 |  |  | $ | 2,417,179 |  |  |

(1) Current year net losses for the nine months ended September 30, 2021 included $4.3 million 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). Additionally, current year net losses for the nine months ended September 30, 2021 included $5.1 million related to a Custom Physician tail policy in the Specialty P&C segment.
(2) Current year net losses for the nine months ended September 30, 2021 included incurred losses of $2.9 million related to an assumed reinsurance arrangement entered into during the first quarter of 2021 in the Specialty P&C segment (see Note 5).
(3) Current year net losses for the nine months ended September 30, 2020 and the year ended December 31, 2020 included the impact of a large national healthcare account in the Specialty P&C segment including losses of $60.0 million associated with a tail policy and $9.2 million of amortization of a related PDR. For additional information, see Note 7 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2020 report on Form 10-K.
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 nine months ended September 30, 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 through 2020 accident years. The net favorable development recognized in the Specialty P&C segment also included $5.0 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). ProAssurance did not recognize any development related to NORCAL's prior accident year reserves since the date of acquisition. 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. 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 and, to a lesser extent, the 2019 accident year. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment is primarily related to the 2019 accident year and prior and, to a lesser extent, the 2020 accident year. Consolidated net favorable loss development recognized in the nine months ended September 30, 2021 was partially offset by unfavorable reserve development recognized in the Lloyd's Syndicates segment driven by certain catastrophe related losses.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
The net favorable loss development recognized during the nine months ended September 30, 2020 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 2014 through 2018 accident years. The net favorable development also reflected overall favorable trends in claim closing patterns in the Segregated Portfolio Cell Reinsurance and Workers' Compensation Insurance segments. 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 2013 through 2016 accident years and accident years prior to 2010.
The net favorable loss development recognized for the year ended December 31, 2020 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 2014 through 2017 accident years. The net favorable development also reflected overall favorable trends in claim closing patterns in the Segregated Portfolio Cell Reinsurance and Workers' Compensation Insurance segments. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment primarily related to the 2014 through 2019 accident years and the net favorable loss development recognized in the Workers' Compensation Insurance segment primarily 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.
9. 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 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 September 30, 2021, 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 maximum permitted borrowings of £30 million (approximately $40.4 million as of September 30, 2021). The Syndicate Credit Agreement has a maturity date of December 31, 2021 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, subject to extension through the auto-renewal feature. As of September 30, 2021, there were no outstanding borrowings under the Syndicate Credit Agreement. ProAssurance provides FAL to support underwriting by Syndicate 1729 and Syndicate 6131 and is comprised of investment securities and cash and cash equivalents deposited with Lloyd's with a total fair value of approximately $72.5 million at September 30, 2021 (see Note 4). During the second quarter of 2021, ProAssurance received a return of approximately $24.5 million of cash and cash equivalents from the Company's FAL balances given the reduction in the Company's participation in the results of Syndicate 1729, to 5% from 29%, and Syndicate 6131, to 50% from 100%, for the 2021 underwriting year.
ProAssurance has entered into financial instrument transactions that may present off-balance sheet credit risk or market risk. These transactions include a short-term loan commitment and commitments to provide funding to non-public investment entities. Under the short-term loan commitment, ProAssurance has agreed to advance funds on a 30 day basis to a counterparty provided there is no violation of any condition established in the contract. As of September 30, 2021, ProAssurance had total funding commitments related to non-public investment entities as well as the short-term loan commitment of approximately $221.6 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 September 30, 2021.
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
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
between December 31, 2020 and December 31, 2023. The estimated fair value of this contingent consideration was $24 million as of September 30, 2021, which did not change from June 30, 2021, and 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 December 31, 2023, the 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 Note 3.
10. Leases
ProAssurance is involved in a number of operating leases that are primarily for office facilities. Office facility leases have remaining lease terms ranging from one year to ten years; some of which include options 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. As a result of ProAssurance's acquisition of NORCAL, the Company recorded $4.4 million of additional operating lease ROU assets and $5.3 million of additional operating lease liabilities during the second quarter of 2021. See Note 2 for more information.
The following table provides a summary of the components of net lease expense as well as the reporting location in the Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2021 and 2020.

(In thousands) | Location in the Condensed Consolidated Statements of Income and Comprehensive Income | Three Months Ended September 30 |  | Nine Months Ended September 30
2021 | 2020 |  | 2021 | 2020
Operating lease expense (1) | Operating expense | $ | 1,425 |  | $ | 905 |  |  | $ | 3,577 |  | $ | 3,421 |
Sublease income (2) | Other income | (66) |  | (42) |  |  | (190) |  | (118) |
Net lease expense |  | $ | 1,359 |  | $ | 863 |  |  | $ | 3,387 |  | $ | 3,303 |

(1) Includes short-term lease costs and variable lease costs, if applicable. For the three and nine months ended September 30, 2021 and 2020, no short-term lease costs were recognized and variable lease costs were nominal in amount.
(2) Sublease income excludes rental income from owned properties of $0.6 million and $1.8 million during the three and nine months ended September 30, 2021, respectively, as compared to $0.7 million and $1.9 million during the same respective periods of 2020 which is included in other income. See “Item 2. Properties” in ProAssurance's December 31, 2020 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 September 30, 2021 and December 31, 2020.

($ in thousands) | September 30, 2021 | December 31, 2020 |
Operating lease ROU assets | $ | 20,253 |  | $ | 19,013 |  |
Operating lease liabilities | $ | 21,670 |  | $ | 20,116 |  |
Weighted-average remaining lease term | 7.03 years | 8.31 years |
Weighted-average discount rate | 2.84 | % | 2.97 | % |

The following table provides supplemental lease information for the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020.

| Nine Months Ended September 30 |  |
(In thousands) | 2021 | 2020 |  |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |
Operating cash flows from operating leases | $ | 4,145 |  | $ | 3,123 |  |  |  |

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Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 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 September 30, 2021. Operating lease payments exclude $0.5 million of future minimum lease payments for one lease signed but not yet commenced as of September 30, 2021. This lease will commence in the fourth quarter of 2021 with a lease term of approximately ten years.

(In thousands) |
2021 | $ | 1,630 |
2022 | 5,169 |
2023 | 3,820 |
2024 | 2,475 |
2025 | 1,969 |
Thereafter | 8,876 |
Total future minimum lease payments | 23,939 |
Less: Imputed interest | 2,269 |
Total operating lease liabilities | $ | 21,670 |

11. Debt
ProAssurance’s outstanding debt consisted of the following:

($ in thousands) | September 30, 2021 |  | December 31, 2020
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%) annually beginning April 2022 | 175,766 |  |  | — |
Mortgage Loans, outstanding borrowings were secured by first priority liens on two office buildings, and bore an interest rate of three-month LIBOR plus 1.325% (1.58% at December 31, 2020) determined quarterly | — |  |  | 36,113 |
Total principal | 425,766 |  |  | 286,113 |
Less unamortized debt issuance costs | 1,008 |  |  | 1,400 |
Debt less unamortized debt issuance costs | $ | 424,758 |  |  | $ | 284,713 |

Revolving Credit Agreement
ProAssurance has a 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. In August 2021, ProAssurance repaid the balance outstanding on the Revolving Credit Agreement of $15 million. As of September 30, 2021 and December 31, 2020, there were no outstanding borrowings on the Revolving Credit Agreement.
Contribution Certificates
On May 5, 2021, NORCAL Insurance Company, successor to NORCAL Mutual Insurance Company, issued Contribution Certificates, which 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 acquisition. 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. In addition, interest payments are subject to deferral if ProAssurance does not receive permission from the California Department of Insurance prior to payment. See Note 2 for additional information on the Contribution Certificates assumed in the NORCAL acquisition.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
Mortgage Loans
During 2017, two of ProAssurance's subsidiaries, ProAssurance Indemnity Company, Inc. and ProAssurance Insurance Company of America, each entered into ten-year mortgage loans (Mortgage Loans) with principal amounts of $17.9 million and $22.6 million, respectively, with one lender in connection with the recapitalization of two office buildings. In June 2021, ProAssurance repaid the balance outstanding on the ProAssurance Indemnity Company, Inc. Mortgage Loan of $15.6 million. In July 2021, ProAssurance repaid the balance outstanding on the ProAssurance Insurance Company of America Mortgage Loan of $19.7 million. Interest expense on the Mortgage Loans during the three and nine months ended September 30, 2021 included the write-off of the unamortized debt issuance costs which were nominal in amount.
Covenant Compliance
There are no financial covenants associated with the Senior Notes or the Contribution Certificates due 2023 and 2031, respectively.
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. In April 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 was previously filed as Exhibit 10.1 to ProAssurance's March 31, 2021 report on Form 10-Q.
Additional Information
For additional information regarding ProAssurance's debt, see Note 11 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2020 report on Form 10-K.
12. Shareholders’ Equity
At September 30, 2021 and December 31, 2020, ProAssurance had 100 million shares of authorized common stock and 50 million shares of authorized preferred stock. The Board has the authority to determine provisions for the issuance of preferred shares, including the number of shares to be issued, the designations, powers, preferences and rights, and the qualifications, limitations or restrictions of such shares.
ProAssurance declared cash dividends of $0.05 per share during each of the first three quarters of 2021, $0.31 per share during the first quarter of 2020 and $0.05 per share during each of the second and third quarters of 2020. Dividends declared during the 2021 and 2020 nine-month periods totaled $8.1 million and $22.1 million, respectively. Any decision to pay future cash dividends is subject to the Board’s final determination after a comprehensive review of financial performance, future expectations and other factors deemed relevant by the Board. See Note 12 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2020 report on Form 10-K for additional information.
At September 30, 2021, Board authorizations for the repurchase of common shares or the retirement of outstanding debt of $110 million remained available for use. ProAssurance did not repurchase any common shares during the nine months ended September 30, 2021 or 2020.
Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)
The following tables provide a detailed breakout of the components of AOCI and the amounts reclassified from AOCI to net income (loss). The tax effects of all amounts in the tables below, except for an immaterial amount of unrealized gains and losses on available-for-sale securities held at the Company's U.K. subsidiary, were computed using the enacted U.S. federal corporate tax rate of 21%. OCI included a deferred tax benefit of $3.2 million and $8.3 million for the three and nine months ended September 30, 2021, respectively, as compared to a deferred tax expense of $1.9 million and $7.7 million for the same respective periods of 2020.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
The changes in the balance of each component of AOCI for the three and nine months ended September 30, 2021 and 2020 were as follows:

(In thousands) | Unrealized Investment Gains (Losses) |  | Non-credit Impairments |  | Unrecognized Change in Defined Benefit Plan Liabilities* |  | Accumulated Other Comprehensive Income (Loss)
Balance, July 1, 2021 | $ | 53,168 |  |  | $ | — |  |  | $ | (96) |  |  | $ | 53,072 |
OCI, before reclassifications, net of tax | (10,158) |  |  | — |  |  | — |  |  | (10,158) |
Amounts reclassified from AOCI, net of tax | (1,503) |  |  | — |  |  | 96 |  |  | (1,407) |
Net OCI, current period | (11,661) |  |  | — |  |  | 96 |  |  | (11,565) |
Balance, September 30, 2021 | $ | 41,507 |  |  | $ | — |  |  | $ | — |  |  | $ | 41,507 |
(In thousands) | Unrealized Investment Gains (Losses) |  | Non-credit Impairments |  | Unrecognized Change in Defined Benefit Plan Liabilities* |  | Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2020 | $ | 75,388 |  |  | $ | (57) |  |  | $ | (104) |  |  | $ | 75,227 |
OCI, before reclassifications, net of tax | (24,655) |  |  | — |  |  | 8 |  |  | (24,647) |
Amounts reclassified from AOCI, net of tax | (9,226) |  |  | 57 |  |  | 96 |  |  | (9,073) |
Net OCI, current period | (33,881) |  |  | 57 |  |  | 104 |  |  | (33,720) |
Balance, September 30, 2021 | $ | 41,507 |  |  | $ | — |  |  | $ | — |  |  | $ | 41,507 |

(In thousands) | Unrealized Investment Gains (Losses) |  | Non-credit Impairments |  | Unrecognized Change in Defined Benefit Plan Liabilities* |  | Accumulated Other Comprehensive Income (Loss)
Balance, July 1, 2020 | $ | 61,912 |  |  | $ | (704) |  |  | $ | (78) |  |  | $ | 61,130 |
OCI, before reclassifications, net of tax | 9,505 |  |  | — |  |  | (22) |  |  | 9,483 |
Amounts reclassified from AOCI, net of tax | (2,975) |  |  | 647 |  |  | — |  |  | (2,328) |
Net OCI, current period | 6,530 |  |  | 647 |  |  | (22) |  |  | 7,155 |
Balance, September 30, 2020 | $ | 68,442 |  |  | $ | (57) |  |  | $ | (100) |  |  | $ | 68,285 |
(In thousands) | Unrealized Investment Gains (Losses) |  | Non-credit Impairments |  | Unrecognized Change in Defined Benefit Plan Liabilities* |  | Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2019 | $ | 37,333 |  |  | $ | (300) |  |  | $ | (78) |  |  | $ | 36,955 |
OCI, before reclassifications, net of tax | 37,199 |  |  | (187) |  |  | (22) |  |  | 36,990 |
Amounts reclassified from AOCI, net of tax | (6,090) |  |  | 430 |  |  | — |  |  | (5,660) |
Net OCI, current period | 31,109 |  |  | 243 |  |  | (22) |  |  | 31,330 |
Balance, September 30, 2020 | $ | 68,442 |  |  | $ | (57) |  |  | $ | (100) |  |  | $ | 68,285 |
* The Company terminated Eastern's defined benefit plan, effective September 30, 2021, resulting in a settlement of the liabilities under the plan and the net loss previously reflected in AOCI being recognized in earnings for the three and nine months ended September 30, 2021. As a result of the NORCAL acquisition, the Company sponsors another frozen defined benefit plan (see Note 16). Due to the application of GAAP purchase accounting (see Note 2), there were no amounts recorded in AOCI related to this plan as of September 30, 2021 as the plan assets and benefit obligation are not remeasured on a quarterly basis.

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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
13. 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 $284.7 million at September 30, 2021 and $282.2 million at December 31, 2020. ProAssurance does not have power over the activities that most significantly impact the economic performance of these VIEs and thus is not the primary beneficiary. Investments in entities where ProAssurance holds a greater than minor interest but does not hold a controlling interest are accounted for using the equity method. Therefore, ProAssurance has not consolidated these VIEs. ProAssurance’s involvement with each of these VIEs is limited to its direct ownership interest in the VIE. Except for the funding commitments disclosed in Note 9, ProAssurance has no arrangements with any of these VIEs to provide other financial support to or on behalf of the VIE. At September 30, 2021, 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), 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 September 30, 2021, approximately $145 million of ProAssurance's assets and $145 million of its liabilities included on the Condensed Consolidated Balance Sheet were related to PPM RRG.
14. Earnings (Loss) Per Share
Diluted weighted average shares is calculated as basic weighted average shares plus the effect, calculated using the treasury stock method, of assuming that restricted share units and performance share units have vested. The following table provides a reconciliation between the Company's basic weighted average number of common shares outstanding to its diluted weighted average number of common shares outstanding:

(In thousands, except per share data) | Three Months Ended September 30 |  | Nine Months Ended September 30
2021 |  | 2020 |  | 2021 |  | 2020
Weighted average number of common shares outstanding, basic | 53,982 |  |  | 53,889 |  |  | 53,955 |  |  | 53,854 |
Dilutive effect of securities: |  |  |  |  |  |  |
Restricted Share Units | 92 |  |  | 29 |  |  | 84 |  |  | 41 |
Performance Share Units | 4 |  |  | — |  |  | 3 |  |  | 1 |
Weighted average number of common shares outstanding, diluted | 54,078 |  |  | 53,918 |  |  | 54,042 |  |  | 53,896 |
Effect of dilutive shares on earnings (loss) per share | $ | — |  |  | $ | — |  |  | $ | (0.01) |  |  | $ | — |

The diluted weighted average number of common shares outstanding for the three and nine months ended September 30, 2021 excludes approximately 37,000 and 25,000, respectively, of common share equivalents issuable under the Company's stock compensation plans, as compared to approximately 177,000 and 119,000 during the same respective periods of 2020, as their effect would have been antidilutive.
Dilutive common share equivalents are reflected in the earnings (loss) per share calculation while antidilutive common share equivalents are not reflected in the earnings (loss) per share calculation. For the three and nine months ended September 30, 2020, 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.
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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
15. 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 operates in five segments that are organized around the nature of the products and services provided: Specialty P&C, Workers' Compensation Insurance, Segregated Portfolio Cell Reinsurance, Lloyd's Syndicates and Corporate. 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. During the second quarter of 2021, the Company reevaluated its segment reporting structure due to the acquisition of NORCAL (see Note 2) and concluded no changes in the Company's segments were required as a result of the acquisition as there was no change to the Company's internal management reporting structure. As NORCAL is an underwriter of healthcare professional liability insurance, NORCAL's underwriting results, since the date of acquisition, are included in the Specialty P&C segment while NORCAL's investment results, since the date of acquisition, are included in the Corporate segment. A description of each of ProAssurance's five operating and reportable segments follows.
Specialty P&C includes professional liability insurance and medical technology liability insurance. Professional liability insurance is primarily comprised of medical professional liability products offered to healthcare providers and institutions. The Specialty P&C segment's professional liability insurance also includes the business acquired through the NORCAL transaction that closed on May 5, 2021, as previously discussed. 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 its 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 the Company decreased its participation in the results of Syndicate 6131 to 50% from 100% for the 2021 underwriting year. Due to the quarter lag, the change in the Company's participation in the results of Syndicates 1729 and 6131 was not reflected in its results until the second quarter of 2021.
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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
Corporate includes ProAssurance's investment operations, including the investment operations of NORCAL since the date of acquisition and excludes those reported in the Company's Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments, interest expense and U.S. income taxes. 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 described in Note 1 of the Notes to Consolidated Financial Statements in ProAssurance’s December 31, 2020 report on Form 10-K. ProAssurance evaluates the performance of its Specialty P&C and Workers' Compensation Insurance segments based on before tax underwriting profit or loss. ProAssurance evaluates the performance of its Segregated Portfolio Cell Reinsurance segment based on operating profit or loss, which includes investment results of investment assets solely allocated to SPC operations, net of U.S. federal income taxes. Performance of the Lloyd's Syndicates segment is evaluated based on operating profit or loss, which includes investment results of investment assets solely allocated to Lloyd's Syndicate operations, net of U.K. income tax expense. Performance of the Corporate segment is evaluated based on the contribution made to consolidated after-tax results. ProAssurance accounts for inter-segment transactions as if the transactions were to third parties at current market prices. Assets are not allocated to segments because investments, other than the investments discussed above that are solely allocated to the Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments, and other assets are not managed at the segment level. The tabular information that follows shows the financial results of the Company's reportable segments reconciled to results reflected in the Condensed Consolidated Statements of Income and Comprehensive Income. ProAssurance does not consider goodwill or intangible asset impairments, a gain on bargain purchase or transaction-related costs for completed business combinations, including any related tax impacts, in assessing the financial performance of its operating and reportable segments, and thus are included in the reconciliation of segment results to consolidated results.
Financial results by segment were as follows:

| Three Months Ended September 30, 2021
(In thousands) | Specialty P&C |  | Workers' Compensation Insurance |  | Segregated Portfolio Cell Reinsurance |  | Lloyd's Syndicates |  | Corporate |  | Inter-segment Eliminations |  | Consolidated
Net premiums earned | $ | 203,716 |  |  | $ | 42,235 |  |  | $ | 15,344 |  |  | $ | 10,953 |  |  | $ | — |  |  | $ | — |  |  | $ | 272,248 |
Net investment income | — |  |  | — |  |  | 193 |  |  | 431 |  |  | 18,654 |  |  | — |  |  | 19,278 |
Equity in earnings (loss) of unconsolidated subsidiaries | — |  |  | — |  |  | — |  |  | — |  |  | 15,244 |  |  | — |  |  | 15,244 |
Net realized gains (losses) | — |  |  | — |  |  | 204 |  |  | 35 |  |  | 291 |  |  | — |  |  | 530 |
Other income (loss)(1) | 860 |  |  | 437 |  |  | — |  |  | 283 |  |  | 1,542 |  |  | (722) |  |  | 2,400 |
Net losses and loss adjustment expenses | (176,490) |  |  | (31,364) |  |  | (8,693) |  |  | (6,846) |  |  | — |  |  | — |  |  | (223,393) |
Underwriting, policy acquisition and operating expenses(1) | (36,147) |  |  | (13,521) |  |  | (4,758) |  |  | (3,909) |  |  | (6,872) |  |  | 722 |  |  | (64,485) |
SPC U.S. federal income taxes(2) | — |  |  | — |  |  | (431) |  |  | — |  |  | — |  |  | — |  |  | (431) |
SPC dividend (expense) income | — |  |  | — |  |  | (1,320) |  |  | — |  |  | — |  |  | — |  |  | (1,320) |
Interest expense | — |  |  | — |  |  | — |  |  | — |  |  | (5,814) |  |  | — |  |  | (5,814) |
Income tax benefit (expense) | — |  |  | — |  |  | — |  |  | — |  |  | (219) |  |  | — |  |  | (219) |
Segment results | $ | (8,061) |  |  | $ | (2,213) |  |  | $ | 539 |  |  | $ | 947 |  |  | $ | 22,826 |  |  | $ | — |  |  | 14,038 |
Reconciliation of segments to consolidated results: |  |  |  |  |  |  |  |  |  |
Transaction-related costs, net(3) |  |  |  |  |  |  |  |  |  |  |  |  | (1,838) |
Net income (loss) |  |  |  |  |  |  |  |  |  |  |  |  | $ | 12,200 |
Significant non-cash items: |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization, net of accretion | $ | 1,956 |  |  | $ | 903 |  |  | $ | 397 |  |  | $ | 17 |  |  | $ | 6,973 |  |  | $ | — |  |  | $ | 10,246 |

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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021

| Nine Months Ended September 30, 2021
(In thousands) | Specialty P&C |  | Workers' Compensation Insurance |  | Segregated Portfolio Cell Reinsurance |  | Lloyd's Syndicates |  | Corporate |  | Inter-segment Eliminations |  | Consolidated
Net premiums earned | $ | 487,963 |  |  | $ | 122,872 |  |  | $ | 47,500 |  |  | $ | 40,263 |  |  | $ | — |  |  | $ | — |  |  | $ | 698,598 |
Net investment income | — |  |  | — |  |  | 620 |  |  | 1,677 |  |  | 49,416 |  |  | — |  |  | 51,713 |
Equity in earnings (loss) of unconsolidated subsidiaries | — |  |  | — |  |  | — |  |  | — |  |  | 33,959 |  |  | — |  |  | 33,959 |
Net realized gains (losses) | — |  |  | — |  |  | 2,772 |  |  | 9 |  |  | 17,431 |  |  | — |  |  | 20,212 |
Other income (expense)(1) | 2,800 |  |  | 1,730 |  |  | 2 |  |  | 864 |  |  | 3,786 |  |  | (2,320) |  |  | 6,862 |
Net losses and loss adjustment expenses | (417,890) |  |  | (85,323) |  |  | (26,560) |  |  | (25,257) |  |  | — |  |  | — |  |  | (555,030) |
Underwriting, policy acquisition and operating expenses(1) | (91,369) |  |  | (38,519) |  |  | (15,078) |  |  | (15,219) |  |  | (19,050) |  |  | 2,320 |  |  | (176,915) |
SPC U.S. federal income tax expense(2) | — |  |  | — |  |  | (1,291) |  |  | — |  |  | — |  |  | — |  |  | (1,291) |
SPC dividend (expense) income | — |  |  | — |  |  | (5,926) |  |  | — |  |  | — |  |  | — |  |  | (5,926) |
Interest expense | — |  |  | — |  |  | — |  |  | — |  |  | (14,203) |  |  | — |  |  | (14,203) |
Income tax benefit (expense) | — |  |  | — |  |  | — |  |  | — |  |  | (1,369) |  |  | — |  |  | (1,369) |
Segment results | $ | (18,496) |  |  | $ | 760 |  |  | $ | 2,039 |  |  | $ | 2,337 |  |  | $ | 69,970 |  |  | $ | — |  |  | 56,610 |
Reconciliation of segments to consolidated results: |  |  |  |  |  |  |  |  |  |
Gain on bargain purchase |  |  |  |  |  |  |  |  |  |  |  |  | 74,408 |
Transaction-related costs, net(3) |  |  |  |  |  |  |  |  |  |  |  |  | (19,034) |
Net income (loss) |  |  |  |  |  |  |  |  |  |  |  |  | $ | 111,984 |
Significant non-cash items: |  |  |  |  |  |  |  |  |  |  |  |  |
Gain on bargain purchase |  |  |  |  |  |  |  |  |  |  |  |  | $ | 74,408 |
Depreciation and amortization, net of accretion | $ | 7,261 |  |  | $ | 2,709 |  |  | $ | 1,074 |  |  | $ | 49 |  |  | $ | 15,473 |  |  | $ | — |  |  | $ | 26,566 |

| Three Months Ended September 30, 2020
(In thousands) | Specialty P&C |  | Workers' Compensation Insurance |  | Segregated Portfolio Cell Reinsurance |  | Lloyd's Syndicates |  | Corporate |  | Inter-segment Eliminations |  | Consolidated
Net premiums earned | $ | 117,849 |  |  | $ | 42,516 |  |  | $ | 16,052 |  |  | $ | 18,142 |  |  | $ | — |  |  | $ | — |  |  | $ | 194,559 |
Net investment income | — |  |  | — |  |  | 273 |  |  | 951 |  |  | 15,700 |  |  | — |  |  | 16,924 |
Equity in earnings (loss) of unconsolidated subsidiaries | — |  |  | — |  |  | — |  |  | — |  |  | 4,853 |  |  | — |  |  | 4,853 |
Net realized gains (losses) | — |  |  | — |  |  | 1,495 |  |  | 489 |  |  | 6,854 |  |  | — |  |  | 8,838 |
Other income (expense)(1) | 726 |  |  | 441 |  |  | 12 |  |  | 411 |  |  | 775 |  |  | (642) |  |  | 1,723 |
Net losses and loss adjustment expenses | (102,951) |  |  | (26,455) |  |  | (6,858) |  |  | (9,317) |  |  | — |  |  | — |  |  | (145,581) |
Underwriting, policy acquisition and operating expenses(1) | (28,074) |  |  | (14,983) |  |  | (5,036) |  |  | (6,938) |  |  | (5,044) |  |  | 642 |  |  | (59,433) |
SPC U.S. federal income tax expense(2) | — |  |  | — |  |  | (871) |  |  | — |  |  | — |  |  | — |  |  | (871) |
SPC dividend (expense) income | — |  |  | — |  |  | (3,854) |  |  | — |  |  | — |  |  | — |  |  | (3,854) |
Interest expense | — |  |  | — |  |  | — |  |  | — |  |  | (3,881) |  |  | — |  |  | (3,881) |
Income tax benefit (expense) | — |  |  | — |  |  | — |  |  | — |  |  | (2,141) |  |  | — |  |  | (2,141) |
Segment results | $ | (12,450) |  |  | $ | 1,519 |  |  | $ | 1,213 |  |  | $ | 3,738 |  |  | $ | 17,116 |  |  | $ | — |  |  | 11,136 |
Reconciliation of segments to consolidated results: |  |  |  |  |  |  |  |  |  |
Goodwill impairment |  |  |  |  |  |  |  |  |  |  |  |  | (161,115) |
Net income (loss) |  |  |  |  |  |  |  |  |  |  |  |  | $ | (149,979) |
Significant non-cash items: |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill impairment |  |  |  |  |  |  |  |  |  |  |  |  | $ | 161,115 |
Depreciation and amortization, net of accretion | $ | 2,669 |  |  | $ | 923 |  |  | $ | 210 |  |  | $ | 3 |  |  | $ | 2,540 |  |  | $ | — |  |  | $ | 6,345 |

