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Reserve for Losses and Loss Adjustment Expenses
 6 Months Ended
Jun. 30, 2022
Insurance [Abstract]  
Reserve for Losses and Loss Adjustment Expenses 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. For additional information regarding ProAssurance's reserve for losses, see Note 1 and Note 10 of the Notes to Consolidated Financial Statements included in ProAssurance's December 31, 2021 report on Form 10-K.
Activity in the reserve for losses and loss adjustment expenses is summarized as follows:
(In thousands)Six Months Ended June 30, 2022Six Months Ended June 30, 2021Year Ended December 31, 2021
Balance, beginning of year$3,579,940 $2,417,179 $2,417,179 
Less reinsurance recoverables on unpaid losses and loss adjustment expenses451,741 385,087 385,087 
Net balance, beginning of year3,128,199 2,032,092 2,032,092 
Net reserves acquired from NORCAL acquisition— 1,089,103 1,089,103 
Net losses:
Current year(1)
411,397 350,252 797,732 
Favorable development of reserves established in prior years, net(2)
(24,304)(18,616)(45,483)
Total387,093 331,636 752,249 
Paid related to:
Current year(44,903)(32,346)(109,925)
Prior years(366,643)(282,713)(635,320)
Total paid(411,546)(315,059)(745,245)
Net balance, end of period3,103,746 3,137,772 3,128,199 
Plus reinsurance recoverables on unpaid losses and loss adjustment expenses469,116 484,059 451,741 
Balance, end of period$3,572,862 $3,621,831 $3,579,940 
(1) Current year net losses for the six months ended June 30, 2022 and 2021 and year ended December 31, 2021 included $4.9 million, $1.8 million and $6.7 million, respectively, of amortization of the negative VOBA associated with NORCAL's assumed unearned premium, which is being amortized over a period in proportion to the earn-out of the associated premium as a reduction to current accident year net losses (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K).
(2) Net favorable prior year reserve development recognized for the six months ended June 30, 2022 and 2021 and year ended December 31, 2021 included $5.8 million, $2.1 million and $7.9 million, respectively, of amortization of the purchase accounting fair value adjustment on NORCAL's assumed net reserve and amortization of the negative VOBA associated with NORCAL's DDR reserve which is recorded as a reduction to prior accident year net losses and loss adjustment expenses (see Note 2 of the Notes to Consolidated Financial Statements in ProAssurance's December 31, 2021 report on Form 10-K). ProAssurance has not recognized any development related to NORCAL's prior accident year reserves since the date of acquisition on May 5, 2021.
Estimating liability reserves is complex and requires the use of many assumptions. As time passes and ultimate losses for prior years are either known or become subject to a more precise estimation, ProAssurance increases or decreases the reserve estimates established in prior periods. The consolidated net favorable loss development recognized in the six months ended June 30, 2022 primarily reflected a lower than anticipated loss emergence in the Specialty P&C segment, primarily related to the 2018 through 2021 accident years. The net favorable development recognized in the Specialty P&C segment also included a
$3.0 million reduction in the Company's prior accident year IBNR reserve for COVID-19 during the second quarter of 2022 as early first notices of potential claims related to anticipated COVID losses have not turned into claims. The 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 accident years 2017 and prior. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment is primarily related to accident years 2019 and 2020. Net favorable development recognized during the six months ended June 30, 2022 was net of an increase in the Company's reserve for potential ECO/XPL claims of $4.0 million in the Specialty P&C segment. Consolidated net favorable loss development recognized in the six months ended June 30, 2022 was partially offset by unfavorable reserve development recognized in the Lloyd's Syndicates segment driven by certain catastrophe related losses.
The net favorable loss development recognized in the six months ended June 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 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 and prior accident years. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment is primarily related to the 2018 and 2019 accident years. Consolidated net favorable loss development recognized in the six months ended June 30, 2021 was partially offset by unfavorable reserve development recognized in the Lloyd's Syndicates segment driven by certain property and catastrophe related losses.
The net favorable loss development recognized for the year ended December 31, 2021 primarily reflected a lower than anticipated loss emergence in the Specialty P&C segment, primarily related to the 2015 through 2020 accident years. Net favorable prior accident year reserve development recognized in the Specialty P&C segment also included a $1.0 million reduction in the Company's IBNR reserve for COVID-19 during the third quarter of 2021. The net favorable development also reflected overall favorable trends in claim closing patterns in the Workers' Compensation Insurance and Segregated Portfolio Cell Reinsurance segments. The net favorable loss development recognized in the Workers' Compensation Insurance segment is primarily related to the 2012 through 2017 accident years. The net favorable loss development recognized in the Segregated Portfolio Cell Reinsurance segment is primarily related to accident year 2015 and accident years 2018 through 2020. Consolidated net favorable loss development recognized in 2021 was partially offset by unfavorable reserve development recognized in the Lloyd's Syndicates segment driven by certain catastrophe related losses.