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Segment Information
 9 Months Ended
Sep. 30, 2021
Segment Reporting [Abstract]  
Segment Information 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.
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&CWorkers' Compensation InsuranceSegregated Portfolio Cell Reinsurance Lloyd's SyndicatesCorporateInter-segment EliminationsConsolidated
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 
Nine Months Ended September 30, 2021
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell Reinsurance Lloyd's SyndicatesCorporateInter-segment EliminationsConsolidated
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 purchase74,408 
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&CWorkers' Compensation InsuranceSegregated Portfolio Cell Reinsurance Lloyd's SyndicatesCorporateInter-segment EliminationsConsolidated
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 
Nine Months Ended September 30, 2020
(In thousands)Specialty P&CWorkers' Compensation InsuranceSegregated Portfolio Cell Reinsurance Lloyd's SyndicatesCorporateInter-segment EliminationsConsolidated
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.
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 30Nine Months Ended September 30
(In thousands)2021202020212020
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 
Other172 138 494 671 
Ceded premiums earned(18,240)(19,195)(52,526)(56,309)
Segment net premiums earned203,716 117,849 487,963 365,305 
Workers' Compensation Insurance Segment
Gross premiums earned:
Traditional business45,331 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 earned42,235 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 earned15,344 16,052 47,500 49,780 
Lloyd's Syndicates Segment
Gross premiums earned:
Property and casualty13,262 22,777 50,282 77,309 
Ceded premiums earned(2,309)(4,635)(10,019)(16,123)
Segment net premiums earned10,953 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.