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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021

| Nine Months Ended September 30, 2020
(In thousands) | Specialty P&C |  | Workers' Compensation Insurance |  | Segregated Portfolio Cell Reinsurance |  | Lloyd's Syndicates |  | Corporate |  | Inter-segment Eliminations |  | Consolidated
Net premiums earned | $ | 365,305 |  |  | $ | 129,437 |  |  | $ | 49,780 |  |  | $ | 61,186 |  |  | $ | — |  |  | $ | — |  |  | $ | 605,708 |
Net investment income | — |  |  | — |  |  | 832 |  |  | 3,236 |  |  | 51,809 |  |  | — |  |  | 55,877 |
Equity in earnings (loss) of unconsolidated subsidiaries | — |  |  | — |  |  | — |  |  | — |  |  | (22,065) |  |  | — |  |  | (22,065) |
Net realized gains (losses) | — |  |  | — |  |  | 894 |  |  | 1,100 |  |  | (1,844) |  |  | — |  |  | 150 |
Other income (expense)(1) | 3,515 |  |  | 1,717 |  |  | 203 |  |  | 219 |  |  | 1,813 |  |  | (1,799) |  |  | 5,668 |
Net losses and loss adjustment expenses | (373,442) |  |  | (84,648) |  |  | (23,890) |  |  | (39,432) |  |  | — |  |  | — |  |  | (521,412) |
Underwriting, policy acquisition and operating expenses(1) | (82,894) |  |  | (42,604) |  |  | (15,474) |  |  | (23,373) |  |  | (17,632) |  |  | 1,799 |  |  | (180,178) |
SPC U.S. federal income tax expense(2) | — |  |  | — |  |  | (1,573) |  |  | — |  |  | — |  |  | — |  |  | (1,573) |
SPC dividend (expense) income | — |  |  | — |  |  | (7,988) |  |  | — |  |  | — |  |  | — |  |  | (7,988) |
Interest expense | — |  |  | — |  |  | — |  |  | — |  |  | (11,725) |  |  | — |  |  | (11,725) |
Income tax benefit (expense) | — |  |  | — |  |  | — |  |  | 29 |  |  | 48,592 |  |  | — |  |  | 48,621 |
Segment results | $ | (87,516) |  |  | $ | 3,902 |  |  | $ | 2,784 |  |  | $ | 2,965 |  |  | $ | 48,948 |  |  | $ | — |  |  | (28,917) |
Reconciliation of segments to consolidated results: |  |  |  |  |  |  |  |  |  |
Goodwill impairment |  |  |  |  |  |  |  |  |  |  |  |  | (161,115) |
Net income (loss) |  |  |  |  |  |  |  |  |  |  |  |  | $ | (190,032) |
Significant non-cash items: |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill impairment |  |  |  |  |  |  |  |  |  |  |  |  | $ | 161,115 |
Depreciation and amortization, net of accretion | $ | 5,930 |  |  | $ | 2,771 |  |  | $ | 371 |  |  | $ | 26 |  |  | $ | 7,070 |  |  | $ | — |  |  | $ | 16,168 |
(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.
(3) Represents the transaction-related costs, after-tax, associated with the acquisition of NORCAL. Pre-tax transaction-related costs of $2.3 million and $23.5 million were included as a component of consolidated operating expense and the associated income tax benefit of $0.5 million and $4.5 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 and nine months ended September 30, 2021, respectively.

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Table of Contents
ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
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 September 30 |  | Nine Months Ended September 30
(In thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Specialty P&C Segment |  |  |  |  |  |  |
Gross premiums earned: |  |  |  |  |  |  |
HCPL | $ | 184,893 |  |  | $ | 101,785 |  |  | $ | 432,722 |  |  | $ | 317,088 |
Small Business Unit | 26,958 |  |  | 26,372 |  |  | 78,789 |  |  | 77,937 |
Medical Technology Liability | 9,933 |  |  | 8,749 |  |  | 28,484 |  |  | 25,918 |
Other | 172 |  |  | 138 |  |  | 494 |  |  | 671 |
Ceded premiums earned | (18,240) |  |  | (19,195) |  |  | (52,526) |  |  | (56,309) |
Segment net premiums earned | 203,716 |  |  | 117,849 |  |  | 487,963 |  |  | 365,305 |
Workers' Compensation Insurance Segment |  |  |  |  |  |  |
Gross premiums earned: |  |  |  |  |  |  |
Traditional business | 45,331 |  |  | 45,620 |  |  | 130,767 |  |  | 138,628 |
Alternative market business | 16,633 |  |  | 17,187 |  |  | 50,539 |  |  | 53,221 |
Ceded premiums earned | (19,729) |  |  | (20,291) |  |  | (58,434) |  |  | (62,412) |
Segment net premiums earned | 42,235 |  |  | 42,516 |  |  | 122,872 |  |  | 129,437 |
Segregated Portfolio Cell Reinsurance Segment |  |  |  |  |  |  |
Gross premiums earned: |  |  |  |  |  |  |
Workers' compensation(1) | 15,846 |  |  | 16,476 |  |  | 48,215 |  |  | 51,178 |
HCPL(2) | 1,649 |  |  | 1,699 |  |  | 5,675 |  |  | 5,099 |
Ceded premiums earned | (2,151) |  |  | (2,123) |  |  | (6,390) |  |  | (6,497) |
Segment net premiums earned | 15,344 |  |  | 16,052 |  |  | 47,500 |  |  | 49,780 |
Lloyd's Syndicates Segment |  |  |  |  |  |  |
Gross premiums earned: |  |  |  |  |  |  |
Property and casualty | 13,262 |  |  | 22,777 |  |  | 50,282 |  |  | 77,309 |
Ceded premiums earned | (2,309) |  |  | (4,635) |  |  | (10,019) |  |  | (16,123) |
Segment net premiums earned | 10,953 |  |  | 18,142 |  |  | 40,263 |  |  | 61,186 |
Consolidated net premiums earned | $ | 272,248 |  |  | $ | 194,559 |  |  | $ | 698,598 |  |  | $ | 605,708 |

(1) Premium for all periods is assumed from the Workers' Compensation Insurance segment.
(2) Premium for all periods is assumed from the Specialty P&C segment.
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ProAssurance Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2021
16. Benefit Plans
ProAssurance assumed a defined benefit pension plan on May 5, 2021 as a result of its acquisition of NORCAL (see Note 2 for additional information), 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 highest five years of annual compensation. Annual contributions to the defined benefit pension plan are not less than the minimum funding standards outlined in 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 period from May 5, 2021 to September 30, 2021 and does not anticipate making any contributions for the remainder of 2021. The defined benefit pension plan no longer has future service accruals or compensation increases because this plan was frozen effective December 31, 2015.
The weighted average discount rate used to determine the projected benefit obligation of the defined benefit pension plan as of the date of the NORCAL acquisition on May 5, 2021 was 2.95%. The weighted average discount rate and the weighted average expected return on plan assets used to determine net periodic benefit cost (credit) for the period from May 5, 2021 to December 31, 2021 was 2.95% and 3.75%, respectively.
The components of the net periodic benefit cost (credit) for the three and nine months ended September 30, 2021 were as follows:

($ in thousands) | Three Months Ended September 30, 2021 |  | Nine Months Ended September 30, 2021
Components of net periodic benefit cost (credit): |  |  |  |  |  |
Interest cost | $ | 779 |  |  |  |  | 1,253 |  |
Expected return on Plan assets | (896) |  |  |  |  | (1,538) |  |
Total net periodic benefit cost (credit)* | $ | (117) |  |  |  |  | $ | (285) |  |
*Net periodic benefit cost (credit) is included as a component of operating expense on the Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2021. |

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes to those statements which accompany this report. Throughout the discussion we use certain terms and abbreviations, which can be found in the Glossary of Terms and Acronyms at the beginning of this report. In addition, a glossary of insurance terms and phrases is available on the investor section of our website. Throughout the discussion, references to "ProAssurance," "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 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. Our professional liability insurance also includes the business acquired through the NORCAL transaction that closed on May 5, 2021. In addition, we 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 was not reflected in our results until the second quarter of 2021.
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•Corporate - This segment includes our investment operations, including the investment operations of NORCAL since the date of acquisition and excludes 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 15 of the Notes to Condensed Consolidated Financial Statements and in the Segment Results sections 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 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 accounting policies we follow in making estimates that materially affect financial reporting please refer to the Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K. Management considers the following accounting estimates to be critical because they involve significant judgment by management and those judgments could result in a material effect on our financial statements.
Reserve for Losses and Loss Adjustment Expenses
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 September 30, 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, 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.
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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 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; predominantly 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. Given the consistent and prolonged nature of these favorable trends we began to recognize some of these favorable frequency trends in our HCPL current accident year reserve during the third quarter of 2021. We continue to remain cautious in recognizing these favorable trends 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. Claims frequency in 2021 continues to be below pre-pandemic levels in our Workers' Compensation Insurance segment, some of which is likely associated with the COVID-19 pandemic. While claims frequency is down, we have experienced an increase in 2021 accident year reported losses through September 30, 2021, including increased severity-related claim activity, which we primarily attribute to the current pandemic conditions and the impact of workers returning to full employment with the easing of pandemic-related restrictions in our operating territories, including the impact of labor shortages on the existing workforce. As a result of the increase in reported losses, we adjusted our current accident year loss ratio for the nine months ended September 30, 2021, during the third quarter of 2021. Our COVID-19 claim activity has trended downward through the first three quarters of 2021; however, 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
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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.
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, we reassess the amount of reserve required for prior accident years each period.
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.
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
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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 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 IBNR reserve related to COVID-19. While we continue to 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, we recognized net favorable prior accident year reserve development of $1 million associated with our COVID-19 IBNR reserve during the third quarter of 2021. At September 30, 2021, we maintain a $9 million IBNR reserve related to COVID-19 which represents our best estimate of future COVID-19 related losses not already captured by our claims process based on currently available information and reported incidents.
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.
Acquired Reserve
The acquisition of NORCAL increased our gross reserves by $1.2 billion which was the fair value of NORCAL's loss reserve at the time of acquisition. The fair value estimate of NORCAL's reserve for losses and loss adjustment expenses was based on three components: an actuarial estimate of the expected future net cash flows, a reduction to those cash flows for the time value of money determined utilizing the U.S. Treasury Yield Curve and a risk margin adjustment to reflect the net present value of profit that an investor would demand in return for the assumption of the development risk associated with the reserve. The fair value of NORCAL's gross reserve, including the risk margin adjustment, exceeded the actuarial estimate of NORCAL’s undiscounted loss reserve by approximately $42.2 million as of May 5, 2021. This fair value adjustment was recorded to the reserve for losses and loss adjustment expenses and will be amortized over a period utilizing loss payment patterns as a reduction to prior accident year net losses and loss adjustment expenses. See Note 2 of the Notes to Condensed Consolidated Financial Statements for more information.
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Investment Valuations
We record the majority of our investments at fair value as shown in the table below. At September 30, 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 | 7% |  | 84% |  | 1% |  | 5% |  | 97%
Other valuations |  |  |  |  |  |  |  |  | 3%
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 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.
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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. During the third quarter of 2020, we recognized a nonrecurring fair value measurement related to the goodwill in our Specialty P&C reporting unit with a carrying value of $161.1 million prior to the fair value measurement. This nonrecurring fair value measurement resulted in the goodwill being written down to its implied fair value of zero resulting in an impairment of the goodwill of $161.1 million (see following discussion under the heading "Goodwill / Intangibles" and Note 7 of the Notes to Condensed Consolidated Financial Statements). The inputs used in the fair value measurement were non-observable and, as such, were categorized as a Level 3 valuation. We did not have any other assets or liabilities that were measured at fair value on a nonrecurring basis at September 30, 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 September 30, 2021, these investments represented approximately 3% of total investments, and are detailed in the following table. Additional information about these investments is provided in Note 3 and Note 4 of the Notes to Condensed Consolidated Financial Statements.

(In millions) | Carrying Value |  | GAAP Measurement Method
Other investments: |  |  |
Other, principally FHLB capital stock | $ | 3.2 |  |  | Principally Cost
Investment in unconsolidated subsidiaries: |  |  |
Investments in tax credit partnerships | 16.0 |  |  | Equity
Equity method investments, primarily LPs/LLCs | 50.2 |  |  | Equity
| 66.2 |  |  |
BOLI | 80.8 |  |  | Cash surrender value
Total investments - Other valuation methodologies | $ | 150.2 |  |  |

Impairments
We evaluate our available-for-sale investment securities, which at September 30, 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
•if the entire amortized basis of the security is not expected to be recovered.
The assessment 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;
•the current credit standing of the issuer, including credit rating downgrades, whether before or after the balance sheet date;
•the extent to which the decline in fair value is attributable to credit risk specifically associated with the security or its issuer;
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•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.
Pension
As a result of our NORCAL acquisition, we sponsor a frozen defined benefit pension plan 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). Accounting for pension benefits requires the use of assumptions for the valuation of the PBO and the expected performance of the plan assets.
We use December 31 as the measurement date for calculating our obligation related to this defined benefit pension plan. The PBO for pension benefits represents the present value of all future benefits earned as of the measurement date for vested and non-vested employees. At each measurement date, we review the various assumptions impacting the amounts recorded for the pension plan including the discount rates, which impacts the recorded value of the PBO and interest costs, and the expected return on plan assets.
To estimate the discount rate at the measurement date, we use a bond yield curve model, developed based on pricing and yield information for high quality corporate bonds. The assumption for the expected return on plan assets is based on the anticipated returns that will be earned by the portfolio over the long term. The expected return is influenced, but not determined, by historical portfolio performance.
Accounting standards provide for the delayed recognition of differences between actual results and expected or estimated results. This delayed recognition of the differences is amortized into earnings over time. The differences between actual results and expected or estimated results are recognized in full in AOCI. Amounts recognized in AOCI are reclassified to earnings in a systematic manner over the average future service period of participants. Due to the acquisition of NORCAL and the application of GAAP purchase accounting, there were no amounts recorded in AOCI as of September 30, 2021 as the plan assets and benefit obligation are not remeasured on a quarterly basis.
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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 Statements of Income and Comprehensive Income and as a component of the reserve for losses and loss adjustment expenses on our Condensed Consolidated Balance Sheets. During the three and nine months ended September 30, 2021 and 2020, we did not determine any DPAC to be unrecoverable.
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 nine months ended September 30, 2021, 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 nine months ended September 30, 2021 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 nine months ended September 30, 2020, 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), 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, NOL and 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 September 30, 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.
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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").
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 September 30, 2021. See further discussion in Note 6 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 and nine months ended September 30, 2021 or 2020. At September 30, 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 15 of the Notes to Condensed Consolidated Financial Statements.
Interim Impairment Assessments
During the third quarter of 2020, we performed interim impairment assessments of the goodwill and definite and indefinite lived intangible assets in our Specialty P&C, Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance reporting units due to the significant market volatility impacting our actual and projected results along with a decline in our stock price. The goodwill analysis indicated an impairment of the goodwill associated with our Specialty P&C reporting unit and accordingly we recorded a $161.1 million charge to goodwill (see further discussion in Note 7 of the Notes to Condensed Consolidated Financial Statements). The analysis of our definite and indefinite lived intangible assets indicated no impairment at September 30, 2020.
There were no triggering events as of September 30, 2021 that would suggest an updated impairment test would be needed for our goodwill and intangible assets.
Annual Impairment Assessments
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 7 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.
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Acquired Intangibles
The acquisition of NORCAL added $14 million to identifiable intangible assets as of the acquisition date. Intangible assets acquired in the NORCAL acquisition included the following:

(In thousands) | Estimated Fair Value on Acquisition Date |  | Estimated Useful Life
Trade name | $ | 1,000 |  |  | 3
Licenses | 13,000 |  |  | Indefinite
Total | $ | 14,000 |  |  |

See further information on the intangible assets acquired in the NORCAL acquisition in Note 2 of the Notes to Condensed Consolidated Financial Statements and additional information regarding our goodwill and intangible assets is included in Note 1 and Note 6 of the Notes to Consolidated Financial Statements included in our December 31, 2020 report on Form 10-K.
Business Combinations
We accounted for our acquisition of NORCAL in accordance with GAAP relating to business combinations which required us to make certain estimates and assumptions including determining the fair value of the non-cash components of the acquisition consideration and the acquisition date fair values of the acquired tangible and identifiable intangible assets and assumed liabilities of NORCAL. Subsequent to the preliminary valuation of the non-cash components of the purchase consideration and net assets acquired, any adjustment identified associated with the purchase price allocation will be evaluated to determine whether the adjustment represents a measurement period adjustment in accordance with GAAP. If the adjustment is deemed to be a measurement period adjustment and is identified within one year of the acquisition, then the measurement period adjustment will be recorded in the current reporting period with a corresponding adjustment to the gain on bargain purchase.
Contingent Consideration
Contingent consideration in a business combination is recorded at fair value on the date of the acquisition and remeasured each subsequent reporting period with changes in fair value recognized in earnings. The purchase consideration in the NORCAL acquisition included contingent consideration with an acquisition date fair value of approximately $24 million. NORCAL policyholders who tendered NORCAL stock 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 September 30, 2021, which did not change from June 30, 2021, and 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 December 31, 2023, the 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 Note 9 of the Notes to Condensed Consolidated Financial Statements.
VOBA
VOBA is an intangible asset (or liability) that reflects the estimated fair value of in-force contracts acquired in an acquisition and represents the portion of the purchase price that is allocated to the value of the right to receive future cash flows from the business in-force at the acquisition date. VOBA is based on actuarially determined projections, and in instances where the in-force business is expected to generate an underwriting loss, the value of VOBA may be negative. Negative VOBA is reported in the reserve for losses and loss adjustment expenses on the Condensed Consolidated Balance Sheets.
We recognized negative VOBA of $11.7 million in connection with our acquisition of NORCAL, representing the value of future losses expected to be recognized over the lifetime of the contracts acquired determined using a discount rate and other relevant assumptions. The negative VOBA will be amortized over a period in proportion to the earn-out of the premium as a reduction to current accident year net losses and loss adjustment expenses on the Condensed Consolidated Statements of Income and Comprehensive Income. See Note 2 of the Notes to Condensed Consolidated Financial Statements for more information.
Gain on Bargain Purchase
As a result of the NORCAL acquisition, we recognized a gain on bargain purchase of $74.4 million during the second quarter of 2021 representing the excess of the fair value of the identifiable assets acquired and liabilities assumed over the purchase consideration. A gain on bargain purchase is recognized in earnings and is considered unusual, infrequent and non-recurring in nature. We exclude gains on bargain purchases from Non-GAAP operating income (loss) as they do not reflect normal operating results. See further discussion around the gain on bargain purchase recognized in the second quarter of 2021 from the NORCAL acquisition in Note 2 of the Notes to Condensed Consolidated Financial Statements.
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Accounting Changes
We did not have any change in accounting estimates or policy that had a material effect on our results of operations or financial position during the nine months ended September 30, 2021. We are not aware of any accounting changes not yet adopted as of September 30, 2021 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 (excluding the acquired operating subsidiaries of NORCAL) 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 September 30, 2021, we held cash and liquid investments of approximately $57 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 November 3, 2021, no borrowings were outstanding under our Revolving Credit Agreement.
To date, during 2021, our operating subsidiaries have paid dividends to us of approximately $51 million. In the aggregate, our insurance subsidiaries, excluding NORCAL, are permitted to pay dividends of approximately $56 million over the remainder of 2021 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).
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Operating Activities and Related Cash Flows
Reinsurance
Within our Specialty P&C segment, we use insurance and reinsurance (collectively, “reinsurance”) to provide capacity to write larger limits of liability, to provide reimbursement for losses incurred under the higher limit coverages we offer and to provide protection against losses in excess of policy limits. Within our Workers' Compensation Insurance segment, we use reinsurance to reduce our net liability on individual risks, to mitigate the effect of significant loss occurrences (including catastrophic events), to stabilize underwriting results and to increase underwriting capacity by decreasing leverage. In both our Specialty P&C and Workers' Compensation Insurance segments, we use reinsurance in risk sharing arrangements to align our objectives with those of our strategic business partners and to provide custom insurance solutions for large customer groups. 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 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 and Medical Technology Liability treaties renew annually on October 1. As of October 1, 2021, our HCPL treaty renewed with a reduction to the gross rate paid under the renewed treaty and also incorporates NORCAL policies. For the NORCAL excess of loss reinsurance arrangement in effect 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 is generally the first $2 million in risk and coverages in excess of this amount are ceded up to $24 million. There were no significant changes in the cost or structure of our Medical Technology Liability treaty upon the latest renewal on October 1, 2021. Our Workers' Compensation treaty renews annually on May 1. Our traditional workers' compensation treaty renewed May 1, 2021 at a higher rate than the previous agreement, with an increase in the AAD to 3.50% from 3.16% 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.
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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 2.5% to 32.5%.
(4) Historically, retention has ranged from $1M to $2M.
(5) Includes an AAD where retention is 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 $1 million of losses for certain large healthcare systems and other insurance entities, as well as with certain insurance agencies that produce business for us.
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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 and the profit or loss of each cell accrues fully to these cell participants. As previously discussed, we participate in certain SPCs to a varying degree. Each SPC maintains a loss fund initially equal to the difference between premium assumed by the cell and the ceding commission. The external participants of each cell provide collateral to us, typically in the form of a letter of credit that is initially equal to the difference between the loss fund of the SPC (amount of funds available to pay losses after deduction of ceding commission) and the aggregate attachment point of the reinsurance. Over time, an SPC's retained profits are considered in the determination of the collateral amount required to be provided by the cell's external participants.
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Cash Flows
Cash flows between periods compare as follows:

| Nine Months Ended September 30
(In thousands) | 2021 |  | 2020 |  | Change
Net cash provided (used) by: |  |  |  |  |
Operating activities | $ | 69,363 |  |  | $ | 73,173 |  |  | $ | (3,810) |
Investing activities | (25,531) |  |  | 21,999 |  |  | (47,530) |
Financing activities | (56,661) |  |  | (38,593) |  |  | (18,068) |
Increase (decrease) in cash and cash equivalents | $ | (12,829) |  |  | $ | 56,579 |  |  | $ | (69,408) |

| Nine Months Ended September 30
(In thousands) | 2020 |  | 2019 |  | Change
Net cash provided (used) by: |  |  |  |  |
Operating activities | $ | 73,173 |  |  | $ | 128,803 |  |  | $ | (55,630) |
Investing activities | 21,999 |  |  | (25,717) |  |  | 47,716 |
Financing activities | (38,593) |  |  | (81,346) |  |  | 42,753 |
Increase (decrease) in cash and cash equivalents | $ | 56,579 |  |  | $ | 21,740 |  |  | $ | 34,839 |

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 decrease in operating cash flows of $3.8 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 was partially offset by additional net cash receipt from NORCAL of approximately $2.7 million primarily associated with net premium receipts, partially offset by transaction-related expenses. Excluding NORCAL, operating cash flows decreased by $6.5 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 primarily due to a decrease in net premium receipts of $52.8 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 and Syndicate 6131 for the 2021 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 and the effect of $14.3 million of tail premium received from a large national healthcare account during the second quarter of 2020 (see further discussion in our Segment Operating Results - Specialty Property & Casualty section that follows). Additionally, the decrease in operating cash flows was due to a decrease in cash received from investment income of $15.4 million driven by a decrease in distributed earnings and redemptions from our portfolio of investments in LPs/LLCs. The decrease in operating cash flows was partially offset by a decrease in paid losses of $50.5 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 decrease in operating cash flows reflected a decrease in cash paid for operating expenses of $9.2 million driven by the effect of one-time expenses of $3.2 million primarily related to employee severance and early retirement benefits paid to certain employees during the third quarter of 2020. Furthermore, the decrease in cash paid for operating expenses reflected 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 and Syndicate 6131 for the 2021 underwriting year. The remaining variance in operating cash flows for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 was comprised of individually insignificant components.
The decrease in operating cash flows for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 of $55.6 million was primarily due to an increase in paid losses of $85.8 million 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
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segment reflected the payment of a $10 million claim during the first quarter of 2020, as previously discussed. Additionally, the decrease in operating cash flows reflected a decrease in net cash received of $7.4 million associated with the cash settlement of the 2017 calendar year quota share reinsurance arrangement between our Specialty P&C segment and Syndicate 1729 due to the reduction in premiums ceded to Syndicate 1729. Furthermore, the decrease in operating cash flows also reflected the aforementioned one-time expenses of $3.2 million. The decrease in operating cash flows was somewhat offset by an increase in net premium receipts of $34.6 million, a decrease in 2020 net tax payments as compared to 2019 of $7.8 million and an increase in cash received from investment income of $3.8 million. The increase in net premium receipts was driven by our Specialty P&C segment due to $14.3 million of tail premium, as previously discussed. The decrease in net tax payments was primarily due to refunds received during the nine months ended September 30, 2020. The increase in cash received from investment income was primarily due to an increase in distributed earnings and redemptions from our portfolio of investments in LPs/LLCs. The remaining variance in operating cash flows for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 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."
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. Our filing obligations include a requirement to make quarterly payments of estimated taxes to the IRS using the corporate tax rate effective for the tax year. We did not make any quarterly estimated tax payments during the three and nine months ended September 30, 2021 or 2020.
As a result of the CARES Act that was signed into law on March 27, 2020, as previously discussed, we are now permitted to carryback NOLs generated in tax years 2019 and 2020 for up to five years. See further discussion in Note 5 of the Notes to Consolidated Financial Statements included in our December 31, 2020 report on Form 10-K. We have an NOL of approximately $33.3 million from the 2020 tax year that will be carried back to the 2015 tax year and is expected to generate a tax refund of approximately $11.7 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 million which we received in February 2021. Furthermore, we received a tax refund of $1.3 million during the second quarter of 2021 due to the repeal of a previous election we made under the TCJA related to discounted loss reserves.
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, as such deferred taxes were subject to recalculation following application of all purchase accounting adjustments and our assessment of the realizability of NORCAL's deferred tax assets. Also as a result of the NORCAL acquisition, we have U.S. federal NOL carryforwards of approximately $68.0 million that will begin to expire in 2035. We currently expect to utilize at portion of these NOL carryforwards in 2021.
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Investing Activities and Related Cash Flows
Our investments at September 30, 2021 and December 31, 2020 are comprised as follows:

| September 30, 2021 |  | December 31, 2020
($ in thousands) | Carrying Value | % of Total Investment |  | Carrying Value | % of Total Investment
Fixed maturities, available-for-sale |  |  |  |  |
U.S. Treasury obligations | $ | 242,705 |  | 5 | % |  | $ | 107,059 |  | 3 | %
U.S. Government-sponsored enterprise obligations | 20,468 |  | 1 | % |  | 12,261 |  | 1 | %
State and municipal bonds | 522,707 |  | 10 | % |  | 332,920 |  | 10 | %
Corporate debt | 1,963,113 |  | 41 | % |  | 1,329,342 |  | 39 | %
Residential mortgage-backed securities | 477,909 |  | 10 | % |  | 276,541 |  | 8 | %
Commercial mortgage-backed securities | 233,966 |  | 5 | % |  | 126,402 |  | 4 | %
Other asset-backed securities | 443,268 |  | 9 | % |  | 273,006 |  | 8 | %
Total fixed maturities, available-for-sale | 3,904,136 |  | 81 | % |  | 2,457,531 |  | 73 | %
Fixed maturities, trading | 45,049 |  | 1 | % |  | 48,456 |  | 1 | %
Total fixed maturities | 3,949,185 |  | 82 | % |  | 2,505,987 |  | 74 | %
Equity investments | 214,530 |  | 4 | % |  | 120,101 |  | 4 | %
Short-term investments | 151,708 |  | 3 | % |  | 337,813 |  | 10 | %
BOLI | 80,821 |  | 2 | % |  | 67,847 |  | 2 | %
Investment in unconsolidated subsidiaries | 317,869 |  | 7 | % |  | 310,529 |  | 9 | %
Other investments | 110,012 |  | 2 | % |  | 47,068 |  | 1 | %
Total investments | $ | 4,824,125 |  | 100 | % |  | $ | 3,389,345 |  | 100 | %

At September 30, 2021, 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:

| September 30, 2021 |  | December 31, 2020
($ in thousands) | Carrying Value | % of Total Investment |  | Carrying Value | % of Total Investment
Rating* |  |  |  |  |
AAA | $ | 1,165,022 |  | 30 | % |  | $ | 717,187 |  | 29 | %
AA+ | 127,707 |  | 3 | % |  | 103,996 |  | 4 | %
AA | 242,772 |  | 6 | % |  | 168,452 |  | 7 | %
AA- | 214,032 |  | 6 | % |  | 122,733 |  | 5 | %
A+ | 246,534 |  | 6 | % |  | 197,274 |  | 8 | %
A | 526,078 |  | 14 | % |  | 323,044 |  | 13 | %
A- | 365,689 |  | 9 | % |  | 245,464 |  | 10 | %
BBB+ | 277,641 |  | 7 | % |  | 189,971 |  | 8 | %
BBB | 310,325 |  | 8 | % |  | 190,385 |  | 8 | %
BBB- | 129,235 |  | 3 | % |  | 59,847 |  | 2 | %
Below investment grade | 293,004 |  | 7 | % |  | 133,607 |  | 5 | %
Not rated | 6,097 |  | 1 | % |  | 5,571 |  | 1 | %
Total | $ | 3,904,136 |  | 100 | % |  | $ | 2,457,531 |  | 100 | %
*Average of three NRSRO sources, presented as an S&P equivalent. Source: S&P, Copyright ©2021, S&P Global Market Intelligence

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Our acquisition of NORCAL added the following to our investment holdings as of May 5, 2021, the date of acquisition:

(In thousands) |
Fixed maturities, available for sale | $ | 1,100,058 |
Equity investments | 374,484 |
Short-term investments | 61,289 |
BOLI | 12,581 |
Investment in unconsolidated subsidiaries | 26,948 |
Other investments | 32,461 |
Total investments | $ | 1,607,821 |

A detailed listing of our investment holdings as of September 30, 2021 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 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 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 $80 million and $100 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 11 of the Notes to Condensed Consolidated Financial Statements.
At September 30, 2021, our FAL was comprised of fixed maturity securities with a fair value of $64.3 million and cash and cash equivalents of $8.2 million deposited with Lloyd's. See further discussion in Note 4 of the Notes to Condensed Consolidated Financial Statements. We received a return of approximately $24.5 million of FAL during the second quarter of 2021, and we expect to receive a return of approximately $8.0 million of FAL during the fourth quarter of 2021 given the reduction in our participation in the results of Syndicate 1729 for the 2021 underwriting year.
Our investment portfolio continues to be primarily composed of high quality fixed income securities with approximately 92% of our fixed maturities being investment grade securities as determined by national rating agencies. The weighted average effective duration of our fixed maturity securities at September 30, 2021 was 3.63 years; the weighted average effective duration of our fixed maturity securities combined with our short-term securities was 3.50 years.
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The carrying value and unfunded commitments for certain of our investments were as follows:

| Carrying Value |  | September 30, 2021
($ in thousands, except expected funding period) | September 30, 2021 | December 31, 2020 |  | Unfunded Commitment | Expected funding period in years
Qualified affordable housing project tax credit partnerships (1) | $ | 15,980 |  | $ | 27,719 |  |  | $ | 597 |  | 6
All other investments, primarily investment fund LPs/LLCs | 301,889 |  | 282,810 |  |  | 145,993 |  | 4
Total | $ | 317,869 |  | $ | 310,529 |  |  | $ | 146,590 |  |
(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 September 30, 2021, we had investments in 33 separate investment funds with a total carrying value of $301.9 million which represented approximately 6% of our total investments. Our investment fund LPs/LLCs generate earnings from trading portfolios, secured debt, debt securities, multi-strategy funds and private equity investments, and the performance of these LPs/LLCs is affected by the volatility of equity and credit markets. For our investments in LPs/LLCs, we record our allocable portion of the partnership operating income or loss as the results of the LPs/LLCs become available, typically following the end of a reporting period.
Acquisitions
On May 5, 2021, we completed the acquisition of NORCAL by purchasing 98.8% of the converted company stock in exchange for total consideration transferred of $449 million. On September 16, 2021, we acquired the remaining 1.2% interest in NORCAL for $3.1 million of cash. On May 5, 2021, ProAssurance funded the transaction with $248 million of cash on hand and NORCAL paid $2 million to policyholders who elected to receive the discounted cash option for their allocated share of the converted company's equity. Additional consideration with a principal amount of $191 million and a fair value of $175 million, is in the form of Contribution Certificates 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 11 of the Notes to Condensed Consolidated Financial Statements for further discussion of the terms of the Contribution Certificates). Policyholders who tendered NORCAL stock to ProAssurance are also 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 May 5, 2021 and September 30, 2021. 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 2 of the Notes to Condensed Consolidated Financial Statements.
Financing Activities and Related Cash Flows
Treasury Shares
During the nine months ended September 30, 2021 and 2020, we did not repurchase any common shares and, as of November 3, 2021, our remaining Board authorization was approximately $110 million.
ProAssurance Shareholder Dividends
Our Board declared quarterly cash dividends of $0.05 per share during each of the first three quarters of 2021, $0.31 per share during the first quarter of 2020 and $0.05 per share during each of the second and third quarters of 2020. 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.
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Debt
At September 30, 2021 our debt included $250 million of outstanding unsecured senior notes. The notes bear interest at 5.3% annually and are due in 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 acquisition. 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, which begin in April 2022, are subject to deferral if we do not receive permission from the California Department of Insurance prior to payment. See Note 2 and Note 11 of the Notes to Condensed Consolidated Financial Statements 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. In August 2021, we repaid the balance outstanding on the Revolving Credit Agreement of $15.0 million and, as of September 30, 2021, there were no outstanding borrowings; we are in compliance with the financial covenants of the Revolving Credit Agreement.
Two of our subsidiaries, ProAssurance Indemnity Company, Inc. and ProAssurance Insurance Company of America, had Mortgage Loans with one lender in connection with the recapitalization of two office buildings, with scheduled maturities in December 2027. The Mortgage Loans accrued interest at three-month LIBOR plus 1.325% with principal and interest payable on a quarterly basis. In June 2021, we repaid the balance outstanding on the ProAssurance Indemnity Company, Inc. Mortgage Loan of $15.6 million and, in July 2021, we repaid the balance outstanding on the ProAssurance Insurance Company of America Mortgage Loan of $19.7 million. Interest expense on the Mortgage Loans during the three and nine months ended September 30, 2021 included the write-off of the unamortized debt issuance costs which were nominal in amount.
Additional information regarding our debt is provided in Note 11 of the Notes to Condensed Consolidated Financial Statements.
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.
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Results of Operations – Three and Nine Months Ended September 30, 2021 Compared to Three and Nine Months Ended September 30, 2020
Selected consolidated financial data for each period is summarized in the table below.

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands, except per share data) | 2021 | 2020 | Change |  | 2021 | 2020 | Change
Revenues: |  |  |  |  |  |  |
Net premiums written | $ | 287,043 |  | $ | 213,260 |  | $ | 73,783 |  |  | $ | 677,527 |  | $ | 605,222 |  | $ | 72,305 |
Net premiums earned | $ | 272,248 |  | $ | 194,559 |  | $ | 77,689 |  |  | $ | 698,598 |  | $ | 605,708 |  | $ | 92,890 |
Net investment result | 34,522 |  | 21,777 |  | 12,745 |  |  | 85,672 |  | 33,812 |  | 51,860 |
Net realized investment gains (losses) | 530 |  | 8,838 |  | (8,308) |  |  | 20,212 |  | 150 |  | 20,062 |
Other income | 2,400 |  | 1,723 |  | 677 |  |  | 6,862 |  | 5,668 |  | 1,194 |
Total revenues | 309,700 |  | 226,897 |  | 82,803 |  |  | 811,344 |  | 645,338 |  | 166,006 |
Expenses: |  |  |  |  |  |  |
Net losses and loss adjustment expenses | 223,393 |  | 145,581 |  | 77,812 |  |  | 555,030 |  | 521,412 |  | 33,618 |
Underwriting, policy acquisition and operating expenses | 66,812 |  | 59,433 |  | 7,379 |  |  | 200,450 |  | 180,178 |  | 20,272 |
SPC U.S. federal income tax expense | 431 |  | 871 |  | (440) |  |  | 1,291 |  | 1,573 |  | (282) |
SPC dividend expense (income) | 1,320 |  | 3,854 |  | (2,534) |  |  | 5,926 |  | 7,988 |  | (2,062) |
Interest expense | 5,814 |  | 3,881 |  | 1,933 |  |  | 14,203 |  | 11,725 |  | 2,478 |
Goodwill impairment | — |  | 161,115 |  | (161,115) |  |  | — |  | 161,115 |  | (161,115) |
Total expenses | 297,770 |  | 374,735 |  | (76,965) |  |  | 776,900 |  | 883,991 |  | (107,091) |
Gain on bargain purchase | — |  | — |  | — |  |  | 74,408 |  | — |  | 74,408 |
Income (loss) before income taxes | 11,930 |  | (147,838) |  | 159,768 |  |  | 108,852 |  | (238,653) |  | 347,505 |
Income tax expense (benefit) | (270) |  | 2,141 |  | (2,411) |  |  | (3,132) |  | (48,621) |  | 45,489 |
Net income (loss) | $ | 12,200 |  | $ | (149,979) |  | $ | 162,179 |  |  | $ | 111,984 |  | $ | (190,032) |  | $ | 302,016 |
Non-GAAP operating income (loss) | $ | 13,766 |  | $ | 2,559 |  | $ | 11,207 |  |  | $ | 42,452 |  | $ | (31,029) |  | $ | 73,481 |
Earnings (loss) per share: |  |  |  |  |  |  |
Basic | $ | 0.23 |  | $ | (2.78) |  | $ | 3.01 |  |  | $ | 2.08 |  | $ | (3.53) |  | $ | 5.61 |
Diluted | $ | 0.23 |  | $ | (2.78) |  | $ | 3.01 |  |  | $ | 2.07 |  | $ | (3.53) |  | $ | 5.60 |
Non-GAAP operating income (loss) per share: |  |  |  |  |  |  |
Basic | $ | 0.25 |  | $ | 0.05 |  | $ | 0.20 |  |  | $ | 0.79 |  | $ | (0.58) |  | $ | 1.37 |
Diluted | $ | 0.25 |  | $ | 0.05 |  | $ | 0.20 |  |  | $ | 0.79 |  | $ | (0.58) |  | $ | 1.37 |
Net loss ratio | 82.1 | % | 74.8 | % | 7.3 | pts |  | 79.4 | % | 86.1 | % | (6.7 | pts)
Underwriting expense ratio | 24.5 | % | 30.5 | % | (6.0 | pts) |  | 28.7 | % | 29.7 | % | (1.0 | pts)
Combined ratio | 106.6 | % | 105.3 | % | 1.3 | pts |  | 108.1 | % | 115.8 | % | (7.7 | pts)
Operating ratio | 99.5 | % | 96.6 | % | 2.9 | pts |  | 100.7 | % | 106.6 | % | (5.9 | pts)
Effective tax rate | (2.3 | %) | (1.4 | %) | (0.9 | pts) |  | (2.9 | %) | 20.4 | % | (23.3 | pts)
Return on equity* | 4.0 | % | (8.8 | %) | 12.8 | pts |  | 4.2 | % | (14.1 | %) | 18.3 | pts
*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.

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Executive Summary of Operations
The following sections provide an overview of our consolidated and segment results of operations for the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 30, 2020. Our results for the three and nine months ended September 30, 2021 include NORCAL's results since the date of acquisition. 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 September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Net premiums earned |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Specialty P&C | $ | 203,716 |  |  | $ | 117,849 |  |  | $ | 85,867 |  |  | 72.9 | % |  | $ | 487,963 |  |  | $ | 365,305 |  |  | $ | 122,658 |  |  | 33.6 | %
Workers' Compensation Insurance | 42,235 |  |  | 42,516 |  |  | (281) |  |  | (0.7 | %) |  | 122,872 |  |  | 129,437 |  |  | (6,565) |  |  | (5.1 | %)
Segregated Portfolio Cell Reinsurance | 15,344 |  |  | 16,052 |  |  | (708) |  |  | (4.4 | %) |  | 47,500 |  |  | 49,780 |  |  | (2,280) |  |  | (4.6 | %)
Lloyd's Syndicates | 10,953 |  |  | 18,142 |  |  | (7,189) |  |  | (39.6 | %) |  | 40,263 |  |  | 61,186 |  |  | (20,923) |  |  | (34.2 | %)
Consolidated total | $ | 272,248 |  |  | $ | 194,559 |  |  | $ | 77,689 |  |  | 39.9 | % |  | $ | 698,598 |  |  | $ | 605,708 |  |  | $ | 92,890 |  |  | 15.3 | %

For the three and nine months ended September 30, 2021, consolidated net premiums earned included additional earned premiums of approximately $82.9 million and $131.4 million, respectively, in our Specialty P&C segment from our acquisition of NORCAL. Excluding NORCAL, consolidated net premiums earned decreased $5.2 million and $38.5 million during the 2021 three- and nine-month periods, respectively, as compared to the same respective periods of 2020 driven by a decrease in net premiums in our Lloyd's Syndicates and Workers' Compensation Insurance segments and, for the 2021 nine-month period, our Specialty P&C segment. 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 2021 underwriting year. 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 in audit premium for the 2021 nine-month period. Net premiums earned in our Specialty P&C segment, excluding NORCAL, increased during the 2021 three-month period due to a decrease in ceded premiums earned 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. For the 2021 nine-month period, the decrease in net premiums earned in our Specialty P&C segment, excluding NORCAL, was driven by the prior year effect of a tail policy associated with a large national healthcare account which resulted in $14.3 million of one-time premium written and fully earned during the second quarter of 2020, partially offset by $7.8 million of tail premium written and fully earned during the second quarter of 2021 associated with a Custom Physician policy. In addition, net premiums earned in our Specialty P&C segment for the 2021 three- and nine-month periods reflected premium adjustments related to loss sensitive policies which decreased earned premium by $0.9 million and $0.1 million, respectively, as compared to an increase in earned premium of $2.3 million and $2.6 million for the same respective periods of 2020.
The following table shows our consolidated net investment result:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Net investment income | $ | 19,278 |  |  | $ | 16,924 |  |  | $ | 2,354 |  |  | 13.9 | % |  | $ | 51,713 |  |  | $ | 55,877 |  |  | $ | (4,164) |  |  | (7.5 | %)
Equity in earnings (loss) of unconsolidated subsidiaries* | 15,244 |  |  | 4,853 |  |  | 10,391 |  |  | 214.1 | % |  | 33,959 |  |  | (22,065) |  |  | 56,024 |  |  | 253.9 | %
Net investment result | $ | 34,522 |  |  | $ | 21,777 |  |  | $ | 12,745 |  |  | 58.5 | % |  | $ | 85,672 |  |  | $ | 33,812 |  |  | $ | 51,860 |  |  | 153.4 | %
*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.

Our consolidated net investment result for the three and nine months ended September 30, 2021 included additional net investment income of approximately $5.1 million and $7.8 million, respectively, from NORCAL. Excluding NORCAL, consolidated net investment income decreased $2.8 million and $12.0 million during the 2021 three- and nine-month periods, respectively, as compared to the same respective periods of 2020 driven by lower yields on our corporate debt securities and short-term investments given the continued low interest rate environment and, to a lesser extent, lower income from our equity portfolio due to the reallocation in our mix of securities within this asset category. Furthermore, the decline in net investment
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income during the 2021 nine-month period reflected the impact of capital planning in anticipation of closing the NORCAL acquisition. In addition, our consolidated net investment result for the three and nine months ended September 30, 2021, included additional earnings from our acquired interests in four LPs from NORCAL of approximately $0.4 million; given the results of our investments in LPs/LLCs are often reported to us on a one-quarter lag, the impact of these acquired investments were not captured in our results until the current period. The increase in our investment results from our portfolio of investments in LPs/LLCs for the 2021 three- and nine-month periods as compared to the same respective periods of 2020 was due to higher earnings from several of our LPs/LLCs and, for the 2021 nine-month period, the prior year effect of the volatility in the global financial markets related to COVID-19.
Expenses
The following table shows our consolidated and segment net loss ratios and net prior accident year reserve development.

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in millions) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change |
Current accident year net loss ratio |  |  |  |  |  |  |  |  |  |  |  |
Consolidated ratio | 85.2 | % |  | 80.7 | % |  | 4.5 | pts |  | 83.3 | % |  | 91.8 | % |  | (8.5 | pts) |
Specialty P&C | 90.0 | % |  | 89.8 | % |  | 0.2 | pts |  | 89.7 | % |  | 107.9 | % |  | (18.2 | pts) |
Workers' Compensation Insurance | 77.8 | % |  | 66.9 | % |  | 10.9 | pts |  | 74.0 | % |  | 69.2 | % |  | 4.8 | pts |
Segregated Portfolio Cell Reinsurance | 67.2 | % |  | 67.3 | % |  | (0.1 | pts) |  | 66.3 | % |  | 63.3 | % |  | 3.0 | pts |
Lloyd's Syndicates | 50.4 | % |  | 65.9 | % |  | (15.5 | pts) |  | 54.5 | % |  | 66.5 | % |  | (12.0 | pts) |
Calendar year net loss ratio |  |  |  |  |  |  |  |  |  |  |  |
Consolidated ratio | 82.1 | % |  | 74.8 | % |  | 7.3 | pts |  | 79.4 | % |  | 86.1 | % |  | (6.7 | pts) |
Specialty P&C | 86.6 | % |  | 87.4 | % |  | (0.8 | pts) |  | 85.6 | % |  | 102.2 | % |  | (16.6 | pts) |
Workers' Compensation Insurance | 74.3 | % |  | 62.2 | % |  | 12.1 | pts |  | 69.4 | % |  | 65.4 | % |  | 4.0 | pts |
Segregated Portfolio Cell Reinsurance | 56.7 | % |  | 42.7 | % |  | 14.0 | pts |  | 55.9 | % |  | 48.0 | % |  | 7.9 | pts |
Lloyd's Syndicates | 62.5 | % |  | 51.4 | % |  | 11.1 | pts |  | 62.7 | % |  | 64.4 | % |  | (1.7 | pts) |
Favorable (unfavorable) reserve development, prior accident years |  |  |  |  |  |  |  |  |  |  |  |
Consolidated | $ | 8.6 |  | $ | 11.5 |  | $ | (2.9) |  |  | $ | 27.2 |  | $ | 34.6 |  | $ | (7.4) |  |
Specialty P&C | $ | 6.8 |  | $ | 2.9 |  | $ | 3.9 |  |  | $ | 20.0 |  | $ | 20.7 |  | $ | (0.7) |  |
Workers' Compensation Insurance | $ | 1.5 |  | $ | 2.0 |  | $ | (0.5) |  |  | $ | 5.6 |  | $ | 5.0 |  | $ | 0.6 |  |
Segregated Portfolio Cell Reinsurance | $ | 1.6 |  | $ | 4.0 |  | $ | (2.4) |  |  | $ | 4.9 |  | $ | 7.6 |  | $ | (2.7) |  |
Lloyd's Syndicates | $ | (1.3) |  | $ | 2.6 |  | $ | (3.9) |  |  | $ | (3.3) |  | $ | 1.3 |  | $ | (4.6) |  |

The primary drivers of the change in our consolidated current accident year net loss ratio for the three and nine months ended September 30, 2021 as compared to the same periods of 2020 were as follows:

| Increase (Decrease) 2021 versus 2020
(In percentage points) | Comparative three-month periods |  | Comparative nine-month periods
Estimated ratio increase (decrease) attributable to: |  |  |
NORCAL Operations | 5.5 pts |  | 3.4 pts
NORCAL Acquisition - Purchase Accounting Adjustment | (1.3 pts) |  | (0.8 pts)
Premium adjustments on loss sensitive policies | 1.3 pts |  | 0.5 pts
Large National Healthcare Account | — pts |  | (7.8 pts)
COVID-19 IBNR Reserve | — pts |  | (1.7 pts)
All other, net | (1.0 pts) |  | (2.1 pts)
Increase (decrease) in the consolidated current accident year net loss ratio | 4.5 pts |  | (8.5 pts)

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Excluding the impact of the items specifically identified in the table above, our consolidated current accident year net loss ratios for the three and nine months ended September 30, 2021 decreased 1.0 and 2.1 percentage points, respectively, driven by our Specialty P&C and Lloyd's Syndicates segments, somewhat offset by a higher ratio in our Workers' Compensation segment. The improvement in the current accident year net loss ratio in our Specialty P&C segment was driven by decreases to certain loss ratios during the first quarter of 2021 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. In addition, the lower current accident year net loss ratio in our Specialty P&C segment reflected an additional reduction in certain loss ratios in our Standard Physician line of business during the third quarter of 2021 related to favorable frequency trends. For our Lloyd's Syndicates segment, the lower current accident year net loss ratio reflected decreases in certain loss ratios during the current period and, for the 2021 nine-month period, higher reinsurance recoveries as a proportion of gross losses as compared to the prior year periods. In our Workers' Compensation Insurance segment, we have experienced an increase in 2021 accident year reported losses through September 30, 2021, including increased severity-related claim activity. We believe the increase in reported losses is primarily attributable to the current pandemic conditions and the impact of workers returning to full employment with the easing of pandemic-related restrictions in our operating territories, including the impact of labor shortages on the existing workforce and, as a result, we increased our current accident year loss ratio during the third quarter of 2021.
As shown in the previous table, current accident year net loss ratios associated with the business we acquired in the NORCAL transaction were higher than the average for the other books of business in our Specialty P&C segment, which increased our consolidated current accident year net loss ratios for the three and nine months ended September 30, 2021 by 5.5 and 3.4 percentage points, respectively. Also as a result of our acquisition of NORCAL, our current accident year loss ratios for the three and nine months ended September 30, 2021 were 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 1.3 and 0.8 percentage point decrease, respectively, in our consolidated current period ratios. See Note 2 of the Notes to Condensed Consolidated Financial Statements for additional information on the NORCAL acquisition and the related purchase accounting adjustments. In addition, our consolidated current accident year net loss ratios for the three and nine months ended September 30, 2021 were impacted by changes in premium adjustments related to loss sensitive policies in our Specialty P&C segment which increased the current period ratios as compared to the same periods of 2020 by 1.3 and 0.5 percentage points, respectively (see previous discussion under the heading "Revenues"). For the nine months ended September 30, 2020, our consolidated current accident year loss ratio was higher due to the effect of a large national healthcare account, net of the impact of related PDR amortization, which accounted for 7.8 percentage points of the decrease in the current period ratio as compared to the prior year period. In addition, our consolidated current accident year loss ratio for the nine months ended September 30, 2020 was impacted by a $10 million IBNR reserve we recorded during the second quarter of 2020 for COVID-19 which accounted for 1.7 percentage points of the decrease in the ratio as compared to the prior year period.
In both the 2021 and 2020 three- and nine-month 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 favorable development recognized during the three and nine months ended September 30, 2021 included $2.9 million and $5.0 million, respectively, 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 during the three and nine months ended September 30, 2021. See Note 2 of the Notes to Condensed Consolidated Financial Statements for additional information on the NORCAL acquisition and the related purchase accounting adjustments. In addition, consolidated favorable development recognized for the three and nine months ended September 30, 2021 included a $1.0 million reduction in our IBNR reserve for COVID-19. Consolidated net favorable prior year reserve development recognized in the 2021 three- and nine-month periods was lower as compared to the same periods of 2020 primarily due to unfavorable development recognized in our Lloyd's Syndicates segment primarily driven by catastrophe related losses. 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. However, in our Workers' Compensation Insurance segment, we have experienced an increase in 2021 accident year reported losses through September 30, 2021 which we primarily attribute the current pandemic conditions and the impact of workers returning to full employment with the easing of pandemic-related restrictions, as previously discussed. For our Specialty P&C segment, given the consistent and prolonged nature of these favorable trends we began to recognize some of these favorable frequency trends in our HCPL current accident year reserve during the third quarter of 2021.
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.
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Our consolidated and segment underwriting expense ratios were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Underwriting Expense Ratio |  |  |  |  |  |  |  |  |  |  |
Consolidated (1) | 24.5 | % |  | 30.5 | % |  | (6.0 | pts) |  | 28.7 | % |  | 29.7 | % |  | (1.0 | pts)
Specialty P&C | 17.7 | % |  | 23.8 | % |  | (6.1 | pts) |  | 18.7 | % |  | 22.7 | % |  | (4.0 | pts)
Workers' Compensation Insurance | 32.0 | % |  | 35.2 | % |  | (3.2 | pts) |  | 31.3 | % |  | 32.9 | % |  | (1.6 | pts)
Segregated Portfolio Cell Reinsurance | 31.0 | % |  | 31.4 | % |  | (0.4 | pts) |  | 31.7 | % |  | 31.1 | % |  | 0.6 | pts
Lloyd's Syndicates | 35.7 | % |  | 38.2 | % |  | (2.5 | pts) |  | 37.8 | % |  | 38.2 | % |  | (0.4 | pts)
Corporate (2) | 2.5 | % |  | 2.6 | % |  | (0.1 | pts) |  | 2.7 | % |  | 2.9 | % |  | (0.2 | pts)
(1) Includes transaction-related costs associated with 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 15 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 premium earned).

The change in our consolidated underwriting expense ratio for the 2021 three- and nine-month periods as compared to the same respective periods of 2020 was primarily attributable to the following:

| Increase (Decrease) 2021 versus 2020
(In percentage points) | Comparative three-month period |  | Comparative nine-month period
Estimated ratio increase (decrease) attributable to: |  |  |
Decrease in Net Premiums Earned and DPAC amortization(1) | (0.2 pts) |  | (0.9 pts)
NORCAL Operations | (6.3 pts) |  | (4.7 pts)
Transaction-related Costs | 1.2 pts |  | 4.2 pts
Large National Healthcare Account Tail Premium(2) | — pts |  | 0.8 pts
Custom Physician Tail Premium(2) | — pts |  | (0.5 pts)
All other, net | (0.7 pts) |  | 0.1 pts
Increase (decrease) in the underwriting expense ratio | (6.0 pts) |  | (1.0 pts)
(1) Excludes earned premium and DPAC amortization contributed by NORCAL since the date of acquisition as well as $7.8 million of earned premium in the 2021 nine-month period associated with a Custom Physician tail policy and $14.3 million of earned premium in the 2020 nine-month period associated with a large national healthcare account tail policy. See further discussion in Segment Results - Specialty Property & Casualty section that follows.
(2) See previous discussion under the heading "Revenues"

The decrease in our consolidated underwriting expense ratios for the 2021 three- and nine-month periods were impacted by our acquisition of NORCAL. For the 2021 three- and nine-month periods, the additional expenses of NORCAL of $8.5 million and $11.0 million, respectively, had a nominal effect on the ratios as they were more than offset by the effect on the ratios of NORCAL net premiums earned of $82.9 million and $131.4 million, respectively, as previously discussed. The impact of NORCAL decreased our consolidated underwriting expense ratios for the 2021 three- and nine-month periods by 6.3 and 4.7 percentage points, respectively. Included in NORCAL's expenses for the 2021 three- and nine-month periods was approximately $3.2 million and $4.1 million, respectively, of DPAC amortization associated with NORCAL policies written subsequent to our acquisition; however, this level of DPAC amortization is approximately $5.5 million and $11.8 million, respectively, lower than would be considered normal for the period of time post-acquisition 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 rather than being expensed pro rata over the remaining term of the associated policies. Normalizing this amortization would have increased our consolidated expense ratios for the 2021 three- and nine-month periods by an estimated 2.1 and 1.7 percentage points, respectively. Please see Note 2 of the Notes to Condensed Consolidated Financial Statements for additional information on the NORCAL acquisition. For the 2021 three- and nine-month periods, our consolidated underwriting expense ratios were also impacted by transaction-related costs of $2.3 million and $23.5 million, respectively, associated with our acquisition of NORCAL which accounted for an increase of 1.2 and 4.2 percentage points, respectively, in our current period ratios. We do not consider transaction-related costs in assessing the financial performance of our segments, and thus these costs are only included in our consolidated operating expenses. Please see Note 15 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results.
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Excluding the impact of NORCAL and the other items specifically identified in the table above, our consolidated underwriting expense ratios decreased by 0.7 percentage points for the 2021 three-month period and was relatively unchanged for the 2021 nine-month period. The remaining decrease in the ratio during the 2021 three-month period was primarily due to the effect of one-time expenses of $3.2 million during the prior year period, mainly comprised of early retirement benefits granted to certain employees during the third quarter of 2020 and expenses associated with the restructuring of our HCPL field office organization. Furthermore, our consolidated underwriting expense ratios for the 2021 three-month period reflected a decrease in operating expenses resulting from the operational and structural changes implemented over the past year and a half, partially offset by higher amounts accrued for performance-related incentive plans due to our improved performance metrics in our Specialty P&C and Corporate segments.
For the three and nine months ended September 30, 2021, the underwriting expense ratios in our Specialty P&C and Corporate segments also reflected the impact of a reduction to the management fee charged to the operating subsidiaries of our Specialty P&C segment (excluding the acquired operating subsidiaries of NORCAL) by our Corporate segment effective January 1, 2021 (see further discussion in our Segment Results - Specialty Property & Casualty and Segment Results - Corporate sections that follow). This change had no impact to our consolidated underwriting expense ratio.
Gain on Bargain Purchase
As a result of the NORCAL acquisition, we recognized a preliminary gain on bargain purchase of $74.4 million during the second quarter of 2021 representing the excess of the fair value of the identifiable assets acquired and liabilities assumed over the purchase consideration. We do not consider this gain in assessing the financial performance of any of our operating or reportable segments and therefore, we have excluded it from the Segment Results sections that follow. See further discussion around the gain on bargain purchase recognized from the NORCAL acquisition in Note 2 of the Notes to Condensed Consolidated Financial Statements.
Taxes
Our provision for income taxes and effective tax rates for the nine months ended September 30, 2021 and 2020 were as follows:

($ in thousands) | Nine Months Ended September 30
2021 |  | 2020 |  | Change
Income (loss) before income taxes | $ | 108,852 |  |  | $ | (238,653) |  |  | $ | 347,505 |  |  | 145.6 | %
Less: Income tax expense (benefit) | (3,132) |  |  | (48,621) |  |  | 45,489 |  |  | 93.6 | %
Net income (loss) | $ | 111,984 |  |  | $ | (190,032) |  |  | $ | 302,016 |  |  | 158.9 | %
Effective tax rate | (2.9%) |  | 20.4% |  | (23.3 pts) |  |

We recognized an income tax benefit of $3.1 million and $48.6 million during the nine months ended September 30, 2021 and 2020, respectively; however, the comparability of our effective tax rates is impacted by the consolidated pre-tax income recognized during the 2021 nine-month period as compared to the consolidated pre-tax loss recognized in the 2020 nine-month period. Furthermore, the comparability of our effective tax rates is impacted by our use of the discrete effective tax rate method for the nine months ended September 30, 2021 versus our use of the estimated annual effective tax rate method for the nine months ended September 30, 2020 (see further discussion on these methods in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits").
Our effective tax rate for the 2021 nine-month period was different from the statutory federal income tax rate of 21% primarily due to the non-taxable $74.4 million gain on bargain purchase related to the NORCAL acquisition, as previously discussed. Additionally, our effective tax rates for both the 2021 and 2020 nine-month periods include the benefit recognized from the tax credits transferred to us from our tax credit partnership investments. Our effective tax rate for the 2020 nine-month period was also impacted by the non-deductible portion of the goodwill impairment related to the Specialty P&C reporting unit recognized during the third quarter of 2020. See further discussion of the goodwill impairment in Note 7 of the Notes to Consolidated Financial Statements and further information on other notable items impacting our effective tax rate in the Segment Operating Results - Corporate section that follows under the heading "Taxes."
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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 and nine months ended September 30, 2021 and 2020 was as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 | 2020 | Change |  | 2021 | 2020 | Change
Combined ratio | 106.6 | % | 105.3 | % | 1.3 | pts |  | 108.1 | % | 115.8 | % | (7.7 | pts)
Less: investment income ratio | 7.1 | % | 8.7 | % | (1.6 | pts) |  | 7.4 | % | 9.2 | % | (1.8 | pts)
Operating ratio | 99.5 | % | 96.6 | % | 2.9 | pts |  | 100.7 | % | 106.6 | % | (5.9 | pts)
Combined ratio, excluding transaction-related costs* | 105.8 | % | 105.3 | % | 0.5 | pts |  | 104.8 | % | 115.8 | % | (11.0 | pts)
*Our consolidated combined ratio for the 2021 three- and nine-month periods include $2.3 million and $23.5 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."

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

| Increase (Decrease) 2021 versus 2020
(In percentage points) | Comparative three-month periods |  | Comparative nine-month periods
Estimated ratio increase (decrease) attributable to: |  |  |
NORCAL Underwriting Results | 3.7 pts |  | 1.3 pts
NORCAL Acquisition - Purchase Accounting Adjustments | (2.0 pts) |  | (1.4 pts)
NORCAL Investment Results | (1.9 pts) |  | (1.2 pts)
Transaction-related Costs | 0.8 pts |  | 3.3 pts
Large National Healthcare Account (1) | — pts |  | (7.3 pts)
COVID IBNR Reserve (1) | (0.4 pts) |  | (1.8 pts)
Investment Results (2) | 3.5 pts |  | 2.9 pts
All other, net | (0.8 pts) |  | (1.7 pts)
Increase (decrease) in the operating ratio | 2.9 pts |  | (5.9 pts)
(1) See previous discussion under the heading "Revenues" and "Expenses."
(2) Excludes net investment income contributed by NORCAL since the date of acquisition. See previous discussion under the heading "Revenues."

Excluding the impact of the items specifically identified in the table above, our operating ratios for the 2021 three- and nine-month periods decreased by 0.8 and 1.7 percentage points, respectively, as compared to the same respective periods of 2020 primarily due to a lower net loss ratio in our Specialty P&C segment, partially offset by a higher net loss ratio in our Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments. See previous discussion in this section under the heading "Expenses" and further discussion in our Segment Operating Results sections that follow.
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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. Transaction-related costs associated with our acquisition of NORCAL were not annualized in our calculation of ROE for the three and nine months ended September 30, 2021 as these costs are considered non-recurring in nature. Further, the $161.1 million goodwill impairment recognized during the third quarter of 2020 was not annualized in our calculation of ROE for the three and nine months ended September 30, 2020 as it is a non-recurring charge (see further discussion of the goodwill impairment in Note 7 of the Notes to Condensed Consolidated Financial Statements). In addition, the $74.4 million gain on bargain purchase recognized during the second quarter of 2021 was excluded in our calculation of ROE for the nine months ended September 30, 2021 consistent with our treatment of gains on bargain purchases from previous acquisitions. ROE for the three and nine months ended September 30, 2021 and 2020 were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 | 2020 | Change |  | 2021 | 2020 | Change
ROE | 4.0 | % | (8.8 | %) | 12.8 | pts |  | 4.2 | % | (14.1 | %) | 18.3 | pts

Our ROE for the current year periods was impacted by our acquisition of NORCAL. NORCAL operations since the date of acquisition, excluding purchase accounting adjustments, decreased our ROE for the 2021 three- and nine-month periods by 2.8 and 1.5 percentage points, respectively, largely due to operating expenses, partially offset by a lower than normal amount of DPAC amortization due to the application of GAAP purchase accounting rules (see previous discussion under the heading "Expenses"). Furthermore, the purchase accounting adjustments associated with the acquisition increased our ROE by 1.6 and 0.9 percentage points, respectively. See Note 2 of the Notes to Condensed Consolidated Financial Statements for additional information on the NORCAL acquisition and the related purchase accounting adjustments. Excluding the NORCAL acquisition, ROE for the 2021 three- and nine-month periods increased 14.0 and 18.9 percentage points, respectively, driven by the prior year effect of a $161.1 million pre-tax goodwill impairment recognized related to the Specialty P&C reporting unit during the third quarter of 2020. Additionally, the increase in our ROE for the 2021 three- and nine-month periods as compared to the same periods of 2020, excluding NORCAL, reflected higher earnings from certain LPs/LLCs, the sale of certain available-for-sale fixed maturity securities and equity investments as well as improved underwriting results.
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 September 30, 2021 as compared to December 31, 2020 is shown in the following table.

| Book Value Per Share
Book Value Per Share at December 31, 2020 | $ | 25.04 |
Increase (decrease) to book value per share during the nine months ended September 30, 2021 attributable to: |
Dividends declared | (0.15) |
Net income (loss) (1) | 2.08 |
OCI (2) | (0.62) |
Other | 0.01 |
Book Value Per Share at September 30, 2021 | $ | 26.36 |

(1) Includes the $74.4 million gain on bargain purchase as a result of our acquisition of NORCAL, which accounted for $1.38 of the increase in book value per share. See further discussion in Note 2 of the Notes to Condensed Consolidated Financial Statements.
(2) Primarily the impact of unrealized investment gains (losses) on our available-for-sale fixed maturity investments. See Note 12 of the Notes to Condensed Consolidated Financial Statements for additional information.
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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 September 30 |  | Nine Months Ended September 30
(In thousands, except per share data) | 2021 |  | 2020 |  | 2021 |  | 2020
Net income (loss) | $ | 12,200 |  |  | $ | (149,979) |  |  | $ | 111,984 |  |  | $ | (190,032) |
Items excluded in the calculation of Non-GAAP operating income (loss): |  |  |  |  |  |  |
Net realized investment (gains) losses | (530) |  |  | (8,838) |  |  | (20,212) |  |  | (150) |
Net realized gains (losses) attributable to SPCs which no profit/loss is retained (1) | 143 |  |  | 1,155 |  |  | 2,208 |  |  | 732 |
Transaction-related costs (2) | 2,327 |  |  | — |  |  | 23,535 |  |  | — |
Goodwill impairment | — |  |  | 161,115 |  |  | — |  |  | 161,115 |
Guaranty fund assessments (recoupments) | 53 |  |  | 88 |  |  | 186 |  |  | 114 |
Gain on bargain purchase (3) | — |  |  | — |  |  | (74,408) |  |  | — |
Pre-tax effect of exclusions | 1,993 |  |  | 153,520 |  |  | (68,691) |  |  | 161,811 |
Tax effect, at 21% (4) | (427) |  |  | (982) |  |  | (841) |  |  | (2,808) |
After-tax effect of exclusions | 1,566 |  |  | 152,538 |  |  | (69,532) |  |  | 159,003 |
Non-GAAP operating income (loss) | $ | 13,766 |  |  | $ | 2,559 |  |  | $ | 42,452 |  |  | $ | (31,029) |
Per diluted common share: |  |  |  |  |  |  |
Net income (loss) | $ | 0.23 |  |  | $ | (2.78) |  |  | $ | 2.07 |  |  | $ | (3.53) |
Effect of exclusions | 0.02 |  |  | 2.83 |  |  | (1.28) |  |  | 2.95 |
Non-GAAP operating income (loss) per diluted common share | $ | 0.25 |  |  | $ | 0.05 |  |  | $ | 0.79 |  |  | $ | (0.58) |
(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. We are excluding these costs as they do not reflect normal operating results and are unique and non-recurring in nature.
(3) Gain on bargain purchase associated with our acquisition of NORCAL which is considered unusual, infrequent and non-recurring in nature. As such, we have excluded the gain on bargain purchase from Non-GAAP operating income (loss) as it does not reflect normal operating results.
(4) 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 and nine months ended September 30, 2021 while we utilized the estimated annual effective tax rate method for the three and nine months ended September 30, 2020. For the 2021 periods, our statutory tax rate was applied to these items in calculating net income (loss), excluding the 2021 gain on bargain purchase. For the 2020 periods, our effective tax rate for the respective periods was applied to these items in calculating net income (loss), excluding the 2020 goodwill impairment loss and net realized 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". Net realized investment gains (losses) in our Corporate segment are 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). 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. The 2021 gain on bargain purchase is non-taxable and therefore had no associated income tax impact. The 2020 goodwill impairment loss was treated as a discrete item and the portion that is tax deductible was tax effected at the statutory tax rate (21%). The remaining portion of the 2020 goodwill impairment loss is not tax deductible and therefore had no associated income tax benefit.

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Segment Results - Specialty Property & Casualty
Our Specialty P&C segment focuses on professional liability insurance and medical technology liability insurance as discussed in Note 15 of the Notes to Condensed Consolidated Financial Statements. On May 5, 2021, we completed our acquisition of NORCAL, an underwriter of healthcare professional liability insurance (Note 2 of the Notes to Condensed Consolidated Financial Statements provides additional information regarding this acquisition). Segment results reflected pre-tax underwriting profit or loss from these insurance lines, including the pre-tax underwriting results of NORCAL since the date of acquisition as well as certain purchase accounting adjustments. Segment results for the three and nine months ended September 30, 2021 exclude transaction-related costs and, for the nine months ended September 30, 2021, a $74.4 million gain on bargain purchase related to the NORCAL acquisition as we do not consider these items in assessing the financial performance of the segment. Segment results included the following:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 | 2020 | Change |  | 2021 | 2020 | Change
Net premiums written | $ | 218,636 | $ | 135,399 | $ | 83,237 |  | 61.5 | % |  | $ | 467,383 | $ | 359,337 | $ | 108,046 |  | 30.1 | %
Net premiums earned | $ | 203,716 | $ | 117,849 | $ | 85,867 |  | 72.9 | % |  | $ | 487,963 | $ | 365,305 | $ | 122,658 |  | 33.6 | %
Other income | 860 | 726 | 134 |  | 18.5 | % |  | 2,800 | 3,515 | (715) |  | (20.3 | %)
Net losses and loss adjustment expenses | (176,490) | (102,951) | (73,539) |  | 71.4 | % |  | (417,890) | (373,442) | (44,448) |  | 11.9 | %
Underwriting, policy acquisition and operating expenses | (36,147) | (28,074) | (8,073) |  | 28.8 | % |  | (91,369) | (82,894) | (8,475) |  | 10.2 | %
Segment results | $ | (8,061) | $ | (12,450) | $ | 4,389 |  | 35.3 | % |  | $ | (18,496) | $ | (87,516) | $ | 69,020 |  | 78.9 | %
Net loss ratio | 86.6% | 87.4% | (0.8 pts) |  |  | 85.6% | 102.2% | (16.6 pts) |
Underwriting expense ratio | 17.7% | 23.8% | (6.1 pts) |  |  | 18.7% | 22.7% | (4.0 pts) |

Premiums Written
Changes in our premium volume within our Specialty P&C segment are generally driven by four primary factors: (1) the amount of new business written, (2) our retention of existing business, (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. In addition, premium volume may periodically be affected by shifts in the timing of renewals between periods. For the three and nine months ended September 30, 2021, our premium volume was primarily affected by our acquisition of NORCAL (see Note 2 of the Notes to Condensed Consolidated Financial Statements).
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 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 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 September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Gross premiums written | $ | 235,091 |  |  | $ | 158,257 |  |  | $ | 76,834 |  |  | 48.6 | % |  | $ | 515,414 |  |  | $ | 420,702 |  |  | $ | 94,712 |  |  | 22.5 | %
Less: Ceded premiums written | 16,455 |  |  | 22,858 |  |  | (6,403) |  |  | (28.0 | %) |  | 48,031 |  |  | 61,365 |  |  | (13,334) |  |  | (21.7 | %)
Net premiums written | $ | 218,636 |  |  | $ | 135,399 |  |  | $ | 83,237 |  |  | 61.5 | % |  | $ | 467,383 |  |  | $ | 359,337 |  |  | $ | 108,046 |  |  | 30.1 | %

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Gross Premiums Written
Gross premiums written by component were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Professional Liability |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
HCPL |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Standard Physician(1)(14) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Twelve month term | $ | 65,531 |  |  | $ | 72,641 |  |  | $ | (7,110) |  |  | (9.8 | %) |  | $ | 167,882 |  |  | $ | 168,950 |  |  | $ | (1,068) |  |  | (0.6 | %)
Twenty-four month term | — |  |  | — |  |  | — |  |  | nm |  | — |  |  | 8,314 |  |  | (8,314) |  |  | nm
NORCAL Standard Physician(2) | 55,235 |  |  | — |  |  | 55,235 |  |  | nm |  | 71,575 |  |  | — |  |  | 71,575 |  |  | nm
Total Standard Physician | 120,766 |  |  | 72,641 |  |  | 48,125 |  |  | 66.3 | % |  | 239,457 |  |  | 177,264 |  |  | 62,193 |  |  | 35.1 | %
Specialty |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Custom Physician(3)(14) | 13,222 |  |  | 11,600 |  |  | 1,622 |  |  | 14.0 | % |  | 35,814 |  |  | 48,042 |  |  | (12,228) |  |  | (25.5 | %)
NORCAL Custom Physician(4) | 6,700 |  |  | — |  |  | 6,700 |  |  | nm |  | 7,905 |  |  | — |  |  | 7,905 |  |  | nm
Hospitals and Facilities(5)(14) | 12,802 |  |  | 14,610 |  |  | (1,808) |  |  | (12.4 | %) |  | 39,553 |  |  | 40,543 |  |  | (990) |  |  | (2.4 | %)
NORCAL Hospitals and Facilities(6) | 3,999 |  |  | — |  |  | 3,999 |  |  | nm |  | 6,386 |  |  | — |  |  | 6,386 |  |  | nm
Senior Care(7)(14) | 573 |  |  | 1,485 |  |  | (912) |  |  | (61.4 | %) |  | 6,333 |  |  | 5,589 |  |  | 744 |  |  | 13.3 | %
Reinsurance (assumed)(8) | 14,612 |  |  | 3,736 |  |  | 10,876 |  |  | 291.1 | % |  | 29,139 |  |  | 11,002 |  |  | 18,137 |  |  | 164.9 | %
Total Specialty | 51,908 |  |  | 31,431 |  |  | 20,477 |  |  | 65.1 | % |  | 125,130 |  |  | 105,176 |  |  | 19,954 |  |  | 19.0 | %
Total HCPL | 172,674 |  |  | 104,072 |  |  | 68,602 |  |  | 65.9 | % |  | 364,587 |  |  | 282,440 |  |  | 82,147 |  |  | 29.1 | %
Small Business Unit(9) | 38,718 |  |  | 38,203 |  |  | 515 |  |  | 1.3 | % |  | 84,662 |  |  | 81,608 |  |  | 3,054 |  |  | 3.7 | %
Tail Coverages(10)(14) | 5,210 |  |  | 6,045 |  |  | (835) |  |  | (13.8 | %) |  | 26,666 |  |  | 30,052 |  |  | (3,386) |  |  | (11.3 | %)
NORCAL Tail Coverages(11) | 6,544 |  |  | — |  |  | 6,544 |  |  | nm |  | 8,994 |  |  | — |  |  | 8,994 |  |  | nm
Total Professional Liability | 223,146 |  |  | 148,320 |  |  | 74,826 |  |  | 50.4 | % |  | 484,909 |  |  | 394,100 |  |  | 90,809 |  |  | 23.0 | %
Medical Technology Liability(12) | 11,709 |  |  | 9,822 |  |  | 1,887 |  |  | 19.2 | % |  | 29,887 |  |  | 25,926 |  |  | 3,961 |  |  | 15.3 | %
Other(13) | 236 |  |  | 115 |  |  | 121 |  |  | 105.2 | % |  | 618 |  |  | 676 |  |  | (58) |  |  | (8.6 | %)
Total | $ | 235,091 |  |  | $ | 158,257 |  |  | $ | 76,834 |  |  | 48.6 | % |  | $ | 515,414 |  |  | $ | 420,702 |  |  | $ | 94,712 |  |  | 22.5 | %

(1) Standard Physician premium was our greatest source of premium revenues in both 2021 and 2020 and is predominantly comprised of twelve month term policies. The decrease in twelve month term policies during the 2021 three- and nine-month periods was driven by retention losses, partially offset by an increase in renewal pricing, new business written and, for the 2021 nine-month period, the conversion of twenty-four month term policies. In addition, twelve month term policies in the 2020 nine-month period included the impact of premium credits granted as a result of the COVID-19 pandemic. Retention losses during the 2021 three- and nine-month periods were largely attributable to the loss of two large policies totaling $5.9 million due to the insureds' decision to enter into captive arrangements and, for the 2021 nine-month period, the loss of two policies totaling $1.4 million due to price competition during the first quarter of 2021. Retention losses during the 2021 three- and nine-month periods also reflected 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 during the 2021 three- and nine-month periods has recovered somewhat from the impact of our re-underwriting efforts over the past two years, 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. Renewal pricing increases during the 2021 three- and nine-month periods reflect the rising loss cost environment and new business written reflects general market conditions. Standard Physician premium in the 2020 nine-month period also included twenty-four month term policies 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 2021 nine-month period
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were renewed to twelve month term policies; however, a portion of the premium from the 2020 nine-month period related to policies that will be subject to renewal and conversion in 2022.
(2) NORCAL Standard Physician premium represents premium contributed by NORCAL since the date of acquisition and is comprised of three and twelve month term policies. NORCAL Standard Physician premium during the 2021 three- and nine-month periods was impacted by an increase in renewal pricing and, to a lesser extent, new business written, partially offset by retention losses, including the loss of one large policy during the second quarter of 2021.
(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 increase in Custom Physician premium during the 2021 three-month period was driven by new business written, including the addition of a $2.0 million policy, and, to a lesser extent, an increase in renewal pricing, partially offset by retention losses. In addition, the change in Custom Physician premium for the 2021 three- and nine-month periods included the impact of the dissolution of our arrangement with CAPAssurance as a result of our acquisition of NORCAL, which also resulted in the loss of a large program and two large policies in California totaling $10.2 million during the first quarter of 2021. The decrease in Custom Physician premium during the 2021 nine-month period also reflected retention losses due to our focus on underwriting discipline which resulted in the non-renewal of two large policies totaling $7.3 million and net timing differences of $1.1 million, primarily related to the prior year renewal of one policy. The decrease in Custom Physician premium during the 2021 nine-month period was partially offset by new business written, including the addition of a $1.7 million policy during the second quarter of 2021, and, to a lesser extent, an increase in renewal pricing. Renewal pricing increases for the 2021 three- and nine-month periods reflect the rising loss cost environment and new business written reflects general market conditions. The retention rate in our Custom Physician book for the 2021 three-month period improved, and we anticipate retention rates to continue to normalize going forward as we substantially completed our re-underwriting efforts as of the end of 2020. The retention rate in our Custom Physician book for the 2021 nine-month period was lower than the prior year period which also reflects the impact of the aforementioned dissolution of our arrangement with CAPAssurance, which resulted in a decrease to our Specialty retention rate of 10.2 percentage points.
(4) NORCAL Custom Physician premium represents premium contributed by NORCAL since the date of acquisition 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 three- and nine-month periods was impacted by retention losses, including the loss of one large policy due to price competition during the second quarter of 2021, 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 2021 three- and nine-month periods as compared to the same respective periods of 2020 driven by retention losses, partially offset by an increase in renewal pricing and, to a lesser extent, new business written. Furthermore, the decrease in premium for the 2021 three-month period was partially offset by net timing differences of $1.7 million primarily related to the prior year renewal of one policy. Renewal pricing increases for the 2021 three- and nine-month periods 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 the 2021 three- and nine-month periods were driven by the loss of a $2.0 million policy due to an insured's decision to enter into a captive arrangement and, for the 2021 nine-month period, the non-renewal of a $2.3 million policy during the second quarter due to price competition as well as our decision not to renew certain products. As we substantially completed our re-underwriting efforts on this book of business as of the end of the third quarter of 2020, retention rates have started to normalize.
(6) NORCAL Hospitals and Facilities premium represents premium contributed by NORCAL since the date of acquisition and includes hospitals, surgery centers and miscellaneous medical facilities. NORCAL Hospitals and Facilities premium during the 2021 three- and nine-month periods was impacted by an increase in renewal pricing and, to a lesser extent, new business written, partially offset by retention losses.
(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 2021 three-month period as compared to the same period of 2020 driven by retention losses, partially offset by renewal pricing increases and, to a lesser extent, new business written. The increase in Senior Care premium during the 2021 nine-month period as compared to the same period of 2020 was driven by renewal pricing increases and, to a lesser extent, new business written, partially offset by retention losses. The increase in renewal pricing during the 2021 three- and nine-month periods was primarily the result of an increase in the rate charged for certain renewed policies in select states. Retention losses in the 2021 three- and nine-month periods were driven by our decision not to renew certain classes of Senior Care business based on our expectations of poor loss performance. As we completed our re-underwriting efforts on this book of business during the third quarter of 2020, retention rates have started to normalize.
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(8) We offer custom alternative risk solutions including assumed reinsurance. The increase in premium during the 2021 three- and nine-month periods primarily reflected an increase premiums assumed on a quota share basis through a strategic partnership since 2016 with an international medical professional liability insurer. For 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. Our custom alternative risk solutions during the 2021 nine-month period also include 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. Furthermore, the increase in premium during the 2021 three- and nine-month periods reflected the annual renewal of this arrangement. See Note 5 of the Notes to Condensed Consolidated Financial Statements for further information on this transaction.
(9) Our Small Business Unit is primarily comprised of premium associated with podiatrists, legal professionals, dentists and chiropractors. Our Small Business Unit premium was relatively unchanged for the 2021 three-month period and increased for the 2021 nine-month period as compared to the same respective periods of 2020. The increase in premium for the 2021 nine-month period was driven by an increase in renewal pricing and new business written, partially offset by retention losses. The increase in renewal pricing during the 2021 three- and nine-month periods 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. The decrease during the 2021 nine-month period as compared to the same period of 2020 was primarily due to the prior year effect of a large national healthcare account that exercised its contractual option to purchase tail coverage which resulted in $14.3 million of one-time premiums written and fully earned in the second quarter of 2020. This impact was largely offset by $7.8 million of tail premium written and fully earned during the second quarter of 2021 associated with a Custom Physician policy and two large tail policies totaling $2.1 million written and fully earned during the first quarter of 2021.
(11) NORCAL Tail Coverages represent premium contributed by NORCAL since the date of acquisition and include endorsement coverages to insureds who discontinue their claims-made coverage and may also periodically include tail coverage offered through stand-alone policies. As detailed in the previous footnote, tail coverage premiums are generally 100% earned in the period written and the amount of tail coverage premium written can vary significantly from period to period. NORCAL Tail Coverages for the 2021 three- and nine-month periods included two tail policies totaling $1.7 million written and fully earned in the current period and, for the 2021 nine-month period, several individual tail policies totaling $2.5 million written and fully earned during the second quarter of 2021.
(12) 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 three- and nine-month periods as compared to the same respective periods of 2020 due to new business written and, to a lesser extent, an increase in renewal pricing, partially offset by retention losses. Retention losses during the 2021 three- and nine-month periods are primarily attributable to an increase in competition on terms and pricing, as well as merger activity within the industry. Renewal pricing increases during the 2021 three- and nine-month periods are primarily due to changes in the sales volume of certain insureds, including changes in exposure.
(13) This component of gross premiums written includes all other product lines within our Specialty P&C segment.
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(14) 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 September 30 |  | Nine Months Ended September 30
($ in millions) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Standard Physician | $ | — |  |  | $ | — |  |  | $ | — |  |  | nm |  | $ | 2.0 |  |  | $ | 1.6 |  |  | $ | 0.4 |  |  | 25.0 | %
Custom Physician | — |  |  | — |  |  | — |  |  | nm |  | — |  |  | 0.1 |  |  | (0.1) |  |  | nm
Hospitals and Facilities | 0.1 |  |  | 0.6 |  |  | (0.5) |  |  | (83.3 | %) |  | 0.1 |  |  | 0.7 |  |  | (0.6) |  |  | (85.7 | %)
Senior Care | 0.6 |  |  | 0.4 |  |  | 0.2 |  |  | 50.0 | % |  | 5.2 |  |  | 4.2 |  |  | 1.0 |  |  | 23.8 | %
Tail Coverages | — |  |  | — |  |  | — |  |  | nm |  | 0.7 |  |  | — |  |  | 0.7 |  |  | nm
Total | $ | 0.7 |  |  | $ | 1.0 |  |  | $ | (0.3) |  |  | (30.0 | %) |  | $ | 8.0 |  |  | $ | 6.6 |  |  | $ | 1.4 |  |  | 21.2 | %

Alternative market gross premiums written remained relatively unchanged during the 2021 three-month period and increased during the 2021 nine-month period as compared to the same respective periods of 2020. The increase in premium for the 2021 nine-month period was driven by renewal pricing increases, primarily due to an increase in the rate charged for one program and, to a lesser extent, the impact of tail coverages.
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 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.
The change in renewal pricing for our Specialty P&C segment, including by major component, was as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 |  | 2021
Specialty P&C segment | 9 | % |  | 8 | %
HCPL |  |  |
Standard Physician(1)(2) | 9 | % |  | 9 | %
Specialty(1)(2) | 13 | % |  | 11 | %
Total HCPL | 10 | % |  | 9 | %
Small Business Unit(1) | 8 | % |  | 6 | %
Medical Technology Liability(1) | 8 | % |  | 5 | %
(1) See Gross Premiums Written section for further explanation of changes in renewal pricing.
(2) Includes policies renewed by NORCAL since the date of acquisition.

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

| Three Months Ended September 30 |  | Nine Months Ended September 30
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
HCPL |  |  |  |  |  |  |
Standard Physician(1) | $ | 2.3 |  |  | $ | 1.1 |  |  | $ | 3.9 |  |  | $ | 2.1 |
Specialty(1) | 6.4 |  |  | 4.2 |  |  | 18.8 |  |  | 7.2 |
Total HCPL | 8.7 |  |  | 5.3 |  |  | 22.7 |  |  | 9.3 |
Small Business Unit | 1.3 |  |  | 1.4 |  |  | 3.1 |  |  | 3.7 |
Medical Technology Liability | 1.2 |  |  | 2.0 |  |  | 4.7 |  |  | 4.7 |
Total | $ | 11.2 |  |  | $ | 8.7 |  |  | $ | 30.5 |  |  | $ | 17.7 |
(1) Includes premium contributed by NORCAL since the date of acquisition.

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 September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | 2021 |  | 2020
Specialty P&C segment | 84 | % |  | 81 | % |  | 83 | % |  | 78 | %
HCPL |  |  |  |  |  |  |
Standard Physician(1) | 85 | % |  | 85 | % |  | 86 | % |  | 82 | %
Specialty(1) | 69 | % |  | 55 | % |  | 66 | % |  | 59 | %
Total HCPL | 81 | % |  | 76 | % |  | 80 | % |  | 74 | %
Small Business Unit | 91 | % |  | 92 | % |  | 91 | % |  | 90 | %
Medical Technology Liability | 90 | % |  | 85 | % |  | 89 | % |  | 84 | %
(1) Includes premium contributed by NORCAL since the date of acquisition. We are currently in the process of evaluating the NORCAL book of business and implementing ProAssurance's rigorous underwriting strategies, which will likely impact retention in future quarters.

Ceded Premiums Written
Ceded premiums represent the amounts owed to our reinsurers for their assumption of a portion of our losses. For our HCPL and Medical Technology Liability 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, we will also retain from 0% to 5% of the next $24 million of risk for our HCPL coverages in excess of $2 million and our HCPL excess of loss reinsurance arrangements will also incorporate NORCAL policies. For the NORCAL excess of loss reinsurance arrangement in effect prior to October 1, 2021, NORCAL policies are 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 is generally the first $2 million in risk and coverages in excess of this amount are ceded up to $24 million. These changes in terms for our HCPL treaty resulted in a reduction to the gross rate paid for the treaty year effective October 1, 2021. For our Medical Technology Liability treaty which also renewed effective October 1, 2021, we will also retain 2.5% of the next $8 million of risk for coverages in excess of $2 million.
We pay our reinsurers a ceding premium in exchange for their accepting the risk, and in certain of our excess of loss arrangements, the ultimate amount of which is determined by the loss experience of the business ceded, subject to certain minimum and maximum amounts. Given the length of time that it takes to resolve our claims, many years may elapse before all losses recoverable under a reinsurance arrangement are known. As a part of the process of estimating our loss reserve we also make estimates regarding the amounts recoverable under our reinsurance arrangements. As a result, we may have an adjustment to our estimate of expected losses and associated recoveries for prior year ceded losses under certain loss sensitive reinsurance
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agreements. Any changes to estimates of premiums ceded related to prior accident years are fully earned in the period the changes in estimates occur.
Ceded premiums written were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 | 2020 | Change |  | 2021 | 2020 | Change
Excess of loss reinsurance arrangements (1) | $ | 7,062 |  | $ | 9,351 |  | $ | (2,289) |  | (24.5 | %) |  | $ | 22,443 |  | $ | 26,079 |  | $ | (3,636) |  | (13.9 | %)
Other shared risk arrangements (2) | 6,387 |  | 11,784 |  | (5,397) |  | (45.8 | %) |  | 14,318 |  | 26,962 |  | (12,644) |  | (46.9 | %)
Premium ceded to SPCs (3) | 443 |  | 876 |  | (433) |  | (49.4 | %) |  | 7,046 |  | 5,958 |  | 1,088 |  | 18.3 | %
NORCAL premiums ceded since acquisition (4) | 1,691 |  | — |  | 1,691 |  | nm |  | 1,758 |  | — |  | 1,758 |  | nm
Other ceded premiums written | 872 |  | 847 |  | 25 |  | 3.0 | % |  | 2,466 |  | 2,366 |  | 100 |  | 4.2 | %
Total ceded premiums written | $ | 16,455 |  | $ | 22,858 |  | $ | (6,403) |  | (28.0 | %) |  | $ | 48,031 |  | $ | 61,365 |  | $ | (13,334) |  | (21.7 | %)

(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 decrease in ceded premiums written under our excess of loss reinsurance arrangements during the 2021 three- and nine-month periods as compared to the same respective periods of 2020 primarily reflected 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.
(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. During the first quarter of 2021, we entered into a new shared risk arrangement with a regional hospital group. The decrease in ceded premiums written under our shared risk arrangements during the 2021 three- and nine-month periods as compared to the same respective periods of 2020 was primarily due to the aforementioned dissolution of our arrangement with CAPAssurance 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.
(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. Premiums ceded to SPCs during the 2021 three-month period remained relatively unchanged and increased during the 2021 nine-month period as compared to the same respective periods of 2020. The increase in premiums ceded to SPCs during the 2021 nine-month period was driven by renewal pricing increases (see discussion in footnote 14 under the heading "Gross Premiums Written").
(4) NORCAL policies for the 2021 three- and nine-month periods were reinsured under separate reinsurance agreements, primarily excess of loss; however, these policies were incorporated into our existing HCPL excess of loss reinsurance arrangements with the October 1, 2021 renewal, as previously discussed. For NORCAL's excess of loss agreements, deposit ceded premium, as defined in the contract, is initially estimated and recorded at the inception date of the treaty, generally January 1, as an estimate of ceded premiums written for the full contract year. These estimates of ceded premiums are based on information provided by brokers and reinsurers and may be periodically adjusted as new information is received and are fully earned in the period the changes in estimates occur. NORCAL's ceded premiums written for the 2021 three- and nine-month periods related almost entirely to an increase in our estimate of premiums owed to reinsurers due to premium in excess of the deposit ceded premium under NORCAL's excess of loss reinsurance arrangement and, to a lesser extent, premium related to cyber liability coverages. The majority of ceded premiums for NORCAL's excess of loss reinsurance arrangement were recorded by NORCAL before the acquisition in their first quarter 2021 results, and were expensed pro rata throughout the contract year. However, we incorporated NORCAL policies into our existing HCPL excess of loss reinsurance arrangement with the October 1, 2021 renewal, as previously discussed, and ceded premiums will fluctuate with the volume of written premium subject to cession under the arrangement each quarter, as discussed in footnote 1 above.
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Ceded Premiums Ratio
The ceded premiums ratio was as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Ceded premiums ratio | 7.0% |  | 14.4% |  | (7.4 pts) |  | 9.3% |  | 14.6% |  | (5.3 pts)

The above table reflects ceded premiums written as a percent of gross premiums written. Our ceded premiums ratio for the 2021 three- and nine-month periods was impacted by the inclusion of NORCAL ceded and written premiums since the date of acquisition, which accounted for 2.1 and 1.7 percentage points, respectively, of the decrease in the ratio as the majority of ceded premiums for NORCAL's excess of loss reinsurance arrangements were recorded before the acquisition, as previously discussed. Excluding the impact of the NORCAL acquisition, our ceded premium ratio for the 2021 three- and nine-month periods decreased 5.3 and 3.6 percentage points, respectively, as compared to the same respective periods of 2020 driven by a decrease in premiums ceded under our shared risk arrangements. The decrease in our ceded premium ratio for the 2021 nine-month period was partially offset by the effect of a large national healthcare account tail policy written premium during the second quarter of 2020. See further discussion on NORCAL ceded premiums and our shared risk arrangements above under the heading "Ceded Premiums Written."
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 September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Gross premiums earned | $ | 221,956 |  |  | $ | 137,044 |  |  | $ | 84,912 |  |  | 62.0 | % |  | $ | 540,489 |  |  | $ | 421,614 |  |  | $ | 118,875 |  |  | 28.2 | %
Less: Ceded premiums earned | 18,240 |  |  | 19,195 |  |  | (955) |  |  | (5.0 | %) |  | 52,526 |  |  | 56,309 |  |  | (3,783) |  |  | (6.7 | %)
Net premiums earned | $ | 203,716 |  |  | $ | 117,849 |  |  | $ | 85,867 |  |  | 72.9 | % |  | $ | 487,963 |  |  | $ | 365,305 |  |  | $ | 122,658 |  |  | 33.6 | %

Gross premiums earned during the 2021 three- and nine-month periods included additional earned premiums of approximately $88.1 million and $138.8 million, respectively, from our acquisition of NORCAL. Of that amount of earned premium, approximately $59.4 million and $122.2 million, respectively, was associated with NORCAL policies written prior to our acquisition. We expect NORCAL policies to contribute approximately $70 million to $90 million of additional gross premiums earned over the remainder of 2021. Excluding premiums associated with the NORCAL acquisition, gross premiums earned decreased $3.2 million and $19.9 million, respectively, during the 2021 three- and nine-month periods as compared to the same respective periods of 2020 driven by the pro rata effect of a decrease in the volume of written premium during the preceding twelve months, predominantly in our Specialty line of business, due to our re-underwriting efforts and, to a lesser extent, the dissolution of our arrangement with CAPAssurance. The decrease in gross premiums earned in the 2021 three- and nine-month periods also reflected premium adjustments related to loss sensitive policies which decreased earned premium by $0.9 million and $0.1 million for the 2021 three- and nine-month periods, respectively, as compared to an increase in earned premium of $2.3 million and $2.6 million for the same respective periods of 2020. In addition, the decrease during the 2021 nine-month period reflected the prior year effect of a large national healthcare account that exercised its contractual option to purchase tail coverage which resulted in $14.3 million of one-time premiums written and fully earned during the second quarter of 2020 (see previous discussion in footnote 10 under the heading "Gross Premiums Written"). The decrease in gross premiums earned during the 2021 nine-month period was partially offset by tail premium associated with a Custom Physician policy, which resulted in $7.8 million of one-time written and fully earned during the second quarter of 2021 (see previous discussion in footnote 10 under the heading "Gross Premiums Written") and $2.3 million of retroactive premium written and fully earned associated with an assumed reinsurance program (see previous discussion in footnote 8 under the heading "Gross Premiums Written").
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Ceded premiums earned during the 2021 three- and nine-month periods included additional ceded premium of approximately $5.2 million and $7.5 million, respectively, from our acquisition of NORCAL, which is primarily attributable to NORCAL's excess of loss reinsurance arrangement and the effect of an adjustment made during the current period to ceded premiums owed under this arrangement (see previous discussion in footnote 4 under the heading "Ceded Premiums Written"). We expect NORCAL to contribute approximately $2 million to $4 million of additional ceded premiums earned over the remainder of 2021 under our HCPL excess of loss reinsurance arrangements (see previous discussion in footnote 4 under the heading "Ceded Premiums Written"). Excluding ceded premiums from our NORCAL acquisition, ceded premiums earned decreased $6.2 million and $11.3 million during the 2021 three- and nine-month periods, respectively, as compared to the same respective periods of 2020 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 and nine months ended September 30, 2021 or 2020. 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.
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 in the following table include the impact of NORCAL since the date of acquisition.

| Net Loss Ratios (1)
| Three Months Ended September 30 |  | Nine Months Ended September 30 |
| 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change |
Calendar year net loss ratio | 86.6% |  | 87.4% |  | (0.8 | pts) |  | 85.6 | % |  | 102.2 | % |  | (16.6 | pts) |  |
Less impact of prior accident years on the net loss ratio | (3.4%) |  | (2.4%) |  | (1.0 | pts) |  | (4.1 | %) |  | (5.7 | %) |  | 1.6 | pts |  |
Current accident year net loss ratio (2) | 90.0% |  | 89.8% |  | 0.2 | pts |  | 89.7 | % |  | 107.9 | % |  | (18.2 | 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) increased by 0.2 percentage points during the three months ended September 30, 2021 and decreased 18.2 percentage points during the nine months ended September 30, 2021 as compared to the same respective periods of 2020. The change in our current accident year net loss ratio in each period was primarily attributable to the following:
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(In percentage points) | Increase (Decrease) 2021 versus 2020
Comparative three-month period |  | Comparative nine-month period
Estimated ratio increase (decrease) attributable to: |  |  |
NORCAL Operations | 5.7 pts |  | 3.2 pts
NORCAL Acquisition - Purchase Accounting Adjustment | (2.1 pts) |  | (1.2 pts)
Premium adjustments on loss sensitive policies | 2.5 pts |  | 0.7 pts
Large National Healthcare Account | — pts |  | (12.3 pts)
COVID-19 IBNR Reserve | — pts |  | (2.9 pts)
Custom Physician Tail Policy | — pts |  | (0.5 pts)
All other, net | (5.9 pts) |  | (5.2 pts)
Increase (decrease) in current accident year net loss ratio | 0.2 pts |  | (18.2 pts)

Excluding the impact of the items specifically identified in the table above, our current accident year net loss ratios for the three and nine months ended September 30, 2021 improved 5.9 and 5.2 percentage points, respectively, driven by decreases to certain loss ratios during the first quarter of 2021 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. In addition, our current accident year net loss ratios for the three and nine months ended September 30, 2021 reflected an additional reduction in certain loss ratios in our Standard Physician line of business during the third quarter of 2021 related to favorable frequency trends.
Loss ratios associated with NORCAL policies were higher than the average for our other books of business in this segment, which increased our current accident year net loss ratios for the three and nine months ended September 30, 2021 by 5.7 and 3.2 percentage points, respectively. However, we are currently in the process of evaluating the NORCAL book of business and implementing ProAssurance's rigorous underwriting strategies. Also as a result of our acquisition of NORCAL, our current accident year net loss ratios for the three and nine months ended September 30, 2021 were 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 2.1 and 1.2 percentage point decrease, respectively, in our current period ratios. See Note 2 of the Notes to Condensed Consolidated Financial Statements for additional information on the NORCAL acquisition and the related purchase accounting adjustments. In addition, our current accident year net loss ratios for the three and nine months ended September 30, 2021 were impacted by changes in premium adjustments related to loss sensitive policies which increased the current period ratios as compared to the same periods of 2020 by 2.5 and 0.7 percentage points, respectively (see previous discussion under the heading "Net Premiums Earned"). For the nine months ended September 30, 2021, our current accident year net loss ratio was also impacted by a Custom Physician tail policy ($7.8 million of net premiums earned recorded with a lower loss ratio than the segment's average initial loss ratio), which accounted for 0.5 percentage points of the decrease in the 2021 nine-month period ratio as compared to the prior year period. For the nine months ended September 30, 2020, our current accident year net loss ratio was higher due to the effect of a large national healthcare account, net of the impact of related PDR amortization, which accounted for 12.3 percentage points of the decrease in the 2021 nine-month period ratio as compared to the prior year period. In addition, our current accident year net loss ratio for the nine months ended September 30, 2020 was impacted by a $10 million IBNR reserve we recorded during the second quarter of 2020 for COVID-19 which accounted for 2.9 percentage points of the decrease in the 2021 nine-month period ratio as compared to the prior year period.
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 of which is likely associated with the COVID-19 pandemic. Given the consistent and prolonged nature of these favorable trends we began to recognize some of these favorable frequency trends in our HCPL current accident year reserve during the third quarter of 2021.We continue to remain cautious in recognizing these favorable trends due to the long-tailed nature of our HCPL claims as well as the uncertainty surrounding the length and severity of the pandemic.
We recognized net favorable prior accident year reserve development of $6.8 million and $20.0 million during the three and nine months ended September 30, 2021, respectively, as compared to $2.9 million and $20.7 million during the same respective periods of 2020. Development recognized during the three and nine months ended September 30, 2021 principally related to accident years 2017 through 2020. Development recognized during the three and nine months ended September 30, 2020 principally related to accident years 2014 through 2018. Net favorable prior accident year reserve development recognized
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for the three and nine months ended September 30, 2021 included a $1.0 million reduction in our IBNR reserve for COVID-19. In addition, net favorable prior accident year reserve development recognized included a reduction in our reserve for potential ECO/XPL claims of $0.4 million for the three months ended September 30, 2021 and an increase for potential ECO/XPL claims of $1.0 million for the nine months ended September 30, 2021 as compared to a reduction in this same reserve of $0.4 million and $3.2 million during the same respective periods of 2020. Furthermore, favorable development recognized during the three and nine months ended September 30, 2021 included $2.9 million and $5.0 million, respectively, 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.
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 report on Form 10-K under the same heading. 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 2021 and 2020.
Underwriting, Policy Acquisition and Operating Expenses
Our Specialty P&C segment underwriting, policy acquisition and operating expenses, including NORCAL expenses since the date of acquisition, were comprised as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
DPAC amortization | $ | 16,145 |  |  | $ | 13,101 |  |  | $ | 3,044 |  |  | 23.2 | % |  | $ | 42,328 |  |  | $ | 40,652 |  |  | $ | 1,676 |  |  | 4.1 | %
Management fees | 1,159 |  |  | 1,838 |  |  | (679) |  |  | (36.9 | %) |  | 3,015 |  |  | 4,928 |  |  | (1,913) |  |  | (38.8 | %)
Other underwriting and operating expenses | 18,843 |  |  | 13,135 |  |  | 5,708 |  |  | 43.5 | % |  | 46,026 |  |  | 37,314 |  |  | 8,712 |  |  | 23.3 | %
Total | $ | 36,147 |  |  | $ | 28,074 |  |  | $ | 8,073 |  |  | 28.8 | % |  | $ | 91,369 |  |  | $ | 82,894 |  |  | $ | 8,475 |  |  | 10.2 | %

DPAC amortization for the 2021 three- and nine-month periods included approximately $3.2 million and $4.1 million, respectively, of DPAC amortization associated with NORCAL policies written subsequent to our acquisition; however, this level of DPAC amortization is approximately $5.5 million and $11.8 million lower, respectively, than would be considered normal for the period of time post-acquisition 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 rather than being expensed pro rata over the remaining term of the associated policies (see Note 2 of the Notes to Condensed Consolidated Financial Statements for more information). Excluding NORCAL, DPAC amortization was relatively unchanged for the 2021 three-month period and decreased for the 2021 nine-month period as compared to the same respective periods of 2020. The decrease in DPAC amortization, excluding NORCAL, during the 2021 nine-month period was driven by a decrease in earned premium, excluding the effect of the premium earned from tail policies as there is typically minimal deferred acquisition costs associated with tail premium (see discussion on tail premium under the heading "Gross Premiums Written"). In addition, the decrease reflected a decrease in compensation-related expenses driven by a reduction in headcount as a result of the 2020 organizational restructuring and a decrease in premium taxes due to a lower volume of premium written. Partially offsetting the decrease in DPAC amortization for the 2021 nine-month period was a decrease in ceding commission income, which is an offset to expense, from certain of our shared risk arrangements.
Management fees are charged pursuant to a management agreement by the Corporate segment to the operating subsidiaries within our Specialty P&C segment, excluding the acquired operating subsidiaries of NORCAL, 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 organizational structure enhancements in our Specialty P&C segment during 2020, the extent to which services are provided by the Corporate segment to the operating subsidiaries within the segment decreased effective January 1, 2021. Accordingly, we reduced the fee charged to the operating subsidiaries during the 2021 three- and nine-month periods.
Other underwriting and operating expenses increased during the 2021 three- and nine-month periods primarily due to the addition of approximately $5.3 million and $6.9 million, respectively, of expenses contributed by NORCAL since the date of acquisition and higher amounts accrued for performance-related incentive plans due to our improved combined ratio and other performance metrics. In addition, the increase during the 2021 nine-month period reflected an increase in amortization related to new software placed into service during the second quarter of 2020. These increases in expenses during the 2021 three- and
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nine-month periods were partially offset by lower operating expenses in the 2021 three- and nine-month periods resulting from the operational and structural changes implemented over the past year and a half as well as the effect of $1.5 million and $3.4 million, respectively, of one-time expenses incurred during the prior year periods. One-time expenses in both the 2020 three- and nine-month periods were mainly comprised of early retirement benefits granted to certain employees during the third quarter of 2020. The remaining one-time costs were primarily expenses associated with the restructuring of our HCPL field office organization, largely during the first half of 2020, consisting of employee severance charges and lease exit costs due to a reduction in physical office locations. The remaining variance in other underwriting and operating expenses for the 2021 three- and nine-month periods as compared to the same respective periods of 2020 was comprised of individually insignificant components.
Underwriting Expense Ratio (the Expense Ratio)
Our expense ratio for the Specialty P&C segment was as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Underwriting expense ratio | 17.7 | % |  | 23.8 | % |  | (6.1 | pts) |  | 18.7 | % |  | 22.7 | % |  | (4.0 | pts)

The change in our expense ratio for the 2021 three- and nine-month periods as compared to the same respective periods of 2020 was primarily attributable to the following:

| Increase (Decrease) 2021 versus 2020
(In percentage points) | Comparative three-month period |  | Comparative nine-month period
Estimated ratio increase (decrease) attributable to: |  |  |
Change in Net Premiums Earned and DPAC amortization(1) | (0.4 pts) |  | (0.4 pts)
NORCAL Operations | (5.2 pts) |  | (3.8 pts)
One-time Expenses | (1.3 pts) |  | (1.0 pts)
Large National Healthcare Account Tail Premium(2) | — pts |  | 0.9 pts
Custom Physician Tail Premium(2) | — pts |  | (0.5 pts)
All other, net | 0.8 pts |  | 0.8 pts
Decrease in the underwriting expense ratio | (6.1 pts) |  | (4.0 pts)
(1) Excludes premium and DPAC amortization contributed by NORCAL since the date of acquisition (see Note 2 of the Notes to Condensed Consolidated Financial Statements for additional information) as well as $7.8 million of premium in the 2021 nine-month period associated with a Custom Physician tail policy and $14.3 million of premium in the 2020 nine-month period associated with a large national healthcare account tail policy. In addition, excludes certain one-time expenses included in DPAC amortization in the 2020 three- and nine-month periods of $0.3 million and $0.6 million, respectively.
(2) See previous discussion under the heading "Gross Premiums Written."

Our underwriting expense ratios for the 2021 three- and nine-month periods were impacted by our acquisition of NORCAL. The additional expenses of NORCAL of approximately $8.5 million and $11.0 million for the 2021 three- and nine-month periods, respectively, had a nominal effect on the ratio as it was more than offset by the effect on the ratio of net premiums earned of $82.9 million and $131.4 million, respectively, contributed by NORCAL which decreased our Specialty P&C segment expense ratio for the 2021 three- and nine-month periods by 5.2 and 3.8 percentage points, respectively. However, as previously discussed, DPAC amortization associated with NORCAL recorded during the 2021 three- and nine-month periods was lower than would be considered normal due to the application of GAAP purchase accounting rules. Normalizing this amortization would have increased our expense ratio for the 2021 three- and nine-month periods by an estimated 2.7 and 2.4 percentage points, respectively. Excluding the impact of NORCAL and the remaining items identified in the table above, our expense ratios for both the 2021 three- and nine-month periods increased by 0.8 percentage points primarily due to the impact of higher amounts accrued for performance-related incentive plans, partially offset by decreased operating expenses resulting from the operational and structural changes implemented over the past year and a half, as well as the aforementioned reduction to the management fee charged by the Corporate segment.
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Segment Results - Workers' Compensation Insurance
Our Workers' Compensation Insurance segment includes workers' compensation products provided to employers generally with 1,000 or fewer employees, as discussed in Note 15 of the Notes to Condensed Consolidated Financial Statements. 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 September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 | 2020 | Change |  | 2021 | 2020 | Change
Net premiums written | $ | 46,702 |  | $ | 44,758 |  | $ | 1,944 |  | 4.3 | % |  | $ | 134,370 |  | $ | 135,370 |  | $ | (1,000) |  | (0.7 | %)
Net premiums earned | $ | 42,235 |  | $ | 42,516 |  | $ | (281) |  | (0.7 | %) |  | $ | 122,872 |  | $ | 129,437 |  | $ | (6,565) |  | (5.1 | %)
Other income | 437 |  | 441 |  | (4) |  | (0.9 | %) |  | 1,730 |  | 1,717 |  | 13 |  | 0.8 | %
Net losses and loss adjustment expenses | (31,364) |  | (26,455) |  | (4,909) |  | 18.6 | % |  | (85,323) |  | (84,648) |  | (675) |  | 0.8 | %
Underwriting, policy acquisition and operating expenses | (13,521) |  | (14,983) |  | 1,462 |  | (9.8 | %) |  | (38,519) |  | (42,604) |  | 4,085 |  | (9.6 | %)
Segment results | $ | (2,213) |  | $ | 1,519 |  | $ | (3,732) |  | (245.7 | %) |  | $ | 760 |  | $ | 3,902 |  | $ | (3,142) |  | (80.5 | %)
Net loss ratio | 74.3% | 62.2% | 12.1 pts |  |  | 69.4% | 65.4% | 4.0 pts |
Underwriting expense ratio | 32.0% | 35.2% | (3.2 pts) |  |  | 31.3% | 32.9% | (1.6 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 September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 | 2020 | Change |  | 2021 | 2020 | Change
Gross premiums written | $ | 64,594 |  | $ | 62,996 |  | $ | 1,598 |  | 2.5 | % |  | $ | 194,767 |  | $ | 199,447 |  | $ | (4,680) |  | (2.3 | %)
Less: Ceded premiums written | 17,892 |  | 18,238 |  | (346) |  | (1.9 | %) |  | 60,397 |  | 64,077 |  | (3,680) |  | (5.7 | %)
Net premiums written | $ | 46,702 |  | $ | 44,758 |  | $ | 1,944 |  | 4.3 | % |  | $ | 134,370 |  | $ | 135,370 |  | $ | (1,000) |  | (0.7 | %)

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Gross Premiums Written
Gross premiums written by product were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Traditional business: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Guaranteed cost | $ | 42,368 |  |  | $ | 40,540 |  |  | $ | 1,828 |  |  | 4.5 | % |  | $ | 113,429 |  |  | $ | 117,651 |  |  | $ | (4,222) |  |  | (3.6 | %)
Policyholder dividend | 3,560 |  |  | 4,057 |  |  | (497) |  |  | (12.3 | %) |  | 17,820 |  |  | 17,233 |  |  | 587 |  |  | 3.4 | %
Deductible | 1,641 |  |  | 1,642 |  |  | (1) |  |  | (0.1 | %) |  | 4,080 |  |  | 4,120 |  |  | (40) |  |  | (1.0 | %)
Retrospective(1) | 447 |  |  | 308 |  |  | 139 |  |  | 45.1 | % |  | 3,107 |  |  | 1,646 |  |  | 1,461 |  |  | 88.8 | %
Other | 1,743 |  |  | 1,741 |  |  | 2 |  |  | 0.1 | % |  | 5,049 |  |  | 5,208 |  |  | (159) |  |  | (3.1 | %)
Alternative market business(2) | 14,835 |  |  | 15,138 |  |  | (303) |  |  | (2.0 | %) |  | 52,492 |  |  | 54,879 |  |  | (2,387) |  |  | (4.3 | %)
Change in EBUB estimate | — |  |  | (430) |  |  | 430 |  |  | nm |  | (1,210) |  |  | (1,290) |  |  | 80 |  |  | (6.2 | %)
Total | $ | 64,594 |  |  | $ | 62,996 |  |  | $ | 1,598 |  |  | 2.5 | % |  | $ | 194,767 |  |  | $ | 199,447 |  |  | $ | (4,680) |  |  | (2.3 | %)

(1) The change in retrospectively-rated policies included an adjustment that decreased premium by $0.1 million and $0.4 million for the three and nine months ended September 30, 2021, respectively, as compared to adjustments that increased premium by $0.1 million and decreased premium by $1.6 million for the same respective periods of 2020.
(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 increased during the three months ended September 30, 2021 as compared to the same period of 2020, reflecting an improvement in audit premium, renewal retention and renewal rate changes, partially offset by a decrease in new business. Policy audits processed during the 2021 three-month period resulted in audit premium returned to policyholders totaling $0.2 million as compared to $1.1 million during the same period of 2020. Additionally, the 2020 three-month period included a reduction in the EBUB estimate totaling $0.4 million. Renewal rate retention was 88% for the 2021 three-month period as compared to 86% for same period of 2020. The renewal rate was unchanged for the 2021 three-month period as compared to a decrease of 3% for the same period of 2020. New business written decreased $3.1 million in the 2021 three-month period as compared to the same period of 2020, reflecting the competitive market conditions. New business submissions in the 2021 three-month period were 17% lower than the same period of 2020.
Gross premiums written decreased during the nine months ended September 30, 2021 as compared to the same period of 2020, primarily reflecting a decrease in audit premium and new business, partially offset by improvement in both renewal retention and renewal rate changes. Policy audits processed during the 2021 nine-month period resulted in audit premium returned to policyholders totaling $2.0 million as compared to a nominal amount for the same period in 2020. We reduced our EBUB estimate by $1.2 million for the 2021 nine-month period as compared to $1.3 million for the same period in 2020. The decrease in audit premium processed as well as the reduction of our EBUB estimate for the 2021 nine-month period, 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. Renewal rate retention was 88% for 2021 nine-month period as compared to 85% for the same period of 2020. The 2020 nine-month period renewal retention was impacted by the reduction in premium funding for a large alternative market program. Renewal rate decreased 2% during the 2021 nine-month period as compared to 4% during the same period of 2020. New business written decreased $5.2 million during the 2021 nine-month period as compared to the same respective period of 2020, reflecting the competitive market conditions. New business submissions in the 2021 nine-month period were 16% lower than the same period of 2020.
We retained 100% of the eighteen (three in the third quarter) workers’ compensation alternative market programs that were up for renewal during the nine months ended September 30, 2021.
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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 September 30
| 2021 |  | 2020
($ in millions) | Traditional Business | Alternative Market Business | Segment Results |  | Traditional Business | Alternative Market Business | Segment Results
New business | $ | 3.5 |  | $ | 0.8 |  | $ | 4.3 |  |  | $ | 6.2 |  | $ | 1.2 |  | $ | 7.4 |
Audit premium (excluding EBUB) | $ | (0.1) |  | $ | (0.1) |  | $ | (0.2) |  |  | $ | (0.8) |  | $ | (0.3) |  | $ | (1.1) |
Retention rate (1) | 87 | % | 93 | % | 88 | % |  | 84 | % | 90 | % | 86 | %
Change in renewal pricing (2) | 1 | % | (2 | %) | — | % |  | (3 | %) | (1 | %) | (3 | %)
| Nine Months Ended September 30
| 2021 |  | 2020
($ in millions) | Traditional Business | Alternative Market Business | Segment Results |  | Traditional Business | Alternative Market Business | Segment Results
New business | $ | 15.5 |  | $ | 2.3 |  | $ | 17.8 |  |  | $ | 20.0 |  | $ | 3.0 |  | $ | 23.0 |
Audit premium (excluding EBUB) | $ | (2.3) |  | $ | 0.3 |  | $ | (2.0) |  |  | $ | 0.5 |  | $ | (0.5) |  | $ | — |
Retention rate (1) | 87 | % | 90 | % | 88 | % |  | 85 | % | 83 | % | 85 | %
Change in renewal pricing (2) | (1 | %) | (4 | %) | (2 | %) |  | (4 | %) | (4 | %) | (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.

Ceded Premiums Written
Ceded premiums written were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Premiums ceded to SPCs | $ | 14,801 |  |  | $ | 15,057 |  |  | $ | (256) |  |  | (1.7 | %) |  | $ | 49,409 |  |  | $ | 52,110 |  |  | $ | (2,701) |  |  | (5.2 | %)
Premiums ceded to external reinsurers | 3,290 |  |  | 3,154 |  |  | 136 |  |  | 4.3 | % |  | 9,476 |  |  | 9,610 |  |  | (134) |  |  | (1.4 | %)
Premiums ceded to unaffiliated captive insurer | 34 |  |  | 81 |  |  | (47) |  |  | (58.0 | %) |  | 3,083 |  |  | 2,769 |  |  | 314 |  |  | 11.3 | %
Change in return premium estimate under external reinsurance | (55) |  |  | 200 |  |  | (255) |  |  | (127.5 | %) |  | (550) |  |  | 247 |  |  | (797) |  |  | (322.7 | %)
Estimated revenue share under external reinsurance | (178) |  |  | (254) |  |  | 76 |  |  | (29.9 | %) |  | (1,021) |  |  | (659) |  |  | (362) |  |  | 54.9 | %
Total ceded premiums written | $ | 17,892 |  |  | $ | 18,238 |  |  | $ | (346) |  |  | (1.9 | %) |  | $ | 60,397 |  |  | $ | 64,077 |  |  | $ | (3,680) |  |  | (5.7 | %)

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 unaffiliated captive insurer represent alternative market business for one program that is ceded under a 100% quota share reinsurance agreement. Alternative market premiums written decreased for the 2021 three- and nine-month periods, which resulted in lower premium 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 agreement 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 3.5% of ceded earned premium for the treaty year effective May 1, 2021. Per our reinsurance agreements, we cede premiums related to our traditional business on an earned premium basis. The increase in premiums ceded to external reinsurers during the 2021 three-month period primarily reflected the increase in reinsurance rates effective May 1, 2021. The decrease in
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premiums ceded to external reinsurers during the 2021 nine-month period primarily reflected lower earned premium, partially offset by the increase in reinsurance rates.
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 that include a provision for return premium. We increased our estimate of return premium by $0.1 million and $0.6 million during the 2021 three- and nine-month periods as compared to a decrease of $0.2 million during the same respective periods in 2020. The change in estimated return premium for the 2021 three- and nine-month periods primarily reflected favorable prior year loss development on previously reported reinsured claims.
Our reinsurance program includes a revenue share agreement with our reinsurance broker under which we participate and receive a percentage of the brokerage revenue above an agreed upon minimum retention. The revenue share estimate is based on premium ceded under the reinsurance contract.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Ceded premiums ratio, as reported | 31.8 | % |  | 32.3 | % |  | (0.5 | pts) |  | 32.2 | % |  | 32.5 | % |  | (0.3 | pts)
Less the effect of: |  |  |  |  |  |  |  |  |  |  |
Premiums ceded to SPCs (100%) | 23.4 | % |  | 24.1 | % |  | (0.7 | pts) |  | 24.6 | % |  | 24.5 | % |  | 0.1 | pts
Retrospective premium adjustments | — | % |  | — | % |  | — | pts |  | — | % |  | 0.1 | % |  | (0.1 | pts)
Premiums ceded to unaffiliated captive insurers (100%) | 1.6 | % |  | 1.4 | % |  | 0.2 | pts |  | 1.7 | % |  | 1.4 | % |  | 0.3 | pts
Change in EBUB | — | % |  | 0.1 | % |  | (0.1 | pts) |  | — | % |  | 0.1 | % |  | (0.1 | pts)
Change in return premium estimate under external reinsurance | (0.1 | %) |  | 0.4 | % |  | (0.5 | pts) |  | (0.4 | %) |  | 0.1 | % |  | (0.5 | pts)
Estimated revenue share | (0.4 | %) |  | (0.6 | %) |  | 0.2 | pts |  | (0.8 | %) |  | (0.5 | %) |  | (0.3 | pts)
Assumed premiums earned (not ceded to external reinsurers) | (0.3 | %) |  | (0.2 | %) |  | (0.1 | pts) |  | (0.2 | %) |  | (0.2 | %) |  | — | pts
Ceded premiums ratio (related to external reinsurance), less the effects of above | 7.6 | % |  | 7.1 | % |  | 0.5 | pts |  | 7.3 | % |  | 7.0 | % |  | 0.3 | pts

The above table reflects traditional ceded premiums earned as a percent of traditional gross premiums earned. As discussed above, we cede premiums in our traditional business to external reinsurers on an earned premium basis. The increase in the ceded premiums ratio for the three and nine months ended September 30, 2021 as compared to the same respective periods in 2020 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, 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 September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 | 2020 | Change |  | 2021 | 2020 | Change
Gross premiums earned | $ | 61,964 |  | $ | 62,807 |  | $ | (843) |  | (1.3 | %) |  | $ | 181,306 |  | $ | 191,849 |  | $ | (10,543) |  | (5.5 | %)
Less: Ceded premiums earned | 19,729 |  | 20,291 |  | (562) |  | (2.8 | %) |  | 58,434 |  | 62,412 |  | (3,978) |  | (6.4 | %)
Net premiums earned | $ | 42,235 |  | $ | 42,516 |  | $ | (281) |  | (0.7 | %) |  | $ | 122,872 |  | $ | 129,437 |  | $ | (6,565) |  | (5.1 | %)

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Net premiums earned were relatively unchanged during the three months ended September 30, 2021 as compared to the same period in 2020, which primarily reflected the pro rata effect of a reduction in net premiums written during the preceding twelve months, partially offset by improvement in audit premium results and the impact of the reduction in the EBUB estimate totaling $0.4 million in the prior year period. The decrease in net premiums earned during the nine months ended September 30, 2021 as compared to the same period in 2020 primarily reflected the pro rata effect of a reduction in net premiums written during the preceding twelve months and a decrease in audit premium, partially offset by a decrease in negative premium adjustments under retrospectively-rated policies and an increase in the revenue share and return premium estimates under our reinsurance contract.
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 September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Calendar year net loss ratio | 74.3 | % |  | 62.2 | % |  | 12.1 | pts |  | 69.4 | % |  | 65.4 | % |  | 4.0 | pts
Less impact of prior accident years on the net loss ratio | (3.5 | %) |  | (4.7 | %) |  | 1.2 | pts |  | (4.6 | %) |  | (3.8 | %) |  | (0.8 | pts)
Current accident year net loss ratio | 77.8 | % |  | 66.9 | % |  | 10.9 | pts |  | 74.0 | % |  | 69.2 | % |  | 4.8 | pts

During the third quarter of 2021, reported loss activity increased for the current accident year in relation to prior years and management expectations and, as a result, we increased our full-year 2021 accident year loss ratio to 74.0%, from 72.0% as of June 30, 2021. The higher claim activity is attributable to the current pandemic conditions and the impact of workers returning to full employment with the easing of pandemic-related restrictions in our operating territories, including the impact of labor shortages on the existing workforce. In addition, the increase in the current accident year net loss ratio for the 2021 nine-month period reflected the continuation of intense price competition and the resulting renewal rate decreases as well as the effect of lower net premiums earned driven by a reduction in audit premium and a reduction in our EBUB estimate, as previously discussed. 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) in excess of our per occurrence reinsurance retention, before consideration of the AAD (see previous discussion under the heading "Ceded Premiums Written"), increased $3.9 million and $7.4 million for the three and nine months ended September 30, 2021, respectively, as compared to the same periods of 2020. Current accident year ceded incurred losses totaled $0.9 million and $3.9 million for the 2021 three- and nine-month periods, respectively, as compared to $0.4 million for the 2020 nine-month period. We retained calendar year incurred losses in excess of our per occurrence retention totaling $1.4 million and $4.2 million for the three and nine months ended September 30, 2021, respectively, which reflected losses within the AAD.
We recognized net favorable prior year development related to our previously established reserve of $1.5 million and $5.6 million for the three and nine months ended September 30, 2021, respectively, as compared to $2.0 million and $5.0 million for the same respective periods of 2020. The net favorable prior year reserve development for the three and nine months ended September 30, 2021 and 2020 reflected overall favorable trends in claim closing patterns. Net favorable development for the 2021 three and nine months ended was primarily related to the 2017 accident year and prior and, to a lesser extent, the 2019 accident year. Net favorable development for the 2020 three-month period was primarily related to the 2013 and 2015 accident years and accident years prior to 2010. Net favorable development for the 2020 nine-month period was primarily related to the 2013 through 2016 accident years and accident years prior to 2010.
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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 September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
DPAC amortization | $ | 7,464 |  |  | $ | 8,410 |  |  | $ | (946) |  |  | (11.2 | %) |  | $ | 21,454 |  |  | $ | 23,547 |  |  | $ | (2,093) |  |  | (8.9 | %)
Management fees | 485 |  |  | 476 |  |  | 9 |  |  | 1.9 | % |  | 1,461 |  |  | 1,505 |  |  | (44) |  |  | (2.9 | %)
Other underwriting and operating expenses | 8,611 |  |  | 9,974 |  |  | (1,363) |  |  | (13.7 | %) |  | 25,205 |  |  | 28,689 |  |  | (3,484) |  |  | (12.1 | %)
Policyholder dividend expense | 329 |  |  | 157 |  |  | 172 |  |  | 109.6 | % |  | 831 |  |  | 779 |  |  | 52 |  |  | 6.7 | %
SPC ceding commission offset | (3,368) |  |  | (4,034) |  |  | 666 |  |  | (16.5 | %) |  | (10,432) |  |  | (11,916) |  |  | 1,484 |  |  | (12.5 | %)
Total | $ | 13,521 |  |  | $ | 14,983 |  |  | $ | (1,462) |  |  | (9.8 | %) |  | $ | 38,519 |  |  | $ | 42,604 |  |  | $ | (4,085) |  |  | (9.6 | %)

The decrease in DPAC amortization for the three and nine months ended September 30, 2021 as compared to the same respective periods in 2020 primarily reflected the decrease in net premiums earned, as previously discussed.
The decrease in other underwriting and operating expenses for the three and nine months ended September 30, 2021 as compared to the same respective periods of 2020 primarily reflected a decrease in compensation-related costs driven by a reduction in headcount as a result of the 2020 organizational restructuring, a reduction in our allowance for expected credit losses and, for the 2021 nine-month period, a decrease in travel-related costs related to the COVID-19 pandemic, partially offset by an increase in expenses related to our policy administration and claim system implementation project. Additionally, the decrease in other underwriting and operating expenses for the three and nine months ended September 30, 2021 as compared to the same respective periods of 2020 reflected the prior year effect of one-time costs of $0.9 million primarily comprised of employee severance costs associated with the restructuring of our workers' compensation business during the third quarter of 2020.
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 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 in SPC ceding commissions earned for the three and nine months ended September 30, 2021 as compared to the same respective periods of 2020, primarily reflected the decrease in alternative market ceded earned premium.
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Underwriting Expense Ratio (the Expense Ratio)
The underwriting expense ratio included the impact of the following:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Underwriting expense ratio, as reported | 32.0 | % |  | 35.2 | % |  | (3.2 | pts) |  | 31.3 | % |  | 32.9 | % |  | (1.6 | pts)
Less estimated ratio increase (decrease) attributable to: |  |  |  |  |  |  |  |  |  |  |
Impact of ceding commissions received from SPCs | 3.3 | % |  | 2.6 | % |  | 0.7 | pts |  | 3.1 | % |  | 3.1 | % |  | — | pts
Retrospective premium adjustment | — | % |  | — | % |  | — | pts |  | 0.1 | % |  | 0.3 | % |  | (0.2 | pts)
Impact of audit premium | 0.1 | % |  | 0.7 | % |  | (0.6 | pts) |  | 0.6 | % |  | 0.3 | % |  | 0.3 | pts
Change in return premium estimate under external reinsurance | — | % |  | — | % |  | — | pts |  | (0.1 | %) |  | — | % |  | (0.1 | pts)
Estimated revenue share | (0.1 | %) |  | (0.1 | %) |  | — | pts |  | (0.2 | %) |  | (0.1 | %) |  | (0.1 | pts)
Underwriting expense ratio, less listed effects | 28.7 | % |  | 32.0 | % |  | (3.3 | pts) |  | 27.8 | % |  | 29.3 | % |  | (1.5 | pts)

Excluding the items noted in the table above, the expense ratio decreased for the three and nine months ended September 30, 2021, primarily reflecting the reduction in various operating expenses and the prior year effect of the one-time costs during the third quarter of 2020, as discussed above, partially offset by the decrease in net premiums earned.
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Segment Results - Segregated Portfolio Cell Reinsurance
The Segregated Portfolio Cell Reinsurance segment includes the results (underwriting profit or loss, plus investment results, net of U.S. federal income taxes) of SPCs at Inova Re and Eastern Re, our Cayman Islands SPC operations, as discussed in Note 15 of the Notes 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, 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 September 30, 2021, there were 27 (3 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 September 30, 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 the SPCs in which we participate, and included the following:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 | 2020 | Change |  | 2021 | 2020 | Change
Net premiums written | $ | 13,260 |  | $ | 14,011 |  | $ | (751) |  | (5.4 | %) |  | $ | 49,656 |  | $ | 51,246 |  | $ | (1,590) |  | (3.1 | %)
Net premiums earned | $ | 15,344 |  | $ | 16,052 |  | $ | (708) |  | (4.4 | %) |  | $ | 47,500 |  | $ | 49,780 |  | $ | (2,280) |  | (4.6 | %)
Net investment income | 193 |  | 273 |  | (80) |  | (29.3 | %) |  | 620 |  | 832 |  | (212) |  | (25.5 | %)
Net realized gains (losses) | 204 |  | 1,495 |  | (1,291) |  | (86.4 | %) |  | 2,772 |  | 894 |  | 1,878 |  | 210.1 | %
Other income | — |  | 12 |  | (12) |  | (100.0 | %) |  | 2 |  | 203 |  | (201) |  | (99.0 | %)
Net losses and loss adjustment expenses | (8,693) |  | (6,858) |  | (1,835) |  | 26.8 | % |  | (26,560) |  | (23,890) |  | (2,670) |  | 11.2 | %
Underwriting, policy acquisition and operating expenses | (4,758) |  | (5,036) |  | 278 |  | (5.5 | %) |  | (15,078) |  | (15,474) |  | 396 |  | (2.6 | %)
SPC U.S. federal income tax expense (1) | (431) |  | (871) |  | 440 |  | (50.5 | %) |  | (1,291) |  | (1,573) |  | 282 |  | (17.9 | %)
SPC net results | 1,859 |  | 5,067 |  | (3,208) |  | (63.3 | %) |  | 7,965 |  | 10,772 |  | (2,807) |  | (26.1 | %)
SPC dividend (expense) income (2) | (1,320) |  | (3,854) |  | 2,534 |  | (65.7 | %) |  | (5,926) |  | (7,988) |  | 2,062 |  | (25.8 | %)
Segment results (3) | $ | 539 |  | $ | 1,213 |  | $ | (674) |  | (55.6 | %) |  | $ | 2,039 |  | $ | 2,784 |  | $ | (745) |  | (26.8 | %)
Net loss ratio | 56.7% | 42.7% | 14.0 pts |  |  | 55.9% | 48.0% | 7.9 pts |
Underwriting expense ratio | 31.0% | 31.4% | (0.4 pts) |  |  | 31.7% | 31.1% | 0.6 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.

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Premiums Written
Premiums in our Segregated Portfolio Cell Reinsurance segment are assumed from either our Workers' Compensation Insurance or Specialty P&C segments. Premium volume is driven by five primary factors: (1) the amount of new business written, (2) retention of the existing book of business, (3) premium rates charged on the renewal book of business and, for workers' compensation business, (4) changes in payroll exposure and (5) audit premium.
Gross, ceded and net premiums written were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Gross premiums written | $ | 15,244 |  |  | $ | 15,933 |  |  | $ | (689) |  |  | (4.3 | %) |  | $ | 56,455 |  |  | $ | 58,068 |  |  | $ | (1,613) |  |  | (2.8 | %)
Less: Ceded premiums written | 1,984 |  |  | 1,922 |  |  | 62 |  |  | 3.2 | % |  | 6,799 |  |  | 6,822 |  |  | (23) |  |  | (0.3 | %)
Net premiums written | $ | 13,260 |  |  | $ | 14,011 |  |  | $ | (751) |  |  | (5.4 | %) |  | $ | 49,656 |  |  | $ | 51,246 |  |  | $ | (1,590) |  |  | (3.1 | %)

Gross Premiums Written
Gross premiums written reflected reinsurance premiums assumed by component as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Workers' compensation | $ | 14,801 |  |  | $ | 15,057 |  |  | $ | (256) |  |  | (1.7 | %) |  | $ | 49,409 |  |  | $ | 52,110 |  |  | $ | (2,701) |  |  | (5.2 | %)
Healthcare professional liability | 443 |  |  | 876 |  |  | (433) |  |  | (49.4 | %) |  | 7,046 |  |  | 5,958 |  |  | 1,088 |  |  | 18.3 | %
Gross Premiums Written | $ | 15,244 |  |  | $ | 15,933 |  |  | $ | (689) |  |  | (4.3 | %) |  | $ | 56,455 |  |  | $ | 58,068 |  |  | $ | (1,613) |  |  | (2.8 | %)

Gross premiums written for the three and nine months ended September 30, 2021 and 2020 were primarily comprised of workers' compensation coverages assumed from our Workers' Compensation Insurance segment. Workers' compensation gross premiums written decreased during the three and nine months ended September 30, 2021 as compared to the same respective periods of 2020. The decrease in gross premiums written for the 2021 three- and nine-month periods primarily reflected the competitive workers’ compensation market conditions and the resulting renewal rate decreases of 2% and 4%, respectively, partially offset by an improvement in the renewal retention rate. The renewal retention rate for the nine months ended September 30, 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 nine months ended September 30, 2020. Healthcare professional liability gross premiums written decreased during the three months ended September 30, 2021 as compared to the same period of 2020 driven by renewal retention losses. The increase in healthcare professional liability gross premiums written during the nine months ended September 30, 2021 as compared to the same respective period of 2020 was driven by renewal pricing increases, primarily due to increases in exposure for one program. We retained 100% of the seventeen (three in the third quarter) workers' compensation programs and two healthcare professional liability programs up for renewal during the nine months ended September 30, 2021.
New business, audit premium, retention and renewal price changes for the assumed workers' compensation premium is shown in the table below:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in millions) | 2021 |  | 2020 |  | 2021 |  | 2020
New business | $ | 0.8 |  |  | $ | 1.2 |  |  | $ | 2.3 |  |  | $ | 3.0 |
Audit premium (including EBUB) | $ | (0.1) |  |  | $ | (0.3) |  |  | $ | 0.3 |  |  | $ | (0.5) |
Retention rate (1) | 93 | % |  | 90 | % |  | 90 | % |  | 83 | %
Change in renewal pricing (2) | (2 | %) |  | (1 | %) |  | (4 | %) |  | (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.

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Ceded Premiums Written
Ceded premiums written were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 | 2020 | Change |  | 2021 | 2020 | Change
Ceded premiums written | $ | 1,984 |  | $ | 1,922 |  | $ | 62 |  | 3.2 | % |  | $ | 6,799 |  | $ | 6,822 |  | $ | (23) |  | (0.3 | %)

For the workers' compensation business, each SPC has in place its own external reinsurance arrangements. 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. Per the SPC external reinsurance agreements, premiums are ceded on a written premium basis. The change in ceded premiums written during the three and nine months ended September 30, 2021 as compared to the same respective periods of 2020 primarily reflected the change in workers' compensation gross premiums written and the impact of rate increases under the external reinsurance contract. External reinsurance rates vary based on the alternative market program.
Ceded Premiums Ratio
Ceded premiums ratio was as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Ceded premiums ratio | 13.4% |  | 12.8% |  | 0.6 pts |  | 13.8% |  | 13.1% |  | 0.7 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 and nine months ended September 30, 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 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 September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 | 2020 | Change |  | 2021 | 2020 | Change
Gross premiums earned | $ | 17,495 |  | $ | 18,175 |  | $ | (680) |  | (3.7 | %) |  | $ | 53,890 |  | $ | 56,277 |  | $ | (2,387) |  | (4.2 | %)
Less: Ceded premiums earned | 2,151 |  | 2,123 |  | 28 |  | 1.3 | % |  | 6,390 |  | 6,497 |  | (107) |  | (1.6 | %)
Net premiums earned | $ | 15,344 |  | $ | 16,052 |  | $ | (708) |  | (4.4 | %) |  | $ | 47,500 |  | $ | 49,780 |  | $ | (2,280) |  | (4.6 | %)

The decrease in net premiums earned during the three and nine months ended September 30, 2021 primarily reflected 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 and nine months ended September 30, 2021 and 2020 was primarily attributable to interest earned on available-for-sale fixed maturity investments, which primarily include investment-grade corporate debt securities. We recognized $0.2 million and $2.8 million of net realized investment gains during the three and nine months ended September 30, 2021, respectively, as compared to $1.5 million and $0.9 million for the same respective periods of 2020, which primarily reflected an increase in the fair value of our equity portfolio.
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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 and nine months ended September 30, 2021 and 2020 were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Calendar year net loss ratio | 56.7 | % |  | 42.7 | % |  | 14.0 | pts |  | 55.9 | % |  | 48.0 | % |  | 7.9 | pts
Less impact of prior accident years on the net loss ratio | (10.5 | %) |  | (24.6 | %) |  | 14.1 | pts |  | (10.4 | %) |  | (15.3 | %) |  | 4.9 | pts
Current accident year net loss ratio | 67.2 | % |  | 67.3 | % |  | (0.1 | pts) |  | 66.3 | % |  | 63.3 | % |  | 3.0 | pts

The current accident year net loss ratio was relatively unchanged for the three months ended September 30, 2021 and increased for the nine months ended September 30, 2021 as compared to the same periods of 2020. The increase in the current accident year net loss ratio for the nine months ended September 30, 2021 primarily reflected the continuation of intense price competition and the resulting renewal rate decreases in the workers' compensation business as well as the impact of higher claim activity as workers return to full employment with the easing of pandemic-related restrictions in our operating territories. The impact of renewal rate decreases and increased claim activity was partially offset by favorable trends in prior accident year claim results and their 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.
Calendar year incurred losses (excluding IBNR) ceded to our external reinsurers increased $1.0 million and $4.4 million for the 2021 for the three and nine months ended September 30, 2021, respectively, as compared to the same respective periods of 2020. Current accident year ceded incurred losses (excluding IBNR) increased $5.2 million and $1.7 million for the 2021 three- and nine-month periods, respectively, as compared to the same periods of 2020.
We recognized net favorable prior year reserve development of $1.6 million and $4.9 million for the three and nine months ended September 30, 2021, respectively, as compared to $4.0 million and $7.6 million for the same respective periods of 2020. The net favorable prior year reserve development for the three and nine months ended September 30, 2021 related entirely to workers’ compensation business, which reflected overall favorable trends in claim closing patterns primarily in the 2019 accident year and prior and, to a lesser extent, the 2020 accident year. The net favorable prior year reserve development for the three and nine months ended September 30, 2020 included $4.0 million and $6.6 million related to the workers’ compensation business, respectively, which primarily reflected overall favorable claim trends in claim closing patterns in the 2016 through 2018 accident years. In addition, net favorable prior year reserve development for the nine months ended September 30, 2020 included $1.0 million related to the healthcare professional liability business.
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Underwriting, Policy Acquisition and Operating Expenses
Our Segregated Portfolio Cell Reinsurance segment underwriting, policy acquisition and operating expenses were comprised as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
DPAC amortization | $ | 4,526 |  |  | $ | 4,714 |  |  | $ | (188) |  |  | (4.0 | %) |  | $ | 13,930 |  |  | $ | 14,787 |  |  | $ | (857) |  |  | (5.8 | %)
Policyholder dividend expense | 64 |  |  | 37 |  |  | 27 |  |  | 73.0 | % |  | 348 |  |  | 106 |  |  | 242 |  |  | 228.3 | %
Other underwriting and operating expenses | 168 |  |  | 285 |  |  | (117) |  |  | (41.1 | %) |  | 800 |  |  | 581 |  |  | 219 |  |  | 37.7 | %
Total | $ | 4,758 |  |  | $ | 5,036 |  |  | $ | (278) |  |  | (5.5 | %) |  | $ | 15,078 |  |  | $ | 15,474 |  |  | $ | (396) |  |  | (2.6 | %)

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 changes in the allowance for expected credit losses. The decrease in other underwriting and operating expenses for the three months ended September 30, 2021 as compared to the same period of 2020 primarily reflected the change in our allowance for expected credit losses and a decrease in professional fees. The increase in other underwriting and operating expenses for 2021 nine-month period reflects the prior year effect of recoveries of premiums receivables during the first quarter of 2020 that were previously written off, which resulted in a reduction to our allowance for expected credit losses in 2020. Excluding the receivable recoveries, other underwriting and operating expenses decreased for 2021 nine-month period as compared to the same respective periods of 2020, which primarily reflected a decrease in professional fees.
The increase in policyholder dividend expense for the three and nine months ended September 30, 2021 as compared to the same periods of 2020, 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 September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Underwriting expense ratio, as reported | 31.0% |  | 31.4% |  | (0.4 pts) |  | 31.7% |  | 31.1% |  | 0.6 pts
Less: impact of audit premium on expense ratio | 0.2% |  | 0.6% |  | (0.4 pts) |  | (0.1%) |  | 0.4% |  | (0.5 pts)
Underwriting expense ratio, excluding the effect of audit premium | 30.8% |  | 30.8% |  | — pts |  | 31.8% |  | 30.7% |  | 1.1 pts

Excluding the effect of audit premium, the underwriting expense ratio was unchanged for the 2021 three-month period and increased for the 2021 nine-month period. The increase in the underwriting expense ratio for the 2021 nine-month period primarily reflected the change in the allowance for expected credit losses and policyholder dividend expense, as discussed above, as well as the decrease in net premiums earned, 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 $1.3 million for the three and nine months ended September 30, 2021, respectively, as compared to $0.9 million and $1.6 million for the same respective periods of 2020. U.S. federal income taxes are included in the total SPC net results and are paid by the individual SPCs.
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Segment Results - Lloyd's Syndicates
Our Lloyd's Syndicates segment includes the results from our participation in certain Syndicates 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 2021 underwriting year, our FAL was comprised of investment securities and cash and cash equivalents deposited with Lloyd's which at September 30, 2021 had a fair value of approximately $72.5 million, as discussed in Note 4 of the Notes to Condensed Consolidated Financial Statements. During the second quarter of 2021, we received a return of approximately $24.5 million of cash and cash equivalents from our FAL balances given the reduction in our participation in the results of Syndicate 1729, to 5% from 29%, and Syndicate 6131, to 50% from 100%, for the 2021 underwriting year.
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.
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. As previously discussed, we decreased our participation in the results of Syndicate 1729 for the 2021 underwriting year to 5% to support and grow our core insurance operations. Due to the quarter lag, this reduced participation was not 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 $249 million based on September 30, 2021 exchange rates), of which £9 million (approximately $12 million based on September 30, 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. The remaining capital for Syndicate 6131 is provided by an unrelated corporate member. 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-renewed on January 1, 2021 and we decreased our participation in the results of Syndicate 6131 for the 2021 underwriting year to 50%, as previously discussed. Due to the quarter lag, this reduced participation was not 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 $27 million based on September 30, 2021 exchange rates), of which £10 million (approximately $14 million based on September 30, 2021 exchange rates) is our allocated underwriting capacity.
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 and nine months ended September 30, 2021 and 2020, the results of our Lloyd's Syndicates segment were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 | 2020 | Change |  | 2021 | 2020 | Change
Net premiums written | $ | 8,445 |  | $ | 19,092 |  | $ | (10,647) |  | (55.8 | %) |  | $ | 26,118 |  | $ | 59,269 |  | $ | (33,151) |  | (55.9 | %)
Net premiums earned | $ | 10,953 |  | $ | 18,142 |  | $ | (7,189) |  | (39.6 | %) |  | $ | 40,263 |  | $ | 61,186 |  | $ | (20,923) |  | (34.2 | %)
Net investment income | 431 |  | 951 |  | (520) |  | (54.7 | %) |  | 1,677 |  | 3,236 |  | (1,559) |  | (48.2 | %)
Net realized gains (losses) | 35 |  | 489 |  | (454) |  | (92.8 | %) |  | 9 |  | 1,100 |  | (1,091) |  | (99.2 | %)
Other income (loss) | 283 |  | 411 |  | (128) |  | (31.1 | %) |  | 864 |  | 219 |  | 645 |  | 294.5 | %
Net losses and loss adjustment expenses | (6,846) |  | (9,317) |  | 2,471 |  | (26.5 | %) |  | (25,257) |  | (39,432) |  | 14,175 |  | (35.9 | %)
Underwriting, policy acquisition and operating expenses | (3,909) |  | (6,938) |  | 3,029 |  | (43.7 | %) |  | (15,219) |  | (23,373) |  | 8,154 |  | (34.9 | %)
Income tax benefit (expense) | — |  | — |  | — |  | nm |  | — |  | 29 |  | (29) |  | nm
Segment results | $ | 947 |  | $ | 3,738 |  | $ | (2,791) |  | (74.7 | %) |  | $ | 2,337 |  | $ | 2,965 |  | $ | (628) |  | (21.2 | %)
Net loss ratio | 62.5% | 51.4% | 11.1 pts |  |  | 62.7% | 64.4% | (1.7 pts) |
Underwriting expense ratio | 35.7% | 38.2% | (2.5 pts) |  |  | 37.8% | 38.2% | (0.4 pts) |

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Premiums Written
Changes in 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) the 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 September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 | 2020 | Change |  | 2021 | 2020 | Change
Gross premiums written | $ | 8,970 |  | $ | 23,862 |  | $ | (14,892) |  | (62.4 | %) |  | $ | 31,702 |  | $ | 72,441 |  | $ | (40,739) |  | (56.2 | %)
Less: Ceded premiums written | 525 |  | 4,770 |  | (4,245) |  | (89.0 | %) |  | 5,584 |  | 13,172 |  | (7,588) |  | (57.6 | %)
Net premiums written | $ | 8,445 |  | $ | 19,092 |  | $ | (10,647) |  | (55.8 | %) |  | $ | 26,118 |  | $ | 59,269 |  | $ | (33,151) |  | (55.9 | %)

Gross Premiums Written
Gross premiums written during the nine months ended September 30, 2021 consisted of property insurance coverages (29% of total gross premiums written), specialty property coverages (29%), casualty coverages (27%), contingency coverages (8%), catastrophe reinsurance coverages (6%) and property reinsurance coverages (1%). The decrease in gross premiums written during the 2021 three- and nine-month periods as compared to the same respective periods of 2020 was primarily driven by our decreased participation in the results of Syndicates 1729 and 6131, partially offset by volume increases on renewal business and renewal pricing increases, primarily on property insurance and reinsurance coverages, and new business written, primarily on property insurance and specialty property coverages.
Ceded Premiums Written
Syndicate 1729 utilizes reinsurance to provide the 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. As previously discussed, for the second half of 2020 Syndicate 6131 utilized external quota share reinsurance to manage the net loss exposure on the specialty property and contingency coverages it assumed from Syndicate 1729 by ceding essentially half of the premium assumed to an unaffiliated insurer; this agreement was non-renewed on January 1, 2021. Due to the quarter lag, the effect of this six-month reinsurance arrangement was not reflected in our results until the fourth quarter of 2020. Ceded premiums written decreased for the three and nine months ended September 30, 2021 as compared to the same respective periods of 2020 primarily driven by our decreased participation in the results of Syndicates 1729 and 6131. The decrease in ceded premiums written for the 2021 nine-month period was partially offset by the impact of premiums ceded under Syndicate 6131's six-month quota share agreement.
Net Premiums Earned
Net premiums earned consist of gross premiums earned less the portion of earned premiums that the Syndicates cede to reinsurers for their assumption of a portion of losses. Premiums written through open-market channels are generally earned pro rata over the entire policy period, which is predominantly twelve months, whereas premiums written through delegated underwriting authority arrangements are generally earned over the policy period plus twelve 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. Premiums for certain policies and assumed reinsurance contracts are reported subsequent to the coverage period and/or may be subject to adjustment based on loss experience. These premium adjustments are earned when reported, which can result in further fluctuation in earned premium.
Gross, ceded and net premiums earned were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Gross premiums earned | $ | 13,262 |  |  | $ | 22,777 |  |  | $ | (9,515) |  | (41.8 | %) |  | $ | 50,282 |  |  | $ | 77,309 |  |  | $ | (27,027) |  | (35.0 | %)
Less: Ceded premiums earned | 2,309 |  |  | 4,635 |  |  | (2,326) |  | (50.2 | %) |  | 10,019 |  |  | 16,123 |  |  | (6,104) |  | (37.9 | %)
Net premiums earned | $ | 10,953 |  |  | $ | 18,142 |  |  | $ | (7,189) |  | (39.6 | %) |  | $ | 40,263 |  |  | $ | 61,186 |  |  | $ | (20,923) |  | (34.2 | %)

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The decrease in net premiums earned during the 2021 three- and nine-month periods was primarily driven by our decreased participation in Syndicates 1729 and 6131.
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 cedents 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 periods were as follows:

| Net Loss Ratios
| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Calendar year net loss ratio | 62.5 | % |  | 51.4 | % |  | 11.1 | pts |  | 62.7 | % |  | 64.4 | % |  | (1.7 | pts)
Less: impact of prior accident years on the net loss ratio | 12.1 | % |  | (14.5 | %) |  | 26.6 | pts |  | 8.2 | % |  | (2.1 | %) |  | 10.3 | pts
Current accident year net loss ratio | 50.4 | % |  | 65.9 | % |  | (15.5 | pts) |  | 54.5 | % |  | 66.5 | % |  | (12.0 | pts)

The decrease in the current accident year net loss ratios for the three and nine months ended September 30, 2021 as compared to the same respective periods of 2020 was primarily driven by decreases to certain loss estimates during the current period and, for the 2021 nine-month period, higher reinsurance recoveries as a proportion of gross losses as compared to the prior year period.
We recognized $1.3 million and $3.3 million of unfavorable prior year development for the three and nine months ended September 30, 2021, respectively, as compared to favorable prior year development of $2.6 million and $1.3 million for the same respective periods of 2020. The unfavorable development recognized during the three and nine months ended September 30, 2021 was driven by higher than expected losses and development on certain large claims, primarily catastrophe related losses.
We have exposures to potential COVID-19 claims through our participation in Syndicates 1729 and 6131. During the nine months ended September 30, 2021, we recognized losses related to COVID-19 of approximately $1.6 million, net of reinsurance, as compared to $1.4 million and $2.9 million during three and nine months ended September 30, 2020, respectively, primarily in Syndicate 6131's contingency and Syndicate 1729's casualty books of business. In addition, we decreased our net loss estimate related to COVID-19 by approximately $0.1 million during the three months ended September 30, 2021. 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.
Underwriting, Policy Acquisition and Operating Expenses
Underwriting, policy acquisition and operating expenses decreased by $3.0 million and $8.2 million for the 2021 three- and nine-month periods, respectively, as compared to the same respective periods of 2020 and reflected our decreased participation in Syndicate 1729 and Syndicate 6131.
The underwriting expense ratio decreased by 2.5 percentage points for the three months ended September 30, 2021 and was relatively unchanged for the nine months ended September 30, 2021 as compared to the same respective periods of 2020. The decrease in the underwriting expense ratio in both the 2021 three- and nine-month periods primarily reflected the impact of our reduced participation in Syndicate 1729 and Syndicate 6131. Operating expenses incurred during the 2021 three-month period primarily were related to the 2021 underwriting year for which our participation is 5% and 50% in Syndicate 1729 and Syndicate 6131, respectively, whereas the net premiums earned during the same period also includes premium from other open underwriting years to which we participate at a higher degree.
Investments
Syndicate 1729's fixed maturity 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- and nine-month periods as compared to the same respective periods of 2020 was primarily attributable to lower average investment balances and lower yields, primarily from investment-grade corporate debt securities.
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The lower average investment balances for the 2021 three- and nine-month periods were driven by the return of approximately $32.3 million of cash and cash equivalents from our FAL balances during the third quarter of 2020 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 received a return of approximately $24.5 million of FAL during the second quarter of 2021, and we expect to receive a return of approximately $8.0 million during the fourth quarter of 2021 given the additional reduction in our participation in the results of Syndicate 1729 for the 2021 underwriting year, as previously discussed. Our lower FAL balances will continue to impact the segment's net investment income in future periods.
Taxes
The results of this segment are subject to U.K. income tax law.
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Segment Results - Corporate
Our Corporate segment includes our investment operations, including the investment operations of NORCAL since the date of acquisition and excludes those reported in our Segregated Portfolio Cell Reinsurance and Lloyd's Syndicates segments, as well as interest expense and U.S. income taxes as discussed in Note 15 of the Notes to Condensed Consolidated Financial Statements. Our Corporate segment also includes non-premium revenues generated outside of our insurance entities and corporate expenses. Segment results for the three and nine months ended September 30, 2021 exclude transaction-related costs and 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 (Note 2 of the Notes to Condensed Consolidated Financial Statements provides additional information regarding this acquisition). Segment results for our Corporate segment were net earnings of $22.8 million and $70.0 million for the three and nine months ended September 30, 2021, respectively, as compared to $17.1 million and $48.9 million for the same respective periods of 2020 and included the following:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 | 2020 | Change |  | 2021 | 2020 | Change
Net investment income | $ | 18,654 |  | $ | 15,700 |  | $ | 2,954 |  | 18.8 | % |  | $ | 49,416 |  | $ | 51,809 |  | $ | (2,393) |  | (4.6 | %)
Equity in earnings (loss) of unconsolidated subsidiaries | $ | 15,244 |  | $ | 4,853 |  | $ | 10,391 |  | 214.1 | % |  | $ | 33,959 |  | $ | (22,065) |  | $ | 56,024 |  | 253.9 | %
Net realized gains (losses) | $ | 291 |  | $ | 6,854 |  | $ | (6,563) |  | (95.8 | %) |  | $ | 17,431 |  | $ | (1,844) |  | $ | 19,275 |  | 1,045.3 | %
Other income | $ | 1,542 |  | $ | 775 |  | $ | 767 |  | 99.0 | % |  | $ | 3,786 |  | $ | 1,813 |  | $ | 1,973 |  | 108.8 | %
Operating expense | $ | 6,872 |  | $ | 5,044 |  | $ | 1,828 |  | 36.2 | % |  | $ | 19,050 |  | $ | 17,632 |  | $ | 1,418 |  | 8.0 | %
Interest expense | $ | 5,814 |  | $ | 3,881 |  | $ | 1,933 |  | 49.8 | % |  | $ | 14,203 |  | $ | 11,725 |  | $ | 2,478 |  | 21.1 | %
Income tax expense (benefit) | $ | 219 |  | $ | 2,141 |  | $ | (1,922) |  | (89.8 | %) |  | $ | 1,369 |  | $ | (48,592) |  | $ | 49,961 |  | 102.8 | %

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 in the cash surrender value of BOLI contracts, net of investment fees and expenses. Net investment income for the three and nine months ended September 30, 2021 also includes income earned, net of investment fees and expenses, from investments acquired from NORCAL since the date of acquisition.
Net investment income by investment category was as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Fixed maturities | $ | 19,447 |  |  | $ | 15,731 |  |  | $ | 3,716 |  |  | 23.6 | % |  | $ | 51,523 |  |  | $ | 49,037 |  |  | $ | 2,486 |  |  | 5.1 | %
Equities | 648 |  |  | 706 |  |  | (58) |  |  | (8.2 | %) |  | 1,790 |  |  | 3,598 |  |  | (1,808) |  |  | (50.3 | %)
Short-term investments, including Other | 561 |  |  | 297 |  |  | 264 |  |  | 88.9 | % |  | 1,440 |  |  | 1,995 |  |  | (555) |  |  | (27.8 | %)
BOLI | 623 |  |  | 655 |  |  | (32) |  |  | (4.9 | %) |  | 1,752 |  |  | 1,568 |  |  | 184 |  |  | 11.7 | %
Investment fees and expenses | (2,625) |  |  | (1,689) |  |  | (936) |  |  | 55.4 | % |  | (7,089) |  |  | (4,389) |  |  | (2,700) |  |  | 61.5 | %
Net investment income | $ | 18,654 |  |  | $ | 15,700 |  |  | $ | 2,954 |  |  | 18.8 | % |  | $ | 49,416 |  |  | $ | 51,809 |  |  | $ | (2,393) |  |  | (4.6 | %)

Fixed Maturities
Income from our fixed maturities increased during the 2021 three- and nine-month periods as compared to the same periods of 2020 driven by higher average investment balances primarily 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 Condensed Consolidated Financial Statements for additional information). The increase in income from our fixed maturities during the 2021 three- and nine-month periods was partially offset by lower yields from our corporate debt securities and, for the 2021 nine-month period, the impact of capital planning in anticipation of closing the acquisition. As a result of the NORCAL acquisition, average investment balances were approximately 72% and 44% higher for the 2021 three- and nine-month periods as compared to the same respective periods of 2020; excluding the impact of the acquisition, average investment balances were approximately 12% and 9% higher, respectively.
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Average yields for our fixed maturity portfolio were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | 2021 |  | 2020
Average income yield | 2.2% |  | 3.0% |  | 2.2% |  | 3.1%
Average tax equivalent income yield | 2.2% |  | 3.0% |  | 2.2% |  | 3.2%

Yields on fixed maturity securities decreased during the 2021 three- and nine-month periods as compared to the same respective periods of 2020. The decrease in the 2021 nine-month period was primarily driven by the application of GAAP purchase accounting rules whereby all NORCAL fixed maturity securities acquired were valued at fair value on the date of acquisition resulting in lower average yields on those securities as compared to the average yields on our other securities.
Equities
Income from our equity portfolio decreased during the 2021 three- and nine-month periods as compared to the same respective periods of 2020 due to the reallocation in our mix of securities within this asset category.
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 increased during the 2021 three-month period as compared to the same period of 2020 primarily due to income contributed by investments acquired from NORCAL. The decrease in income from our short-term and other investments during the 2021 nine-month period as compared to the same period of 2020 was primarily attributable to lower yields given the actions taken by the Federal Reserve to aggressively reduce interest rates in response to COVID-19.
Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Equity in earnings (loss) of unconsolidated subsidiaries was comprised as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
All other investments, primarily investment fund LPs/LLCs | $ | 18,835 |  |  | $ | 9,387 |  |  | $ | 9,448 |  |  | 100.6 | % |  | $ | 45,489 |  |  | $ | (6,093) |  |  | $ | 51,582 |  |  | 846.6 | %
Tax credit partnerships | (3,591) |  |  | (4,534) |  |  | 943 |  |  | (20.8 | %) |  | (11,530) |  |  | (15,972) |  |  | 4,442 |  |  | (27.8 | %)
Equity in earnings (loss) of unconsolidated subsidiaries | $ | 15,244 |  |  | $ | 4,853 |  |  | $ | 10,391 |  |  | 214.1 | % |  | $ | 33,959 |  |  | $ | (22,065) |  |  | $ | 56,024 |  |  | 253.9 | %

We hold interests in certain LPs/LLCs that generate earnings from trading portfolios, secured debt, debt securities, multi-strategy funds and private equity investments. The performance of the LPs/LLCs is affected by the volatility of equity and credit markets. For our investments in LPs/LLCs, we record our allocable portion of the partnership operating income or loss as the results of the LPs/LLCs become available, typically following the end of a reporting period. Our investment results from our portfolio of investments in LPs/LLCs for the three and nine months ended September 30, 2021 included additional earnings of approximately $0.4 million from acquired interests in four LPs as a result of the NORCAL acquisition; given the results of our investments in LPs/LLCs are often reported to us on a one quarter lag, these investments were not captured in our results until the third quarter of 2021. The increase in our investment results from our portfolio of investments in LPs/LLCs for the 2021 three- and nine-month periods as compared to the same respective periods of 2020 was due to higher earnings from several LPs/LLCs and, for the 2021 nine-month period, the prior year effect of the volatility in global financial markets related to COVID-19.
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. The results from our tax credit partnership investments for the three and nine months ended September 30, 2021 reflected lower partnership operating losses as compared to the same respective periods of 2020. In addition, based on results received, we increased our estimate of operating losses by $0.2 million and $1.7 million in the three and nine months ended September 30, 2021, respectively, as compared to $0.8 million and $4.2 million for the same respective periods of 2020.
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The tax benefits received from our tax credit partnerships, which are not reflected in our investment results, reduced our tax expense in 2021 and 2020 as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
(In millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Tax credits recognized during the period | $ | 3.1 |  |  | $ | 4.5 |  |  | $ | 9.9 |  |  | $ | 13.4 |
Tax benefit of tax credit partnership operating losses | $ | 0.8 |  |  | $ | 1.0 |  |  | $ | 2.4 |  |  | $ | 3.4 |

The tax credits generated from our tax credit partnership investments of $3.1 million and $9.9 million for the three and nine months ended September 30, 2021, respectively, were deferred for use in future periods due to the utilization of NOLs available to us following our acquisition of NORCAL. For the three and nine months ended September 30, 2020, due to our consolidated pre-tax loss in those periods, the tax credits recognized were deferred to be utilized in future periods. As of September 30, 2021, we had approximately $45.4 million of available tax credit carryforwards generated from our investments in tax credit partnerships.
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.
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 September 30 |  | Nine Months Ended September 30
(In thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
GAAP net investment result: |  |  |  |  |  |  |
Net investment income | $ | 18,654 |  |  | $ | 15,700 |  |  | $ | 49,416 |  |  | $ | 51,809 |
Equity in earnings (loss) of unconsolidated subsidiaries | 15,244 |  |  | 4,853 |  |  | 33,959 |  |  | (22,065) |
GAAP net investment result | $ | 33,898 |  |  | $ | 20,553 |  |  | $ | 83,375 |  |  | $ | 29,744 |
Pro forma tax-equivalent investment result | $ | 34,221 |  |  | $ | 20,872 |  |  | $ | 84,244 |  |  | $ | 30,705 |
Reconciliation of pro forma and GAAP tax-equivalent investment result: |  |  |  |  |  |  |
GAAP net investment result | $ | 33,898 |  |  | $ | 20,553 |  |  | $ | 83,375 |  |  | $ | 29,744 |
Taxable equivalent adjustments, calculated using the 21% federal statutory tax rate |  |  |  |  |  |  |
State and municipal bonds | 160 |  |  | 143 |  |  | 378 |  |  | 461 |
BOLI | 166 |  |  | 174 |  |  | 466 |  |  | 417 |
Dividends received | (3) |  |  | 2 |  |  | 25 |  |  | 83 |
Pro forma tax-equivalent investment result | $ | 34,221 |  |  | $ | 20,872 |  |  | $ | 84,244 |  |  | $ | 30,705 |

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Net Realized Investment Gains (Losses)
The following table provides detailed information regarding our net realized investment gains (losses).

| Three Months Ended September 30 |  | Nine Months Ended September 30
(In thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Total impairment losses |  |  |  |  |  |  |
Corporate debt | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (1,745) |
Portion of impairment losses recognized in other comprehensive income before taxes: |  |  |  |  |  |  |
Corporate debt | — |  |  | — |  |  | — |  |  | 237 |
Net impairment losses recognized in earnings | — |  |  | — |  |  | — |  |  | (1,508) |
Gross realized gains, available-for-sale fixed maturities | 2,066 |  |  | 3,903 |  |  | 11,663 |  |  | 10,573 |
Gross realized (losses), available-for-sale fixed maturities | (254) |  |  | (395) |  |  | (756) |  |  | (2,264) |
Net realized gains (losses), equity investments | (1) |  |  | (6) |  |  | 5,274 |  |  | 10,627 |
Net realized gains (losses), other investments | 1,699 |  |  | 530 |  |  | 6,192 |  |  | 2,442 |
Change in unrealized holding gains (losses), equity investments | (699) |  |  | 1,400 |  |  | (3,257) |  |  | (21,772) |
Change in unrealized holding gains (losses), convertible securities, carried at fair value as a part of other investments | (2,456) |  |  | 1,170 |  |  | (2,117) |  |  | (190) |
Other | (64) |  |  | 252 |  |  | 432 |  |  | 248 |
Net realized investment gains (losses) | $ | 291 |  |  | $ | 6,854 |  |  | $ | 17,431 |  |  | $ | (1,844) |

We did not recognize any credit-related impairment losses in earnings or non-credit impairment losses in OCI for the three and nine months ended September 30, 2021 or the three months ended September 30, 2020. For the nine months ended September 30, 2020, we recognized credit-related impairment losses in earnings of $1.5 million and a nominal amount of non-credit impairment losses in OCI. The credit-related impairment losses recognized during the 2020 nine-month period related to corporate bonds in the energy and consumer sectors. Additionally, the 2020 nine-month period included credit-related impairment losses related to four corporate bonds in various sectors, which were sold during 2020. The non-credit related impairment losses recognized during the 2020 nine-month period related to three corporate bonds in the energy and consumer sectors.
We recognized $0.3 million and $17.4 million of net realized investment gains during the 2021 three- and nine-month periods, respectively, which include approximately $0.4 million of net realized investment losses during the 2021 three-month period and $1.7 million of net realized investment gains during the 2021 nine-month period related to investments acquired from NORCAL. Net realized investment gains during the 2021 three- and nine-month periods were driven by realized gains on the sale of certain available-for-sale fixed maturities and other investments, which were partially offset by unrealized holding losses resulting from changes in the fair value of our convertible securities. We recognized $6.9 million of net realized investment gains during the 2020 three-month period, driven primarily by gains on our available-for-sale fixed maturities due to the sale of corporate bonds and, to a lesser extent, unrealized holding gains resulting from an increase in the fair value of our equity portfolio and convertible securities. We recognized $1.8 million of net realized investment losses during the 2020 nine-month period driven by changes in the fair value of our equity portfolio and convertible securities due to the volatility in the global financial markets related to COVID-19 during 2020, which were partially offset by realized gains on the sale of available-for-sale fixed maturities and equity investments.
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Operating Expenses
Corporate segment operating expenses were comprised as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Operating expenses | $ | 9,675 |  |  | $ | 9,196 |  |  | $ | 479 |  |  | 5.2 | % |  | $ | 26,542 |  |  | $ | 28,994 |  |  | $ | (2,452) |  |  | (8.5 | %)
Management fee offset | (2,803) |  |  | (4,152) |  |  | 1,349 |  |  | (32.5 | %) |  | (7,492) |  |  | (11,362) |  |  | 3,870 |  |  | (34.1 | %)
Total | $ | 6,872 |  |  | $ | 5,044 |  |  | $ | 1,828 |  |  | 36.2 | % |  | $ | 19,050 |  |  | $ | 17,632 |  |  | $ | 1,418 |  |  | 8.0 | %

Operating expenses increased $0.5 million during the 2021 three-month period and decreased $2.5 million during the 2021 nine-month period as compared to the same respective periods of 2020. The increase during the 2021 three-month period was driven by higher amounts accrued for performance-related incentive plans due to our improved performance metrics, partially offset by a decrease in professional fees and the effect of $0.5 million of one-time expenses incurred during the prior year period. One-time expenses during the 2020 three-month period were primarily comprised of employee severance and early retirement benefits granted to certain employees. The decrease in operating expenses during the 2021 nine-month period was primarily attributable to a decrease in professional fees and, to a lesser extent, a decrease in compensation-related costs. The decrease in professional fees during the 2021 three- and nine-month periods was driven by a decrease in corporate legal expenses. The decrease in compensation-related costs during the 2021 nine-month period was primarily attributable to lower salaries due to a reduction in headcount as a result of the 2020 organizational restructuring, largely offset by higher amounts accrued for performance-related incentive plans, as previously discussed.
Operating subsidiaries within our Specialty P&C segment (excluding the acquired operating subsidiaries of NORCAL) and our Workers' Compensation Insurance segment are charged a management fee by the Corporate segment for services provided to these subsidiaries. The management fee is based on the extent to which services are provided to the subsidiary and the amount of premium written by the subsidiary. Under the arrangement, the expenses associated with such services are reported as expenses of the Corporate segment, and the management fees charged are reported as an offset to Corporate operating expenses. 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 organizational structure enhancements in our Specialty P&C segment during 2020, the extent to which services are provided by the Corporate segment to the operating subsidiaries within that segment decreased effective January 1, 2021. Accordingly, we reduced the fee charged to the operating subsidiaries within the Specialty P&C segment during the 2021 three- and nine-month periods. There were no changes to the extent to which services are provided by the Corporate segment to the operating subsidiaries within our Workers' Compensation Insurance segment in 2021.
Interest Expense
Consolidated interest expense for the three and nine months ended September 30, 2021 and 2020 was comprised as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in thousands) | 2021 |  | 2020 |  | Change |  | 2021 |  | 2020 |  | Change
Senior Notes due 2023 | $ | 3,357 |  |  | $ | 3,357 |  |  | $ | — |  |  | — | % |  | $ | 10,071 |  |  | $ | 10,071 |  |  | $ | — |  |  | — | %
Contribution Certificates (including accretion)* | 1,962 |  |  | — |  |  | 1,962 |  |  | nm |  | 3,090 |  |  | — |  |  | 3,090 |  |  | nm
Revolving Credit Agreement (including fees and amortization) | 364 |  |  | 312 |  |  | 52 |  |  | 16.7 | % |  | 870 |  |  | 579 |  |  | 291 |  |  | 50.3 | %
Mortgage Loans (including amortization) | 79 |  |  | 166 |  |  | (87) |  |  | (52.4 | %) |  | 444 |  |  | 657 |  |  | (213) |  |  | (32.4 | %)
(Gain)/loss on interest rate cap | 52 |  |  | 46 |  |  | 6 |  |  | 13.0 | % |  | (272) |  |  | 418 |  |  | (690) |  |  | (165.1 | %)
Interest expense | $ | 5,814 |  |  | $ | 3,881 |  |  | $ | 1,933 |  |  | 49.8 | % |  | $ | 14,203 |  |  | $ | 11,725 |  |  | $ | 2,478 |  |  | 21.1 | %

* Includes accretion of approximately $0.6 million and $0.8 million for the three and nine months ended September 30, 2021, respectively, which is recorded as an increase to interest expense as a result of the difference between the recorded acquisition date fair value and the principal balance of the Contribution Certificates associated with our acquisition of NORCAL.
Consolidated interest expense increased during the three and nine months ended September 30, 2021 as compared to the same respective periods of 2020 driven by the addition of interest expense on the Contribution Certificates associated with our acquisition of NORCAL (See Note 2 and Note 11 of the Notes to Condensed Consolidated Financial Statements) and, to a lesser extent, an increase in the borrowings on our Revolving Credit Agreement. During the third quarter of 2021, we repaid the balance outstanding on the Revolving Credit Agreement of $15.0 million and there were no outstanding borrowings on this agreement during the 2020 three- and nine-month periods; interest expense in both the 2021 and 2020 three- and nine-month
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periods primarily reflected unused commitment fees. The increase in consolidated interest expense for the 2021 three- and nine-month periods was partially offset by lower interest expense on our Mortgage Loans. In June 2021 and July 2021, we repaid the balance outstanding on our Mortgage Loans of $15.6 million and $19.7 million, respectively. Interest expense on the Mortgage Loans during the three and nine months ended September 30, 2021 included the write-off of the related unamortized debt issuance costs which were nominal in amount. In addition, consolidated interest expense during the 2021 three- and nine-month periods was impacted by the change in the fair value of our interest rate cap.
See further discussion of our outstanding debt in Note 11 of the Notes to Condensed Consolidated Financial Statements and further discussion of our interest rate cap agreement in Note 11 of the Notes to Consolidated Financial Statements in our December 31, 2020 report on Form 10-K.
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 September 30 |  | Nine Months Ended September 30
(In thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Corporate segment income tax expense (benefit) | $ | 219 |  |  | $ | 2,141 |  |  | $ | 1,369 |  |  | $ | (48,592) |
Lloyd's Syndicates segment income tax expense (benefit) | — |  |  | — |  |  | — |  |  | (29) |
Income tax expense (benefit) - transaction-related costs* | (489) |  |  | — |  |  | (4,501) |  |  | — |
Consolidated income tax expense (benefit) | $ | (270) |  |  | $ | 2,141 |  |  | $ | (3,132) |  |  | $ | (48,621) |
*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 15 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of our segment results to our consolidated results.

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Listed below are the primary factors affecting our consolidated effective tax rate for the three and nine months ended September 30, 2021 and 2020. The comparability of each factor's impact on our effective tax rate is affected by the consolidated pre-tax income recognized during the three and nine months ended September 30, 2021 as compared to the consolidated pre-tax loss recognized during the same respective periods of 2020. 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 during the three and nine months ended September 30, 2021 versus the pre-tax loss during the same respective periods of 2020. These factors include the following:

|  |  | Three Months Ended September 30 |
|  |  |  |  | 2021 |  | 2020 |
($ in thousands) |  |  |  |  | Income tax (benefit) expense | Rate Impact |  | Income tax (benefit) expense | Rate Impact |
Computed "expected" tax expense (benefit) at statutory rate |  |  |  |  | $ | 2,505 |  | 21.0 | % |  | $ | (31,046) |  | 21.0 | % |
Tax-exempt income (1) |  |  |  |  | (418) |  | (3.5 | %) |  | (252) |  | 0.1 | % |
Tax credits |  |  |  |  | (3,126) |  | (26.2 | %) |  | (4,472) |  | 3.0 | % |
Non-U.S. operating results |  |  |  |  | (199) |  | (1.7 | %) |  | (785) |  | 0.6 | % |
Tax rate differential on loss carryback |  |  |  |  | — |  | — | % |  | 2,848 |  | (1.9 | %) |
Goodwill impairment (2) |  |  |  |  | — |  | — | % |  | 31,413 |  | (21.3 | %) |
Estimated annual tax rate differential (3) |  |  |  |  | — |  | — | % |  | 4,171 |  | (2.9 | %) |
Other |  |  |  |  | 968 |  | 8.1 | % |  | 264 |  | — | % |
Total income tax expense (benefit) |  |  |  |  | $ | (270) |  | (2.3 | %) |  | $ | 2,141 |  | (1.4 | %) |
|  |  |  |  | Nine Months Ended September 30 |
|  |  |  |  | 2021 |  | 2020 |
($ in thousands) |  |  |  |  | Income tax (benefit) expense | Rate Impact |  | Income tax (benefit) expense | Rate Impact |
Computed "expected" tax expense (benefit) at statutory rate |  |  |  |  | $ | 22,859 |  | 21.0 | % |  | $ | (50,117) | 21.0 | % |
Tax-exempt income (1) |  |  |  |  | (895) |  | (0.8 | %) |  | (759) | 0.3 | % |
Tax credits |  |  |  |  | (9,880) |  | (9.1 | %) |  | (13,415) | 5.6 | % |
Non-U.S. operating results |  |  |  |  | (491) |  | (0.4 | %) |  | (622) | 0.2 | % |
Tax rate differential on loss carryback |  |  |  |  | — |  | — | % |  | (6,482) | 2.7 | % |
Goodwill impairment (2) |  |  |  |  | — |  | — | % |  | 31,413 | (13.2 | %) |
Estimated annual tax rate differential (3) |  |  |  |  | — |  | — | % |  | (9,984) | 4.2 | % |
Non-taxable gain on bargain purchase (4) |  |  |  |  | (15,626) |  | (14.4 | %) |  | — | — | % |
Other |  |  |  |  | 901 |  | 0.8 | % |  | 1,345 | (0.4 | %) |
Total income tax expense (benefit) |  |  |  |  | $ | (3,132) |  | (2.9 | %) |  | $ | (48,621) |  | 20.4 | % |

(1) Includes tax-exempt interest, dividends received deduction and change in cash surrender value of BOLI.
(2) Represents the tax impact of the impairment of non-deductible goodwill in relation to the Specialty P&C reporting unit during the third quarter of 2020 (see further discussion on the impairment charge under the heading "Goodwill / Intangibles" in the Critical Accounting Estimates section and in Note 7 of the Notes to Condensed Consolidated Financial Statements).
(3) Represents the tax rate differential between our actual effective tax rate for the three and nine months ended September 30, 2020 and our projected annual effective tax rate as of September 30, 2020 as calculated under the estimated annual effective tax rate method. There was no tax rate differential recorded for the three and nine months ended September 30, 2021 as we utilized the discrete effective tax rate method at September 30, 2021 (see further discussion on these methods in the Critical Accounting Estimates section under the heading "Estimation of Taxes/Tax Credits").
(4) Represents the tax impact of the non-taxable gain on bargain purchase as a result of our acquisition of NORCAL on May 5, 2021. See further discussion on the gain on bargain purchase in Note 2 of the Notes to Condensed Consolidated Financial Statements.
For the three and nine months ended September 30, 2021, 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"). For the three and nine months ended September 30, 2020, the provision (benefit) for income taxes and the effective tax rate were determined utilizing the estimated annual effective tax rate method which is based upon our current estimate of our annual effective tax rate at the end of each quarterly reporting period (the projected annual effective tax rate) plus the impact of certain discrete items
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that are not included in the projected annual effective tax rate. Our effective tax rate for the 2021 nine-month period was different from the statutory federal income tax rate of 21% primarily due the gain on bargain purchase of $74.4 million related to the NORCAL acquisition, all of which was non-taxable. Additionally, our effective tax rates for both the 2021 and 2020 three- and nine-month periods include the benefit recognized from the tax credits transferred to us from our tax credit partnership investments. Tax credits recognized during the three and nine months ended September 30, 2021 were $3.1 million and $9.9 million, respectively, as compared to $4.5 million and $13.4 million for the same respective periods of 2020. While projected tax credits for 2021 are less than 2020, they continue to have a significant impact on the effective tax rate for the 2021 three- and nine-month periods. For the 2020 three- and nine-month periods, our effective tax rate was also affected by the additional statutory 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.
Our effective tax rate for the 2020 nine-month period, as shown in the table above, differed from our projected annual effective tax rate of 59.3% due to certain discrete items. These discrete items decreased our effective tax rate by 38.9% for the 2020 nine-month period. For the 2020 nine-month period, our pre-tax loss included a $161.1 million goodwill impairment recognized in relation to the Specialty P&C reporting unit during the third quarter of 2020 which was the most significant discrete item that impacted our effective tax rate. Of the $161.1 million goodwill impairment, $149.6 million was non-deductible for which no tax benefit was recognized while the remaining $11.5 million was deductible for which a 21% tax benefit was recognized. Consequently, the total impact of the goodwill impairment on the effective rate for the 2020 nine-month period was approximately 38.7%. See further discussion on this goodwill impairment in Note 7 of the Notes to Condensed Consolidated Financial Statements. The remaining discrete items that affected our effective tax rate for the 2020 nine-month period were comprised of individually insignificant components.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We believe that we are principally exposed to three types of market risk: interest rate risk, credit risk and equity price 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 September 30, 2021 and December 31, 2020. 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
| September 30, 2021
($ in millions) | (200) |  | (100) |  | Current |  | 100 |  | 200
Fair Value: |  |  |  |  |  |  |  |  |
Fixed maturities, available-for-sale: |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | $ | 266 |  |  | $ | 254 |  |  | $ | 243 |  |  | $ | 233 |  |  | $ | 223 |
U.S. Government-sponsored enterprise obligations | 21 |  |  | 21 |  |  | 20 |  |  | 20 |  |  | 20 |
State and municipal bonds | 563 |  |  | 543 |  |  | 523 |  |  | 504 |  |  | 486 |
Corporate debt | 2,093 |  |  | 2,030 |  |  | 1,963 |  |  | 1,906 |  |  | 1,851 |
Asset-backed securities | 1,187 |  |  | 1,175 |  |  | 1,155 |  |  | 1,137 |  |  | 1,117 |
Total fixed maturities, available-for-sale | $ | 4,130 |  |  | $ | 4,023 |  |  | $ | 3,904 |  |  | $ | 3,800 |  |  | $ | 3,697 |
Duration: |  |  |  |  |  |  |  |  |
Fixed maturities, available-for-sale: |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | 4.60 |  | 4.51 |  | 4.41 |  | 4.33 |  | 4.24
U.S. Government-sponsored enterprise obligations | 1.82 |  | 1.78 |  | 2.68 |  | 2.90 |  | 2.89
State and municipal bonds | 4.57 |  | 4.43 |  | 4.30 |  | 4.23 |  | 4.23
Corporate debt | 4.13 |  | 4.09 |  | 4.06 |  | 4.04 |  | 4.00
Asset-backed securities | 2.06 |  | 2.02 |  | 2.46 |  | 2.75 |  | 2.89
Total fixed maturities, available-for-sale | 3.61 |  | 3.55 |  | 3.63 |  | 3.69 |  | 3.70

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| Interest Rate Shift in Basis Points
| December 31, 2020
($ in millions) | (200) |  | (100) |  | Current |  | 100 |  | 200
Fair Value: |  |  |  |  |  |  |  |  |
Fixed maturities, available-for-sale: |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | $ | 113 |  |  | $ | 110 |  |  | $ | 107 |  |  | $ | 104 |  |  | $ | 102 |
U.S. Government-sponsored enterprise obligations | 13 |  |  | 13 |  |  | 12 |  |  | 12 |  |  | 12 |
State and municipal bonds | 361 |  |  | 347 |  |  | 333 |  |  | 320 |  |  | 308 |
Corporate debt | 1,427 |  |  | 1,377 |  |  | 1,329 |  |  | 1,284 |  |  | 1,241 |
Asset-backed securities | 704 |  |  | 690 |  |  | 677 |  |  | 659 |  |  | 639 |
Total fixed maturities, available-for-sale | $ | 2,618 |  |  | $ | 2,537 |  |  | $ | 2,458 |  |  | $ | 2,379 |  |  | $ | 2,302 |
Duration: |  |  |  |  |  |  |  |  |
Fixed maturities, available-for-sale: |  |  |  |  |  |  |  |  |
U.S. Treasury obligations | 2.65 |  | 2.60 |  | 2.56 |  | 2.51 |  | 2.46
U.S. Government-sponsored enterprise obligations | 1.80 |  | 1.77 |  | 2.11 |  | 2.99 |  | 3.14
State and municipal bonds | 4.07 |  | 4.01 |  | 3.96 |  | 3.91 |  | 3.88
Corporate debt | 3.62 |  | 3.52 |  | 3.44 |  | 3.40 |  | 3.35
Asset-backed securities | 2.29 |  | 2.23 |  | 2.34 |  | 2.86 |  | 3.21
Total fixed maturities, available-for-sale | 3.27 |  | 3.19 |  | 3.16 |  | 3.28 |  | 3.34

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 September 30, 2021, 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 September 30, 2021 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 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 September 30, 2021, no borrowings were outstanding under our Revolving Credit Agreement.
Defined Benefit Pension Plan
We are exposed to certain economic risks related to the costs of our defined benefit pension plan, including changes in discount rates for high quality corporate bonds and changes in the expected return on plan assets.
Credit Risk
We have exposure to credit risk primarily as a holder of fixed income securities. We control this exposure by emphasizing investment grade credit quality in the fixed income securities we purchase.
As of September 30, 2021, 92% of our fixed maturity securities were rated investment grade as determined by NRSROs, such as Fitch, Moody’s and Standard & Poor’s. We believe that this concentration in investment grade securities reduces our exposure to credit risk on our fixed income investments to an acceptable level. However, investment grade securities, in spite of their rating, can rapidly deteriorate and result in significant losses. Ratings published by the NRSROs are one of the tools used to evaluate the creditworthiness of our securities. The ratings reflect the subjective opinion of the rating agencies as to the
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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 September 30, 2021, our premiums receivable was approximately $289 million, including receivables acquired in the acquisition of NORCAL and net of an allowance for expected credit losses of approximately $8 million. See Note 1 of the Notes to Condensed Consolidated Financial Statements 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 $494 million at September 30, 2021, including receivables acquired in the acquisition of NORCAL, and $399 million at December 31, 2020. 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 September 30, 2021 our expected credit losses associated with our receivables from reinsurers were nominal in amount.
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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 September 30, 2021. 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 operations, 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 30.6% of ProAssurance's total assets (inclusive of acquired intangible assets) as of September 30, 2021, and approximately 28.3% and 17.4% of ProAssurance's total revenue for the three and nine months ended September 30, 2021, respectively. 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 9 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, 2020 report on Form 10-K and other documents we file with the SEC, such as our current reports on Form 8-K. Other than as described below, there have been no material changes to the "Risk Factors" disclosed in Part 1, Item 1A of ProAssurance's December 31, 2020 report on Form 10-K.
The operations of the Company are dependent upon the security, integrity and availability of our internal technology infrastructure and that of certain third parties. Any significant disruption of these infrastructures could result in unauthorized access to Company data or reduce our ability to conduct business effectively, or both.
The Company is dependent upon its technology infrastructure and that of certain third parties to operate and report financial and other Company information accurately and timely. ProAssurance collects, uses, stores or transmits an increasingly large amount of confidential, proprietary and other information in connection with the operation of our business. Therefore, the Company has focused resources on securing and preserving the integrity of its data processing systems and related data. Despite the Company's efforts to ensure the integrity of its systems, ProAssurance is increasingly exposed to the risk that its technology infrastructure could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. As an example, ProAssurance is a customer of SolarWinds and has its software installed in the Company's information technology systems. When ProAssurance learned of the recent cybersecurity attack involving SolarWinds, it immediately isolated the SolarWinds system and conducted an investigation which revealed no unauthorized activity and no data breach. ProAssurance's IT department together with its security vendors regularly monitors the Company's systems for indicators of attack/compromise to mitigate the risk of cyberattacks.
The Company also evaluates the integrity and security of the technology infrastructure of third-parties that access, process or store data that the Company considers to be significant. While ProAssurance reviews and assesses its third party providers' cybersecurity controls, as appropriate, and make changes to the Company's business processes to manage these risks, there is no guarantee that measures taken to date will completely prevent possible disruption, damage or destruction by intentional or unintentional acts or events such as cyber-attacks, viruses, sabotage, human error, system failure or the occurrence of numerous other human or natural events.
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Disruption, damage or destruction of any of the Company's systems or data could cause its normal operations to be disrupted, or unauthorized internal or external knowledge or misuse of confidential Company data could occur, all of which could be harmful to the Company from a financial, legal and reputational perspective. The Company continually enhances its cyber and information security in order to identify and neutralize emerging threats and improve its ability to prevent, detect and respond to attempts to gain unauthorized access to the Company's data and systems. ProAssurance regularly adds additional security measures to its computer systems and network infrastructure to mitigate the possibility of cybersecurity breaches, including firewalls and penetration testing. However, it is impossible to defend against every risk being posed by changing technologies. The Company has a formal process in place for identifying, handling and disclosing of cybersecurity incidents. In addition, the Company's Board and Audit Committee are involved in the oversight of its cybersecurity policies and procedures and are continually updated on material cybersecurity risks and cybersecurity issues, if any, faced by executive management. To date, the Company is not aware of any material harm or loss relating to cyber-attacks or other security breaches at the Company or its third parties.
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)
July 1 - 31, 2021 |  | — |  |  | N/A |  | — |  |  | $109,643
August 1 - 31, 2021 |  | — |  |  | N/A |  | — |  |  | $109,643
September 1 - 30, 2021 |  | — |  |  | 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.
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ITEM 6. EXHIBITS

Exhibit Number |  | Description
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

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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

November 8, 2021

/s/ Dana S. Hendricks
Dana S. Hendricks
Chief Financial Officer
(Duly authorized officer and principal financial officer)

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